Friday, August 11, 2017

Buying A House

Buying A House

A Collection of Tips

  • Try not to stress. It is expensive, it is complicated, and it is the biggest purchase you will make in your life. It is easy to stress. Stay calm, people buy houses every day, and you have advisors to handle all the paperwork. At the end of the day, make sure you trust your advisors, and feel comfortable with the house itself.
  • You are going to sign a lot of paperwork. I’ve never read it all. It is mostly boilerplate. I probably should have read more of it. If you trust the people you are dealing with (real estate agent and finance person), and you have done your homework on the house you are getting (inspections), you should either feel comfortable, or not comfortable. If you do not feel comfortable or you feel pressured into something, just say no. If you feel comfortable, and you trust your advisors, then do not stress.
  • Every home has something wrong with it. Every wood home in California has termites. When you have your home inspection done (you need to hire your own inspectors, it is not that expensive and it is routine, they will find problems. The only question is are any of the problems really bad (electrical wiring is unsafe, etc.).
  • Because no house is ever going to be perfect, you are going to have to make some compromises. But do not make big ones. You are going to live in this house for a very long time — you need to be happy there. You may want to make a list of what is important to you, prioritize, and compare. You can always change the wall color or the flooring, or replace the toilets and fixtures. But it is hard and expensive to add another bedroom.
  • Renovations. It is a lot easier to replace flooring and paint walls before you move furniture into the house. If you do plan to do any renovations, you will want a time buffer (a week?) between close and when you move into the house.
  • If you have accumulated any amount of furniture at all, you are better off hiring movers than trying to do it yourself. You can box everything up yourself, but hire movers to transport the boxes and move the heavy furniture. It is just not worth it to do it yourself if you have a house full of stuff.
  • You likely will not understand your mortgage closing statement. I am a lawyer who works in finance. I cannot understand mortgage closing statements. I am convinced the format is made purposefully confusing to hide things. Make your agent explain everything to you, and just realize that things like “title insurance” and “escrow fees” and “recording fees” such are basically just … borderline scams. But they are required, and it is part of the process.
  • Owning a house is more expensive than just the mortgage payment. Property taxes are a lot, and they come twice a year, so you have to budget for it. You may also have HOA dues, and you will have insurance. You will also probably have to buy some furniture and appliances. It is not cheap, but those are one time expenses. I made a list of what I needed to buy (everything from a refrigerator to a BBQ set), and prioritized. Some of the things I still have not bought — it just was not that important in the end. Do not go cheap on appliances — you are going to have your fridge and washer/dryer for 10–15 years or more … get good stuff.
  • Do not skimp on insurance. If something happens, you want your insurance company to give you a new house. Not write you a check for the depreciated value of the contents. You want a new house with new contents (“replacement value”). And smoke detectors in every room, including the garage. Safety is important. If it is a 2-story house, you need escape routes for the kids (i.e., those ladders you throw out the window so you can climb down, if the main staircase is blocked).
  • Check out the neighborhood at various times of the day/night. I parked my car near the place I was considering buying, at 9pm to check out the noise levels at night. Is there plenty of lighting at night? What is the neighborhood like? How far is freeway access, and what is the traffic like getting to the freeway access points? Where’s the nearest grocery, drugstore, and Target? Do the neighbors seem ok?
  • Before you move any furniture in, make a video (cell phone camera is fine) of every room, and every wall. That will record where the outlets are, in case you cover any up with furniture. Once you are moved in, make another video of every room and every closet. Do this once a year. It is useful for insurance purposes should anything happen.
  • Set an annual reminder to do some basic annual home maintenance (I do mine every Thanksgiving): Replace the furnace air filter, replace the water filter in the fridge if you have one, replace the batteries in the smoke detectors, paint touch-ups, etc.
  • Secure, hidden keys are useful.
  • Keyless entry for the garage door is also handy.
  • Real estate agents are questionable. I have yet to be impressed by any real estate agent. I have found it best to do your own searching for houses (Zillow, MLS Listings), use the agents to get you into the house, and handle the paperwork. Even with handling the negotiations, it isn’t clear to me that they work for me — they are paid as a % of the purchase price, so they do not have an incentive to drive the price down.
  • You also want a good mortgage person. If there is ever a problem in buying a house, it is with getting the mortgage funded. Since there are only about five banks left in the United States, you can work directly with your favorite bank, no need to use a mortgage broker.
  • Since you will probably own the house for a long time, and interest rates are at record lows, a 30 year fixed rate mortgage makes a lot of sense. The variable rate mortgages have lower initial interest rates, but obviously interest rates are going up not down long-term.
  • If the offer gets accepted, you are on the hook. There are “outs” (contingencies) if the inspection turns up a bad problem, or you cannot get financing. Otherwise, you are on the hook if the offer is accepted. In a hot market the agent might urge you to “waive the contingencies” — to make your offer more attractive. I would not be keen on doing that. I would want an “out” if the inspection turns up bad. Unless they have already had the place inspected and the report looks trustworthy. Otherwise if you do withdraw your offer after it is accepted there is a penalty amount (the amount of your deposit that you have to commit to when you make the offer).

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