Blunt Money

I remember the day I first considered buying instead of renting. I was sitting on the floor of the 1-bedroom apartment my then-husband and I shared, looking at the free newspaper I’d snagged from the laundry room. We’d just received notice that our rent would be going up, and so I was looking for somewhere to live that might be more affordable. One ad in particular caught my eye. “Cheaper than rent!” it proclaimed. I doubted that it could really be true, but gave it a read anyway.

It turned out to be an ad from a real estate agent who offered to help buyers bid on HUD homes that had been foreclosed on. I gave her a call and she quickly determined that yes, we probably could afford something, and that yes, that something could in fact be cheaper than rent.

(That happened to actually be true in our case, but of course it depends on individual circumstances. Just because someone SAYS you can afford something doesn’t mean that you really can.)

So we started our home-buying journey, even though I was completely clueless about the process.

Here are the things I learned:

You need a down payment. In our case we qualified for an FHA loan, which required 3% down. Since our loan amount was ridiculously small, that wasn’t very much at all. (People pay more for CARS now than we did for that condo.) A more traditional down payment would be 20% down.

You need money for closing costs. These can be tricky to pin down until the very last minute, and are almost always MORE than you’d expected. 3-5% of the purchase price is a pretty typical amount. Sometimes the seller will pay all or part of these. It doesn’t hurt to ask.

You need good credit if you want to get a decent interest rate. (And you want to get the best interest rate possible.) This means that you should check your credit reports (at annualcreditreport.com) to be sure there are no errors on them. You should also pay your bills on time and in full for a long period of time so that you don’t have any black marks on your report.

Shop around for a good mortgage. Do this within a short period of time so that all the dings on your credit are lumped together. Don’t be afraid to negotiate. Not all mortgages are created equal. Be sure you understand exactly what you’re being quoted and what the quote applies to, especially if the rate you’re quoted seems MUCH better than the other rates you’ve gotten.

There is a lot of paperwork involved. You should READ and be sure you UNDERSTAND it all before signing. Don’t take the word of your Realtor or mortgage broker as to what the paperwork means. They may mean well, and they may be completely honest, but they are also not the people who wrote those documents or who will be signing them. Plus they have a vested interest in the process. Talk to a lawyer if you have questions, or at least consult a variety of sources that don’t have an interest in you obtaining a loan or buying a house. Also, be sure the paperwork that you do sign is correct. I’ve yet to sign a mortgage that was 100% correct at first. (And I’ve signed quite a few over the years.)

An emergency fund is an essential component of owning a home. (You need one anyway, but you especially need one if you’re planning to be a homeowner.) Owning a home brings with it a horde of accompanying expenses that you might or might not have thought of: deductibles when part of your roof is ripped off by a freak wind, service calls when the water heater springs a leak, increased water bills due to the many gallons of water that leaked down your driveway for an entire day, etc.

Your general expenses are likely to increase. These include things like insurance premiums, property taxes, PMI if you didn’t do a conventional loan, HOA fees that can be raised annually, special assessments, higher heating & cooling bills (since most people buy larger places than they rent), replacing old appliances, buying new furniture to go with the house, maintenance (paint, carpet cleaning, lawn care), improvements (new windows, new flooring).

Hope for the best, plan for the worst. You need to be sure you can afford those planned and unplanned expenses WITH money leftover in case you’ve underestimated. (Or in case you’d like to have a life outside your home.) This means that you need to have a decent job with prospects for increases in salary as time goes on. You also need to have your debts under control, and to be managing your money wisely.

There is nothing urgent about buying a home. Prices go up, and prices go down. There are always bargains to be had if you’re patient enough. There is no such thing as the perfect home. Just be sure you get an inspection, and be prepared to let the house you’re looking at go if the inspection does not go well. If you feel an almost panicked urge to buy, that is probably exactly the WRONG time to buy.

Location location location really is extremely important. Be sure you are buying in a good location. Don’t buy the nicest house on the block. Check out the school district, even if you don’t have kids. Visit the neighborhood at different times of the day & night before putting in an offer. Talk to the neighbors if you feel comfortable doing that. Compare crime statistics (usually available online or from the police department) with other neighborhoods that you can afford. If you’ll have an HOA, be sure you agree with all of the bylaws. It’s a lot easier to leave a rental than it is to sell a house, so be sure it’s an area you feel comfortable with.

With all that said, the home-buying process is not as intimidating as it seems. There will be plenty of people willing to help you through it, and at the end of it all you’ll have a house that you can make a home. (A house that may even add to your bottom line as the years go by.)

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