Sean’s Blog

This week, we will have owned our house for 6 months. I have been really happy with both the house we bought and the actual decision to go ahead and the the plunge. Over the course of these last six months I have learned a lot. I thought it would be a great idea to share some of the things I learned for those of you that are considering buying a house or have just purchased one.

That being said, I could give the best advice in the world (or the worst) and (if your like me) you’ll still need to actually figure it out for yourself. So without further ado, here are some of the really important things that I learned from owning a house for the past 6 months:

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Here’s a round up of the housing posts that I’ve put up recently:

1. Buying a House - An Introduction

2. Buying a House - Getting a Preapproval

3. Buying a house: The house hunt

4. Buying a House - Making an Offer

5. Buying a House - Acceptance

6. Buying a House - The House Inspection

7. Buying a House - The Remedy Phase

8. Buying a House - Backing Out

9. Buying a House - Closing

10. Buying a House - Final Thoughts

I thought I would sum up what I’ve learned over the course of the whole house buying process:

• Although I am sure it is possible to do, I would personally not recommend buying your first house without an agent.  They are payed by the seller (the sellers agent and your agent will split the commission) and can be extremely helpful.
• I cannot stress enough how important it is to find an agent you that you like and is knowledgeable.  You will be spending alot of time dealing with this person so you should be comfortable around them.
• A good home inspector is worth their weight in gold.  They can save you from buying something that you are totally unprepared for.
• You may fall in love with a house, but remember it is also an investment so treat it as such.  Don’t let emotions cloud your judgment to the point you do something that will burn you in the future.
• Have a budget and stick to it.  You need to know where your money is going during this whole process.  There are going to be alot of things that pop up so it is easy to overextend your budget.
• Make sure you understand the terms of your loan.  This is the biggest investment you are going to make so you should do your research.
• You may want to get a real estate lawyer (some states require this).  This would be a person that solely works for you and has no financial stake in the deal.  You usually can find one that works for a flat fee.
• Don’t move in broke.  I know it is easier said then done, but you are gone to need alot of stuff.  Things you never even think of coming from an apartment.  Like a rake.  And furniture.

Hopefully everything from the rememdy phase gets resolved without a problem and there is no need to back out of the deal.  When everyone agrees what needs to be done you are almost ready to close.  Usually the date for the closing will be se during the initial negotiation.  A day or two before the closing you will want to do a final walkthough and make sure that everything that was supposed to be fixed was, as well as no new issues have popped up while the sellers were moving out.
When the actual date of the closing happens you will go to a title company and sign ALOT of papers.  The sellers will be there and will sign their portion of the papers as well.  Your lender or agent should have let you know exactly what you need to bring to the closing (money (in what form as well, ie certified check, etc), identification, other papers).  Assuming it was not specified differently, you will get the keys afterwords.  Welcome to the wonderful world of home ownership!

So what happens if the home inspection turns up something big and you and the seller cannot come to an agreement on how to fix it during the rememdy phase.  I’ll give you an example.  We made an offer on a house and it was accepted.  During the open house and during our walkthrough with our realtor the detached garage was locked.  When we had the home inspection we specifically asked the owners to make sure the garage was open.  They said that they kept alot of camping equipment in the garage and that was why it was locked.
When we came for the home inspection, the garage was open.  The problem was, the front support columns had been eaten out by termintes, the main roof supports had been burned in a fire, and the back was knocked off the foundation.  Our inspector said the whole thing was structurally unsound and it would probably be cheaper to tear it down then to fix all the structural damage.
We got one estimate on what a new garage would cost and sent them the estimate to see if they would escrow the money.  The cost seemed a bit high to us, so we also told them if they would like to get several more estimates we would be willing to see them.  The sellers came back and said they did not want to get estimates and they would take $600 off the final price.  The estimate we got was $25000.
After several more go rounds it became apperent that the sellers were not going to meet us even half way on the garage issue.  So that left us with 2 choices.  We could buy the house with the garage issue, knowing that we would have to invest a considerable amount of money to fix it.  Or we could walk away.
We eventually decided that purchasing the house would not be in our best intrerest.  We did really like the house, but there was no way we could afford to replace the garage without a majority being paid by the seller, and even if we could afford it, it added very little value to the house since it was being sold as a house with a garage.  So we asked our agent to draw up what was needed to walk away, which we did.
Things I’ve learned from backing out:

• Sometimes honest attempts just do not work out.  If you’ve made an honest attempt to rememdy everything you should not be upset or feel guilty walking away.
• A house is a home, but is also an investment.  Even if you love the house sometimes it just does not make financial sense to complete the transaction.
• Money off the loan is not the same as money in escrow.  Even if they knocked $20000 off the price of the house I would still have to come up with $20000 dollars to make the garage serviceable.
• If you put up ernest money, you may have to wait for a period of time to get it back or even forfiet it depending on the terms of the agreement.  Talk to your agent about the ramifications.

Now that you have the report from the home inspector, it is time to request the remedies.  You will need to go through the inspection report and figure out what you think needs to be fixed.  You could ask for everything to be fixed, but there is little chance that that will be accepted.  The remedy phase is as much a negotiation as the purchase phase. What were were advised is to get ask for the money to be escrowed for any major work to be done.  This will allow you to do quality work where as the owners might (and I stress might) just do the quickest and cheapest solution to get the problem fixed.  Allowing the money for repairs to be escrowed will allow you to have final say over how it is done.  Work it just like when you were negotiating the purchase price.  There should be things that you you need to be fixed to have the sale concluded.
Things I’ve learned from the remedy phase:

• The sellers are not legally obligated to fix anything, but you are not obligated to continue the transaction of there is something materially wrong and you and the seller cannot agree on the remedy.
• The negotiation for remedy will work just like the purchase negotiation.  You’ll ask for somethings to be fixed (or money escrowed) and they will suggest what they are willing to fix or what they are willing to give and back and forth.
• For major things, be prepared to have to get several estimated submitted to the sellers.

First off, you NEED to get a home inspection before you complete the sale of a house.  Even if everything looks in good working order you need to get one.  This will save you tons of headaches and keep you from getting into something that you are completely unprepared for.
Your agent should be able to recommend a home inspector, or you could get recommendations from family or freinds from one they really liked.  In my limited experience most home instectors are professionals, but there are several things you will want to ask.  You need to find out if they will have you along on the day of the insection.  It may take a couple hours, but this is something you will defitely want to do.  You will find out alot about the house you are going to buy during this process.  They should be able to quote you a price depending on te size of the house, and how old it is as well.  You’ll need to pay this up front (ie after the inspection), so have the money ready when it happens.
You’ll also want to make sure the inspector gets up on the roof, goes into the attic and takes a look at the garage (depending if the house has an attic or garage).  The housing inspector should then provide you with a report with all the major and minor things that they have found.  You will use this report to request rememdies from the seller before the house closes.
Things I’ve learned during the home inspection:

• A good home inspector is well worth his or her fee.  They will find things you never knew to look for.
• They should be able to explain things if you do not understand.  For instance, I don’t know much about breakers and wiring and the inspector took the time to explain exactly what he ment when he found something.  This is another benefit of being there during the inspection.
• Make sure they differentiate what NEEDS to be fixed from what SHOULD be fixed.
• The inspector can’t report what they can’t see.  If a garage is locked, or there is something behind a wall or ceiling panel it may get missed.

Now that everyone has agreed on the major terms you are pretty well on the way to owning a home.  What you need to do now is get ahold of your lender with the final terms and price and sign the paperwork. Your lender will be able to explain pretty much everything.  Some of the things will be confusing.  I’ve had to take ALOT of math, and my head was spinning with numbers when she finished going through everything.  If there is some part of what she was talking about that you do not understand, have the lender go over it again.  This is one of the most important documents you will ever sign, so take the time to really get to know it.
After everything is signed you will be given a list of documents needed for the lender to finalize the loan (if you haven’t provided them already).  For me these included things like bank statments, investment statements (401(k), etc), several years worth of W-2, etc..
They will then schedule an appraisal (which they will let you know the outcome of after it happens) and provide you with wat you need to bring to closing.  You will also need to get insurance and schedule a house inspection.

So now you’ve looked at a bunch of houses and you’ve found one you really like.  Now comes the money part.  You’ve already got your preaproval from the bank, so you know the maximum limit you CAN spend.  What you need to do do now is sit down and figure out what you will be willing to pay FOR THIS PARTICULAR HOUSE.  Take any work you are aware of into account.  The house we made an offer on needed a halfbath on the first floor, so going in, we new we were going to be looking at dropping between 6 and 10 thousand dollars.  This affected how much we were willing to pay.
Try to get a feel for how the house is priced.  Your agent should be able to pull a list of “comps” or comparable houses that sold recently in the same area, of the same condition and what was payed.  Now you should have an idea of the fair value of the house.  It will now be your job to get the lowest price for the house while the seller will try to get the highest price.
There are many schools of thought about this and it is really more of an art then a science.  You want to get the lowest price, but if you offer to low a price (ie “lowballing”), the seller may not even respond to the offer as it wouldn’t be worth it for them.  Once you an offer, you will submit it though your agent, They will usually then submit a counter offer and you can accept or counter that offer.  Hopefully the end result will be a price you are both happy with.
Things that I’ve learned when making an offer:

• Generally there will be a counter offer so take that into account when making your initial offer.
• Asking for closing costs is generally expected, but it doesn’t always mean that they will be included in the final acceptance.  So make sure you apy attention to them when getting an good faith estimate from your lender.
• When your agent writes the offer letter (if you ask for closing costs to be paid) make sure they phrase it for $X dollars to be paid toward closing costs, fees, etc…  This means that if your closing costs are $2000, and you asked for $3000 in closing costs you can use that leftover money to pay for other fees, buy down the rate, etc.
• If you have $1000 left over from the closing costs (like in the above example), most lenders and possible state laws will not allow you to get that money as cash, so make sure you can put it toward something (points, fees, etc).  Your lender will be able to help with this.
• This will generally happen pretty fast, so don’t go out of town or anything during this time.
• Most importantly, remember.  You are in control.  You are not legally obligate to do anything, so if the seller will not meet your price or requests, you can walk away.

Back when we started to get into the whole house buying process, I attempted to blog the thing as it happened.  Obviously it didn’t work like that.  But I though there was some value in the whole endeavor.  Alot of the questions I had got answered during the process and hopefully sharing some of my experiences can help someone else out.
A couple of important disclaimers:  I am not a lawyer, realestate agent or professional.  I know very little about finances and none of this advice should be taken as gospel.  I am just providing this in order to share some of my experiences as we bought a home.
Just to get back on track, I’ll start things off by linking to my first posts about the subject.  Look back in the next day or two as I update this series a bit more.

•  Buying a House - Getting a Preapproval
•  Buying a House - The House Hunt