How do I bought house?

February 23, 2009 6:57 PM

Help us start to look for a house?

My girlfriend and I are taking the bad economy in stride and have decided that it may be time for our first house, rather than continue to throw money down on rent.

Thing is, we have no idea where to start. We're in New Jersey and aware that we get a first-time home buyers grant, but we have questions. Like, do we both get one or just one because we're buying a house together? Also, we've heard that if you buy a house this year, you'll get an $8k credit on your taxes next year. True?

We're not sure if we want to use a realtor, but I think it'd probably be a good idea, right?

I know that we should be asking a professional for help (though I'm hoping one of you is a professional.) Who do we ask these sorts of questions to, besides a nebulous internet?

Help, MeFi, how do I bought house?!

posted by InsanePenguin to home & garden (13 comments total)

I'm buying my first house and my realtor suuuucccckkks. I suggest asking a lot of people for recommendations and also interviewing a few and making sure they are willing to work (really work) for a first time buyer at the lower end of the commission scale. Mine is not.

Also look into the local practices and state laws for "hiring" a realtor and know exactly what kind of relationship you are getting into with them. I need to find a legal reason to fire mine because of his extreme suck-age. Because I never signed an exclusive contract with him and because he's given me the incorrect info several times in writing it shouldn't be too hard. Communicate with your realtor via email regarding things like disclosures and conversations he/she has had with the seller and other agents so you have a record. Do NOT agree to a double agency if it's legal in NJ.

OTOH my mortgage brokers are gems, wonderful people. They go over everything with a fine tooth comb and are super helpful in dealing with the whole process. They were totally willing to work with me extensively for what will not be a lot of money and did not try to push anything at all. They came very highly recommended.

Finally there are a bunch of ground rules regarding what is and is not able to be financed under the various loan types- construction types, land types etc that you should get familiar with because it will save you a lot of time. Your broker, agent or friends who've bought houses can tell you some of these rules, some you will have to find out the hard way.

And yes the up-to-$8K credit is real. Details are on the IRS website or call and talk to one of their helpful reps.
posted by fshgrl at 7:09 PM on February 23

mefi's own desuetude recommended the book "Homebuying for Dummies" to me when we were buying our first house, and it was a great recommendation. Your local library has copies. Get it and read it, and then you'll have a better framework for knowing what questions to ask. It covers the financial end of things very intelligently.

We have been happy to have a *great* realtor ("buyer's agent"), who we found through a colleague's recommendation. To know what you need in a realtor (so you can interview more realistically), get a book that walks you through the various decisions you'll face in looking to buy.
posted by LobsterMitten at 7:17 PM on February 23

Home Buying for Dummies
posted by LobsterMitten at 7:19 PM on February 23

If you get a realtor (which I personally think you probably should, as you don't really know what you're doing), make sure that you understand the difference between a buyer's agent, a seller's agent, and a dual agent.

After you are sure that you understand that, furthermore make sure that your realtor is acting solely as a buyer's agent in all of your interaction with him or her.
posted by Flunkie at 7:33 PM on February 23

rather than continue to throw money down on rent.

Writing the rent check each month is a lot easier for me when I seeing the kind of house I want to buy decline by several thousand dollars each and every month.

Free rent, if you will. I don't know where the prices will reverse at, but until I see 2000-era pricing again I'm not going to be rushed into the market. We're only about halfway there, LOL.

but I think it'd probably be a good idea, right?

I'm no expert but IMO a (VERY good) buyer's agent is generally a VERY good idea. Theoretically you can gain about 3% in negotiating power by running your side through a real estate attorney for a fixed fee instead of the buyer's agent's customary 50% cut of the agents' commission, but this might add some friction to the deal.

YOU are the buyer bringing gobs of cash into the deal so YOU are the one paying everybody involved so you are perfectly free to limit who & what you pay. If the seller and his agent doesn't like the deal you've offered then they are free to wait for another offer.
posted by troy at 8:09 PM on February 23

Here are a couple of webpages to get you started - though I would recommend getting a book that lays the whole process out clearly.
Basics of buying a house
Renting vs buying

The first thing you want to do is figure out if there are basic reasons why you should continue to rent for now -- most importantly, are you likely to need to move in the next five years or so? If so, renting is probably better. Is your income recession-vulnerable? If so, renting is probably better. It costs a bunch of money to sell a house (eg realtor commissions, though that isn't the only cost), so if you have to sell too quickly you will lose money. To break even on selling a house, you need the value of the house to rise enough to cover the transaction costs. To profit, you need the value to rise even more.

If you decide it is a good time to buy, you want to look at your household money situation. Two main items here, assuming you have good credit:
1. How much cash could you put into a down payment up front? (20% of the sale price is a traditional standard, but there are ways to get loans that require less)
2. How much can you afford as a monthly housing payment? If your current rent is manageable that can be a baseline. Just as a rule of thumb, your monthly payment shouldn't exceed, say 35% of your monthly income. (Your monthly housing payment -- what would be your rent -- will need to cover not only your mortgage payment but taxes, homeowner's insurance, and other misc costs.) There are online calculators that will let you get a rough sense of what size of mortgage you can afford, given your down payment and your permissible monthly payment. This gives you a sense of how what house price range you can look in.

Real estate web sites (realtor.com, zillow.com, etc) let you search by price and by other factors (number of bedrooms, bathrooms, zip code, etc). Once you have a ballpark sense of your price range, look online and start to think about what factors are on your "must have" vs. "nice to have" list. Maybe you care a lot about walkability, but not at all about having a yard -- or vice versa. This brainstorming will get you ready to meet with an agent.

The $8K federal credit is good on purchases made until Dec 1 of this year, so you don't need to rush. (It's $8K if you're married filing jointly)
posted by LobsterMitten at 8:21 PM on February 23 [2 favorites]

LobsterMitten is right on.

First, a minor correction to Troy's comment- The seller pays all the commission out of the proceeds of the transaction. The commission is part of the contract between seller and the listing agent. It's not your concern. All you need to do is figure out what you're willing (and qualified) to pay. This is where a good agent is helpful.

Don't jump unless you really, really like both the house and the location. When the market is where it is, you must expect that it will be very difficult to sell if your situation changes.

I just want to add a little more commentary to the cost of selling a house. Typically, 5% goes to the two agents. There are other expenses that arise with a sale. The value has to go up significantly better than 5% simply to break even on the original purchase price. This assumes that house has no physical problems that need repair. Also, it doesn't include the recurring expenses of ownership (potentially $200 to $300 a month over renting) or the time value of money. Any experienced person will tell you not to sell too soon. You should get used to the idea that you may need to hold on to the house 5 years minimum, and probably 10, to be safe.

It's better to buy a house because you really want one. It's gonna be awhile before it's investment heaven.
posted by Carmody'sPrize at 10:27 PM on February 23

Thanks for all the comments, everyone. We're looking to buy because we want to, not as an investment, and a move in the next couple years is doubtful. We've preordered the newest edition of Home Buying for Dummies and gotten the current one out of the library.
posted by InsanePenguin at 3:17 AM on February 24

I may have missed it in other posts, but I'll re-emphasize that you want to begin with a clear understanding on how much house you can buy. Mortgages are not as easy to obtain now as they were a year ago and the banks are pretty nervous about risks. Get pre-approval to give yourselves a price point. Don't be tempted to look at houses above that point unless your broker thinks you can leverage a really lower bid.

Do not attempt this without an agent. Preferably a buyer's agent.

Get out and look at lots of houses. Volume really helps you form opinions and draw out what things you like in a house. Open houses are a good idea because you can do a 'hit and run' without making appointments with home owners and brokers.

Finally, get educated on home repair - furnaces, AC units, plumbing, electrical panels. Do you know what to ask and look for when you 'kick the tires' of a house? A little knowledge could save you thousands and years of headaches. Enjoy.
posted by birdwatcher at 3:59 AM on February 24

A buyer's broker isn't very useful, beyond making appointments to see houses that are listed by other brokers.

In the big picture, because they are also all seller's brokers (for the house you're looking at -- dual brokerage, or other houses), and they remain focused on getting and keeping listings, they continue to be complicit in seller's delusions about the specialness of their property and their community, which leads them to have unrealistic asking prices and to turn down realistic offers unless the seller's back is completely against the wall (or they are unusually perceptive).

In the details, because they are, all too often, both lazy and incompetent, you are going to have to do all of the following work yourself, even with a buyer's broker: accurate comparable sales, accurate comparable listings, quality and (more importantly) direction (getting better or getting worse) of schools, traffic, transit access, etc., whether supply can go up or down (very important for condos and exurbs, less so for fully built suburbs), whether lots can be subdivided, how big a house can be rebuilt on your lot (a key factor in projecting land valuation), applying and qualifying for a mortgage other than the most simple of conforming conventional loans, etc.
posted by MattD at 4:46 AM on February 24

I'm going to echo what others have said about the importance of the agent. You need to find an agent that your gut tells you to continue working with. When we first started looking, we told the agent that we were ok with fixer uppers but we had to live there so we needed to have at minimum a working kitchen and bathroom. I kid you not, the first three places that the agent took us to were not habitable, and one of the places was half-burned down. And it only got worse from there. He kept telling us that this is what we would see for what we could afford, despite having done the research ourselves. We got out of our contract and found a new realtor and it was a dream. She listened to us, she took us to many, many properties in our price point and only slightly above it to give us perspective, she continued to listen to us and took notes on our comments on the houses we viewed. She accomodated our schedule as much as she could, and she continued to listen to us. She told us going in to places that she wasn't expecting us to like certain things but she wanted to get our reaction to other things we had expressed a desire for. In the end, she found us the perfect house for what we wanted/needed, and was our advocate through the whole thing, even liaseing with our mortage people when they were being difficult. Is she the exception? I don't know because we only had the experience with the first fool. But if the realtor does not listen to you and ignores the feedback you give, then this is not the right person for you.
posted by archimago at 5:51 AM on February 24

After picking out a good realtor, picking a good lender is your next (perhaps equal) priority. Start getting all of your paperwork and finances in order right now. Start the pre-approval process with several banks - you'll get a feel for each of them as you work through the process. My wife and I were surprised at how unresponsive a credit union we belong to was when compared to a local bank where we didn't even have an account.

Talk to your lender about whether or not the area you are looking in is being ticked off by their appraisers as a 'declining market'. If it is (and it probably is), then that's a game changer for a lot of mortgages, especially when dealing with things like condos and the like. Our purchase was almost derailed by this as our new house is technically a condo (blame old-timey New Englanders) which would then require more money down in a declining market. Luckily, because we had chosen a decent lender who was willing to work with us and pay attention to this sort of thing, we were able to get into a different loan product and actually ended up saving 45$ a month or so.

Do you have access to a scanner and/or fax? A scanner has made the paperwork end of things 100% simpler when it comes to coordinating between our agent, our lender, our lawyer (get a lawyer - your lender and realtor may have recommendations), and the seller's realtor and lawyer. The paperwork is pretty daunting, but take your time and ask a lot of questions and you should be fine.

You will feel like everyone has their hand out for some sort of pay-off. They do. Keep this in mind when figuring out what you can afford. You will likely be able to get some cash back at closing from the seller (there's a cap for this) to help pay off closing costs, pre-paids, and points. This is great, but it does take away from any cash back you might want to fix stuff up. You'll need cash on hand for the home inspection (get one), to lock in your rate, to pay the appraiser, and so on.

We got our realtor through ZipRealty. While she is a bit of a flake, without her we would not have found the house we're on track to close on the 13th. ZipRealty also gives cash back at closing, but that's everywhere except New Jersey, so that might not help you much.

All told, we'll be spending maybe 100$ more a month than we pay in rent for twice the amount of space. Even if the market dips more in the next year, I'm fine with that. We'll likely be in this house for 5-10 years so will hopefully see some value come back.
posted by robocop is bleeding at 5:59 AM on February 24

Get pre-qualified for a loan by a bank. Check out your credit union; my loan was at a great rate, and they kept the loan servicing, which made life easier.

Shop. Go to open houses, go on home tours for houses that are outside your range. look at foreclosures. Cruise neighborhoods. Check out Zillow.com, realtor.com, this article, and msn.com often has pretty good real estate articles.

Shop some more. Don't let any realtor rush you or pressure you. Feel free to break up with any realtor that is difficult to work with, pressures you, etc. You should start to understand what you want. Ask every real estate professional you meet who they hired to do their home inspection. Before you buy a house, you want the fiercest, most bad-ass inspector of all time to find every possible thing wrong.

(For complicated, yet boring, reasons)I got an appraisal independent of the bank, and used that appraisal to get the price reduced. I had asked the bank for their appraiser, so was able to use that appraisal for a loan, but it would have been a good investment even if not.

Your choice of neighborhood is a major factor. If you get serious about a house, check out the neighborhood at different times of day. Check out schools and crime.

When it's time to make an offer, negotiate hard. There are a lot of houses for sale, and a lot of uneasy sellers.
posted by theora55 at 9:39 AM on February 24 [1 favorite]