Where can I find all the knowledge I would ever need for buying a house?

June 28, 2011 1:28 PM

I know I'd like to buy my first house in the next five years. Help me learn as much as possible before I get to the point where I'm ready to do it!

I'll keep this short and sweet: Please recommend books to help me learn everything I need to know about buying a house--by the time I am in a place where i can actually do it, I'd like to already be an expert (because at this point, I don't think it's possible to know any LESS than I currently know!). I've already checked this out, but I'd like some expert perspective in addition to opinions. I'm thinking something along the lines of "Home Buying for Dummies", but there's gotta be something out there better than that (but if that's worth reading, let me know!) Books are preferred, but if there are some legit web resources I'll take those too. Here are the circumstances, in case you want to get specific with suggestions:

- Late 20's
- In a long-term relationship heading towards marriage
- In Sacramento, CA and would like to stay in the area
- Both parties have secure employment, one has about 10k in an IRA and the other could save up that much in the next 5 years if need be

Can't think of any other details to add right now, but just ask if ya need to. :) Thanks in advance all....

posted by lovableiago to home & garden (19 answers total)

I found Michael Bluejay's site to be insanely helpful for the mechanics of securing a mortgage lender, closing on a house, and estimating the total money needed for a downpayment plus closing costs.
posted by muddgirl at 1:31 PM on June 28, 2011 [1 favorite]

You don't need 5 years to to read a few books and learn about homebuying, but it takes a while to find the right house. If you know the specific neighborhood you want to live in, periodically take a walk or drive around there on a Sunday afternoon and check out the open houses - not just the ones in your price range or the exact type of house you want, but a wide variety. (Once you get close to buying, you'll also want to track the actual sales price; leave a note for the agent and ask him to send you an email when the sale goes through.) Think about what you like and don't like. If you've seen a few dozen or hundred in advance, once you're ready to buy you'll be much better able to make an intelligent decision about what's right for you.

If you're not sure about the neighborhood, first do the same think with different neighborhoods. Visit at different times (weekend/weekday, morning, evening.)

One other fact: You should buy a smaller house than you think you need with a shorter commute than you are willing to undertake. People systematically underestimate how happy a large house will make them and underestimate how unhappy a long commute will make them: see http://scienceblogs.com/cortex/2010/03/commuting.php And to try the commute, if you're not already familiar with it, drive out very early one morning and then drive in the normal commute at the normal time.
posted by Mr.Know-it-some at 1:38 PM on June 28, 2011 [8 favorites]

One small thing I would suggest before launching into homebuying is twofold:

1) know what elements of the house are your must-haves, and what can be compromised on.
2) attend some open houses on the weekends in order to get a better sense of number 1, above.

When I bought my house, two of my must-haves (as an example) were a garage (for my ailing diesel car) and a dining room. I found the house that met my requirements, and all was well. But having lived in it for some years, I realize I should have put "bright, lots of windows" on that list, too.

Spend time in spaces to really get a sense of what kind of house you think you might like or require. Likewise, if neighbourhood is important to you, spend some time hanging about in neighbourhoods you think you might be interested in.
posted by LN at 1:52 PM on June 28, 2011

d'oh, Mr. Know-it-some!
posted by LN at 1:54 PM on June 28, 2011

In addition to actually going to open houses, you can poke around on Redfin, which covers Sacramento, and you can look at what's for sale and what things have sold for (no need to leave a note for the agent when you can just look it up on your own, these things are all public record). They also have homebuying classes which I didn't attend but heard good things about, although I think the closest for you might be in SF, which might not be worth it. But I think their search functions are the best.

(Plug: we also used them as our agent, and it was a great experience, though not for everyone -- we never met our agent (or our mortgage lender), which was perfect for us, but again, might not be everyone's bag)
posted by brainmouse at 1:59 PM on June 28, 2011

Homebuying for Dummies is actually not that bad.

Get pre-approved for a mortgage before you start looking. This shouldn't cost you anything and home sellers will not take you seriously without it. I used a mortgage broker and absolutely love him. Not everyone uses brokers, but I like the fact that a guy with 20 years of experience is getting paid to argue with lenders on my behalf.

Get a realtor you trust. There is no point in having multiple realtors unless you are looking in radically different areas. If you think your realtor sucks, dump them and get a new one. Alas, there really is no way to be sure that they aren't an idiot, but ask friends and co-workers to get some names and just do your best.

Homes in your price range will all be flawed. Homes above your price range will always be perfect. This is true regardless of your price range.

It is impossible to say what a house is really worth or what it is worth to you, but at some point you will have to come up with a number. If you lose the deal you will regret you didn't offer more and if you get it you will wish you offerred a little less. It's inevitable. With a bit of luck, 10 years from now you won't care.

I think it's a bad, bad idea to take money out of your IRA/401k to pay for a house.

If you have any bad mojo affecting your credit rating, now's the time to start fixing it if you can.

When they say that the three most important things in real estate are "location", "location", and "location", they aren't kidding.

A lot of stuff happens when you buy a house, but for the most part it seems to happen one thing at a time rather than all at once. You get pre-approved and then you don't worry about that any more. You find an agent. You look at houses. You find a house you like. You make an offer. Perhaps you go back to looking at houses again. The point is you aren't getting pre-approved at the same time you are making an offer on a house and finding an agent. It's one thing after another, which can keep it from being overwhelming.
posted by It's Never Lurgi at 2:19 PM on June 28, 2011 [3 favorites]

Learn about the economic realities of owning real estate. I don't know about Sacramento, specifically, but in most places in the US, it's still cheaper to rent. Patrick.net is a good place to get down with the basics.

Particularly:

Banks say a safe mortgage is a maximum of 3 times the buyer's annual income with a 20% downpayment. Landlords say a safe price is set by the rental market; annual rent should be at least 9% of the purchase price, or else the price is just too high.

And:

Because it's usually still much cheaper to rent than to own the same size and quality house, in the same school district. In rich neighborhoods, annual rents are often 2.5% of purchase price while mortgage rates are 5%, so it costs twice as much to borrow the money as it does to borrow the house. Renters win and owners lose! Worse, total owner costs including taxes, maintenance, and insurance come to about 9% of purchase price, which is more than three times the cost of renting and wipes out any income tax benefit.

I think there are valid reasons to take a bath on a house, if only for the psychological benefits of putting down roots in a community. But don't buy a house expecting to make money on the deal, and don't stretch yourself financially unless your mortgage will be cheaper than rent.
posted by sportbucket at 2:23 PM on June 28, 2011 [2 favorites]

I borked that link. Here's the link to patrick.net.
posted by sportbucket at 2:30 PM on June 28, 2011

1) If you aren't married when you go to buy, make sure you're aware of all the legal implications of joint ownership of property between non-spouses. The legal system is pretty well set up to distribute marital property upon divorce, but isn't terribly well equipped to distribute property amongst a couple that's simply breaking up. The divorce process is designed to ensure a fair and equitable distribution, and aside from that, you'll probably wind up getting treated like a business partnership, which isn't really what's going on.

2) Learn what it means to borrow money. Most people really don't have a clue about what mortgages are or how they work. Most people get 30-year mortgages these days, but most people don't stay in their houses for nearly that long. If you borrow $150,000 at 5% and sell after 7 years, you'll have paid over $50,000 in interest and only built up an extra $18,400 in equity. That's the equivalent of paying $595 a month in rent and banking another $220. The numbers get worse the less time you live there before you move. At five years, it's like paying $610 a month and saving $208. And that's not including any allowance for taxes, insurance, or maintenance, which could easily come to a couple of grand a year, making your "rent" payment even higher. Call it an extra $300 a month, i.e. your "rent" is $895 for seven years or $910 for five, as a conservative figure. More if you have to replace a major appliance or do any major repairs. Sure, your home might appreciate, raising the equity you'd build, but it might also lose value or do nothing. So don't bank on that. Short version: borrowing is expensive, and don't let anyone tell you otherwise.

3) Get it through your head that the reason to buy a home isn't because "rent is throwing money away" (see 2), but because there are certain things in a dwelling that you can really only get if you buy. One of them is control. You want to be able to remodel your kitchen? You want a yard? Hell, you want detached housing, period? You want to live in a "respectable" neighborhood? You want more than 1000-1500 sq. ft. of living space? You may well need to buy, because there aren't very many homes for rent which meet even a few of those conditions. For a lot of people, those freedoms and perks are worth spending money on. You need to decide whether or not that's true for you. It's certainly not true for me, at least not right now.

4) Learn about what it means to maintain a home. Sit down and make a list of the things you'd have to do if you weren't renting. Hell, go and talk to your landlord about what he has to do to maintain his property. He'd probably be happy to tell you, as landlords, as a group, tend to feel pretty unappreciated, and the opportunity to gripe isn't likely to be passed up. The only thing he has to do that you wouldn't is attract and deal with tenants. Everything else is going to be on you.
posted by valkyryn at 2:42 PM on June 28, 2011 [7 favorites]

Good advice above. Homebuying for Dummies is clear and lays out all the basics that you need to understand, what the terminology means, what's the conventional wisdom about figuring out what you can afford etc. Your local library is bound to have a copy.

Once you buy, plan on staying in that place for at least 5 years. So if school-age kids are in your ten-year plan, you'll want to take the school district into account.

When you're thinking about buying, you want to get the most realistic honest possible idea of:

-WHERE you want to buy. This might mean good school district, might mean commute lengths, might mean crummy area vs nice area. Know your city well enough to know which are the areas where you want to look. Keep up on local news, so that you'll know if they are planning on putting in a toxic waste dump next to Cute Neighborhood (so you don't find yourselves thinking "suddenly all these houses in Cute Neighborhood are for sale! we better grab one fast!")

-Your tolerance for renovation and maintenance work. It's easy to get swept up in the idea that you would do lots of renovations yourself, etc. But be brutally honest with yourself about whether this is really in your personality/capability. There are houses called "fixer uppers" or "handyman specials" etc -- they are cheaper, but it will cost a bunch of money to rehab them.

-Your tolerance for yardwork. See above. Houses with lovely large yards, gardens, trees, etc are very appealing, but those things take a surprising amount of work to maintain. Just another thing to prepare yourself for in preparing to own, and something to consider when looking at places. You can narrow your search by the size of the lot (that is, the amount of outdoor space that comes with the house).

-Your tolerance for nearby neighbors. Could you live in a condo? Townhouse? Do you want a separate house, and how far away do you want the neighbor houses to be?

-Your monthly budget and savings - make a very very conservative estimate of what you can afford, while setting aside money for maintenance and other costs. Either the Michael Bluejay site of Homebuying for Dummies will walk you through this.

-When actually buying, be aware that deals sometimes fall through, and if they do, there is always another good house around the corner. Trust your conservative estimate of what you can afford; don't get swept away by your love for a particular house.
posted by LobsterMitten at 2:46 PM on June 28, 2011

I've never bought a house, but plenty of family have done so in the past few years. Friends and family will probably be a great help for answering some questions about the regional process that books won't cover. But I am considering a purchase soon, a few resources spring to mind:

Michael Bluejay's rent vs buy calculator is very through. The defaults make some assumptions that may not be realistic, or even forecastable over 30 years, like home appreciation and stock market returns.
You can also get a sense of where the market's currently at via zillow, and check out the local assessor GIS website to get an idea of the tax burdens. I'm not gonna lie though, ARCGIS based sites like that are a fucking nightmare to navigate.

If you truly want to be an expert, one item of interest is the Case-Schiller Index which tracks home values over time. It's done in part by Yale professor Robert Schiller, who lectures students about real estate here. I find the entire course interesting since it was recorded at the start of the housing crash, and here's this housing expert talking to students about a crisis that's about to move from subprime to Systemic Collapse, and bringing in guest speakers to speak. With the hindsight of history you can see who's got a clue and who doesn't.


Finally, you might want to check out your credit report and score, because mortgages is the big leagues of personal finance.
posted by pwnguin at 2:49 PM on June 28, 2011 [2 favorites]

I would recommend renting a house, if all you've ever lived in are apartments. I lived in apartments, then bought a house, and now I rent a house. When We bought our first house I thought we knew what we wanted, because, hey, I grew up in a house! but it isn't that simple. Turns out, for us, more living space, with smaller bedrooms and bathrooms would have been useful. Smaller house overall would have been good - big house is expensive to furnish, and you will fill it with crap. Smaller yard, closer to parks for kids would also have been better. Finished basement, bigger garage, we hated our sinks, but loved our toilets. So, rent something for a year, write down everything you like and hate about it, and use that.

Also, think about your priorities in terms of buying. When you own the house, you own it's problems. Do you want to have to get a new roof at the expense of traveling? Maybe get a smaller house, so you have a smaller roof, so you can do both!
posted by dpx.mfx at 2:55 PM on June 28, 2011

Here's another way of thinking about it: renting v. buying is really a risk management analysis. Ownership of anything involves risk. Renting is a way of transferring risk which would otherwise be yours to the owner, for a price. A mortgage is essentially "renting" money, and the interest you pay is the "rent."

What are the risks of home ownership? Well there's the obvious risk of a property-type loss, e.g. fire, weight of ice and snow, theft, vandalism, etc. Then there's maintenance "losses," e.g. breakdown of appliances, wear and tear on carpets and flooring, etc. Then there's the risk that your property will depreciate in value. Not a whole lot to be done about that, but there it is. Some "risks" are really just costs, e.g. you are going to pay property taxes. But really, that's just a risk with a probability of 100%.

Renting, on the other hand, gives you the use of a home while paying for the landlord to retain all of those risks.

Of course, the main reason people take risks is that risks are generally associated with a hope of reward. The greater the risk, the greater the potential reward needs to be for it to be worth taking. This is why risky investments carry a higher interest rate. The benefits of home ownership are discussed above. Sure, there's the ability to decorate as you choose. Fine, whatever. But there's also the possibility of appreciation (if it can depreciate, it can appreciate), and more than that, the fact that you can buy a lot of things that you can't rent. But if you rent, you don't stand to gain any of the potential rewards of ownership.

To answer the question "Should I rent or buy?" you need to 1) identify all of the risks involved, as well as their likelihood, then 2) identify the potential rewards, and finally 3) decide whether the potential risks are great enough for you to assume the risks involved.
posted by valkyryn at 4:32 PM on June 28, 2011 [2 favorites]

Wish I had books to recommend. The books I read before buying my place covered a lot of good stuff, but not the following financial/tax info:

Not sure what your income level is, but a lot of people get hit with AMT (alternative minimum tax) when they first buy a house, esp in CA because of our high state income tax deductions.

What that means is, if you have a "pretty big" income, and also a pretty big state income tax (duh) and a pretty big mortgage, or other big deductions like huge charitable donations or kids, you can't deduct all of it. Which means, all those calculators on the internet that are telling you all the jillion tax dollars you'll save from the mortgage deduction? They're wrong.

If you're not a tax professional yourself, then I would advise you to spend the money (couple hundred dollars probably) to have a CPA run a quick projection for you, with your actual incomes and expected mortgage payments, deductions, (etc). That way you'll know for sure before you decide.

Also, find out the rate of property taxes in the area you plan to buy. In my area (Los Angeles), it's about 1.25%. Multiplied by your assessed value. As a new homeowner, your assessed value would be your purchase price. Every. Single. Year. And yes, property taxes are deductible against your income tax (deductible, not a credit!), but subject to AMT caps. So, again, CPA.

Another trap to watch out for is: getting into a monthly mortgage payment that you can't cover if you rent the place out. I.e., renting it out is not an option should you need or desire to do so. So find out what you could rent the place out for if you wanted to, and include that in your decision.
posted by bluesky78987 at 10:36 PM on June 28, 2011

One thing I don't think anyone else has said is that if you plan on getting help from parents or others, get that money from them as soon as they will give it to you. If you have sudden increases in your net worth right before the loan process, the bank will make you get letters and such certifying that the money is not a loan, it's a gift (this is so they know all your liabilities before they make a call on whether to approve your loan), and you'll have to provide proof in the form of cancelled checks or similar that the amounts that showed up in your bank account are from where you say they're from. It's basically a huge hassle, and I know once I touched my parents for mad coin for my down payment I felt terrible being like "Okay, thanks for the money, now sign this, and this, and you don't happen to have kept the check carbon copy?" Super awkward.

If you're sure you won't be buying for a couple years, and you're sure your parents want to help out, maybe approach them about putting the money in a short-term CD so it earns some interest and is in your name for when you need it?
posted by troublesome at 10:49 PM on June 28, 2011

Lots of real estate companies - and Redfin - offer first-time homebuyer courses. These are invaluable for learning what you need to know about buying a home in your state. There may be a sales pitch, but there are also qualified realtors there to answer your questions. Another good way to get a sense of what you can buy is to go to open houses. Visit homes that you think you can afford and visit homes that are way out of your price range. This, more than anything, will give you a solid visual indicator of what you can afford. And, finally, consider all the costs inherent in a mortgage - it's rarely just the loan, it's insurance and taxes and PMI/MPI. Keep your 38% number in mind, but be practical and remember the other costs.
posted by bendy at 1:06 AM on June 29, 2011

You're Not Buying That House, Are You? by Frank Cook was short, comprehensive, brutal, and put my head in the right place. Read it before you buy any 300-page tomes on real estate.
posted by Harvey Kilobit at 1:27 AM on June 29, 2011

Setup alerts through the real estate website of your choice, truilia, zillow, redfin, whatever, to send you emails when houses in the neighborhoods and price ranges you're interested in are listed or sold, and pay attention to the gaps between list price and sale price. Especially if you do this for a few years, you'll get a great idea of what the markets are doing, what is a deal and what isn't, and what sort of a house you can afford in your price range.

Seconding getting pre-approved for a mortgage, and keep an eye on mortgage rates. Shop around for mortgages. I found a lender I liked and leveraged rates from other lenders to get her to match.

Pay a lot of attention to your finances, including money in and money out. Get Rich Slowly is a good resource. The more control you have over your finances, the better idea you'll have of how much house you can afford, and how easily.
posted by craven_morhead at 9:42 AM on June 29, 2011

I am a real estate investor. I have been buying and selling property in NY and FLA for years. I would make 3 suggestions to you -

1. start talking to banks now about getting pre-approved for a mortgage. the more time you have to shop your mortgage lenders and get the best deal, the better. DO NOT just go to your bank and expect the best deal. Shop the mortgage.

2. start making mortgage payments (to yourself) right now. lots of people think they can handle the mortgage no problem - then when the time comes, it is different stuff. What is your current rent compared to your expected mortgage payment. If you pay $600 in rent, but are expecting a $1000 a month morthgage - starting paying the $1000 now (pay $600 in rent, and set up a savings account and pay the remaining $400 into that account). Practicing paying your mortgage payment will really let you know if your plan is realistic - plus, when you do get your house, you will have a small war chest of money for repairs and such

3. look at 100 homes before you do anything. this is key advice. DO NOT just fall in love with the first house. You should look at a minimum of 50 homes before you even start thinking that this might be the one. You have to get to know the local market - the better you know the market, the better deal you will get. Don't waste realtors time by making appointments when you have no intention of buying - but, starting right now, try to go to at least one open house per week. Call realtors, tell them you are not ready to buy, but you want to look, you don't want to waste time, so what open houses do they have. There are plenty of open house showings - start getting to know the market.
posted by Flood at 10:09 AM on June 29, 2011