Tips for novice in a hot housing market
May 10, 2021 9:51 PM Subscribe
I have never bought a house. I'm looking at buying one. I'm anxious. The local moms regularly post on social media asking about anyone getting ready to sell because the market is that hot. I am not sure what I am getting into or what I should be ready to do.
I've read some basic info but I need tips you can't find in a blog post. I'm not great at negotiating. I don't know what is worth giving up in a hot market (asking for closing costs to be covered?) and what I should definitely not budge on (appraisal?). Other questions:
How do I know I've got a good deal?
How fast do I need to be ready to act?
What's contingent vs under contract vs pending?
If we are "under contract" and my mortgage loan is delayed, I'm good because we are "under contract" correct?
I'm looking at using this program. A couple years ago the reviews seemed mostly positive. The more recent ones less so but it seems largely because the company has had trouble scaling to meet demand. Have you heard anything about this program?
I don't have 20%. I could have 3.5% maybe, but I'm hoping to use first time buyer programs. Will the need to use those mean that I'm slower than everyone else and can't get anything decent?
What do I need to know that I don't know I need to know?
I've read some basic info but I need tips you can't find in a blog post. I'm not great at negotiating. I don't know what is worth giving up in a hot market (asking for closing costs to be covered?) and what I should definitely not budge on (appraisal?). Other questions:
How do I know I've got a good deal?
How fast do I need to be ready to act?
What's contingent vs under contract vs pending?
If we are "under contract" and my mortgage loan is delayed, I'm good because we are "under contract" correct?
I'm looking at using this program. A couple years ago the reviews seemed mostly positive. The more recent ones less so but it seems largely because the company has had trouble scaling to meet demand. Have you heard anything about this program?
I don't have 20%. I could have 3.5% maybe, but I'm hoping to use first time buyer programs. Will the need to use those mean that I'm slower than everyone else and can't get anything decent?
What do I need to know that I don't know I need to know?
1. My advice is to start going to open houses (or setting up the virtual equivalent) with a firm commitment to yourself that you are not going to buy anything just yet. Look at least 10 houses that are in your price range and desired neighborhood. Get a notebook or spreadsheet and write out what you like and didn't like about each house. Track the houses and see how much the sold for and how quickly. That will give you foundation for answering your first two questions.
2. Find a real estate agent. In pre-COVID days, the ones staffing open houses would try to get you to choose them but the really good, experienced ones often had the junior people at the open houses. You want to get some recommendations, check out their experience level (lots of agents sell only a few homes a year - you want someone experienced. Then meet with them, pick one and spend an afternoon letting them show you some houses (after you did step 1 so you know a little bit what you are looking for) A good agent can then guide you through the rest of the process.
posted by metahawk at 10:05 PM on May 10, 2021 [4 favorites]
2. Find a real estate agent. In pre-COVID days, the ones staffing open houses would try to get you to choose them but the really good, experienced ones often had the junior people at the open houses. You want to get some recommendations, check out their experience level (lots of agents sell only a few homes a year - you want someone experienced. Then meet with them, pick one and spend an afternoon letting them show you some houses (after you did step 1 so you know a little bit what you are looking for) A good agent can then guide you through the rest of the process.
posted by metahawk at 10:05 PM on May 10, 2021 [4 favorites]
I'll see what I can answer - knowing whether you got a good deal is sort of secondary to a whole lot of other things, such as your goals for buying a home and your overall financial situation - do you mean a good deal short term or over the years you plan on spending in the house? My advice is not to focus on whether you're getting a good deal solely on the property, but whether the house meets your medium and long term needs, and whether the financing you lined up is reasonable and comfortably within your means - for example the interest rate available for the loan product you use (ARM, Fixed, Etc).
There is a lot you need to do to get ready to put an offer on a house, and the most practical parts are to get your financing figured out so when you find a house you like you can make an offer that is likely to be accepted. The more you prepare for this the better idea you'll have about where you have flexibility and how fast you can act. Your real estate agent should help with some of this.
Regarding the down payment, you should think about other costs beyond the down payment if you haven't been figuring those in to your overall budget. A smaller down payment can have an impact but you need to understand what the impact is of that down payment amount with whomever you're planning on using to finance the purchase.
It's really important to think about the unplanned for stuff with a house - because for the most part that's going to be all on you, so make sure you have a budget set up for things to go a bit sideways. I'd also think about what you plan to do if the market dips and suddenly you own more than the house is worth. Are you able to stay in the house through a period of time where you may not be able to sell it?
Contingent vs under contract vs pending probably have slightly different meanings depending on where you are, typically homes in the US have a set of contingencies that allow a buyer to to exit the process without penalty. They are usually things like inspections, title, finance, etc. I strongly recommend that you do not waive inspection contingencies, and in fact should spend way more on inspections that your real estate agent will want you to. This is an investment that can save you tens of thousands of dollars down the road and may let you sleep better at night.
I think some of the things you're asking are about making an offer without having gone through a lot of the prep for financing whatever you want to buy. My advice is to start making phone calls and setting up exploratory conversations with the people or agencies that run the first time home buyer programs you're interested in - most of these programs have a strong focus on buyer education and the process which may help answer some of your questions.
I guess what I would also add is to not rush this process, I know it may seem like there will never be another house available or if you wait 3 months there won't be any on the market and you'll be priced out entirely. The house buying and selling market is specifically designed to make you feel this way. Don't fall for it. Everyone makes money off of a transaction in the industry except you, you are who they make money from. Take your time, be educated and be patient until you have all your ducks in a row. I wish I would have when we bought our first house.
posted by iamabot at 10:07 PM on May 10, 2021 [6 favorites]
There is a lot you need to do to get ready to put an offer on a house, and the most practical parts are to get your financing figured out so when you find a house you like you can make an offer that is likely to be accepted. The more you prepare for this the better idea you'll have about where you have flexibility and how fast you can act. Your real estate agent should help with some of this.
Regarding the down payment, you should think about other costs beyond the down payment if you haven't been figuring those in to your overall budget. A smaller down payment can have an impact but you need to understand what the impact is of that down payment amount with whomever you're planning on using to finance the purchase.
It's really important to think about the unplanned for stuff with a house - because for the most part that's going to be all on you, so make sure you have a budget set up for things to go a bit sideways. I'd also think about what you plan to do if the market dips and suddenly you own more than the house is worth. Are you able to stay in the house through a period of time where you may not be able to sell it?
Contingent vs under contract vs pending probably have slightly different meanings depending on where you are, typically homes in the US have a set of contingencies that allow a buyer to to exit the process without penalty. They are usually things like inspections, title, finance, etc. I strongly recommend that you do not waive inspection contingencies, and in fact should spend way more on inspections that your real estate agent will want you to. This is an investment that can save you tens of thousands of dollars down the road and may let you sleep better at night.
I think some of the things you're asking are about making an offer without having gone through a lot of the prep for financing whatever you want to buy. My advice is to start making phone calls and setting up exploratory conversations with the people or agencies that run the first time home buyer programs you're interested in - most of these programs have a strong focus on buyer education and the process which may help answer some of your questions.
I guess what I would also add is to not rush this process, I know it may seem like there will never be another house available or if you wait 3 months there won't be any on the market and you'll be priced out entirely. The house buying and selling market is specifically designed to make you feel this way. Don't fall for it. Everyone makes money off of a transaction in the industry except you, you are who they make money from. Take your time, be educated and be patient until you have all your ducks in a row. I wish I would have when we bought our first house.
posted by iamabot at 10:07 PM on May 10, 2021 [6 favorites]
In a hot market, you need to know your numbers. Look at as many listings and view as many properties in person as you possibly can. Know exactly what you need/want in a home, and what your dealbreakers are. Research all the neighborhoods that you're interested in. There's no time for dithering around. If you find a place that checks all the boxes, you need to be prepared to put in an offer very quickly, maybe even within a day or two. You should be able to assess what a place is worth to you roughly on the spot and be ready to pull the trigger, especially if what you're looking for is unique or otherwise in short supply.
Asking prices are not definitive. Sellers may intentionally price a property low in order to get as much interest as possible. In the city where I live, it's not at all unexpected for a property to sell for hundreds of thousands over asking. It's a mistake to base your offer on the asking price, work it out based on actual sale prices of recent comps in the neighborhood.
Get your financing pre-approved. If it's a decent place, you will be competing against multiple offers and likely several will be without conditions. This also goes to knowing exactly what you can afford, which relates to assessing what a place is worth and being able to put in a competitive offer relative to its deemed value, but also not overextending yourself in the heat of the moment.
If you don't want your offer to be subject to inspection, but don't want to waive that either, you may be able to get permission to do a pre-offer inspection. That way you can have peace of mind that the home passes inspection, but also be able to put in a strong offer. Again, this requires that you act quickly when a new listing comes on the market. You may have a window of only a few days to schedule the inspection.
If all of this makes you nervous, then you may not be ready to buy yet. That's okay. Don't force something to happen if it's not the right time. Keep looking around and shopping, for research purposes. I've never had much of an interest in real estate or the market, but after two years of casually looking I felt like I knew the local market like the back of my hand. By then I was quite confident in my assessments, and shopping with serious intent to buy no longer seemed like such a scary, abstract thing.
posted by keep it under cover at 1:36 AM on May 11, 2021 [6 favorites]
Asking prices are not definitive. Sellers may intentionally price a property low in order to get as much interest as possible. In the city where I live, it's not at all unexpected for a property to sell for hundreds of thousands over asking. It's a mistake to base your offer on the asking price, work it out based on actual sale prices of recent comps in the neighborhood.
Get your financing pre-approved. If it's a decent place, you will be competing against multiple offers and likely several will be without conditions. This also goes to knowing exactly what you can afford, which relates to assessing what a place is worth and being able to put in a competitive offer relative to its deemed value, but also not overextending yourself in the heat of the moment.
If you don't want your offer to be subject to inspection, but don't want to waive that either, you may be able to get permission to do a pre-offer inspection. That way you can have peace of mind that the home passes inspection, but also be able to put in a strong offer. Again, this requires that you act quickly when a new listing comes on the market. You may have a window of only a few days to schedule the inspection.
If all of this makes you nervous, then you may not be ready to buy yet. That's okay. Don't force something to happen if it's not the right time. Keep looking around and shopping, for research purposes. I've never had much of an interest in real estate or the market, but after two years of casually looking I felt like I knew the local market like the back of my hand. By then I was quite confident in my assessments, and shopping with serious intent to buy no longer seemed like such a scary, abstract thing.
posted by keep it under cover at 1:36 AM on May 11, 2021 [6 favorites]
Anecdotally we just purchased a new home and sold our home. Our home (in suburbs of Philly) sold in 2 days for over 10% over asking (we did not intentionally price low).
We had full cash offers, inspection waived, appraisal waived.
We offered on two other homes, way over asking price (60k and 40k over), waiving all the things, and lost them both to better offers.
It is a horrible market for buyers in many areas right now. We knew it would be bad and it was really really bad. I mean, your mileage may vary, but I highly recommend speaking with a realtor in your area to get an idea of how to navigate this successfully. Or rent for another few years.
posted by kellygrape at 4:34 AM on May 11, 2021 [2 favorites]
We had full cash offers, inspection waived, appraisal waived.
We offered on two other homes, way over asking price (60k and 40k over), waiving all the things, and lost them both to better offers.
It is a horrible market for buyers in many areas right now. We knew it would be bad and it was really really bad. I mean, your mileage may vary, but I highly recommend speaking with a realtor in your area to get an idea of how to navigate this successfully. Or rent for another few years.
posted by kellygrape at 4:34 AM on May 11, 2021 [2 favorites]
I just bought a home in a very hot market last fall, my very good friend closed on her townhouse in the same market last week. We had the same experience. Like, 25 blind bids, houses selling within 24 hours sight unseen. As others have said, the property listings are about 10-20% lower than what they will sell for, so don't count on those list prices.
Most places here have their own home inspections before you walk in the door, there's no time for your own. If you have time, and you're not sure who to hire, ask your realtor. Pay a bit extra for a good inspection! Its fine to spend $500-1000 on a larger home for an in-depth look at everything.
Look at lots of places. Lots. Look at everything you can. Be prepared to be disappointed. I found the emotional rollercoaster really really hard. You need to love a place enough to bid on it, and bid aggressively. But if you love it, you will be really sad when you lose it. And you will. I lost 4/5 bids before getting something, and I'm honestly still not over one of them. I had an all-cash offer and it was still really really difficult.
None of this is to dissuade you, but be prepared. Its a jungle out there.
posted by dazedandconfused at 5:23 AM on May 11, 2021 [4 favorites]
Most places here have their own home inspections before you walk in the door, there's no time for your own. If you have time, and you're not sure who to hire, ask your realtor. Pay a bit extra for a good inspection! Its fine to spend $500-1000 on a larger home for an in-depth look at everything.
Look at lots of places. Lots. Look at everything you can. Be prepared to be disappointed. I found the emotional rollercoaster really really hard. You need to love a place enough to bid on it, and bid aggressively. But if you love it, you will be really sad when you lose it. And you will. I lost 4/5 bids before getting something, and I'm honestly still not over one of them. I had an all-cash offer and it was still really really difficult.
None of this is to dissuade you, but be prepared. Its a jungle out there.
posted by dazedandconfused at 5:23 AM on May 11, 2021 [4 favorites]
What's contingent vs under contract vs pending?
Contingent means that the sale is dependent on some other factor - the buyer unloading their current house first, or the sale hinging on an appraisal, survey, inspection, or other thing. If the contingency fails, then the sale doesn't go through.
Pending means the offer is made, but perhaps the contingencies are still not met yet.
Under contract means that an offer has been made and accepted and the parties are working towards the close (lots more on these here).
As for what makes a good deal - so much depends on where you are, how long you intend to stay in the house, how deep you're going to be going to make the down payment and subsequent mortgage payments, and so forth.
So a couple of things we learned in 3 house sales/purchases over the last 20-some-odd years. Depending on your market and how hot it is, some of these may not obtain.
- The inspection is necessary and ought to uncover anything major with the house. Stuff that shows up in the inspection should be a leverage point in your negotiations. House is plumbed with blue poly pipe? That's a problem. Roof is in terrible shape? Seller needs to move down some to cover your cost of replacing it, and so on. The inspectors are generally OK, but not infallible.
- Try to avoid any sort of large purchases (or indeed, any movements of cash) prior to (or during) the closing process. The closing process will pull credit reports at the beginning and the end and any discrepancy, however small, could jam the whole thing up.
- If the house is on septic, ask when it was last pumped out. If they don't remember, have it pumped before you move in. Trust me on this one.
- If you're making an offer on a place with an HOA, the closing process should produce a copy of the Covenants/Codes and Restrictions prior to the close. Exercise due diligence and examine these rules closely - by proceeding with the close, you're contractually agreeing to abide by CC&Rs, pay the annual dues, and so on. If there's anything in there that gives you significant heartburn, now is the time to revisit your decision, as your options after the fact will be basically nil. The HOA contract attaches to the property, not the person, so it doesn't matter if you sign anything or not. Closing = agreement.
- If a property survey is part of the process (this depends on the state, I think), take a look for any existing rights-of-way and make sure you understand where they are, who owns them, and what this means for your use of the property. We have a defunct TVA power line that crosses part of our yard. I'm not allowed to have anything under it or within a buffer of so-many-yards on each side. No sheds, fences, nothing. TVA likewise has the right to enter the property to maintain the lines and clear/spray brush as needed. They own that zone, not me, and there's nothing I can do about it.
posted by jquinby at 5:50 AM on May 11, 2021 [3 favorites]
Contingent means that the sale is dependent on some other factor - the buyer unloading their current house first, or the sale hinging on an appraisal, survey, inspection, or other thing. If the contingency fails, then the sale doesn't go through.
Pending means the offer is made, but perhaps the contingencies are still not met yet.
Under contract means that an offer has been made and accepted and the parties are working towards the close (lots more on these here).
As for what makes a good deal - so much depends on where you are, how long you intend to stay in the house, how deep you're going to be going to make the down payment and subsequent mortgage payments, and so forth.
So a couple of things we learned in 3 house sales/purchases over the last 20-some-odd years. Depending on your market and how hot it is, some of these may not obtain.
- The inspection is necessary and ought to uncover anything major with the house. Stuff that shows up in the inspection should be a leverage point in your negotiations. House is plumbed with blue poly pipe? That's a problem. Roof is in terrible shape? Seller needs to move down some to cover your cost of replacing it, and so on. The inspectors are generally OK, but not infallible.
- Try to avoid any sort of large purchases (or indeed, any movements of cash) prior to (or during) the closing process. The closing process will pull credit reports at the beginning and the end and any discrepancy, however small, could jam the whole thing up.
- If the house is on septic, ask when it was last pumped out. If they don't remember, have it pumped before you move in. Trust me on this one.
- If you're making an offer on a place with an HOA, the closing process should produce a copy of the Covenants/Codes and Restrictions prior to the close. Exercise due diligence and examine these rules closely - by proceeding with the close, you're contractually agreeing to abide by CC&Rs, pay the annual dues, and so on. If there's anything in there that gives you significant heartburn, now is the time to revisit your decision, as your options after the fact will be basically nil. The HOA contract attaches to the property, not the person, so it doesn't matter if you sign anything or not. Closing = agreement.
- If a property survey is part of the process (this depends on the state, I think), take a look for any existing rights-of-way and make sure you understand where they are, who owns them, and what this means for your use of the property. We have a defunct TVA power line that crosses part of our yard. I'm not allowed to have anything under it or within a buffer of so-many-yards on each side. No sheds, fences, nothing. TVA likewise has the right to enter the property to maintain the lines and clear/spray brush as needed. They own that zone, not me, and there's nothing I can do about it.
posted by jquinby at 5:50 AM on May 11, 2021 [3 favorites]
I don't have 20%. I could have 3.5% maybe
Sorry, you are not ready to buy a house right now. I bought a house one year ago. My closing costs alone were 5% of my home's purchase price, and that does not include my down payment.
posted by phunniemee at 6:31 AM on May 11, 2021 [20 favorites]
Sorry, you are not ready to buy a house right now. I bought a house one year ago. My closing costs alone were 5% of my home's purchase price, and that does not include my down payment.
posted by phunniemee at 6:31 AM on May 11, 2021 [20 favorites]
I agree with phunniemee, if you are scraping for 3.5% down payment you are going to struggle to get offers accepted in any hot market. Sellers don't necessarily go for the all-cash offer above everything else -- we had one cash offer for like 2% over asking, and instead selected a non-cash offer for 10% over, but that person had VERY strong financing and I think something like 30% down?
I would plan to keep renting for awhile, it's brutal out there.
posted by Bebo at 6:39 AM on May 11, 2021 [7 favorites]
I would plan to keep renting for awhile, it's brutal out there.
posted by Bebo at 6:39 AM on May 11, 2021 [7 favorites]
I dipped my toes into the market about a month ago in a place where supply is limited and there are a lot of buyers. I ended up deciding that it wasn't the right time or place, so didn't get too far down the path. However, the first thing I encountered was that good real estate agents (the ones selling lots of houses, not people doing it as a side gig) wanted you to have financing (or cash) lined up already before investing time in tours etc. The old days of first looking, then finding a place, then lining up financing in order to make an offer, etc. are not happening right now, at least here. Things are moving way too fast for that.
Second, around here houses are selling for above the listing price, and frequently for above the appraisal. That means that you need to be able to show how you can cover the amount above what your bank will lend you (which is limited by the appraisal) and the actual selling price. It also means that when you offer, you need to be ready to either write an offer with an escalation clause or simply offer up at what you think you can go to. So if your budget is $350k, you would need to be looking at houses that are listed at, say, $275k, but with the expectation of paying $350k, with part of that total in excess of the mortgage itself. (Those are made up numbers, obviously.)
I was told mostly inspection contingencies are being waived, or if they are included they are for "major structural issues" only.
All of this to say, at least in some places this is a really nutso housing market where it can be hard to buy if you aren't sitting on a large pile of cash and have a willingness to accept risks. For me it wasn't the right place or time.
posted by Dip Flash at 7:02 AM on May 11, 2021 [1 favorite]
Second, around here houses are selling for above the listing price, and frequently for above the appraisal. That means that you need to be able to show how you can cover the amount above what your bank will lend you (which is limited by the appraisal) and the actual selling price. It also means that when you offer, you need to be ready to either write an offer with an escalation clause or simply offer up at what you think you can go to. So if your budget is $350k, you would need to be looking at houses that are listed at, say, $275k, but with the expectation of paying $350k, with part of that total in excess of the mortgage itself. (Those are made up numbers, obviously.)
I was told mostly inspection contingencies are being waived, or if they are included they are for "major structural issues" only.
All of this to say, at least in some places this is a really nutso housing market where it can be hard to buy if you aren't sitting on a large pile of cash and have a willingness to accept risks. For me it wasn't the right place or time.
posted by Dip Flash at 7:02 AM on May 11, 2021 [1 favorite]
As a very first step, before finding an agent, visiting houses, getting approved for a loan, worrying about contingencies, etc., I'd recommend spending many hours poring over listings and recent sales online. Redfin is a good starting point (in most areas it's more accurate than Zillow), but use whatever site you're comfortable with. You need to get familiar with what is out there and what it costs. You can do this yourself from home before getting any professionals involved. IMHO even with the absolute best agent in the world, you're going to be a lot more successful if you already have a decent idea of what kind of house you're looking for, what areas you're interested in, and the general price range for that combination.
But also I don't really think this is a great time to be jumping in unless you have a really important reason that you have to buy NOW. Especially if you are short on cash for down payment and closing. I am not among the people who are convinced that a crash is coming, but I do believe that the pace of the current market isn't sustainable long term, so at the very least I'm confident that things will slow down a bit. This feels like the worst time in recent memory for a cash strapped first time home buyer to be trying to get into the market. What is the rush? (I do agree that one shouldn't try to time the market, but there are limits....)
posted by primethyme at 7:16 AM on May 11, 2021 [1 favorite]
But also I don't really think this is a great time to be jumping in unless you have a really important reason that you have to buy NOW. Especially if you are short on cash for down payment and closing. I am not among the people who are convinced that a crash is coming, but I do believe that the pace of the current market isn't sustainable long term, so at the very least I'm confident that things will slow down a bit. This feels like the worst time in recent memory for a cash strapped first time home buyer to be trying to get into the market. What is the rush? (I do agree that one shouldn't try to time the market, but there are limits....)
posted by primethyme at 7:16 AM on May 11, 2021 [1 favorite]
I would caution strongly against buying a house with 3.5% down in a heated market - this is how people get underwater as soon as the market changes, plus what if you have a major repair in the first year? I would look at houses at a lower price point or wait. Moms groups are terrible for this - I’ve had two mom friends go into some form of bankruptcy or debt counseling and the group was still all like “you have to enroll in this/buy that.”
posted by warriorqueen at 7:21 AM on May 11, 2021 [7 favorites]
posted by warriorqueen at 7:21 AM on May 11, 2021 [7 favorites]
I bought my first house at the end of last year in a tough market. I didn't have a 20% down payment and used a FHA loan.
I'd recommend a first time homebuyers program. They're usually always free and available in most states. With COVID you can probably find one online. They offer lots of great info and deals. For example, in my city they offer $14k towards down-payment and closing costs to buyers under a certain income level. A lot of people don't know about these. Also find a good realtor. My realtor was awesome the house I bought had been vacant for a while. The inspection revealed that it needed some work but the seller didn't have cash to fix it and honestly, I wouldn't have either. My realtor arranged it so that all the vendors who did the work took cash at closing. So I didn't have to pay for the work and the seller just got less cash at closing but also didn't have to pay out of pocket.
Lastly, it is a sellers market, it was when I bought too but you can still find something if you're reasonable. Also, about the down-payment, 3.5% is enough for a first time buyer. It'd be nice to have more but 20% is hard for a lot of people, in general if you can pay rent every month you can pay a mortage. You'll just need to have a cushion for unexpected expenses and problem a home warranty (they kinda suck but can be helpful sometimes). My rent was $1000 plus utilities but now my mortage is $889 plus utilities. Feel free to PM if you want more details about how I made it work.
posted by CosmicSeeker42 at 8:05 AM on May 11, 2021
I'd recommend a first time homebuyers program. They're usually always free and available in most states. With COVID you can probably find one online. They offer lots of great info and deals. For example, in my city they offer $14k towards down-payment and closing costs to buyers under a certain income level. A lot of people don't know about these. Also find a good realtor. My realtor was awesome the house I bought had been vacant for a while. The inspection revealed that it needed some work but the seller didn't have cash to fix it and honestly, I wouldn't have either. My realtor arranged it so that all the vendors who did the work took cash at closing. So I didn't have to pay for the work and the seller just got less cash at closing but also didn't have to pay out of pocket.
Lastly, it is a sellers market, it was when I bought too but you can still find something if you're reasonable. Also, about the down-payment, 3.5% is enough for a first time buyer. It'd be nice to have more but 20% is hard for a lot of people, in general if you can pay rent every month you can pay a mortage. You'll just need to have a cushion for unexpected expenses and problem a home warranty (they kinda suck but can be helpful sometimes). My rent was $1000 plus utilities but now my mortage is $889 plus utilities. Feel free to PM if you want more details about how I made it work.
posted by CosmicSeeker42 at 8:05 AM on May 11, 2021
Response by poster: Clarifying some things as it may affect the feedback I get.
I have 20% of the asking price for homes in my area, but it will require tapping my retirement. I'd prefer to get a home without doing that. Both neighborhoods where I am looking have had home values rising and are close to good schools for the region, but are in two different states which may make finding a realtor more difficult. (The program I described above assigns you a realtor, and after closing the realtor gives you 20% of their commission. You can use your own realtor, but then you don't get part of their commission from the sale.) My hope is to do USDA or FHA with first time home buyer grants and other assistance. Please explain if this is still not viable in your view.
My landlord wants to sell the house within the next year and I don't want to buy this house, so if I already have to move I'd rather just do it once and get a home out of it.
Mortgage calculators say I can afford a $305000 home, not including side business income. I'm looking at homes priced at 180-200k. I feel like I'm looking at the numbers reasonably, even though I don't have a huge nest egg to put on this. I don't care if the kitchen looks dated as long as the home has good bones.
I am also looking to buy rural, but my local neighborhood is suburban and the moms asking for homes about to be put on the market is generally for the suburban part of the area. The market might be a little cooler in that respect.
posted by crunchy potato at 11:06 AM on May 11, 2021
I have 20% of the asking price for homes in my area, but it will require tapping my retirement. I'd prefer to get a home without doing that. Both neighborhoods where I am looking have had home values rising and are close to good schools for the region, but are in two different states which may make finding a realtor more difficult. (The program I described above assigns you a realtor, and after closing the realtor gives you 20% of their commission. You can use your own realtor, but then you don't get part of their commission from the sale.) My hope is to do USDA or FHA with first time home buyer grants and other assistance. Please explain if this is still not viable in your view.
My landlord wants to sell the house within the next year and I don't want to buy this house, so if I already have to move I'd rather just do it once and get a home out of it.
Mortgage calculators say I can afford a $305000 home, not including side business income. I'm looking at homes priced at 180-200k. I feel like I'm looking at the numbers reasonably, even though I don't have a huge nest egg to put on this. I don't care if the kitchen looks dated as long as the home has good bones.
I am also looking to buy rural, but my local neighborhood is suburban and the moms asking for homes about to be put on the market is generally for the suburban part of the area. The market might be a little cooler in that respect.
posted by crunchy potato at 11:06 AM on May 11, 2021
I would take a look at homes in the area you’re planning to live and see what has been selling recently / how quickly it has been selling / what the original sale price was vs the closing price.
Even fixer-uppers around here are sometimes going for well over asking. FHA or other special program buyers have less strong offers than conventionally financed or full cash offers. That doesn’t mean they aren’t getting offers accepted, just that it’s harder. Why would a seller want to accept an offer that is FHA with all the other inspection contingencies that will cause when they have five other offers with far fewer contingencies?
I don’t mean that last statement to be dismissive of your situation - my first two home purchases were FHA financed. The market is absolutely incredibly more difficult right now for first time home buyers. I have a lot of empathy for your situation.
I would talk to a realtor in your area / in the area you are thinking about buying just as a fact finding mission. You can talk to a realtor without signing to work with them.
Best of luck.
posted by kellygrape at 11:32 AM on May 11, 2021
Even fixer-uppers around here are sometimes going for well over asking. FHA or other special program buyers have less strong offers than conventionally financed or full cash offers. That doesn’t mean they aren’t getting offers accepted, just that it’s harder. Why would a seller want to accept an offer that is FHA with all the other inspection contingencies that will cause when they have five other offers with far fewer contingencies?
I don’t mean that last statement to be dismissive of your situation - my first two home purchases were FHA financed. The market is absolutely incredibly more difficult right now for first time home buyers. I have a lot of empathy for your situation.
I would talk to a realtor in your area / in the area you are thinking about buying just as a fact finding mission. You can talk to a realtor without signing to work with them.
Best of luck.
posted by kellygrape at 11:32 AM on May 11, 2021
I'm currently in the market as a potential first-time buyer, and I agree it is ROUGH. For me, the number one most important thing is knowing my limits (in terms of budget, my must-haves for a house/condo, and the contingencies I'm willing to waive) and being willing to be patient and wait for a house/deal that will allow for those limits. That way, even if there is a market correction/crash in the next year or so, I'm ok because I'm living in a place I like, making payments I can afford, and can ride it out.
As others have said, a lot of the process will depend on the local market. A piece of advice I got for my local market, which may or may not apply to yours, is that condos are undervalued compared to houses in the current market. If this is true in your market, that might be a good way to go. The other piece of advice I got was to buy a house that is in good shape structurally but needs cosmetic fixes. Unfortunately, where I am those places seem to be getting snatched up by flippers, then show up back on the market a month later for $100K more. Frustrating.
Agree with all the advice to get pre-approved for a mortgage, look on redfin for what houses are actually going for, and go to lots of open houses. I've found the latter really helpful for refining what I want and what I don't, what are nice to haves vs necessities, etc. Do all this BEFORE you start seriously looking.
I think in this market it's also really important to be rock-solid on your budget and what contingencies you're willing to waive. I'm willing to waive the inspection contingency if they'll let me do a pre-inspection. I'm not willing to waive the appraisal or financing gaps because I don't have that kind of cash as a first-time buyer (and if it doesn't appraise for what I'm buying it for, that seems too risky for me).
Once you've done all this pre-work, find a real estate agent by getting recommendations from friends. Before you start looking at houses with them, get them to walk you through the process. In my market, houses get listed on Wednesday or Thursday and offers are due on Monday or Tuesday. So if you want to do a pre-inspection, it's going to be best to tour it Thursday or Friday so you have time to pre-inspect and get your offer together. It might be different where you are (some places seem to review offers on a rolling basis, which seems even more stressful!) but it's good to know what that timeline looks like so you can position yourself to jump on something that looks good.
posted by lunasol at 12:02 PM on May 11, 2021 [2 favorites]
As others have said, a lot of the process will depend on the local market. A piece of advice I got for my local market, which may or may not apply to yours, is that condos are undervalued compared to houses in the current market. If this is true in your market, that might be a good way to go. The other piece of advice I got was to buy a house that is in good shape structurally but needs cosmetic fixes. Unfortunately, where I am those places seem to be getting snatched up by flippers, then show up back on the market a month later for $100K more. Frustrating.
Agree with all the advice to get pre-approved for a mortgage, look on redfin for what houses are actually going for, and go to lots of open houses. I've found the latter really helpful for refining what I want and what I don't, what are nice to haves vs necessities, etc. Do all this BEFORE you start seriously looking.
I think in this market it's also really important to be rock-solid on your budget and what contingencies you're willing to waive. I'm willing to waive the inspection contingency if they'll let me do a pre-inspection. I'm not willing to waive the appraisal or financing gaps because I don't have that kind of cash as a first-time buyer (and if it doesn't appraise for what I'm buying it for, that seems too risky for me).
Once you've done all this pre-work, find a real estate agent by getting recommendations from friends. Before you start looking at houses with them, get them to walk you through the process. In my market, houses get listed on Wednesday or Thursday and offers are due on Monday or Tuesday. So if you want to do a pre-inspection, it's going to be best to tour it Thursday or Friday so you have time to pre-inspect and get your offer together. It might be different where you are (some places seem to review offers on a rolling basis, which seems even more stressful!) but it's good to know what that timeline looks like so you can position yourself to jump on something that looks good.
posted by lunasol at 12:02 PM on May 11, 2021 [2 favorites]
Oh one other thing: get pre-approved for a mortgage ASAP. If the program you want to buy from has recommended brokers they work with, that makes it easier. Otherwise you can get recommendations from friends or a real estate agent. I say do it ASAP because they might find things on your credit report that will make a big difference if you can fix them, and that can take a few months. My broker was able to identify that getting one delinquent bill removed (not reported as paid, but removed) from my report would increase my credit score by 80-100 points. She was right but it took two months after I paid it.
When I first started this process, I didn't think it mattered where I got my mortgage, but I've heard from several people that you want to make sure you have a good mortgage broker because so much of the deal relies on financing coming through. You want to make sure you can rely on the person move quickly and get you the best possible terms. My real estate agent also said it can make a difference in getting an offer accepted - if the broker is local and known to the seller's agent, they like that because it will help things move quickly, as opposed to dealing with a big bank or national company.
posted by lunasol at 2:56 PM on May 11, 2021 [1 favorite]
When I first started this process, I didn't think it mattered where I got my mortgage, but I've heard from several people that you want to make sure you have a good mortgage broker because so much of the deal relies on financing coming through. You want to make sure you can rely on the person move quickly and get you the best possible terms. My real estate agent also said it can make a difference in getting an offer accepted - if the broker is local and known to the seller's agent, they like that because it will help things move quickly, as opposed to dealing with a big bank or national company.
posted by lunasol at 2:56 PM on May 11, 2021 [1 favorite]
It looks like that program is realtors giving you a discount to secure your business. The programs they use sound like government programs that any good mortgage broker could help you apply for. I would be wary. Realtors already have a strong incentive to sell you a house, any house, for the commission. I would get personal recommendations for a realtor and talk to a few mortgage brokers. There is likely a nonprofit homebuyer program near you that can recommend suitable brokers who would know what is available to you.
3.5% is a low down payment in a hot market and it would be really easy to owe more than your house is worth, especially since it sounds like you’d plan to roll closing costs into the loan. You are right to be wary of tapping your retirement - it costs not only the balance but also the interest you would otherwise earn on diversified investments vs. sinking all of it into a bet that the value of your house won’t tank. What is your savings rate? If it would take you ten years to save a 10% down payment, that’s a different situation than if you have a large income and would have substantial savings on top of your mortgage payment and house repair savings but are short of cash now.
posted by momus_window at 5:48 PM on May 11, 2021 [1 favorite]
3.5% is a low down payment in a hot market and it would be really easy to owe more than your house is worth, especially since it sounds like you’d plan to roll closing costs into the loan. You are right to be wary of tapping your retirement - it costs not only the balance but also the interest you would otherwise earn on diversified investments vs. sinking all of it into a bet that the value of your house won’t tank. What is your savings rate? If it would take you ten years to save a 10% down payment, that’s a different situation than if you have a large income and would have substantial savings on top of your mortgage payment and house repair savings but are short of cash now.
posted by momus_window at 5:48 PM on May 11, 2021 [1 favorite]
There was an article in the NY Times a couple of weeks ago that echoes a lot of the points people have made above about appraisals, contingencies, FHA loans, etc. Link
It talks about the reasons that sellers select one offer over another, which isn't always the highest offer.
posted by Dip Flash at 6:31 AM on May 12, 2021
It talks about the reasons that sellers select one offer over another, which isn't always the highest offer.
posted by Dip Flash at 6:31 AM on May 12, 2021
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For example, in Seattle, you wouldn't get a choice of "don't budge on appraisal contingency". Houses are going up on Wednesday or Thursday, showing over the weekend, and offers due by Monday to Wednesday. If you want any sort of contingency, you'll be beaten out by 20 offers who're waiving it all.
Similarly, it's less a question of "do you get closing costs covered?" and more "how much over list are you willing to offer?" and "How much are you willing to personally offer to cover a gap between appraisal and bid price?"
posted by CrystalDave at 10:03 PM on May 10, 2021 [6 favorites]