House buying tips?

July 29, 2005 5:53 AM

Experienced homeowners, help out a first-time buyer. What wisdom can you impart about the home buying process? What do you wish you had done differently when buying your first home?
posted by Otis to home & garden (36 comments total)

Not really experienced, but my fiancee and I bought our first place last November... Don't know if you've been renting for a while, or are moving away from the "parental units" (as someone here calls them!) - here's some of my thoughts and advice:

Firstly, get lots of recommendations for a decent advocate. We went with one recommended by my parents - but didn't check anyone else's experiences... they were *awful* and took *ages* to do basic things. We ended up dealing with three different people at the same firm, and had to keep chasing them to get anything done. Grr.

Also, our kitchen was partially fitted (all the units, etc. but no appliances; it's a newly built apartment) - I wish that I'd measured the spaces accurately, as they'd done a couple of really stupid schoolboy errors... the space for the oven was the standard 600mm, but then they put metal edging strips to finish off the look of the surface... which meant that it wasn't 600mm any more, and our oven didn't fit! They did a similar thing with the fridge/freezer space and the skirting board. Fools.

Some obvious things which you may already know about/do:
- check your neighbours (try to get introduced quickly, as it gets embarrassing after some months have elapsed!)
- find out what parking is available (do you have an allocated space? Is there room for 2 cars? Guest parking? Do you need a permit?); a bit moot if you've got a house with a drive, I suppose!
- find out where all your water and gas cut-off taps are (before you have a problem!)
- get a small cheap toolkit together (hammer, screwdriver, ruler, etc. maybe even a drill) - fortunately my Dad lives reasonably close, so I could borrow his. Make sure you have a torch at hand in case of a power failure!
- we decorated before moving our stuff in, which really worked well. Don't know if this is an option...

HTH!
posted by Chunder at 6:26 AM on July 29, 2005

Take a class on home buying if there is one offered in your community! It could save you a lot of money.
posted by k8t at 6:29 AM on July 29, 2005

Thanks for the advice Chunder. I'm 36, with a newly-expanded family, and have been renting all my life. To be honest, the whole home-buying process scares the crap out of me, and I'm hoping the MeFi crowd can help out a NOOB.
posted by Otis at 6:34 AM on July 29, 2005

Avoid an interest only mortgage. Put down at least 20% so you'll have some equity and a lower monthly payment from the outset. It may or may not make sense for you to make an even larger down payment, but make sure you've got plenty of money for the inevitable "exrtas" that will pop up out of nowhere.

Pay down principal whenever you can (I tend to use my annual bonus since it's essentially "found money").

What would I have done differently? I purchased a rubbish filled "fixer upper" solely on the basis of cost - about 40% discount to market at the time. While it's far better then when I first bought it, I've got a fair amount of work remaining almost four years later.
posted by Mutant at 6:41 AM on July 29, 2005

Be absolutely sure to get an inspection (and make any offer contingent upon passing an inspection).

Our offer moved so fast and had so many people interested that we had no time to run the paperwork past an attorney. It worked out OK, but if I were doing it again I would line up an attorney in advance and run through what the paperwork should look like.

Get your financing worked out in advance, and get a letter of commitment from the bank as to how much you can borrow.
posted by handful of rain at 6:45 AM on July 29, 2005

Make sure your realtor gives you all listings in your price range. They will try and steer you towards listings within their own office as these are more profitable for them.

If your offer is accepted, get the pest and contractor's inspections done quickly and read them very closely. This will give you time to either re-negotiate the price based on problems, or drop out of the contract.

I'm assuming you have been preapproved for a loan amount already. This is a must. If possible, borrow from relatives if you need to, but try and get 20% down. This allows you to avoid buying PMI (private mortgage insurance) which can cost you an extra 50-100$ a month.

Realtors will try and make the process mysterious and keep you in the dark. Get a good book on buying and if your realtor is vague on anything, fire them. As a group, they are the slimiest people on earth.
posted by joseppi7 at 6:49 AM on July 29, 2005

Don't feel like you've been touched by the hand of God just because a bank is willing to lend you money. Shop around for a mortgage just like you would any other product. Ask tough questions, read the fine print, get a list of all closing costs.

Just because a bank is willing to lend you a certain amount of money, it doesn't mean you can afford to buy as house in that price range.

If the only way you can afford the house is through an adjustable-rate mortgage, or (heaven forbid), an interest-only mortgage, you probably can't afford the house.

Do a worst-case hypothetical scenario. What if in the next three years you had to move, and sell your house for 20% less than what you paid for it. Would it wipe you out? If so, you may want to scale back your intentions.

Most importantly, you're going to fall in love with one or more properties. It's very natural, and it's also a big mistake. Set your price in stone, and stick to it. There will be a million more homes for sale if you don't get this one.

And when you do finally buy a house, your biggest moment of panic will be about 12 hours after they accept the offer. If you adhere to the above warnings, ignore the attendant anxiety. Soon the place will be YOUR HOME, and you'll wonder why you didn't do this sooner.

Mazeltov!!!
posted by Kibbutz at 6:54 AM on July 29, 2005

Great stuff everyone! Keep 'em coming! joseppi7, yes, we are at the "pre-approved" stage. An additional question, does anyone know anything about Down Payment Assistance Programs? One realtor mentioned a group called Liberty Gold. On the surface, it sounds almost too good to be true.
posted by Otis at 7:13 AM on July 29, 2005

Remember that a traditional realtor is working for the seller, not for you. Resist the temptation to confide in them exactly how much you are willing to pay for a particular house. They are obligated to tell the seller any information that bears on the terms of the deal. Consider using a buyer's broker instead. Use your Google-fu for info on buyer's brokers and how their fees work.
posted by ottereroticist at 7:28 AM on July 29, 2005

In all likelihood, the single thing I can tell you that will save you the most money is to get a fixed-rate mortgage. Once the Asian banks decide to stop doing America's saving for it, expect double-digit interest rates.

There are some odd costs in buying a house that could fall on either party, like who pays the buyer's agent, who pays the seller's agent, who pays the title company, blah blah blah I don't remember the others, that are in theory negotiable but in practice have a well-defined traditional payer. However, who that is differs by city! Find out who that is in your area, and object if you're getting stuck with charges that local tradition says go to the seller.

Not to make you too paranoid, but the system is a little broken w.r.t. the incentives on the buyer's agent. By law, they're representing your interests. But they only get paid if you buy a house, and they get paid more if you buy a more expensive house. (The difference between e.g. $600K and $500K is much less than $500K and 0, so this latter concern is not so important.) If they behave too egregiously, they can have their license taken away, so it's not like they're all crooks. What it is like, is that they'll tell you each house you see is great and reasonably priced and you should probably buy it now rather than wasting any more of their time. So don't take their opinions too much to heart.
The best is if you can drag around a recent homebuyer friend when you look at houses.

Pre-approval was described above as "a must". Indeed, if you're not approved for a loan already, then you're so far removed from the home-buying process as to not count. (I understand that it didn't use to always be this way.) By all means spend your Sunday afternoons looking at houses, but until you're approved none of those houses could be yours. On preview: you're pre-approved, good.

Don't get your knickers in a twist over "everybody pays x over asking price!" where x depends on the city -- 0, 30%, -10%. City by city, people have an idea of what x should be; multiply the numbers you see by 1+x and move on. All it means is that people selling a house say "I think I should actually be asking for this, so instead to conform to local tradition I'll ask for this/(1+x)." If, for example, x=25% and somebody wants to sell their $1M house, they can't say "We want $1M" because buyers will say "they want $1.25M? that's ridiculous for that house". So they say "We want $800K" and, following in the Kabuki dance, buyers offer $1M.
posted by Aknaton at 7:36 AM on July 29, 2005

Well, it's been one year since my husband and I bought our home, so I don't know if that qualifies me as experienced but here are some thoughts.

Homebuying for Dummies is a very helpful book. I highly recommend it. I wouldn't take every word as gospel (for some reason, they are really against mortgage brokers, which I don't get) but it will really help you understand the process. Another great resource is the Buying and Selling Forums at That Home Site. Read through the threads; you'll find a ton of information there.

You have to have your financial house in order before you start looking. Have enough money saved up not only for the down payment and closing costs but also for emergencies that may crop up within the first several months.

Spend the time to find a really excellent real estate agent. That said, don't assume that the agent always has your best interests at heart. I had a great agent but there were times when there was this tension between what she suggested and what we thought was best for us.

Referrals from friends and coworkers can be helpful but it's more important that you find an agent who really knows the neighborhood you want to buy in. (We found our agent through our neighborhood's architectural preservation society.)

A home inspection is a must. Don't let anyone talk you out of it. Find the home inspector yourself; don't go with an agent's recommendation. You want to know this person is serving your best interests and is not just trying to preserve the deal so that he/she can continue to get referrals from your agent.

When your inspector finds problems with the home, you can negotiate for repairs, closing credits, a reduction in price or you can take the house as is. I personally would recommend either a closing credit or price reduction as the homeowner has no incentive to do anything but the quickest, cheapest repair possible. In my situation, our report turned up numerous problems and we just negotiated for the most serious ones.

You need a lawyer to review your contract. This is a must and should only cost you a couple hundred bucks, unless you run into trouble.

I believe this is illegal in Ohio, but in case it's not--Don't let any agent talk you into a dual agency situation. This is one in which the buyer and seller are represented by the same person. This is asking for disaster, so avoid it. If you find you want to buy a house that your agent represents, he/she should refer you to another agent in her office to represent you.

When you're shopping for a mortgage, keep in mind your mortgage will probably get sold to someone else in the near future. This means don't choose a lender just because it's where you do the your banking. Find someone who is offering competitive rates and fees. Look at the whole picture--closing costs, rate locks, upfront fees and rates--when you pick a lender or a broker. I actually found brokers were much more competitive than working with banks directly and I was able negotiate some of the fees.

As for the ideal mortgage product for you, that really depends on your needs and the length of time you plan on living in the home. I would avoid interest-only, no doc loans and basically any kind of creative financing deal that's only purpose is to get you into a house that your really can't afford.

There are many loan programs that will let you put less than 20% down and not incur private mortgage insurance or PMI. The generally accepted wisdom is avoid PMI. It's not tax deductible and can cost you hundreds of dollars each month until you have 20% equity (either through payments or increases in value).

In many cases, you can take out up to $10K without penalties from your 401K plan to put toward the home purchase. You will owe taxes on this money, though.

Last thing: According to my financial adviser, most people spend about $7,000 in the first year of homeownership on small repairs and home decor--painting, tools, blinds, furniture, that kind of thing. Just keep this in mind.

The first several months of we owned our home, we were at Home Depot every weekend. There's just tons of stuff you'll need that you probably never had because you were a renter. Garden hoses, snow shovels, plumbing snakes, not to mention equipment for home improvement projects.
posted by Sully6 at 7:37 AM on July 29, 2005

I am currently in the process of purchasing my first home and the one thing I wish I really understood was all of the negotiating terms. A credit issued during negotiations is not money you get at the end - it is applied to the principle of the mortgage (you essentially have put down a larger down payment). This stinks for me b/c I need the "credit" to replace the furnace and I will now have to scrounge up the cash or take out a home equity loan (which I can do, now that I will have more than 20% down). They can only put that money in escrow if it is a cash deal.

Get recommendations from your friends and family for home inspectors and appliance repair places. My real estate agent (buyer's agent) has been really helpful, but I feel like there may be a conflict of interest in some situations.

Shop around for a real estate agent. Mine refused to let me sign a buyer's agreement until we went through one round of house hunting (and then he asked me to take it home, read it, and call with any questions). That way neither of you are stuck with a poor personality fit. The buyer's agent should work for you and disclose any conflicts in advance of viewing a house (such as being a dual realtor for a piece of property). Make sure they know how much you are WILLING to spend, not ABLE to spend. Only tell them you can come up with XX% for a downpayment, not a $XX amount.

If you get a weird feeling from a seller, like I did on the first house I really wanted, walk away. They are not ready to sell and you will jump through hoops and get nowhere. If a house seems really overpriced for the area, they may be using a bank's evaluation of the property. This will be skewed, as they want to give the homeowner the biggest loan to make the most money. This is not necessarily what the house is actually worth, but the homeowner will not want to take a "loss".

Best of luck. Feel free to e-mail me with any questions.
posted by blackkar at 7:50 AM on July 29, 2005

Have a buyer's agent. DO NOT DEAL WITH SELLING AGENTS BY YOURSELF! A selling agent wants to sell only those properties on which she will make a commission. A buyer's agent gets a cut of any purchase you make -- out of the selling agent's fees!

While your agent isn't allowed to suggest how much to bid for a place, they can give you valuable information about how much comparable properties are closing for, right off the top of their heads. You can get access to this information yourself, and it's a good idea to research the market a bit before you go shopping, but it's really useful to have someone who really knows the market on your side as you check out properties.

While it's nice to put a lot down, be realistic. Not everyone has $85,000 to put 20% down, especially for their first purchase. Guidelines like that may have been valid back in the 1970s when mere mortals could afford decent homes, but aren't really applicable to today's market.

Avoid adjustable rate mortgages. Rates are likely to go up.

Don't let the money burn a hole in your pocket. Find a property you really, really, really want and then bid. Don't bid on a property you don't feel strongly about.

Realistically assess how handy you are and how much time you have on your hands. Don't buy something that needs work unless you really and truly both know how to do the work, and have the time to do so. In my case, I probably could have figured out how to fix things, but I was too busy working to pay for the house to do it.

Have access to a fax machine. In the course of getting financing -- using a mortgage broker who did most of the hard work! -- I had to send something like eight or ten documents via fax.
posted by majick at 7:53 AM on July 29, 2005

If you see a house you like and you happen to like their pool table/commercial stove/big screen tv/etc, ask if it's included in the house or if you can work it into your bid. You might be surprised at what you can get for a song. We know someone who got a brand new SubZero fridge for a $100 just because they asked and the people didn't want to move it.
posted by Atom12 at 8:20 AM on July 29, 2005

During the home inspection, you should be tagging along with the inspector/engineer and he/she should be giving a running commentary on the house. If it all sounds pretty good, it's worth your while to ask the inspector if he/she is telling you what you want to hear. Of course you want to hear that the house you've fallen in love with is in great shape & needs nothing, but it's in your interest to find out the cold hard truth.

Also: No matter how much of a hurry you're in to get out of your current rented craphole, if your new house needs work, get it done before you move in. Much, much easier that way. This may be obvious to some but I had to do it my way and now we have paint peeling off the damn ceiling.
posted by scratch at 8:34 AM on July 29, 2005

Avoid those ARMs and interest-only mortgages.

You will spend a lot of money on unexpected repairs during your first year of ownership; I had to replace the water heater about a month after moving in.

Fixers take a fair amount of $ to fix, and while most of that money will go to your cost basis when you resell, you will not recoup all of it. Ask yourself if the upfront savings are going to be worth it when you cash out.

Speaking of reselling, you should buy the house not just as a potential resident, but as a potential seller. Are there problems with location? What's the school district like? Are there going to be annoying maintenance issues? Etc.

Old houses (think 1920s and earlier) can be Very Cool, but they can also be Very Hellish to maintain. (I live in a village filled with houses built anywhere from the mid-19th to the early 20th c., and their owners report all sorts of maintenance headaches: everything from wood siding that has to be repainted every three years to structural flaws to basements from the dark lagoon.)

See if you can get word-of-mouth recommendations about your inspector; mine somehow failed to note that the roof was not attached correctly (!), which resulted in $$$ down the line...
posted by thomas j wise at 8:50 AM on July 29, 2005

Summer is ending soon and panic will start setting in with sellers at the beginning of October. No one wants to move during the winter and people start to feel desperate if their house has been on the market since spring with no takers. Also, wintertime snowfall makes home inspections difficult. Foundations will not be fully visible and it will be difficult to assess the roof. So, it's good to start looking now but hold out until early fall. You'll be able to find good bargains then.

Also, people are more likely to negotiate in your favor if they're selling an estate house rather than one of their own. Sometimes people just want to get rid of the house and move on with their lives.

Good luck!
posted by Alison at 9:12 AM on July 29, 2005

Rule Number One: Always be prepared to walk away. This applies especially to automobiles, but also to houses.
posted by five fresh fish at 9:16 AM on July 29, 2005

Understand the math for mortgage interest and try out a lot of scenarios. Quick calculations at a mortgage interest calculator: 6% on $400K for 15 years makes for a monthly payment of $3,375.43. For a 30 years, $2,398.20. Another $1000 a month for 15 years saves you over a quarter of a million dollars over the life of the mortgage.

That said, don't stretch yourself to where any financial shortfall would compromise your ability to pay the mortgage.

Ditto everyone else about avoiding flexible-rate mortgages. Our mortgage broker tried to pressure us into one big-time ("You can always refinance for a lower monthly payment later!" -- an attitude that coincidentally makes more business for him.) I forget the exact numbers, but we're paying something like $12,000 extra over the next five years for a fixed rate mortgage over what we would have paid for a flexible rate mortgage. So for just $12K, we guaranteed ourselves a dirt-cheap interest rate for the lifetime of the mortgage.

Be patient. Be willing to walk away from a house if the deal goes sour, or the inspection doesn't turn out well. (And ditto everyone else: get a good inspector; don't even consider getting a house if someone's trying to pressure you into skipping the inspection.)

When my wife and I bought, we paid a premium to get something that wasn't a fixer-upper. We haven't regretted this for a minute: even a house without lots of big obvious problems is still a lot of work.

House-buying law and practices vary a lot from state to state, so be sure to find out what's right for Ohio.
posted by Zed_Lopez at 9:25 AM on July 29, 2005

Here's some really, really simple advice, on a topic I feel very qualified to speak on.

First, don't buy your "dream" house for your first house. In other words, don't spend a lot of money trying to get features you think you want.

For your first house, buy a house that you can easily afford (don't have 90% of your income going to a house payment), and make darn sure it's in an area where you can sell easily.

I say this because you're going to have to things happen to you. First after you've lived in a house for a while, you're going to find out what you like and don't like. Maybe you wish room A was bigger, or room B was located here, instead of there, or something. Second, when you've figured this out, you'll be ready to move, and if you're in an area that's easy to move houses, well easy peasy, as they say.

I'm sure you're area will have an area of low cost homes designated as usually "for first time home buyers". This area usually has small, older houses, with rock solid prices. You're not going to make hardly any money, but you'll be able to get out easy, too.

Cheers, and best wishes.
posted by kungfujoe at 9:47 AM on July 29, 2005 [2 favorites]

Since a number of folks are recommending fixed-rate mortgages only, I just thought I'd pipe up with some information about hybrid loans, which many may not be entirely familiar with.

A hybrid loan has a locked rate for a set number of years and then adjusts, once year, based on an index, like the LIBOR or COSI. Typical hybrids include a 3/1, 5/1 and 7/1--meaning loans that are locked for three, five and seven years respectively before adjusting once a year for the rest of the life of the loan.

Now, why would you buy one of these loan products instead of a fixed-rate? Well, if you are buying with the thought that it's a starter home or are anticipating a career move in the future, these loans make perfect sense. You reap the benefits of an adjustable rate mortgage but you have the security of a locked rate for the first several years.

I talked about hybrids in an earlier thread here. and here. I would only recommend a hybrid that includes a lifetime cap--meaning that the loan cannot exceed a certain number of percentage points--and a per annum cap, meaning that the rate can not go up more than a certain number of points each year. When I was mortgage shopping, a typical product was 6 points over the life of the loan and 2 points per year. Of course, make sure you can make the payment if your rate goes up while you are still living there.

I would also add that you can hedge your bets on this. If you think you'll be in that house anywhere from the next 5-8 years, a 5/1 with all the caps I mentioned above might be your best bet. The idea is that the cost savings your reap over the first five years of going with a hybrid instead of fixed-rate will offset the increase in payments in years 6-8.

All that said, there is security in fixed-rate that appeals to many people. You decide what you're most comfortable with. Financial decisions are often enough based on emotions and dollars and cents.
posted by Sully6 at 10:02 AM on July 29, 2005

Sorry for the bad link above. Here's the comment I meant to link to.

By the way, feel free to e-mail me if you have questions. I spent a lot of time researching this over the last two years.
posted by Sully6 at 10:09 AM on July 29, 2005

When you negotiate the sales agreement, try to get one or two visits to the property between sale and closing, particularly if it's a long wait. I had three months on my purchase between the agreement to sale and my possession date.

These visits are very handy---you can use them to measure for drapes, estimate the amount of paint you'll need, and so on. In my case, my insurance company wanted pictures of the new fireplace before they would insure.

Secondly, if you are moving across town, moving from rental to ownership for instance, try to arrange for a month overlap. This is easy if you're renting. It takes a huge amount of stress out of the move. You have time to paint without having to live with fumes, moving can be done over several days, you have time to clean your old place so you can be sure of getting your deposit back, and so on.
posted by bonehead at 10:16 AM on July 29, 2005

If you are a first-time home-buyer, do look into any assistance you can get from your community (or the one you're moving to). Some places have very attractive programs in place to encourage home-ownership in certain neighborhoods. Frequently these neighborhoods are "blighted" in some way, but just as often they are on the verge of a turnaround.
I know of people who got grants (that's right - don't have to pay it back) for their 20% downpayment, or low-cost loans, or money for re-hab, etc. (sometimes more than one of these).
Go to the local community development office and ask around, also ask at the planning office (where the permits are offered), that's where I saw the information when we bought our house a few years ago (2nd house, so we didn't qualify).
And listen to Sully6 about hybrid products - they can be like found money if you use them right.
posted by dbmcd at 10:23 AM on July 29, 2005

My husband and I just bought our first house and are closing on it a week from today. (squee!) Everybody on this thread has given some great advice, but here's my two cents:

- A traditional 30-year fixed-rate mortgage is the only way to go. Under no circumstances should you get an ARM (adjustible rate mortgage), because the only direction rates are going to go is up, and probably sooner rather than later.

- Give the largest down payment you possibly can.

- Don't forget that in addition to the monthly mortgage payments, you'll be paying monthly property taxes and insurance. Property taxes are low here in California, but if you live somewhere like New Jersey, watch out, they're pretty much insane. In other words, remember that there are hidden costs of home ownership other than the actual cost of the house.

- When you start transferring money to the escrow company, do it sooner rather than later. Liquidating stock and investment accounts takes a lot longer than you might think.

- Buying/closing on a house on the West Coast of the US is very different than buying/closing on the East Coast. For one thing, lawyers are rarely involved in the West, other than doing a cursory check of the title insurance papers; the escrow company handles almost everything and prepares all the papers.

- A good, detailed inspection is a must. Ours turned up several small problems (which could have potentially turned into larger problems some day) that we elected to have the sellers fix before close of escrow, rather than taking a discount.

- As soon as you move into your new home, you must throw a HOUSE PARTY!
posted by Asparagirl at 10:50 AM on July 29, 2005

I have two pieces of advice I haven't yet seen mentioned. The first is that if you have to pay PMI (private mortgage insurance) because your downpayment is less than 20%, you should try to get out of it as soon as possible. You will pay at least $100 a month for PMI, for which you receive nothing; it only protects the lender. Once you buy the home, however, any rise in its value belongs to you, not the bank. This increases the percentage of its total value that you own. Once you own 20%, you can request that the bank drop the PMI. Here's how I suggest you do it:
1. Wait until you have a reasonable belief that your house has increased sufficiently in value.
2. Ask a local real estate agent to give you a written evaluation of the value of your home. The agent will provide a report that includes "comps" -- comparable homes that have sold in your area -- that back up her estimate of the home's value. The agent will do this for free, because they'll want your business in the future.
3. Talk to your lender about dropping the PMI. They will probably want a formal appraisal, which you will have to pay for. If the appraisal does not come in high enough, use the comps in the real estate agent's estimate to negotiate a higher appraised value.

My second piece of advice is to, when shopping for a house, evaluate it for expandibility. If it has an unfinished basement, does it have enough headroom that you could finish off the ceiling and build up the floor to create more living space? Is there a separate garage that you could convert to a cottage or home office? Does it have a gable-end roof that might provide usable space, or is it a hipped roof (pyramid-shaped) that provides less room? The key is to look for parts of the house where you can expand living or storage space without having to change anything structural. The resulting space might not count as official "habitable space", but it will make the house more usable to you.
posted by tsackett at 11:33 AM on July 29, 2005

There is a ton of good advice in this thread. I only have a few additions.

Real estate agents want you to buy, whether they are representing the seller or you. Anything they tell you should be considered a rumor unless it's in writing. One agent told me I'd have access to two pools at a condo complex. Turns out it was two complexes, under different management, and I would get acess to only one pool. At another condo development, the numbers were three pools, two actual. I recently had an agent tell me that a 6D certificate from a condo association would cost over $100. It was $25. I believe this misinformation was just intended to make her look in-the-know. (In general, she wasn't.)

Lending banks always want more paper, regardless of what they tell you. Expect it, and don't think you or they can predict what paper they'll want. I think they make it up as they go. This continues right up until closing, and sometimes beyond.

If you can afford it (and the large down payment) consider a 20-year or even a 15-year mortgage. You'll wind up paying the bank far less money.
posted by Kirth Gerson at 12:20 PM on July 29, 2005

A traditional 30-year fixed-rate mortgage is the only way to go. Under no circumstances should you get an ARM (adjustible rate mortgage)...

I swear I'm not a mortgage broker to be harping on this, but Asparagirl's statement is simply not true. Here are a few scenarios:

A colleague of mine just refinanced to a 15-year 5/1 ARM. Once his son moves out, he and his wife plan on downsizing to a condo. He figured he'll probably be in his house a maximum of seven more years, so the ARM makes sense.

Another colleague, a newlywed, just bought a townhome. She and her husband know that they'll outgrow the place once they start a family, so she also purchased using a 5/1.

My sister-in-law just purchased a new construction home outside St. Paul using a 7/1. The town used to be strictly a vacation spot, but that's slowly changing as people are priced out of the city. She anticipates that as the area grows, her property will appreciate significantly. She is also in school for a master's degree. She figures that within the next eight years or so her equity will be such that she can sell and move back into the city, especially considering the increased earning power she'll have with her master's degree.

So, Otis, evaluate your situation carefully, crunch the numbers and make a decision you can live with. Find out under what circumstances a hybrid might work for you and in which situations a fixed-rate loan makes more sense.

Incidentally, with regard to PMI, that is very easy to avoid with an 80/10/10 or 80/15/5 program.

An 80/10/10 is where you put down 10%, have 80% financed as a conventional mortgage and have the remaning 10% financed as a HELOC or home equity loan. Same thing applies with an 80/15/5, just with different percentages.

These are common programs, although you may see your interest rate rise a quarter-point or so. Just make sure you know how the additional 10 or 15% will be financed--whether it's a HELOC or a home equity loan and what the terms are--fixed-rate or adjustable--10-year, 15- year or 20-year. Generally speaking, if you chose a fixed rate for the second loan, you will pay obscenely high rates.
posted by Sully6 at 12:52 PM on July 29, 2005

Sully6 has got it right on loans, everyone's circumstances are different and for this reason choose a loan that works for you. I think the average time that folks spend in a given home is 4 years. On the one hand borrowers get fixed loans and pay much more that they have to in interest just so they know their rate will never change and on the other end the risk takers get fully adjustable (every month!) interest-only LIBOR loans. There is a huge grey range of borrowing options in between...choose wisely.
posted by philmas at 1:24 PM on July 29, 2005

Two more points on inspections:

* My experience (Calfornia and Washington) is that there are three inspections - standard/basic, pest, and roof. The standard/basic normally has a disclaimer about pests and roof condition. If you're paying (say) $200,000 or more for a house, it's worth spending (in my opinion) another $500 or so for the pest and the roof inspections, in addition to the basic inspection.

* Someone commented that their inspection turned up several small problems (which could have potentially turned into larger problems some day) that we elected to have the sellers fix. In most cases a seller will fix problems found, or reduce the selling price, but this is totally optional on the part of the seller (though refusal to do one or the other is grounds for the buyer cancelling the purchase offer). In another thread, a buyer was considering backing out a deal because the seller would not fix a water heater. The general consensus of the thread was that if the price was right, the buyer should continue forward even though he/she might end up paying for this repair.
posted by WestCoaster at 1:31 PM on July 29, 2005

I don't think I saw this above, so I'll add my two cents....

Get title insurance. Your mortgage holder will have title insurance of its own, which is what you're paying for when you see that item at closing. You need to get your own title insurance.

Why? Because (and this happens in my part of the country) you or someone else might discover that your house is built on top of something like an ancient burial ground, or an archeological site. If that happens (say you were digging a swimming pool and found evidence of a burial ground), your home could be taken from you by a tribal group or other organization, and you'd be left with nothing. Your mortgage holder would have title insurance to take care of their loss, but you wouldn't -- unless you had title insurance of your own.

You might laugh, but this happens occasionally, and you don't want that occasion to be you.

The other piece of advice was one I did see above: Be prepared to walk away. Don't get your heart set on any house. It's just a house, and odds are you'll find something as good or better. We nearly walked away from our current home over a $100 repair, which was absolutely necessary and outlined in the contract. The seller refused to live up to his agreement, and we threatened to walk. Our realtor stepped in and paid for the repair out of her commission. If she hadn't, we'd be living somewhere else.

If the seller thinks you're 'in love' with his home, you lose the negotiating advantage. No house is worth that.

We've bought five houses and sold four of them. We've learned lessons each time. Experience is the best teacher.
posted by lambchop1 at 2:17 PM on July 29, 2005

With my various house puchases and sales, I've had contracts with six different real estate agents in my life. Three were excellent, and I'd recommend them to anyone; three were less than worthless, and caused all sorts of problems. I don't know if this is a fair sample or not, but I suspect that there is a high percentage of incompetency in the real estat biz. So, my recommendations:

- Interview your prospective agents carefully, and get word-of-mouth recommendations if you can.
- Don't believe everything they tell you! If something sounds weird, read up on it yourself. Also, maintain your own lists of things to do (deadlines, reports, inspections, etc) so that nothing slips through the cracks. A good agent will do all of this for you, but they're not all good.....
posted by Daddio at 2:31 PM on July 29, 2005

If you're in the U.S., Lendingtree.com can always beat whatever rate your bank is giving you. We bought a house a year ago, my mom is closing on another house today. We used LendingTree each time. Go ahead and apply, even if you're already preapproved by your bank, there's no commitment.
posted by exhilaration at 2:36 PM on July 29, 2005

Thanks everyone. This is all great stuff...exactly what I was looking for.
posted by Otis at 6:44 PM on July 29, 2005

by the way... something i wanted to post yesterday and forgot to:

some states (california is one) have anti-deficiency judgement laws on the books, but they only apply to the "purchase money" mortgage. what this means is that the loan is secured *entirely* by the property. if you default and the lender repos the house and sells it for less than they loaned you, they can not come after you for the difference between the loan and what they sold it for (the "deficiency").

HOWEVER, if you refinance the house, that protection is gone. obviously lenders never tell you this when you are seeking refi.

so in some kind of doomsday scenario, this might save your bacon. its just one more thing to consider when figuring out if you want to structure the loans such that one day you will have to refinance.
posted by joeblough at 3:26 PM on July 30, 2005

re: inspections.

If the house is being inspected while the current owner's furniture and stuff are still there, make sure the inspector looks behind/under the furniture and under any throw rugs. We found out too late that our living room wall had a huge rot spot--water damage from the adjoining bathroom's leaky shower--cleverly hidden behind a couch during our inspection. Floor cracks and stains can be lurking under that stuff, too. Let the seller know that you'll be checking behind/under the furniture, in case they want to either move it themselves beforehand or stash any breakables.

We will probably have a separate engineering inspection next time. Our home is a concrete slab on clay soil, and we probably could have negotiated a lower price had we known all the work we'd have to do on the foundation.

"But the current owners have documentation of all major home repairs, including warranties," you say. This is a good thing. But are the companies that did the repairs reputable? If they are no longer in business, who's going to guarantee the work? Call and check on any warranties to make sure they are still in effect. We bought a home with two years left on the foundation warranty. We called the foundation company about six months after we'd moved in only to find that they were out of business, no one was guaranteeing the work, and they had a number of complaints to the better business bureau.

Finally, I would check any large trees in the yard. Mature trees are a big selling point, so most folks don't really think about the problems that may arise. Are the trees well maintained? Are they near the end of their life cycle? Are the roots exposed? Are any of the branches touching the house? Random falling branches, termites, tipping over, and carpenter ants are all potential tree troubles. Having trees worked on can be expensive, so you may want to renegotiate the price accordingly.
posted by whatnot at 9:10 AM on August 1, 2005