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Home buying advice? [Aug. 17th, 2009|01:55 pm]
John
So, let's pretend that I've just started wanting to buy a house.

I've heard it said that first, I should try to get approval for a loan... make sure that if I find The Perfect House, costing exactly $X, that I have approval for a loan that is $(X-Downpayment), plus cash for down payment and for other fees.

But let's pretend I'm doing that. What's the next step? Search for people (like real estate agents) or search for homes? (And - one website I saw suggested that a real estate agent is essentially free - either I have an agent who splits the agency feel, or the seller's agent gets the whole fee, or, if there's no agent, it all goes to the seller. Is this correct?)

Let's say I find a place. Selling price is $X. Is there any way to finagle "The house needs $Y of work; at that point, (some expert - an assessor?) says it'll probably be worth $(X+Y). So, BankPeople, you give me $(X + Y) - Downpayment, and I get $Y worth of work done." Or, is that a bad idea to take to a bank?

I'm asking this because I saw one place that is on a huge chunk of land - I'd love to have that much space, but the house needs "TLC". Which can mean "new paint and carpets," and I'm cool with doing that, or getting it done. But it can also mean "See that paint? You can't strip it off; it's holding up the house. In fact, what you really need here is a new house to hold the shape of the paint before the paint gets old and starts to crack and the whole thing collapses."

Finally - is there a wise person's way of getting an idea of what might need to be done to a home? If I was buying used car, I'd take it to a trusted mechanic and ask them to assess it. Is there a service to do that for houses? I've heard it said that the bank does an assessment (to make sure they're not over-lending) but I doubt that assessor is interested in giving advice to the borrower.
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Comments:
[User Picture]From: jhetley
2009-08-17 09:49 pm (UTC)
"Home inspection service" or "inspection bureau" may show up as a category in your Yellow Pages. Some architects and engineers also perform building inspections. Can you move the property to Maine? I doubt if you want to pay my travel and per-diem . . .
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[User Picture]From: johnpalmer
2009-08-24 12:00 am (UTC)
I'd love to hire you, but I'm afraid moving the property to Maine is out of the question :-). Maybe next time. But thanks!
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[User Picture]From: 64tbird
2009-08-17 10:03 pm (UTC)
Let's say I find a place. Selling price is $X. Is there any way to finagle "The house needs $Y of work; at that point, (some expert - an assessor?) says it'll probably be worth $(X+Y). So, BankPeople, you give me $(X + Y) - Downpayment, and I get $Y worth of work done." Or, is that a bad idea to take to a bank?

Absolutely the right thing to do in negotiating price.

I don't know the bank part though, but my experience is that banks are more than happy to bump the loan up a few thousand dollars for expected expenses like moving, painting, landscaping.
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[User Picture]From: 64tbird
2009-08-17 10:05 pm (UTC)
Oh - also, at least in CO, there are independent home inspection companies with licensed inspectors. Cost ~$250-500. Usually the realtors have the buyer and seller share the cost.

Again - use the home inspector to your advantage. Ask LOTS of questions about foundations, windows, floor joists, insulation.

What I did when getting an idea about painting my house was call everyone in the house painting section of my phone book. I got lucky in that I hit a company that had been residential but was now commercial. They were more than willing to give me a list of questions and what the answers should be when I asked them if I was talking to a legitimate home painter.

It may be worth your while to try and find a home inspector that will educate you in terms of what you should be asking about. Just tell them you are in the early stages of looking, and what you should rule out before you ever even get to hiring them once you've found a home to have inspected.

Edited at 2009-08-17 10:08 pm (UTC)
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[User Picture]From: grey_lady
2009-08-18 06:00 am (UTC)
Would you be prepared to share the knowledge thus gained from the painters?
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[User Picture]From: 64tbird
2009-08-19 01:55 pm (UTC)
Well - it was 10 years ago... so the paperwork and notes are gone.... so this is from the memory of a woman who has peri, and has two kids who eat her brain... I'm lucky to find my way home most days.

I remember that powerwashing MUST be included before painting, and that it MUST be allowed to dry a full 24 hours or the paint won't stick.

I remember that brush painting the trim is important, but not why.

I remember that the estimate should be clearly in writing, with a time line. (Half a dozen people in my neighborhood used the same fly by night guy who took weeks to paint rather smallish houses. The guy I settled on took 6 days.

If you have flowerbeds or shrubs and stuff near the house where the ladders would go - I'd personally suggest you make a clear plan for protecting those or get over it now. I had a vine growing around my front porch that had to be ripped out to allow the painters to do their job. Fortunately, I hated the vine. We called it Jumanji.

Get several estimates and what they include so you can compare apples to apples.

And that's about the extent of this poor brains capacity.
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[User Picture]From: grey_lady
2009-08-19 02:01 pm (UTC)
It is good, and useful, information. (The bit about the estimate is a good rule for *any* tradesman - we had four people in for a replacement boiler, asked for written estimates from all four, got them from two. Guess which ones aren't getting the work?)

Thank you!
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[User Picture]From: 64tbird
2009-08-19 02:23 pm (UTC)
DUH - most important of all - make sure they are bonded and/or insured!
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[User Picture]From: kightp
2009-08-20 06:43 pm (UTC)
Let me add: If you own, or are trying to buy, an historic home that needs repainting, AVOID POWERWASHERS. They'll shred old wood siding, and that stuff can be hard to replace. That means old-fashioned scraping and gentle washing with a non-powered hose, which can get expensive if you have a contractor do it.
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[User Picture]From: nolly
2009-08-17 10:18 pm (UTC)
One of the many advantages to using a good agent, in my experience, was that they also know good inspectors, repair folk, etc., and know how to negotiate -- for my place, the sale was contingent on the sellers getting some of the problems fixed, for instance.

Rolling the repair cost into the mortgage means you'll be paying it off for a long time, which may not be ideal.
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[User Picture]From: tiger_spot
2009-08-17 10:31 pm (UTC)
We drove around to some open houses to see whether we were, in fact, wanting to buy a house at this time.

As it turns out the answer is "yes", which has startled us into activity. I do not know what the canonical order of events is; "all at once" seems to be possible.

Have an agent show you homes -- they will be able to find more than you can on your own. Keep doing whatever you were already doing to find homes -- if you find some you like that the agent doesn't know about, either you need to talk to the agent about what you want or you need a new agent. Is my understanding.
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[User Picture]From: anansi133
2009-08-17 10:50 pm (UTC)
Home inspections run about $300-$500, last I looked. I don't know if it's the buyer or the seller who usually pays for them.

Once you identify something that would cost X amount of money to fix, you can write an allowance into the sales contract: they put that amount of money into an account to be used for just that purpose. I hear of this being used when the roof is bad and the sellers know it, but they don't want to fix it before there's a buyer.

You can also ask a realtor these kinds of questions without automatically cutting them in on the deal. They only get a slice if you use the multiple listing service to get the contact.
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[User Picture]From: jilesa
2009-08-17 11:03 pm (UTC)
My recommendation: it doesn't hurt to go to a few open houses on your own, but you should interview several real estate agents and choose one before you get too far in, and talk to banks (or your credit union) about financing very early on.

A good agent will know good home inspectors, and very often (unless the house is being sold in 'as is' condition) you can require that necessary repairs are done by the sellers before closing. If the house you want is being sold 'as is', it might be wise to have an inspection done before you make an offer, if you're serious about the house. That way you know what you're getting into and can adjust your offer accordingly.
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[User Picture]From: karenkay
2009-08-17 11:20 pm (UTC)
I spent about a year looking at houses with a friend before I bought mine, and this floorplan is very close to what I decided was my ideal. I spent one day looking with a real estate agent, and bought the first house I looked at.

I took a class on home-buying while I was looking--it helped me be a more educated buyer, in the end.

"Assessment" is for taxes; "appraiser" is for the bank to value your home; "inspector" is what you're looking for about advice for things to be done to the home.

When you DO look for a real estate agent, look for a buyer's agent, and make sure you sign a contract with him that spells out his responsibilities.

Also, I thought the dummies books (on mortgages and home-buying) were quite good.

Edited at 2009-08-17 11:21 pm (UTC)
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[User Picture]From: johnpalmer
2009-08-24 12:42 am (UTC)
Appraiser! Thank you! Assessor, Appraiser, I just couldn't force the two A words apart in my brain :-).
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[User Picture]From: karenkay
2009-08-24 12:59 am (UTC)
Well, my house is assessed at over $200,000, but the recent appraisal was for $175,000, so I'm exquisitely aware of the difference.

And my other hint is, don't get your mortgage through Citibank! (I am going through the refi from hell.)
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[User Picture]From: johnpalmer
2009-08-24 01:24 am (UTC)
Hah. In fact, I joined First Tech Credit Union just so I could try to get a mortgage through them. Given a choice, I'd always rather do a big loan through a credit union, but especially nowadays.
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[User Picture]From: essaying
2009-08-17 11:57 pm (UTC)
You can buy a house (especially in this market) conditional upon inspection. You pay a couple of hundred bucks to the inspector, and s/he tells you exactly what will need to be done. You can then negotiate with the seller, based upon that inspection.

When I bought my place in Oakland, I originally offered $475K. The inspection turned up some major issues. I went back to the seller and reduced the offer to $463K, and they went for it. (The big weenie for them is that the inspection you paid for must go into their disclosure packet... so if it's turned up Bad Shit, everybody else who wants to buy their house can look at the Bad Shit too.)

If you're approved for $X - Down Payment, and the house you want costs $X and needs a lot of work, the easiest way is to set aside the cost of the work from the down payment and just pay cash for the work. If you don't have enough money for that, you can take out a second mortgage to finance the work. It may be that there are first mortgages where you can take the mortgage for enough money to buy the house and fix it up, but I've never done it that way -- this is the kind of question that a competent agent can answer. And:

... yes, the agent is essentially free. If you don't hire one, the seller's agent will keep the whole commission and you won't have anyone representing you in the transaction, so you should definitely hire one. Ask your friends for recommendations. A buyer's agent isn't quite as tricky to hire as a seller's agent, but a good one can make a real difference in terms of spearheading the negotiations and shepherding the paperwork for you.
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[User Picture]From: suzilem
2009-08-18 12:57 am (UTC)
When I bought my house, I had my own agent. She split the commission with the seller's agent (6%/2). I paid for my own inspector ($300). He noticed a few things, which were put into the offer. We asked for the seller to pay all closing costs, plus a new roof, and a new inside part of the air conditioning (I can never remember which part is the compressor and which the condenser), and a couple other minor things. In response, the seller asked to raise the asking price $2k. We closed at $107,900, I paid the 3% FHA minimum downpayment, and my PITI (principal, interest, taxes, insurance) was about $975 the first year (it's gone up some since then because of property taxes rising).

Getting a good agent is critical IMHO, especially if this is your first time buying.

Another thing I chose to do was to get on my lender's "Equity Enhancement" program. I am paid biweekly, and half a payment is deducted every paycheck. That means that the first 12 months, I paid the equivalent seven months or so of principal. If I keep doing this, my mortgage will be paid off about 7 years early.
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[User Picture]From: laurarey
2009-08-18 01:08 am (UTC)
I'm up to my eyeballs in work/baby/home renos/etc, so writing everything out in response to your questions isn't an option. However, I would gladly call you tomorrow (or some other day) and share with you my experiences of having bought six houses in two countries. I've done it a couple of different ways and will be happy to share my knowledge. Let me know... laura.rey at gmail
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[User Picture]From: kightp
2009-08-18 04:30 am (UTC)
I'm no expert, but I will say that finding a buyer's agent before I started looking smoothed the way for me amazingly. Not only was she able to come up with a list of houses that fit my quirky criteria (including the one I wound up buying), but knowing she did so as *my* advocate, not the seller's, was enormously reassuring.

As for fixer-uppers: I don't know about current financing schemes, but I do know this: There will be an inspection for structural soundness, dryrot, etc. well before the deal can close. (ETA: The mortgage company will require it.) Again, having a buyer's agent can help; they may know of a particularly trustworthy and thorough inspector among the available pool. And at that point, it's pretty commonplace to negotiate with the sellers ("OK, if I have to do the work I'll offer you X, but if you get it done before I buy, I'll offer you Y.")

(And now, of course, I'm wildly curious about the potential house...

Edited at 2009-08-18 04:36 am (UTC)
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[User Picture]From: johnpalmer
2009-08-18 05:41 pm (UTC)
Well, the lot that interested me is nearly 3/4ths of an acre. There's a double-wide prefab on the land, so I'm sure the house is nothing special. And needing "TLC", as wyang mentioned, can mean a lot :-).

But I'm used to living in apartments. And having land means I could try to learn to garden. And a big enough lot will be valuable to someone, someday (maybe to me, maybe to someone else).
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[User Picture]From: kightp
2009-08-18 06:36 pm (UTC)
If it's not urgent for you to proceed, maybe you could arrange for us to take a look at it when I'm up weekend-after-next. My nine years of home ownership have made me acutely aware of the "little things" I missed when buying that have turned out to be bigger things than I thought (the drains, for instance...)
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[User Picture]From: johnpalmer
2009-08-24 01:30 am (UTC)
We might be able to do that... but I think I'll also want to be a bit careful about expectations. I'm very much in pragmatic mode ("If I'm going to be here at least X_Length_of_Time, I should be building up equity in a reasonable house that is worth Y_Dollars") and what I think of as a *great house* (because it's as nice, or nicer than, my apartment) might seem awful to you.
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[User Picture]From: kightp
2009-08-24 02:40 am (UTC)
Oh, I know. But I know what dry-rot looks like, for instance. (-:
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[User Picture]From: grey_lady
2009-08-18 06:04 am (UTC)
I've discovered that my 12-year stretch in the UK is enough that I've forgotten way too many of the lessons learned in buying 3 houses (sequentially) in the US - and things are somewhat different here. But I do wish you all the best on the journey!
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[User Picture]From: wyang
2009-08-18 01:07 pm (UTC)
First off, I have limited experience with this: I've bought ONE house, back in 2001. I also point out that this happened in Ohio, and that more local advice may be more relevant, because there are differences in laws from state to state that affect this.


USING A REAL ESTATE AGENT:
I used one, and I was really happy with her, but I can't speak meaningfully or intelligently as to whether this is necessary. Terry Ann did not charge us a fee directly; she got her cut taken from a split of the selling agent's commissions.


HOME INSPECTION:
In Ohio, you're required to get a home inspection prior to purchase. Our home inspection went in two phases -- one, we had an exterminator inspect the house for termite and other wood-boring insect damage, and two, we had an engineering firm (which specializes in inspecting "old houses") look at the various systems of our home... exterior: roof and drainage, siding, windows; interior: electrical, heating/venting/air-conditioning, gas, water, sewerage; and structural: basement & foundation. [His assessment, by the way, was dead on: he hit issues and timing on those issues very accurately. Services like Angie's List (I don't know if they have it out in Seattle) help to identify good assessment services, or referrals from friends in the area who've used such services in the past.

FINANCING A HOME:
I'm really not an expert on this, but the way we did it was to (a) determine a price that was suitable to the seller and to us, (b) determined how much serious work needed to happen from our inspection, and (c) negotiate with the seller to cover the code necessity expenses as a cash back payment at closing (when we actually took possession of the house). We paid X dollars, got Y dollars back cash at closing, and applied those funds to hiring electricians, plumbers, etal to make the repairs (some sellers will attempt to offer to make the repairs themselves: this was strongly advised against by our agent, because it has often led to sub-standard work being done on the property).

Another method is to negotiate a price with the seller, then offer to purchase at a higher price and receive back the overage funds. This is something that agents often do, but it usually increases your property taxes (by escalating the value).

A third method is to plan to take a second mortgage, immediately on the purchase against the value of your down payment, to get repair funds. In different economic settings, refinancing can sometimes get you funds, too.

OBSERVATIONS ON A HOME NEEDING "TLC"
Just FYI, I don't expect TLC to mean "paint and new carpet." TLC is typically code for needing to do some substantial work. The "TLC" my 2800 square foot house needed included 48 new windows, stripping and rebuilding a bathroom down to the construction beams, basement water system, tearing out and re-doing the 1920's era electrical work that had been patched by a (you picK: madman, fool, or idiot), having a professional re-plumb the gas lines to our stove and water heater, replacing our water heater, and substantial repair to the air conditioner, and adding a structural support in the basement. We got back $12,000, and have spent substantially more than that.

I'd interview several real estate agents to get a feel for how they do business; find someone you're comfortable with and where you both understand and can accept their fee structure. Ultimately, you may want decide to DIY and not use an agent, but the interview process won't hurt. Agents generally (a) help you to locate The Right House(tm), and (b) help iron out wrinkles and set expectations as to how the transaction will go.

-Bill
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