Hey Nerds,
From my last post, it’ll come as no surprise that I’m not exactly a fan of homeownership. I do, however, want to make it clear that when my NP4L bought a house he didn’t encounter nearly as many issues. Sure, there were still some hiccups, but on the whole his experience was vastly different.
Let’s take a look at the two home buying experiences
My Nerd Partner 4 Life’s experience:
- Home hunt started in February 2014
- Assigned a realtor by the relocation company managing all relocations related to the merger
- Number of homes toured: 20+ (some Saturdays we’d visit upwards of 8 homes in a day)
- Offers made: 6 (on one home, grandparents outbid us with a cash offer $18,000 more than asking price!)
- Offers accepted: 3
- Homes inspected: 3
- Offers withdrawn due to issues with the home: 2
- Closed in February 2015
Pros: greater amount of homes seen/extended search, originally very specific on areas/search criteria, ready to jump ship on offers
Cons: realtor was not a good fit, under a time crunch (despite what you may think from it taking a year), inexperience
My experience:
- Home hunt started in January 2018
- We met our new realtor at an open house in our neighborhood
- Number of homes toured: 4 (all on one Saturday)
- Offers made: 1
- Offers accepted: 1
- Homes inspected: 1
- Offers withdrawn due to issues with the home: almost 1
- Closed February 2018
Pros: better realtor, we didn’t need a new home so there wasn’t immediacy or pressure, greater understanding of home buying process and the area
Cons: moved quickly, saw only a handful of properties, we didn’t see red flags until well after the home purchase
First time home buyers are at a great disadvantage. You have no point of reference and you have to rely on family, friends, and your realtor to hopefully make the right decisions. If your family or friends haven’t bought a house during a seller’s market, or even recently bought a house, they may pressure to buy a home that isn’t a good fit for you. We were told you can “just glue the brick back together!” on a house with pretty serious exterior cracks. News flash: you’re the one who has to live in the house and live with your decision! If your gut says no, then pass.
Quick lessons before we dig deep
So before we start digging deep into trying to traverse the home buying process, here are quick home buying lessons we learned from both of our experiences.
- Set a budget and stick to it: If your lender pre-approved you for $200,000, DO NOT look at a home above your budget. You run the risk of falling in love with a home you can’t afford and you start negotiating with yourself to extend your budget. Your future self will thank you if you have the discipline upfront. (And don’t fall for a realtor telling you “it’s only $XX more a month!” on the mortgage payments. The total dollar amount matters, so look at how much it will cost you over the length of the mortgage. It adds up!)
- Determine your search criteria/specific areas: Take the time to research where you want to live before you start looking. This is as simple as jumping in a car and driving around. If you know that you love certain neighborhoods and hate others you can communicate that to your realtor and save time. We encountered this problem in another way. There weren’t abundant options in the cities we wanted and our first realtor started showing us other cities with higher listing prices. This move ended up pushing my NP4L out of his comfort zone. Thankfully our offers weren’t accepted on homes that weren’t in our ideal cities and ideal price points. This let us get back on track.
- Research before you go out with a realtor: To not have to see 8 homes in one day, which I assure you is a beat down, you can easily eliminate homes by driving by homes on your own. We learned this after the first home buying experience. We could have eliminated a few houses we found online simply from a drive by look at the physical condition. There were visible signs of foundation issues or a neighbor with a confederate flag hanging in the garage (or flag pole in the front yard). That’s a hard pass for us.
- Research your realtor: Just because a realtor was assigned to you or they’re a family friend/friend of a friend/etc., you do NOT have to work with them. This is possibly the largest purchase of your life and you need to have complete faith in the person representing you. We will go into more detail on realtors in our next post, but if you don’t read past this one let me urge you to make sure your realtor and you are on the same page: they know your budget, criteria, and desired neighborhoods, but also are knowledgeable and familiar with those neighborhoods. Their job necessitates both a high level of organization and attention to detail, as well as strong integrity. They need to have your best interest at heart and not their cut of the sale. And you absolutely can fire a realtor if you don’t feel like you are on the same page. Again, biggest purchase of your life! Don’t settle.
- Prepare your documents/finances: I cannot stress this one enough. There are documents, as well as proof of your finances, you will need to provide to your lender. Not having your documents and finances in order can cause a major headache. You need at least two months of pay stubs, two years of W2’s (unless you recently changed jobs and then you may need three), and two to three months of your financial transactions from the account you are making payments related to the home. If you have any major deposits into/transfers out of your bank account from/to another account you own, they may ask to see transactions for THAT account. During my NP4L’s home buying process, he forgot his checkbook one day and I wrote a check for the earnest money. Bad idea. The mortgage lender wanted to look at MY bank accounts since I had wrote the check for the earnest money. Thankfully we ended up withdrawing that offer and no one meddled in my accounts.
Fun Fact: If you know that you are getting ready to buy a home in the next 3-6 months, you can move all of the money you want to use for the down payment, earnest money, option period, etc. into an account that you don’t use for bills and let it sit there for two months. When you start down the path of buying a home and working with a lender, they will only need to look at that one account because there aren’t any debits or credits during that two month period. - Put in the work to learn how homes work: This sounds like a lot of work, but I promise you that you’ll appreciate your efforts in the end. If you know a few basics, you avoid some potentially expensive repairs down the road. For example, a floor shouldn’t slant (and bring a marble to check if it rolls on the floors). Federal Pacific Electric panels are incredibly unsafe and expensive to replace. Painted brick exteriors are an easy way to hide previous repairs due to foundation issues. Now a home inspector SHOULD catch many of these issues, but that’s not always the case. Our home inspector caught the FPE panel in a house and we ended up walking. My sister wasn’t so lucky. She had to replace her electrical panel several years after they bought their home. Plus, home inspections cost upwards of $500. You can save some $$$ with a little knowledge.
- Know the seller type: What do I mean by seller type? Is this the original owner of the home? Is it an LLC flipper who has never even lived in the home? These are two very different sellers. My NP4L’s home was sold by an older gentleman who had lived in the home for nearly 50 years. He wasn’t the original owner, but pretty darn close. My house? The woman bought from (we think) a wholesaler in November 2017 and she sold it to me in February 2018. She never lived in the home. She probably paid cash or hard money. Why do we say that? Because she had NO idea that my property is zoned mixed commercial use. You don’t have to have an appraisal completed when you pay in cash. Simply put, you are more likely to have less issues when you buy from someone who has lived in the home.
- Absolutely do an option period: Don’t cut this corner. We were able to walk away from two homes with major issues thanks to $100 option periods. You pay that money and negotiate a time period for you to have an inspector come take a look at a home. We recommend having a contractor also come at the end of the inspection. They can sync up with the inspector and then give you an idea of how much necessary repairs cost. For example, replacing an outlet with a GFCI outlet sounds serious, but it’s an expensive fix to remain code compliant. This option period is typically 5-7 days.
- Home warranties are the worst: Many home sales involve the seller paying for one year of a basic home warranty for the buyer. If the seller is willing to do this, go for it. It’s a small safety net in case something breaks. The issue is the fine print is pretty restrictive and the plans vary. If you don’t select a more robust plan, it may not cover major appliances. Plans often don’t cover foundations, HVAC systems, roof leaks, septic systems, windows/walls/doors, garage doors, etc. In the year I had my home warranty, they fixed two things (my AC unit and one wiring issue in my attic). They did not fix several plumbing issues and an issue with my electrical panel. They sent out a plumbing company that didn’t believe I owned the home (“where is your husband?”), didn’t seal a toilet properly when reinstalling it, and tried to tell me my sewage line went the opposite direction. Oh and refused to believe me when I said the city told me it went to the back of my property. I literally called the city. I know. If the service you need isn’t covered by your home warranty, get multiple quotes.
Buying a home isn’t easy, but it doesn’t have to break your bank or will to live. Remember that the internet (hi!) is a great resource. If you don’t know what an escrow account is, Google that shit! If your inspector explains something and you aren’t following, make them explain it again. And absolutely surround yourself with people who are working FOR you, not against you.
Next time we’re going to dive deeper into having the right realtor. I’ll try my best not pile on our first realtor…but boy was she bad. Until then, stay safe my nerds.