First and foremost, figure out what you can afford. There are online calculators that can give you a ballpark. A good realtor would be able to suggest a few lenders to talk to. Just getting an estimate of what you can afford is not a commitment to get the loan from that particular lender.
Also, agree with others that you need an experienced home owner to help you tour a few open houses. This person can help point out those things that can become a headache in the near future or a few years down the road, like a hot water tank that is approaching the end of its lifespan. A good realtor will do the same. Run away from realtors who ooohhh and ahhh about everything. A good buyers’ realtor should be able to point flaws and nice features with impartiality.
Don’t be put off by dark paint and outdated door hardware - that cosmetic stuff can be fixed cheaply with a little elbow grease. And get used to the idea that you need to get handy! If you never took shop in HS, don’t worry. Home Depot and some other hardware stores hold classes on how to lay tile, prep and paint woodwork, and much more. Check if your city has a tool library (a place where you can borrow tools if needed for free or for a minimal fee). Look at the sites like Pretty Handy Girl blog. She went from a “help, my bathroom has a leak, what do I do” to a licensed contractor.
Others have covered the PMI and 20% down issue effectively, but remember as well that you will have to pay property taxes and only $10K is deductible under the new laws. This may not be an issue where you live, but it is in my area. Also, you will have to have homeowner’s insurance; all mortgage holders require proof of a policy at or before closing. In addition, you will be paying for heating, water, gas and electric and other maintenance costs that may not have been an issue when you rented. Some places also charge separately for sewer and garbage pickup. I would recommend buying less house than you qualify for. If I had bought a house at the level I qualified for, I might have gone into foreclosure when I lost my job. Instead, since I bought a house considered “below my means,” I was late for one month till I got a new job and was able to catch up.
To clarify about the buyer’s contractual relationship with the resale estate agent(s), many agents will encourage a potential buyer to sign an “exclusive representation agreement” under which that agent will be paid regardless of what house the buyer purchases or how they find it.
Refusing to sign such an agreement doesn’t necessarily mean that the agent is representing the seller; it just means the buyer is free to work with multiple agents.
I purchase a lot of real estate and generally take one of two different approaches:
I'll identify a property I'm interested in and contact the listing agent directly, and ask if they're comfortable representing both parties in a transaction. They almost always say they'd be happy to. The unspoken understanding is that they'd rather get both sides of the commission than just half, and are therefore more likely to advance my interests than if I'd come in with another agent. In short, I appeal to their greed in order to gain negotiating advantage.
Sometimes I'll tell an agent what I'm looking for and that I'd like them to represent me in finding it, but that I'll only do so on a "nonexclusive" basis, that is, if they don't perform, I'm free to purchase in any other manner and they don't get paid.
You probably have a good credit rating. Before I bought my first condo, I met with a bank representative. I was buying a car, and she advised me to put $1200 on bank loan, paying $100 monthly,
One more piece of advice, just based on what I did when buying my first (and only) home: go for a realtor who seems to carry a lot of listings in your price range and/or the specific area or neighborhoods you are interested in. In other words, if you are looking for a modest, starter home — then you want a realtor who is going to have those listings and who has a clientele like you. Since realtors get paid by commissions, you want to be on equal standing with other buyers the realtor represents – and I think it’s helpful when the realtor has an “eye” geared to your budget level and who knows that market.
It was just my feeling, way back when, that if we chose a realtor who seemed to have more upscale listings, we would be lower priority. Also, one very important thing that an agent helps you with is knowing what to bid – in an area wher the market is hot, often there are multiple bidders and you may have to bid significantly more than the listing price to have a chance of getting the home. But in another area where home sales are slower, you may be safe to bid well under the asking price. So a realtor who has a lot of experience with similar homes in your area is more likely to give you good advice – it’s not a matter of the general, broad market for real estate, but what is happening with similar homes in that neighborhood.
Make sure you calculate closing costs into your “can I afford this?” equation. They may be much higher than you expect. And make sure you have a nice cushion for unexpected things. We bought our first house about a month before Christmas years ago. On Christmas eve, the boiler cracked due to a failure of the low water cut-off system. No heat was an emergency, but the only plumber who would work that day charged $5000 to install a new one (this was in 1993). Our insurance company eventually reimbursed us, but we were lucky to have the money up front to pay the plumber.
Regarding finding a realtor to work with, we have never picked a realtor first. What we typically do is look online (and before that was a thing, in the paper) for houses we like. Then we call the realtor associated with the house that looks the most promising. If we like him/her, then we ask to see more houses. When you sell a house, that’s when it becomes very important to pick the right agent.
We didn’t buy a house until we had enough not to need PMI. I think that’s good advice.
Also agree to find out what closing costs are. Here in the NYC area there seemed to be a lot of unexpected costs like tipping the title insurance guy. Really?
Also here in NY we worked with a lawyer who went over all the closing papers and made sure everything was correct. On our second house purchase there was a bunch of drama because it turned out the sellers had some second mortgage that hadn’t gotten closed out properly. Or something. It all got resolved.
There’s nothing wrong with buying a fixer upper, but you need to budget for it and if the whole house needs painting or the floors need refinishing - it is MUCH easier to do that stuff before you move in. Can you afford to pay your rent for a couple of weeks so that you can do some of the messy work before you move in? As Massmom noted things break. You need room in your budget to cover emergency expenses.
Location is super important. Decent schools is sooo important for resale value. You don’t necessarily need the best school in the area, but you want schools where a significant portion of the high school students go on to four year colleges.
Actually, I found it very helpful to have an agent representing us, way back when. So I’d always get a realtor to represent me as a buyer. Keep in mind that the seller’s agent has an obligation to his client to maximize home price — whereas a good agent representing the buyer is going to look out for their interests.
The buyer’s agent isn’t just showing homes listed with their own realty firm – they will show any listing. They may have somewhat of an incentive to prioritize their own listings, but they will make money either way, and the more they are able to satisfy what the buyer is looking for, the more likely they will have a sale go through quickly.
Here are some of the things out our agent did for us:
He had us get pre-approved for a mortgage, referring us to a mortgage broker at a bank he worked with. That made the process very smooth, and the pre-approval meant that we knew exactly what our budget was.
2). He did the legwork of finding listings that matched what we said we were looking for, which included some specifications about home layout. (At that time we had a preschool age child & an infant, so as an example it was important to us that the children’s bedrooms be on the same level as the master bedroom, same deal with bathrooms).
We had already been looking on our own, but we also worked full time and the agent was able to narrow in on things very quickly.
As noted above the agent advised us what to bid— I know we bid under the listed price, and we got the house at very close to what we bid.
I’m pretty sure the agent was able to arrange for us to see a newly listed home before there had been an open house. The house was in great shape and very clean but didn’t look prepped for showing-- and the agent just set up a time that we could view the home. So that was one more thing in our favor . And of course the agent took care of the arrangements --again, I didn’t have to be looking at listings and making a bunch of phone calls.
The agent understood the nuances of offer /counter-offer, required paperwork, legalities, etc… Both my ex-husband and I were lawyers, but we didn’t practice transactional law – so even though we were quite sophisticated on the legal end of things, it helped to have the agent doing all that legwork.
We wanted to have our own independent inspection done - it was a contingency included in our bid -, and the agent was able to recommend an appropriate firm and arrange the inspection.
The house needed some minor work right away, and the agent was also able to put is in touch with contractors to do the work.
It all went very smoothly. We felt that we got value from working with the agent – and fortunately for him,we found a house we like right away and our bid was accepted-- so taking us on as clients was a fast commission for us.
Here in our area of NY there are buyer’s agents, but just regular agents do most of the thing’s on calmom’s list. If it’s not one of their own listings they split the fees, so they still make money.
I own 3 houses right now and have bought/sold/refinanced several times.
In my humble opinion, if you are set on buying a house either way, the advice to wait until you have 20% down so that you can avoid PMI is not financially sound. If you are getting a $300000 loan in this economy, inflation on either the interest rate, or the house, or likely both, is going to cost you more in the end than the $75/month now PMI will. If interest rates go up 1/2%, your payment on a 300K loan will go up $90 and that doesn’t take into account additional payment resulting from home prices going up.
As long as you don’t get an FHA loan (which you should NEVER do if you can at all avoid it), the PMI is temporary…you can get out of it as soon as you have 20-25% equity in your home.
Another option we used in the distant past to buy our first home was to get an 80/10 mortgage which is primary loan for 80% of the purchase price and an equity-like loan for 10% (with 10% down). The second loan had a higher interest rate than then first, but there was no pre-payment penalty or PMI required. So we paid off the second loan as fast as we could. Not sure if such loans are still around, but it would not hurt to check.
@ucbalumnus Either one will work. Depending on the lender, you may not have to have a full blown appraisal, but as BunsenBurner pointed out, paying for an appraisal to get out of pmi is less expensive than continuing to pay the pmi OR waiting to buy a house to avoid temporary pmi.
PMI rate varies on a number of factors, particularly FICO score and what percentage of appraisal value you are mortgaging. $75/month might occur with an outstanding FICO score and not far from 20% down. With a just okay FICO that is not far from the average for younger persons and higher LTV, the monthly payment might be $300/month. The high estimate might amount to mortgage insurance costing nearly 1/4 of loan APR – not a trivial increase in expenses. Another important consideration is if you can’t afford 20% down, that suggests there may not be a lot left over after what you can put down, for unexpected expenses, which are common among first time home owners. I’m not saying it’s necessarily a bad idea to get a loan with less than 20% down, but I think it would be helpful to review the financial situation including mortgage options, before jumping in to looking at houses with realtors. It’s desirable in some situations and among some buyer personalities, but not others.
I think the PMI rules have changed lately and you must pay PMI for the life of the loan.
I’ve bought houses without 20% down and we’ve refinanced every house we’ve owned.
If you really want to own a house, research plans and options if you don’t have that 20%. I suspect that if everyone waited until they had 20% plus closing costs saved up, there would be a lot less home ownership.
Saying all that, owning a house is a PITA. Yard work alone
If you never took shop in HS, don’t worry. Home Depot and some other hardware stores hold classes on how to lay tile, prep and paint woodwork, and much more. Check if your city has a tool library (a place where you can borrow tools if needed for free or for a minimal fee). Look at the sites like Pretty Handy Girl blog. She went from a “help, my bathroom has a leak, what do I do” to a licensed contractor.