OT: First House

[LateralMover]

A little good news amongst the world of nonstop bad news we live in...I went under contract on my first house last night, and I can’t wait to stop paying rent to the man.

What advice does the pack have to offer regarding home ownership, specifically with your first home? Also, I’m hoping to get engaged soon, and luckily she also owns her own place.

 

[aTotal360]

Don't buy anything dumb between now and close. Get your supporting documents to your lender as soon as they ask. If you are not buying new construction, don't be a dick during due diligence. Ask for concessions, not repairs after you get the inspection report. Press the issues that impact livability, not cosmetics. Your initial offer should have reflected your value of the home with the known and visible issues. Depending where you live, appraisals are lagging behind. Meaning I seeing a lot of low appraisals because the appraisers are not able to keep up with the up tick in prices. The seems to be too dynamic in places.

 

[TrueMaroonGrind]

We are selling our first house and moving into our “forever” home the end of this month. Things I wish I would have paid more attention to: neighbors, drainage and how old the big stuff is. Neighbors can be very bad and one of ours is the worst. We don’t really have a drainage problem, but always pay attention to that because it is difficult and expensive to fix. A/C, roof and foundation all require fat checks to fix. We had to replace the A/C and that was a chunk of change.

One last thing, make sure you don’t house hop. Realtors make a lot of money off the sale of your house. Around 6% or so. That means every time you sell you give realtors a piece of your equity. If you are buying a house, stick there for a bit otherwise you are losing a ton of money.

There are a million other things, but I’ll stop there.

 

[dorndawg]

If you don't already have one, get an emergency fund rolling. Stuff *will* break.

 

[57stratdawg]

15 year note

 

[Digging dog]

15 year note

On the backside of it. Advice to the young-uns. Get the house paid off as soon as possible. Life goes fast and the kids will be gone in the blink of an eye. It is amazing how much money you can accumulate without a house payment and be able to enjoy life.

 

[FQDawg]

If you don't already have one, get an emergency fund rolling. Stuff *will* break.

This times 1,000.

Also, if you're like me and not at all handy, get the names of good, reliable plumbers, electricians and HVAC people. Because odds are you'll need them.

 

[ababyatemydingo]

15 year note

Another option if you don't feel comfortable locking into a 15 yr note is to get a 30, and make two payments a month. There are online calculators that'll tell you what amount to make that extra payment, and all of the extra payment comes straight off the principal. In a lot of cases, you can pay it off quicker doing it this way than by getting a 15 up front, yet keep the safety of knowing that if you HAD to drop back to just the single payment a month because of hard times, you could

 

[dorndawg]

This is sound advice. Is there even that big a spread on interest for a 15 versus a 30 these days?

 

[dorndawg]

Yep those also. I can just about guarantee that emergency fund will save a marriage at least once.

 

[aTotal360]

Nope. Oddly enough I have some clients that are getting a better rate putting down 15% on a conventional than 20%. I'm also seeing some FHA products that allow you to not pay PMI, if you put down a certain amount at closing.

 

[$altyDawg]

Both of these suggestions are very good. The monthly note for a 15 year mortgage is around 20% higher than a 30, but can save you many thousands of dollars in interest over the life of the loan. Ababyatemydingo's suggestion is also solid if you have the discipline to keep over paying. Like he said, anything you pay extra comes right off the principle, which saves you interest in the long run. You know your situation better than any of us, so take as much time as you have to evaluate it and fit it to what works best for you and what makes you comfortable.
Also, if all possible, try to put at least 20% down to avoid the PMI (Private Mortage Insurance). That crap is an added expense you need to be putting in your pocket instead of paying the bank.

 

[garddog]

If your getting married, you will be selling one house. Whatever your average price per square foot is for the neighborhood, write that number down and check with your realtor for comps regularly.

All that said, never spend more on upgrades than your price per square foot.

So if your house values at $150k for 1500 sq ft that is $100 per sq ft. No matter what upgrades you do, if the whole neighborhood doesn't increase you won't make money unless you add sq. Footage. Expensive bathroom and kitchen upgrades are only for undervalued or long term homes. Too easy to get the bug and get burned if work moves you. I lost $12000 over this about 10 years ago.

 

[mstateglfr]

- Try to find out about neighbors if possible before offering, but thats past the point now.
- Trees are a money suck. You pay thousands for maintenance and/or removal and you get less than what you had before in return. Seriously- old trees are a lot of proper upkeep and large old ones can cost many thousands to remove. I love trees and all, but after moving to a property with 5 mature ones all 50 years or older and having to remove 2, we are significantly poorer and have less to show for it.
- Drainage was mentioned, but it cant be pushed enough. Poor drainage is a total *****. Try to nip this in the bud right away if its an issue.
- HVAC isnt cheap, so save up because it will break. Repairs arent cheap and replacement is a year of tuition at MSU.

 

[sandwolf.sixpack]

Don't go spend a bunch of money on brand new furniture. I bought most of the furniture for my first house at garage sales. And if you do it right, you can get some really nice, high quality stuff. I found some great stuff at estate sales and church garage sales in nice parts of town.

 

[mstateglfr]

If your getting married, you will be selling one house. Whatever your average price per square foot is for the neighborhood, write that number down and check with your realtor for comps regularly.

All that said, never spend more on upgrades than your price per square foot.

So if your house values at $150k for 1500 sq ft that is $100 per sq ft. No matter what upgrades you do, if the whole neighborhood doesn't increase you won't make money unless you add sq. Footage. Expensive bathroom and kitchen upgrades are only for undervalued or long term homes. Too easy to get the bug and get burned if work moves you. I lost $12000 over this about 10 years ago.

But if the bathroom and kitchen upgrades made livability better, then is it really a loss? Sure, it isnt a smart investment, but I dont view our house as an investment- its a place where we live that may end up being worth more than what we paid in total, but maybe not.
Having convenience and/or livability for 10-20 years is worth the expense to some, even if it isnt the sound investment decision.

 

[Jeffreauxdawg]

Anything you need to fix today will cost you significantly more tomorrow.

- Trees grow. Do everyone a favor and don't plant a baby oak tree 10 feet from the house. It will be a problem down the road.
- Water is your homes enemy. Control it. Gutter downspouts become a 3 inch firehouse in a thunderstorm, so make sure the water is going somewhere safe.
- Lastly, buying a home is not inherently a good investment. You are a 20% (or whatever your downpayment/initial equity) partner with a lender on this venture. You get the appreciation, he gets the interest. So if you want to make sure it is a good investment, don't let it depreciate. The part you can control is maintenance.

 

[garddog]

But if the bathroom and kitchen upgrades made livability better, then is it really a loss? Sure, it isnt a smart investment, but I dont view our house as an investment- its a place where we live that may end up being worth more than what we paid in total, but maybe not.
Having convenience and/or livability for 10-20 years is worth the expense to some, even if it isnt the sound investment decision.

As I said, long term. If he and fiance own two homes, decide which will be long term. Don't throw big money into something that is short term.

 

[pmack3641]

Where selling our home in Starkville and can tell you that I'm personally happy that we made all the necessary upgrades for our own comfortability and selling of the home. It takes time so wouldn't rush into anything get settled first then proceed accordingly.

 

[My Bru]

There are 100 different things to learn along the way, but if I could go back to your point, I would say these are the big items in the beginning, and VERY general i.e. big picture:

1) 20% down. If you can't do this, most times you can't afford the house.
2) Get a 15 year note that is around 30% of your take-home pay (gross minus taxes). This is going to put you in a significantly smaller house than you think you should get, so if you're already above this or have a 30 year note, try and save up and make that happen on the next one.
3) If you're about to get married, don't look at your combined income and then buy a bigger house. You never know when you'll need to live off only one income. Save, save, save.
4) Like others have said, find a reputable plumber, electrician and AC guy.

I've bought and sold 5 primary residence houses now in 3 different states, and turned a profit on each one. There are so many factors you can and cannot control, and you need to look at all of them. If you want to get into the weeds and have more specific questions, hit me up. Location dictates so much. Sometimes, trying to make money off it isn't the right move, either. It's simply trying to pay it off. I didn't always follow the advice above, but I always had a reason not to do so. Like I said, it changes from place to place. Are you a short timer or in it for the long term.

 

[kired]

If you plan on making any upgrades or any work - flooring, cabinets, painting - do it now if you can afford to. Don't say you'll do it in a few years. Much easier to do before you move in. It's a real pain to have your kitchen out of commission for a month or longer while you're remodeling it.

Get a good inspector, but if you also have a relative who is a DIYer, have them look over the place too. My dad used to do basic remodeling work and he'd always point out little things that me and the inspector would miss. Don't expect your inspector to find every little thing. Even after you close, go over every inch of the house looking for stuff before you move in. I've never been much on asking for seller concessions - but I like to know what's wrong so I can fix it.

 

[JMC987]

If your getting married, you will be selling one house.

This my first thought after reading the OP. I hope the finacee likes SLAGs home more than her current home.

 

[horshack.sixpack]

This. Do 30, pay like 15. Then if your economic circumstances change, you can pay just the minimum until your fortunes turn. You will give up very little extra interest and still pay it off in 15. If you need the cushion to cash flow, however, you will have it.

 

[rem101]

I suggest this. I've had family on 15, finances changed, didn't work out.

We are on a 30 and pay extra $100/month towards principal. PMI falls off at 20% so that's an extra $100+/- a few. Leave payment same and pay down even quicker. Started at the beginning and have never known the difference on our note. It's also all automatically drafted which takes the opportunity to skip a month and get out of the habit away.

 

[LateralMover]

Thanks guys, this is all really good info. In particular, I really like the idea of having a 30 year and paying on the principal like a 15. Hadn’t thought of that combination of flexibility and equity buildup before.

A little extra background to give some context to things you’ve mentioned.
-I’m not planning to be in the home long term. Once married, live in it for a few years and potentially keep for rental as it’s walkable you a downtown area.
-Fiancée’s place is a townhome in downtown, which her parents contributed a SIGNIFICANT amount of money for her down payment. She’s on a 15 year loan, but pays less monthly than most on 30. Plan is to keep that for rental property as well.
-Home is 2 years old, not built by a national builder. I have some minor projects that I’ll complete as finances allow after paying for the many other expenses coming up allow.
-I’m in construction as a residential construction superintendent. I did my own “inspection” and feel confident in knowing what needs to be fixed and being able to do it myself.
-Given the age of the home, I’m not too worried about any of the major systems of the home having failures, although I of course am going to rebuilding my rainy day fund as I’ve had to dip into it for the purchase.

 

[turkish]

This. Do 30, pay like 15. Then if your economic circumstances change, you can pay just the minimum until your fortunes turn. You will give up very little extra interest and still pay it off in 15. If you need the cushion to cash flow, however, you will have it.

Not being snarky, legit question. If your mortgage rate is 3.5% and you can average more than 3.5% over the life of the loan in some other investment, why pay it off early?

 

[patdog]

I wouldn't convert a personal residence into a rental if it has appreciated from the time you bought it until the time you convert to a rental. Reason being, if you sell your residence, there's no capital gain tax on gains less than $250,000 ($500,000 if married). But if you sell a rental property, you'll pay capital gain tax on your full gain. Better to sell your house and then use the proceeds to buy a rental property.

 

[VegasDawg13]

Not being snarky, legit question. If your mortgage rate is 3.5% and you can average more than 3.5% over the life of the loan in some other investment, why pay it off early?

1) There's a psychological benefit to having your mortgage paid off to many, if not most, people.
2) Most people aren't disciplined enough to invest that money each month and never touch it, but if they have it drafted from their bank account as part of their required mortgage payment, it's easy to stick with.
3) It's a guaranteed 3.5% return with no adverse tax consequences, so it can't be directly compared to a return from investing in stocks.

Having said that, I agree with you. There should be a breaking point where the interest rate is low enough that you shouldn't be in a rush to pay it off.

 

[HotMop]

Don't buy anything dumb between now and close. Get your supporting documents to your lender as soon as they ask. If you are not buying new construction, don't be a dick during due diligence. Ask for concessions, not repairs after you get the inspection report. Press the issues that impact livability, not cosmetics. Your initial offer should have reflected your value of the home with the known and visible issues. Depending where you live, appraisals are lagging behind. Meaning I seeing a lot of low appraisals because the appraisers are not able to keep up with the up tick in prices. The seems to be too dynamic in places.

I was going to say celebrate by buying a new truck and boat.***

 

[My Bru]

Thanks guys, this is all really good info. In particular, I really like the idea of having a 30 year and paying on the principal like a 15. Hadn’t thought of that combination of flexibility and equity buildup before.

Keep in mind, that people telling you to do this, have often bought more house than they can truly afford. If you can afford to buy the house, there's no downside to getting a 15 year note, it will save you a point or so in interest alone.

If you're trying to rent them later, get them paid off as soon as possible. Honestly I would recommend paying off your wife's condo, renting it out, while staying in your current house. You can use this like a house hack, considering the head start you have from your in-laws.

Remember, if most people are telling you to do something, it's likely a bad idea. Especially in real estate.

 

[My Bru]

1) There's a psychological benefit to having your mortgage paid off to many, if not most, people.
2) Most people aren't disciplined enough to invest that money each month and never touch it, but if they have it drafted from their bank account as part of their required mortgage payment, it's easy to stick with.
3) It's a guaranteed 3.5% return with no adverse tax consequences, so it can't be directly compared to a return from investing in stocks.

Having said that, I agree with you. There should be a breaking point where the interest rate is low enough that you shouldn't be in a rush to pay it off.

What he said, plus risk. Nobody ever factors in risk.

 

[JenBielema]

Best advice I can give is don't get married.

With respect to owning a home...probably the worst investment a person can make. Returns are very low unless you are buying in a suppressed market. Better off renting and investing your money in growth stocks.

 

[vhdawg]

Home warranties are a mixed bag. You'll probably get one for the first year from the seller, but the people that the warranty company sends to your house are generally there for the $75 or whatever you have to pay them to show up, and the quality of the work they may or may not actually do is generally worse than what you would get if you just called someone to come out. Take advantage of it for as long as you don't have to pay the annual cost, but in the long run you're better off finding reliable servicepeople to take care of your stuff. Also if they actually have to replace any big ticket items, you're only getting up to a certain level of quality as a replacement, so be ready for that.

Also, youtube is your friend. There's a lot of stuff that can be fixed easily and inexpensively if you learn how to search for the problem and learn how to turn a screwdriver or wrench. Even appliance-level repairs, most of them are not that difficult. Find your part number, google the problem, find a video to show you how to fix it, go to an appliance parts shop online to find the correct OEM replacement part number, then look it up on amazon. The parts shops are ridiculously expensive compared to amazon for very common replacement parts.

 

[Apoplectic_Objurgator]

This. Do 30, pay like 15. Then if your economic circumstances change, you can pay just the minimum until your fortunes turn. You will give up very little extra interest and still pay it off in 15. If you need the cushion to cash flow, however, you will have it.

Disagree - if you can’t afford a 15 then you’re spending too much. A 15 is life changing.

 

[opusdawg]

Nope. Oddly enough I have some clients that are getting a better rate putting down 15% on a conventional than 20%. I'm also seeing some FHA products that allow you to not pay PMI, if you put down a certain amount at closing.

FHA loans will always have MI.... no matter if you put down 3.5% or 20%. What are you talking about ?

 

[dorndawg]

Disagree - if you can’t afford a 15 then you’re spending too much. A 15 is life changing.

Some people get joy from living in a nice home ¯\_(ツ)_/¯

 

[turkish]

If you’re not doing 10-yr, you must be a poor. *******

 

[jethreauxdawg]

What is this loan you speak of?

If you’re not doing 10-yr, you must be a poor. *******

Y’all didn’t pay cash for your first home?**

 

[aTotal360]

my bad. its a single premium at closing to never pay monthly pmi on a conv. i understood it incorrectly.

 

[patdog]

If they can afford it, there's nothing wrong with that. But if they overload themselves with debt to do it, they're setting themselves up for problems.