Going to buy a house. Need advice please

[StormBerlin]

So I'm planning on buying a house/condo/townhouse soon and I need some advice. I've been renting for the past year and I'm just sick of throwing my money away every month.

What kind of money should I get together before I start looking into loans and the like? I don't want to do a down payment (sources say that with a $70,000-90,000 place I can get the whole amount in a loan so that's what I'm aiming for). I have a guy to get my loan already (he helped my mom refinance her house and did an awesome job). I also want the loan to include all property tax, if that's a possibility.

I'm just kind of overwhelemed and don't really know where to start. If anyone can give me tips on the process, how long it should take and what to look for in a house I would appreciate it. Thanks guys

Jenn

[Rodney]

What to look for in a house? Part of that depends on you. If you just want to stay in it for a few years while it appreciates, then move up to something larger, get something small -- a condo, maybe, possibly a townhouse. Two bedrooms, max. Live in it for a few years, maybe with a roommate to help make the payments, then sell it and use the appreciation (if any) to help you buy a bigger house when you get married or whatever. In the meantime, you can also use the mortgage interest as a tax deduction, though the real attraction there is when you're up above the lower tax brackets.

If you do go for a condo or townhouse, look at the homeowner association fees, of course, and also ask around to see if there are any issues in the development -- particularly crappy workmanship or widespread construction defects (anything from mold to soil problems), lawsuits, rabid dogfighting on the HOA board, and so on. You probably want to buy something in a small development without many common amenities or common areas -- translates to lower fees and less hassle. And with a condo or any house, look for a place that's reasonably near shopping or other amenities, not out in the middle of nowhere.

The other thing about condos -- are you up for home maintenance right now? With condos, much of the maintenance and all of the groundskeeping to be done is handled by the association, not you. That's what you pay for. Single family homes are a lot more work than they appear to be. As a young, probably single guy, you might be happier letting somebody else take care of the hassle for a while.

As for where to start; you've already got the money guy lined up. Talk to him, tell him the kind of loan that you want, and have him qualify you -- tell you how much home you can buy. Then find a good agent, give her/him the info from the moneyman, and say, "what can you do for me?"

Actually, before you even do that, start looking at the real estate ads to see what's available, check out some open houses of places you think you might like, and get a good idea of what's out there. It's fun, do it. Then you'll have a pretty good idea of what you're looking for even before you talk to an agent.

[NoSoup]

Well, one resource I have used for looking for investment properties is www.realtor.com Also, check with friends/family to find a good real estate agent.

As far as the steps in purchasing a home -

This step is optional, though recommended. I would suggest you first get preapproved for a mortgage. Make sure that you are comfortable with the payment. It will give you a starting point to begin your search. Another huge advantage of being pre-approved is it grants you additional bargaining power when it comes to putting in the offer on the home that you want to buy.


The next step would be deciding on the type of property you would like to buy. Keep in mind, however, that you should plan on living there a minimum of two years. The reason being, if you live there at least two years, you are not required to pay capital gains tax on owner occupied property if there is a "profit" when you sell it, unless you make a profit of several hundred thousand dollars.

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Single Family Homes

Pros

• Generally Appreciates the fastest of all residential properties
• Generally Depreciates slower than other residential properties
• Usually the easiest and quickest type of property to sell
• Provides the most privacy
• Gives you the freedom to do as you see fit with the home (ie decorating, painting, re-modeling, ect)

Cons

• You must pay all maintenence required
• You are required to do all the work as far as lawn care, snow removal, ect.

Townhouse/Condo

Pros

• Little to no maintenece work (ie lawn care) required
• Usually cost less than a single family home

Cons

• Usually Appreciates slower than all other residential properties
• Usually Depreciates faster than all other properties
• Less Privacy than a single family home
• Far more difficult to sell than a single family home
• Depending on the condo/townhouse, residents/owners may need to meet specified criteria to own/move in

Two Family Homes (ie Duplex)

Pros

• May gain more equity/income as a result of having a rental
• Fairly easy to sell
• Generally considered a good investment (as is most real estate)

Cons

• Potentially having the other side vacant, with no additional income to supplement the mortgage payment
• Maintenece nearly doubles (furnaces, water heaters, ect)
• Not as private as a single family home
• Renters, and all the headaches that come with 'em

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Once you have decided on the type of property to purchase, contact a local real estate agent. I would suggest speaking with family/friends to recommend one. If you feel you are not getting the service you are entitled to, don't be afraid to switch or find another one to work with you. Once you have found a specific property you are interested in, you must put in an offer to purchase.

The Offer to Purchase

Basically, this is a legally binding document that states the conditions of the home sale. If the conditions are met by both parties, you are required to purchase the home. Make sure that anything that comes with the home (dishwasher, stove, swingset, ect) is stated clearly in the offer to purchase. This is a rather lengthy document where everything is negotiated. The terms of sale, closing date, items included, and most importantly the price.

Make sure you leave yourself several "outs" - remember, if all provisions are met on this document, you are required to buy this house. These "outs" are called contingencies. Some examples of contingincies that you may want to put on it would be "Contingent of Financing 100% of the purchase price at 5.875% or less" and "Contingent on a home inspection by a non-affiliated third party with results acceptable to the buyer"... ect. Your real estate agent should discuss this with you in greater detail. If all contingencies are not met, you still have the choice to go ahead and purchase it. For instance, if you are offered 100% financing at 6.25%, you can choose to purchase the home anyway.

In many (if not most) situations, the offer is not accepted. If it isn't, there are two possible outcomes. They can either reject your offer or counter-offer. Once you recieve the counter offer, you can either accept it, reject it, or counter again. It goes on and on until you reach an agreement.

When making your offer, there are several factors that you should know about. First of all, you should ask how long the property has been on the market, or up for sale. The longer the time, the more "motivated" that buyer is likely to be, meaning they are willing to negotiate a bit more than someone who is not motivated. Also, you should let them know that you are pre-approved. I have seen in many occasions two similar offers come in, but the buyers will take the slightly-lower offer with the people that have been pre-approved just to avoid the loan process going sour down the road.

If the sellers are hell-bent on getting a certain price, you still may be able to negotiate. Your pride (and the sellers) will affect the deal alot. You feel better knowing that you got X amount of dollars off the price. The seller will feel good knowing that they held their guns, or only lowered it a bit. If they won't drop the price any lower, counter offer with it contingent on closing costs of your loan, or have them throw in the riding lawnmore and weed-eater, or whatever else your heart desires. It is not uncommon for the seller to refuse to lower the price of the home by $1000 dollars, but then accept the offer having to pay $1000-$3000 extra in closing costs.

The Mortgage
Basically, once you have an accepted offer, you'll need to speak with your friendly neighborhood loan officer. Ask him what options you have, and what your estimated payment will be. Make sure that you are not decieved by the loan payment, and that he includes estimated taxes an insurance on it.

The total mortgage payment consists of
Principle and Interest - The actual funds going to pay on the loan, reducing principle and paying accrued interest
Taxes - The annual taxes of the property divivded by 12. If the property taxes are $2400 a year, add in an extra $200 a month to your payment.
Insurance - Homeowners insurance, that is. This is the insurance that covers you in case of fire, robbery, ect. Take the annual premium and divide by 12 to find this amount.
Private Mortgage Insurance - This is bad stuff. It is likely you will have to pay it if you are taking out a 100% loan. Basically, this is insurance that covers the lending institution in case of default. It generally is not tax deductible, like interest, so it is very similar to throwing money out the window - with the exception of people below finding it, you are handing it to an insurance company. There are ways to get around paying this, such as an 80/20 loan or an 80/15/5, but your loan officer will advise you on what you can qualify for. Under most convential guidelines, the owner is required to pay private mortgage insurance if the loan to value ratio is over 80%. The loan to value ratio is figured out by taking the loan amount divided by the appraised value of the home. [On a side note, you're mortgage payment will include taxes and insurance only if you choose to escrow. However, it is best, even if you don't, to calculate them into the payment so you know what you'll need to save each month]

Be wary of what you pay for closing costs. If you feel like they are way too much, they probably are. There certainly are a variety of costs when preparing a loan, but sometimes they are unreasonable. If you are unsure, feel free to either PM me or check around with local banks.

Once you have the loan program picked out and you all set to go with them, generally title insurance an appraisal are in order. Once those are recieved, providing there is nothing wrong with them, the loan will continue.

Just to kinda keep up with the pattern I have set, I'll define these terms as well...

Appraisal - Basically, an estimated value of your home, usually arrived at by comparing your home to other similar homes that have recently sold.

Title Insurance - An insurance that basically protects all involved. The title company guarentees that there aren't any hidden liens on the property. This is important, if the seller had a debt go bad and a lien was filed on the home before it was sold, and he neglected to pay it off or notify the buyer (and somehow it slipped through the cracks) the company with a judgement against the house could claim it, sell the home, and use the money to get paid for the amount of the lien.

The Closing

Once everything is all set, The Buyers, Sellers, and usually the loan officer as well as realtor will schedule a closing. This is where you'll sign a mountain of paperwork and take title to the home. Once signed, everything will be complete, you'll have a mortgage, and the title will be in your name.

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The process generally depends on how long it takes to find a home, but once you have an accepted offer I would imagine that the loan process should most certainly be done within a month, providing that the seller is willing to move out ASAP.

What you should look for in a home depends on you. What are you planning on doing with this home? Living in it for an extended period of time? Hoping to resell it for a quick profit in a couple years?

If the latter applies, you want to look for things that will appeal to others, not just you. Sure, you might think that puke-green and flower patterned siding is cute, but unless you plan on replacing it, it will be difficult to sell. From my experience, if you are looking to purchase a home to resell with as little as hassle as possible, try and find a home (single family) with a rectangular lot, modern carpeting that is NOT white, rather "plain" decorating (ie no elaborate banisters) and preferrably a ranch, but definately not a bi or tri-level. Basically, just try and find a house that would appeal to the largest number of potential buyers.



Whew... I hope that answered your questions, if I need to clarify or you have any more, just ask!

[dpezzo]

NoSoup,

You are an awesome wealth of knowledge!!! (I have read several of your posts and was very impressed)... Are you a full-time real estate investor? If so, where/how did you learn your trade? How many properties do you own? (Just curious)

I am just starting out in investing. I have not even come close to even looking much at properties beyond getting the Sunday paper. I have read several books, and just picked up Carleton Sheets program. It is actually pretty thorough, but still just a starting point for me.

Any other posts or tips that can help get an overworked computer nerd like to be motivated to go out an buy a property or two (My short-term goal is to acquire 2 investment properties by September of next year). Bear in mind I am still renting myself, so I have to get my own place first. :-D

Also, do you ever use lease options?

Thanks for any info you wish to share.

[NoSoup]

Originally posted by dpezzo
NoSoup,

You are an awesome wealth of knowledge!!! (I have read several of your posts and was very impressed)... Are you a full-time real estate investor? If so, where/how did you learn your trade? How many properties do you own? (Just curious)

I am just starting out in investing. I have not even come close to even looking much at properties beyond getting the Sunday paper. I have read several books, and just picked up Carleton Sheets program. It is actually pretty thorough, but still just a starting point for me.

Any other posts or tips that can help get an overworked computer nerd like to be motivated to go out an buy a property or two (My short-term goal is to acquire 2 investment properties by September of next year). Bear in mind I am still renting myself, so I have to get my own place first. :-D

Also, do you ever use lease options?

Thanks for any info you wish to share.

Lol, Thanks

Am I a fulltime investor? Where did I learn my trade? How many properties do I own? Well, I'll answer those in a bit...

First of all, knowledge is power. Utilize every (reliable) resource you can to know as much about investing in real estate as possible. However, experience itself will be your greatest mentor. Regardless of how much you read, it will still be quite a scary experience buying your first home, as well as any investment properties you aquire soon after that. Once you have "been around the block" per se, a few times, you'll be buying and selling properties like it is nobody's business.

Motivation is key. Once you pick up your first property, it gets exponentially easier to do in the future. Basically, it's your future. Most American Millionaires became so rich through real estate. It is a long term process, but one that will generally pay off in the long run. Also, it is one of the more forgiving investments, so some would consider it much safer than typical investments. For example, if you buy a stock at the "wrong time" stock prices may plummet and you're out your money. However, even if you pay too much for your house, appreciation will be your savior and eventually make it worth what you paid for it, providing you hold onto it long enough. Real Property also offers extremely good tax benefits. The only real issue with real estate is that it is rather illiquid. What other investment potentially pays for itself?

Get out there and look for properties - you may have already missed out on a great deal by procrastinating, but not to worry, as there always will be great deals out there. Get hooked up with a realtor you get along well with, you can trust, and has experience. Tell them what you are looking for, and go take a look at all the properties that match your criteria.

You said that you are renting, and although generally people do own their own homes before buying investment properties, if you find one that is a must have before you find a home for yourself, don't be afraid to "go against the norm" and pick it up. However, when looking at homes to purchase to live in, keep in mind that this is the best investment you'll make as far as tax breaks go - keep in mind what you want to do with the home, be it sell it in a few years or rent it out, and stick with the plan. Get a loan (30 year fixed, 3,5, or 7 year arm, ect) that suits your needs. If you plan on moving out in 3 years, don't pay the higher interest with any of the other loan types, pay the smaller amount on the shorter arm. (Oh, ARM = Adjustable Rate Mortgage, generally fixed for the period specified, and is either required to be paid off (balloon) or adjusts at the end of that period)

Take a look around you, dpezzo, and take note. Is this where you want to be in 1 year? 5 years? 30 years? If not, you can start paying those mortgages down as soon as you buy the properties, and no mortgage means a huge increase in net cash flow. Take action, although you may be uneasy, get out there and look at properties. Don't rush into anything, but never, NEVER allow fear to cloud your decision. I was afraid to purchase a 2 million dollar apartment complex, and a fellow I know bought it. The numbers made sense, more than sense really, it was a perfect property at a crazy low price. I was afraid to be in that much debt, and I am kicking myself in the ass for it. This guy, 25 years from now, when the mortgage is paid in full, will be NETTING 300k a year to sit on his ass. (lol, sorry, still a bit bitter - but lesson learned)

Be logical and decisive when you make your choice, but make a choice - getting started is the most difficult part of real estate investing.

As to options, they can be a huge value or a waste of money. If you do find a property that you believe is able to be "turned around", filled with renters, ect; see if you can buy a lease option. It allows you full control over the property, and that way you'll only have to purchase it if you can meet your own specified criteria. If you can't, you generally only lose a relatively small sum compared to if the property itself went sour. Also, many people, especially those that have had their home on the market for a while with no nibbles, will freely (and cheaply!) give out lease options on their home in hopes of selling it. Each situation should be considered before deciding on a loption, but when it comes down to it, it may be a deal breaker or maker if you can get it fully rented.

As to your questions...

"Are you a full-time real estate investor?"
Nope, not yet

"If so, where/how did you learn your trade?"
Well, I'll answer, although I am not invested in real estate. I am currently 20 years old, and have been in the banking business now for four years. I have been dealing with buying, selling, trading, marketing, analysing, appraising, and inspecting homes now for the last two years. I am currently a Mortgage Broker. I chose this profession because I too am going to invest in real estate, and the best way I could ascertain information about it is to be in the business. As I am only 20, my plan needs to have a few fundamental differences than yours. Because I don't have an exceptionally long credit history (got a credit card and a signature loan on my 18 Birthday, but that's not even 3 years yet) some lending agencies, especially when considering investment property, may require me to have a lower Debt-to-Income ratio than people with more established credit. I plan on doing this by purchasing my first home in cash and having renters. It will likely either be a single family or a duplex though, only in extreme circumstances would I invest in a condo or townhouse. With the lack of a mortgage, my payment will only be taxes and insurance, so I would imagine I would be able to show a rather decent positive cash flow.

"How many properties do you own? (Just curious)"
Zilch, Zero... Nadda
However, I have been looking for the better part of a year now, but I have yet to find what I am looking for. Granted, there have been properties that I probably should have picked up, but I am happy where I am right now (I also rent) I love my apartment, and am likely putting off purchasing real estate until the winter months when prices are more likely to drop. Also, that gives me the rest of the summer to party

If you have any more questions, please feel free to post em here, PM me, or I regularly check Ask The Loan Officer, a thread I started a while ago to help answer any credit/banking/loan/real estate questions that I can...

[NoSoup]

Double post


[Edit] - Y'know, I just re-read what I wrote in this thread...

Wow, I sound like a combination of a real estate investment book and some guy on an informercial....

Just out of curiosity, is what I previously posted readily understood by people not really versed in the real estate process? I tried reading it with an objective eye, but I am not sure if my use of jargon was confusing or not...

[dpezzo]

nosoup,

wow, thanks for the reply. I do not have time to read the entire post since I am at work, so I just printed it out to read for later. Thanks again, and look forward to talking with you more.

[StormBerlin]

thanks for all the advice guys. I'm meeting with my broker and real estate agent tonight to make everything official. I found a condo I like in my price range, so that's what i'm aiming for.

[Cynthetiq]

cool congrats on getting yourself moving in that direction...

just also remember that things happen when it comes to actually closing on a place, so the deal can fall through. That said, don't fall in love with any particular place until you are pretty much moving in. It saves some heartache...if it's meant to be it's meant to be.

[StormBerlin]

you're right. I'm so attached to the place already. I'm already planning on pulling up all the carpeting and putting down hardwood. I would be crushed if this fell through...

[Cynthetiq]

Originally posted by StormBerlin
you're right. I'm so attached to the place already. I'm already planning on pulling up all the carpeting and putting down hardwood. I would be crushed if this fell through...

well that's a good identifier.. you know that the place you want will have to have hardwood floors. Thus as you look at this place and others, you shouldn't care so much about the condition of the carpets. Even if they say that they are brand new blah blah...because it's not a selling point to you.

[dylanmarsh]

I'm not sure if this was mentioned or if it even applies to the state you reside, but make sure you read all the "deed restrictions" that are associated with the property. Deed restrictions may be anything from an age restriction (ie- having to be 55 or over), utility company contracts, etc that the original subdivider of the community put into place at the time of intial construction. In Arizona, people get locked into these stupid deed restrictions without even realizing it and then has to adjust their lifestyle or move. A prime example of deed restriction is Sun City, AZ.

[StormBerlin]

Originally posted by dylanmarsh
I'm not sure if this was mentioned or if it even applies to the state you reside, but make sure you read all the "deed restrictions" that are associated with the property. Deed restrictions may be anything from an age restriction (ie- having to be 55 or over), utility company contracts, etc that the original subdivider of the community put into place at the time of intial construction. In Arizona, people get locked into these stupid deed restrictions without even realizing it and then has to adjust their lifestyle or move. A prime example of deed restriction is Sun City, AZ.

Yeah, that's totally cool here in Utah. Just normal stuff like you can't paint your door bright pink, that sort of thing. But it looks like it might fall through anyway. we offered a couple thousand less than she was asking because that's what the rest of the condos were going for and she countered with a price higher than her original asking price. I don't think she liked the Adendum that said she will have to pay all closing costs. And I'm half tempted to take her offer. It's still not out of our price range and I really want the condo... any advice on that?

[Cynthetiq]

Originally posted by StormBerlin
Yeah, that's totally cool here in Utah. Just normal stuff like you can't paint your door bright pink, that sort of thing. But it looks like it might fall through anyway. we offered a couple thousand less than she was asking because that's what the rest of the condos were going for and she countered with a price higher than her original asking price. I don't think she liked the Adendum that said she will have to pay all closing costs. And I'm half tempted to take her offer. It's still not out of our price range and I really want the condo... any advice on that?

I had someone do this to us when we were origninally looking for our place. She was selling privately. She ended up pulling out of the deal at the last minute, then hemmed and hawed. She passed on us and then she tried selling with a broker.. story goes on for almost 1 more year, and she finally sold her place pocketing almost $40k less than what she would have selling it to us.

That said, since it's a condo, look at the rest of the properties for sale there. Remeber that the location of the condo is going to be tantamount. Location to parking, pool, sunsets, views, etc.

The one that I write about before had a bigger bedroom than what we have, but it looked out onto the underside of the Williamsburg Bridge from the 7th floor. Our place looks over the East River on the 17th floor. Because we waited and didn't force the sale, we found something that is much much better.

But if you think that there is value in paying a premium for that particular property, then do so. Otherwise, I'd just wait for another one in that same complex.

[StormBerlin]

Well, as it turns out, the deal didn't fall through and we are now under contract with this condo I am stoked. I'm currently making a list of stuff that I want to do to it (rip up carpeting and lay down hardwood, where to put what furniture, etc). So yeah, we're set to close on August 31st. If anyone knows a good mover for cheap in Salt Lake City, let me know. we have a few very large and heavy peices that we don't want to deal with unless we absolutely have to. Thanks bunches.