I know some of you out there regularly tell your spouse, “if I could do it all over again, I would never do _____, and I would definitely do ______.” Well, I need your help.
As you may or may not know, Linda and I are going to be first time home buyers this year and will of course be taking advantage of the $8000 tax credit (and all the other perks).
We have been trying to enjoy our last few months of renting, but are pretty excited about getting our first house!
Where we are now
We found a builder and have secured a pretty good deal with them to build us a nice little starter home in a community that is pretty great. So the last couple days I have been shopping around for lenders and would love some advice from some of the brilliant CPF readers!
So if you have any tips, suggestions, advice or anything else that you want to pass along for a first time home buyer, I would be happy to hear it and I am sure other readers will be as well…
In particular, advice about about choosing a lender and title company would be particularly helpful! But any tips about any part of the process are welcomed…
{ 20 comments… read them below or add one }
My tip is – don’t forget about all the extra costs associated with buying a house. There’s the property taxes, homeowner’s insurance, homeowner’s association if your neighborhood has one, along with all of the miscellaneous closing costs that you never would have thought of. Then once you’ve bought the house there are maintenance costs, landscaping costs, etc etc.
Being a homeowner is wonderful, but expensive!
My name links to an article I wrote on the topic.
Congrats and good luck!
WoW! You are so lucky that you get to build your home. I wish I could do that…then you get exactly what you want and best of all its NEW! When looking at plans think outside of the box. My parents built their home and said they needed many eyes to look at everything…for example their toilet originally was supposed to sit right in front of the window! No one needs to stare outside while on the pot! Add lots of outlets! You never know where you’ll need them…Add extra insulation by rooms that may carry sound…for example my bedroom was over the family room so my parents added extra insulation so sound wouldn’t travel when i went to sleep…
So as i read again I see you wanted financial tips…one thing my husband and I didn’t know what that having different lenders check your credit report actually hurts! by having that many people checking credit it could lower your score…we thought shopping around would be good. Be prepared to pay more at closing than you originally thought. Bring an extra checkbook and/or cash to cover that as to not hold up the closing. Everything is negotiable so make sure you have a good lawyer to help you!
Hope some of that helps!
Jen
My parents have had two houses built. It took like a year each time. One time, the builder didn’t have the house completed by the agreed-upon date, and my parents were unable to lock in at a low interest rate for their mortgage.
Maybe your builder isn’t that busy right now, but I don’t think he can guarantee that you’ll be able to close by Nov. 30. That’s assuming everything goes according to schedule, weather is workable, and there are no problems or hold ups. Believe me, SOMETHING will go wrong.
Since you want to close by Nov 30 to take advantage of the tax credit, I’d see if you can have your representative work something into the contract that if you don’t close by Nov 30, the builder gives you $8,000 cash or an even higher amount off the purchase price.
@Jen
I’m pretty sure FICO scores account for rate shopping. I think it’s something like a 30 day period, could be something like 14 though. So, all lender inquiries during that period are piled together to ‘count as one’, for whatever that’s worth. Since FICO is proprietary, I don’t think we really know how it is calculated. Now, if you go have a different lender pull your credit once a month looking for the best rates, yes, it will hurt you. Still, unless you are just going crazy with the amount of lenders you are shopping, a few inquiries isn’t that bad on your report.
I’m not a homeowner, and don’t plan on being so for quite some time. Anyway, several of my coworkers have built their homes in the last few years. They’ve said they wished they would have added more cable and ethernet outlets (of course, I work with engineers, so you may not care about that), and they they wish they would have made the garage a little larger if possible. It’s not so much as needing to fit an extra car, as much as having a couple extra feet to get in and out and also store something in the garage other than a car. My brother found that his new house included almost no insulation, which made using the heating and AC pretty expensive. He had to slowly add insulation over the first few years since it was so expensive to do all at once, especially after just buying the house.
Also, I would submit that your cost of ownership, not even including overruns in lending and building processes, will shock you. Even with a new house, your maintenance costs, ‘getting started’ costs, and utilities will likely astound you. Speaking of new houses, just remember that MOST new houses, at least in my area, are built pretty horribly. Shoddy work, cheap materials, unfinished bits, etc, etc. Be there if you can during the build to check on all that occasionally. I’ve been pretty disappointed when looking at those great ‘new’ houses, ick… Of course, maybe it’s personal preference.
And unless you are just set on getting a new house, the advice of those around (that have build new homes), is to buy something older and well maintained, and make it energy efficient. The home will be built much better, and energy efficiency is about the only good thing you get in a new place (of course, they can skimp on that too, see above).
On your new place, don’t forget to get trees in the ground ASAP if you lost them all during building. Shade takes a while to get, start early.
Enjoy!
Well, this isn’t about financing or the title, but there are some things that we’d do over again if we could…
1) We probably wouldn’t have opted for some of the rooms on the ground floor. Our house is an open concept and there is a lot of space that just isn’t usable — it looked nice in the model we looked at — but it just isn’t practical. Go for practicality!
2) We built in the midwest. Builders will typically take all of your top soil and sell it leaving you with a hard clay. Then they lay sod over top of that. This combination can take years to get looking decent. If I could do it over again, I’d trade the sod for some good top soil and seed my own lawn. It might not be an “insta-lawn”, but it’ll be worth it!
One thing that we did do — which I’d recommend — is going through with a video camera and recording the inside of the house before they put up any drywall. This can help if you want to do any work later on and want to know where duct work, studs, etc. are.
Congratulations!
I would make sure that whoever you are working with has your intrest at hart. The realtor we used encouraged us a lot on buying the house we did even though it didn’t match up to what we said we wanted outside of the emotions of walking through a house. Make a list of must haves and stick to it, your going to own it for a while.
If at all possible choose a 15 yr. mortgage and it will save you over $100,000 over the course of your loan. It will probably only be an extra $200 a month, but it’s something I wish I would have done. Get a cheaper house if you have to, then in fifteen years (hopefully sooner) you can get your dream house and pay cash.
Avoid PMI if at all possible, put the money down on your house so you don’t have to buy it. About 4 out of 5 dollars you pay on you morgage is already going to intrest, insurance, and taxes, no need to pay bank insurance also.
closing at the end of the month will keep you from paying a month of interest at closing. i remember that tip from our realtor. she handled all the title co. stuff and therefor got us a great deal b/c she brings them lots of biz. also, don’t forget you’ll have a month with no mortgage payment after you close.
we aware that your mortgage will be sold a few times, so i wouldn’t get hung up on the who as much as the how much
you’ll also have to pay your insurance and a few other things up front, so keep those expenses in mind. your title agency should be able to tell you what those checks will be for and to whom.
i saw someone mentioned all the move in costs. in a new build you’ll have to get shades and window treatments that an older home would come with. also all the appliances. then the little stuff that adds up fast, a hose, lawn mower, light bulbs, etc. some of the utilities will require a deposit too. and you might have to buy your own trash cans.
I don’t know how relevant this will be or how easy it is to find out, but here goes. When we bought our house (a year and a half ago) we went with Mason-McDuffie to write the loan on the house. We did all our financing through them and our agent was INCREDIBLY helpful with all of our questions. We did find out, during the process, that they would most likely sell our loan after the closing to another company. We didn’t think to ask who they would sell it to or if they could disclose where those loans typically get sold to. We got very lucky that our loan was sold to a small local company…they have been amazing to work with!
So I guess my advice would be to at least ask if they will sell your loan and who they typically sell to. I would opt for someone who sells to smaller, local companies if possible.
Houses are indeed expensive. Which is why I sold and went back to renting. Of course, this is fine while single, once married I would expect to again find a house.
There is a lot to home ownership though and although money is a big factor, but don’t forget about time. Grass-cutting, snow removal (here in Canada), cleaning gutters, raking leaves, fixing toilet, sink, etc…so if you enjoy these things it can be great, but I did not and they took up far too much of my time.
Don’t let me sour you on it. As a team I’m sure you and your wife will enjoy it all.
All the best.
At the risk of sounding simplistic, I offer these two pieces of advice:
1) Buy less house than you can afford
2) Never close broke
One more very valuable recommendation from my many years in the mortgage business. Since you’re having a house built, if there are any significant defects in the house, or it isn’t to your specifications, DO NOT CLOSE!
Conduct the walk through inspection with a critical eye, and cancel the closing if the work isn’t to your liking. That act on your part will light a fire under the builder.
Never rely on a builders promise that he’ll resolve deficiencies after the closing. If he didn’t make it right before closing what motivation will he have to do so after, when he’s already collected the proceeds??? The track record on this isn’t good.
The best leverage you have exists prior to closing, after that your only option for remedy against a non-compliant builder will be through the courts.
Otherwise, congratulations to you and your wife!
@CPS,
I totally agree with you. Sure, I’m throwing my money away by renting. But first, I’m not tied down, I won’t have to replace my roof or furnace next month, and I live maintenance free plus other perks. Have you ever had to clean your own pool? Because I sure haven’t. Yes, I pay a premium to not have to mow the grass or fix the toilet, but its really the way I’d prefer to live.
I am married, and my wife is fine with renting, especially since we live in a nice apartment in a nice complex that actually takes care of things. I’d venture to say the first reason we would have to buy is actually children, not a spouse. Of course, there are plenty of children that live near us. We don’t plan on having kids anyway though.
All that said, I do plan to buy sometime. I’d like to borrow as little as possible, if anything to do so. Maybe closer to retirement age, and I’ll have the time to take care of all that homeowners stuff.
Good Morning, I’ve been following your blog for the last few weeks, and I must give you some credit…you definitely have a gift. It appears that we have a similar passion to help people improve their financial positions…I even feed your blog directly onto the home page of my website.
ABOUT MORTGAGE TIPS FOR THE FIRST TIME HOME BUYER….
I’ve been in the mortgage business and worked in a number of business models (the corp model (your big banks), joint ventures, and now the independent model). Finding the right lender can be difficult, but finding the right loan consulant/loan officer is even more difficult.
Find a lender and/or loan officer with similar values as yourself and you won’t go wrong. If you’re like me, then you can probably tell rather quickly who is in it for the right reasons.
If you’re looking for the best rate…business model is very important. If you choose a large bank, you’d think they’d have better rates (the walmart concept), but this doesn’t translate to mortgage banking. You’ll usually get a better rate from a smaller lender. They don’t have as much revenue built into the loans because they’re typically not quite as heavy with their staff and expenses. I used to work in this model, and there is a lot of management involved in each department to make a loan work and it’s very costly….and quite frankly considerably less efficient…go figure.
As for the smaller guys, they typically rely on building a business based on loyalty within the customer base. This can usually yield better accessibility and customer service…very key in a new home purchase. As long as the lender that you’re using does a considerable about of loans per month, they won’t have to jack up the pricing on your loan in order to survive. A lot of loan officers/lenders/brokers (whatever you want to call them) that work independently only do one, two, or three loans a month, so they have to make their household function on this business….this will sometimes offset the savings that you’d otherwise get with these guys.
Find a lender that will be transperent and let you see their rate sheets. Agree to allow them to make a certain amount on the loan (1 point = 1 percent of the loan is fair for the amount of work they do).
Find a lender that will educate you on the process. You don’t have to lock your rate if you think rates will go down in the near future. Learn about the industry so that you can be part of the process. I do a daily rate lock advisory with industry news each day that helps clients determine when to lock…you can use my website for this information http://www.themortgageplanners.com/DailyRateLockAdvisory
I could go on and on, but I’ll stop here for now…feel free to visit my website or contact me anytime for more information. I’d be happy to help you make sure you get the best loan for you…even if it’s with another lender. I’ll tell you what questions to ask.
http://www.themortgageplanners.com
Joshua Campbell
I was thinking some more about this, and I wanted to add an another comment.
First, be prepared to visit the construction site at least several times per week, if not every day. You want to make sure the correct materials are being put into the house and that it’s being done correctly.
For example, my parents visited their site and saw that the house was being staked in reverse. The house was to have the garage on the right side, but instead, it was going on the left! Also, the wrong type of trim was delivered and it looked terrible. If they weren’t there at the time, it would be much harder to change.
Second, since you’re calling this a ’starter’ house, be sure that you don’t make too many unique customizations. A few are ok, but since it sounds like you’d want to sell the house soon enough, you want to make sure it’s sellable.
Any reason why you’re wanting to build rather than buy an existing house? I’d love to read more about your thought process.
My tips have nothing to do with the financial aspects, but rather the aesthetics/location etc. Go look at the location during the day, as well as at night. I know it sounds funny, but things look different(safer, or not so) at different parts of the day/night. Also, take note of any street lamps and think about whether they’ll be shining right into a window – right onto your bed when you’re sleeping(we learned this the hard way). Traffic: how busy is the street you’ll be living on? Big deal to my wife and me, we lucked out and ended up on a dead end street, not a cul de sac, and we realized how nice that is to not have through-traffic, or turn around traffic. Take note if your house is at the end of a three-way intersection…if it is, you’ll see headlights shining in your windows at all hours of the night.
That’s about all I have for now, I’ll add more if I think about it.
Let me ride on Kacie’s coattails for a second with this thought about your “starter home” customization…Make sure you don’t invest so much into your home that you won’t get that money back. A lot of a home’s value comes from the value of the houses around it. If you make your house worth more than the homes around it, its likely you won’t recover that money when you try to sell it because of the other houses values in the neighborhood. In other words, not many people will pay more for your house just because of small, but expensive, customizations when they could get a house around the same size right down the street and customize it exactly how they want it.
Congratulations on your home purchase. One of the most important thing for me was having a home warranty and a home inspection. I know you are getting a new home built however you can never be too safe. Hire a licensed home inspector when the property is complete and apply for a “Home Warranty” which runs around $350. and covers you for the first year in case you have any electrical, plumbing, and/or other issues. There is usually a small service call fee ($50), however they will go out and fix the problem. One thing to keep in mind is to make a list of all related electrical, plumbing, etc..problems and place the service call when you fill you’ve identified the problems. The reason for this is one service calls should cover all related problems, for example if your electrical panel has a short and an outlet is not working in the bathroom, you will get both fixed and only pay one service call fee. Hope this make sense…
We were so pleased to find an affordable house with a big back yard that we ignored a lot of important aspects. These are the things that drive us crazy about our homes.
1. We have a tiny, sloping front yard. I have to mow up and down a hill. We have to park our cars up-hill or down-hill. There is no room for guests to park without blocking access to our mailbox or a neighbor’s drive way.
2. No air flow. There are not enough windows on every side of the house on both floors to open the windows and air out the house.
3. There is not enough room between houses. We are way too close to our neighbors.
4. We live in Texas and only have one A/C unit for upstairs and downstairs. Our home warranty company do not cover the zone control mechanisms for this set up.
Something caught many of our neighbors but not us. We bought a new house in a new neighborhood, and we escrow. The property tax for the first year or so is based on the value of the property without the house. Our mortgage payment increased by a few hundred dollars about 1.5 years after purchase. This caused the selling of boats, motorcycles and a couple foreclosures on our street. My wife and I expected it, so we made the expected payment that first 1.5 years and really knocked a lot off our principle.
Remember that building a home is something that can make or break a relationship. Make sure you and your wife are on the same page, and remember your marriage is way more important than a house. I probably don’t have to tell you that, but maybe someone else will read and benefit.
Congratulations! And Best of luck!
Tex–that property tax bump on new construction is very typical. Taxes are assessed on the unimproved land for the first year, then you get hit hard in year #2 when the improvements are finally added. Best to increase the monthly at closing to what it will be with the improvements to avoid the shock, just as you did (most people don’t do this!).
The only thing i wanted to tell you was that in my experience it took way too long for the builder to build the house. when it was done it was great but they told us it was going to be done in like six months. it was more like a year. and also if you think something needs to be fixed on the house make them do it before you sign the papers or it will not get done really.
Home ownership gives you more privacy and you pretty much dont have to worry about who will be living next to you in a year.i can assure you your rent will go up. the way apartments are built the walls are of cheap construction you can hear just about every thing. word of advise if you are going to buy a home its go for you to be handy around the house and not to call for repair for every thing.for the most part they will charge you outrages fees goodluck.