Monday, June 1, 2015

How To Buy A House Part 1

Hello There! I apologize for the very long hiatus from this blog. Life has been very crazy recently, but the more I get busy with work, the more I realize that I need some form of creative outlet. Time to resume the blog!

I wanted to start off with a few blog posts on buying a house. D and I are in the process of purchasing our first house and as first home buyers I have learned A LOT about mortgages, HUDs, inspections, credit scores, negotiations, etc. But let me tell you, I was clueless going in. I tried researching it online and found very few resources of buying a house from start to finish, so I wanted to document our experience so far. But to whet your appetites, here a picture of our future home!

Yay! Just seeing it makes me excited. In this "Part 1" post, I will talk about deciding we were ready to buy a house, getting pre-approved for a mortgage, and the wonderful world of Zillow. Without further ado, let's jump into it!

Are we really ready for this? Ok so this was obviously the first question we faced. We've been talking about it a bit over the past couple of years, but neither of us felt ready to commit to staying in one place for over 5 years and spend hundreds of thousands of dollars on something. It was honestly having D propose to me a few months ago that began to cement the idea in my mind. He was making a large commitment to me, and I wanted to reciprocate and commit the next few years of my life to Portland. What better way then buying a house together! And yes, I do realize that I'm buying a house while I'm planning a wedding, but we aren't getting married until next June, so we will have a full year to adjust to the new house before the wedding. Hopefully that should work out alright! 

Buying a house obviously comes with a large amount of responsibility, both financially and maintenance wise. It's important to be fully committed before starting this process, because once it starts everything seems to fly by, and you want to make sure you aren't second guessing yourself along the way. Some questions we thought thru:

Are you ready to not have the flexibility of living in an apartment? 
Are you ready to deal with things when they break or need updating? 
Do you have enough money to comfortably put down a strong down payment?
Are you ready to commit to one location for the next few years?
What is happening in the marketplace?

What is my price point? Once you have had those deep discussions and have decided it is indeed time to start looking, how do you figure out what price points you are looking at? While it's important to have enough money to put down a solid down payment, there are a lot of other fees that go along with buying a house. In general, a good rule of thumb is to put down 20% for a down payment. Obviously not everyone will have the ability to do this, but D and I decided that it was definitely a goal we wanted to hit. We calculated out how much we were willing to spend on a 20% down payment and multiplied that by 5 to see what the max price would be. After looking at the number, we decided to be a bit more conservative than that and set our max price a bit lower than what our original equation told us. 

Example: $100,000 down payment means your limit should be $500,000, with an extra $10,000 in closing costs/inspections/etc. 

Remember that there are a lot of additional costs that go along with buying a home. Our closing costs came in around $8K, so be aware of that when you are figuring out how much you can afford. There are also fees associated with getting the house inspected (definitely necessary!!!), checking the sewage system, and checking radon levels (optional). 

How do I get pre-approved for a mortgage? After deciding upon your upper limit, start to do your research on interest rates for your state and loan amount. In general, it's a good idea to have an idea of how much you want your loan to be and what kind of mortgage works best for you. 

D and I ended up going with his credit union. We scheduled to meet a mortgage adviser in person, which I strongly suggest. For whatever reason, it really makes a difference having an actual person in front of you as opposed to doing this over the phone or online. Since you will be working with this person for the next couple of months, it's great to meet them at the beginning to insure you like working together. 

For our actual appointment, we had to bring a bunch of different documents for our adviser to review. Here's a list of things that we needed to bring.
  • Last 2 W2s from our employers
  • Last 2 pay statements from our employers
  • Last 2 bank statements 
  • Last 2 retirement statements
  • Any stock or trust statements you may have
  • Any current loans statements (student, auto, etc).
  • Drivers License 
You will need to know your social security number, so if you don't have that memorized jot it down. When we met with our adviser, we discussed what price ranges we were looking at, the amount of down payment we were putting down, what loans we were interested in, and any other lingering questions we had. I highly recommend getting pre-approved before you start looking at homes so you can concentrate on houses in your price range and have the legitimacy of a bank backing you up.

What is Zillow? After you get your pre-approval done, it's time to start scouting out potential homes! Zillow is a great tool for this. Zillow is an online real estate marketplace that gives you access to TONS of listings in your area. If you are a visual person, you are going to love this tool. You can choose what neighborhoods/areas you are interested in, as well as filter on rent/sale, price, number of bedrooms, number of bathrooms, etc. 

Once you choose a house, Zillow gives you estimates on houses in the area, neighborhood information, previous tax amounts for the house, information on the school district, and lots of information on the property. 
An interesting thing to note is that even if you don't want to have kids, buying a house in a good school district is a good idea because if/when you eventually sell it, it is in a desirable area for new families looking for a new home. D actually found our house on Zillow! We emailed our real estate agent saying that we wanted to look at that one specifically and it turned out to be the one.  

That's all for now! Stay tuned for a couple more installments of "How To Buy A House".

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