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What to Know Before You Buy a House
by Maura Keller
It's Sunday afternoon and you've decided to buy a house. You jump in the car and drive around town—newspaper
in hand—looking for the perfect property. Sounds ridiculous, right? Buying a house can be a daunting, draining,
and exasperating experience.
Why the high drama? Because for many, buying a house is the most important decision a person can make after
marriage and children. Albeit a big decision, sometimes the strong desire to own a home precludes many practical
decisions about the purchase. First-time homebuyers, in particular, often are guided by emotions when choosing a
house, rather than approaching it in a carefully thought out way.
With mortgage interest rates remaining low, knowing what kind of house will suit you; finding a patient,
hardworking agent; and gaining a sense of the process may be all you need to unlock the door to your dream home. You
can take many practical steps if you want to make an intelligent investment. We asked visitors to the Home and
Family Finance Resource Center to tell us what they wish they'd known when buying their homes. Here's what they
believe should be top-of-mind for future home buyers.
Do your homework
With a price tag two or three times the average buyer's annual salary, if ever a
purchase demands preparation, it's home buying. Thoroughly research location, school district, deed restrictions, and
taxes using the Internet, real estate representatives, and housing guides. The more information you have, the more you
will understand the issues surrounding the home-buying process.
"You need to educate yourself about what to look for in a home," says Cheryl, of Maryland. "You need to have an
idea about what you want in a house and get to know what your options are to improve the house you choose. [Being
informed] can make having a house a much better experience."
Affordability
Before you find that oh-so-perfect Cape Cod, begin by determining your buying power.
There are Web sites, including Home and Family Finance Resource Center's calculator
"What Will My Monthly Mortgage Payment Be?"
that can help calculate how much you can afford and what your
approximate monthly payments will be. Remember that mortgage interest rates can vary between lending institutions, so
be sure to contact your credit union
for its mortgage rate information.
Experienced loan counselors will review with you the wide range of home financing options available and help you
determine which one is right for you.
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"I wish I'd hired an inspector instead of trusting the seller about defects."
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In addition to learning what size house you can buy, determine the amount of your down payment. The larger the down
payment, the more equity you will have in your house and the smaller your monthly payments will be. Some lenders will
lend you up to 95% or even 97% of the price of your home. But, if you borrow more than 80%, you'll have to
buy private mortgage insurance (PMI), which is added to the cost of your monthly mortgage payment.
Tim, from Texas, and Gina, in North Carolina, wish they'd had a better understanding of PMI expense. Remember,
you'll be able to drop PMI once your equity rises.
"When we got into the financing and paperwork we were clear on how much we could afford," says Shelley, of
Washington. "... But when we signed the papers, our actual cost was about $120 more per month. We did not realize two
key things: You have to pay sales tax on the sticker price of a manufactured home; and we didn't realize that we paid
extra to 'buy down' interest rate points. But the biggest shock came about eight months later when we received a bill
for property taxes that we assumed were included in our loan."
Hidden agenda
The condition of the house—that of the structural and mechanical systems—is
an important factor in evaluating if it is a good investment. Once you decide on the house you want, make your offer
to purchase contingent on a professional inspection. For a reasonable fee, a home inspection service will evaluate the
major elements of a house and provide you with facts about its physical condition.
Although the law may require sellers to disclose defects that affect the value of the house or property, some
unscrupulous sellers will do things such as use paint to cover up defects like ceiling stains, which indicate leaks.
Seller warranties vary by state.
Irene, in Oklahoma, writes that she bought a house from a family friend and believed his assurance that the
"electricity was fine and all that room needed was a new bulb. I didn't get it checked ... I will in the future."
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"I wish I'd known more about private mortgage insurance."
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Still, an inspection may be no guarantee you'll avoid trouble: Rossana, from Maryland, says she learned too late
about "holes in the walls covered by wallpaper, leaking pipes the inspector did not pick up on, and the draft in my
family room."
Simone, in Florida, says, "My house was built in 1940; I knew the electric probably needed updating, but the
inspector did not say anything negative in his report." That cost Simone extra in property insurance premiums, until
she upgraded the electrical system. "It almost doubled my previous insurance coverage and cut my premium in half." She
wishes she'd allowed enough in her budget for the electrical upgrade before moving in.
The best advice is to work with someone you trust, says Tracy Ashfield, a mortgage consultant to credit unions with
Strategic Mortgage Solutions Inc., in Madison, Wis. Don't get inspector recommendations from the realtor (who works
for the seller), she adds.
Find your own inspector or ask friends and family for recommendations of inspectors they trust from past
experience.
Location, location, location
Finding the right house isn't just a matter of falling in love with a
floor plan. Finding the right neighborhood—which might have a vibrant location and correspondingly vibrant
residents—is just as important, if not more. "As a first time home buyer, I wish I had realized the importance of
checking out your neighbors very carefully," says Timberly, of Ohio. "You may think because your house sits in a nice,
quiet neighborhood, there's nothing to worry about. We were wrong. I wish someone, somewhere had stressed the
importance of talking to people in the neighborhood, of walking around frequently, or other tips to keep people from
getting into a bad situation with neighbors."
By the same token, information about neighborhood crime is free for the asking from most local law enforcement
agencies. County residents can find out whether a registered sex offender lives nearby with just a few clicks of the
mouse or a simple phone call.
Building new People looking to remodel their existing home or build a house from scratch can
save themselves countless dollars and many headaches by
checking the contractor's and builder's backgrounds before
hiring them. Many government and private organizations, such as the
Better Business Bureau,
provide this information.
When checking out the builder's reputation consider such things as how long the company has been in business and
how many homes it has built; its reputation with buyers, other homebuilders, and the realty community; warranties
offered; and if there's a department dedicated to warranty issues. The best way to check out a builder is to ring
doorbells in the development.
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"I wish we'd rolled landscaping expenses into our mortgage; we could have had the work done sooner."
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Mary, in Georgia, regrets her family's choice of builder. "There is minimal insulation in the house and the air
conditioning unit for upstairs is not sized to handle the extra cooling an upstairs needs. When we use a major
electrical tool all the lights in the house dim...The master bathroom spa tub dropped down a couple of inches because
the plumber did not install proper supports."
And remember all the expenses of buying a house, even a new one. Marilyn, in South Carolina, told us her family's new
house required considerable landscaping. "This really added to the cost of the home, in addition to the new window
coverings, rugs, and so on that (often are) included in a resale home."
Robert, in Massachusetts, agrees and wishes he'd built the expenses into the mortgage. "Over the short haul, we did
add some landscaping improvements as our budget allowed. Had we just built this into our mortgage, we could have
completed the job sooner and would hardly have noticed the increase in our monthly payments."
Keeping the future in mind
Many homebuyers overlook how a house will function for their family:
Those who like casual entertaining should look for a large kitchen that's open to the family room. Those who enjoy
privacy should go for a master bedroom and bath that are separate from the rest of the living areas. Also keep in mind
the size of your home and the size of your family. Although you may have plenty of room now, the future may include
caring for elderly parents or additional family members.
"We wish that we had planned better as far as the size of the house," says Brad, in Arizona. "[Our house] started out
as 1400 [square feet], then 1650, and now 2000. Our youngest daughter's bedroom is way too small and my other
daughter's room is perfect. I don't want to play the game of, 'you can have your sister's room when she goes to
college.' Buy the size of your future home, if possible. Houses will not get cheaper."
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"I wish we'd done a better job scoping out the neighbors; they make a huge difference in how much we enjoy our
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For Tom, of Maine, "Live for today and plan for tomorrow" was his motto the year he bought his home. "I was like
any other buyer, trying to get as much home as I could without breaking the bank," Tom says. So he purchased a
house that needed a lot of work or "sweat equity," as realtors call it. Seven years later, Tom still is
completing his home's rehabilitation. "I am not disappointed about the progress but I am bothered about the size of
the home. I have outgrown it and yearn for more space. Better planning would have included finding a home with more
room to grow."
No one ever said purchasing a home was easy, but there are ways to help ensure that unforeseen problems don't crop
up. Doing your homework and taking the steps outlined above will minimize the odds of this happening.
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Working with an agent
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In today's market, working effectively with a real estate
agent will help make finding a home a rewarding experience. Home buyers should be well prepared, knowledgeable, and
willing to take some simple steps to maximize the productivity of their agent. Remember,
while an agent can be a big help, he or she works for the seller, not the buyer.
Get preapproved
One of the most important things you can do is to establish
how much house you can afford
prior to beginning the home-searching process. Many real estate agents
require a preapproval letter from your loan officer indicating the amount that you have been "approved" to spend in
purchasing a new home.
Establish priorities
Before you even begin looking for a house, make a list of elements that you're
looking for. If a two-car garage and a four-season porch are "must-haves," indicate it on the list. Communicate the
essential features of a house that you like or dislike to your realtor. That will help him or her "narrow the field"
when viewing potential homes.
Keep an open mind
In the ideal world, you would fall in love with the first house you look at. But
it is more likely that you will need to look past the stained carpet and ugly wallpaper and envision the "beauty"
underneath. So don't be too quick to pass up what looks like a "handyman special" before obtaining additional
information about the property. You never know if what looks like an ugly duckling may be the home of your dreams.
Homebuying Web sites:
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Published October 1, 2001
Home & Family FinanceŽ Resource Center
Copyright © 2008 - Credit Union National Association, Inc.
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