Five Things I Learned from Buying a Home

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When buying a home finally becomes a reality, things can get real crazy real quick. Two months ago I was a renter McRenterson and today I have keys to my very own house and I now enjoy shopping at Home Depot. When my husband’s new job moved us from beautiful, extremely expensive Seattle to the suburbs of beautiful-on-the-inside, very affordable Detroit, the idea of owning a home went from a faraway dream to a very quick reality.

There have been approximately 10,000 things I wanted to write down and say on this subject and in this blog, but I’ve toned down my list so you don’t get scroll exhaustion. Here’s my top five list of surprises/unreal expectations/ “I just didn’t have any clue” on buying a house:

1.       Buying a house takes a long time.

We took the fastest track possible and it still took over a month from when we put in the offer to actually move into the house. We started our house hunt fully approved for a loan (which speeds up the process), put an offer on a house Saturday morning of our house-hunting weekend (June 13), and they accepted it within 24 hours (June 14). It took a full three and a half weeks for the paperwork to go all the way through (we closed on July 2, moved in July 16). Again, this was with a full loan preapproval and my husband sending them every piece of information they needed faster than I can run a mile. With pre-approval (not even full approval), the average mortgage loan takes 30-45 days to complete for a home and even longer for a condo due to a more complicated underwriting process. Get ready to twiddle your thumbs!

2.       Buying a house is expensive.

I really thought I knew this one before it came, but it really costs so much money! You bring your down payment to closing then, depending how your structure your loan, you bring another couple grand for all the fees and housey-things like taxes, paying for your title, and actually paying the people involved (it was $5K for us but you can read more here for a breakdown). Once you move in, especially if you’re moving in to a bigger space, chances are you’ll do some repairs and touchups, buy some new furniture, and make it your own. We moved into a turnkey house and still spent a lot of money making it ours! All this to say, make sure you have enough cash reserves left over. In my very limited experience, I would recommend having six months of living expenses left (and add 10% because moving is more expensive than you'll realize) after your down payment to avoid added stress.

3.       Mortgage rates are cray.

Mortgage rates are how much you have to pay back to the bank. These are a lot like interest rates on student loans and APRs on credit cards (but interest on credit cards is avoidable, whereas house interest isn’t really unless you’re fatty ballin'). With a 4% mortgage rate on a $200,000 house, you’ll end up actually paying $315,000 with a thirty-year mortgage rate (assuming you put 20% down). These rates are the lowest they’ve been in recent memory. Go ahead, ask your parents what their mortgage rate was on their first house. For my parents, their mortgage rate was 14.75% – that means the same $200,000 house would cost $756,823 over thirty years! Also, these numbers change every day and every quarter of a percentage point matters since it manifests over such a long period of time. Also interesting tidbit on mortgage rates: you are able to "lock" in your mortgage rate for a period of time before your loan actually goes through, and you're also encouraged to shop your mortgage rate at different companies.

4.       Location, location, location.

Yeah, you hear this one A LOT. But it’s true. Where you buy a house is way more important that what the house’s redone kitchen looks like. Think as long term as possible when you’re picking your home sweet home, because eventually you’ll have to sell. You want it to retain as much value as possible (and if you pick a good location, location, location, you’ll have much better chances of making money on your house). A poorly painted house with leaky plumbing can be fixed but your house's proximity to, say, a waste water treatment plant cannot.

5.       Find your contentment.

Buying a house feels like I’ve officially entered the rat race, the “keeping up with the Joneses.” I wasn’t expecting that. Take as many moments as you need to talk yourself out of a house you can’t afford, just because the breakfast nook is particularly dreamy. Every house has its flaws, and don’t set yourself up to buy the nicest house with the nicest things. Make it your own, make it welcoming, and that’s the best you can hope for in a few walls with a door.

Moneybags Magoo: Housing

Hi there, I’m Moneybags Magoo. Ask me a question and I’ll pull deep into my pockets of wisdom for an answer.* This month’s theme: housing.

Dear Moneybags Magoo,

Word on the street (slash internet) is to spend 30% or less of income on housing. I'm trying to figure out how much to spend on rent (floor-to-ceiling windows! Granite countertops! Hardwood floors!). Should I try to skimp in this area or can I flirt with the big-chunk-of-income realm?  -Sincerely, Apartment Dreaming

Dear Apartment Dreaming,

The short answer for your rental woes: only pay enough in rent to feel safe and comfortable. For most, the ultimate goal is to buy a house (because those monthly payments will come back to your pockets, while renting puts your money in someone else’s pockets). By staying on the lighter side of rent, you’ll save more money for your down payment. If homeownership is not on your radar, the money you save in rent can be invested.

Dear Moneybags Magoo,

I am trying to buy a house, but a down payment would require me to sell all my hair for wigs and also sell my soul. I would really like to buy within the year, but I won't have enough saved within that time for a down payment. I've debated asking my parents to borrow money. Do people actually do this, or should I just pay for the private mortgage insurance (a couple hundred dollars per month)?

Cordially, No Flippin’ Idea What to Do

Dear No Flippin’ Idea What to Do,

First, I would hesitate that you should buy within the year if you can’t afford it quite yet. Let’s apparate back in time to ‘08 and ‘09 with the housing crisis. People bought houses they couldn’t afford. You really want to get into a house with a mortgage you can pay for, because bad things actually happen if you don’t (and think about your mortgage if your significant other loses their job). Ideally, wait until you have that magic down payment.

If you are still considering borrowing money from your parents, many first-time buyers will get assistance in one form or another if their family is in a position to do so. If we’re talking about a loan, it all depends on your relationship with your folks, and you, dear reader, will know best what that looks like. Since both money and family dynamics are involved, even with a healthy relationship and timely payments, this situation has the potential to get really nasty (financial control is a real thing - think about the icy glare from your mother when you buy a morning coffee while still owing them $30K). Dare I say it: any savings you may gain from family borrowing might not be worth the risk of complicating your family ties. Again, you know best if borrowing money from your family is workable.

Dear Moneybags Magoo,

My significant other and I are house hunting. Our Barbie dream house costs a little more than we want to spend. Do you think we would regret buying a more expensive house than a cheaper one? What's a good rule of thumb?

Sincerely, Wishing for a White Picket Fence

Dear Wishing for a White Picket Fence,

This one is easy: buy within your means. You will never regret committing to a mortgage that leaves you sleeping peacefully each night, rather than tossing and turning while thinking about your next mortgage payment. You can buy a bigger house down the road (literally or figuratively), and there will be plenty of opportunities to buy nicer houses as long as you can afford it.  

A few notes on house buying for kicks and giggles: whatever number the bank approves you for doesn’t always account for things like eating food and buying gas every day. You don’t have to use the entire loan amount you’re approved for (and you probably shouldn’t. Again, we lived through the recession. Still fresh). Another fun trick: ask the bank about 15-year, 20-year, or even 25-year loans if you have the financial bandwidth for a higher mortgage. You’ll save money by shortening the life cycle of the loan even by a few years.

Also, like many things, you’ll probably end up spending a little more on a house than you planned (between buying new things, fixing up old things, and the sale in general). Plan accordingly! Give yourself some buffer for the added expense. A good rule of thumb: buy a less expensive home in a good location. Time will usually sort that one out nicely in your favor.

*The deep pockets of wisdom are actually an email thread with about twenty ridiculously savvy folks who are generous enough to let me ask pesky personal finance questions. These are gems from their answers, because they know about life and are pretty good at it.