Seeking YOUR Advice About Buying a House

Last weekend, my wife and I met with a real estate agent to initiate the first step of buying our first house!   In the past, I have written about how we are in no hurry to purchase a house, take on a mortgage, and begin incurring all the extra expenses that we hear about from friends and family.  But, we anticipate the home buying process to be a lengthy process for us as we carefully vet our options to find that perfect house.   This article will be a different style and format that I have had in the past, because I would love to leave it open-ended for a discussion and hear from as many people as possible about this topic.   So please, at the end, share your experience/story!

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Advice we have received about buying a house to date

One thing I have learned about discussing buying a house with others is that they have no problem sharing their experience with you and trying to help you avoid their missteps.   For some, they hold back their advice, let you describe your plan, and wait a while to share their friendly advice.  For others, you mention the prospect of buying a house…and off they go!  I love every second of it because I want to gather as much information about the process as possible before making what could be the largest financial decision of my life.  Lanny and I often complain about the financial commitment of owning our cars on this website; but owning a house and the debt incurred dwarfs the financial commitment of owning a vehicle.   It is partially why Lanny constantly debates whether or not he should use excess capital to pay down his mortgage faster or use the capital to invest in the market.   It is that important of a commitment that you want to get it right!

To date, here are some of the nuggets of advice my wife and I have received so far:

  • Rent for as long as possible, kick the can on home ownership, and save up as much as possible (Editor’s note after a comment from Big Al –  I should have mentioned that I have a pretty affordable rent agreement.  Definitely luck and a dribing factor for why I was told to rent as long as possible).
  • Put as little money down as possible in the current interest rate environment
  • When I asked someone how much money I should put down to gauge their perspective on the current interest rate environment, their response was to put as much-needed down to avoid PMI (private mortgage insurance).  When I asked as a follow-up how much that person would put down if PMI were not in the equation, their response was zero dollars.
  • You can change anything cosmetic about a house; however, you cannot change the location of your house.  So make sure you are in love with the location.

Seeking your advice about buying a house

All of this is great advice and I will definitely be calculating to the penny the perfect down payment with all things considered (maybe a future article topic).  But here’s why this article is different from articles I have written in the past.  My conclusion is going to be open here and hopefully encourage participation from all of you!  I mentioned earlier that I welcome all advice that I receive from family and friends in an effort to gather as much information as possible.  But many of them, outside of Lanny of course, do not share the same personal finance savvy-iness, frugal mindedness, and mentality that all of us in the community share.  I don’t know if all of us truly appreciate the sense of community we share online.  We have all helped each other through various life choices by the sharing of knowledge and our past experiences.  Whether it is sharing stocks on a watch list, reading about your debt reduction plan, how you are aiming to minimize your tax burden, or even just encouraging/pushing each other to strive for financial freedom…we are our best resource and there is a lot of knowledge to be shared here.

So for everyone out there in this community, I was hoping you would share some of your advice and experiences with me.  It can be about your experiences as a first time homeowner or the purchaser of many different houses. Specifically, here are some topics I would love to get your opinion on.  But please share other experiences outside of these questions.

  • What mistakes would you avoid if you had the chance to purchase your first house all over again?
  • What was your goal in deciding how much money you wanted to put down on your house?  Avoiding PMI? Or were you willing to incur PMI if that meant that you put as little down as possible?
  • When purchasing your house, did you buy a starter home or bypass to a larger house for your family to grow into?  My wife and I are leaning towards the latter to avoid moving multiple times in a short period.

Thank you everyone…I cannot wait to read all of your responses and use your advice as my wife and I begin this wonderful process!  We are looking to have this done by the end of 2017, so hopefully next year will be as much fun for us as it will be for Lanny.

-Bert

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33 thoughts on “Seeking YOUR Advice About Buying a House

  1. When I bought my house I put down as I could afford at the time. I also paid more on principal and made extra payments to get rid of the debt as quickly as I could. I’m 55 and have mortgage free for about 10 years.

    Those who rent are at the mercy of the landlord and over time rents will go up, but for those who own, the mortgage stays the same with a fixed interest loan. A friend of mine who rented an apartment around the same time I purchased my home is still renting. In fact, at one point his rent went higher than want my mortgage was. I no longer have a mortgage and but he still has to pay rent. I have equity in my home and he has none.

    • CONGRATS on being mortgage free. How nice was it making that last payment? Extra payments are definitely going to be a part of my plan here. Just makes too much sense and will save you a lot of interest on the back end. How many years were you able to shave off your mortgage? You highlighted the main benefit of renting versus owning, that’s for sure. I think it is interesting that there is a population of people that have no interest in owning a home and are very happy renting their whole like. If you have a sweet heart rental agreement though and dive into their situation further though, I could possibly see where they are coming from and their thought process.

      Thanks for the great comment and advice!

      Bert

  2. I bought my house 3 years ago and don’t really have many regrets. In my area of the country my mortgage is roughly equal to what my rent was, so I’m building up a lot of home equity while paying roughly the same amount as my rent. Owning is a no brainier for me where I live. I realize elsewhere in the country that renting might make more sense.

    I saved up enough to avoid the PMI and went for a 15 year mortgage vs 30 year. I pay slightly more for the 15 year now, but over the course of the loan I calculated doing both of these will save me over ~$100k which can turn into a lot of income down the road.

    “You can change anything cosmetic about a house; however, you cannot change the location of your house.”
    This statement is 100% true and is very important. My house is near the center of the city and I’m about 15 minutes away from everything, and 5 minutes from my work. One of my friends lives way out in the suburbs and it takes him ~45 minutes to drive downtown, and 30 minutes to drive to work. An hour commute is an hour less that you can spend doing fun things and spend with your family. Also, if you are thinking of starting a family you should consider school districts.

    One final thing … I bought a bit of a fixer-upper so I save some money every month into a “home improvement fund.” However, this fund is often raided to buy DGI stocks that are on sale. This means that some of the fixing up has been delayed. I’m a bachelor so I’m ultimately OK with this, but this is something to consider and probably one of my slight regrets.

    • No kidding. Based on your situation, home ownership is a no brainer. If you were to invest that $100k in interest you are saving…that’s a lot of freaking dividend income and a great foundation for your portfolio. I think a 15 year might be too much for us based on the priced homes we are looking at. But, in a perfect world, I would love to take out a 30 year mortgage that I can turn into a 15 year mortgage by making a ton of extra payments along the way.

      Do you know how nice a 5 minute commute would be? Man I’m jealous and I’m going to be as I’m stuck in traffic on my way to downtown Cleveland. I’m starting to think that the location is a must have based on your comment, others, and Lanny’s last article. You are stuck in that home for a while, so you might as well enjoy the surrounding area and avoid the stressful things such as traffic. What’s the point of enjoying the house if you can’t get home in the evening to enjoy it??

      I am one of the least handy people, so a fixer upper could potentially be expensive for me. But the idea of having a set fund for improvements is a smart idea versus a massive one time payment and the ensuing scramble needed when the expense strikes. I’m sure I would face the same pressures as you and would be very tempted to raid the fund for the sake of growing my dividend income haha

      Thanks for the advice!

      Bert

  3. I’m a Realtor. In my experience, at least in my area, people tend to stay in their first house longer than they expect. That’s partly because real estate around here is pretty expensive. But you might easily find that your starter home is also your mid home too. Don’t buy something that feels so small that you are already bursting out of it but also don’t purchase something too large. You’ll just end up getting “stuff” that fills it up and stresses you out. Location, location, location. Is it an easy commute to where you work? Is it near activities you enjoy? Is there too much traffic, not enough walkability, power lines right over head, a neighbor with 6 dilapidated cars in his driveway? All of these things should be balanced. Get an inspection by someone (preferably an engineer of some kind) recommended to you. Use a good Realtor, mortgage broker and attorney, also from people recommended to you. Don’t just rate shop for your mortgage. The absolute lowest rate might not be the best. Judge based on other terms and whether the bank/brokerage has a good reputation for closing loans. Buying the best house on the block is usually not a great fiscal choice, but if you love the house and plan to be there awhile, maybe go ahead an do it. And just remember, no house will check all of the boxes but when your gut is telling you to do something, it’s probably right.

    • Paul,

      Man…your post is filled with great advice! Can’t thank you enough. Your first point is exactly why my wife is leaning towards buying a larger home at the beginning versus planning on buying a starter and moving. I don’t blame her, if our family is as large as we would like and are planning, we would outgrow a starter home at some point. We wouldn’t want to overstay our welcome in the house because it becomes comfortable or the price for a larger home continues to climb. There is a happy balance. I agree, it would be stupid to buy a huge house because we could and have half of it sit empty, gathering dust.

      Location is quickly jumping to our list of must haves. We are going to be there for a long time, so we must make sure we enjoy the surroundings and make sure it checks all of our boxes. Looking at the neighbors is a great tip and one I would not have thought about. Sounds stupid, but you are stuck next to them!

      I don’t want to buy a house until we walk into and know that is the one. I’m sure we could justify any house we see, but I don’t want to find myself sacrificing something important that I know I will regret down the road.

      Thanks again for your awesome comment!

      Bert

  4. Whoever said to rent as long as possible is crazy. Imagine you bought a house in 2009, it would have doubled in most metropolitan areas. Rent rises, mortgage payments stay the same.

    As for a larger house, that would be my plan. Put enough down to avoid PMI, why pay extra when you don’t have to? Moving has lots of costs, as does mortgage transaction costs. Generally if you stay somewhere for less than 7 years, it is not advisable to buy. So buying a 2-bedroom when you may need a 3-bedroom in 5 years is sub-optimal.

    Watch our for mortgage tricks: low rates but points up front, any pre-payment restrictions/penalties (walk away on this one). Try to get a “conforming” mortgage. It’ll be cheaper and easier because the bank can sell it. Your real estate agent can advise which banks lend the best in which geographic areas.

    Assuming you get a 4% mortgage, do you pre-pay or put into DGI? I would do DGI if the yield is over 3% as it will snowball to 4% in no time.

    Also, don’t get a 15yr mortgage. You never know what can happen in life and you may need to live on one income for a while. A 30-year offers you the flexibility to pay the 15yr amount (and pay it off in 15 years if it makes you feel better) or to make the lower 30-year amortized payment. The interest RATE difference is miniscule between the two, the majority of the interests savings are in the shorter timeline, not the rate.

    My parents paid off their mortgage and their apartment is $2,000 (NYC) in rent. They pay $700 per month in maintenance, half of which is federally tax deductible. They are now secure in retirement.

    • Big Al,

      I updated my post based on your comment. So sorry, but I left out a key piece of that statement. We have a very, very good deal on our rent in an awesome area that shouldn’t rise anytime soon. So that was the main reason that they suggested that we rent as long as possible. But now future readers will know that piece!

      PMI is brutal. At least when you pay extra up front you are using the extra capital to build equity. PMI…not so much, that’s cash going right out the door. I also appreciate the mortgage advice. Our realtor gave us some leads and Lanny and I have a pretty good pulse on the banking industry around here from our jobs. So I am going to beat the you know what out of that aspect. “A 30-year offers you the flexibility to pay the 15yr amount (and pay it off in 15 years if it makes you feel better) or to make the lower 30-year amortized payment.” That piece of your comment is my philosophy. Why box yourself in to a higher payment if you don’t need to?

      Paying down the mortgage or investing…that’s the important question. I still laugh because Lanny wrote about it 2 years ago and it is a topic that will always be relevant as long as you have a mortgage.

      Thanks for the great advice and information. Will definitely remember this as I continue to go through the process.

      Bert

  5. Good luck with whatever you choose. I’d say buy when you want to, because there’s no point waiting for a crash – you’ll want to buy stocks in a crash 🙂

    Does the USA have offset accounts? This is an account linked to the mortgage account. If your loan is $500k and $100k cash in your offset, you pay interest on $400k. If you can buy the property with the most loan (but only to the point where you’re not paying ‘extra’ for not having a big enough deposit) and then stick lots of cash into the offset – reduces your interest. Then when a crash comes you can use the offset cash for buying stocks.

    Tristan

    • Tristan,

      Thank you very much! Can’t wait to see this process unfold. Just did some searching and doesn’t seem line offset accounts are popular in the US. That’s an interesting concept and the immediate downside I see (and you mentioned it) is that you are parking a lot of cash on the sidelines. I’m sure the bank likes it though because they can then lend the capital out and earn the interest rate elsewhere.

      Ber

  6. My biggest advice, don’t compromise on the things you really value in a house as they will nag you until you fix them. This is especially true for a commute. Speaking of commute, drive to the house from work and vice versa during rush hour before making a decision to buy as the single most expensive thing you can do is sell that house after too short a holding time because the commute drives you nuts (been there done that). One final note, remember to equate for how much maintenance will cost you in your view of what you can afford. Maintenance is expensive.

    • We are quickly accumulating our must have list, which hits at your first piece of advice. What’s the point in spending that much money on something that doesn’t have all the things you really want? Great freaking piece of advice about driving during peak hours. Would never of thought of that considering most house visits are either during the evening or on the weekends. You spend so much time commuting to and from work, so you need to understand that piece of the equation.

      Thanks for all the advice!

      Bert

  7. Hey Bert. Thanks for sharing. I hope you and the wifey will find something that fits your needs. Its difficult to find the perfect house unless youre lucky or you have to pay an arm and a leg for.
    In my experience, my wife and I bought our homes thinking that we will never sell and will one day be rented out when we do move onto the next. Its worked out great so far and in the future, we would love to buy more rental properties.
    Have you thought about living upstairs or downstairs and renting out part of your home… Privacy is huge but sacrificing for a bit to build up your assets is great as well.
    In the end, do what you both think is right. I support you guys all the way. Cheers.

    • HUSTLER!

      We are going to do everything can to find the home of our dreams! Trust us, we are going to turn over every stone in our house hunting process. We live in the upstairs of a double now and I think we are ready for the privacy, especially when we have a family. If I get into real estate, it will have to be in a different capacity.

      Thanks for the encouragement and support! In the end, all that matters is that we keep on hustling.

      Bert

  8. It highly depends on your attitude, let me explain: you can look at it from an expense or investment perspective. The first house we bought was new, too big (in hindsight) and a massive expense (albeit we did not realize this at the time). However, it was very nice to live in (except for all the cleaning time required).
    Our current house is old (around 1910) so has higher maintenance costs and is everything but level or straight (let’s say it has character 😉 ). However, it also has 3 rent-able units within the same building. In this case, the income from the 3 units pretty much covers the total mortgage costs. Which means we are pretty much living here for “free”, leaving us the ability to invest more. This house is not nearly as nice as our first house, but it does not affect our quality of life or our happiness. It does however also provide us with an investment into real estate and give us a roof over our head at the same time. Clearly a win for us.
    Our advise is therefore, see if you can find a property that you can partially sub-let to lower your living costs. If/when you move out, you suddenly also have two (or more) investment properties. Win win?
    The point here is that if you see your house more than just a roof over your head, the expenses of it likely go up significantly (i.e. the want’s start to overtake the needs). Curious to see what you think.

    • Man! I’m seeing a lot of parallels here in our house search to yours. First, your first paragraph summarizes the battle we are having about our house. Trying to get everything we need without breaking the bank. It is tough because the houses in the middle all of perceived flaws in them that make you slightly hesitate. Second, one of the areas we love has a ton of older, character homes. What makes me nervous is that I am not handy at all and will have a hard time keeping down those costs down. But…but….I’m always open to giving it the old college effort.

      Very smart idea with renting out the other pieces of the property. I don’t know if that is the road we are taking, but I would love some sort of property that would allow us to cover the costs of the mortgage. There are a ton of ways to monetize it if you are willing to. That’s the million dollar question though!

      Thank you so much for your comment and advice! Much appreciated.

      Bert

  9. Random pieces of advice from myself:

    – Fixing things yourself is EASY, a small investment in tools and some youtube videos can practically build you a house.
    – Major renovations are a phone call away, don’t be scared.
    – See the house and space for what it could be, not what it’s setup to be. You’d be surprised how many people can’t.
    – Kids don’t take up THAT much space. I knew a tonne of people back in San Francisco getting by just fine with 1-2 bdrm places and kids. If you want a larger house, by all means, but you don’t *need* it. Maybe when they’re teenagers, but that’s presumably more than a decade away.
    – Location is probably the single biggest factor, especially if you want to see the value grow. New houses can be built anywhere. Good locations are a finite resource.

    • MrSLM,

      I promised myself I am going to learn to get better at fixing things. I’m one of the least handy people out there haha I appreciate the advice. Points two through four are things that others won’t necessarily tell you and is a major contributor to an increased cost of the home. I feel like in today’s HGTV society everything has to be perfect on Day 1…and that isn’t realistic when you have a strict budget.

      Love the line about location. Definitely feel the same way.

      Thanks for the advice/comments. Much appreciated!

      Bert

  10. A compromise suggestion on the smaller vs. larger vs. moving issue would be to find a smaller place with a full unfinished basement. You won’t be paying extra before you need it (and keeps the taxes+insurance lower). Then if/when you decide you can finish a room or 2 downstairs either DIY or hire out.

  11. I had to unfortunately get PMI on my house. I wouldn’t change anything about what I did though. I purchased at the best time when the market was low, so I knew I would definitely be making any money back that I spent into PMI. Also PMI is tax deductible. Honestly though, being a home owner is amazing. Not to mention, every time I make a payment it is going towards my principal unlike renting which has no benefit.

  12. I bought my house at 22.
    Paid it off at 34 by doubling up payments.

    Before I bought my house, I never realized how much I hated debt. It was very hard to be “stuck” working. Now that I am debt free, I can do whatever I like. It is a beautiful thing 🙂

    It all depends on your debt tolerance.

    • So you cut a 30 year mortgage down to…12??? Awesome, awesome stuff. That’s what is hard for me to swallow. I hate the fact that I will be making payments on my debt for a long time.

      How much more do you enjoy your house now that you are debt free??

      Bert

  13. As somebody above me recently said, renting puts you at the mercy of the owner of the house and so investing in a home that you can call yours is one of the single most important investments you will ever make in life. That said picking the right house to buy is ever so important, especially with rising house prices here in the UK.

    • Trevor,

      This is probably the largest purchase one will make in their life. Why spend a ton of money to sacrifice on your house? No, I want to make sure we get this right and purchase a house that we are going to love.

      Bert

  14. you’ve probably analyze this to the bare bone, so I had 1 advice:

    Stability

    I lived in my childhood house up until I was 15, for which I thank my parents for giving me the stability. The next 10 years, we moved a couple times but we pretty stayed in the same complex. The next 10 years, I moved into a rental for a few months and my house. For which I thank my old self for buying me the last 10 years of stability.

    My house or my home!! You see when you go home, and you know it’s yours. You’ve made it as comfortable as possible, you can put your feet up, you can grow a garden, you can grow a tree and wait for it to bear fruits… (you bet this fall season, I’ve gone out and pick many persimons off the tree to eat! Yum! and you can’t buy this experience. My sister was envious of my persimons, so I propagated 2 branches, both of which are alive and kicking). hahah.

    Stability. If anything, I’d pay for stability. I don’t need too much fanciness, I want to have a home to go back to.

    hehehe
    Congrats! hope you make your decision soon.

    • Vivanne,

      Oh yes, I have analyzed this like crazy and I am going to until we agree on a house! We don’t want to move more than we need to and we know we wil outgrow a starter home soon. So why buy with the intent to move soon down the road?

      I hope that my house can be as much of a home as yours is to you. My wife and I can’t wait to begin the process soon so we can start making something our own. Would love a garden to grow food (if the deer don’t eat it all), have family gatherings, etc.

      Thanks for sharing your experience and advice!

      Bert

  15. Hello. My opinion is that it would be wise to
    1 buy a small and cozy house
    2 have no mortgage and
    3 have enough insurance

    Most important thing is 1, the small house.
    That’s because you can reduce
    (1) tax
    (2) maintenance and
    (3) housekeepings.

    Good luck!

    • Thanks for the advice. Agree with your benefits of a small house. Taxes is the most brutal of the expenses that you listed. The thought of forking over thousands and thousands in property taxes makes my stomach turn. But that’s part of it unfortunately. Unfortunately, I don’t think I could talk my wife into a small and cozy home yet haha

      Bert

  16. I’ll summarize my view which have been pretty much covered in the comments.
    1) Highest priority – quality of life for the future family. I would define this through schools, neighbors, community and (to Vivanne’s point) stability. Included should be the expected future city tax liabilities. Is the community living within its’ means, generating a surplus or mortgaging the future?
    2) PMI should be considered a means to an end. Via an appraisal, once the equity exceeds 20% it can be removed.
    3) Two of the greatest expenses are related to foundation and in-ground pool (if being considered). The engineering report (even if not required for the mortgage) should be performed by a professional with competency in these areas.

    • Charlie,

      I’m starting to see a theme among the commentors and it has helped me focus on the important things in my house hunt. It has been a huge help hearing from everyone in this personal finance community.

      1. this plays a huge role. I think the school district is a huge factor. In my opinion, you pay taxes to support your schools (and other things). Why not feel like your tax dollars are supporting one of the best so you know that your children would get a great education. Great point on the community’s finances, didn’t think to look at that. Could indicate future tax increase to cover the shortfall. Great call!

      2. I can’t stand the thought of PMI. Pisses me off, so I want to avoid it at all costs.

      3. Thanks for the advice. Want an inspector that is going to tear that building a part and point out all of the flaws haha

      Have a great Sunday!

      Bert

  17. Bert-

    I agree wholeheartedly with the advice to avoid the PMI at all costs. I also agree with your thought experiment regarding how much to put down if PMI were not an issue. I think it’s also important the structure your note and mortgage to avoid ARMs and ballon notes (especially since this is your first house and you’ll be selling).

    Also-I know this advice is for much further down the road in this process, but you should be all over the inspector and sellers regarding disclosure of defects and whether or not the fixtures will need replacing.

  18. I’m three years into home ownership. I look at the first time fixing something as an investment. It’s going to take me five times as long as it should, and the tool will cost me what a plumber visit would cost, but I will come out of it with the knowledge and tool to handle the problem next time. If you’re worried you aren’t handy at all, don’t worry, you will learn. YouTube covers everything.

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