how to keep unwanted objects out of your bodily orifices while buying your first home
Nov 08 '01 (Updated Jan 30 '07)
The Bottom Line get a referral; use someone with a lot of experience; don't listen to your sister-in-law; deal in good faith
Until very recently, I'd never been a homeowner, mainly because until recently I'd never wanted to. I didn't want to chase off stray dogs. I didn't want to fill out mortgage loan paperwork. I reckoned that I'd do about as well as Britney Spears suddenly thrown, handcuffed, into Cellblock B. I didn't know what I was doing, or what all was supposed to happen, so I was just a little nervous.
I'd heard all the horror stories. Oh, my agent was worthless. The mortgage company hosed all the paperwork. When my loan officer smiles, I can see the venom slots in his incisors. The sellers were so rectal we brought toilet paper to the closing. We found out in the spring that we had to replant the whole lawn because they'd used it as a mink ranch. Our new neighbours are Scientologists trying to sell us Amway, and pee in our hot tub. And so forth.
What I had failed to bear in mind was that, in general, most people don't have their act together. The system has some safeguards to protect all parties, even the buyer, but you have to use them conscientiously. You do not need a lawyer escorting you from office to office. You do need to stay on top of everything, react quickly, make this your priority. It will take at least a couple of months. For that timeframe, kids, job, Labrador Retriever, whiny sister-in-law, co-dependent friends, and so forth need to go to the back of the line at one point or another. (Some of them probably will not like this, and will mark you down as The Sadistic Torturer/ess because you no longer meet their every weepy need immediately. You know how comfort levels are.)
No one told me any of this in one go. I had to figure it all out by bungling my way through it. With that, and in rough chronological order, I give you my Recommendations For The First-Time Home Buyer Who Does Not Want To Get It Up The Wazoo Without At Least A Courteous Introduction, Some Lube And Maybe A Kiss:
Everyone's an expert: including, obviously, goofs like me on Epinions. (Remember, I have bought one and only one home. I do not know Richard.) When you mention that you're buying a house, all your relatives, friends, co-workers, pets, and even casual acquaintances will stand forth to Offer You Their Totally Wise, Expert Advice. Some of it will be good. Much of it will be stupid. A lot of it will conflict. Taken in the aggregate, all of it will confuse and scare you.
Want help sifting? Pick someone you know who really knows the business, as signified by having invested successfully in residential real estate more than once. Make them your daddy/mommy. (It may in fact be your parent, or parent-in-law.) Plan to run everything past them. Plan to make them the first person invited for dinner at your new home, and plan to present them with a generous gift of appreciation that evening. No one will have ever done that before, count on it (because gratitude is not exactly in generous supply out there), and trust me--what they will have saved you will easily exceed the cost of your gesture. Giftgiving as a social nicety is vastly underrated in our grabby, selfish, ill-mannered society.
Six months prior to action: order a full mortgage credit report. Costs something like $90. You are mainly looking for a) filthy lies, b) egregious errors, and c) the awful truth. The principle is this: surprises suck. The truth, no matter how bad it is--if made candidly clear and defended against the rapacity of our credit reporting system--may yet get you a house. Falsehoods will probably lose it for you. If you do this long in advance, you can a) debunk the lies, b) correct the errors, and c) plan to confess and spin the awful truth.
Think it won't work? We had some very adverse items, none of which were really either of our fault (such is the joy of our credit reporting system, which in my opinion should be shattered with fixed bayonets, gas gangrene attacks and messy public executions, and completely rebuilt with a concept of decency enforced with the lash), but we bought a house in spite of them.
Also, figure to have to fork out roughly 7-12% of the cost of the home out of pocket, and either save accordingly or have that much money liquid. Doing it by credit card advance happens a lot but, as you can imagine, is the way that you take the worst hosing. If you do it by saving in a bank, it also makes your overall debt picture look better. In our case, we laid out about 8%, which covered down payment, all the bank's rapacious little fees, and so on.
Three months before: begin saving bank statements, pay stubs, and so forth from your billpaying. Just put 'em in a folder. That way, when you are filling out the loan paperwork, you'll have it all handy. They'll have their nostrils so deep into your finances that their adenoids may develop paper cuts. Get an accordion folder, and from here on out, put all material relating to the deal into it. (When you're done, it will be bulging, even after you throw out all the prospecting stuff relating to houses you didn't buy.)
One month before: adopt an attitude that you will jump on all paperwork like a personal injury attorney on a rumoured neck brace sighting. This you must, must, must have. Once this all starts, your activities will be largely scripted, and you will have very tight windows of opportunity. That's because everyone else is literally banking on you coming across. If you, like most people, are generally a lackadaisical screwoff who just 'does it whenever', oh, how you are going to pay if you don't put that on the shelf. Buy a calendar of this year, and write every step, deadline, appointment, etc. on it.
Bank shopping: don't assume that your checking bank has the best deal. In fact, I think you should do this with another institution on general principles, unless your checking account bank has a really good deal. Call for rates, get referrals from past home buyers. Some banks have more paperwork than others, are slower and screw up deals, etc. Banks that do not sell their loans upstream are a plus (most do, unfortunately). There are a lot of mortgage companies around you can go to; feel free to check 'em out.
Once you pick your lender, the clock starts when you turn in their loan application, so get ready to shift up into fourth gear. The idea is that they will either preapprove you or not. If they preapprove you, that means that if all your statements check out later and there are no other sordid surprises, they're about 90% ready to do business. They will generally loan you more than is really healthy for you to borrow, so don't let it go to your head, but don't freak out if the house you want turns out to be $3000 more than your preapproval. The letter will be for a set period of time, after which you can apply to have it extended if need be, which is the reason the clock starts now. Do this only when you are psychologically and materially ready to make it all happen.
With that in mind, if you have anything adverse on your record at all, enclose a letter to the lender with your application and explain such things. Don't be abject--just be factual. This is the sign of a responsible borrower who remains accountable for his or her actions. It may sway their approval authority. It helps if the adverse stuff is several years old, so you can point to recent times as demonstrating what a snazzy credit risk you are.
Oh, one more thing. You'll be besieged with self-proclaimed know-it-alls (even sisters-in-law who actually work for mortgage companies) telling you that a 15-year mortgage is a better deal than a 30-year, because you pay less interest overall. Well, duh, if you pay only the minimum payment--which you shouldn't plan to do anyway. Do the mathematics. Assuming interest rate is the same, if you take the 30-year, but make payments equal to what you would have had to pay for a 15-year, you will pay precisely the same amount of interest. In general, I think it's smarter to take a longer loan but just pay it off quicker. That way, if times get bad, you're that much less likely to lose the shack.
Mortgage types: I am in the minority today. I do not believe in adjustible-rate mortgages. I do not believe in interest-only loans. I do not Believe in them, Sam I Am. I would not Use them to buy a House. I would not Inflict them on a Mouse. I believe in a simple-interest loan with a set term and all variables known and as controlled as possible. Part of this is my basic psychological bias against getting cheated, which can be summed up: "The more gimmicky and changeable the terms, or conditions, the more I should assume that all those gimmicks and changes are for someone's benefit other than mine." Thus, anything more complicated than simple interest, I assume it was designed because it makes the lender more money that way in the long run. Well, since I am paying the lender, this concept is as unwelcome as a venereal chancre. So rather than investigate and consider their 'full line of financial products', I just reckon that "anything fancy enough for them to make a special sign in the branch to advertise it is probably not to my benefit. No to it all."
Buyer's agent: the way this works is that the seller is paying a commission if s/he uses an agent. If you use one too, the agents divvy up the commission. In smaller towns, they likely know each other. Thus, there's no reason not to use a buyer's agent, because they have access to search resources you do not, and they know how it's all supposed to work. They also don't get paid unless you close on the house, so they have a vested interest.
Choose the agent on word of mouth from an old person who has bought several homes. Choose no agent with less than ten years' experience. Treat that person with respect, and don't waste his or her time. Bring your pre-approval letter with you, for it establishes clearly that you're not just a yahoo with a pipe dream--someone's going to get your business, and it may as well be them.
If the agent is no help at all, sack him or her and find another. You sign nothing committing you, but if they are a help, good faith says that you let them see you through it--and you won't believe how much of this whole transaction depends upon good faith, so you should be loath to even appear not to act in good faith.
Dual agency: usually comes about as a result of your buyer's agent managing to get you interested in her own listing. Bear in mind that you chose from word of mouth from among the finest in town. Don't reject a great house just because it's your buyer's agent's own listing. If they are a dual agent, ethics require that this be very candidly disclosed to you. If they gloss it over, I think you've got an agent of questionable integrity who should receive a sack from working from you (and not gently). The dual agent will get both sides of the commission, which is a goddamn mint, so they should really work for it. That work begins with a full disclosure of what that role means.
Let your agent dig for houses for you; that's what they get paid for. Let them show you some. Do not be afraid to dream. Do not be afraid to reject a dozen--but respect the agent's time and effort, and be realistic. Take the time, and find one that you really like. Work with.
Once you pick a house:
--read the covenants, or homeowner's association rules, if any. I personally think that both are fascist, but that's my opinion. Some are amusing; others are outrageous and/or unenforceable. For example, many subdivisions in my area reflect the fact that Kennewick was, until the late sixties, a 'sundown town'--a history I am not letting them sweep under the rug. (Many houses here still have covenants that forbid one to have black people spend the night. I guess it never occurred to them that at some point black people would actually be the homeowners, and that it would be more than a little awkward to try and tell them they couldn't sleep overnight in their own homes. You look back and wonder what made people be the way they were.)
--make an appointment with an appraiser, and ask them to run some comparables, so you know how much people in this neighbourhood ultimately come down in price. That won't cost as much as a full appraisal. In our case, the bank had its own pet appraisers and wouldn't use ours, but I have friends and excellent clients in the appraisal business. The reason my bank didn't and wouldn't use them was, it turns out, because my friends' company doesn't properly fellate the bank by giving them the results they want. They have integrity, something my bank wasn't in the market for.
--make a written offer. Read it carefully--from here on out, it's all orchestrated, and woe to you if you screw up. Your agent should have good suggestions. Bring earnest money with you, usually a grand or so (maybe more some places...a check is fine). Do not, in general, give reasons--do not over-inform, though if your offer is very low you should convey a reason that will keep the seller from perceiving it as a flip offer or insult. Just make the offer, with an eye to an ultimate meeting in the middle. All offers must always specify that they are contingent upon building inspection, loan approval and survey. They should have a narrow window of opportunity, such as 48 hours, in which the seller must reply.
--expect counter-offers to be more informal; when the final agreement is reached, you'll have to fill out a purchase and sale agreement. As before, make it contingent on financing, inspection and survey, so you can back out for a good reason if need be.
--start making a list of little questions to ask the seller when you hopefully meet them. Where's the oil fill, where's the irrigation shutoff, how old is this, what's the history of the house, what the heck kind of funky tree is this, what are the neighbours like. Begin now so that you have lots to ask later.
A note about negotiations: if you beat them up really bad on price, that will set the whole tone for the rest of the transaction, and from then on you may get only the bare minimum of what the agreement requires. Realize that an experienced seller (who has, almost by definition, once been a buyer, so they are probably not novices) is watching your conduct closely: your response time, your style of negotiation, how much you offer, and so on. Decisions are being made about you based on subtle cues that will affect how the rest of this goes. If I were you, I'd try to send the signals of a savvy but honest buyer who wants the deal but is by no means desperate for it.
You will have many opportunities to act either selfishly or generously. Try acting generously and see how the sellers conduct themselves. If you agreed on a price acceptable to both, typically both sides will cooperate and 'bend' to help make the transaction happen, because it's a good deal for both. You may find that by the time you take possession, you actually like and respect the seller. If they felt the same way about you, through your demonstrated integrity, you would have obtained an asset you could not buy.
Having agreed on terms: now you will have a teeny window of time to apply for financing--ours was three days. Go directly from the meeting (where you sign the receipt of acceptance of offer) to the bank, and get that moving. Do not stop on the way (unless you are otherwise either going be incontinent or run out of gas). Bank paperwork is the most constipated part of this, and the one that's most likely to mess up the closing. You will likely not have to totally fill out new paperwork, but you'll have to sign what the bank prints out. (If it needs amendment, do so. They're probably going to check on all of it.)
Part of the reason you are in such a rush to get the bank's formal application started is because financing is one of your major contingencies. Until you hold in your hand the bank's formal offer of credit, you will not rest easy. Also, once you do have that concrete offer, you can call your agent and have them put the seller at ease: yes, you will in fact be putting your money where your mouth is, and they should confidently plan for their house to sell. This enables them to get on with their lives and is yet another little good turn, if done with alacrity.
Appraisal: will generally be ordered by the bank. They choose the appraiser; typically, with justice only a bank could love, you pay for it. The appraiser's job is to discover that, by astonishing happenstance no one could have foreseen, the value of the property is (magically) the exact price you are paying for it. The impression I get is that appraisers who do not consistently come up with that result do not get hired much by banks, so this is a charade. Nonetheless, the bank will give you a copy of the frivolous report if you ask for it, and you might as well, considering you were soaked for probably $400.
Call to schedule inspection: use an inspector recommended by someone you know in construction or real estate--preferably the person who referred you to the agent. (An inspector and an appraiser are two totally different professions.) Schedule it ASAP. Go with the inspector, and ask questions. Consider having two inspections--while it will cost you more, consider this: we had only one inspection, and our inspector missed an egregious flaw that is going to cost a lot more to fix than his fee ($250), and we are on the hook for it. Had he caught the problem, and done his job right, our seller would happily have fixed it. Key fact: inspections always, always, always pay for themselves, one way or another. (Especially termite inspections.)
Prepare list of defects you want fixed: make note of, but do not ask to be fixed, little stuff or cosmetic stuff. Expect repairs to anything that could mean deterioration or devaluation: roof, homegrown wiring, rickety deck. Know the difference between ultimate home improvements you should plan to make, and real defects that must be addressed for the home to hold its value.
Treat the seller sensibly, bearing in mind that s/he can dump the whole transaction simply by refusing to do any, some or all of the repairs and putting you in a position of having to either eat them or sink the deal. The seller is usually expecting some defects to turn up, but if you whine that a railing is too low for code, or that there are not enough smoke alarms, they will perceive you as nickel-and-diming them to death. As a rule, anything you can fix yourself with a little brains and a trip to Home Depot should not be complained about.
Expect one big nasty surprise, repairwise, and see what the seller offers to do. It might be termites, bad roof, cracked foundation, mould, who knows. Be prepared to meet them at least partway. After all, the negotiated price included a used but functional structure--not a brand new one of top quality. Here is where your earlier good conduct and perceived fairness pays a dividend: if the seller is of like mind, s/he is much more likely to go the extra mile to make the house right for you. If you nickel-and-dimed him or her, you may get repairs that satisfy no more than the letter of the agreement, and that minimally so. Or the seller may refuse and tell you you're welcome to back out. Do you really want to?
Survey: if the inspection doesn't turn up anything that kills the deal, consider spending the $250-400 it takes for a survey. This is the one big thing we failed to do, and now I'm very sorry. You see, fences aren't often on the property lines. Often (in my case, due to utility easements, but for sundry reasons) the actual lot is not as it appears. Neighbours may have sheds that are on the land you propose to buy. Worse yet, you may be buying property that is infringing on someone else's land. My investigation of the legal aspects of this turns up a grey area: while the property starts out belonging to whomever holds the deed, anyone who has used a piece of land long enough could put in a claim on it that might hold water.
First thing to do is to go down to the city or county's engineering department. Ours had a plotted sketch of the locality based upon a fairly recent flyby, showing landmarks and indicating the location of my back fence relative to the line, giving dimensions, etc. Very helpful. Based upon this information, I didn't feel I needed to order a survey. But this is a later addendum to the review, and happened after the fact. Had I gone in beforehand to check on fences and lines, what I would have found would have motivated me to order a survey. A survey gets filed with the authorities, and strengthens your claim to any property that is in dispute.
If it's only three feet, why would you care? Maybe you don't. In my case, I don't care that my neighbours are using the land, though since I own the fence and must maintain it, I don't want them leaning crap against it. What I do care about is legally owning what I paid for, not what I paid for minus about 5%. When you are paying six figures for real estate, two feet along a 200' strip is a lot of money.
The advantage to fully ascertaining this in advance should be obvious: if it looks like you might be buying a dispute, you might decide to pass on it.
Keep on the bank's butt: expect a certain amount of arrogance from them as they hold your future in their clammy hands this one time. Repay it someday, with interest, the next time you buy a house. Your loan officer may be a goofoff, and if so, you will have to call often to see how the process is going. Once the bank gives you a commitment letter with a firm offer of financing $ dollars at Y terms to buy X house, that's pretty much it; there is very little room for you or the seller to weasel out without a greaseless, sandpapery penalty.
Homeowner's insurance: must now be obtained by you. The bank will not have it any other way. Disclose everything to the insurance company. Your car insurance company will probably give you a break if you insure with them, so if you're happy with them, that's a good deal. (If they have been truly steak smoking, it's payback time. Call 'em and let 'em know that their misdeeds have come home to roost.) They will want extra info that you may have to get your agent to find out for you. For what you are insuring, homeowner's insurance is really pretty inexpensive most places, so I would not skimp on coverage. Areas that have flood and earthquake risks are those that raise the biggest concerns (and decisions).
(Later, run around with a digital camera and inventory everything of meaningful value you own once it's in the house, and store that offsite, so if the place burns, you get everything that's coming to you.)
Reserves: the way the insurance and the property taxes get paid, in some cases, goes like this. Your lender isn't about to let their collateral slip away just because Shadowstar Breakwind (who might just decide that the position of Saturn in Aries requires her to spend the money attending a Sacred Vagina Retreat instead) fails to make her insurance premium payment or cough up property tax, so they take a 'reserve', which is included in your house payment and may vary over time. This reserve is used to pay the insurance and property taxes. You never see a bill, just a statement. (Not all banks do it this way. With some, you pay directly.)
You also have to pay to insure them against your own welching, which is pretty monstrous, but the good news is that you won't have to pay that after you've paid 20% of the loan principal. Thus, the sooner you get to that point, the more money you will save. In our case it's about $100 a month, so it's by no means insignificant--applied to the principal, it would pay off the house years early. I find it telling that they charge me more to insure them against default than my own insurance company wants from me to promise to completely rebuild and refurnish the entire shack, but that's the system, take it or leave it.
Title insurance: the bank will run the house through title insurance, then send the paperwork to an escrow company. The job of the title insurance company is to make sure that the seller has legal right to sell the property without any liens, etc. (in other words, valid legal claims against the property). It will go smoother if you let the bank pick its title insurance company, I think, since it's kind of a yes/no question.
As closing approaches: you'll hopefully see your actions bear fruit. If all has been on favourable terms, the seller will probably want to meet you (which need not happen, and you very much want it to happen) and will have valuable info to share about the house. If it has gone exceptionally well, it is not a bad idea to bring some sort of nice gift for the sellers--nothing extravagant but something classy. If it is a couple, do not neglect either member. They may have presents for you such as survey records, maps of irrigation system, and so forth--stuff that two years down the road you'd give two bottles of single-malt for, whereas you could bring one now. Do bring a long list of questions. They expect that.
Escrow: now the escrow company comes into play. Their work is to make sure everyone gets the money and paperwork due them, having complied with all terms, etc., doing about two hours worth of real work and collecting a hefty fee. Get a copy of all forty pounds of paperwork from the escrow company before signing, so you can read it and find the expected mistakes. Trying to read it at closing is ridiculous. Failing to read it before closing is many times as ridiculous. Read even the mind-numbing Deed of Trust. You do not have to memorize it, but you'd better read it. Come on, don't whimp out now, the keys are in sight.
At this time the escrow people should also advise you of the amount of the cashier's check that you must bring to the gala affair that is closing. If you have been suffering constipation, try and time your learning of the amount for the cashier's check for a time when you're really bound up, because--take my word for it--when you see how much you have to hand over, you are going to experience immediate and powerful defaecation.
Closing: is the real estate term for 'completing the deal'. Bank pays seller, seller's mortgage company, and whoever else. You sign the final loan agreement. Papers are taken to recording office by escrow company's runner, and title legally passes. (At that point, whatever it is, you own it.) Once closing papers are all signed, it may record the next day--when that has happened, you get the keys; the deed follows later, by mail.
That's it. If it is your considered judgment that the previous owners had all the taste and sense of colour of a troop of highly unpromising mandrills, you may now repaint, recarpet, or even use the living room corner as a latrine. No one will care, and no one else can say jack about it, unless you have homeowner's association nazis measuring your grass blades and suchlike. It's yours, and provided you obey the law and pay the payments, they can all go overconsume bodily wastes until they perish if they don't like it. It's a good feeling.
Variances: some of the above situations can vary; what I'm giving you is what I've experienced and heard of. For example, prfstars, who reviewed this article for me before posting, noted that her mom's homeowner's insurance payments were handled differently. It all depends on who you are dealing with. This is designed to help the first-time home buyer have some idea of how the flow goes and what to expect in general, so that you at least know what questions to pose.
Overall: the main problem with your first time buying a house is twofold. Not only do you not know what to expect, or what should happen--everyone and their pet goat is A Big Expert, and they all souse you with an overload of information. Know roughly what all has to happen, choose good people to work with, choose sensible advisors to guide you, and treat people right (or, if you cannot, then just don't do business with them).
It's a big deal, but it beats hell out of paying a landlord.
 |
|
|
|
|
|
|
Epinions.com ID:
jkkelley
|
 - Top 1000 |
|
Location: Ana-Tolia
Reviews written: 80
Trusted by: 309 members
About Me:
Farewell, Mr. Grover.
|
|
|
© 1999-2009 Shopping.com, Inc.