Real Estate Advice

One other thing if you have any questions about home insurance I'd be more than happy to answere any questions you may have. If your buying the home in Virginia I be glade to give you a quote on a homeowners policy.

My suggestion would be for home inspectors. Is find one that is willing to come back and go through the final walk through with you. I learned this kind of the hard way. During my final inspection they were racing me through the house trying to cover stuff up with jargon and quick lips. I put on the brakes right there and asked to reschedule. It actually screwed up my closing date, but I didn't care. At the time I was a first time home buyer so basically I just chilled in my apartment another week. My sellers on the other hand got all screwed up the change. Oh well that is what you get for being sneaky!

When we went back for the second walkthrough come to find out they put in the wrong sprinkler heads, cost them another $1k to fix it. I am glad I didn't let them bully me.

ENJOY BEING A FIRST TIME HOMEOWNER! It is a great place to be. Next time you will be both seller and buyer that is when the fun really starts!

I can hit you with the financial advice piece, that falls into my area of expertise. Experts generally say your mortgage payment (including escrow for taxes and insurance) shouldn't go higher than 35% of your NET income. My wife and I got married when we were 24 and bought a house right afterwards. At the time, the payment represented 34% of our income. At that level, we were able to save for retirement, pay bills and student loans comfortably, and take the occasional trip. We didn't have children at the time, which should be taken into account. (But I don't think you have kids yet, do you, SGG?) After 3 years, our income has risen, so now we're supporting a young'n and are comfortable with the size of the mortgage payment.

We had a buyer's agent, all she really did was keep an eye out for properties coming fresh onto the market. She also provided info about the whole process, which was good for us as first time buyers not knowing squat. Buyers' agents only make like 1% commission from the sale, so their incentive is to not spend too much time with you, because they could be putting their efforts into selling a house which gets them 5 or 6% commission. So they'll tend to urge you to bid higher on a house you like, just to increase the chances of pushing a deal through. The key for you is to set a price YOU are comfortable paying for the house, and offer that amount, regardless of what your buyer agent says. If the sellers don't like the offer, so be it, but at least you didn't pay more than you were comfortable.

It's generally a good idea not to go with the home inspector that comes recommended by the agents (either buying or selling). Those inspectors have relationships with the agents. All agents want to do is push transactions through quickly; if the inspector is willing to downplay problems with the house, it increases the chances that the transaction will go through. And if the inspector does this for the agent, the agent will feed the inspector more business. This is not always the case, some of these inspectors are reputable. But it's best to find a guy who comes well recommended from friends to do the inspection, and tell your agent to go to hell with whoever they're suggesting.

A few things when you're looking at a house:

- If the house has smells of dampness/must anywhere, DO NOT BUY under any circumstances. Where there is a damp/musty smell, there is ALWAYS mold damage. At age 24, I made this mistake. Last year we discovered rampant mold damage and had to replace all the plywood and 2x4 framing around the side of the house.

- Try to look for houses that are landscaped in such a way to grade water away from the side of the house. It reduces the chances of a flooded basement. Have your inspector look hard for evidence of previous basement flooding. Having a wet basement is a major inconvenience.

- While you're looking for the house, don't be afraid to turn on all the faucets, showers, lightswitches, and flush the toilets. You are familiar with your own pet peeves regarding a house; those little things may not seem like a big deal during the buying process, but over time they'll bother you big time. If you really hate weak flushing toilets for example, or low water pressure in your shower, check for it.

Long post, sorry. Good luck.

In terms of costs for closing, generally, you can expect to pay an additional 6 - 10% of the homes cost in closing fees including transfer taxes and recording fees.

Also, as to PMI, if you are forced to purchase it (and you won't if you are making 20% downpayment) - be sure to get the Tax-Advantage PMI which rolls the PMI into the mortgage loan and allows you to deduct the PMI payments as mortgage interest on your taxes. It costs roughly the same and, in all ways, is similar to the PMI.

How much you can afford is truly up to you. Here is a site with various mortgage calculators that helps you see just what you pay on various types of loans: Mortgage calculators and loan calculators (http://www.mortgages-loans-calculators.com/)

Your escrow is going to include your real estate taxes and, generally, your homeowner's insurance. The taxes can be found on various places on the web. As for the insurance, you simply need to talk to an agent and ask for a rough quote (get the absolute highest deductibles you can - homeowner's insurance is not to replace the busted front gate, it's to replace the house after it burns down). Once you find the totals, simply divide by 12 and get the monthly addition to your mortgage and interest payment.

Also, once you have a perspective house in mind, you can ask the seller to provide you a copy of the utility bills for the last year. He/she doesn't have to give them to you or may not have them, but, as they are interested in making a sale, they may provide them to you. That way you can get a rough estimate as to what your monthly utility expenses will be and budget accordingly.

Saden, you said you paid NO closing costs? I would love to see the HUD1 on that one.

BTW - if you are looking for a house in Baltimore, I have one going up for sale this week. Lovely neighborhood with a Skins fan right across the street. Act now and I won't have to engage an agent and will discount the price. :)

I bought my 2nd house last October, and naturally, these guys are dead on.

Look at what houses are selling for in the areas you are looking to buy in, use mortgage calculators to see what it will cost, and compare it to how much you can afford each month. When I bought my townhouse, my mortgage almost tripled over what I was paying on my condo, however from the sale of the condo, I was able to pay off a lot of debt and my expenses now are basically the same as they were before.

I am fortunate to know several agents, and happen to use a very close friend of the family that sincerely had my best interest in hand. She made sure that every angle was covered in terms of Comps, what we could afford, etc. and was not pushy at all. Just be aware of what you want in a house, and only make compromises for your sake, not theirs.

Call a few Home Inspectors and ask for their references. The guy we had inspect the townhouse was very thorough, and explained to me every single detail about various things in the house, from how to adjust the temperature on my gas stove to how to change from the gas furnace to the AC unit to whether my type of sprinkler heads were on recall. If you have questions, do not hesitate to ask.

Definitely shop around for the best rates, and be wary of the fees and such that lenders have to obtain those rates. If you can, get a fixed rate with no points. However, if you the ARM rates are low enough, go for it, but be ready to refinance down the road. But be aware that your rate could very well be higher when you Refi. I refinanced my condo to pay off some debt and use some of that money to fix up the condo in order to put it on the market. My rate went from 5.125 to 6.75! However, I moved several months later and it really didn't affect me because mortgage payment didn't go much much.

There are also many first time buyer programs that you can take advantage of. Look into these as well.

I will probably echo a lot of what has been said but may have some other things to add.

First off I am 28 and live in my third primary home. I also several real estate investments properties and I am constantly traversing the real estate market in search for more. Basically I have been where you are enough to have some good insight into the more subjective aspects or your questions.


First, is there any sort of generalized formula for determining whether a house is a "good buy" based the home's assessed value?

These projected values almost always means little to nothing. There are two different types of projected values of a house.

Assessed value=the value assigned by the local government for tax purposes. It is almost always signicantly lower than the real market price since reassessments are done on a yearly or bi-yearly basis using an inexact comparable type system on old figures. Never pay attention to this assessed value beyond what it will do in terms of taxes for the property. It has no bearing on what the house is really worth.

Appraised value=this is a much closer figure to actual value as it done by an independent evaluator. Banks use it to make sure they property they are going to finance is actually worth what the buyers have offered. If a appraisal comes in lower than the offer price then usually the offer price is contractually reduced to the appraisal price. These appraisers are more accurate because they use a stronger model for comps and have much more recent data. The value though is very often skewed though because the data they use can be as old as 6 months and if the appraisal is set up by the selling agent then the buyers need to be wary. Basically I don't trust the appraisal for one reason alone. Most appraisers see the purchase contract before they appraise and almost always the appraisal comes in pretty darn close to the offer price. It is amazing how that works! Finding an appraiser who wont just finagle a way to justify a price is hard. Most know if they start under cutting offers then agents won't use them anymore.

Second, to what extent are buyer's agents useful? I know that buyer's agents owe fiduciary duties to their principals, but do such duties actually compel the agent to do what is in the principal's best interests given that their commission is based on the home's purchase price?

I find buying agents to have a few good uses.
First, they know the market inherently if they are any good.
Second, they know properties much better. You'll waste a little less time with worthless properties if you have an agent who can weed them out
Third, they take care of paper work and most offer a safety net in that they are on the hook for some stuff if the deal goes wrong. If you are your own agent then you better know what you are doing otherwise there are lots of little things that you need to have done as buyers to make this deal go smoothly.

I alwasy use a buying agent. They cost nothing and do work for you. I don't know why anyone wouldn't.

Third, how many home inspectors do people typically retain? Is there any way to determine if a home inspector is qualified, other than asking friends? For example, do they have certifications that might indicate that certain inspectors are more qualified than others?

Home Inspector - The National Association of Certified Home Inspectors (http://www.nachi.org/)
Home Inspector at American Society of Home Inspectors: American Society Of Home Inspectors, ASHI, ASHI Home Inspection, ASHI Inspector (http://www.ashi.org/)

Both orgs have a find a home inspector deal on their sites. Get a certified one for sure. You need more than a contractor. You need someone trained to know what to look for. The inspection, depending on property size, should take an hour or more. It should look like they are being uber picky. If it is a property older than 2 or 3 years you should end up with a list. Most of the list will be cosmetic but there still should be a list. If there isn't one then either the property is magically perfect or the inspector didn't do a thorugh job. You can guess which I'd assume.

Fourth, what is a good percentage of your gross income to spend on mortgage payments (including escrow)? I know this percentage will vary based on the individual and his outstanding debt, but is there a range for the "conservative" buyer and the less risk-averse buyer?


Figure out what you can afford in payment and that will point you toward what to do. Payment is the biggest key. I like to have my payment as big as I can afford. That means I have put less equity down meaning I will make a higher percentage on my equity when I sell. I still try and always put down at least 20% to avoid the aforementioned PMI. I avoid anything but fixed mortages. ARMs just make no sense to me.


Finally, what kind of "hidden costs" can I expect to incur? Obviously there is the down payment, loan origination fee, and inspection fees, but what other fees can I expect to pay?
Any title company should be able to give you the exact charges they are going to charge you. If they cannot then don't use them. The only thing variable on the HUD sheet should be, taxes, escrow, inspection fees and so forth. Do a Google on what things should be on the HUD in your state. If there any 'other' fees that don't make sense then go somewhere else. Title companies will put administrative fees on there that shouldn't be there.

More pieces of advice from a first time homeowner:

1) When having your home inspected try to get the years that the furnace/heat pump, roof, hot water heater, carpet and other big ticket repair items were last upgraded. To echo, don't use a home inspected referred by your realtor or lender. Make sure you are with the inspector during the walk-thru and take a notebook even though he'll provide you with a completed form.

2) Don't get caught up in the "max you can afford" game that realtors tend to push you into. My wife and I make a comfortable living and could have afforded another 75k and still be under the 35% rule but after a while you're just getting a big house with bigger maintenance needs. Better to use that extra money to pay off the mortgage quicker.

3) If you have time, taking a real estate class really pays off if you have very little knowledge (like me). That $300 investment could save you a few thousand. I took the class and even went on to take the national and state realtor's exams. I learned a ton in that class (mainly I didn't want to be a realtor).

4) Review the tax assessed records of the area that you're thinking about buying a home. There's a big difference in tax assessed value and realtor's appraised value.

5) If you don't understand something...STOP! You're paying the realtor to help you not screw you. If you don't feel right about someting thenkeep in mind that there are always going to be homes for sale. There's no shortage nor will there ever be in the near future.

6) Sometimes it's okay to just go with your heart. We drove around one Sunday looking at dozens of homes that were available in our preferred price range that the realtor put together for us. It turned out that I saw a little listing in the Sunday paper with a house in our price range with the right number of BR's and sq ft. We drove over to it and immediately wanted it. It was the only house we walked thru. My home inspector was also a life long family friend and we caught a few things but nothing major. I set a price that was in between the tax assessed value and their asking price (~30K difference) and we bought it.

Someone stated that the inspector pointed stuff out to him and thats important note. GO WITH THE HOME INSPECTOR WHEN THEY DO THE INSPECTION. Check water preasure my running the shower and flushing the toilet at the same time. In my house if you are taking a shower and somone flushes the toilet I would never know but I have been in some house where you will get hit with a spike in water temp.

Sorry to use his thread for my own question, but I talked about PMI insurance earlier and realized that my new house is under 80% LTV. I owe around 75k and the house is now worth roughly 110K (I know it probably makes you guys sick to know that housing costs are so low out here, but remember this place sucks)...I'm still paying PMI. How do I get rid of this? I have yet to do this in my homeowner experiences. Any advice?

ps- I have a very good friend that does appraisals if this helps.

Sorry to use his thread for my own question, but I talked about PMI insurance earlier and realized that my new house is under 80% LTV. I owe around 75k and the house is now worth roughly 110K (I know it probably makes you guys sick to know that housing costs are so low out here, but remember this place sucks)...I'm still paying PMI. How do I get rid of this? I have yet to do this in my homeowner experiences. Any advice?

ps- I have a very good friend that does appraisals if this helps.

You'll need to refi and depending on your current rate it may not be worth it.