Thursday, December 23, 2010

How we bought our house

A friend at work recently asked me for advice about buying a house.  Although I have only purchased 2.5 houses in my life, I am full of advice for a few key reasons.

  1. I am an irritating know-it-all/ex-librarian who over researches everything.
  2. I just got done buying basically the house my friend was looking for, so I knew what I did.
  3. My parents bought and sold houses (and in some cases still do) to make their livings my whole growing-up life.
This gnome has nothing to do with anything, except that I love gnomes and he's in my yard.

Another friend who lives in Finland recently advised me to buy an apartment in Estonia.  Sorry, pal, I have no immediate plans to procure an apartment in Estonia, but apparently they are going on the Euro in 2011.  His belief is that he will buy now, and then their economy will shoot up over the next year, making his purchase worth heaps more than he paid.  I wish him luck!  I do not think my husband would be amused if I bought an apartment in Estonia.  

In any case, I thought I would babble on here a bit about how we went about buying our current house, which was a much more organized deal than our first house, which was basically:
  1. Mom called me, told me a house was for sale across the street.
  2. Husband looked at it and told me not to buy it while he was at a conference.
  3. I met the owner and agreed to buy it while husband is at said conference.
I should also point out that I am not a real estate agent or any sort of financial professional, so this is all me babbling about what I thought and did, and not meant to be anything other than that.  

In the current house, I spent a good long while figuring out what we were looking for.  It came down to wanting to be in a good school district, a neighborhood that's walkable to useful stuff, not on a street with any double yellow lines.  

After going to like fifty open houses and viewings that was amended to add "cheap enough that we can put in a new kitchen".  It turns out that, as someone who loves to cook and bake, I am EXTREMELY picky about kitchens and there were plenty of newly renovated kitchens for sale that were laid out poorly, did not have enough counter space, or otherwise just did not work for me.     

So, really, knowing what you are looking for is step one.

Step two turns out to be knowing what I was comfortable spending.  I point this out because the bank and your real estate agent and the internet will ask you some questions about your income and your debt and give you a figure that represents "what you can afford to spend".  In my experience, that number is super high!  We live in an area where home prices are thankfully low, so if you are in California or New York you might have a different philosophy about this.  We basically took the amount they said we could afford, and chopped it roughly in half.  That number got us to where we could put 20% down, not need an FHA mortgage and have a monthly payment that is about what our old monthly payment was.  It also gave us a good estimate of "how much we can afford to spend on the addition", but I won't even tell you how well that worked out, because that budget is long blown.  But hey!  This is a post about buying a house, not staying on budget while building a huge kitchen.  

The last step, before putting in an offer, was doing my homework about the neighborhood and house we decide to buy.  Trulia gave me an average price per square foot for the neighborhood.  That's useful to have.  In our area, the county has a web site that gave me the square feet of the house and property, as well as what the current owners paid for the house.  I can also look up what the owners mortgaged the property for.  This will vary based on where you live, but it's probably worth poking around your county or municipality websites and see what you can come up with.  

Having this information is important for a few reasons.  I calculated for myself what the house 'should' be worth.  I got a rough idea of what the current owner owed on the place using the mortgage information.  I definitely wanted to make an offer I was confident meant the owner would not need to bring cash to the closing.  

The first time we put an offer in on this house, there were 2 other offers, so we brought a good "what we think is fair" price.  In general, though, I want to offer less than what I want to pay.  The seller will probably want to counteroffer me, right?  So start low.  Great.  

In our case, some other buyer initially put in a higher offer than we did, and 'got' the place.  That was OK, we started looking at other places. Two months later, our agent called.  The folks who put in the highest offer could not get a mortgage, so it was back on the market.  Queue our reasonable, fair offer again, which we increased by a thousand bucks.  After some negotiation, we landed at a price that was $5k over our very first offer, that was still totally within the range of "what I thought was a fair price for the house based on the information I had."  

Going over what I had researched and decided is a fair price has a few implications.  First off, if for some reason, we need to leave the house or the area sooner than we expected to, I wanted to make sure I could sell it to someone else without too much fuss.  Pay more than the house is worth, and then we'll be the one bringing cash to the closing.  Do not want!  Also, having the most expensive house on our block means that I'm not going to get a good return on any improvements we make.  We knew we wanted to things like build a new kitchen and upgrade a bathroom, and did not want to be in that situation either.  

Wow, this was long winded.  I did say how much I over research stuff earlier, though, so hey, what can I do.  I should also point out that I am pretty sure I drove my husband nuts during this whole thing, by plying him with more information than he wanted.  He is a little more "seat of my pants offer" than I am, though.  Between us, it seems to have worked out.  

I am pretty curious how other people went about figuring out where they wanted to live and what they wanted to spend, so if you have a different way of going about this, post a comment!  I'm a data girl, so of course my process involves a lot of information gathering.  


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