Monday, February 1, 2016

Buying a Home: Lessons Learned

Buying a home is most likely the largest investment any of us will make.   It is a significant outlay of our available financial capital and we must pour time and effort into choosing the correct home and negotiating the sale.  I have purchased two homes thus far, and have learned different lessons each time.   

My first home was for sale by the owners, and we paid $75,000.  We lived in it for 14 years, and it was a good starter home.  Our next home, purchased in 2014, was on the market for almost $190,000 but we managed to negotiate them down for significantly less.

Of course, the biggest piece of the puzzle is financing.  Interest rates in the U.S. are still low, so if you have good credit and can swing a down payment of at least 20 percent, you can usually cash in for a great interest rate that saves you money long-term.  Figure out how much of a monthly mortgage payment you can sustain and don't forget to factor in property taxes and home insurance, which are usually placed in escrow and paid with the mortgage payment.

Tip 1:  Know What You Want, Where You Want

Sagging roofs = big problems.
This is the biggest consideration when you start thinking about buying a new home.   You need to pick a geographic location that is convenient for you and your schedule.   Do you want to be closer to work or to a family member 10 miles away from the neighborhood you are scouting?  Do you want to live in the city, the suburbs, or in the country?

What do you want the layout to be – ranch style, colonial, Cape Cod, mid-entry?  If you plan on growing old in the house, a ranch style might be preferable because as you get older, you will lose mobility.  If you have any significant knee or ankle issues, climbing stairs could become problematic.  If this is a starter home, you may not need to worry about this.   The key is to think about what you may need 15 years from now.

Know what other features you want:   how many bathrooms and bedrooms, a garage, etc.  Is closet space a big consideration, or would you rather have more living space?  Do you want a big kitchen for cooking?  These are all deliberations you and your family must make. We'll deal with prepping considerations later.

With my first home, we didn’t think most of this through.  We were in an apartment and our lease was coming up for renewal. We paid the price for our lack of knowledge.  We ended up buying the right location, but the house needed a lot of work.  With our next home, we knew we wanted a home with more square footage, ranch style, with an updated kitchen.  I also wanted a two-car garage and a wood-burning fireplace so a) I didn't have to clean snow off of our cars and b) I could heat our home in a grid down scenario.  My spouse did not consider these must haves, but guess who enjoys the fire more and guess who loves having a garage kept car?  We also purchased a third car as we now have three drivers in the family, so my vehicle is parked in the driveway.  

I can't win! Sigh.

We didn't think about what we would need in that area down the road, but in my location there are very few homes in our price range with a three-car garage, anyway. 

Every home settles over time, but cracks in the foundation are a sign of significant structural problems that can cost tens of thousands of dollars to repair.  Slumping, sagging roofs are a sign of shoddy construction, improper placement of roof supports or foundation pillars that might indicate problems with the walls of the home as well.  If a roof section sags, it tries to push the outside walls out from the house.   This can cause serious issues. Don't gloss over potential serious issues in your excitement of finding your "dream house."  Look for any potential drainage issues or evidence of water damage inside the home.

Tip 2:  Look Around the Neighborhood

Trouble ahead.
If everything on your prospective new house looks good on the outside, look at the condition of other homes in the neighborhood.   Do any have foundation issues (look for cracks or patched cracks in the foundation), slumping roofs (poor construction) are do any look poorly maintained?  This is indicative of the grade of construction for all the homes in the area.  Even if your home is not showing those issues on the surface, beware and take a good hard look at your target house.

Look at the general upkeep of the surrounding homes as well.    Do the neighbors look like they care about their properties, or do the homes look run down?  If it's the latter, the neighborhood may be in decline and you might consider looking elsewhere.

Tip 3: Use a Reputable Realtor

Our first home was for sale by owner and we handled everything without a realtor.  Looking back, a good realtor would have noticed some of the problems we encountered after moving in and could have warned us about the pitfalls.   The next time around, we worked with the same realtor to sell our old home and buy the new one, and things went more smoothly.  We also were able to negotiate the price reduction plus some extra money to complete some repairs the previous owner had not finished.  We negotiated a slightly cheaper selling commission as well.

Tip 4:  Get a Home Inspection

I cannot stress this enough.  When you are walking through the house for the first time, make note of any potential issues.  Find a good home inspector and once the home is under contract have the inspector go over it with a fine-toothed comb.  Make sure they review any items you noted on your walk-through.

Tip 5:  Taking Prepping Into Consideration

As you look for a new home, ask the following questions:
  • Are you looking to grow your own food?  Is there enough land to plant a garden or install raised beds?  If you are thinking of moving into an area controlled by an Home Owners Association (HOA), do they allow gardens or outbuildings?  HOAs have both positives and negatives, but that's for another post.   Just makes sure your plans aren't going to run afoul of the HOA covenants and restrictions.
  • Is the perimeter secure, or able to be secured physically?  Do you have fencing around the yard or can it be installed (HOAs may restrict fences; some areas have utility lines buried under ground)?  Would a brick house be preferable to provide resistance to projectiles (bullets)? Are the windows elevated off the ground to make it more difficult for a burglar to get inside?
  • Is there a security system installed?  You will need to know when it was installed, if it is still active, and if the previous owner plans on leaving it.  I have had experience primarily with wireless systems (a system that uses wireless technology to link the sensors to the main panel instead of running wires through the walls). We left our old system at the previous house - mostly because it was almost 10 years old - but a wireless system can move to a new house, so find out if the owner is leaving the system or taking it.   Beware of companies that want to lock you into multi-year contracts.  My old company, Protect America, featured a three-year contract when we signed up, and after the expiration we negotiated a new rate less than half our original monthly cost.  SimpliSafe, a relatively new player in the market, does not force customers to sign long-term contracts.  Research what's best for you.  If your provider uses a cellular-based panel, make sure there is adequate coverage at the home location.
  • Is there an alternative source of heat available or does the potential exist?  Could you install a generator if you needed it, or alternatively, install some other form of alternate power generation?
  • Is there plenty of storage space for prepping supplies, food storage, etc?
  • Are the exterior and interior doors sturdy and able to protect you from an intruder?
These are all the considerations that I used when purchasing a home. If you have others, please feel free to list them in the comments below.

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