Tuesday, June 22, 2010

Homebuying for Dummies

It's really killing me that I can't scrounge up the time for a full post because E3 had plenty to talk about. However, juggling unpacking with my normal life has been more time-consuming than I envisioned. I should be back in action soon, but this week my time was taken partially by a speech I had to write for Toastmasters. So instead of a true post, I thought I'd just paste the entirety.

It's been a little while since I've delivered a speech because I made the bold decision back in late March that I was ready to buy my first home. Now that I've moved in, I feel a bit like Keanu Reeves in The Matrix when he was being programmed to fight: instead of kung fu though, I've learned a lot about the process of buying a home. It's not uncommon in Seattle for people to rent a place much longer than in other cities. Hence, I felt like it would be appropriate to talk about the part of my journey leading up to negotiating an offer, starting with deciding if you should buy.

Deciding whether buying a home is right for you is a very difficult question that there's not an exact method to. If there's one thing you take away from this speech, I hope it's that buying a home is a choice that only you, and possible your significant other, can control. Do not let peer pressure get to you like a bad after school special. To be precise, the right reasons to buy include that you're looking to settle down somewhere for at least 5 years, you have the job security to afford a mortgage, you want nicer amenities than a rental can offer, you want more room than you can get in a rental, or you want a place you can freely make changes to. The wrong reasons to buy are for a tax break, to make a quick buck in flipping the home, or simply for prestige. This is a major financial decision. Don't take it lightly and don't be afraid to rent a little longer to help you build up some cash.

Before you embark on searching for your home, you need to decide a budget. Ideally, you do not want to spend more than 28% of your gross income in monthly payments for your home, including taxes and homeowners' dues. Let that be a hard upper ceiling and then modify that ceiling to what you would be comfortable with given your usual budget. Take a firm stand here and stick with it. Wavering above your limit is a financial minefield. It's a very good idea at this point to get pre-qualified by at least one lender. This legally means very little, but an honest lender can encourage or scold your price range at this point. I had a great experience with Cornerstone and would be happy to speak with anyone afterwards in more detail about them. You can change your lender before you offer, so you're not committed yet.

You're still not ready to set sail on the high seas of house hunting though: you need to set your criteria first. Decide on your must-haves, and then pick a location with homes fitting your restrictions. Some buyers need to bask in the glow of natural sunlight while others can't live without a quiet patio for their morning cup of coffee. You will not find the perfect home. Before you even set foot in a potential home, understand that compromise is key. You would be surprised how cheap major changes can be, like painting walls or changing carpet. So keep only a short list of must-haves. Don't forget to make sure that the location you pick fits your price range: Redfin.com is a great resource to research this.

If you've made it this far, then you're ready to enlist the help of a realtor. While all realtors are mainly interested in making a sale, their advice can be invaluable. It's not a good idea to see a bunch of places without representation. It can be especially messy for your agent getting paid on closing if the seller thinks you found the place on your own. I used Redfin and had a great experience all around. I enjoyed taking charge of the search though. You'll need to turn to a traditional agent for a more controlled experience. My agent was mainly an advisor and kept all the paperwork in order. I had what's called a Redfin field agent to show me condos. Good questions to ask a traditional realtor include "how many clients do they have right now" and "how many sales have they made in your desired area in the past year".

Once you have your realtor, the fun really begins. You get to tour potential homes. Be sure to take notes at each place on things you liked and disliked. Take note of things like how much HOA dues are and what they cover, what appliances stay, whether or not there's parking, and don't be afraid to talk to residents to get their honest opinions. I recommend taking video tours of each place for reference later. The Flip Mino camcorders on Amazon are affordable and produce crisp picture and sound.

Trying to explain how you know you've found the one is like trying to explain how you fell in love: all you know is that it happened. One indication for me was that any place I saw afterwards paled in comparison, even though they were actually quite nice. You'll also be able to smell the aromas of a dinner party with friends and feel the joy of relaxing evenings on your couch. Even after you reach this point, I'd encourage you to see at least four more places and sleep on it. This is risky advice in a strong market, but I urge you to not rush this decision.

When you're ready to make an offer, the negotiations begin. I could give a whole speech on negotiations, but the one tip I'd like to offer for now is to be reasonable. Don't offer an offensively low price on a property you know is worth more - your agent can best guide on you on this.

Getting to the point of making an offer on a home is a long process. You have to decide whether to buy, set criteria, pick a location, get pre-qualified, and find a realtor before you can even start touring. However, you stand to reap many fruits in the purchase of a suitable house or condo. Last night, I walked out of the shower into my living room bathed in the orange light of sunset. I can't put a price on that, and I'm sure that you'll feel the same when you get the keys to your dream home.

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