Under Contract and Spoken For

Posted Wednesday, January 20, 2010 7:21 AM

Last time I was bemoaning the house hunting process.  FI and I actually decided to go for that house after seeing a memo that they would be grading the terrain in back of it to allow for 20 to 25 feet of flat land.

Things have been quite a blur, but we managed to put down a contract and now we have a bank lined up to back us up.  My advice to couples looking to buy a house while engaged: if you have a good handle on the engagement process and all the wedding stuff is well in hand(vendors done, everything else ready to go), then go ahead and take the plunge.

Here is what we have learned so far:

1. Before buying a house, get your house in order. By this, I mean: know your finances backwards and forwards in your sleep. Between you and your husband/wife to be you have to know your assets and liabilities, how much each of you make, and what your major expenses are.

2. Make a budget.  I don't care how much money you make,  if you are the type of person that has never bothered to look at a tag on something because you know you can afford it and you have never bothered to sit down and figure out a plan on what to do with your money, chances are you probably won't be in that position forever.  Know how much you spend. Know how much you can spend.  Figure out the things you spend your money on.  The things you need, the things you don't need and the things you can't live with out. Hammer out priorities and stick with them.

3. Have a nest egg.  Even if you don't know what you're saving for.  The power of a large amount of money squirreled away in a bank account for many years is not to be underestimated.  When you are ready to buy the house of your dreams, think of your savings as a concentrated keg of gunpowder you can throw around to blow other buyers and other obstacles out of the way.

Being able to put a large percentage of an asking price of a house down on an offer not only sends the message that you mean business and that you are more competitive to a seller, but it also shows the seller that you will not have a hard time coming up with the rest of the money.

Banks, at least the smart ones[yeah banks and smart in the same sentence, I think I am going to puke], drool over clients who have a lot of money to put down on a loan.

4. Never, ever EVER neglect your credit score.  Your credit score is another important friend. If you're like me, you probably got your first credit card in college.  And even if you did get into some debt over the years, you have always made your payments on time.  Establishing a long history of payment will boost your credit score.  But be wary: never use all of your credit unless it's an absolute emergency.  By absolute emergency I mean life and death.

5. Be aware.  House hunting is a lot like planning a wedding.  The poker face that you had to give your vendors when booking has to be the same as when you're shopping for a house.  Don't look too eager!  It will cost you $$$.

6. Nitpick everything.  Ask lots of questions.  You want to find out as much information as humanly possible.  When you are under contract you have to go through with it unless you want to loose earnest money. Look before you leap.  You didn't agree to marry your FI without seriously seeing the kind of person they were.  Same thing for a house.

7. When you put in an offer, be mentally prepared to walk away.  Just like when you were planning your wedding and you had to deal with vendors.  The house buying process is very much a vote-with-your feet environment. This gives you more negotiating power.

8. Real estate agents, selling agents in particular, can and will use dirty tricks to get you to plunk down more dough than you want to offer.  They tried a bait and switch tactic on us.  After 5 months of a house being on the market, we decided to put down a serious offer.  Two days later we hear back from the selling agent saying there was another offer and that we may want to "rethink" our offer to go about $1000 above any other offer.

Agents, especially if you're a first-time buyer, will assume you are scared, stupid and inexperienced. Don't play their game.  Gee, yeah after 5 months these people had the audacity to tell us they got another offer one day after we put our offer in.  Yeah they viewed the house in the middle of a snow storm, baloney! 

House prices are still falling.  They are projected to drop a nation wide average of 11% in the next year.  That means even if the selling agent's phoney baloney other offer is true, you NEVER want to get into a bidding war.  In a bidding war buyers always loose and the only people that win are the seller and their agent(who is getting a big fat commission off your naivety).

9.  How to get out of the bait and switch:  Tell them you will not entertain an increase in price UNLESS it is in the form of a counter-offer.  Which translates in everyday speak to "look, cut the bull and tell us how much money you want for the place!"  And make an off hand remark to your agent(not in writing) that if they don't counter offer and then they call you up a week later telling you the other offer fell through asking if you are still interested, you will lower your offer by a couple of thousand dollars.  They'll totally do a 180 on you.  Real estate is just as cut-throat as the wedding business.  Being nice will get you burned. Be civil, but don't be a washcloth.

10. Once you are under contract, research and look for several banks.  Don't use just one--you can easily get burned if you're on a deadline.  In fact, it's better to have the bank you plan to use all lined up before you even start looking for your house or even on a contract.

11. Make copies and keep track of all your paperwork and deal in person if possible.

12. Remember everything is negotiable. Most houses go for a couple of hundred thousand depending on what kind of area you live in.  When that kind of money is thrown around, as a buyer you want to take advantage of any and all little extra perks the seller will throw at you. Yeah, nickle and dime them to death if you can.  Every little concession you get will save you money in the end.

13.  Finally remember to be careful what you wish for. Home ownership is not for everyone. Since the real estate market bottomed out, gone are the days where you can invest in a property and hope it's value will grow exponentially.  Buy a house if you plan to live in it and know you have the time and money to maintain it. Just like a car can take time and maintenance, a house is even more time consuming.  You have to clean it,  pay taxes, periodically change fire alarm batteries etc.  

Sometimes you may find yourself having to do maintenance you don't even know how to do, and yet because of money being tight as a result of buying the house you won't be able to hire a professional to do the work. 

For those who are the Do-it-yourself and make-do-with-what-you-have type of people the experience of actually sitting down and learning how to do something that you initially wanted to pay someone else for can be extremely gratifying(especially once you see how much money you saved).  But sometimes the experience is not that gratifying, especially if you don't have any hardware or tools during the first couple of home maintenance projects and you have to purchase them on top of the cost of your materials. 

That's pretty much it from here right now.