Buying A House, Part 4: Tips From A Fellow Reader
Welcome to Saving Money with Andrew!
Ok, ok, I promise I will talk about something other than real estate (see part 1, part 2, and part 3) starting next week!
But before moving to other topics, here is a great (lightly edited) note I received from a reader about her homebuying experience.
In addition to being a fun success story, she shares some great tips that served them well:
My spouse and I bought our house in a suburb of Detroit with highly-ranked public schools in 2012. It was a foreclosure that we purchased as-is from HUD. At the time, the market was just starting to finally inch up from the very bottom, and competition for the bottom segment of the market was ferocious. So try not to cry when you hear this, but we won the bidding war on the 2500sf, 5 bedroom, 2 full bath, 1925 built single-family dwelling with an offer of $117,500.
There was a lot in bad shape, and the kitchen and bathrooms needed to be redone. However, the roof and furnace had been replaced in 2008. We will spend $100,000+ on renovations for both resale value and personal taste, not including any maintenance like the eventual roof and HVAC replacement. Also, the original detached garage is slowly collapsing so we'll have to correct the issues causing it and then replace it. For comparison on where the market is today, the house across the street just sold for over $325,000 in less than a week with multiple offers.
We paid a 20% down payment and received a 30-year fixed mortgage from a local credit union with an interest rate of 4.125%. We do not have an escrow account and pay our property taxes and insurance ourselves. Our monthly mortgage payment is $450, our annual property taxes are around $5,500 on a taxable value of $110,000, and our homeowners insurance costs $1,300 annually. It's important to note that while we personally had about $10,000 saved, we received gifts from both of our parents that allowed us to make the 20% down payment, pay all closing costs, and sink about $10,000 into some initial renovations to get our certificate of occupancy and refinish the floors before we moved in.
My tips:
1. Consider local credit unions or banks for your mortgage. Our application was not the greatest; my spouse had six figures of student loans, and since we bought just four years after graduation, our debt-to-income ratio was not desirable. My spouse is also self-employed. And we wanted to buy a house as-is with no certificate of occupancy and a lot of lenders wanted nothing to do with that.
2. Also in favor of credit unions and small local banks: unlike the big banks our credit union services the loan itself. If we have issues or questions we have always and will always call the credit union, never a third party. This is especially important when you escrow your taxes and insurance. I work in insurance and used to have to track down a new loan servicer every year for some of our clients. In the meantime, your property taxes and insurance haven't been paid because the bills went to the old servicer!
3. Consider a 30-year fixed mortgage even if you can afford a 15-year. You can always throw extra principal payments at your mortgage, but if, God forbid, something terrible happens (like a pandemic), you can fall back on that smaller payment. Actually, because our interest rate is lower than the historical stock market rate of return, instead of paying off our mortgage more quickly, we invest that money in the stock market.
4. Make sure that your will, trust, etc., are all up to date. Purchase life insurance that will pay off the mortgage if one of you dies. Plan for the worst.
5. The emotional piece of the house hunt is the worst part. We purchased in a competitive market, and we'd fall in love with a house, make our best offer, and lose it to some flipper with a higher all-cash offer. Finally, the stars aligned and it all worked out, and our house is more perfect than any of the others we looked at! It will happen eventually. Don't settle.
And now…Andrew’s pick of the week:
It often feels like there’s nothing left to learn about Paul McCartney and The Beatles. But with McCartney III coming out on Friday, there’s been a media blitz of interviews and articles about, probably, the greatest singer-songwriter in history.[1] Two great pieces include this recent interview with the Times and this incredible tribute that gives us 64 Reasons To Celebrate Paul McCartney. Even after having listened to every Beatles album ad nauseam and reading Bob Spitz’s ~1,000 page biography of the group, I learned plenty of new things.
I hope this has been helpful. If you liked it, please share it with a friend! Also, please send me your feedback, requests, and success stories.
[1] As one of the articles notes, it’s absolutely incredible that three of the greatest songwriters happened to be part of the same music group - don’t forget George! All Things Must Pass is an absolutely incredible album.