Buying A House Part 1: The Saga Begins
Welcome to Saving Money with Andrew!
In early May, after two months confined to our apartment, working full time and taking care of our two preschool-age kids,[1] my wife and I reached our breaking point. We decided to find a short-term rental outside of the city.
As you’d expect, others had the same idea. After some misadventures, we realized that finding a decent furnished rental would be almost impossible.
But then we got lucky. A house near where I grew up stood vacant and empty, the new owner’s plans stymied by COVID—his permits delayed, construction impossible. We swooped in, negotiated a short-term lease, rented furniture (surprisingly easy), and moved in early June. We started our search thinking we just needed a one or two month break, but within weeks we decided our move would be permanent.
As we settled into our new (temporary) home, our thoughts shifted to the fall. Would schools or daycares reopen anytime soon? Would we be able to find one for our kids? Where would we live after our lease ended?
Finding a preschool was relatively easy. A wonderful school near our rental house had openings for our kids.[2]
To start our home search, we researched almost every town on the commuter train lines, ultimately narrowing down to three based on a combination of commuting time,[3] school quality and services, and relative value.
To narrow it down, we consulted several resources:
Online forums such as City Data, which are extremely helpful if you can filter out the trolling
Real estate agents in the area
Family and friends
And most helpfully, parents at playgrounds while our kids played (>6 feet away masked of course!). It’s amazing how honest people are in a setting like that.
Finally, we’d found the town where we wanted to live. That marked the beginning of our real search. Three things we did to get started:
First, we found a broker. We ended up using the agent who represented our landlord for the short-term rental, as we found her to be knowledgeable and honest. We also checked her profile on Zillow, not just to check her reviews, but also to check her transactions over the past several years. This was to make sure she had significant experience in the area where we wanted to buy (you want a repeat player) and that she represented plenty of buyers as well as sellers.[4] We signed an exclusivity agreement, agreeing to use her as our sole agent for a three month period (many brokers will ask for a longer commitment but will generally relent if you push back).
Next, we crunched some data. I spent *a lot* of time in the Redfin Data Center, which has an amazing wealth of data, including number of homes sold by month in a particular area (helpful for predicting how often new homes will be listed), median price per square foot (useful for getting a sense if a home is significantly overpriced, and comparing affordability between neighborhoods), and pricing trends. I also created a Google spreadsheet comparing relative affordability of neighborhoods, along with other metrics.
Then, we determined our budget. For us, we used a mortgage calculator to calculate our estimated monthly interest payment on a 30-year fixed rate mortgage at current interest rates.[5] Then, we added property tax (in many mortgages, including ours, collected monthly by your lender), utilities, and expected maintenance (one rule of thumb is somewhere around 2% of the purchase price of your house annually). We then compared that to our prior rent plus utilities to determine the upper end of our budget. Ultimately, our estimated interest plus property tax plus utilities plus maintenance works out to roughly what we were paying for rent and utilities back in the city.[6]
And then, the real search began. More to come on that next week!
And now…Andrew’s pick of the week:
Vulfpeck
Vulfpeck has quickly become one of my family’s favorite bands. Their highly original and fun songs combine jazz, rock, funk, and pop influences. And in addition to almost all of their songs being available on YouTube, they’ve uploaded several high quality videos of entire concerts. Two of my favorite songs are embedded below. Enjoy!
Finally, as a bonus for reading this far - two great deals/money-saving tips I came across this week:
These days, many of us are ordering food delivery constantly. We started once per week at the beginning of the pandemic, got a little nervous and stopped ordering at all, and then gradually moved up to ordering in about four times per week, almost exclusively through DoorDash because their selection in our area is excellent. This week, BestBuy has a deal for 20% off $100 and $50 DoorDash gift cards (credit: Slickdeals), with a limit of one per denomination, so I bought a $100 and a $50 gift card. We spend so much on DoorDash that I take any opportunity to get credits at a discount and load them up in advance.
Citi, issuer of my favorite credit card (my thoughts on credit card rewards here), is offering 5% bonus cash back on up to $500 of shopping from tomorrow through Cyber Monday. If you have a card from Citi, you should definitely sign up.
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] To be totally accurate, we generally left our apartment building once per day to walk to a nearby park. Though as the weather got better, it actually got much worse because the park became more and more crowded and the stress of trying to keep preschoolers away from other people outweighed the benefit of being outside.
[2] At that point in the summer, a lot of parents had pulled their kids out of school for the fall. We were nervous about sending our kids back too, but it wasn’t a particularly hard decision. We knew our kids needed it. We needed it too.
[3] We’ll eventually go back to the office, hopefully part-time.
[4] We didn’t negotiate that much on our buyer’s agent fee (other than to confirm it was in-line with market rates), largely because the buyer’s agent fee is generally drawn from the seller’s agent’s commission, which is charged regardless of whether the buyer is represented or not. Although we could have gone without a broker and tried to get the seller’s agent to give a discount by voluntarily taking a smaller fee, it likely wouldn’t have benefited us much because (i) it would have been difficult to get the seller’s agent to accept less than their stated commission (especially in a strong market like this one) and (ii) many brokers in our area don’t want to deal with unrepresented buyers. We were also first time homebuyers during a crazy time, when we needed extra support navigating the market.
[5] Note that we did not count the portion of our monthly payment that represented payment of principal (as that represents building home equity rather than a recurring cost). But it’s optimal that you have enough in savings to comfortably make your entire monthly payment for several months, particularly if there is a change in your financial circumstances.
[6] For us, we felt our current rent was about as much as we could prudently afford in monthly housing costs, but other people might be able to afford more (or less) when they buy. I found this article from Zillow helpful in thinking about other ways to calculate how much house you can afford.