Five Little Lessons Learned After The House-Buying Agreement Is Reached

The last few days have been filled with lots of little lessons about the home-buying process. Here are five little anecdotes about things we learned:

Home inspections typically aren’t part of the closing costs. I had just assumed that they were part of typical closing costs, but in our situation, a home inspection is done at our discretion. Thus, when I set up the appointment to have the home inspected, I came off like a complete moron because I thought the bill would be sent to the seller. The pieces that the seller will pay for (as the seller is covering closing costs) are the various checks that will be written at the actual close of the home – we will basically just show up, sign some papers, and walk out with keys.

Be careful which inspector you use. I interviewed several inspectors. All of them seemed fine at first, but as I probed a little, it became clear which ones really had their stuff together. The ones that really separated the wheat from the chaff for me was a request for references, openness to me coming along for the inspection (one person actually said “no” – sorry, that doesn’t cut it), and the details of the report. Don’t just listen to their pitch and take whichever one sounds good – ask a few really probing questions. Here’s some more info on finding a home inspector.

Don’t just enter your contact information to get lots of house insurance quotes unless you want to be deluged with semi-desperate insurance salesmen. A friend of ours did this recently and is still being called about insurance quotes. Instead, just talk to a lot of your friends and acquaintances about their experiences with house insurance and go with the one that seems to come most highly recommended. For me, you’re paying for security, so I’m more interested in finding an insurer that will actually provide security and good customer service rather than one that shaves ten bucks off of the price or keeps calling you trying to sell things.

The whole process is not as scary as I thought it would be – just lots of little things. If you just take things slowly and calmly, the process of buying a home isn’t all that scary – everything largely makes sense. My wife and I talk things over carefully each evening and make sure we both understand everything – and do plenty of research when we don’t. We’re also both taking care of different pieces of the puzzle – she deals with the realtor on a daily basis, while I’ve been talking to the credit union and also scheduling the home inspection.

The anticipation is thick. Once the agreement has been reached and you’re moving through the steps (securing home insurance, having the house inspected, and so on), the anticipation gets ridiculous. My wife and I are almost in a daze with the sheer anticipation of moving into a home. For me, it’s particularly strange – the finished square footage of the home is more than two and a half times the finished square footage of any place I’ve lived in my entire life. It seems almost surreal to have that much space.

And here’s a bonus one:

Banks are wetting their pants over foreclosures right now. We were flat-out told by the mortgage specialist at our credit union that the mortgage market is “very weird” right now because there are so many foreclosures out there floating around and so many people are going “Oh my god refinance!” as their ballooning payments hit and such things. She seemed pretty negative about the short-term future nationwide, which almost shocked me considering we were actually engaged in the process of getting a mortgage.

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  1. Jamie says:

    Another little trick I learned–call your bank a week before the closing and ask if you can get copies of all the documents you will be signing BEFORE the close. That way, you can read through everything at your own pace without the pressure of everyone standing over you and waiting for you to read and sign. That is, if you _like_ to read the fine print…

  2. TiP says:

    she seemed pretty negative about the short-term future nationwide, which almost shocked me considering we were actually engaged in the process of getting a mortgage.

    The people on the frontlines of this debacle have a much more realistic view of what’s happening than the cheerleaders we see on TV. There are also people like Fed Chairman Bernanke who don’t want to panic the public so whenever they open their mouths only happy-talk comes out.

    …and this won’t just be a ‘short term’ problem – We’re still at the tip-of-the-iceberg stage right now.

  3. JR says:

    I can’t believe you had an inspector tell you that you couldn’t go with him. That’s just crazy, who would hire this one?

  4. Trent Trent says:

    TiP: I think it’s very difficult to say what will happen in the future. Clearly, some people are going to have to downgrade, but that’s going to make the “cheaper” houses really competitive. People have to have a place to live, after all.

  5. Scott says:

    I’ve enjoyed reading about your experience with purchasing a home. My fiance and I are going through the same process you are, only about 3 weeks ahead of you!

    Your tips are right on, those added fees and costs definitely snuck up on us but we managed. One thing we ran into today was the ‘property inspection’. Before my realtor mentioned it, I had never really considered it. What are your thoughts on this, will you be doing one on your home?

    Best of luck, keep us posted w/ the process!

    -SH

  6. TiP says:

    Trent: I point you to: http://ml-implode.com/
    Lots on info on this situation there.

    The problem is that some of those people with ARM resets right now are not going to be able to qualify to refi under the tighter lending standards (and if the higher monthly payment has caused them to be late on other bills, their FICO has been reduced making it even worse). They’ll have 3 options: 1) sell 2) suck it up and try to make the higher monthly payment 3) give the keys back to the bank. The problem with option 1 is that the market is very slow right now (you’ve seen that in your area). Many will try to make option 2 work, but you know that a good percentage of those will eventually fall into option 3.

    I wish I could attach a graph from Credit Suisse that shows the different types of ARM resets and the months that each will reset in. ARM resets are just getting started – they don’t peak until November this year. The other shoe to drop is the Option ARM resets – these are not subprime loans, these are considered Alt-A. They don’t start resetting in significant numbers until about a year from now and they don’t peak until sometime in 2009. The thing to remember about Option ARMs is that they go into negative amortization if the borrower pays the lowest option payment/month. I’ve seen some surveys that show that up to 80% of people with option ARMs are paying that minimum, negative amortizing payment in any given month. That’s scary – it might have been OK to do that when prices were going up 10 to 20%/year, but now prices are flat at best and actually falling in many areas. That’s why we can in fact have a pretty good idea of what the future will bring, just as we could about a year ago with subprime.
    Another good blog to read about all of this is:
    http://calculatedrisk.blogspot.com/
    They pretty-much predicted the current subprime troubles a year ago and now they’re talking about the coming option ARM debacle.

  7. TiP says:

    Trent: I forgot to address this point:

    Clearly, some people are going to have to downgrade, but that’s going to make the “cheaper” houses really competitive. People have to have a place to live, after all.

    1) currently about 2.9% of all houses are empty. 11% (yes, 11%) of all condos are empty. We’ve overbuilt in the last few years and it’s going to take several years for demand to catch up.
    2) As I implied in my previous post: a lot of these people in trouble are currently on the low end of the market already, so it’ll be difficult for them to “move down”.
    3) Those that are in a larger, more expensive property may not be able to qualify to buy another house (even a smaller one) under the tighter lending standards, especially if they’ve run into payment troubles that have erroded their FICO scores.

  8. Jim Lippard says:

    Maricopa County (fourth most populous county in the U.S., it includes Phoenix) is on track to blow away the record for notices of trustee’s sales in May–that’s a leading indicator for foreclosures, as a notice of trustee’s sale goes out when you’re 90 days delinquent on your mortgage.

    If you qualify for it, I highly recommend USAA insurance.

  9. The real estate problem is especially bad in Southern California, Las Vegas, Florida and Phoenix I hear. They built a lot of extra capacity and housing prices in these areas have fallen sharply, or at best flat. In about half a year, it might be a good time to start investing in real estate again. Buy low, sell high and all that.

  10. Ciara says:

    Ask your Realtor to set up a final walk through on closing day. My parents moved about two years ago and we are still finding and dealing with things the former owners left. There were also water leaks/damage that have lead to an on going mold problem. If they had been able to go through the house before signing the papers, they would not have closed that day. They asked for a walk through, but the other Realtor had some excuse. Everything will probably be fine, but you don’t want to get stuck with a bunch of someone else’s junk.

  11. Todd says:

    Advice for closing: take a pen that you really like. You’re going to sign a LOT of stuff, and having “your” pen will make that more comfortable.

    If you don’t get the documents in advance (I wish someone had suggested that to me!), don’t be bashful about reading through everything. I didn’t read everything as thoroughly as I wish I would have, but I did catch a couple wrong numbers in one place. They were meaningless numbers, but they did have to go fix and reprint that document.

  12. jake says:

    @Wallet Rehab

    Not sure about Southern California. I see houses still in the high 500K+ and that’s consider decent. If you want a good home you’re looking at 700K+

    I cant speak for the entire SoCal, but just from my city, I dont see that many for sale signs. My neighborhood currently has no for sale signs as far as I can see.

    In fact there is a huge lot a few miles from my neighborhood and the houses arent even built yet and I heard people say everything is already bought, they are just waiting for the houses to be built and move in.

  13. Lisa says:

    Definitely go along on the home inspection. Sounds like you plan to, but a woman I work with talks about when selling her house the home inspector for the buyer never looked in the attic, he just reached his arm up in with him camera and took some pictures. To me that is gross negligence. Considering the money involved, take a half day off work and go with him/her.

  14. Mardee says:

    I would also recommend NOT having your agent there (if you had one). If she or he has any kind of relationship with the home inspector (and many do), there may be a subtle push to pass the house in an effect to please the agent, since most people use home inspectors recommended by their agent.

  15. Patricia says:

    As someone who has purchased 4 homes before we hit 40 (we move a lot) one of the best tips I can give is to call the bank a week before closing and ask if the interest rate has changed. In two cases we were able to get a lower rate … even with a lock. If you are closing quickly, you may also qualify for a lower rate. We were able to cut 1/2 a percent off our rate because we were able to close in less than 2 weeks. Sometimes all you have to do is ask.

    Are you a member of any societies or porfessional organizations? Someitme banks they are affiliated with will offer lower rate on mortages and insurance for their members. Don’t forget multi-line discounts – that can save hundreds a year.

    Check around a lot for rates. Our credit union was not the lowest rate out there.

  16. Michelle says:

    Trent:

    When you are done, do you plan to do a retrospective on the whole process from start to finish?

    I asked this once before but I don’t think you answered: How do you feel now about your decision not to buy that house you mentioned a few months back — the one that was about $50,000 over your limit? Pretty darn good, I’ll bet.

  17. icup says:

    On homeowners insurance: If you are happy with your auto insurance, find out if they have a discount if you get your home insured with them too. Lots of times they have a multiple policy discount. In my case, it knocked about a hundred dollars off my car insurance (which was already quite low).

  18. cami says:

    Trent, everyone needs place to live, but if their friends and family and their finances go south, they may want to live with you in your new house :)

    TiP are you referring to this: http://tinyurl.com/ysuyjd (I couldn’t find the original listing).

  19. Ted Valentine says:

    Get a high deductible on your home insurance. You don’t want to be making frivolous claims because it will just cost you in the long run. You have an emergency fund and that is your “self” insurance for small things.

  20. miguel says:

    Make sure your inspector is an experienced tradesman. In my state anyone can call them selfs a home inspector. The best ones are people who worked in the trades for many years. Mine was a retired builder, and knew the code really well.

    Speaking of building codes, make sure they point out specifically what building code an issue with the house violates (aside from viper pit in the basement, or obvious stuff like that).

    Also, you should ask for a your HUD disclosure form a few days before closing. This will have a break down of where all the money is going… I would also ready all the docs, and consider taking them to an attorney for reading.

    My wife used to be a closing paralegal, and it was shocking to see how many people ended up walking out of the table because the loan was really an ARM when the broker promised them it was a fixed rate loan.

    Also, you’re putting 20% down to avoid PMI right? around here it adds 100-200 a month to your mortgage.

    One more thing, and this is pretty important. A lot of people will show up on closing day with a u-haul, or be prepared to move –having their previous housing arrangement nulled. There is nothing worse than showing up to closing in a u-haul, and having the closing not finish right there that day for some reason. Believe me, it happens. Also your closing has a pretty high chance of being delayed a week or so. The closing date is always iffy.

  21. sd says:

    Our home inspector gave us a notebook with his comments from the inspection. A seasoned homeowner suggested we hang onto that (or the regular inspection report) and note our additional comments on it. At the time you move, everything will be chaos, especially with two little ones. But later the inspection report is a great “to do” list on updates and repairs that will improve your home’s structural soundness and add tons of value if/when you sell it.

  22. Dan says:

    “She seemed pretty negative about the short-term future nationwide, which almost shocked me considering we were actually engaged in the process of getting a mortgage.”

    Click on my name, it will take you to a graphic on nytimes.com.

    I would be kind of negative too, you’re buying at a time the market is still priced really high. It’s begun to correct, but it will take some time to get back where it belongs, houses here in Omaha are only down a couple percent from what I can tell.

    They call it a “buyers market”, but compared to what? Last month? Last year? 5 or 10 years ago?

    I am thankful every day that I got in, in 2000 and my house is only 10% over-valued ($100k for a 3 bedroom on a nice cul-de-sac in the suburbs, by historical prices I think it should be about $85-90K). Lots of people are gonna find out about “bubbles” the hard way. (It wasn’t that I was really smart, just cheap and lucky to get in when I did.)

    The value of real estate (or anything really) is based on a couple factors:
    1. The cost of materials
    2. The supply and demand

    Now during the “bubble” false demand was created via “creative” financing for unqualified (financially) people, this demand is going away, painfully.

    The opportunity for profits kicked in and builders built, lots. This increased the supply of houses and the cost of materials/labor (again supply and demand).

    So, where we find ourselves, IMO, is with an over-supply, vastly reduced demand, and a cost of materials and labor that will be falling (a bit on the materials side, hopefully not much more on the labor side as that would be more painful) over the next few years.

    Also, worrisome, is that demand may begin a longer term fall within a few years when the baby-boomers begin to pass away in larger numbers.

    Two things will probably help you:
    1. You live in the midwest and we didn’t get as crazy as many areas
    2. There was not a similar “wage bubble” so probably the worst case (as long as you got a normal 30 year fixed rate loan with no pre-payment penalty) is that you overpaid for your house and will have significant negative equity for a long time, which doesn’t matter too much as long as you don’t plan to move for 30 years.

    Well intentioned though it may be, the government trying to sound positive about it makes it harder for people to gauge the risks. If I had bought one of those “McMansions” (most of my co-workers bought $200-300K houses when I was buying) I would be seriously considering selling now, banking any “equity” I could and moving into an apartment for the next 5 years.

  23. Debbie says:

    To compare insurance companies, check your state’s Department of Insurance. Then after narrowing down your choices, get an estimate from a few of them.

  24. guinness416 says:

    Your real estate agent should have told you the inspection wasn’t included in closing costs. It was very remiss of him/her not to, they earn those big commissions ensuring you should never feel like “a complete moron”.

    Miguel’s advice to have an experienced tradesperson inspect is excellent. But be aware they can’t usually punch thru drywall and so forth to inspect, there’s a lot of verbiage in their reports stating all the things they don’t see.

  25. Peter says:

    Trent,

    One point I would suggest is that you get a plot plan of the property you are buying some time before closing. These plots can be sometimes be found via the internet under real property assessment portions of a state governments website depending on the state or you can certainly go to the county clerk and they should have it available for you in their offices. I got screwed because the house I bought had a fence which seemed to encompass the total back yard and it looked like what I’d expected the layout to be (i.e. a rectangular plot). I requested a plot plan from both my realtor and the sellers realtor two weeks before closing. Either should have gotten it to me but in the rush of selling one house and getting ready to move to another and given that it seemed pretty obvious I didn’t push the issue and didn’t think it was a big deal. Turned out the land not only extended a significant way beyond the actual fence (the original owners didn’t want to put up a fence in some adjoining woods and the plot was more pie slice than retangular) but some neighbors backing up to to the property and also assuming the fence defined the property boundary had built a swing set and shed in what was technically going to become my yard. By law the sellers realtor did provide the plot plan, at closing, halfway through the paperwork, with the problem laid out and a kind of “aw shucks, guess we didn’t see that problem” look on his pasty-assed, sleezeball face (but I’m not bitter :-). Sadly a simple look at the property combined with the county plot plan would have identified the problem and I could have had the seller be the bad guy prior to closing. As it turned out, it started off some bad relations with those particular neighbors and their local buddies for which no amount of rationale discussion or offers to help move the swing set and shed seemed to make a difference (e.g. his own words “this is the only flat part of *my property* where I can put a swingset!” pretty much summed up my neighbor’s attitude). Good luck.

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