Home Buying

October 21, 2009

House Hunting

Decide on what you want in your home. Put down everything – you will eventually find out if they are critical or not.

Things to consider

Home

1. Minimum square footage / lot size.
2. Minimum number of bedrooms and bathrooms. (Always keep the square footage in mind – you might get your preferred number of rooms, yet not meet the preferred square footage – meaning the rooms might be too small.)
3. Minimum/preferred size of kitchen, master, living, etc – most used rooms.
4. Preferences in kitchen – island, pantry, storage, bar counter, breakfast nook, etc.
5. Number of floors – preference of having a bedroom/washroom/laundry etc on the ground floor, etc.
6. Room to entertain – parties, stay over, etc.
7. Layout of the rooms – plan has to make sense for your lifestyle and fit your tastes.
8. Outdoor living and entertaining.
9. Storage space/options – outdoor and indoor.
10. Garage space.
11. Future needs for future additions – for children, dogs.
12. Maintenance (Decide if you will have the time to do all the cleaning up and maintenance work yourself or can you afford to employ help. If you are doing it yourself, you do not want to spend all your weekend on housework. So plan and pace yourself.)
13. Gardening.
14. Preference of a media room, game room, bar, basement, loft, etc.
15. Neighborhood, safety, community, gated access, etc.

Work

16. Distance to and from work.
17. Number of possible routes.
18. Usual traffic in these routes.
19. Hours spent away from home daily.
20. Home office space for working from home.

Others

21. Proximity to airport, etc if you travel a lot.
22. Proximity to gas station, shops – especially for day-to-day stuff like milk (or ciggies!).
23. Proximity to shopping malls, stores, cinemas, other entertainment options, etc.
24. Proximity to parks, downtown (if you prefer), etc.
25. Public schools, private schools, day-care facilities – and their standards.
26. Sunrise and sunset – believe it or not, it is very important to check the direction some rooms face. If your master bedroom is east facing, it is a good thing as the sun will wake you up and the light will make you alert and ready for your day ahead. On the other hand, if the room you intend to relax in after a long day’s work is west facing, the heat will sap you of what little energy you might have.

Compromises

Do not set your mind on what you might be willing to compromise on or what you absolutely must have. What you think you must have may not be as important as you originally thought.

When you come across a property, go through the list and decide what options you have for each, and decide on how you can compensate for each of those that the property does not satisfy. For instance, say the property does not have a home office space, then consider if there is any other room where you might be able to create a small office space – in the master bedroom, if you prefer. If you decide to use part of your guest room, then consider if you will be able to use that space even when you have guests staying over – or if you would mind your office being accessible to guests when they are staying over.

If you end up compromising on something, it should be because you have an alternative or because you realize you may not need it, even if you may want it badly.

Look at what options the market offers. Look at everything – look at condos as well even if you looking for a single family home and vice versa. Knowing what is available helps you decide what is practical, what is standard, what is necessary and what is reasonable to expect.

Long Term Plans

Consider how long you might live in your new home. Is it possible you might want to move to a bigger home later, or move to another place? Depending on your plans, consider your options – resale, renting, etc. This should form part of your decision making your criteria. This will also help you decide if you want to spend on points to bring down your interest rate.

Appliances

If your home comes with appliances, it is a load of work off your shoulder. But having that included is not always the best idea. One, the appliances may not be of a brand or standard that you might want to have. Two, the price (probably inflated) of this is hidden in the home price. In which case, technically, you end up paying property taxes on your appliances as well. It might work out cheaper if you get your own appliances.
Upgrades

You might want some upgrades/renovations on your home. In most cases, the builder gives you a choice of upgrades. Sometimes doing it yourself after you move-in, after a few years, might work out cheaper, but you might want to move into a home that already has all that you want in place. Decide what would work for you. The structure, layout and plan of your home are more important than the upgrades or the look. The rest you can always get for much less cost than what the builder might charge, and to your taste. The lack of choice of upgrades could give you an edge to negotiate as well.

When you choose your upgrades, make sure the quality is good. You should be able to judge the quality of the installation as well. The model homes might not always be how the finished homes will look. The builder might do substandard work but take special care to do a good job on the model homes. So insist on looking at a move-in ready home and compare how it differs from the model home.

Builder

Make sure you research the builders – read customer reviews and experiences on the net.

Warranty

Remember to check with the seller about the warranty, if any, they are offering. The warranty options might vary depending on the items they cover. For example, the structure might have a 10 year warranty, the appliances may have only the manufacturer’s warranty, where as, the plumbing may have as little as a month’s warranty.

Home Inspection

Even for a new construction, it might be important do a home inspection. The inspector should also be reliable and should do as thorough a job as possible.

Real Estate Agent

1. You can buy a home without an agent.
2. There may or may not be advantages to having an agent.
3. There is absolutely no loss in employing a realtor.
4. The realtor will be paid by the seller – this commission is not part of the sale price.
5. You do not have an obligation to buy just because you have an agent.
6. The agent might, in their own interests, encourage you to buy immediately, which you should be aware of and not let this cloud your judgment.
7. The agent might tend to paint rosy pictures of a property which may not be all true.
8. Do your homework and do not take the agent’s word at face value.
9. The agent might have to register with the builder the first visit you make to a new construction for them to be able to represent you as your agent.
10. Make sure you get time alone to assess the property and make your decisions without the agent’s constant commentary/sales pitch.

Finance

Budget

1. Calculate debt ratio to arrive at your affordable budget.
2. Keep within your comfort zone. (You might be able to afford a certain budget if you make some changes to your lifestyle – like eating out less often, giving up taking a vacation, etc. But decide beforehand if that would be worth it.)
3. In addition to the mortgage, there is Home Owner’s Insurance, Property Taxes, Home Owners Association fee (if any), Mello Roos (if any), Private Mortgage Insurance (for less than 20% down payment), County Taxes, etc.
4. Consider the fact that the utility bills might go up – electricity, water, etc.
5. You might want to have enough on hand to set up your home – furniture, appliances, etc.
6. If you are planning on buying a car or making a major purchase on credit, consider how it will affect your credit history.
7. If you need to break your current lease, check the terms and conditions and what it will cost you.
8. Moving to your new place might cost some money whether you get professional movers or do it yourself, depending on how much stuff you have and how much you want to take with you – planning ahead and making appropriate arrangements is very important and will also save you a lot of time and effort.
9. It might be a good idea to put aside 10K for closing costs to be on the safe side.
10. The best scenario is to put down 20% or more as down payment. Less than that might incur other charges like PMI, a slightly higher interest rate due to default risk, etc.
11. If you want to buy down interest rate, decide on how much points can you afford and find out how much will it bring down your interest rate. One point costs one percent of your loan amount. But the interest rate it will get you varies from bank to bank, day to day; it might even change over the day.
12. It makes sense to buy points only if you live in your home longer than the time you will break-even on the money you spend on the points.

Closing Costs

Look out for unnecessary items and hidden charges listed in your closing costs.

Mortgage Agent

1. One thing that a mortgage agent can do, that you may not be able to, is get information on how much the bank is willing to go down on the interest rate in order to gain your business.
2. Apart from that there is not much the agent can tell you that you cannot find out yourself on the internet or by working directly with the bank’s agent.
3. If you approach a bank directly, an agent will be assigned to you by the bank. They will be able to apprise you of the daily fluctuations in the interest rate and tell you what your best options are.
4. You should be able to monitor the interest rates online.
5. You might also be able to monitor the interest rates offered by the bank on their website. But the bank agent might get you an interest rate lower than the one reflected on their website.
6. Apply to a select number of banks, get their good faith estimates and compare their offers.
7. Some banks might offer you a competitive rate but hike up their fees and other closing costs.
8. Remember to research your bank’s customer service as well.
9. Remember that your loan will be ultimately sold to Freddie Mac/Fannie Mae. But before that the loan might change hands from bank to bank, you do not want to deal with an intermediate holder that has poor customer service. For example, say I get my loan from Bank A, a small, reliable bank, which has a very good reputation and I am happy dealing with it. Say Bank A sells to Bank B which is known for charging you incorrectly for payments that were never late, etc. Say Bank B is also known to have poor and rude customer service, then life gets difficult. Usually big banks directly sell to Freddie Mac/Fannie Mae, hence I would recommend a bigger bank as opposed to private lenders, smaller banks.
10. As long as your credit history is sound, make a 20% down payment and do your homework and you keep yourself well informed, you can see through con attempts and even be able to call the shots.

Good luck on your house hunt!

My father would type pages and pages, and then hit a random button only to lose his entire email. Until yahoo mail started automatically saving drafts periodically, it used to be a lesson my dad learnt and forgot every single time.

I did the same thing the last time I blogged. It was because I relied on the automatic save which does not work on the Blackberry browser. Anyways, when I begin to blog I do not usually set out with a subject or topic in mind. Only when I stop and read do I myself realize what I wanted to say. This time, when the post disappeared so did my train of thought. I cannot for the life of me remember what the last draft was about! That is how random and momentary some topics I pick are.

It has been a long time since my last post. I plan to write a serious post on “Home Buying”. Before that I must touch on the topic of cooking again.

I was reading “Reef” by Romesh Gunasekara the other day and not even a cookbook or a book on housekeeping could motivate you like this fiction does. It has had an immediate, and lasting, effect on me. Both cooking and cleaning have graduated to a whole new higher level for me now. Some of the things he describes, it gives you the feeling you are living it and that you yourself are the character.

I also read his collection of short stories, “Monkfish Moon”. There is a long story behind how I came across this book, which I will write about sometime.

It is Agatha Christie’s “Murder In Retrospect” next. Yes, I am re-reading it; but let me see if I remember it as vividly as some of her other ones.