I’m getting up there in age. I ain’t no spring chicken. In fact, it’s been 15 years since I bought my first home, and I was already in my 30s at the time. I’m telling you this because I’ve had my fair share of life experiences.
So, I’m writing this today to help you make the best decision and to learn from my mistakes. I’ve lost money and you don’t need to. I got what arguably could have been the wrong mortgage and you don’t need to. I didn’t do my homework picking a mortgage lender.
With that, here are four things I learned about buying a home. In no particular order:
Don’t Get a 30-Year Fixed if You Aren’t Going to Be in the House for 30 Years
I didn’t understand anything about mortgages so I just did what I was told and got a 30- year fixed at the incredible rate of 7.25% (this was in 1998 and I was congratulated for getting such a great rate). While I was very happy to be such a savvy guy to qualify for the low rate of 7.25%, I had no idea I was wasting money on my loan. I didn’t need a 30-year fixed. I didn’t know for sure, but there was a good chance I wouldn’t stay in this home for three decades. I left after about nine years. I once did some number crunching and I could have saved several grand in interest had I gone with a 7- year adjustable rate mortgage. The best part is that rates were dropping the last two years I lived in the house and my ARM would have adjusted lower, if I had one. Instead, I had a 30-year rate I couldn’t refinance, and ended up keeping it until I moved.
Know Your Neighborhood and Make Sure It’s Stable
My first house was a cute bungalow on Detroit’s far west side. It was a great little house and was built in 1947 for returning war veterans. It’s in one of those neighborhoods literally built by the VA loan. The house is well built and will probably last for another 100 years if it’s maintained; it’s brick with hardwood floors and plaster walls. The problem I ran into was it was in a neighborhood that was an enclave of civil servants working for the city of Detroit. Cops, fireman, recreation workers and water department employees all lived in the area. I worked for Detroit’s communication department at the time. It was our own little paradise, except for one issue– many residents of the neighborhood were only there because there was a residency requirement that all employees of the city had to live in Detroit’s boarders. And then one day in late 2000, the rule changed and nobody had to live in the city anymore. Half the neighborhood left in a matter of months. Home values plummeted. I bought my home for $92,000 and sold it for $38,000 with $2,000 of FHA loan seller concessions. Do the math and you’ll see that I got $36,000 for the house. Before you feel too bad for me, keep in mind that I got a great deal on a home with a beautiful backyard (over an acre) at less than 50% of its market value just three years earlier. So it all worked out for me. But heed my warning. Make sure your neighborhood is stable and not dependent on some outside factor or influence (such as a residency requirement). If it is, keep that in mind when making an offer.
Know Your Real Estate Agent and Your Mortgage Company
I found my first agent the old-fashioned way – through a referral. It worked well; she was great and I was happy with the work she did. I recommend getting referrals when choosing an agent. Chances are that if they did well by someone you know or trust, they’ll do well by you. Same for your mortgage company– I took a big leap of faith when I chose my mortgage lender based on a referral from my agent. I trusted her and it worked out. But knowing what I know now about the mortgage industry, it could’ve been a disaster. Based on that, I wouldn’t stop at a referral. Check review sites such as Yelp or Viewpoints or Google Reviews for reviews of both your agent and your mortgage company. Check the BBB. Check customer satisfaction surveys such as J.D. Power to find out how well their customers rank them. Start with the referral, but also consider the vast wealth of info the internet provides you. You’ll be much better informed.
Know Your Property Taxes Might Change
This one was a big, unpleasant surprise for me. When I bought my house, the MLS report stated my annual property taxes at something like $700. That seemed reasonable, and it was true, until the city of Detroit revised my taxes to my purchase price, which jumped them from $700 to $2,300. Yup, that stunk. But, I should have known better. Most states (or counties) have sites that allow you enter in a purchase price of a home and find out what your property tax will be. The $700 tax was based on the value the seller had on assessed records. Once I purchased the house, that changed based on my purchase price. I could have gone to this site the Michigan Property Tax Estimator and know exactly what my taxes would have been on my purchase price. I wish I knew that then – it would’ve helped with budgeting. Having an extra 100+ dollars a month to spend on taxes that I didn’t plan for was not fun.
So there you have my four things I’ve learned about buying a home. Actually, I have many more, but I’ll save them for a post in the future. Until then, happy house hunting!