Real Estate

Home is Where the Heart (and Wallet) Is – A Home Buying Journey and Guide For You

Are you interested in buying a home?  Do you currently rent and are looking to buy soon?  Are you looking to upgrade or downsize and need to sell?  I would like to share our home buying journey with you and important things that I’ve learned along the way.  Specific tips are mentioned below (scroll down).

Our current home is actually our third home that we’ve purchased since my wife and I were married. This is another picture.

 

We purchased this home at a great price on August 2013 while the market was still recovering from the 2008 recession as a short sale .  It was an amazing deal and let’s say, just walking in as the new owners put us with about $125,000 of equity, almost as much as we paid for our first house!  So I’d like to share the details of our house renting and buying transactions, and let’s see if you can gain valuable insight in the process.

Let’s Start at the Beginning

House #1

After my wife and I got married and we were just starting our new lives together we decided to move from Winchester VA where my wife went to college down to Florida.  After exploring our options down there we settled in Tampa, Florida. At that time in the early 2000’s we were able to purchase our first home for $159,000. Here it is.  If you look closely it’s a Spanish style, indicative of Florida’s architecture and it’s pink – Yikes!

Now after three years, our son was born and we were looking to move back to Virginia to be closer to family.  And at that time the real estate market in Florida was HOT like the weather!  We were able to sell it for $224,000 which was fair market value at that time.  See Tip #2 below.  That was more than $60,000 in only three years.  Not bad.

Only about a month later, the market CRASHED and Florida was hit especially hard.  We literally escaped by the skin of our teeth.  Thank GOD we were able to because we could’ve been stuck there unable to sell for a long time afterwards.

Rental #1

We moved into a rental home with a short term month-to-month lease option that allowed us to feel out the market and look for our next home.  With a new baby in tow and first-baby parent paranoia (you probably know what I mean) we were in a rush to leave the rental and find our next place.  We found our next home soon after, which ironically looking back was almost exactly like the one we bought (see tip #1).

House #2

Our next home we purchased only a couple of months later.  Winchester, VA’s real estate market was lagging behind that of Florida’s and hadn’t really been impacted by the looming recession yet.  As a result, real estate prices were still relatively high at that time.  See tip #2 below to see what the mortgage lender on the phone told us.  You might have a laugh like we did.  See also tip#7

It was a country home on 5 acres with outstanding views of the Shenandoah Valley.  We had room to spread out and that was nice.  We paid $285,000 at just about the height of the market.

It was a 15oo square foot four-square house with a simple blueprint with 4 rooms downstairs and 4 rooms upstairs built in 1940.  

We stayed in this home for 6 years (see tip #3) and sold it in June of 2013 for $250,000 which was $33,000 less than we paid for it.  But we still walked away with a nice chunk of change because… read how with tip #5 below.

Right around that time we had seen our current home on the market and it was priced above our comfortable price range.  It was in our target area so as I was researching real estate diligently, I watched as they reduced the price $50,000 and we jumped.

Now as a short sale there are unique circumstances that a buyer must be prepared for.  First of all a short sale means that the buyer is purchasing the property at less than is currently owed on a mortgage because the existing seller is underwater on the mortgage and will take a loss on the sale of the home.  The bank must approve the purchase which can take up to a year!  Sometimes there are multiple lenders (lien holders) that must all approve before proceeding but in our case there was only one.

Rental #2

Because of the prospect of the short sale taking so long for approval, we had to have a contingency plan in between houses.  We were fortunate to know someone who had a small cottage to rent out to us on a month-to-month basis in the interim.  Here is a picture of the 700 square foot behemoth.

It was fully furnished and so we put our belongings into storage, hoping for the offer to be accepted quickly.  We were prepared to wait until November just to find out if we were going to be homeowners again.  And if our offer was not accepted we would have to be prepared to keep searching.  That’s a real risk worth assessing before pursuing a short sale!

We felt very blessed because our offer was accepted quickly by the bank and we were only in the cottage for one month.  A rare occurrence in the realm of short sales.

House #3

So here we are and feel very fortunate to live here.  We love to be able to share the space with others and would encourage others to pursue their home-ownership dreams.  But first let’s be clear about goals and take this specific advice if it pertains to you.

House Buying/Selling Tips

Tip #1: Be Patient and Do Your Research

I can’t tell you how many hours I typically spend researching all types of purchases.  There is no larger purchase for most people than their home.  Yet it surprises me how lax people can be when it comes to finding the right house for the right price.  Take the time to really look at the current market offerings.  Be proactive: don’t just depend on a real estate agent, though they can be incredibly helpful.

GET THE BEST DEAL

How can you get the best deal if you are in such a rush to buy a home that you jump at the first okay one you find?  Check out real estate listing websites.  Download the apps.  They are amazing and can be really useful in scoping out the areas.  You can check them daily in your free time and even set up notices when new properties hit the market.  That can be the key to jumping on the best deals as soon as they become available.

Tip #2:  Don’t Be Greedy

Of course your house is amazing and your kids grew up there but sentimentality does not translate to value for other buyers.  They might not like your wallpaper and if you price your house too high, above real market value, then your house will sit unsold.  That can amount to big bucks in additional mortgage payments and the next home of your dreams might slip away because you were greedy.  Always price your home at fair-to-good market value so that buyers will buy it.  And then you can move on.

I remember in Florida, when the market was crazy we interviewed several real estate agents.  We had agents tell us to list it for $20,000 more than we did.  If we had listened to them, we could still living in Florida!  Again do your own research.

Another perfect example came around when we were qualifying for our second mortgage.

I distinctly remember a mortgage broker telling us on the phone that because of our good credit scores, down payment (blah, blah, blah) we could qualify for a $1,000,000 home!  We had a really good laugh at that one!  But seriously, had we listened to him, got greedy and moved into a house at that price point we would have defaulted on our loan and gone bankrupt along with so many other Americans around that time in 2007.

Tip # 3:  Stay in Your Purchased Home for 5 years or More (Unless it is an Investment Property)

The first question I would ask would be home-buyers is: Are you anticipating living in your home for at least 5 years?  Are you anticipating moving cities or taking other job offers elsewhere?  Because if you are, then generally it makes more sense to rent instead.

When you first take out a mortgage there are many upfront costs for buyers.  You have closing costs, down payments, moving costs, and often new furnishings to buy.  The mortgage payments are primarily interest in the beginning of a loan cycle and you are only paying minimum on the principal.  The principal is the amount still left to pay back on the loan for the home.  You only start to recoup your expenses after about 5 years of living in the home.

Tip # 4:  Be Willing to Rent

Let me tell you folks, there is nothing wrong with renting.  Renting is a good option for a lot of people especially considering not having to pay for costly repairs and maintenance.  It also can allow for flexibility in being able to react quickly when an opportunity comes along including a job, or a good deal on another home.  Sometimes it can help you save money for a down payment or emergency fund, etc.  And mortgage debt IS DEBT, though it usually has a lower interest rate and some tax benefits.

Had we not been willing to rent, then we could not have been able to live where we currently do.

For more flexibility, look into month-to-month rental opportunities.

Tip # 5:  Bi-Weekly Mortgage Payments

If you want to save money in the long run, find a lender that allows you to make payments twice a month instead of just once.  You end up paying off the principal much more quickly, saving you significant amounts of money over the life of the loan.

Use this easy example:

Let’s say your mortgage payment is $2,000 a month.  Over 12 months that is 12 x $2,000 = $24,000 a year.

But instead of paying once a month $2,000  you pay $1,000 every two weeks.  The trick is that there are actually 52 weeks per year so that means 52 weeks / 2 weeks = 26 weeks.  So you pay 26 x $1,000 = $26,000.

So if you take $26,000 – $24,000 = $2,000 extra you are paying off the principal!  That is a whole month extra of payment.  That takes a 30 year mortgage and turns it into a shorter term loan payoff schedule.

We did this with our second house and so even though we sold the house at a loss, we still owed considerably less than what we sold it for so we walked away with a nice check!

Tip #6:  Don’t Get Emotional

This may very well be the hardest for people to grasp.  A house is just a house until you close the deal and move in.  Then it becomes a home.  Emotions tend to get in the way of sound judgement.  I believe that people often aren’t aware of how emotional they are about purchases and YES that includes you ‘guys’ as well.

Remember, while it’s easy to imagine your family living in a house you really like and imagine Grandma’s china cabinet against THAT wall, until all the I’s are dotted and the T’s are crossed on the final contract, it is possible for the deal to fall apart.  Make sure YOU don’t fall apart too.  There may be a better opportunity around the corner.

Try to view the home buying process as objectively as possible.  Make sure to have a thorough inspection.  Take all costs of repairs, renovations, etc into consideration.  View it, not just as a home, but as an investment as well.

Tip #7:  Don’t Over Leverage Yourself

Generally the rule is that all monthly costs associated with the purchase of a home including mortgage payments, property taxes, insurance,  and condo or association fees, should not exceed 28% of your monthly gross income.  Remember that million dollar loan offer.  We would have been fools to take them up on their offer.  Calculate what you can afford yourself.  It’s not hard and with mortgage calculators a dime a dozen online there is no reason not to.

Tip #8: Don’t Be Afraid to Negotiate

Like that pool table in the basement, ask for it to be included in the purchase price?  How about that deck that needs replacing?  Ask the sellers to replace it or discount according to a repair/replace estimate?

If you are selling, don’t be offended by what buyers ask for either.  If it’s not feasible then a simple NO should suffice.  It’s a transaction that should be a win-win for both parties involved.  That is the goal at least.

Conclusion

While everyone’s home purchasing journey is different, I hope this encourages you to pursue the home of your dreams while factoring in all these variables.  Your home can be a great debt burden that should not be underestimated.

But when you know that you have made the right decision for you and your family, a home can provide solace and joy for years to come.  And that is the key.

 

 

 

 

 

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