Buying A House: C or D?

also, our large commercial bank told us the following:

1) borrowers are encouraged to shop around for rates, so within a 30-day period, multiple credit inquiries will not adversely affect your credit score
2) this is only for 30 days after the first inquiry. once the 30 days are up, there is a 15-day period during which you should NOT pursue additional inquiries because they will adversely affect your score
3) once those 15 days are up, you can shop around again

Yeah, the credit bureaus will take into account some shopping around for big purchases like homes and cars. They allow clustering.

That said, applying is no fun and you should do it as little as possible.

OK so sounds like I should treat this meeting as informational and not start a pre-approval process. I don't know yet whether I want to buy a house imminently, I want to shop around a bit and see what kind of thing is available and what kind of thing I want. But I really have not the slightest clue of what our price range should reasonably be so my idea is that the loan officer at the credit union can sit down with me and my tax form and help me figure this out.

Exactly. Any fool can calculate a the principal part of a mortgage payment, but an agent/loan officer will have a better handle on the final number with taxes, insurance premium, etc. included.

I mean, let's say I decide a month from now "hey this house came on the market and I want it now." How fast could I get pre-approved?

I was at an open house this weekend and the guy said he already had an offer on the place which he had to decide on by Tuesday and I said "well, I'm not really in the market yet, I don't have a realtor and I'm not even meeting with the bank until Monday morning" and he said "you can meet with the bank Monday morning and make an offer Tuesday, easy." Is that true, is the process really that fast??

Note that this particular house isn't an issue, it was nice but I think too expensive (FSBO, asking 15% over Zillow estimate, a lot of the cost is for extra-large lot which I don't care about that much) I'm just in general trying to understand how fast I can move if we DO see the perfect place.

Also, do we believe in Zillow estimates?

Zillow estimates are janky, imo.

Pre-approval moves pretty quickly by design. Closing is when you'll get run through the ringer.

yea you can get pre-approved pretty quickly

one thing you can do in the meantime is to organize all your financial documents - tax forms, w2s, recent paystubs, bank account statements, etc. so you can provide all that stuff as soon as you need to

also whether to get preapproved in advance or once you stumble upon a house you want to buy will probably depend a lot on the housing market where you live, right? in the neighborhood we're looking in, the good, competitively-priced properties are gone with a couple days, so we definitely wanted to get preapproved beforehand so we can make an offer on the spot if we need. in a buyers' market w/ houses sitting around for a long time you can probably wait, idk

whatever was wrong with my sewer line either wasn't fully resolved or is fucked up again. having a dude with a little tv camera come out along with the heavy cleanout gear. hopefully this doesn't require drastic measures because I'm going on vacation in a week!

f u sewer line

The more I learn about this process the crazier it seems that this is the way housing works. Renting makes sense to me: There's a thing that I want (a place to live) and I pay a fee to a professional whose job is to provide that thing, just like I do for my phone and my internet.

But now instead it seems like somebody is offering me this valuable good (a place to live) in exchange for me making a colossal bet with most of my savings in a financial area, real estate, which I know nothing about.

in the neighborhood we're looking in, the good, competitively-priced properties are gone with a couple days

Yes, this is our situation too. Which I guess is good because a huge part of the anxiety around this for me is "what if I need to sell it is it going to be awful" and one sense I'm getting is that houses in this neighborhood are not hard to sell.

I guess there is an x such that when I think "the chance we want to make an offer in the next 3 months is x%" I ask for pre-approval?

The more I learn about this process the crazier it seems that this is the way housing works. Renting makes sense to me: There's a thing that I want (a place to live) and I pay a fee to a professional whose job is to provide that thing, just like I do for my phone and my internet.

But now instead it seems like somebody is offering me this valuable good (a place to live) in exchange for me making a colossal bet with most of my savings in a financial area, real estate, which I know nothing about.

― Guayaquil (eephus!), Monday, May 23, 2016 10:43 AM (4 minutes ago) Bookmark Flag Post Permalink

It's daunting and insane for sure. When I went in, I had no idea how so many people had learned to navigate the process. Once you come out the other side, though, you realize it wasn't that scary.

The thing I kept thinking about during the whole process was "If my dumb ass brother could figure this out, OF COURSE I'll be able to."

I guess this depends on which part of the country you're looking, but it's a good idea to include a termite bonding stipulation in your offer (unless the bidding gets fierce). I wish my agent would've suggested that at the time, because once the offer is accepted and you think of things like that it's too late.

I mean, you can still get it after the house is yours, but it's like $500 out of pocket when it could've been folded into the sale.

I guess there is an x such that when I think "the chance we want to make an offer in the next 3 months is x%" I ask for pre-approval?

If you've made a decision that it's time to buy and you're just looking for the house at this point, go ahead and get pre-approved. If you're still on the fence, hold off.

have them run the tv camera thing down the sewer line when you do the home inspection to check for pipe integrity imo

I might have a horse in this race, though

haha

Renting makes sense to me too. But at the end of renting something, you possess only the right to leave and go rent something else. Homeowning is plenty risky and there are lots of unknowns, but it at least offers potential for return. No amount of renting is ever going to mean that you have a sizable asset that is, in a nontrivial way, yours. I know this is corny and way dadlike, but there it is.

I will know later today if the horse is dead xp

any of you navigate multiple offer situations? i am getting the sense that we will likely have to once we find the house we want. i think we'll be competitive, we can make a large down payment or earnest money deposit, we have great credit, and we can afford more than what most of the typical houses are going for. that said there is no way we're willing to waive certain contingencies, especially inspections

treat it like an ebay auction, set a maximum price you'd be willing to pay, with the stipulation they cover extended inspections (the buyer typically pays for the basic inspection) and, if you can get it, have the closing costs rolled into their price

if you're one of the people who waits until the last ten minutes to bid on ebay and then frantically bids it up to 20% over what you wanted to pay, feel free to try that

it's also worth realizing that putting some of your cards on the table helps. if a seller needs to unload the house and one of the offers is contingent on HSA funds, which require a more stringent inspection and often make the seller fix a few things, they might accept a non-HSA offer more quickly.

Renting makes sense to me too. But at the end of renting something, you possess only the right to leave and go rent something else. Homeowning is plenty risky and there are lots of unknowns, but it at least offers potential for return. No amount of renting is ever going to mean that you have a sizable asset that is, in a nontrivial way, yours. I know this is corny and way dadlike, but there it is.

― putting the laughter in manslaughter (Ye Mad Puffin), Monday, May 23, 2016 10:08 AM (1 hour ago) Bookmark Flag Post Permalink

One of the renting-over-buying arguments you hear a lot is that you'd get better returns investing the "leftover money" in the S&P. However most people don't have the discipline to do this, and buying is a kind of forced saving.

btw my experience with Zillow estimates has been horrible -- they have continually had my place at less than one third of what we paid for it, and keep decreasing the estimate. We're not in some overheated bubble area -- it's a very stable neighborhood with prices appreciating modestly over time, and we did a lot of research on the market before we bought. Redfin, by contrast, estimates our place around 16% over what we paid for it in late 2013, which seems right.

No amount of renting is ever going to mean that you have a sizable asset that is, in a nontrivial way, yours.

Eephus: in simple terms the difference between being pre-qualified and pre-approved is that with a pre-qualification the bank will assume the numbers you give them (income/assets/debts/etc) are true and give you a price range based on those numbers. With a pre-approval they will verify the numbers you give them and check your credit history before giving you a price range. If you just want a general idea at this point, a qualification is fine.

Important thing to remember is that they're telling you what they would be willing to lend you, not necessarily what you can afford. They may tell you that they're comfortable with you spending, say, 30% of your income on housing every month, but you'll have to decide for yourself if that much works with your budget.

tbh a lot of the maintenance/upkeep issues, which end up with neighborhoods kind of getting run down, are to blame on the traditonal white flight segment who now mostly trade-up and continually buy new or near-new homes and then sell around the time things need replaced

so your maintenance load is low, but you're leaving a path of cheap townhomes/houses behind you

not that I have seen this continually happen or anything

there is an entire suburban area where a few friends lived that had this issue. townhomes are nice as a first home -- not too much space, low maintenance, some things taken care of by the HOA. they then got completely screwed when trying to resell, due to the market for townhomes drying up (this was 2008/2009ish when the market crashed) combined with the fact you could buy a brand new townhome for marginally more money

a lot of areas turn into mostly rental properties after the original owners move, which brings its own stigma when you have a neighborhood of single-family homes that are all rentals. one friend was doubly screwed in that the HOA had a "no more than two renters while you own the property" clause.

btw my experience with Zillow estimates has been horrible -- they have continually had my place at less than one third of what we paid for it, and keep decreasing the estimate. We're not in some overheated bubble area -- it's a very stable neighborhood with prices appreciating modestly over time, and we did a lot of research on the market before we bought. Redfin, by contrast, estimates our place around 16% over what we paid for it in late 2013, which seems right.

Same for me. Who knows what formula Zillow uses, but the Redfin estimate checks out just based on my own observations of looking at comparable sales in the neighborhood/couple-mile-radius over the last year.

i'd guess it's marginally better now. one of my least favorite areas but that suburb is now the third-fastest growing city in the country?! xp

I tried looking my place up on Redfin but apparently they don't cover my area.

I think Redfin only covers large metros.

In the neighborhood I'm in now, a renter who in 2006 put the equivalent of a 20% down payment on a median house into a fund that tracked the S&P 500 instead would be up by $50-$60 thousand today

Yes, that's absolutely true. But is that what they did? I mean, was there really a huge bunch of people in 2006 who had enough savings to buy a house, but rather than doing so they invested their money in mutual funds?

Speaking just for myself, I must say: for most of my renting twenties, if I'd somehow happened across an extra $50,000, I would have spent it on trips to fun places. Then maybe some really bitchin' guitars. The thought of socking it away in an S&P fund in order to beat a theoretical alternate-universe "homeowner me" would just not have come up. And that's only the most SFW version of what I would have done.

I will be happy to hear it if there's really been a bunch of renters out there thinking, "You know what I could do with this huge pile of savings? Refrain from buying a house, and instead invest conservatively and bank the proceeds."

yeah, we're still only about 600K people in the expanded metro area. makes sense. xp

Good meeting I think? Definitely made me less scared of the process. Didn't launch pre-approval process but may do that after discussing with family how serious we are about buying this summer.

Yes, that's absolutely true. But is that what they did? I mean, was there really a huge bunch of people in 2006 who had enough savings to buy a house, but rather than doing so they invested their money in mutual funds?

That's pretty much exactly what we've been doing for the last 20 years but I don't know how common it is.

xp let us know if they give you a preapproval amount! I think some lenders are better about it, but when I went through the process and asked what my limit was they were still ridiculously open-ended

On a reasonable home, I feel like "maintenance costs" tend to be overstated - if your AC goes out it costs a lot of money, but most people are getting 15-20 years out of a home unit and for a big chunk of that you're warrantied. Shingle roofs are warrantied for 25-30 years except for acts of God (when your insurance steps in).

It's not like you're not paying those costs while renting, they're just hidden. A 3% FHA loan (even w/ PMI) is $2-400 cheaper/month than rent on comparable properties - $3-4k/year pays those maintenance costs pretty quickly.

*roof lifespan subject to geography and climate

They didn't give me a number. We basically gamed out a bunch of different kinds of mortgages at a bunch of different purchase prices and printed out a lot of spreadsheets and she said "here are some of your options, now you and your wife decide how much you want to spend every month on your housing and then let that be your guide about purchase price."

ridiculous, i am so glad i don't live in this place http://www.citylab.com/housing/2016/05/the-rise-of-million-dollar-homes-in-san-francisco-and-the-bay-area/483485/

I will be happy to hear it if there's really been a bunch of renters out there thinking, "You know what I could do with this huge pile of savings? Refrain from buying a house, and instead invest conservatively and bank the proceeds."

― putting the laughter in manslaughter (Ye Mad Puffin), Monday, May 23, 2016 9:54 AM (3 hours ago) Bookmark Flag Post Permalink

That's what I'm doing. I didn't manage to max my Roth limit last year but I've been shoving cash into Vanguard accounts as much as I feel like is safe. Probably I should move even more cash into funds but it's comforting to have a sizable cushion in checking, too.

My big aversion to home buying, that I have yet to be dissuaded from, is that I don't want my net worth to be dominated by a single leveraged and illiquid asset. From a value investing point of view, it seems just deliriously risky.

I invest in black t-shirts and consumer electronics mostly

One mistake that gets repeated a lot in the buy vs rent-and-s&p comparison is that you're not investing the price of your home, you're investing the down payment. So the proper comparison isn't home price appreciation vs the S&P, it's return on your down payment plus closing costs plus additional monthly payments for whatever time period you're looking at vs the S&P.

tbh if the interest rates are really low and PMI is reasonable, it's not a big deal to not have a large down payment. this is my bad financial advice, though.

yea i've heard that too, though ive also heard that a large down payment is competitive when buying in a sellers market

i mean kind of a different question though

tbh if the interest rates are really low and PMI is reasonable, it's not a big deal to not have a large down payment. this is my bad financial advice, though.

― μpright mammal (mh), Monday, May 23, 2016 4:27 PM (4 minutes ago) Bookmark Flag Post Permalink

This actually dovetails with what I said too, bc if you're planning to stay a relatively short time, you're potentially getting a bigger return on your investment with a lower down payment, assuming the price appreciates at all. Obviously this has to take into account any difference in interest rate, PMI, etc. that the lower down payment results in.

The longer you plan to stay, however, the more this reverses -- a larger down payment means less interest paid over the life of the loan.

think it was mentioned upthread, but thinking of a mortgage as a loan that has the house as collateral is pretty much right. if you live there long enough, you're gambling rent + maintenance against the price of homes in your area going up. pmi is basically the mortgage company asking you to pay a fee to prove you have skin in the game in lieu of a down payment.

but, like a car loan, if you maintain things poorly or sell too quickly, you end up underwater. the mitigating factor, again, being that it's nearly impossible to buy a usable car and resell it for more money later, which is why people think of homes as more of an investment and cars as more of a consumable good

idk why the seller would care about the size of the down payment, unless it's as an indicator that the mortgage paperwork will go through more easily -- that gets back to the HSA financing question, since HSA is more strict on the home being purchased and more likely to be used by people with a low amount of collateral

tbh you can also pay down your loan faster or refinance after a few years if you're staying instead of a hefty down payment

in other news, many more tree roots were pulled from my sewer line and things are a-ok here. going to actually be on top of things and have it cleaned out regularly from now on. my sewer line is pretty top-notch as far as condition goes, but the joints in one section have roots coming in. something about giant trees, idk