Buying a Home

Should I Buy?

Buying a home is not for everyone.  Its easy to lose track of the value you are getting back for the rent you pay and instead see rent as just a money pit.  Your money goes to property tax regardless of whether you are renting or buying.  When you rent, you are paying for mobility (easier to move areas), your time (repairs, being at home instead of work for repair people), and the reduction in emergencies (water line to the house broken? stop everything you are doing in your personal or work life and take care of it).

It is also easy to forget about some of the expenses that come along with a house.  The "buy or rent" calculators do not take into account upkeep, repairs, and replacements nor the upfront costs of stocking your home (from essentials like major appliances that it didn't come with or home and garden tools to less pressing items like furniture).

If you are looking for the benefits of a house (wanting to garden, a workshop, garage to work on your car) then renting a room in one is an alternative to consider.

Why I've been renting: I have too many interests for the time I have and I felt it important to streamline my life to minimize distractions.  As an example, one of the important criteria for choosing an apartment complex was whether they did proper auto-bill pay (some will regularly pull out a fixed amount of money and not handle the variable amount for utilities).  I found that the benefits of a house were far enough down my interests list that it was not worth the time and money overhead to attain them.  I do not expect a house to be worth it in this regards until I have a wife (if she wants it) and a kid (if she'd rather wait on a house like me).

Added to that is the recognition that a one-day wife's care abouts would probably be more important than mine.  I wanted to defer the decision until I had a wife so we could make the decision together.  We would also then be equally emotionally invested in it (I remember a friend talking about how her mother never really felt like their house in Austin was a home and my friend could sense it).

So why did I buy a house?  Back when Google Fiber was announced for Austin I started to consider the problems of property values going up in Austin, especially in the areas I wanted to live in.  I started browsing Zillow to get a feel for the market.  A week or so later I found a house that looked perfect for me.  That day it went on contract to be bought.  I didn't want to have that happen again so I decided to be more proactive and retain a real estate agent and buy a right house when it came up.

Searching For a House

My friend used a real estate agent to find the rental home I lived in with him.  He then used her again when he decided to buy a house.  So when I started my house search I went with his agent, Joleen at Pacesetter Properties.

Things that stood out about Joleen

• She did not rush me (we started working together in May and it wasn't until the following January that I closed)
• She was not pushy about loosening up my search limits
• She had a lot of helpful comments when looking at houses
• She put me first when it came to negotiating the price rather than her share.  She was upfront about her thoughts on people asking for too much, encouraged me to low ball for a house that had been on the market a while, and gave me a heads up that a seller was going to give her a bonus for me paying asking price (which was one of the asking prices she scoffed at).

When looking at houses, I broke down my criteria as follows

• Requirements:
• Affordabiliy
• 1980s or newer
• No HOA (most houses built in the 1990s or later will have one)
• Ease of biking / walking to work
• Not to change the congregation I attend.  In the LDS Church, congregations are defined geographically and we have a lay ministry.  I will probably only be in my current responsibility for another year or so but I felt a sense of responsibility to not be released from the responsibility early by moving.
• Nice-to-haves
• Open floor plan
• Plenty of counter space in the kitchen
• Decent sized bedrooms for roommates
• A neighbourhood or nearby park I would enjoy running in
• Single story
• Nice to haves that could be upgraded
• Four-side brick
• No carpet (carpet is much harder to clean)
• Maintainable fence material

When looking at houses, I made sure to check:

• How old the hvac unit is
• Is the water heater in good shape, etc
• Does the foundation have any cracks that you can see
• Are there trees touching the house (you'll want to get them trimmed or have owner do it before selling, it's a termite risk condition)
• How old is the roof (a lot of times the roof will have been replaced on older houses)
• Do the plumbing fixtures work (toilets, sinks, etc).
• Tax rate
• Quality of school

This is the time to decide at the high level that it is a house you want and what might affect the offer you give.  Texas has a really neat feature called an Option Period.   When you sign the contract, instead of immediately putting down the non-refundable Earnest Money (a couple thousand), you put down the refundable Earnest Money and the non-refundable Option Fee (about a hundred).  You then have ten days or so to get the house inspected and start a second round of negotiations to determine how much the seller or the buyer will be responsible for and this is added to the contract as an addendum.  You can either have the seller do the work and provide receipts or have them pay you to compensate for the work needing to be done.  Once the Option Period is over, the Earnest Money becomes non-refundable.  Just like the Earnest Money, the Option Fee counts towards the cost of the house and just like the Earnest Money, if you decide to back down you lose it.

I had both Zillow and my agent sending me notifications about houses coming on the market.  My agent had a wider geographical search area but Zillow was configured for a higher price.  My agent's site usually had listings first but it was clunky and Zillow had a lot more stats.  I had a good idea of what I wanted and so I had the freedom to be picky about what houses I went to look at.

One of the things I found is I started to prefer houses that haven't been upgraded for selling.  Some sellers did a good job with the upgrades.  It seemed like most did not and I disliked the idea that I might pay a premium for the upgrade that I wanted to tear out.

When I decided to make my first offer, Joleen had me come into the office to sign the papers in person so she could step me through them (subsequently we did it all electronically).   This is when I learned just how hot Austin's real estate market is.  Houses were being sold like a silent auction style.  The sellers wanted highest and best offers within a 24-48 hour of the house going on the market from which they'd pick.  No negotiating.  I even offered asking price + sellers costs a time or two and lost.

The hot real estate market made some people arrogant.  On one house I put in an offer and they considered it so low they wouldn't even counter it.  We ended up in a stalemate for a few days because I refused to come up if they weren't willing to show they would work with me.  Eventually I relented and went up.  They did counter it but I walked away not wanting to pay that and not wanting to deal with the drama (on the other end was a divorced couple).  I noticed on Zillow that they eventually lowered the asking price to close to my original offer.  Their loss.

One of the things that surprised me about the process was the fact that I never saw the sellers or even their agent face-to-face.  I can see it being good for keeping negotiations cool but it slows things down with the back and forth.

Buying a House

I had gone several months without looking at any houses.  The market had slowed down but it more so because I had gotten busier and was questioning whether I should take on the time commitment of home ownership as well.  Also I was starting to not get comfortable about the growth around here especially with the drought.

At one point I saw a house on Zillow that looked interesting.  It was right in the middle of some walking trails maintained by the city and near a large forested park.  The house was too large for my needs and the price was out of my range.  With how hot summer's market was, I was not used to thinking about the potential price from negotiating (which would still be higher than my preferred range).  On a Saturday during a holiday weekend I got an email from my agent pointing the house out and asking for my thoughts while recognizing the size and price were outside of my search criteria.  The following Monday we looked at it and the next day I made a low ball offer (it had been on the market for a while so there was a chance and Joleen encouraged it).  The family countered and then took my counter to their counter
Note: The bank will want an appraisal to verify if they are loaning you too much money. My appraisal came out $5k+ more than I am paying

When putting out an offer, you generally need pre-approval from a bank.  I had gotten one from a bank for the sake of having one and not because I intended to get a loan with them but by this point it had expired.  So I went with the first mortgage broker my agent had recommended who had to pass me on to Matt Spinn, a coworker of hers at Gold Financial Services.  The only competitive pricing I did was with ING Direct (well, now Capital One 360 but I'm living in denial).  ING had better rates and points (percentage of house paid upfront) but we had asked for closing in 30 days and the banks are making that tougher.  Matt had experience getting everything taken care of in the 30 days and I did not want to risk a faceless internet entity slowing things down in this case.

Things to note about loans

• If you put less than 20% down, you have to pay a fee called PMI until you hit the 20% (unless its FHA loan which might always require PMI I think)
• Unless you put down some undefined amount above 20% (Matt said 25% was fine for me), you will have to pay your property taxes to the mortgage company throughout the year and they'll then pay the county (one connotation of the word "escrow").  They charge a monthly fee for this
• Some banks are nice to work with but don't necessarily pick your mortgage company based on that.  Banks sell mortgages to each other multiple times over.

In parallel to that was my Option Period (described above in "Searching For a House").  For my inspection, Joleen had recommended Steve Cannon at Apex Home Inspections with Chris Nowling as a backup in case Steve was too busy.  My old roommate also used Apex but Steve was unavailable and he was pleased with Chris.  The reviews on yelp were good for both.  So I went with whichever was available when I made the appointment (Steve).  He performed the inspection and had me come over at the end to go over it with me.  He had a lot of great tips for what to do with the house.  I just wish I had recorded him because they were not included with the report.  I would have even paid extra for a repair recommendations report if they offered it.

I went with a house as old as me so I expected there to be issues.   So I started researching the various issues found (most maintenance is completely new to me).  I do have to say my internet research contradicts one of Steve's recommendations.  He points out that brick facade's need weep holes to let moisture out according to modern code.  He had recommended I just drill some.  From the research I did, it sounds like most inspectors give that tip and it is garbage.  Weep holes need to be made at the time of the facade so they don't clog it up and mess things up.

I made a report of the items that were surprises from our walk through (since the price negotiated so far in theory took them into account).  I ran them by my agent who gave some recommendations and we sent the contract addendum to the seller.  It came back with some items were crossed out which I was fine with.

Then came the waiting as the seller took care of repairs and I wrapped up financing.  In the mean time I was starting to collect tools on sale that I would need and ordered my fridge (appliance shopping I'll save for another post).  Towards the end things started to get crazy but I'll save that for another post.

In the end I went into the Title company's office, signed my money and life away, waited several hours for the seller to sign for accepting my money and life and receive the keys.

I am now a home owner.

Wait, what?