Home Buying: Lessons and Experiences

Saw a house we fell in love with in the middle of May; had the lowest offer among the bidders but a letter to do with FC Barcelona and FC Liverpool did the trick, went through ups and downs of inspections, contingencies, appraisals and about 12days past supposed closing date, signed the papers. Keys in hand and some celebration. Home Ownership, phew!

Signed a ton of papers; keys & celebration due friday. Home Ownership, phew!
Lessons learnt during this process:
  1. Get pre-approved.
    • This is absolutely step 1.
    • Don’t even dream about a house without doing this. If you want to just look around for the houses in your neighborhood, just register on one of the real estate sites like redfin or ziprealty; look for open house and just go visit.
    • Once you get pre-approved, which will be for a lot, reduce it by 40-50%. That’s what you realistically want to get a loan for. Or another rule of thumb, buy a house at a 3x multiple of the lower income individual of a couple. For Ex: If you make 50K and your spouse makes 40K, plan for 40Kx3 = 120K house. This is the maximum you can afford and conservatively, what you should buy. Again, this won’t apply if you have 100k saved up to be spent on the house. And most folks don’t do this ~ hence the housing crisis.
  2. Play with the numbers.
    • Here is some sample math:
      • Approved for: 600K
      • Sensible Loan Ceiling: $350K
      • Potential List Price: $340K
      • Overbids: $30K
      • Closing Costs: $30K
      • Total out of pocket costs @20% down: 68K + 30K +30K = 120K Now pair this down to your down payment. Again, this is not accurate math but to minimize your anxiety.
    • Closing Costs
      • This will be the biggest unknown in your whole endeavor. In our case, we had totally left flank issues like a Sewer replacement lien, prior tax bill lein etc.
  3. Searching for a house:
    • This I think is the most fun and exasperating part of the whole experience.
    • If you made a wish list of what you want, the house you find which meets all of those criteria will 9/10 times be more than what you can afford.
    • I suggest making 2 lists – 1. What you want & 2. What you can live without. Here is how our list went:
      • Single Family Independent – Nice to have
      • Townhouse – Nice to have
      • Front or Back Yard – Nice to have
      • Garage – Must have
      • Parallel parking garage – Nice to have
      • Fireplace – Nice to have
      • Attached Bathrooms in multiple levels – MUST HAVE (need distance to parents, lol)
      • Good School District – Need not have.
      • Again, this worked for us, won’t work for all.
    • Remember, just because a house in a nice neighborhood, in a great school district attracts 50 people to open house, it does not mean its great. For some reason 95% of the open houses we went to, there were people with kids
  4. Making an offer:
    • Make sure you always put in 3 contingencies. This will be 3 lifelines if things start going south.
    • Put in everything you want from the house in the offer. Normally, when you bid above the asking price, getting a few appliances for free will normally not be an issue. Put in the refrigerator, washer-dryer, dishwasher, microwave as a part of the offer. This will make sure you are covered for 6 months after the new house before you need to spend money on new stuff again.
    • Make sure you make up your mind right away on the type of loan Push your vendor to make sure this gets done in a day or 2. 80-20 conventional, 80-10-10 or FHA etc. Also, shop around even if you have a primary lender; 90% of the time, some lender would have closed something similar and things get easy.
  5. At closing, make sure you have 2 months of payments in the bank; about 5-10K buffer to cover liens or last minute additions. This should be apart another 2 months of living expenses. We cut it close and it’s just tension. Again, not a lot will so don’t worry, it will never be perfect, so it will be ok.
Here is a summation of how we did it:

1. We first started at the beginning of 2012. This would have been the best time to buy but we got an agent who was beyond our league who was intent on selling us a 800k-1M house. She flat out told us that anything less is a waste of time. We were so discouraged and we wasted some of the best times in the real estate age just stilling on our butts.

2. A close friend of ours closed a home after 8 months of a short sale purgatory and he encouraged us to meet his agent who was patient. This is the break we wanted.
3. Once we knew we had an agent we could trust, we nailed down our wants vs. needs and got to work. We made a list of just 3 must have’s – Proximity to San Francisco Downtown (<20mins by Bart); Less than 450K(without sweating, this is what we could afford and also pay monthly) and somewhere on the hills.
4. We nailed down 1 complex we wanted and a couple of neighborhoods we could afford. We just kept at it and closed it at the complex we wanted.
Here is something about owning a home that you will find out after you move in:
1. Move in costs are expensive if it is your home. You have to get it cleaned, carpet washed and a handyman hired to take care of small “stuff”.
2. Get ready to see a huge bump in your utilities. When we were renting, all we paid was rent and gas/electricity. Now we have to pay Mortgage, Taxes, HOA, Gas/Electricity, Water, Garbage. All together, our monthly costs increased by 2K. Now that is the true cost of owning a home. That said, I think it is still the easiest 100K you will make if you are able to sell at a profit. Plues the space you would otherwise not get.
3. Another method we are trying out is that for the first 3 months, we don’t want to buy/change anything i the house. Resolve of this is TBD at this point but that’s the idea. It’s like winning a lottery and not spending or having a fast car and not driving.
Here is a good guide on finical advice for someone starting off and with an indian background:
  1. If you are just starting to work, don’t buy a flashy car. This will be the easiest you will buy but the biggest drain on your finances.
  2. Buy real estate in India. Preferably land. Here is some math – Land is precious in India. It will always go up. The population keeps increasing and every 10years, there is a new working generation that comes in that wants land. Do this and you will have downpayment ready in the US in 2years.
  3. Max out your 401K. If its a couple and both of you are working, max out both 401K’s. You will be surprised how little your take home gets impacted even after maxing out.

Lastly, every experience is different. Just stick to what you can afford and things will work out.

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