Good advice, especially like the 8 hour rule.

The wife and I were going to put in an offer on a house a few months ago but something just didn't feel right, I was up all night and couldn't quite place it but didn't want to buy that house anymore. We talked about it the next morning and didn't get it...

Now fast forward 3 months and we are going to settlement next week on a home. This time no "night time jitters" or anxiousness, hopefully that's in our favor. I've always liked the "follow your gut" advice

My tip:
Your house will ALWAYS cost more than you think it will.

Closing costs will be higher than anticipated, taxes WILL go up, association fees WILL go up, something WILL need to be replaced in the first few years.

If i took all this into consideration when buying I would have rented for a few more years.

@mazzic1083: Didn't some study say that sleeping for 6-7 hours is healthier than 8 hours?

[www.livescience.com]
[archives.cnn.com]
[www.ncbi.nlm.nih.gov]

Had we known what was going to happen with the market, we'd have waited. Our condo was perfect for the two of us when we bought 3 years ago. But now with a baby, it's not big enough, and it's not a good time to sell. These are good tips though. We just didn't consider the 'bow to the unknowns' very well. I think we had tunnel vision because we were so excited.

Pretty good stuff.
Just finished closing on our first home together 2 weeks ago. It was a short sale that fell to foreclosure, but man what a good deal we got on the home.

One thing I would add to the list is that if you are ready to buy, and you know your price range, if you are looking at foreclosures and you are willing to put up with the headaches that they present, you can come away with an absolute steal. But you should be prepared to make an offer instantly - most foreclosures in this market go under contract in less than 24 hours after being put on the market. And be practical about the need to overbid - if the house is being listed for $100k, your budget is $150k, and the house is worth $150-$175k, don't be stingy and underbid. SOMEONE will overbid you and then you have to go through all the work to find another home you love.

We budget to save 3% per year of our home's original purchase price for maintenance, and waited a good 18 months to build that up before we began tackling projects.

I'd have to talk to the CFO (my wife), but we have a good year's worth in savings sitting in the account at any given time. When something needs fixing, I only have the hassle of getting it done, and not the worry of how to pay for it.

Plus, for some of these contractors, cash is king. It gives you the ability to negotiate a bit on the price and/or work being done.

I think I considered all of these tips, and then concluded that I really don't want to own a house right now.

Step 1. Consider your income
Step 2. Cry over how little income you have

I think "buy best" is something a lot of people forget. If you have a really cheap home that requires $20,000 in repairs, why not find a nicer home that doesn't require any of those repairs, but may be $20,000 more than the asking price of the cheaper home? The cost ends up being equal, and you don't have to go through the hassle of fixing things.

Bought a house three years ago. Could afford it fine. In those three years everything has gone up..HOA fees (though they don't do a great job, but want more money), taxes, etc..

My family increased by two and my job relocated me 2.5 hours away. Put the house on the market almost 14 months ago and no offers. Thanks economy!

@downwithmonstercable: We did "bow to the unknowns" and ran far, far away from home ownership. It's a great time to buy, but we don't have anywhere near the amount of money we need to buy a home (without using all of our savings). The homes in our area are really expensive, and we realized that in the span of half a year, we decided we needed to move closer to the city because of our work situations. We considered the future, and it was better for us to keep renting.

The place we left would have been perfect for a family of three, by the way. It was a rental though.

I'd add a few others, as someone who will be collecting the new tax credit this year. These are all good suggestions, but there are really only two that should get 90% of the attention.

-Buy a home because you need somewhere to live. It isn't an ATM or a bank, and so long as you can comfortably afford the payments the value of the house really doesn't make a difference. If your primary interest is making money (on paper) by seeing the value rise, you're not buying the right house.

-Find out what you can afford per month...and stick to it. Even now, realtors try to talk you into higher priced homes with unnecessary tax/deduction math. Find your comfort level per month and do the math to find out what that gets you on a 30 year traditional. If you don't follow the math and are trusting someone else to confirm "you can afford this house" then it's too much house.

And then lastly, if time allows, try to live making hypothetical payments before you decide to buy. Generally speaking a new home is more than you're paying now (either in rent or a smaller house) so set aside the difference for 2-3 months to really confirm it's doable before you sign.

I would add: budget no more than 25% of your monthly income for mortgage payments, taxes, and insurance. Any more than that and you'll have a hard time making the payments.

A lot of these tips I need to share with my wife. The two of us have done an amazing job of saving up our down deposit, but we're only 50% of the way there and she wants to jump in on a property way above our repayment range already. She's impatient and can't wait the extra 12-18 months it'll take to save up the rest of the downpayment AND put another 6-9 months of savings away as well. The 8hr rule becomes more like 24hrs in my case!

It is never worth it to pay more in interest soley for the tax deduction - you're getting at MOST 35 cents back.

@pecan 3.14159265: We are doing fine financially, we're just stuck in the situation now where we want a bigger home for a family that will be growing at some point in the future. We decided to have kids sooner than we originally planned.

You should reconsider buying though if it makes sense financially, because in the long run it's the best investment you can make.

@tsume:
LOL. I don't think that was the point of mazzic's post!

@Onion_Volcano: Man those HOA's are a bitch. Our is a comlete joke, and we're paying over $300 a month into them.

@pecan 3.14159265:
We've decided to wait as well, but our decision has more to do with waiting to make sure we want to commit to living together for a long time and less to do with income. We felt pressure to buy this year because of the tax credit, but we'd rather wait until we're sure it's the right move.

@pecan 3.14159265: And you factor that 20 grand into your mortgage, write off the interest at the end of the year, etc...

@jedthehumanoid:
Stand your ground (which it sounds like you're doing). Much like buying a car, it pays to do your research and wait until your finances allow you to be in control of the negotiations.

Here are a few more:

Don't buy until you have enough of a down payment to avoid having to pay mortgage insurance -- usually 20% down. If you can't save 20% down without a house payment, how will you be able to put aside any money for emergencies and repairs when you DO have a house payment?

Take out a 15 year mortgage if you can. When we bought our home nearly 20 years ago, paying the extra amount was a bit of a stretch, but now our home is paid for. We were actually able to pay it off early and that was back when interest rates were at 8.25%. If you don't want to take out a 15 year, make additional principal only payments at EVERY opportunity.

LOCATION LOCATION LOCATION. Many times, can buy a really nice, new home in a crappy location (near a busy intersection, or a dodgy area that hasn't been developed before for a reason, or behind a big box store, or in a lousy school zone, etc) for about the same as you can buy an older home that might need some updating but is in a better location. Think about how that new home will look in 15 years, when it will be an old home in need of updating. So if both homes were old, which location would you choose?

@downwithmonstercable: $300 a month in HOA fees? Holy crap! That's more than a third of my mortgage! Now I'm extra-glad that 'No HOA' was in our top five of must-haves when looking for a home, right under hardwood floors and a big kitchen.

@jedthehumanoid: Maybe you could try the tip enm4r suggests a few comments above--actually live for a few months as if you're already paying on the dream home and see how things work out budget wise. If you can force an artificial failure point on payments now, while it's just pretend, maybe your partner will find that home less appealing.

@ZoeSchizzel: Good points.

One to add onto paying down the principal: That nice, big tax return you get your first few years from deducting mortgage interest? Don't buy a big screen TV. Drop that right against the principal on your mortgage.

Radi0logy: We got a foreclosure too. Of course we had to budget for necessary repairs but we got the house for about 1/2 of what it sold for in 2001.

But yes, if you're looking at foreclosures have all your ducks in a row because once the bank gets a bid for roughly what they're asking, they will go to contract. If you see the house and you like it, put the bid in immediately.

Look at your home's area - past, present and future.

If the area has had a longstanding problem with crime, but you think it's on the up and up, consider how long that may take. There are areas in DC that have taken a decade or more to become relatively crime-free. Even if you're planning on living there for 40 years, do you want a good portion of that to be potentially spent dealing with a high crime neighborhood?

What projects and developments are planned nearby? Are the local officials and people in charge building playgrounds or juvenile detention centers? Both may be needed, but which one do you really feel comfortable living close to? You need to figure that stuff out before you buy a home.

What potential is there for the neighborhood to grow? And is the growth something that may help you in the future? Like the first thing I said, crime is a big problem in a lot of areas. If the neighborhood is on the up and up, great - but you have to weigh potential with realistic expectations. Even if you oppose big box stores, and having a Target, Wal-Mart, Best Buy and Costco in one shopping center may be something you don't necessarily want, but it'll be a help if you decide to sell your home.

@JulesNoctambule: That's the average we found when looking. Some places are less, but are either brand new (so no major stuff has happened yet to raise the dues) or total dumps. And it only goes up from there, especially depending on the city.

@downwithmonstercable: I agree that homeownership is important if one can afford it...we're pretty young, though, and don't have enough for a house, unless we're talking about a large shed in the woods. The fact that we want to live near a city means our costs have skyrocketed.

@pecan 3.14159265: Very good point.

Some people though prefer to just put in that sweat equity and make the home more theirs. I'm thinking like familes with members who are contractors as an example.

When my wife & I bought our condo last summer, we had already created a list of expenses (with my accountant FIL), so we knew exactly what our monthly/yearly costs would be, and we also created a small list of different mortgage amounts at different rates.

When it came time to look at homes, we knew what our max overall price was (based on income and what the monthly payment would be), and we also had a separate limit based on what our down payment money was. That allowed us to limit what we bothered to even look at, to avoid the animalistic urge to try buying something we couldn't afford.

Don't go look at houses, find something you like, and then try to justify paying for it by digging through your financial docs. Figure out what you can AFFORD beforehand, and find something in your price range.

On another note, condo HOA fees. I pay $245/month, but that includes exterior insurance, trash pickup, landscaping, security personnel at night, basic cable, water, pool, etc. If you add all of that up, you really aren't throwing any money away. It's all going to something that you'd end up paying for anyway, if not living in an HOA property.

@rpm773: That's a great tip that my wife and I were considering utilizing. I'm glad to hear someone else mention it

@downwithmonstercable: Speaking of the housing market, I'm kind of having tunnel vision right now; homes in my area haven't gone down in value for 30 years and mortgage rates are the lowest they've been in my lifetime. I feel like a fool not to be buying, yet am afraid of spending every penny I have on a downpayment. It makes me feel even more foolish when I realize I can buy a triplex with two renters and essentially live there for free as their rent would cover the mortgage payment. Guess I can't pass the "8-hour rule" yet....

@jaydez: Totally correct.

Although, in our case, we would add "And a car WILL catch on fire in front of your house, melting the siding, a week before closing, and the seller's lawyer WILL be an idiot, thus causing a delay of 6+ months to get the insurance check."

@enm4r: Great post! I totally agree with the "Buy a home becuase you need somewhere to live". My mother likes to complain how the market has hurt her home value, but I like to point out that she wasn't planning on selling and that she still has a place to live.

When I had purchased my home 1.5 years ago, I have to really thank my loan officer who actually never told me what I qualified up too. He had gone over with what I could afford a month and what I was confortable with a month and informed me of what price range to look for based on that. He never dangled the carrot in front of me tempting me for something that I really couldn't afford.

Another thing that I had opted for was to buy a house we could grow into. When we were house hunting, the realtor was showing a lot of "starter" home and we came to the conclusion that it wasn't worth it. We decided on a home that we can have a couple of kids in and could live there for the next 10-15 years if we wanted too, not a home that we would out grown when the first kid pops out.

Case in point, the house down the street from me, that my fiance and I had looked at before we bought ours. It was too small, only would have been nice for just us, no real room for growth. Turns out a future coworked bought the house a couple of months after we had decided to not buy it. He just had his first kid and he isalking about needing a bigger home already. Has been there for under 1.5 years.

@ZoeSchizzel: Yeah, we got a 30-year mortgage, but we've been paying it like a 15. We'll have it paid off early, but if something happens to one of our jobs we'll have the cushion of a lower payment we can fall back on for a while.

My parents turned a 20 year mortgage into 10 years, because there was a clause which allowed them to dump as much money as they could into the mortgage without any penalties...as long as it was on a particular day of the year.

So they saved for the entire year, every year, and put as much of that money as they could into the mortgage on that one day.

@bostonguy: Well, except maybe the landscaping, security personnel, and pool.

I really wish developers in my area would build basic (i.e. non-luxury), well-constructed condos with no bells and whistles that sell at a reasonable price. Not everyone needs granite counter tops and hardwood floors. Instead, there are tons of super-expensive condos with Assn. rates of $400+/mo. sitting empty while people flee the city looking for affordable housing.

@tbax929 is chilling in San Diego: I am mayor of off topic!

@ZoeSchizzel: While that's good advice, it's pretty unrealisitic for the average person. I'm not saying the average person should run out and get a subprime mortgage for a McMansion, but 20% AND a 15 year amortization are way out of the reach of the average joe. You're going to need to either save up for years, have a really high income, or severly compromise on size/quality/location of home to be able to pull that off.

@smirkette: Most HOAs include gym access and pool access, so if you were to only pay a HOA for trash pick up and water, you'd be on the hook to pay your own gym membership, which is pretty high considering most gyms make you pay more if you're a couple or you have kids. With a condo gym and pool, you pay the same amount whether you live alone or have three kids.

Visit house in heavy rain if possible before purchase. (Ask me how I know!)

Factor in a lot of expenses, especially if it's your first house - you will need hundreds of items you never even thought of.

Don't figure on doing a whole bunch of work on the place before you move in. Just move in, and live there a while. Give it a year or two before you decide whether you can afford all those upgrades that seem like a necessity. Your house doesn't have to look like HGTV, that's fantasy. You live in the real world.

@downwithmonstercable: Do babies take up much space? I thought they were small.

@Trencher93: And that funny smell in the basement isn't just from the house lacking fresh air.

@Trencher93: Agreed on both points! We were lucky and looked at our present home the day after a historic 3-days of heavy rains. So true about the expenses! Don't put all your savings into that down payment because you're going to need a lawnmower (depends), installation fees for utilities, curtains, maybe another lamp or two, radon abatement (!), new locks, etc. You can only get some of those second-hand, so be prepared for genuine expenses.

@mizike: Just wait until the next house price meltdown. Once the option ARM and Alt-A loans implode, and there are even more foreclosures, houses in your area will go down in price? BTW, where do you live? Even in my very nice part of the San Francisco Bay Area, house prices went down 10-20% recently and have only started to recover.

@halcyondays: This is a great idea but fairly unrealistic in most metropolitan areas.

@bostonguy: I don't pay for security personnel or a pool.

@clickertrainer: I agree, with a caveat. There are some things that would make a home completely unlivable, like mold, or cracked pipes or foundation. What you're talking about is more like cosmetic stuff, like whether the shutters tilt. Stuff like a new roof, when the current one is leaking, that's important.

The big trap that I saw co-workers fall for was the "Oh, we don't plan on living here very long" train of thought. Thus, they wound up taking out "exotic," for lack of a better word, loans such as ARM's and 5-year interest only/adjustable rates. They assumed that the property value would keep going up. I asked the, "what if situations change and you have to stay in the house?" They dismissed that at as highly unlikely. Now, they're all screwed.
Bottom line: If you are looking to buy a house, but are unwilling to stay in that house 5-10 years*, then maybe you ought to renting.

* What I mean is, it's a house that you don't like enough to want to stay in it, should things not work out for you to move in a shorter amount of time