When To Buy A Home And How To Avoid Screwing It Up

Are you hitting that stage in life where you’re thinking of becoming a homeowner? Morningstar has published two home buying articles that together offer some good, concise advice to the prospective buyer, especially if you’re a first-timer.

“8 Signs You Should Not Buy a House” may be a tough list to absorb if you’ve been turning a blind eye to immediate financial issues like credit card debt and savings accounts, but following this advice will put you in a much safer position for a new home. Once you’ve made sure it’s the right time to buy, “8 Home Buying Blunders” has some tips that should help protect you from unanticipated problems at closing or after you’ve moved in.

“8 Signs You Should Not Buy a House” [Morningstar]
“8 Home Buying Blunders” [Morningstar]
(Photo: Smath.)

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  1. Trulymadlyme says:

    Hm. The ratio thing is interesting. Considering that a nice two bedroom/two bath w/parking runs roughly 1800 in places like Bucktown and Lakeview in Chicago, it seems as though the market pricing ratio 425,000/21600= 19 percent. Does this actually mean pricing is actually in line? I actually suspect it’s not pricing keeping people from buying so much as it is fears of unemployment.

  2. Magspie says:

    They should add “be willing to back out if your mortgage guy changes the terms at the last minute”. Seems obvious but when you’re young and excited you can get seriously screwed.

  3. Cameraman says:

    Our current five year plan ends with “buy a house”. I don’t know where we will be living in five years from now- it depends where I find work- but my wife and I have resolved not to look for houses until we have all our credit cards paid off and we can put 25% down.

  4. JGKojak says:

    When interest rates are low, you put as little down as you can– 5% usually works. That’s why they have PMI.

    And I hate the snobs who like to pretend buying a house is complicated- its not any more complicated than buying a car. You shop around, find what you need (location, location, location) and make an offer. How freakin’ hard is that.

    • hills says:

      @JGKojak: I wish it were that easy! Seriously not a snob, but I’ve got the location, location, location picked out…. but can’t seem to seal the deal (outbid twice in the past 2 months)… It’s not that easy for everyone – I envy you! I’m looking for a house where I can stay put for maybe 20 years, so I think it’s a lot more complicated than buying a car!

  5. nnj says:

    IMO, I would first wait for prices to drop a lot more. Unfortunately we have become the “what’s my monthly payment” nation so the actual price of the house seems to matter very little to some.

  6. TheWacoKid says:

    I truly believe that FREEDOM is one of the most undervalued assets a person can have. Freedom to pick up and move to a new place if you want, freedom to change careers (i.e. perhaps take a major pay cut) if you discover that you actually hate what you are doing for a living, etc. And most of the time, renting (not buying) is more conducive to freedom than buying. So before buying a home, do some real soul-searching on how much you value freedom/flexibility because buying a home can seriously limit it.

    And I say this as a guy who bought a too-big (at the time) home before the boom, and lucked (timing-wise) into a 4.125% 15-year mortgage.

    • Scuba Steve says:

      @DGberg: Perhaps, but most places around where I live require a year lease with a 4 month penalty if you break it.

      Freedom indeed.

    • Jon Mason says:

      @DGberg: I look at it from the other point of view. Owning my home will (once it is paid off) give me freedom from:

      -Having to work a job you don’t like just to keep a roof over your head
      -Leases/tenancy agreements
      -Unscrupulous landlords
      -Rent increases

    • starrytrekchic says:

      @DGberg: For me, freedom would come with buying the house. Wouldn’t have to live under anyone else’s rules (landlord, roommates, family), I’d be able to decorate it how I please, arrange it how I please, put in a garden and fence the yard for the cat, etc.

      I find apartments very restrictive.

  7. sonneillon says:

    How much do houses cost in Candy land?

  8. AllanG54 says:

    And don’t forget…houses are great bargaining chips in a divorce. Been there, done that.

  9. sprocket79 says:

    Haha! I know that house! You can see the edge of it from the 101 in San Francisco! I’ve never seen it from the front, though.

  10. Mr. Bill says:

    I’m almost 40 and haven’t bought a house. We have lived in a duplex for 12 years since it was new. Landlord had only raised our rent once by $40/month. We are allowed to paint the walls, we have a garage and front and backyards. We have had the money for quite awhile, but don’t need anything bigger than what we have. And it keeps up from accumilating so much junk.

  11. craptastico says:

    on a semi related note, i’m looking to refinance my mortgage. right now it’s through wells fargo, my credit is good and i have 80 LTV, anyone know of a good place to look? anyone try lendingtree or any of the internet banks?

    • vorpal_hamster says:

      @craptastico:
      I have Wells Fargo and I did their “3-step refi”. You pay a tiny bit higher APR, but you don’t need an appraisal and there are no closing costs. The only catch is you can’t do cash out. They mailed the packet of papers to me, I signed them and took them to the branch to be notarized. No muss, no fuss. I dropped my rate from 5.875 to 5.325. It doesn’t sound like much, but it cost me nothing to do it.

      My main thing was to get rid of my PMI and escrow and realize the amount I had paid the loan down because I only put 8% originally. I needed to shrink my monthly payments in advance of losing my job and going back to school.

      Rent around here is about $750 for a decent 1/1 apartment. I think I come out ahead even after accounting for the higher costs of running a Victorian. I had kind of planned to die here in 50 years or so, but I never thought I would find someone that might change my mind about marrying again. Damn him.

  12. Starphantom12 says:

    I close on the 10th… spent a couple hours with my loan officer today to review the papers she’s sending to the underwriter tomorrow (email fee, right, that’s $75 you aren’t getting from me). Found an error in the numbers- $1,000 in builder credit that I wasn’t supposed to get, but did. Um. My builder might just let it slide at this point, which would be amazing. If not, we’ll go back to the numbers I budgeted for.

    This is a boring story. For the sake of stats: I’m 23, single, and I’m getting a ridiculously good deal between builder incentives and the tax credit. Also working with a realtor and getting insurance through USAA which is, as they say, TEH CHEAP ($18/mo if the quote is correct).

  13. UrIt says:

    @GitEmSteveDave_SavingsTime: i agree, but i like it!

  14. trixare4kids says:

    Chi@GitEmSteveDave_ Natural H1N1 Cure:

    I actually feel my eyes STRAIN looking at that paint job. Ye gods.

  15. floraposte says:

    @UrIt: I think I lived down the street from it in San Francisco years ago. About a block to the right of the picture.

  16. Chris Walters says:

    @floraposte: When I lived in Park Slope, Brooklyn, I frequently passed by this brownstone. I always wondered exactly how much the neighbors hated whoever owned it.

  17. hills says:

    @FatLynn: In general, I agree – but personally my husband & I are in the process of buying a home with 100% financing with a “physician loan” – if we had to wait until we’ve saved 20% to put down, then it would be a few more years to get a house we like – additionally, less $ invested in the house, more I have to put into other investments…..

  18. TreyWaters says:

    @FatLynn: Eh, like other commenters here, I’d disagree with the 20% minimum. I bought my house 6 years ago with 5% down, and my (now) wife bought hers at roughly the same time with 10% down.

    We both sold earlier this year, netting $30k in equity from her place (townhouses aren’t selling very well right now in our area), and $70k in equity from my place.

    Granted, we’re taking that money, and putting about 25% down on our new, bigger house. But as long as you’re not maxing out your affordability, I don’t see much merit in the %20 rule.

    Sure, PMI is a bad thing, but as Skankingmike said, the low interest rates can make up for the added PMI cost.

  19. Powerlurker says:

    @FatLynn:

    Why? The 20% down payment is to protect the bank, not you. If a bank is willing to finance more than 80% of the cost of a house at no penalty, why wouldn’t you take that deal?

  20. GitEmSteveDave_SavingsTime says:

    @Chris Walters: I don’t know. They say taupe is very soothing.

    (and the movie played twice this weekend and I watched it both times.)

  21. bairdwallace says:

    @Chris Walters: I remember that house. Did you ever see the ghostbuster’s car in the neighborhood?

  22. FatLynn says:

    @Skankingmike: If prices drop, and you have negative equity in your home, you can not sell the house if you need to. If you put money down, you have a cushion.

    I understand there are special circumstances if you are making more on interest than the cost of a second loan, but if you can’t save up a down payment, you probably shouldn’t be buying a home.

  23. PSUSkier says:

    @FatLynn: One thing you fail to take into account is the current interest rates. Yes, if prices free fall (which all signs point to they they won’t — drop probably, free fall no). However, you’re paying less in interest so if you plan to stay in said house for a significant period of time the drop in value right now will kill you less than higher rates in the future.

  24. Jevia says:

    @FatLynn: If you are planning to stay in the home for more than 7 years, then it shouldn’t matter if the value drops some if you didn’t put down 20%. 20% or more can be quite a lot of money in some areas, and take a real long time for people to save up.

    In my area, for example, a nice 3 BR house in a decent area is $300,000, so 20% is $60,000. My husband and I were saving up for a down payment at $2,000 a month and got $20,000 saved up before we bought. Yeah, we could have waited another 3 1/2 years, but I was pregnant with our second child and we really needed more room than our 2 br apartment. So we bought with 5% down, used the rest for closing costs. We’re paying PMI, and might have to do so a bit longer with the market flat, but our house hasn’t lost much, if any, value (just hasn’t gained anything), but we’re certainly doing much better on taxes (thanks to 2 kids and mortgage interest deduction).

  25. Skankingmike says:

    @FatLynn: so you’re saying unless i have 60k+ saved plus additional money for a house I should never buy a home in NJ?

  26. Eyebrows McGee (now with double the baby!) says:

    @FatLynn: I think we put down about 7%, and we pay about $200 less in mortgage (including insurance and taxes) than we’d pay in rent (and no insurance) … we can pay off the PMI and get to 20% equity on the original loan faster than we could have saved up the 20% paying rent.

    But we’re not in a bubble market, we bought less house than we could “afford” (aside from the down payment issue, which had to do with us being just out of school), and we intended to be here long enough to pay off the PMI even if we didn’t pay ahead at all. So it felt like a good decision for us, and it has worked out.

  27. Karita says:

    @FatLynn: There are many many people who can confidently say they won’t have to move in the foreseeable or distant future. If something does compel them to move, it’s likely a situation that makes a short sale or foreclosure seem like a non-issue.

    Being underwater isn’t a good thing, but if they are settled in an area, it’s not that big of a deal. They can just keep making payments and ride it out. I know quite a few people who are underwater, but aren’t concerned because they have low mortgage rates and no plans to move. Their houses are their homes, not their investments.

    If the buyer is getting a home that is too small, is an investment, or is in a neighborhood they aren’t sure about, 100% financing is bad. But in many, many situations, it shouldn’t be an issue.

  28. JulesNoctambule says:

    @pecan 3.14159265: The spouse and I have a house, but are more than happy to let our friends get waaaaaay ahead of us on the baby thing. Me, I’m thinking more long the lines of a Boston terrier from one of the local rescue groups.

  29. Eyebrows McGee (now with double the baby!) says:

    @pecan 3.14159265: It feels that way a lot, on and off — sometimes you feel way behind, other times you feel way ahead. Hard not to compare oneself to others, but easier if you don’t. :)

  30. samurailynn says:

    @Jon Mason: Unfortunately, inspectors don’t always find everything and they make you sign a contract that says they aren’t responsible for anything they didn’t find or were wrong about.

  31. GitEmSteveDave_ H1N1 Symptoms List says:

    @MostlyHarmless: Well, he did say BROWNstone.

  32. Traveshamockery says:

    @hillsrovey:

    In general, I agree – but personally my husband & I are in the process of buying a home with 100% financing with a “physician loan”

    So, in general you agree, except when it’s you?

    /has 100% financing too, but bought way below his means.

  33. tsume says:

    @TreyWaters: I just bought my house with 3.5% down and am having no trouble making payments. I would also have to disagree on the 20% down.

  34. TreyWaters says:

    @Skankingmike: FHA doesn’t call it PMI it’s called MMI :)

    Ah..thx for the info. It looks like it might be a recent change of name, though.

    When I bought my house (2003), I got an FHA loan, and it was called PMI for me. At least I only had to pay 2 months worth of PMI before the bank canceled it automatically. Who was I to argue? :-)