Finding Your Dream Home (part 3)

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When you zero in on a potential dream house, drive out to it from your job at your normal time. I did not buy a townhouse in Virginia Beach for this very reason. When I went out with the realtor to look at it, we went at 11AM. It was lovely and such a nice, empty, quiet drive. When I drove out a few days later at five PM, that 20-minute drive took me 50 minutes. I didn’t buy the townhouse.

When you zero in on a house, ask about any damages to the house from radon, mold, asbestos removal, flooding, murder, meth labs, anything you can think off. Not every state requires full disclosure of any past problems so you have to ask. Find out about the school district. Ask about the crime rate at the local police station. Are any new developments or shopping centers being planned for nearby? Is the road in back of the house being turned into a limited-access freeway? You may not get answers, but you certainly won’t find out if you don’t ask.

Use your eyes and look around. Visit the house at various times of day and night. Does it seem what you want? Quiet, safe, low-key neighbors? Screams, sirens and gunshots? Vegetable gardens? People on the street who seem to know each other? Maintained properties? Broken glass and litter?

Does the house belong to a homeowner association? Some people really like being in one. But if you are serious about food gardening, chickens, compost bins, wilderness gardening, landscaping other than grass, small scale power generation via solar panels or windmills, clotheslines, running a home business, even putting up an American flag on a flagpole, then don’t buy in an HOA.

An HOA is a private organization and when you buy into one, you give up many of your rights to do with your property as you wish. The Supreme Court has said so by ruling that HOAs are private groups not regulated by the government. Most HOAs take extremely dim views of anything that, in their eyes, looks messy (such as vegetable gardens), reduces property values (a sculpture made from spare engine parts and swingsets), or lets the home owner show any individuality whatsoever (such as painting your front door in any color but the approved beige).

In exchange for the dubious advantage of having curtain-tuggers monitoring your life, you’re subjected to annual maintenance fees and a laundry list of dos and don’ts. Read the HOA manual very, very carefully before buying into a planned community. If you don’t like the rules, don’t inflict them on yourself or your family.

Why so much emphasis on taking care when buying the house? Because nothing can cost you more than poorly chosen houses and spouses, and they’re the kinds of decisions that we can make on impulse. Both can bankrupt you or lead your household to financial independence, safety, and security.

So take your time and go slow, when shopping for a house or a long-term rental. It is so much trouble and expense to buy a house. All of this time and care and work up front is to spare you endless problems down the road, problems you could have avoided if you hadn’t been in such a hurry. Since this house will be your permanent home, the one you get carried out of feet first, it is worth taking the time to do it right. Just as when selecting your spouse, you don’t choose the very first likely looking person you meet. Get to know them first and meet their family and friends, too. Pay attention to those red flags, whether it is the boyfriend being abusive to waiters or the house having cracks in the foundation. These problems don’t get better on their own.

Know, in advance, just how much you can afford. Realtors make their money by selling more expensive houses. They have to do just as much work for a cheaper house where the paycheck is smaller. If you don’t insist, in advance, on your price range, then you will be shown whatever the realtor thinks you can afford. Being able to afford a house means not just the monthly mortgage payment. It means the escrow to pay the taxes and the insurance as well. Frequently, ads imply only the actual mortgage, not all the other added costs.

Affording a house means being able to pay for the insurance, taxes, heating, cooling, lighting, landscaping, furnishing and decorating costs. Some of these are ongoing, such as the heat. Other costs are one time only like installing a four foot chain link fence all around the perimeter. Can you afford a new roof? A new kitchen? Repaint all the walls currently done in various shades of mustard and dirt? All that takes cash and it is cash you can’t spend on the mortgage or anything else.

Estimate what you can actually pay and then shop for houses that come in well under that cost. That allows for money left over to meet maintenance costs. It also means that if your income is cut for some reason, you have a better chance of still being able to stay in the house. Realtors love telling you that a house is a stretch now, but it won’t be in years to come as you get those pay raises. Pay raises may not come. You can never count on future income. You can only count on what you have now.

The bigger the down payment you save up, the smaller the mortgage payments will be. Smaller payments are easier to make and they are also easier to double up on. When you get your mortgage written up, make sure you can make extra payments towards the principal. Some contracts will penalize you for doing this so read those documents carefully and don’t sign the contract if you don’t like it. There is always another house. You lose all your negotiating power when you sign the contract. Up until that point, you can walk away. If the contract isn’t what you want, then be willing to walk away. There is always another house. Repeat this mantra to yourself. There is always another house.

A 30- year loan is set up to pay for the house two, three, or even four times over, depending on the interest you pay. Each payment is divided into principal (what you borrowed) and interest (what the bank earns). The payments are divided on a sliding scale so the first few years on a $500 monthly mortgage payment mean a principal payment of ten bucks and an interest payment of $490. That’s right: for the first year or so, you may pay less than $200 towards the truck load of money you borrowed.

Get an amortization schedule and read it carefully. In the first year of the mortgage, every single extra dollar you pay towards the mortgage will chop months off the life of the loan. An extra hundred dollars a month in principal during the first year may chop three or four years off of the total life of the loan. Put extra dollars towards the mortgage faithfully and you can turn a 30-year loan into a 20 or even a 15-year loan. Does this take self-discipline? Oh, God, yes. But the payoff is well worth it.

I know that plenty of financial planning people tell you that you should be putting your extra cash into the stock market via your 401K plan. After all, you don’t know if you are going to be living in that house for very long. However, only you know if you want to homestead in an area. If you are in an area for the long haul, all your relatives nearby, with the services and amenities that you like, then why would you rent? Unless you live under a bridge or you permanently couch surf, you have to live somewhere. Make it your own place, paid for in full, instead of paying rent on the same property for 50 years to a landlord. I had relatives who did this in North Dakota. They were forced to move when their long-term rental was sold out from under them.

What To Look For In A Property

So what else do we look for when buying a property?

Some people say they won’t buy anything old as they don’t want someone else’s problem. Other people figure that an older house will be better built. Certainly, a home designed and built before 1960 will be far more likely to have windows all around and in every room. No air conditioning meant that every single room had to have natural ventilation. Windows might be lined up to provide a through breeze, allowing the house to better cool itself.

oriented strand boardOlder houses are more likely to be built with nails and solid wood as opposed to glue, staples, and oriented strand board, a wood-like panel made of shredded wood glued together. Older houses may be built of real brick or concrete block. They tend to be in older areas, more walkable and closer to the center of town, with mature trees that shade in the summer and allow the winter sun to warm the house. Hardwood floors and solid wood windows are other pluses.

Newer houses tend to have better insulation. It isn’t that easy to add insulation to an existing house. It can be done and the insulation contractor will be happy to work with you on improving your house. If you do this, study up before you sign any contracts. Make sure you are sitting down when he tells you how much it will cost.

You can fix all kinds of things on any house. Roofs can be rebuilt, insulation and storm windows added, kitchens improved, storage of every kind added in. Gardens planted, fences erected, trees and hedges grown to provide sun and wind control. It is damn difficult to fix the location.

Realtors say the three most important things about any house are location, location, location and they are absolutely right. Number four would be buying more house than you can honestly afford on your salary. That can be just as damaging to your long term goals as buying a house that floods every other year.

Take your time shopping for a house. Go to every open house in your target area, including the ones for houses you don’t want and can’t afford. You are training your eye so you can recognize that great deal when you run across it. In the meantime, save up as much money as you can for the biggest down payment. Make lists of what you want your house to do. Need a home office? A sewing studio? A greenhouse? Room for a swimming pool? Extensive food gardens? Clotheslines? Chicken coops? Garage and workshop space? Storage space for a years’ worth of groceries? Space for a home based business? Every house you look at should be evaluated with the things that you want in mind. Take notes and photos as you go, so if you see a great idea like a Solatube, you can add it to your personal list of things to add in your own home.

If you end up in the lovely position of being able to choose between several equally good houses that you can easily afford, then you really have to make decisions.

Next Week: Picking a Winner