On the market for a home in Austin? Here's what you should know.
When it was time to buy my first house, I wasn’t exactly prepared for all the surprises I’d encounter along the way. In fact, when I applied to be pre-approved, it was on a whim (let’s see if I can buy a house!), and I was half expecting not to be accepted. I was approved, and although I now had a specified purchase limit, and a certain, locked-in interest rate, once I got deeper into the process, I realized there was a lot that factored into my upcoming buying decision that wasn’t going to be dictated for by the nice, official document from our mortgage provider. So here are some things I wish I would've known before jumping headfirst into home buying.
1. DO A FULL CALCULATION OF WHAT YOU CAN COMFORTABLY AFFORD
Initially I played with online mortgage calculators to see how much I could afford, and was swept up in the big budgets I was seeing on the screen. Taking a step back I calculated how much I actually felt comfortable spending each month between mortgage payments, taxes, insurance, maintenance, and utilities (estimate what your water, electricity, gas, and garbage may cost), and ensured that the total of these items was no more than about a quarter of my gross income each month. What I could truly afford was quite a bit less than what I was 'pre-approved' to spend...I'm happy I dealt with disappointment then rather than the stress of a too-large mortgage payment later.
2. DON'T LOOK AT THINGS OUTSIDE YOUR PRICE RANGE
Austin is growing exponentially, and houses that were affordable in 2010 for the average Austinite are out of reach after years of double-digit increases in home values. I'm not looking to buy, but recently went to see a house that was solidly outside what I could afford, just for kicks. Twenty minutes later I was trying to figure out if it was really out of my price range, or if somehow I could stretch to make it work. You know how they say don't grocery shop while you're hungry? Don't look at a house you can't afford--it will only encourage poor decision-making and/or have you feeling defeated before you've even begun!
3. GET NOSY: TALK TO NEIGHBORS AND USE YOUR REALTOR
Talk to neighbors and ask them about the neighborhood. They won't hold back and they don't sugar coat things. They'll tell you everything - neighborhood drama, safety, the best and worst places to eat. It will help you make decisions as you debate location. The best relators are also your advocates. Mine searched public property records to find out whether foundation work had ever been requested for the homes we were most interested in. In one case, it saved me from putting in an offer on a home that had inadequate foundation support.
4. DON'T THINK THAT ONCE YOU'RE PRE-APPROVED YOU'RE IN THE CLEAR
My first house, I was buying in Austin in 2012; competition was fierce, so I got a pre-approval, rather than a pre-qualification. Pre-approval is a bit more involved and you need to supply the bank with a lot more information. I figured that since I was pre-approved the process of closing the loan would be simple. It was not simple. Be prepared early with all the documents you need -- before the bank asks for them. Because when they finally ask for them, they needed them like, yesterday, and your loan depends on it.
A good list to get started is: last two most recent pay stubs, last two years of W-2's (or copies of your tax returns if you are self employed), last 2-3 months of your bank and investment accounts, and letters of explanation for any large transfers between accounts or losses reported for a sole proprietorship or single-person LLC you own.
5. DON'T BE AFRAID TO MAKE AN ‘EARLY’ OFFER, OR TO NEGOTIATE
I searched for months and saw at least a hundred houses online and a dozen in person. After finding a great deal, I wasn’t sure whether to put in an offer right away. But since you can always take it back following an inspection, I went for it and made an offer on the first day the house was on the market, and before I’d pulled out of the driveway. After losing a couple of houses to earlier offers, I’d learned my lesson. After the offer was accepted, I got an inspection that revealed some work that needed to be done. My agent encouraged me to ask for the seller to pay for the repairs; they agreed, and the process saved me a lot of time and hassle.
6. DON'T FORGET ABOUT COSTS BEYOND PRINCIPAL AND INTEREST PAYMENTS
Closing costs, taxes, homeowner’s insurance, inspections, and immediate repairs can all take a bigger (and more immediate) bite out of your savings than you think, and can even make closing on your new home impossible. If it’s your first home purchase, you’ll likely only need around a 5% down payment to qualify for an FHA loan. But those loans do come with restrictions. Be sure to factor in private mortgage insurance (PMI) or federal mortgage insurance costs if you’re not putting down 20 percent to buy. How much could these costs actually be? A lot.
Closing costs can be 2-5 percent of the total cost of your house. And if you're not prepared for them, it can catch you off guard. You'll also want to be prepared to pay for any inspections, as well as any immediate repairs that need to be made before move in. Those trips to Home Depot really add up, so be prepared. In addition, plan ahead for requests from your mortgage provider to pay off long term debt, especially if you were close to the debt to income ratios necessary to qualify.
7. HAVE YOUR MONEY READY FOR CLOSING WELL IN ADVANCE
I had my down payment sitting in a savings account up until the very end, and it wasn't until a couple days before closing that I realized the money needed to be delivered at closing in a particular way. I barely had enough time to transfer it and get the cashiers check necessary to bring with me to the table. Once you find the right place and finish negotiating the offer, be aware that things can start moving very fast, so plan to have access to funds where and when you need them.
8. PAY ATTENTION TO THE DETAILS, AND DON’T BE AFRAID TO ASK QUESTIONS.
When applying for my first mortgage, I was offered a super-low interest rate, but it came at a heavy upfront cost in the form of points. I discovered that I could actually get a great interest rate that would cost me nothing up front, and that worked better for me, considering I wasn't planning to stay in the home long enough to recoup the interest savings that points are meant to guarantee. Then, after re-financing my first home, I almost lost out on nearly $2,000 in cash due to me because of a simple clerical error on the part of our mortgage servicer.
In both of these situations, the key to saving myself thousands of dollars was to go line by line on the itemized fee worksheet provided prior to closing, as well as on the HUD-1 closing statement to ensure I understood where the money I brought to the table would be going and why. It's up to you to be your own advocate if you do have questions--don't stop asking until you understand the documents to your satisfaction.
1. DO A FULL CALCULATION OF WHAT YOU CAN COMFORTABLY AFFORD
Initially I played with online mortgage calculators to see how much I could afford, and was swept up in the big budgets I was seeing on the screen. Taking a step back I calculated how much I actually felt comfortable spending each month between mortgage payments, taxes, insurance, maintenance, and utilities (estimate what your water, electricity, gas, and garbage may cost), and ensured that the total of these items was no more than about a quarter of my gross income each month. What I could truly afford was quite a bit less than what I was 'pre-approved' to spend...I'm happy I dealt with disappointment then rather than the stress of a too-large mortgage payment later.
2. DON'T LOOK AT THINGS OUTSIDE YOUR PRICE RANGE
Austin is growing exponentially, and houses that were affordable in 2010 for the average Austinite are out of reach after years of double-digit increases in home values. I'm not looking to buy, but recently went to see a house that was solidly outside what I could afford, just for kicks. Twenty minutes later I was trying to figure out if it was really out of my price range, or if somehow I could stretch to make it work. You know how they say don't grocery shop while you're hungry? Don't look at a house you can't afford--it will only encourage poor decision-making and/or have you feeling defeated before you've even begun!
3. GET NOSY: TALK TO NEIGHBORS AND USE YOUR REALTOR
Talk to neighbors and ask them about the neighborhood. They won't hold back and they don't sugar coat things. They'll tell you everything - neighborhood drama, safety, the best and worst places to eat. It will help you make decisions as you debate location. The best relators are also your advocates. Mine searched public property records to find out whether foundation work had ever been requested for the homes we were most interested in. In one case, it saved me from putting in an offer on a home that had inadequate foundation support.
4. DON'T THINK THAT ONCE YOU'RE PRE-APPROVED YOU'RE IN THE CLEAR
My first house, I was buying in Austin in 2012; competition was fierce, so I got a pre-approval, rather than a pre-qualification. Pre-approval is a bit more involved and you need to supply the bank with a lot more information. I figured that since I was pre-approved the process of closing the loan would be simple. It was not simple. Be prepared early with all the documents you need -- before the bank asks for them. Because when they finally ask for them, they needed them like, yesterday, and your loan depends on it.
A good list to get started is: last two most recent pay stubs, last two years of W-2's (or copies of your tax returns if you are self employed), last 2-3 months of your bank and investment accounts, and letters of explanation for any large transfers between accounts or losses reported for a sole proprietorship or single-person LLC you own.
5. DON'T BE AFRAID TO MAKE AN ‘EARLY’ OFFER, OR TO NEGOTIATE
I searched for months and saw at least a hundred houses online and a dozen in person. After finding a great deal, I wasn’t sure whether to put in an offer right away. But since you can always take it back following an inspection, I went for it and made an offer on the first day the house was on the market, and before I’d pulled out of the driveway. After losing a couple of houses to earlier offers, I’d learned my lesson. After the offer was accepted, I got an inspection that revealed some work that needed to be done. My agent encouraged me to ask for the seller to pay for the repairs; they agreed, and the process saved me a lot of time and hassle.
6. DON'T FORGET ABOUT COSTS BEYOND PRINCIPAL AND INTEREST PAYMENTS
Closing costs, taxes, homeowner’s insurance, inspections, and immediate repairs can all take a bigger (and more immediate) bite out of your savings than you think, and can even make closing on your new home impossible. If it’s your first home purchase, you’ll likely only need around a 5% down payment to qualify for an FHA loan. But those loans do come with restrictions. Be sure to factor in private mortgage insurance (PMI) or federal mortgage insurance costs if you’re not putting down 20 percent to buy. How much could these costs actually be? A lot.
Closing costs can be 2-5 percent of the total cost of your house. And if you're not prepared for them, it can catch you off guard. You'll also want to be prepared to pay for any inspections, as well as any immediate repairs that need to be made before move in. Those trips to Home Depot really add up, so be prepared. In addition, plan ahead for requests from your mortgage provider to pay off long term debt, especially if you were close to the debt to income ratios necessary to qualify.
7. HAVE YOUR MONEY READY FOR CLOSING WELL IN ADVANCE
I had my down payment sitting in a savings account up until the very end, and it wasn't until a couple days before closing that I realized the money needed to be delivered at closing in a particular way. I barely had enough time to transfer it and get the cashiers check necessary to bring with me to the table. Once you find the right place and finish negotiating the offer, be aware that things can start moving very fast, so plan to have access to funds where and when you need them.
8. PAY ATTENTION TO THE DETAILS, AND DON’T BE AFRAID TO ASK QUESTIONS.
When applying for my first mortgage, I was offered a super-low interest rate, but it came at a heavy upfront cost in the form of points. I discovered that I could actually get a great interest rate that would cost me nothing up front, and that worked better for me, considering I wasn't planning to stay in the home long enough to recoup the interest savings that points are meant to guarantee. Then, after re-financing my first home, I almost lost out on nearly $2,000 in cash due to me because of a simple clerical error on the part of our mortgage servicer.
In both of these situations, the key to saving myself thousands of dollars was to go line by line on the itemized fee worksheet provided prior to closing, as well as on the HUD-1 closing statement to ensure I understood where the money I brought to the table would be going and why. It's up to you to be your own advocate if you do have questions--don't stop asking until you understand the documents to your satisfaction.