Real Estate Advice

So I'm buying my first home within the next few weeks. I've done a TON of research into the housing market (particularly mine), financing options, etc. But I've still got a few questions and, given the number of highly intelligent and successful people on this site, I'm looking for advice from some of my warpath brothers.

First, is there any sort of generalized formula for determining whether a house is a "good buy" based the home's assessed value?

Second, to what extent are buyer's agents useful? I know that buyer's agents owe fiduciary duties to their principals, but do such duties actually compel the agent to do what is in the principal's best interests given that their commission is based on the home's purchase price?

Third, how many home inspectors do people typically retain? Is there any way to determine if a home inspector is qualified, other than asking friends? For example, do they have certifications that might indicate that certain inspectors are more qualified than others?

Fourth, what is a good percentage of your gross income to spend on mortgage payments (including escrow)? I know this percentage will vary based on the individual and his outstanding debt, but is there a range for the "conservative" buyer and the less risk-averse buyer?

Finally, what kind of "hidden costs" can I expect to incur? Obviously there is the down payment, loan origination fee, and inspection fees, but what other fees can I expect to pay?

I dont know alot of the stuff that you are asking, but I have read up on the best type of houses to buy. In the Article it stated that you do not want to buy a newer home and have the market dictate to you how much you should pay. It said "instead, purchase a home that is a little bit of a fixer upper", that way you can make improvements on the home and dramatically increase the value of it. The article was in Maxim a few months ago. The person making these statements was some Real Estate Tycoon.

So I'm buying my first home within the next few weeks. I've done a TON of research into the housing market (particularly mine), financing options, etc. But I've still got a few questions and, given the number of highly intelligent and successful people on this site, I'm looking for advice from some of my warpath brothers.

First, is there any sort of generalized formula for determining whether a house is a "good buy" based the home's assessed value?

Second, to what extent are buyer's agents useful? I know that buyer's agents owe fiduciary duties to their principals, but do such duties actually compel the agent to do what is in the principal's best interests given that their commission is based on the home's purchase price?

Third, how many home inspectors do people typically retain? Is there any way to determine if a home inspector is qualified, other than asking friends? For example, do they have certifications that might indicate that certain inspectors are more qualified than others?

Fourth, what is a good percentage of your gross income to spend on mortgage payments (including escrow)? I know this percentage will vary based on the individual and his outstanding debt, but is there a range for the "conservative" buyer and the less risk-averse buyer?

Finally, what kind of "hidden costs" can I expect to incur? Obviously there is the down payment, loan origination fee, and inspection fees, but what other fees can I expect to pay?

I am not sure on the first 2 questions, but on the third question, when I bought my home 4 years ago, I needed to have it inpected by atleast 2 inspectors. One was a pest inspector, he just checked for termites mainly. The second inspector was a contractor. He basicly looked over my wireing, plumbing, and the foundation of the house. Unless the bank wants a certian type of inspection (e.g. pest controll) a contractor is pretty much all you need. As for being able to tell if one inspector is more quillified than another, I am sure that they may have certificates, but I am sure the certificates are pretty much the same no matter who has them. I would look to see which inspector has the most experinece or a fair amount of experinece.

And the only other hidden cost, or expected cost would be for a lawyer to research the deed to make sure that their is no lein or debts against the house. And depending on where you are buying(e.g. out in the woods or a place with alot of land) as the buyer you may need to pay to have it re-survayed.

Thanks guys for the advice. I appreciate it.

Hey, congrats on your first home purchase!:food-smil
With the line of work im in, termite and pest control, i deal with alot of real estate agents and do alot of termite and moisture inspections for real estate transactions. and being a homeowner myself, i can tell you its a great feeling being a homeowner.

Having said that there is no 'set' formula for determining a good buy based on assesment value. it all depends on the appraised value and comps in the surrounding area for similar homes. and remember its a buyers market right now.

Secondly, agents are a trying to get the sale done, and the good ones will do what ever they need too to look after your best interest. Yes they work on commision, but the difference between the asking price and the accepted offer/selling price is only going to be a few hundred dollars in or out of their pocket.

Third, YES!! get a certified home inspector. We have a couple around here who are highly regarded because they are very though. most of the stuff on a home inspecton reports are minor cosmetic things, but a good inspector might reveal something that needs to be addressed before you move in. check with several different agents and see who they would use if they were buying a house, but wouldnt want coming in if they were selling their house ;). as far as the termite and moisture inspection, its required in most states and the fee is on the sellers side, and by the way when you get your termite report findings and you have any questions, let me know, ill be more than happy to help anyway i can.

Fourth, the percentage that lenders are looking at has narrowed alot recently, do to it being a buyers market and all the forclosers, sorry but i dont know what that percentage range is right at the moment. but my motto is dont bite off more than you can chew comfortably right now. lots and lots of people get more house than they can afford with these 2,3,5 year arms or interest only loans and when that 2,3 or 5 years comes up they cant afford the payment. get what you can afford comfortably right now, and if you make more money 2-3 years later you can sell and get more house, or add a nice pool or addition or whatever.

Lastly, your closing attorney or title/mortagage company can give you every fee your gonna pay, itemized. this is something you need to really shop around on. alot of these companys charge alot of bogus fees. get total itemized quotes from several companies and compare. hope that was somewhat helpfull, and again congrats on your purchase. oh yeah, unless its a new or newer house get a home warranty, about 200-300 for a year to cover major repairs of appliances, hvac, electrical and so on. sometimes the sellers offer it or will if it means they have a deal or not. good luck.

Secondly, agents are a trying to get the sale done, and the good ones will do what ever they need too to look after your best interest. Yes they work on commision, but the difference between the asking price and the accepted offer/selling price is only going to be a few hundred dollars in or out of their pocket.

I've been a home owner since I was 22, I will tell you, agents are just sales people out for THEIR best interest. They will act like you are their best interest...don't be fooled. Go in confident, and offer low. Meaning...let's say the house is on the market for 200k, offer 180k. You never know who is desperate to get out. If they don't like it, they will make a counteroffer, or you make a counteroffer. My first house was a HUD repo, and they wanted 79k for it...I offered 53k and they took it without negotiating. I fixed up every room and redid the kitchen myself and I sold it for 110k 7 years later.

Fourth, the percentage that lenders are looking at has narrowed alot recently, do to it being a buyers market and all the forclosers, sorry but i dont know what that percentage range is right at the moment. but my motto is dont bite off more than you can chew comfortably right now. lots and lots of people get more house than they can afford with these 2,3,5 year arms or interest only loans and when that 2,3 or 5 years comes up they cant afford the payment. get what you can afford comfortably right now, and if you make more money 2-3 years later you can sell and get more house, or add a nice pool or addition or whatever.

That is great advice. Beware of ARM loans...I hate them, and never recommend them. Take the fixed rate, and if the market offers a great interest rate in the future, refinance. I went from 9.25% to 5.99% after I refinanced. ARM loans will kill you if you aren't paying attention and preparing for a hike.
A $400,000 loan at 7.5% interest over 30 years is $2,796.86 a month.
A $400,000 loan at 8.0% interest over 30 years will add $138.20 a month to your mortgage. Don't think that .5% matters? Think again.

Lastly, your closing attorney or title/mortagage company can give you every fee your gonna pay, itemized. this is something you need to really shop around on. alot of these companys charge alot of bogus fees. get total itemized quotes from several companies and compare. hope that was somewhat helpfull, and again congrats on your purchase. oh yeah, unless its a new or newer house get a home warranty, about 200-300 for a year to cover major repairs of appliances, hvac, electrical and so on. sometimes the sellers offer it or will if it means they have a deal or not. good luck.

One thing you need to look out for is PMI insurance. AKA Mortgage Insurance. I never have gotten a straight answer for what this is really all about...but it's the companies way of getting as much money from you as possible before you can't afford the payment anymore. (assuming they will need to foreclose on you) You can avoid PMI insurance by putting a down payment down that will make your loan to value under 80%. PMI insurance can cost you anywhere from $50 to $200 a month extra, and it's calculated right into the mortgage so you forget it's there. It's a scam if you ask me, but most everyone does it, so it's impossible to avoid it.

Congrats on the new home...I assume you are already approved for a certain amount at this point? If not, you need to find a lender that will give you a figure of how much they will lend you with how much you make. They have specific calculators that will calculate your debt to income ratio and then figure how much you can afford from there.
Nothing sucks more than looking at a house that you KNOW you want, then the financing takes MONTHS and then they tell you you don't make enough, or whatever. Get approved first!

1. A house is a good buy if a) you can afford it, b) it has what you are looking for in a house, c) it has no problems, d) in a decent neighborhood, e) you don't anticipate moving in the next 5 years. Basically, if it meets your standards and all your questions have been resolved.

2. Agents are completely useless POS when it comes to everything except helping you do the paperwork. Here in Seattle area the seller pays the cost of both agents so I hire one and I didn't have to pay her. There are good ones out there though who know of homes not listed on MLS. If you already have home in mind then you have room to negotiate with an agent. If you have to pay them then negotiate a discount. If your cost is 3% of the home value tell them you'll pay them 1.5%.

3. You are entitled to ask an inspector for reference. Also, when they are inspecting the home make sure you are there. Don't use an inspector referred to you by your agent. They will tag team your ass. Look for one yourself. I bough a new house so I hired one inspector. She was a nice old lady who crawled into every little possible places. Your inspector should do the same. Also ask them questions about the area they are looking at. Ask them the impact of weather when inspecting the exterior. Ask them about the ventilation of the house, heater, and air-conditioner. These guys get paid no matter what so if they are experienced one is probably good enough but then again it doesn't hurt to have another set of eyes look at the house.

4. Lenders see anyone whose debt to income ratio is lower than 30% as less likely to default. Ideally, you don't want to be living paycheck to paycheck after you purchase a home. If you do all the math you should be able to figure out what works for you. If you are pouring all your income into the house and have no savings left or money for fun activities it is time to rethink the purchase. In any case, it would be wise to take care of your debt before purchasing a house.

5. Avoid anyone that's talking to you about closing costs and other bullshit. I paid no closing costs. And the only fees I paid was $500 to an intermediary (can't remember what they are called) company to hold my down payment and facilitate the purchase transaction and about $200 in misc stuff such as paper work. Also, make sure to get your financing taken care of before shopping. I would recommend going to Bank of America and see what they offer. They are really straight up and they don't have hidden costs. Whatever you do go through a reputable bank.

ps. ARM is not all bad it is just that it allows stupid people who can't afford a home to purchase the said home. From an investment stand point you can't beat an ARM's interest rates. Also, if you intend to sell your house within 5 years, an ARM is a lot less costly than a fixed mortgage.

You guys are friggin awesome.

There is world of difference in INSPECTORS. Interview more than 1, or perhaps pay for more than one to be done?
You want the biggest, pickiest asshole in the state. They will want and suggest "their guy" who will the slimiest, loser that can be be bought.
That is how it was with my first house and I fought problems for several years after that should have been caught.
valuable lesson learned

Do not allow your agent (if you have one ) line up for the home inspector. The reason I'm saying this is because the Realtor wants to close on the home and if they use a picky inspector it will only delay or void the deal. Find one of your own that is working for your interest and not the realtors. I'm in the insurance business and I have seen too many times when the inspector from the realtor let way too much stuff slide. Insurance Co. may do a quick inspection of a home and I have had several policies rejected due to roofs, siding, and other stuff that the inspector did not list. One that comes to mind is a closing that my inspector rejected due to an old roof with curled shingles. The buyer said that could not be the case as the inspector listed that the roof was only around five years old. I went to check out the roof and it was in bad shape with a few shingles broken off lying in the gutters. Now there was about a 10x10 section that was about five years old but the rest of the home's shingles had no life left. I think that the termite inspection is manditory for most loans but are only around $150.00.