The Easy (But Still Smart) Way to Buy a House

Buying a house can be a terrifying prospect to the uninitiated but veteran home owner Mary Katharine Ham puts N00b Lyndsey Fifield’s mind at ease with a quick and dirty rundown of everything first time homeowners need to know—from surviving the cash-poor days following closing to what you should not forget during a home inspection. Buckle up Becky—it’s going to be great.

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  1. I Walton Member

    I wanted to hear this but they’re very long winded and all over the place.

    • #1
    • February 28, 2020, at 6:54 AM PST
    • Like
  2. Marjorie Reynolds Coolidge

    In my case the buying wasn’t too bad but the renovation oh my God. 

    • #2
    • February 28, 2020, at 7:56 AM PST
    • 2 likes
  3. Full Size Tabby Member

    Re having a supply of furnace filters – make sure you know not only the nominal filter size but also the actual size. I was surprised in our current house to discover that the slot for the nominally 20 x 25 x 4 filter is actually slightly smaller than 20 inches, so I had to look for filters that have an actual size of 19 7/8 inches.

    • #3
    • February 28, 2020, at 10:46 AM PST
    • 1 like
  4. Full Size Tabby Member

    Re initial house shopping:

    Understand yourself and how much renovation you are willing and capable of doing. I am incompetent at home improvement, so we have always looked only at move-in-ready houses. (I listened to this podcast just after returning from a trip to a landscaper to see about redoing our back yard, a project in which I do not intend to lift a finger other than to sign the check.) The HGTV shows make it look relatively easy to do some pretty major remodeling. But those are all professionals with extensive skills and experience, networks of contractors, and lots of tools and equipment.

    The one not-quite move-in-ready house we bought needed only new floor coverings and wall paint, and we hired someone to take care of that before we moved in, so the work was inexpensive. So when deciding whether a house in need of some work is a reasonable bargain because it’s ugly, pay attention to what’s easy and inexpensive. Wall paint, window coverings, and carpet are easy and relatively inexpensive to replace, and so a house in need of them may be a good bargain even for the not-DIY person. Kitchen or bathroom cabinets and fixtures are more complicated and expensive, so check your capabilities and budget before buying a house in need of those. And, as is clear from many of the HGTV shows, if you want a house that calls for moving walls or redoing plumbing, build into the budget lots of contingency funds, even if you’re going to do the work yourself.

    Also when selecting a house, remember that you can (eventually and with enough budget) change anything except its location. Listen for a noisy highway adjacent. Drive to and from the potential house at commuting times to see the traffic patterns you will face each workday.

     

    • #4
    • February 28, 2020, at 11:06 AM PST
    • 2 likes
  5. Full Size Tabby Member

    You girls mentioned the importance of not buying at the high end of your price qualification, and of budgeting for something to go wrong in the first few months of ownership. I concur (old guy me who has owned five houses).

    We always had houses well below what we could “afford.” That plus our absolute insistence on having at least six months living expenses in an easy-to-access account meant that we had no financial panic the two times I was laid off by my employers. We weren’t going to default immediately on the mortgage. That’s another reason to put down a relatively large down payment. The resulting lower monthly payment will be less of a challenge should your income take a downturn some time along the way.

    A story from ancient history for you yung’uns.

    Mortgage interest rates were 17-19% per year when Mrs. Tabby and I married in 1981 and went to buy our first house. But (at least in California, where we lived at the time) a house buyer could assume the existing mortgage the sellers had on the house. So, we bought a house that had an existing 13% mortgage and assumed that mortgage. We had a small downpayment. The sellers self-financed a second mortgage (at a 23% interest rate) for the difference between our downpayment and the value of the first (13%) mortgage. We were to pay interest only for 36 months, at which time the full principal amount of the second mortgage was due (balloon payment). Such arrangements were fairly common at the time. Most borrowers hoped that in 36 months interest rates would be lower, and that they would refinance the second mortgage and its balloon payment at a lower interest rate.

    We were so terrified of that balloon payment that we didn’t want to count on refinancing. So we put Mrs. Tabby’s entire paycheck into a special savings account to accumulate and be able to pay off that balloon payment without refinancing. We did.

    Saving to pay off that balloon payment also got us started on a pattern of saving very diligently. It also established that we could live on one income. So when we could adjust easily when we decided after our first child was born that Mrs. Tabby was best suited to be a full time homemaker and not participate in the paid labor force. 

    • #5
    • February 28, 2020, at 11:37 AM PST
    • 1 like
  6. Stad Thatcher

    Really MK, a workout on your wedding day? Are you nuts? Think “sprain” or worse if Murphy decides to pay a visit and enforce his law!

    Dave Ramsey: He knows people can rarely pay cash for a house, so he eases up on that rule. However, the two best things in his book are 1) the list showing the order of how to manage your money, and 2) the power of compound interest when you start saving for retirement early in your career.

    Lyndsey: every bathroom should also have a plunger. Just sayin’ . . .

    • #6
    • February 28, 2020, at 1:45 PM PST
    • 1 like
  7. Miffed White Male Member
    Miffed White Male Joined in the first year of Ricochet Ricochet Charter Member

    Stad (View Comment):

     

    Dave Ramsey: He knows people can rarely pay cash for a house, so he eases up on that rule. However, the two best things in his book are 1) the list showing the order of how to manage your money, and 2) the power of compound interest when you start saving for retirement early in your career.

     

    Pay extra principle every month. Every year, add more.

    For the last two or three years I’ve been increasing the size of our payment by $100 every January. In December we just refied into a 15-year. I did the math in a spreadsheet and assuming I modeled everything correctly, if I keep doing that we’ll have it paid off in 10 years.

     

     

    • #7
    • February 28, 2020, at 1:54 PM PST
    • 1 like
  8. Tedley Member

    Regarding the question about how to invest, I learned much of what I know on this topic from Morningstar. It provided a valuable foundation for a lifetime of mostly successful investing. Their teaching materials have changed a lot from when I first started using them in the early 90s. They now offer web-based training that covers the basics for free. For a few years, I also paid to be a premium member to access their more advanced training, investment research, and detailed investment ratings. Along with learning about investing, you can also track your portfolio investments conveniently on Morningstar’s website for free. Here are a few recommendations that help the average investor:

    • Invest by “dollar-cost averaging,” which simply means to put away a set amount of money each month, no matter what the markets are doing. When the stock market is down, you end up buying more shares of the investment, and then when the market goes back up, your portfolio value increases even more. 
    • Put the money into less-volatile investments that charge the lowest fees possible. These used to be mutual funds, but now exchange-traded funds (ETFs) are slightly cheaper. I’m entirely in mutual funds, specifically at Vanguard, because their products have no up-front charges, their annual fees are about the cheapest, and there are a lot of investment choices.
    • Maximize tax-favorable retirement investments, such as 401Ks or IRAs. If you’ll receive a pension, you can allocate less to these. 
    • Invest according to your age and investment horizon, since there’s a big difference between investing to retire in 40 years and investing to buy a house or car in 3-5 years. Retirement accounts should be left alone until you retire, so if you expect to have another big bill you need to save for, you can temporarily shift the balance between retirement and other investments until that bill is covered. 
    • The longer your investment horizon, the more aggressive your investment approach can be. While my first investments were very conservative in certificates of deposit, once I learned more about investing and remained employed, I was investing over 90 percent in stock funds. 
    • Do your investing passively by setting up automatic deposits from your paycheck or bank account directly to your investment accounts. This helps you budget by taking the money away before you can spend it on other things. 
    • By investing passively and using mutual funds, you don’t need to monitor your investments that often, quarterly to annually is sufficient, letting you focus on other things. 
    • Have an emergency fund of 3-6 months of income. The amount depends upon your situation. 

    I’ve used mutual funds as my primary investment vehicles and occasionally bought stocks when I had extra leftover. My 35-years of investing, which included big ups and downs, have validated the general rule of thumb that the earlier one starts investing, the greater the possible gains due to the miracle of compounding. 

    • #8
    • March 1, 2020, at 1:51 AM PST
    • 3 likes
  9. Max Ledoux Admin

    I Walton (View Comment):

    I wanted to hear this but they’re very long winded and all over the place.

    Have you listened to LadyBrains before? That’s sort of their schtick…. You don’t have to like it, of course, and I’m sorry it didn’t work for you. Thanks for giving it a shot.

    • #9
    • March 2, 2020, at 9:15 AM PST
    • 1 like
  10. Stad Thatcher

    Max Ledoux (View Comment):

    I Walton (View Comment):

    I wanted to hear this but they’re very long winded and all over the place.

    Have you listened to LadyBrains before? That’s sort of their schtick…. You don’t have to like it, of course, and I’m sorry it didn’t work for you. Thanks for giving it a shot.

    It’s like a TV series. Not every show is five star, but some of these podcasts had me in tears laughing.

    • #10
    • March 2, 2020, at 9:50 AM PST
    • Like
  11. Lyndsey Fifield Contributor

    I Walton (View Comment):

    I wanted to hear this but they’re very long winded and all over the place.

    Yup!!

    • #11
    • March 22, 2020, at 4:07 PM PDT
    • 1 like