Anyone with first time home buyer tips?

[normanvin]

There are several things to consider when buying. You will be responsible for all maintenance cost such as new roof, heating systems and such. there are also other bills renters don't have to worry about. Such as taxes, sewer bills "one for the sewer authority one for the township".

These are some of the things that can jump up and surprise a first time owner.

[RoyJackson]

I gave ChamberedRound rep points for his excellent post...but all the posts on this thread deserved rep points

I'll add two things I didn't see or missed:

(1) The sellers have to fill out a disclosure form. Make sure that happens and you read it.
If there is a defect they knew about, and didn't disclose, you have certain legal rights. If the roof leaks, it's quite likely the sellers purposely omitted it. Leaks are expensive to fix!
(in my case, there was an accidental death that should have been disclosed)

(2) If the house has a well, it must be checked for bacterial count. It does not have to be checked for minerals or capacity. Pay the $$ to have the well checked for both, or negotiate to split the cost.
During our closing, my wife heard the seller mention something about being able to do laundry now. I missed it...but it turned out our well would deplete (no water for a few hours up to a day or two). No water really sucks, and that fact should have been on the disclosure (but it wasn't). We considered suing. Ultimately, the well failed and I thought we'd have to put in a new well (major $$$$$$$$!!!!). We were lucky enough that well had room to drop the submersible pump 5 feet (or so) which resolved most of the problem. However, we are not in the drought situation we were when we bought the place. Another drought...we'll see what happens.

Good luck!
BTW, if you buy a log house, read about Carpenter Bees...

[Dave_n]

Some financial aspects. The mortgage interest deduction is not a reason for buying more than you can afford. A very simple test. Take your gross income and work out the percentage that the mortgage deduction would equal.

The median family (2 + 2) income in the US is a hair under $50K and the 90th percentile gross income is under $100K. The Fed tax rates are such that at the median, you end up getting about a 10% deduction (or looked at another way, you pay 90% of the interest) and even at the over 90th percentile, you end up at about the 20% mark, so you still pay 80% of the interest. Note before people jump, I am talking Federal tax rates.

PA has a flat rate system with effectively no deductions, which for somebody like me is excellent, but for a lot of people is not such a good idea. If you want to see how little people actually know about taxes, just look at the uproar over the original PA income tax under Milt Schapp when he tried to bring in a progressive IT.

The majority did not understand that they were effectively subsidizing the better paid in the Commonwealth) for which I and others like me have thanked them for years!!

The "so-called" interest deduction is something that you should not include in your calculation of affordability. Go back to the tried and tested, 35-38% of gross income should be the max amount of monies going out for all debts. If you cannot live within those figures, you will effectively be a pay check away from problems.

To avoid problems your credit scores should be in the 730-750 range and as mentioned earlier, put down as much as you can but make certain that you have cash in hand for at least 3-6 months living expenses. Check and recheck your credit records with the three credit reporting agencies, as any problems there will cause major problems in establishing a reasonable mortgage rate.

Where I am, I see young couples trying to live on incomes that are too small for the house that they bought. Save up, then spend.

Another point, never, never sign a contract unless it has a mortgage contingency clause in it. If the seller does not want this, then walk or better, run away from the deal.

As mentioned earlier, get a real estate lawyer on your side. There is an old rule of thumb, a cheap lawyer is worthless; get the best, as they can do in 1 hour at say $4-500 per hour, what the local "legal eagle" at $50-100 per hour takes a week to finish.

Another point, make certain that you live in an established school district and that there is not much room to expand the number of houses in the SD. A very large number of people bought in Chester County about 15 years ago and now find that their school taxes are through the roof as the "ankle-biters expand exponentially".

Good luck, Dave_n

[markshere2]

2 Most important points
1. Buy what you can afford, even if you only have one income.

2. 15 year FIXED RATE mortgage!!

Equity builds faster & total cost is much lower.

Mark

[normanvin]

Has any added have the property lines surveyed? It has happened that people has purchased property that was not properly recorded, only to find out the neighbor owned half of the new property.

[Dave_n]

Another point, get a standard 30 year fixed rate without any prepayment clauses. These can then be paid off in 15 years by adding a separate check listed "capital reduction" with each payment. The reason is that if something untoward happens whereby you lose income (pregnancy, layoffs etc.) you are committed to a 30 year not a 15 year.

Do not be conned (and that is what it is, a con) into an ARM, balloon or any other of the other mortgages out there. If you cannot afford the house on a standard 30 year, then you are not financially ready for ownership.

Ask for the title insurance to be done by a third party, not the lender. The third party will make certain that the survey and title are clear before issuing. Dave_n

[andrewjs18]

Thanks all, again.

I printed out all the key info and will look into all of it when it comes time to start looking for the houses....

right now, we're still looking into counties....I like Chester County, but I hear their taxes are insane..

can someone confirm?

a friend of mine lives in Coatesville and he said something about a local unearned income tax..at least I think that's what he said.

WTF is that?

[Dave_n]

Andrew:

There are various earned/unearned income taxes, business privilege taxes in all PA counties and in a lot of individual townships / school districts. These are liable to increase in the next few years as payment for infrastructure (including schools) is transferred from the real estate tax base to the individual.

A lot are directed at rental apts where there are large numbers of actual and / or potential children and income earners who pay a low percentage of the real estate taxes. Or think "Boomerang Families" where the kids are still living at home and earning but only one set of RE taxes for the home.

So a method of raising monies and reducing RE taxes, is to reintroduce a flat-rate income tax (think the Philly and Pittsburgh wage taxes!) where half goes to the school district, half to the county/township and RE taxes are held or decreased.

So the real words to remember are "caveat emptor" and check, recheck and then recheck.

Ignore what stories your friends and acquaintances might tell you. Go to the township / school district administrations and ASK FOR INFO on taxes both current and projected. These are items of public information and cannot be withheld though some patronage employees might try. Dave_n

[Dredly]

I line with what Dave said... remember that most taxes have an annual due date when they must be paid. Make sure you know what this day is before you sign anything! The last thing you need is to sign and pay for everything (closing costs, etc) and the get hit with a few thousand in charges afterwards for taxes.

when planning your finances remember that your mortgage payment normally includes PMI insurance (if you don't have 20% down), taxes, insurance... etc. I pay about 350 a month (give or take) in fees or and above the mortgage.

Also don't forget to plan for the rainy day stuff that always happens, water tanks / well, stoves, septics, roofs... all of them can have issues. If you are basically just breaking even every month an issue with anything can cause you serious issues.

When planning how much you can spend, remember that your GROSS income doesn't matter at all, your bring home is all that you should be looking at when attempting to determine your payments and what you can afford.


- Keep in mind the tax benefits when buying! We purchased our house it was in December and we ended up losing a load of income return because of it. If we would have bought the house in Jan / Feb our income tax return would have been 3 - 4k more

[Dave_n]

I beg to disagree with the previous poster. Gross income and no more than 38% for all debts. The "so-called" deduction for interest is for most people (unless in the 90th percentile of income), no more than 10-15% when the correct denominator is used.

Go and talk to your bank and see what level of mortgage (remember a 30 year fixed rate, no prepayment penalty) you and Christina qualify for. This will give you an idea of what price house you can afford before you fall in love with something that you cannot. It also gives you an idea of where to look.

Another point, gasoline is only going to go up. So assuming that you will be working where you currently are, then you need to factor in transportation costs. Look for good public transit or be close to somewhere where SEPTA regional rail runs.

The true cost of running a car is over $0.50 per mile. Look at what Uncle Sam allows for mileage (and I work for him!) it is roughly this figure and it certainly is lower than the real cost. Looking at it cold bloodedly, if you pay $25K for a car and run for 100,000 miles, then the fixed costs, irrespective of gas, insurance, maintenance etc., is $0.25 per mile. People do not take that into account when looking for places to buy. Dave_n