Got a Headache Yet? If Not, Then Get a Mortgage and Buy a Home!

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home buying process helpI just completed my first home purchase – a long and challenging journey that eventually had a happy ending. I have few regrets in becoming a home owner, but little did I realize that when I started my home buying journey a few months ago that things would be as difficult and meandering as they were. Here are a few things that I experienced/learned along the way that many current home owners can relate too and hopefully benefit some new or soon-to-be home buyers.

- Your real estate agent is NOT your best friend. I must admit that I had a pretty good real estate agent, who I found through a referral, but I think my wife and I got too reliant on her advice/recommendations and always assumed she was putting us first. For example, the people she hired for our home inspection were her contacts and ended up being expensive and doing a poor job overall. They missed a number of things which I had to end up fixing after moving in that I could have got the seller to fix before closing. In retrospect I should have found an independent home inspector who was more interested in my interests rather than making sure they didn’t jeopardize the sale for my realtor. At the end of the day, your realtor is a business associate; not your friend of confidant.

- A crash course in mortgages, interest, insurance and taxes. As a personal finance blogger I thought I knew more about taxes and real estate related finance than the average person. Well, I discovered there was a lot more to learn and despite writing several posts on the topic of home buying, I came across many new terms and documents that I had never seen before. You’ll ending up having to learn a lot of things when buying a home and my advice is to make sure you get any key documents beforehand, do some research online and don’t sign anything you don’t feel you understand. There is too much on the line and there is no such thing as a dumb question. You are paying a lot of money to your realtor, broker and banker so you deserve a prompt and honest answer to any questions you have.

- A not so good faith estimate. The good faith estimate (GFE) you get from various lenders is going to be one of your key documents when “shopping around” for the best loan and to know the true cost of buying your home. Every lender will prepare a GFE differently so make sure you do a line by line comparison of costs (and ask questions if you are unsure). Then use the GFE’s to make sure your preferred lender is giving you the most competitive costs – trust me the costs vary enormously by lender as they try and squeeze every dollar. Reading all the GFEs is the most likely cause of your physical headaches related to this process – especially for those who dislike all things financial – but it is also the source through which you can save the most money at closing and through the life of the mortgage.

- Money out and then more money out. One thing you will soon realize during the home buying process and soon after you move in (especially if you are moving into an older house) is that your cash flow will be largely going one way. Out. Home inspection costs, appraisal fees, agent fees, administrative fees etc, will all have to be paid. At some point you will just throw your hands up and question when all this well end. Soon I hope! But this is the reason for my next point.

- Add 20% to your estimates and for cushioning unplanned expenses. No matter how good your discipline and contingency plans, add 10 to 20 percent to all your estimates. This includes your maximum purchase price, closing costs and time to find your right home. Buying a home is a long, emotional and varying process so make sure you have sufficient resources to see you successfully through.

- Patience and relationship stress. If you want to test your patience and your relationship(s) then buying a home is the toughest exam. I know of a number of people who have spent months, if not years, trying to find the right home. Even with the recent drop in home prices and spike in foreclosures/short sales – many would be buyers have found it hard to get the home they want. Either it fell through due to bank issues or other buyers swooped in. I know one friend who has lost two houses in the last month on which he had contracts, only to see if slip through a week before closing. The other component of buying a house with your partner or relative is the stress of going through the searching, financing and closing process. I know my wife and I had many a testing time. Luckily it worked out and actually made us stronger (I think!)

- Moving into your home and repairs. Just when you finish dealing with the headaches of the home purchasing process, comes the frentic phase of moving. This requires you to change all your addresses, organize movers, end your lease (if renting) or sell your house (which you should have done before buying). All this happens within a few short weeks and before you know it, you are in your new place. Exciting – yes. End of all the hassles – no. There is dealing with the all the minor and major household repairs, especially annoying are the ones your overpriced inspector did not pick up. If you are not a handy man (like me), you soon learn to become one after seeing how much general contractors and tradesmen charge. I am sure all electricians and plumbers are millionaires given the rates they charge! In any even all the repairs mean more money out and any new home buyer stimulus I may have gotten has long been spent.

- A New Budget : One thing you soon discover, especially if moving into a bigger or first home, is that your budget will jump significantly. This is mostly due to the higher mortgage payment, but the costs associated with maintaining a house are also much higher than an apartment, townhouse or condo. So before you start out and to avoid more headaches along the way, draw up a budget (using my 25% inflation factor) to see what you can really afford to buy on an ongoing basis. Try and live that budget for a few months before buying the house. This will give you a much more realistic idea of the costs around running a household. Much higher than you may think.

I am still very much a new home owner, which means more challenges and learning experiences along the way, but until you actually go through the home buying process you can never appreciate how involved it is. Thankfully in most cases, the prize at the end and the satisfaction of owning your own place make it a worthwhile journey.

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