If you were going to design a bad investment, a mortgage on an owner-occupied home is very much what it would look like. There’s a high barrier to entry in the form of a whopping down payment and high transaction costs, including nebulous charges with names like “document fee” that have no actual connection to any reality. You’re then responsible for the house, including the upkeep, maintenance and paying the insurance and property taxes. The bank lending the money assumes no risk and they even get the money they lend you from the government, who also insures them against loss.
Despite the downsides, there are still times when buying is the preferred option, even recognizing the negatives. The good news is, with a little work, you can make buying a home a little less of a good deal for the money players and a little better deal for yourself. With housing prices going up five percent a year, anything you can do to tilt the odds in your favor is time well spent. In some markets not all of these tricks will work. In some places in California sellers are inundated with dozens of offers and it’s not worth to end up in a bidding war. You have to tailor this advice to the level of buying competition in the market.
Take Your Time
For many buying a home is an emotional decision and emotion drives the entire process once it gets rolling. You positively love that house and you don’t want to let it slip away. Getting in a hurry, focusing on just one house and forming an emotional attachment are all guaranteed ways to end up paying more. Unless you’re shopping in San Francisco, New York or Los Angeles, you should develop a long list of potential houses that hold your interest. Develop your own sources for finding listings. My wife and I missed out on a lovely property one time because we depended on our real estate agent for listings and it was way below what we could afford. We bought it the next time it came available on the market and fired our old agent.
Look For Rental Opportunities
Any that offer opportunities to rent or sublease part of the property should be nearer the top of your home shopping list. Being able to wall off and rent out a room or small apartment will be income available to help pay the mortgage. One L.A. area couple (okay, it’s my brother-in-law) converted their old pool house into a rental unit and added a separate gate for entry. You’ll also quickly discover that tax laws were written by landlords. You can deduct an amazing array of expenses as a landlord that you have to eat as a homeowner. Depending on the laws in your area, you might be able to make some extra cash renting extra space on Airbnb.
Shop and Negotiate Closing Costs
Negotiating with the seller can be tricky and in some markets that will tank the deal, but you can positively shop closing costs and negotiate those fees. Shop two or three closing attorneys and keep in mind that in many states, real estate brokers can also act as closing agents. Know your options, shop around, compare rates and then play them off against each other for your business. You can do this regardless of how competitive the housing market may be.
Get Your Good Faith Estimate Before Making An Offer
Once you commit to buying a property, it is a legally binding contract but the strength of that commitment will vary from state to state. The more information you have in hand before making an offer, the less aggravating the process will be. Your agent will be pressing for you to make an offer first and do the research later. It’s in their interest to get that process rolling downhill and get you to write that check for the earnest money. They’ll try to pooh-pooh any objections you have by telling you how many ways there are to unravel the deal. Don’t buy it. Get that GFE from the lender and understand exactly how much you’re paying before you make an offer. Don’t hesitate to shop for another lender if you don’t like the answer.
Just suggesting some of these things is frequently enough to earn an instant discount in order to keep your business. This is a process that’s rife with $100, $200 and $500 fees. A couple hundred bucks may not seem like much when it comes to keeping a real estate deal on the table but those fees can add up to a lot of money.