Worry Free House Hunting

Many people take shopping for a house far too casually. Others take it so seriously that they become paralyzed with the enormity of the potential purchase. The secret to shopping for a house without worry is to find the middle ground between these two poles.

House hunting is work. It’s not a hobby or something you do when you get around to it. If you’re serious about finding the right home for the right price you have to put in the legwork. You have to be on top of your game.

Many people, myself included, after months of looking at dozens upon dozens of houses and finally finding the right one in the right place for the right price, look back on the situation and say, “when the right house came along we just knew.” People use all kinds of lame clichés like that. There’s “you don’t choose the house, the house chooses you,” or other “you had me at hello” type garbage. None of this is true – it is simply a mischaracterization of what in fact happened.

I know this because no one I have ever heard of has said such a thing about the first house they saw. Or the second. Or the third. After seeing many houses, they had built up a base of knowledge upon which to make an informed decision. So when they say “we saw the house and we just knew,” they are really saying, “we had learned enough by that point to be comfortable making a decision based on all the available information.”

How did they learn? By looking at houses, of course! Nobody could “see a house and just know” if it was the first house they saw. There is no what they could be comfortable making a decision that immense with no other information, unless they somewhat of a simpleton. What happens over the course of your house hunting adventure is, you accumulate knowledge and realistic expectations and whatever misconceptions you may have had vanish. After a while, you become more confident and when you have the confidence to make the big decision you will know when you are looking at an ideal home.

Many people put of looking at houses as though it was the last step in preparing to buy a home. You research the area, you coordinate your finances, you research the market, and once all those ducks are in a row you start looking at homes. Well, I would suggest not putting off that step in that way for even a moment. If you’re thinking about moving, start seeing houses. If you’re thinking about thinking about moving, start seeing houses. You don’t have to hire a realtor, you can visit open houses or houses being sold by their owners. Just get out there and start looking. Build up that knowledge base. It is a tool you will fins invaluable once you are finally ready to commit to purchasing your home.

If you’ve read the first two posts, you have an idea how to approach the first part of this crucial home-buying duo:

• What you can spend
  
• What you can expect to spend
  

So now for the second part: What you can expect to spend on a house. For this I am sure you will make use of any number of online mortgage calculators and property tax estimators, but there are a couple other important elements to the cost of home ownership. You need to use your common sense and ask appropriate questions when looking at a home. Some can be addressed while looking at the listing of the home, while others will vary depending on each potential house.

Under the category of what you can expect to spend there are three parts. The first two are the cost of the mortgage and the normal home expenses such as property tax, insurance, and all the fees associated with the legal purchase of a property. I would hope you have already worked these into your housing budget in order to determine what you can afford.

I would just like to touch on the third part of spending, which are the variable expenses that you can expect depending on the individual house you buy. Just as importantly as with your mortgage and property tax, you have to have a plan for how you will cover these expenses. They need to fit within your budget if you are to live in your new home worry free.

Don’t be in denial about these expenses. For example, let’s say the appliances are older but not too old, and the roof needs replacing in five years or so. If you intermittently replace the appliances and then after five years replace the roof, you likely will have spent in the area of $12,000 in the first five years. The convenience of buying things whenever you felt like you could afford them is nice, but that doesn’t mean it wasn’t an expense, and as you look at houses you need to make an accurate prediction about what you will spend. $12K in five years is $200/month.

I’m not trying to scare you. I just want you to have all the tools you need to select a house that you will be able to live in worry free. Knowledge is power. In an upcoming post I will include a handy house-hunting form you can use to keep track of house details so as to best estimate this third type of expenses. With these estimates you will have a more realistic look at what the cost of each house will actually be.

As I touched on in the first post there are two variables you must know before committing to buying a home.

The first part is up to you. Get a real accurate picture of your financial situation and what you expect to be your financial situation. You have to be totally honest, too. Many people work with way too much denial. They say to themselves, “Oh I know we spend way too much money eating out but once we buy the house that will change.” Come on. Get real. You and your financial advisor will sit down and map out what you have and what you will have based on what you do, not based on what you say you will do. No harm can come from the truth – you just have to get real.

 What is the worst case, really? If you spend $4K or $5K a year eating out and that affects your housing budget, what’s the big deal? Maybe it’s worth sacrificing some square footage to enjoy your delicious thai food. I don’t know. These are the decisions you have to make based upon realistically looking at your situation. 

I can tell you this, unless you are born rich like Paris Hilton, there will always be compromise when you buy a home. In my experience and in my opinion these two statements are the gold plated truth:

•   The easiest things to compromise are your dreams.
•   The hardest things to compromise are your habits.
  

I know that wouldn’t make a real good Successorie™ but I’m just trying to be real. If you have to change all your habits in order to afford some dream home, is it really worth it? Maybe it is for you, who am I to say? But the important thing is to understand the cost to your lifestyle, and to question everything. Never assume you have to make a sacrifice in order to own a home. There are always opportunities to compromise. In many cases, if you simply let go of your fantasies, it doesn’t feel like a compromise at all.

Shopping for a house is a daunting task, especially if you are a first time homebuyer. There is a lot of home buying advice out there, but I thought I’d share some of my insights after being a house hunter myself. As one of the first in my peer group to go out on this venture, it was difficult to know where to turn for advice.

Should you listen to your parents about buying a house? I don’t know about you, but my parents bought one house in 1973 and have lived in it ever since. They’re not exactly on the cutting edge of house hunting know-how. But they do know more about home ownership than anyone else I can think of, and that is an important part of the equation.

It’s similar to cars – there is a cost to buy one and there is a cost to own one, and you have to look carefully at the numbers on both sides before making a decision. I’m not going to get into too much math in these articles, because it’s up to you to know your own financial situation. There are a lot of great tools on the web you can use to see what kind of mortgage you can expect and afford. I also expect you have spoken to your financial advisor about your decision to buy a house and he or she has helped you determine what you can spend, where, and when.

If you don’t have a financial advisor, for the love of God, get one. Are you seriously considering buying a home with only the expert opinion of the people lending you the money to buy your home? Even Ben Stein has a financial advisor. There are essentially two things you need before you can commit to home ownership worry free, and that is an accurate picture of two things:

• What you can spend
• What you can expect to spend
  

The first part of this duo is where your financial advisor can help you. Looking realistically at your accounts and your plans for savings, investing and so forth, he or she will be able to reasonably predict your ability to afford a mortgage, understanding what needs to be left over for all the related expenses to home ownership. A financial advisor will help you to see how home ownership fits into the larger picture of your investments. If you’re planning on spending so much on your mortgage payments that you wont be able to contribute to your RRSPs, your financial advisor will kindly explain to you why that is a bad idea.

So if you don’t have a financial advisor yet, get one. Talk to your friends and family and coworkers – get recommendations and ask about the benefits. Some people will say they have an advisor but aren’t really sure what they’ve done for them, others will be over the moon with praise. Find those people. Find that advisor.

This is about being worry-free, remember. Your advisor should help you to answer all those scary “what-if” questions and make all that worry go away. If you are worried, it is because you don’t know enough, yet. Get the answers you need about your own situation so you can have confidence and stop worrying. If you think the picture may be bleak, well, wouldn’t you rather know, so you can do something about it?

I know I would.