11 Things To Think About When Buying A House

by Mike Holman

Buying a house is a very difficult decision – there are large sums of money involved, the transaction costs and hassle of moving mean that you can’t just buy another house if you don’t like the one you end up with, and you don’t have enough information to make a completely informed decision. The best you can do is try to educate yourself in all aspects of the house hunt, keep a clear head and buy a house that fits your situation.

Here are some things for house buyers to be aware of when looking for a new home.

1) Location

  • How far is it from where you work? Can you handle the time/money involved in the commute?
  • If you have young kids or are planning to have them – how far from the grandparents from the house? They tend to be the best babysitters.

2) Budget

It’s nice to say “buy within your budget” but that might not realistic. Do a quick budget estimate, look at some houses that you might be interested in and then revise the budget or revise the houses. If you really can’t afford a house then don’t buy one. There is nothing wrong with renting.

3) Know your market

It’s critical that you know the market you are looking in. The asking prices for houses are often not indicative of their true value and the only way to be able to estimate a house value is to look at as many houses as possible. Take notes and find out what they sold for.

4) Don’t trust your real estate agent

I would suggest that most house buyers use an agent but keep in mind that although they may be very competent, their commission structure ensure a huge conflict of interest. Please read this post on why you shouldn’t trust your real estate agent.

5) Don’t end up house poor

Sometimes house buyers “fall in love” with a house or neighborhood or even just the idea of owning a house and they place too high a priority on it. This can lead to regret when the novelty wears off and you don’t have any money to do the things you like to do. Try living for six months on a “pretend” mortgage payment and see how it goes.

6) Take your time

Until recently, many buyers were afraid of missing out on future price gains or being “priced out of the market”. If you are renting and saving as much as you can, then you will be fine. Here are some tips for renters to be able to keep up (or down as the case may be) with their house owning friends.  Note – this one isn’t as relevant as it was last year!

7) Make a decision

Previously, I said to look at lots of houses to learn the market. At that point you should be able to purchase a house fairly quickly. If you are looking for the perfect house or trying to time the market then you will never buy a house. I know people who did ten year house searches which is a big waste of time. The reality is that you will be happy with a good percentage of all the houses you look at, so as long as you can eliminate the worst choices then you will be thrilled with your new home.

8) Don’t worry about the down payment

Yes, I know – it sounds pretty shocking in the sub-prime era to suggest that a down payment of less than 20% is acceptable, but in my opinion, the ability to make the mortgage payments is the main factor for affordability. In other words, it’s the size of the mortgage that matters. Of course you can get better rates with a larger down payment so it’s better if you have one, but don’t sweat it if you have a small or zero down payment.

9) Don’t blow your budget on renovations and furniture

Most people end up buying a house that has mortgage payments large enough that the buyers have to “make the payments fit” into their budget. While this is not the best way to buy a house, some of these buyers then make things worse by spending more money on renovations and house decorations. Unless you buy a total wreck of a house, you do not need to spend big bucks on renovations. You can live with the non-granite kitchen counter and the couch set that doesn’t fit the room perfectly. I don’t care if the house has full-on 70’s decor – you can live with it for a year or more until you can fit the extra expense in your budget.

10) Be careful of flip properties

There are people and contractors who will buy a house, fix it up very quickly and turn around and sell it for profit. The problem with these houses is that they tend to look very good on the surface ie nice paint, trim, granite counters etc, but on the inside they are pretty ugly and might have substandard electrical, insulation etc.

If you are interested in one of these houses then make sure they have closed permits and check with the inspector to see if their inspection notes. Better yet, just don’t buy one.

11) Don’t buy the perfect house

If the house is livable and you have a good life, then you will be happy with whatever house you end up buying. If you spend more money on a “better” house, then you will quickly get used to it and will be no happier than if you had bought an “average” house.

My opinion is that it’s just a house. The people inside are what make it special.

Summary

Learn as much as you can about real estate, your budget and your local house market, but be prepared for the fact that buying a house is all about compromise, incomplete information and a lot of doubts! If you keep at it however, the odds are very good that you will end up with a home that suits your needs.

Other posts

10 mistakes I made as a first time home buyer.

Be Sociable, Share!

{ 24 comments… read them below or add one }

1 Melanie Reformed Spender

In Canada, we can no longer buy a house with no down payment. The minimum is 5% (new government regulations).

2 nobleea

You have no idea what a short commute will do for your health, happiness, and bank account.

I got a map out, drew a straight line between my work and my wife’s work and then biked through all the neighbourhoods that were close to that line. Preference was given to locations that would have us driving against traffic during rush hour. We ended up in a neighbourhood that neither of us had really heard of before, but biking through it, we fell in love with the tall elm trees lining the streets and the large lots.

People get this notion that they need a brand new house and that’s something you can only get on the fringes of the city. Or that XXX neighbourhood is the only one worth living in.

3 Four Pillars

Nobleea – I’m all over the short commute – there is no way I would deliberately choose a long one.

I love your idea of bike riding around neighbourhoods – a much better way to get a sense of a different area (weather permitting of course).

4 guinness416

Your “people inside” point is on the mark. My house sure as hell ain’t the best in town, but it suits us fine now, and we can make it nicer. Plus it was $150k less than the mortgage the bank wanted to give us *hyperventilates*

To nobleaa’s point, one of my colleagues just bought a house in Whitby because “what you can get in the city just isn’t as much”. It’s really none of my business and far be it for me to tell her what will make her happy, but I think she’s mad! (Plus how much does it cost to heat those giant suburban houses?) But some TO locations are kind of crap too in my opinion – where my boss used to live there was no restaurants or shops within walking distance, which kind of defeats some of the purpose of living in the city, imho.

5 Thicken My Wallet

Isn’t avoiding being house poor and not sweating a large down payment contradictory advice?

If you put a little down, your mortgage payments will be quite large and your ability to have free cash at the end of the month limited. You end up with a nice house but not much cash to do anything else.

In a falling valuation market, putting a little down may also result in negative equity very quickly after you buy.

The privilege of saving to own property has been substituted with the right to own property with no cost attached to it. I am a big supporter to saving the proper down payment to buy a house. It will discipline you after you acquire one.

6 Four Pillars

Isnt avoiding being house poor and not sweating a large down payment contradictory advice?

No, it isn’t.

Being “house poor” or not is a function of how easily you can absorb your housing costs in your budget. A larger down payment does not reduce the mortgage if you buy a more expensive house.

If you have someone who makes $N per year – which situation will be they be more ‘house poor’?

Buys $350k house with zero down resulting in a $350k mortgage.

Buys $800k house with 25% down leaving a $600k mortgage.

Just because you have a large downpayment doesn’t make the house affordable.

7 Travis

We bought a house 2 years ago and still have furniture my parents bought for us at a yard sale, and the bedroom suit that came from my bedroom at my parents house. Hopefully we’ll have the money to change that this year.

But I see so often with our friends they go out and finance all the furniture thats in their house. My wife sometimes gets jealous but I keep reminding her that they’ll be paying for that a long time and we’ll be buying ours outright with no hefty interest charges.

8 Dividend Growth Investor

I disagree with point one about deciding your house location mostly so that it is close to your job. Unless you have real job security ( you are the only person developing aids vaccines or you are a university professor) you shouldn’t really stress too much about location of your home to your CURRENT job. What happens when you change jobs from the north side of your city to the south side? Do you sell your house in the north and purchase one in the south?

Now i do know from personal experience that being very close to your work is awesome. I used to live 3 minutes away from my work and I loved. Then I had to move to 30min to 1 hour commute and I hated it. But there’s no guarantee that my next job won’t be 30 min to 2 hours away..

9 Four Pillars

DGI – excellent point and one I hadn’t thought of (probably because I’ve been at my job too long?).

10 Writer's Coin

Got to disagree on the whole “don’t worry about the down payment.” Why pay more for something you can’t truly afford? It’s like buying a $5,000 sound system on your credit card because “you can afford the monthly payments.” That $5,000 will wind up costing you closer to $10,000 when it’s all said and done. If you can’t put at least 10% down, then you can’t afford the house “responsibly.” Unless you don’t mind paying up the wazoo for it.

11 Four Pillars

WC – what do the monthly payments have to do with the down payment? There are lots of situations where someone might be making a good salary but they haven’t saved much because they are paying off students loans etc.

My point is that the payments determine the affordability of the house – not the down payment.

When I bought my first house I only had 11% down payment but the mortgage payments were very, very affordable so I don’t think (and still don’t think) it was necessary to wait until I had 20% or 25% or some arbitrary number. I bought my second house with over 50% down and it was a big financial strain for quite a while.

12 WhereDoesAllMyMoneyGo.com

I’ve gone from an 8 minute commute, to a 30 minute commute to a whopping “110km on the 407 and it’s somewhere around a hour and 15 minutes commute which is murder on fuel costs and another $600/month in tolls alone”.

I think Mr. Cheap should put on a dress just for that.

13 nobleea

DGI;

It’s hard enough knowing what the weather is going to be like tomorrow, never mind where your next job is going to be. Make a decision on the facts present today and you’ll have no regrets. Who knows, you might get the house of your dreams and then find out the next day that the wife is prego with sextuplets and now you need a bigger house.

14 Nurseb911

Good post Mike,

My #1 tip when buying a house is having the ability to pay all expenses (mortgage, insurance, taxes, utilities) with one income. Too many families are now finding that they got approved on 30% gross, but now that they’re down to a single income family their affordability of their mortgage just went down the drain. My belief is still that if you can’t pay your yearly expenses with one of two incomes you’re living beyond reasonable means.

15 Four Pillars

Nurse – well I guess I should be ok since we are doing it all on my salary….only problem is that we are a 1 income household! :)

16 Mr. Cheap

Mike: you need to send your kids out to work at the salt mine to bring in some extra cash! Then you’d be a THREE income family.

17 wolfe222

My wife and I are in the process of selling our 2 properties in the Mtl area & moving to Ottawa to be closer to family.
All our friends tell us that the “market” isn’t right for us to sell and so forth… heck, if I listen to any one of them, its the worst time to take any decision!
The beauty of it all is that not one of them works as a real estate agent or can say that their finances are “in order”…
My wife & I took the decision and we’re moving! I’m quite sure that since we’ve taken the time to do our homework, everything will work for us in the long run!
All the best to everyone for 2009!

18 Mr. Cheap

wolfe222: If you end up buying comparable properties in the Ottawa area, then this is a great time to move (lower your capital gains if either of them is an investment property, and lower transaction fees – since the property values are reduced, agent commissions and whatnot will be lower too).

I agree with you: the right time to buy / sell you primary residence is based on your lifestyle, NOT on the market.

Enjoy Ottawa! Its a great place to live except for the summers and the winters ;-)

19 Aman@BullsBattleBears.com

wait, dont trust your real estate agent? then why bother having one at all? I’m sure not every agent is as bad as you described by your linked post (disclaimer, I’m not a real estate agent).

still, good list and a good read.

20 PennySeeds.com

I don’t care for real estate agents.. they’re as bad as the bank sorry. They get paid more when you purchase above your means.

I’m a do it yourself kind of girl, and I think I’ll be fine as long a I do my homework before making a purchase.

21 CharlieD

I onc e asked my dad what his biggest financial mistake had been. He told me that when he and my mom got married in the 50s, they had to decide whether to spend their nest egg on some furniture for a rental place or on a down payment for a house of their own. They chose the furniture (gone these many a year) and ended up not being able to afford a house – 4 kids later – until most of us were in our teens. I, however, ended up making basically the same mistake, and am only now, at the age of 47, working on getting a down payment together.

22 My University Money

Sign me up for the short commute bandwagon as well!

Ever since I read the chapter of Freakonomics about real estate investors, I can’t stand the thought of their hands all over my cash!

My number one tip is to buy a house rurally. Of course then you have to live a rural lifestyle which I know many people can’t stand. I purchased a 1,000 square foot house, and it is very similar to a house my friend purchased in Winnipeg, MB (not exactly the Vancouver market). I calculated that if we were to each pay 25 year mortgages (which I won’t and he will be forced to, but lets compare apples to apples), I would save myself about 300K over the lifetime of the mortgage.

23 YFS

#5 is the best tip. I recommend only buying a house if it takes up less than 25% of your net income

24 Shaun @ Smart Family Finance

“How’s the school district” is still one of the biggest considerations for those that have kids and it explains why many in the middle class lives out in the suburbs. Crime as well.

Leave a Comment

Current ye@r *

Previous post:

Next post: