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Buying a House Part 1: Let's Go Shopping!

So you're interested in buying a house eh? Well boy howdy do I have a series of blog posts for you. This four part series will equip you, a first-time home buyer, with a bunch of knowledge I wish I had before starting my journey to buying a home.

Here's the road-map:

  1. Part 1: πŸ›’ Let's Go Shopping! in which we start looking for houses.
  2. Part 2: πŸ’Έ Show Me the Money! in which we buy a freaking house.
  3. Part 3: πŸ‘· Renovation Station. in which we live in the freaking house.
  4. Part 4: πŸ“ˆ Is This Investing? where we figure out if we made a huge financial mistake (or achievement!)

Hey, quick disclaimer

Some things I can claim to be an expert on: Docker, Linux, why my dog is making that face, etc. But with home-buying I am at best a novice, so please take everything you read here with a grain of salt.

I am just one lowly home owner in his mid-20s who bought a house during a pandemic. I got here through a bunch of privilege, support, luck, and the modest amount amount of hard work required to live a wonderful mortgage-filled life.

I am not a financial advisor, realtor, none of that stuff. I encourage you to do independent research, check my work, etc. Don't make any decisions based purely on this series. Please use it as one of many sources in your research before buying a house.

Okay, now we can get started.


So um, why do you want to buy a house?

Before diving into the home buying process, let's ask an annoyingly simple (but annoyingly effective) question: "why?"

There's a million reasons to want to buy a house. A few that come to mind are

  1. You want more space or a yard.
  2. You want an investment.
  3. You want to be in a residential neighborhood.
  4. You want to fulfill the American Dreamβ„’.

Now none of these require you to buy a house. You could rent a house to get more space, invest in high yield assets to make passive income, etc. but a house tends to check all these boxes.

My fiance (now wife) and I we were living in a small apartment before buying a house. This apartment was perfect pre-COVID. It was a 10-20 minutes walking commute to work, centrally located, and big enough to sleep, cook meals, and rest while being young 20-somethings living our best lives.

When COVID hit we though we could muddle through in the apartment, but around the 2 month mark we thought:

Hmm, this isn't gonna be the "Come on Morty. Just two weeks, we'll be in and out. Just a little pandemic to spice things up." thing that we thought this would be...

We looked for house rentals, but while there were hundreds of houses for sale there were almost no houses rentals available in the Portland area. I was always resistant to buying a house, but after realizing it was a reasonable financial decision we got started.

This is where our home buying journey begins.

Let's triage

Before buying a house, or even visiting a house, you should go to sites like Zillow and Redfin to get a lay of the land. They both have basically the same home listings, so choose whichever site has a better interface for you. This goes without saying though; you found this obscure blog post so you're probably deeply familiar with all the different home buying sites. I promise this series will start saying less "yeah duh" stuff in the next section.

We knew roughly what neighborhoods we wanted to live in: East Portland with a bias toward the Tabor neighborhoods. This made it quick to narrow our search and skip the existential question "where in the world do I want to live?" I'm sure some people confront.

Money talk

Once you have a feel for the housing market in your target locations, check in with your finances.

A big wad of cash

Buying your soon-to-be house will require a down-payment. This means you'll need a very big pile of money very soon. Figure out what your liquid assets (savings, non-retirement investment accounts, dubious favors you can call in) talley up to. This is the max you could use for a down-payment.

Down payments tend to be 20% of the purchase price of the house, and houses are hundreds of thousands of dollars, so... yeah that's a lot.

For example:

  • If you have 20k in usable assets, you can afford a down payment on a 100k house.
  • 84k usable assets? 420k house.
  • 13.8k usable assets? 69k house.

Nice.

This sets an upper-limit on which houses you can afford. Hopefully this upper-limit lines up with median home prices in your target neighborhoods.

A smaller monthly wad of cash

You also need to consider the monthly cost of your potential home. Ideally you only spend up to 30% of your monthly income on living expenses. This means your house (with utilities) costs no more than 30% of what you take home. Some of you may be laughing at this because it is in fact an outdated metric that has not kept up with inflating home prices. Don't worry, we'll cover how terrible home prices are in a later installment.

The 30% rule says:

  • If you take home 2k/month (roughly a 30k/year salary after taxes) your housing should cost no more than 600/month.
  • 5833/month (100k salary) take-home? 1750 housing expenses.
  • 11452/month (200k salary) take-home? 3435 housing expenses.

But what does that translate to for home prices? You don't pay for the whole house up front (the bank does that). Instead you pay for it in monthly installments with interest -- which is hard for me to intuit. Skipping some prelude:

  • If your house is 100k, you put up a 20k down payment, and you acquire a 30 year loan with 4% interest, your monthly payment will be ~587.
  • 200k house, 40k down, 4% interest 30yr loan? ~1070.

With these numbers, as the price of the house goes up the monthly payments go up sub-linearly. This means so a 400k house is a little less than 2000/month, ec.

I have no idea how to calculate these numbers by hand, I always use a calculator... https://www.zillow.com/mortgage-calculator/.

Once you have established you can afford both the down-payment and monthly payments now we can start shopping!

If prices in your target neighborhood are out of reach, explore other candidates; neighborhoods near your targets, or even the 'burbs. Also if you just like shopping for homes for the kick of it, because shopping is fun, power to you.

Get yourself a realtor

A realtor is like a lawyer. You never want one, but they are incredible necessary for some of life's biggest shit.

We were #blessed to have a family friend that was an active realtor; her name is Mary.

The relationship we had with our realtor was like this:

  1. Every week around Tuesday we would send her a list of houses we wanted to see. Between 5-10 houses every week.
  2. Occasionally she would also find a house she thought we would be interested in.
  3. The first week she picked about half the houses to get a feel for what we were interested in, and we brought some we found on our own.
  4. She would drive us around to these houses, because we refuse to buy a car and she is very nice.
  5. Mary would schedule a time for us to visit the house, around 30 minutes per house, during this time we were the only ones in the homes.

As a card-carrying realtor Mary had special privileges not given to us normies, and information not found on public sites. For example:

  • Mary had a list of things disclosed about the house like "It's very full of asbestos" or "It's full of radon" or "The roof caved in last year, just fixed". Info you would want to know before putting an offer on a house.
  • She also had access to some cloak-and-dagger shit that let her into all of the houses on the market. Ever seen a lock-box on a for-sale house? She could open that lock-box and get the key out with an app on her phone.
  • She also knew how to fill out the copious forms needed to put an offer on a house, but we'll get to that in the next post.

So. Many. Houses.

In total we were house shopping for about 5 weeks. We averaged visiting 10 houses per week, doing 1 to 2 trips per week and visiting 6 houses per trip.

We saw a lot of houses. Some great houses in safe boring neighborhoods far from where we wanted to live. Some terrible houses that people kept calling "fixer-uppers" like they were in the pocket of big shitty house.

A lot of houses that were great except for like... one really important thing. Some houses had a great location but were too small. Or the house was the perfect size but too far from our target location. Or the price and size were good but the neighbors were burning a literal pile of trash and they were like... very good at it, implying this wasn't a one-off thing.

My point is, there were a lot of houses. A lot that were good, many more that were non-starters.

The first week or two was basically a mulligan. So many houses are so bad you start to think all houses are bad and you trick yourself into settling. DO NOT SETTLE. This is a huge freaking purchase, grind it out and you will find a house you like. It might be at the upper end of your budget, or it might be a little bit of a fixer upper, but you'll know the perfect house when you find it. And you will definitely know when it's not the right house.

Getting on your knees and asking the bank for a pre-approval

At this point in the story we haven't bought any houses yet, but before you are allowed to think about buying a house you need to get a bank to say "Yeah they're good for it". This requires asking a bank pretty please, giving them like 3 years of financial, employment, and credit records. If you're buying this with a partner they need to do the same thing.

In our case we tried to get a super cheap loan but we were told our offer might get rejected if we didn't have a "local loan" meaning a loan provided by a local Oregon company -- what year is it 1980? In the end all of our loan options were super cheap, even the local ones, so we shrugged and told ourselves the cheapest loan probably had a bunch of closing fees that would basically cancel out the higher mortgage rate.

A fun fact about the loan process is that you get pre-approved for a loan up to some amount, which is used to put an offer on a house. Once the offer is accepted you get the real loan for whatever the final loan amount ends up being. But we're getting ahead of ourselves.

The offer process

At some point you'll make an offer on a house. This might sound like we're buying a house, but trust me there are a lot more offers on houses than there are sales on houses.

When you put in an offer on a house you basically roll for initiative and if you get a Nat-20 it gets accepted. You should still treat every offer as if it were to be accepted, because you can roll a Nat-20 on a persuasion check with a rat just as often as slaying a dragon. Offers are accepted and rejected basically at random, but each one is important and should be treated as "the one".

When putting an offer on a house you fill out a bunch of complicated legal-ese forms with your realtor. Taking your pre-approval you decide on an offer up to your pre-approval limit. In Portland right now we need to offer way more than the asking price which is bullshit and I hate it.

You also fill out a bunch of details like when you want the sale to be complete (30 days), weather you're planning on doing inspections (yes), and how much money you can put up before your down payment. That pre-down-payment is called Earnest Money and it's often between 2k and 10k, it counts toward your down payment, and it can be refunded if the deal falls through.

It's a marathon, pace yourself

Lucy went into this expecting that buying a house was like buying anything else. You find what you like, offer a fair (or listed) price, and boom you get it.

Unfortunately housing is not like buying a phone, or basically anything else most people spend money on. In Portland at least supply does not match demand, so prices are not only higher than they ought to be, but the prices are also full of lies. The asking price is often 10% below the final price -- if you're lucky! Plus your offer on a house may be rejected for mysterious reasons. More than once we were asked to re-submit an offer and to give our "highest and best" offer whatever the fuck that means.

Be prepared to visit at dozens of houses. Be prepared to make an offer on multiple houses. You will have your heart broken when you find the perfect house, just to have it swiped out of your hands by a bank, somebody paying all in cash, somebody waiving inspections, or just some jerk that got an offer in half an hour before you did -- that bastard.

Take your time. This is a big purchase. It will pay off. It will get better. Your patience will be rewarded.

Good luck. See you in the next part where we get to buy a freaking house!