Buying a home – especially your first – can be both exciting and terrifying. How can you ensure that your search for the house of your dreams doesn’t turn into a house of horrors?
When my husband and I bought our first place, we felt in the dark – and came close to making a pretty big mistake. Fortunately, we learned a lot from the experience, and things worked out well in the end – we found a place we loved that suited our budget, paid off our mortgage in under 5 years, and that was what started our journey to financial independence.
But before we look at what you should do when getting started buying a house, let’s take a look at what to avoid:
Don’t limit your search
When we first started looking at property, we were mainly looking around the suburb we were residing in at the time. This is a common newbie mistake – not looking too much further than your own backyard. But in our case, with a pretty small budget to start with (I was still a student, working towards my PhD, and my husband was a junior in his profession having just graduated), it was also one of the most affordable areas in our city both to rent and to buy.
Eventually we found a place within our budget – a small, semi-detached house with a pretty sizable yard, and a lot of work to be done – and made an offer.
Don’t get sucked in by the agent
Our first big mistake was getting sucked into the real estate agent’s patter. He came as close to refusing to present our offer to the owners as he could legally, telling us that there was no way they would accept the amount we were thinking of, and talked us into offering more than we had planned (but still within the limits of what the bank would lend us).
Don’t sign anything until you’re 100% sure
What I didn’t realise at the time, and what the real estate agent didn’t make completely clear to us, was that the offer we were making was in fact as good as a contract of sale, that this scrappy little half-page of paper was a legally binding contract to buy the house, should the owners accept the offer.
Now, I consider myself a reasonably intelligent person. I read every agreement I make carefully. Every footnote, every sub-clause, I read and research anything I don’t understand. But the paperwork to buy a house (at least in our state in Australia at the time) was the least official-looking document I could imagine. Its size gave no clue of its importance. Mobile phone contracts are infinitely more complex – it baffles me that I had to read and sign off on so much more to sign away $20 than $200,000.
Now for what we did right:
Make sure you do a thorough inspection
After a lot of research, I pieced together a really comprehensive house-inspection sheet, which we would take to every inspection (along with a camera, torch and measuring tape – one with a spirit level if possible). Even when we had already decided we weren’t interested, we would inspect the rest of the property for practice. Inspecting is a skill, and one that improves with experience.
If you’re nervous about doing this in someone else’s home, start off by practicing inspecting your own. And don’t be afraid to turn on taps, lights, etc. – you’ll be surprised at what looks great but doesn’t work! One apartment we inspected had what looked like a lovely, freshly painted linen press – but upon opening the cupboard door, we discovered it housed a big, rusted through pipe from upstairs (sewerage?!). In another house, we found a huge rangehood over the oven – but the power switch wasn’t connected up!
If you’re planning on replacing and renovating, these issues may not be dealbreakers, but they should be taken account of in the purchase price negotiations. Again, Anita Bell’s book does a fantastic job of explaining how you can tally up the various replacements and repairs that will be necessary for a property and use this data to come to a realistic and mutually agreeable purchase price, potentially saving you many thousands down the track.
Make sure you list your conditions
Our saving grace in this whole ordeal (which I’ll get to in a moment) was the clauses we put on the contract. Firstly, that the offer was subject to a satisfactory building and pest inspection report, and secondly, subject to finance from [name of our bank]. These were tricks I learned from the excellent book by Anita Bell, Your Mortgage (despite the title of the book, it guides you through the whole process of buying a home in Australia, not just the mortgage part).
Make sure you get a building and pest inspection
For a few hundred dollars, we were able to get a building inspection completed, and thank goodness we did – the report revealed major structural damage to the foundations of the building which would require extensive repairs and even after massive outlay, would not be guaranteed to rectify the problem. Armed with this report, and the condition we’d had the foresight to include in the offer, we were able to rescind our offer without penalty and receive our deposit back in full.
Sure, we were out of pocket the cost of the building inspection, but far better that than the enormous repair costs we could not have afforded after being talked into the inflated price by the real estate agent.
Our success story
Things really fell into place for us when we started to think outside the box. My husband had been insisting for some time that we didn’t really need a back yard – and how right he was. We don’t have kids or a pet, neither of us play sports, and we travel too much to maintain a garden anyway.
Getting over my desire for a house with a picket fence allowed us to start looking at an entirely different category of home – the apartment – which opened up a whole bunch of different options for us, including suburbs we could not have afforded otherwise.
This time, we knew what we were doing a bit more. We stuck to our guns with our offer (and in any case, had a much less pushy agent to deal with). We had family who were more experienced buying property come and do a second inspection with us.
Even so, there were still hiccups. Our bank ended up refusing to lend for the property because it didn’t have laundry taps (!) (a rule they have since withdrawn). So we had to switch banks, which meant getting a mortgage broker involved. Then, our broker messed up our first home owner’s grant application. We only found out that we had been declined just days before settlement, when we were overseas. So we had to borrow some money from family (which we quickly repaid – I’ll always prioritise paying family over a bank that is earning interest off of me).
Top tips for inspecting a house:
- Ignore the decorations. Nice furniture can make a shabby house seem lovely, and vice-versa. You should be looking at the window frames, not the curtains, the sturdiness of the walls, not their colour. Think about the layout of the house and size of the rooms rather than how they are currently decorated.
- Look for anything suspicious. One apartment we inspected had a very modern decor, but with really incongruous country-style gingham duck-printed hot-plate covers on the stove. Lifting one up, we discovered the hot-plates had rusted through, and the covers were merely there to (as the name suggests!) cover this up!
- Don’t just inspect the house, inspect the rest of the street and the surrounds. What is the local shop like? The local school? (Even if you don’t have kids, a good school will affect resale value). How far is it to the nearest supermarket? As Jacob Lund Fisker of Early Retirement Extreme points out, proximity to work and a supermarket (preferably walkable distance) can save you a lot of money in the long run. And is it a luxury or budget supermarket? The types of shops around your home will often influence the amounts you spend. What is the neighbourhood like?
- Try to come back at different times of day. If you’re really serious, check what the place is like at night time – are there bright street lights or noisy traffic that would prevent you from sleeping? Do you feel safe walking from the train station or bus stop, or to the corner shop? What is it like on a weekend vs. week day?
What are your favourite house-buying tips (or worst horror stories!?)
Today’s featured image is of the wonderfully named ‘Comfortable Place’ in England.
This post was selected as a featured post on Think Tank Thursdays at Saving 4 Six