Does it matter if you have a $300k mortgage at 5.5% or a $270k mortgage at 6.5%? In the the last few years we’ve seen housing prices skyrocket while mortgage interest rates have remained extremely low. Now that rates are increasing, we’re probably going to see housing prices slipping a little as to keep the relative monthly cost at about the same levels (plus a bit of appreciation) and thus the total payout at the same levels (if you keep the home until you fully pay off the mortgage). Recall that the payment has a principal and an interest component so with interest rates rising, a greater portion of the total payout will shift from the interest column to the principal column. One would anticipate housing prices slip a little, or not rise as quickly, as interest rates rise because buyers don’t have any more money when the rates rise and thus the total monthly price must remain the same.

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When I was looking to buy a house, I wrote about how I entirely agreed (but only after going through the process) with the general rule that you should look at six houses before you put down an offer. Today, CNNMoney has an article on getting your financial house in order before bidding and the article’s “hook” got me thinking about how home buying is like dating…

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I saw an article today on CNNMoney called the top things homebuyers need to know and I don’t think they tell you enough on some very key and critical points. For example, they give the advice that you should clean up your credit because it’s important in the lending process (it, among other things, determines your interest rate) but it misses a key fact: You shouldn’t be trying to improve your score, you are merely checking for errors and inaccuracies. You can’t improve your score significantly in a month or two, the equation just doesn’t work that way, so don’t look for a magic bullet but do check for errors which can improve your score since the errors should be investigated and removed within thirty days. There are more…

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As many of the more frequent readers have known, I recently went through the daunting process of searching for a home, obtaining financing for a home, and then actually purchasing a home. The entire process was documented as it progressed (my ignorance is most obvious in the earlier posts) and so now, after the journey has concluded, a nice summary map of the entire trip would be helpful. I’ll just give a brief “executive” summary of the post and hopefully everything won’t be as disjointed and confusing. This is a very long post.

Pre-House Hunting Era

I wrote two articles before my first house hunting trip.

• PMI or Piggyback Mortgage? - I opted for a piggyback mortgage instead of a loan with a LTV greater than 80% and paying the PMI, but in this article I compare the two and it may seem obvious why I went with that option.
• “Play House” - Pretending You Have A Mortgage - I was reading a Suze Orman book and one interesting idea she had was to “play house,” or just save your expected mortgage payment in a separate account and see if you can actually handle the payments. I never played but it was a good idea.

House Hunting Era

• First House Hunting Trip (April 11th, 2005) - Saw three homes, didn’t see one I liked but got a better feel for the market in the area - the market is freaking expensive. I talk about being a more discerning buyer and learning more about what I like in a home.
• That Damned Rent vs. Buy Question (April 12th, 2005) - I did a personal evaluation of the rent vs. buy tradeoff and talk about some useful calculators at Dinkytown.net.
• Getting Pre-Approved For A First-Home Mortgage (April 13th, 2005) - I send in some information to several places to see what sort of loan I can get pre-approved for, this is a critical step because sellers will probably not consider offers where the bidder hasn’t been pre-approved.
• LendingTree Is Ridiculously Fast (April 13th, 2005) - This was posted the afternoon after I sent LendingTree some personal info. They actually had someone call me up and talk to me… they’re doing some solid work over there.
• Buddying Up with my Credit Union (April 13th, 2005) - I talk about looking at my credit union about mortgages, unfortunately due to time circumstances I couldn’t actually follow through on the advice I talk about here.
• Closing Costs and Annoying Fees (and I made an offer on a house) (April 18th, 2005) - This article summarizes what I understand about closing costs, all manner of fees, and my second house hunting trip - which resulted in my putting an offer down on a home.
• Online Real Estate Listings are Stale (April 19th, 2005) - Basically, without a real estate agent you start at a disadvantage because all the websites have data that’s a few days late, unless you’re going For Sale By Owner. I also talk about how I up the escalation clause to the first house.
• First Home Offer Verdict - DENIED! (April 19th, 2005) - I gave more specifics about the house and the fact that, as you can deduce, I didn’t “win” it. I was willing to pay up to $300k for a house listed at $290k, the eventual buyer paid $312k for it.
• Always Look at More Than Six Homes (April 26th, 2005) - When I first heard the rule, I ignored it really, but after looking at my criteria for a house at this point and comparing it with the criteria initially - it’s like night and day, with respect to the level of specificity.
• Timeline and Costs of a Home Purchase (or, House Hunting Trip 4) - (May 1st, 2005) In your contract offer, you detail what the timeline will be. In this article, I discuss what you’ll need to specify in your contract so you know what to expect. I’ve just put out a second offer as of this article.
• Understanding Seller Psychology - They Are Greedy (May 4th, 2005) - This is a little unfair (and ultimately the house I do buy isn’t based on money) but all the other little details in a contract matter little compared to the purchase price. I was naive to think it would be otherwise. Oh yeah, offer #2 was shot down.. but I’ve put down a third article.

Pre-Offer Ratification (But Close)

We move out of the doldrums of just searching and move into a whirlwind four or five days where I am in serious contention for a home.

• Full Financial Disclosures and Gift Letters (May 10th, 2005) - Now that we’re in contention, the seller wants more financial information to make sure that, if we’re selected, we can actually make it to closing.
• A Counter-Offer: Offer More or Wait It Out? (May 10th, 2005) - Here is where I learn the seller wants a few additions to the contract and that we’re in second place. My agent wants to know if I want to add more money to the offer and I go into the reasons why I shouldn’t…

Ratification (I Have a House!)

The sellers picked my offer and, after a few more minor changes, after I work out the inspection, loan details, etc. I will have a home. They want to close in 2 weeks!

• I Own a $295,000 House - Buyer’s Remorse and 8 Contract Counters (May 11th, 2005) - I learn that my contract was selected, the 8 contract changes, and relief sets in.
• The Good Faith Estimate and Meeting My Lender (May 13th, 2005) - The long pole in the tent is getting the loan and the tent has to be finished within two weeks, or I potentially lose my $5,000 deposit. I’m not really concerned but my hand has been forced - I’ll need to use a local lender.
• Home Inspection, Termite Inspection, Home Appraisal (May 16th, 2005) - I discover some minor issues and one major issue, the roof has some questions that a certified roofer will need to answer.
• Positive Home Appraisal and Roof Repair Requests (May 19th, 2005) - Nothing terribly exciting, we simply fax over a letter requesting the roof be certified by a roofer and any problems to be repaired. The language is especially clear.
• Information Needed for a Homeowner’s Insurance Quote (May 23rd, 2005) - I call up Geico and ask for a homeowner’s insurance policy quote and realized I don’t know squat about my house. I quickly learn so I can get a policy.
• Preparing To Close on a House (May 27th, 2005) - For my own sanity I write out a few final questions I have, mere hours before the close, and have most of them answered very timely. The title company, unwittingly, did not give me the first-time Maryland home buyer credit… a cool $750 I could’ve overpaid for absolutely nothing. My agent should’ve caught it though.
• Experience At The Settlement Table (May 27th, 2005) - And so the journey ends…

Post-Ratification

The first few months of home ownership are difficult since you don’t know what expenses to expect, what is covered by the escrow, etc.

• Insurance, Escrows and Property Taxes (July 14th, 2005) - The HOA bill came but I knew that was covered in the escrow, but the first six months of insurance weren’t collected. The property tax, however, was collected so I’m in the clear on that… but there was some anxiety until I found out.

Looking Back & Lessons Learned

I took a look back after a few years to see whether or not I made good decisions, bad decisions, etc. given the housing slump that followed my purchase.

• Home Inspection Repair Requests (Sept. 13, 2005) - Don’t be tentative about asking for repairs related to your home inspection.
• Always Negotiate Mortgage Lender’s Fees (Oct. 3, 2005) - You can always negotiate!
• Ask For A CLUE Report Before Buying (Oct. 4, 2005) - A CLUE report is a listing of all the insurance claims made on your house, it shouldn’t make or break a deal but it’s useful to know what has happened in the past. For example, we found a small flood claim associated with a major hurricane.
• Home Buying Autopsy: Title Insurance (Feb 10, 2006) - Shop around!
• Revisiting My Rent vs. Buy Analysis from 2005 (January 24th, 2008) - Two and a half years later, I reviewed the analysis I did in my rent vs. buy analysis to see if I made any mistakes or overlooked something.

I hope those of you have had the time and energy to follow along enjoyed yourselves. To those who left helpful comments, I am extremely grateful. I started the journey knowing absolutely nothing and ended it knowing a little bit more than nothing and hopefully we’ve learned something new together. Thanks!

Well, it’s official, I own a house and my girlfriend’s car is dead. In the coming week or so you might see some posts about our trips to car dealerships, used car owners, and CarMax’s (we went today, it’s a great place). Until then, here’s a recount of Friday’s experience at the closing table with the sellers, their agent, my agent, and the closing agent - a representative of the title company.

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I’m soon going to be a homeowner less than 6 hours if all goes according to plan. There have been a few hiccups along the way including the roofing certification (not good enough), some fees (title insurance is 30% higher than the good faith estimate), and some minor mistakes all around. The only show-stopper is the roofing certification so I’m hopeful all can be resolved for the close at 4pm. On a semi-unrelated note, my girlfriend’s car overheated and was leaking “green and red” fluid which I took to mean coolant and perhaps transmission fluid. You might see a “buying a used car in under a week” article in the near future…

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I called up Geico, with whom I have an automobile insurance policy, to see about getting homeowner’s insurance because I’ll need a policy in place before we close on Friday. I was basically completely unprepared for the battery of questions the CSR asked me but we struggled through it and came up with a quote on a $295,000 policy with a $500 deductible of $843/year. I’ll be sure to compare that rate with other insurers but $70/month seemed reasonable to me at first glance but I have no experience with homeowner’s insurance. However, I probably answered some of the questions inaccurately so if you’re going to get a quote, here are the questions you should have answers to:

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