Buying a Home

I bought a home two years ago, and it was a great experience. I learned a lot, both about the home buying process, and about what levels of frustration and confusion it can cause. Through the process, and watching a number of my close friends buy homes, here's a couple of ideas for what to think about when buying a home.

1. Forget what you think you want. Price Per Square Foot (PPSF) is what is important. My friend recently showed me some homes he was looking at on Redfin http://www.redfin.com. I asked him why he cared about having two full bathrooms when he would be living there alone with his wife, why he wanted two parking spots when he had only one car, or why he would want to live far away from his friends, public transportation, or where he or his wife work. He was thinking of amenities to the homes, but not the bottom line. What is most important is PPSF, along with location. If you buy at a higher PPSF than other comparable homes in your neighborhood, then you have done the seller a favor. It may be ok to have a higher PPSF than your neighbors, but you better be able to rationalize it with big ticket items, like modern kitchens or bathrooms, new HVAC systems, or other amenities which clearly set your home apart.

2. Location. It takes me six minutes to bike to work in the morning. It takes my wife 11 minutes. So, we get to spend a whole lot of extra time with our son. If there is an emergency, like the freak earthquake that occurred in DC, we can be home very quickly. We love our location, and are a little puzzled by our friends who moved out to the suburbs. It's ok for those people who work out in the exurbs, or people that moved for the school districts. But location is crucial. Location quality can be determined by a number of factors. Use these as they apply to you: Supermarket, School District, Public Transportation, Public Park, Crime Statistics, Travel Time to Work/School, Major Thoroughfares, Public Library. If you don't live close to these location factors which you want/need, or the crime statistics aren't good, you should pay less for where you live.

3. Down Payment. Many many friends of mine have put down less than 5% on their homes. While this may be beneficial for tax purposes (it means you pay more in interest, which you can deduct on your federal return), it generally increases your monthly burden. If you keep money in a rainy day fund, and your mortgage is high, you will be limited in case an emergency comes up or you need enhanced cash flow. Personal Finance Personality Dave Ramsey recommends a 20% down payment http://www.daveramsey.com/article/how-much-house-can-you-afford/100362/, and some bills in Congress will penalize you on your interest rate for putting less than 20% down. http://www.washingtonpost.com/business/economy/housing-regulators-propose-20percent-down-payment-for-best-rates/2011/03/29/AFIRw5vB_story.html. Save your cash, and make a strong down payment. Remember, you can tap your IRA for up to 10k in earnings to buttress your down payment if it is your first home. Failing make a strong down payment could leave you in a potentially dangerous situation.

4. Do Your Research. Find out about the neighborhood. This is likely the biggest purchase of your life and you should make sure you're not getting into anything unexpected. Redfin can show you prices, and local blogs or websites can give you a neighborhood feel. Discount your first impression at your first open house because part of what you're feeling is pure excitement. Don't go live in a neighborhood which doesn't suit your interests or passions, because you will be spending an inordinate amount of time there, and why would you want to spend that time disappointed.

Buying a home should not be something which occurs in a state of passion. It is a very serious, analytical decision, which requires years of preparation and research, personal reflection and analysis, and questioning the knowledge you think you have gleaned. If for one second you question your own knowledge on the subject, seek out a friend who has bought before, and find out what they did and what they hate about their current home so you can add it to your checklist of what you are looking for in yours. Talk to your parents about what they would change as well. Through careful research, saving, and investigation, you'll be able to find a home you love and save a ton of time and money.