Here is a look in to real-life financial situation of someone our age. My sister is currently 28 years-old and although she is just beyond the 18-to-25 crowd she did something bold when she was only 24. She bought a house. I sat down with her today and asked her questions about the whole process, because to me it's still hard to fathom such a large investment and big commitment.
Q: What has been the biggest financial task in your life?
A: Buying a house. It was months of research becasue you can't just buy a house in one day. I was 23 when I was doing all the house searching. I signed the paperwork on my 24th birthday. So that was my birthday present to my self that year.
Q: Why did you choose to phase out renting?
A: I was tired to living in Portland, paying $875 a month not including electricity.
I realized I could have a house for the same amount of money. And more space. I was spending $875 on a one bedroom apartment. The whole reason I moved was for financial reasons. I wanted to spend my hard earned money I on myself. Not give it to someone else.
One property I was living in was someone's investment property for their retirement. That's fine, but I didn't want to pay for their retirement anymore.
Q: What kind of research is involved in buying a house?
A: Before going to my financial institution, I explored what my options were. I used four websites to research houses for sale. I used sites where you sign up and make accounts, and create search criteria for yourself.
I set the criteria to look for homes in Portland, South Portland, Cape Elizabeth and Scarborough. I would get notified when houses became for sale in those areas. I did this for months. Just putting around online.
Q: What were you first steps to getting a house?
A: I started taking my search seriously, went to my financial institution and told them I was interested in buying a house.
I had to sit down with a loan officer and go through the ins and outs of my finances. They asked me questions like how much do I make, how much do I spend on rent, car payments, how much overtime do I work, student loans, cell phone bill, any outstading balances I knew of. Then they ran credit reports.
I actually had a pending medical bill I had no idea about on a knee surgery I got when I was 20. I had to get that taken care of before I could proceed with anything else.
Q: So, how did you find the house?
A: You have to look at a lot of different things.
When you're 23 years old you cant just pick a house because you want it.
So I looked at roughly how much monthly payemtns would be, the tax brackets would be for that property. As far as taxes go, Portland is in the $3,500 range while Windham is closer to $2,200 annually. I did that research for several different areas.
Also the commute to work was important. What kind of neighbors, and how much land you own was taken into consideration. As well as what I will be near like shopping, groceries, and proximity to Portland.
Q: What was next?
A: At my financial institution I was approved for a certain dollar amount that I would be able to finance. Once I got that number I readjusted my search criteria.
Once I got my bearings on what I wanted, and what I could afford then I got a realtor who was referred to me through two friends.
So you took that dollar amount to the realtor. I found houses I was interested in and brought that to the realtor too. He showed me the houses I wanted to see, and occasionally he threw in something he thought would meet my criteria. During the whole process I never stopped looking at houses.
Q: Did you ever narrow your search to just one town?
A: No I looked all around the Southern Maine area. But I woke up one morning and had a notification email from one of the house finding websites I had subscribed to. It was the first day on the market. I contacted my realtor and we looked at the house the next day.
Q: What happens when you want to buy it?
A: I took a walk through the house with my realtor. Looked at everything, basement, oustide, roof, chimney, everything!
I said I wanted it right then and there. By the end of the day the realtor had made an offer on the house. My realtor then had to draw up some paperwork because the seller accepted our offer. So I signed it.
Q: Great, did you seal the deal right then?
A: Not exactly, I then I had to get house, water, termite, and fire inspections.
I also called my car insurance company to see if I could insure the house with the same company. The insurance company sent a representative out to the house to do their own assessment. What the foundation looks is like, the age of the roof, what kind of windows are used. From that they made an estimate of how much it should cost to insure the house every month.
My financial institution also had to inspect the house. They have their own expectations of what a house should look like.
Q: What happens when an inspection turns into bad news?
A: Well, from one of the inspections I found out that there was not a legitimate septic system. I then went back to the sellers and renegotiated the deal. I said I would pull out of the deal unless I got a new septic system.
The sellers came back and agreed to put in the septic system and did the work themselves. So they did the work, didn't renegotiate the price or anything and septic system was in place before I moved in.
All the inspections and extra work took about two months.
Q: What happens after the repairs?
A: Then, the appraiser came out to do an appraisal after the new septic system was installed. It was appraised at some ridiculously high number. When I took the newly appraised number back to my financial institution, they were then skeptical there was more damage to the house because the selling price was so much lower than the new appraisal. They sent the appraiser out again because they thought something was wrong with the house. That postponed it another few weeks.
But after that I finally got a closing date after the new, new appraisal and all parties agreed--me, my realtor, the seller, and the bank--and I got a closing date of October 1st. It took a while because I think I started the whole process in June.