How to buy a house

When I asked for a mortgage pre-approval the bank advised me to first find a house that I like, and then get back to them to prepare a pre-approval letter for the exact amount that I was going to offer. At the time I took the advice seriously, but now I can finally laugh with them at my ingenuity.

My idea of buying a house was that it is a slow process that works roughly as follows. First, you get pre-approved. Then you go to open houses, and you start making offers. If one is accepted you have a house inspection. Depending on the results, you go back to the negotiating table. After that is done, you get your mortgage, and finally you get the property. In a few years, you have made a lot of money.

This idea is completely wrong, and not only in the area where I have been looking.

First, if you need a mortgage you are already in big, big trouble. Most of the decent houses are bought for cash, even if another offer with a mortgage goes a lot higher. With a mortgage you only have access to a limited pool of problematic properties that nobody wants.

Second, the process is extremely fast. If you would like to sleep over it, the house will remain your dream house. Sales occur days or even hours after the listing is posted.

Third, if you need an inspection you are also already in trouble. Perhaps you worry a little about structural damage, asbestos, termites, radon gas, or an oil tank or other toxic waste buried in the yard? Then perhaps you should not be on the market. And don’t even think about lead paint, not to mention cell towers beaming right into your bedroom (more about this later on this blog). And if you ask to bring an inspector at the open house the answer is “no — we don’t want the inspector to disturb other potential buyers.” If you really want an expert opinion, short of becoming an inspector yourself your only option seems to be to bring an inspector in incognito. Someone who pretends to be your sibling by engaging in casual conversation on how that picture over there looks just like that common ancestor of yours, but then later whispers to you estimates for repairing the water-pump they spotted in a corner of the basement.

A good model for today’s buyer seems to be that of a derelict in a toxic wasteland who by chance suddenly becomes billionaire and so decides to buy real estate in various “hot spots” of which they know nothing, just in case they happen to be there one day.

Here is how the only offer I made went. First, there was absolutely no way to visit the property before the open house. And at the open house, after one hour the seller’s broker announces that bids close in thirty minutes. I actually scrambled together an offer. So hastily this was done that in hindsight I am very thankful that the seller did not even want to talk to us, despite the fact that we went over the asking price by 20%.

I have heard many calculations of the money you supposedly save by buying a house with a mortgage instead of renting. But all of these seem to omit an important point. Even if you do get the house, you will have to pay a lot more than if you had cash.

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8 thoughts on “How to buy a house

  1. You are better off buying a condo. The condo fees amortize the money you spend on the exterior of a house (painting, roofing, chimney, landscaping,..) not to mention the savings in brain cycles from dealing with people who really do not want to be working for you.

  2. My wife and I are currently looking to buy a home in the Cambridge/Somerville area. Is that near where you were looking? You’re right, it’s a nerve-wracking process. And I hear it will get even more frenzied in the spring.

  3. Actually, it’s even a bit funnier than you say:

    “… but then later whispers to you estimates for repairing the water-pump they spotted in a corner of the basement”

    Home inspectors in MA (or certainly at least in Somerville) are not allowed to give you such estimates! They can only give you a report listing issues they’ve found, and they’re not allowed to give you cost estimates to fix those issues. You then have to take that report to another party for the estimates.

    Regarding cash vs. mortgage, perhaps things have changed in the last two years. I bought a place December 2013. It was definitely a seller’s market (the first place I bid on had something like 12 offers within days, with several being 20% over asking), but I just kept bidding on things and it stuck the 3rd time. My two failed attempts were in Cambridge, and the 3rd was in Somerville (though ~8 steps from Cambridge). From the seller’s perspective cash vs. mortgage should barely matter, except that if someone is offering cash then the seller can be sure there’s no mortgage for some bank to later decline. But you have a stable job, so they shouldn’t worry that you would be declined.

    1. Thanks for the information and for sharing your experience! In my experience cash vs. mortgage matters extremely, even if you supposedly have a stable job. One reason seems to be that the seller is in turn trying to buy a house, so they need the money fast. I heard of several people who were selling in Cambridge in order to buy something else and had to accept a cash offer even though they had some mortgage offers that went a lot higher. I guess one solution would be to speed up the mortgage process — but given the crisis of the last decade I don’t have much hope for that.

  4. My wife and I now have an accepted offer on a home in Somerville, MA. At open houses, we would often ask the real-estate agent if he/she knew of other properties that weren’t yet listed on the market. That’s indeed how we found our home to be. I don’t know the situation in Newton, but in Somerville it feels like every block has at least one home that is being renovated for an upcoming sale. Good luck!

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