This is long, the tldr version does not exist. Grab a cup of coffee, or whatever fairy latte you prefer, and enjoy the rambling, incoherent thoughts. You’re welcome:)
Buying a house is serious business. But spending a large portion of your monthly income on rent, and then not having anything to show for it after you move out, can leave a nasty taste in your mouth.(Not unlike being overly intoxicated and passing out in a gay bar on accident)
Let’s be realistic. Not many people can afford to plop down a bag of cash for a house and just move in. After you have bought and sold a few, that is possible, but when someone is buying their first place, financing is the first step. Enter the exciting world of looking for a bank and getting a pre-approval letter, which is a letter from the bank telling any prospective seller how much of a loan you are qualified for.
Most reputable banks will want 1 1/2 to 2 years of employment history with regular paychecks. Hardly anyone gets or keeps pay stubs nowadays, so a simple call to your bank asking for a printout of your deposits for the last 2 years will work fine. Call ahead and pick it up at the drive-thru. Or better yet, apply for your loan at your bank. Some smaller savings and loan places may have harsher requirements, but this is because they are smaller, local banks, and they are trying to mitigate risk more than the big banks. If your small local bank tells you to piss off, try one of the big banks in your area. The big banks repackage your loan products into various other money making scams, so they are more likely to welcome you in with arms wide open.
When you make an appointment with the loan officer at a bank, bring your proof of income, your ID, and your Social. They will run a credit check, which in itself, will affect your credit score a bit. If you are one of those anal enough to know what your credit score is through some app or something, you need that shit above 640. Most utility companies and ISP’s report to credit agencies, so if you just pay your bills on time, your score is probably just above that, so you should be good.
But what to do if your credit score is lacking? Fortunately, there is an exploit, just like any good game. Take $500 cash to a big bank and talk to the loan officer about a pre-paid credit card. You give them the $500 cash, and they give you a credit card with a $500 limit. Use that card to put gas in your car or make small purchases of stuff you were going to buy anyways. As soon as you get home, call in and pay it off. Never forget to pay it off completely. They stagger billing cycles and fuck with you in incomprehensible ways to trick you into NOT paying it all off so they can charge you interest. After 6 months, you not only can ask for your $500 cash deposit back, but your credit score will be higher than 640. Unless, of course, you owe back child support or a collection agency is after you, in which case it’s probably better to stay living in your Mom’s basement doing body shots off your pillow waifu.
One thing that is important to note here is if you are a first time home buyer, an FHA loan is a great way to get into your first place with a lower down payment. Most affordable homes can be had with $5,000 to $8,000 down, depending on your price range, because your loan is guaranteed by our fantastic government. Of course, there are criteria the home has to pass to be eligible. Things as small as chipped paint or a missing water heater strap will have to be fixed by the seller before the sale can close. But I digress. Without the FHA loan, your down payment will likely require selling a kidney(or the kidneys of several local street urchins collected in the back of your van), usually about 20% of the cost of the home.
Now you have your pre-approval letter in hand, and you are eager to shop for a house! But wait… There are still a couple things to consider. At this stage, most people call a real estate agent and have them show places. I have some serious issues with this approach. First, your agent knows what you are approved for by the bank. If you are approved for 200k, but you want a place in the 150 to 180k range, your agent will show you one house in that range that is completely roached and filled with homeless drug addicts, then promptly move on to showing you places in the 220k range. This tactic works awesomely for them.
Secondly, they will try to get you to sign a contract that says you agree to buy your house exclusively through them for 6 months or so. So even if you find a place for sale by owner at a good price, you will still be personally responsible for giving them 3% out of your own pocket, unless you wait for the term on the contract to expire before you enter into a purchase agreement with a seller.
Third, real estate agents make a living off commissions. The higher the prices on homes, the more they make. The standard in most places is 6%, with it being halved between a selling (or listing) agent and the buyers agent. If you plan on finding a home that needs some work or renovation (sweat equity), good luck trying to low-ball a seller. Even if both agents on either end of the sale were the worst enemies for their last 10 lives, they will conspire together over lunch at some fancy delicatessen on how to screw you, even if it only means they each take home an extra $300. Yes, they will lie to you with a smile on their face, then laugh at you as they drive off in their new 90k SUV.
Fourth, every real estate agent who has been in the business for over 1 year has developer and investor friends. These friends have cash to buy and flip places, and they make money buying houses cheap. Dirt cheap. If you put in an offer, your agent will know what it is(duh), and the investor will outbid you by 1k every motherfucking time. Remember, the investors buy your agent dinners and golf club and spa memberships. Investors throw bad ass social parties with filet minon. Investors know everyone on the city council, judges, police chiefs, and State Reps to Congress. They get something more valuable than mere cash, they get community prestige and repeat business, and they drive around like gangster soccer Mom’s in sunglasses bigger than their faces.The investor friends matter way more than you do.
The solution is simple, really. Look for your own damn house. Make a list of everything you must have, then another list of what you’d like to have. Shit, make a list of things you don’t want, too, as you go along. If you want to check a place out in person, call the listing agent and arrange a visit. If they offer to show you any other place, politely decline. Hint- You will need to decline about 25 times in 1 showing. Use websites like zillow and trulia. And on the cheaper side, the hudhomestore.
When you do find a place, don’t forget to look at the County Assesor’s website. Do a property search using the address or parcel number. Look at the home sales history, permit history, all that shit. Call the ISP(s) that service the home and ask them about the services they offer at that exact address. Just because the home shows on a fiber map or that ISP offers something in that area, does not mean it’s available at that address. Call the trash and utility companies. Find out what the billing history is on the home. If you see a winter bill that hits $300 or $400, and it’s only a 2 or 3 bedroom, it has serious problems. But remember, serious problems are not a bad thing, especially if they help you negotiate a better price. It will be up to you to figure out the cost of replacing aluminum windows and insulating properly. Youtube is your friend here, as well as your ability to price things online at the box stores, like Lowe’s and Home Depot.
If you are applying for an FHA loan, there is something of great importance to understand. The government doesn’t want your kids eating lead paint chips, despite what you see happening in Flint, Michigan. Even without lead or asbestos being in the house, the FHA will require repairs to any peeling or chipped paint on the interior and exterior of the home. If the home is painted and repaired first, it can be done by anyone. (Even a secret ninja trip at midnight with a paint roller:) If the bank does it’s inspection and finds chipped paint, it will have to be fixed by a licensed contractor, who then signs off on the completion of the job with their tax ID #. Not many homeowners want to do this, and on a budget home, they may not be able to afford it at all. Look the house over first to spot any issues and resolve them before a bank inspection happens.
Before you take a long drive, especially when looking for a rural home, call the listing agent first. I have looked at rural places that were fake listings, even though they had an MLS# that was legit. Oftentimes, real estate agents, especially agents that have a lock on a town or community, will throw up fake listings and register them properly to influence home values in an area. Some poor bastards don’t even know their home is for sale, just to be used as a “comp” to determine home values in an area or neighborhood. And the Appraisers who set the values don’t seem to understand this is even happening, or at least they pretend not to. If you knock on a door and they are looking at you like you just landed in a spaceship and have 3 heads when you ask about their house for sale, there is a crooked agent in the area, and he likely has the only real estate office in the nearest town. He is also likely the richest person in the town, LOL.
Another thing to consider, is homes that are For Sale By Owner. A person can pay to list a home on zillow or whatever by owner. These listings are usually for sale without an agent for several reasons. Some houses get an offer on them that falls through, whether buyer financing, or an inspection issue. They get listed as “pending”, and usually agents will never show the home again, assuming someone else is already buying it under contract. This is also why earnest money is usually required when placing an offer on a home, it keeps bastards from putting offers on every single house in town and taking them all off the market. Sometimes agents will let someone put an offer in on a house because they know it will scare them off when the inspection happens. Then the aforementioned investors can swoop in at bargain prices to the distressed seller. But for whatever reason,the selling contract expires, and the home goes unlisted. A disgruntled home owner who got shafted by the system can be a dream come true for a buyer.
The by owner sale is the easiest, and scariest move. This means you will be handling the sale on your own. You will do all the paperwork, you will be in constant contact with the Title Company, all that shit. Oh, wait, it isn’t a lot of paperwork… What in the hell are the realtors making thousands for off each home sale? What is so complicated that they take home more from 1 sale than a worn ragged walmart or amazon employee does for 1 year? Well, they fill out 3 pieces of paperwork, that’s what they fucking do.
Here are the 3 pieces of paper you need to buy or sell a home.
1.) Purchase and Sale Agreement (Specific to your State, filled out by buyer, aka “offer”)
2.) LBP Addendum (Lead-based paint affidavit)
3.) Property Disclosure Form (Filled out by seller)
The first is just the sales agreement. This is an offer put in buy a buyer to the seller or the seller’s agent. It usually has the terms in it required by State laws where you live. These items are mostly simple, like a term of the contract before the offer expires. In the case of a cash sale, it may be 10 days to closing, while with a bank loan, it may be up to 90 days. You will also see whether the sale is dependent on cash, financing, type of financing, or a home inspection. The earnest money is listed and submitted with the offer in the form of a bank cashier’s check. This can be anywhere from 1k to 5k, depending on the agreement between buyer and seller. If you back out for any reason other than losing your financing or a bad inspection, you lose your earnest money. Also listed will be the purchase price.
The second paper is the LBP addendum. This is required for all homes that will get bank financing, even if it was built after 1970. The seller usually just writes “don’t know”, and signs it. Some States may require this even for cash sales between people, safest bet is just to include it from the beginning.
The 3rd paper is the property disclosures. This is filled out by the seller and usually has all the utility company names and contact info, the status on the plumbing, electrical, and overall construction of the home. It also contains info on the lot the home sits on, property boundaries, community or HOA info, etc. Again, a lot of this is usually “don’t know”.
These 3 documents are signed by the buyer and seller, then delivered directly to the Title Company you have picked. A note here, it is good manners and will save you a day or 2 to include a paper signed by buyer and seller that gives the selected Title company authority to close the sale and recording of the property. The title company does all the real work, making sure there are no issues with the property and that proper permits were issued for everything. They check for liens against it, or if there is still money owed to a bank for a current mortgage. Everything the agents pretend to deal with is actually done by the Title company.
Then you wait. You hope nothing will go wrong. The seller is hoping nothing goes wrong. Days pass. You call the Title company, they have something else for you to sign, usually verisign or docusign with a few simple clicks. In the case of a cash sale, you get a call or email telling you to come in for the final signing and to pick up the keys. If it’s a bank loan, you are still waiting. The Bank’s underwriting department has some things to clear up. You keep waiting. You are a nervous wreck. Then, suddenly, you are a homeowner! Well, really, the bank owns it. Dammnit.
So, lets say you cannot find a decent by owner home in the area you want. You’ve tried trolling the neighborhoods at 5mph with a pen and paper, looking for places for sale that might not be listed. The cops have already been called for a lurking suspect by neighbors, and parents are scared to let their kids go to the local park suddenly. And that house listed by the agent is just so nice and ticks all your boxes. It’s time to play percentages. 6%, to be precise.
Real estate percentages are not paid by the buyer. They are paid by the seller who signs on with the agent to sell their home. I have already established that realtors are savage and simple creatures who would eat their own children for a $5 off coupon to the local buffet. They are greedy, and they thrive on estate sales and other human misery. Let’s use it against them. If the home you are looking to buy is, say, $180,000, then usually 2 agents will split the 6% into 2, 3% chunks. They will make $5400 each in commission. But if you contact the listing agent, they can also be your agent in the sale. This means, instead of splitting the commission, they get it all, all 6%.
So, contacting the listing agent and offering, say $165,000, would normally get you told off and hung up on. They hate low- ballers. For one, they would make less, and secondly, comparable homes would now be worth less in the future, affecting the entire market in that neighborhood. So, we have to approach it carefully here. Contact them and ask to view the house so you can see them face-to-face, irl style.
Ask the how firm the sellers are on the price. Look for ridiculous things that look out of date like old countertops, cabinets, flooring, appliances, anything at all that needs updated or repaired. Even trivial things. Don’t bad-talk them, just point them out as if you are buying the damn house and are planning the renovation already. This is what realtors look for, selling the dream. Then just come out and say, “Hey, at 180k, you would get, what, $5400?”. Then say, “You know, realistically, with the things this place needs and my budget, I could offer 165K on this place, and if you were the only agent, you would actually get $9,900 at the full 6%”. While they have that puzzled look on their face and are scoffing at you, thank them for the showing, go home, and wait a few days.
The reason I say a few days, is they may need to explain to the sellers how the market is acting weird and they need to lower the price on the home for a quicker sale. Remember, realtors are greedy and manipulative, but not the brightest stars in the sky. Once you spell it out for them that they will make more money selling you a house for less, you will still stand a fantastic chance of a great home deal.
While this tactic is effective, in a really competitive market, with many buyers looking to scoop up a house, the 6% trick will not work. It may be worth a try, but it probably won’t land you a house. Even now, rural properties with internet access above 20mbs are hot as people flee the cities and are working from home. In this case, I would concentrate on potential sellers, rather than listings and agents. If you see a sign on a home that it is being sold, or a home listed that has been on the market over 6 months, or pending for 4 months, you need to meet the owners. If there is a problem with the house, like a cracked foundation, the owners will be pretty sucked up about it. They thought they had something of value, and found out they were screwed when they went to sell it. Some people just have life situations where they don’t care how much they get as long as it’s within reason. And some people just refuse to give 10 or 20k to a realtor for essentially nothing.
Some homeowners will even be willing to work with you to pass a bank inspection, doing work, or even letting you help tune up paint or putting some covers on electrical outlets.( Or hiding strange bundles of wires in the wall:) With a conventional bank loan where you are putting down 20%, the bank does not care. But for an FHA loan, these little things matter. Just make sure the water heater has a proper strap to the wall studs and a relief pipe attached to the overflow valve that runs either to the crawlspace or outside through a wall. The government prefers to outsource space rocket launches to Elon Musk. They don’t want your water heater in low earth orbit if an earthquake hits.
Establishing a rapport with the homeowners can really help you find a place you would never have got close to otherwise. When someone knows you are serious about a purchase, and that you are willing to fix a place a bit, they start taking your offer seriously. A good home inspector looking the place over, while you are there personally, is also a big help. It will let you know exactly what is going on, what needs fixed, and it will give you a real idea of the costs and labor involved. Even if that cracked foundation costs you $7000 to fix after you move in, if it gets you the home for 40k less and makes it a home nobody else wants, that’s not too bad at all. And if you watch a 15 minute youtube video and become an instant foundation expert, you can save even more:)
Now you have a home and owe the bank a bit of money. The payments and utilities are very low compared to what you were paying in rent previously, but it sure would be nice to have a little nicer place and not have a mortgage at all. It is time to sell your new house.
Since you just had an inspection, you know what needs fixed. Set aside some money in your monthly budget to address those things as you can. On the bright side, unless there is some market apocalypse, your home is actually increasing in value every month while you fix it. Once you have it ready, pick one site like zillow or trulia to sell it, by owner. Funnily, you only need to list it once, and the other real estate sites that want you to pay will steal it from them and post it on their site too. For free. Because they are shameless thieves. LOL. After 3 or 4 days, it will be on all the realtor sites:)
The entire process of closing is done from the other side, as a seller. Have your 3 (or4) documents ready, and when you get a buyer, fill out the papers and take them to the Title company. When the sale closes, the Title company will pay the mortgage balance to the Bank directly, and the rest will be deposited to your account. You will have bangin’ credit and enough money in the bank(hopefully) to get a regular conventional loan with 20% down, or maybe even pick up a rehab house all cash. Keep your eye on the housing markets, see which neighborhoods are popular, and look for opportunities. Keep in mind, however, things that are available today, will not be there tomorrow. As people are shuffling right now, even a little shack with a yard full of beer cans and meth needles can be fought over by buyers. And nice houses worth 400k can be busted down to 200k overnight. The trick is to get a place at a good price, on good terms, and try to come up to the standard you want a step at a time.
I would not recommend it until you have fixed at least 1 home, but at some stage, you may find you don’t need an inspection. This can save you time and money, and allow you to make offers “sans inspection” that other’s would never dare. Things to look for when doing your own inspection will be pretty straight forward. But just in case, I’ll list the big ones.
Water drainage. Everything about how the home stands up to the elements and doesn’t melt or rot away on you has to do with how it sheds water. Beware the home with a yard that slopes up and away from the house, sitting the home in a basin. Fixing this issue can be labor intensive, even with rented equipment. Check the siding, trim, roof, windows, and door thresholds. The last thing you need is a giant swimming pool around your house when it rains, or even yard sprinklers doing permanent damage that will require replacing structure to fix. Putting oars out the windows will not mitigate the flooding.
Electrical. Make sure the light switches work. All of them. Check the breaker box to start. Oftentimes, you can see the wiring somewhere. Make sure it is copper and not aluminum. Aluminum can be used safely, but it almost never is as the house ages and things are done to it. Unless it’s a deal worth rewiring the entire house, run when you see aluminum. Look for junction boxes that are on exteriors of walls. These are usually added by a crafty home owner. If you see junction boxes connected in a series, you can assume you have 500 amps of outlets connected to a 15 amp breaker. Plan to address that right away. If you see exposed wiring twisted together without a junction box, that is even worse. The previous owner was obviously suicidal, dumb, or any combination thereof.These electrical issues are far more common than you would think, with improper grounds, reversed hot and neutral wires, or wires to empty space, just hanging there, waiting patiently to send an unsuspecting retard straight to hell.
HVAC. Turn on the heating and cooling, whatever it may be. Check any filters. If there is an AC unit, check for water damage near it where water is condensing wrongly. Look in the vents, if they have them. If the owner’s cat was missing for a year, you may find him and bring them proper closure. If you see a fan in a bathroom or kitchen, make sure to check for roof vents when you go outside. Vents to nowhere= black mold. Black mold= horrible fucking health issues. Fans to the attic or roofing system can be fixed pretty easily, but the mold may need bleached while you are dressed like an astronaut and keep repeating, “Luke, I am your father…”.
Plumbing. Leaking water lines suck for many reasons. Find them and eradicate them before they melt your house down around you. Make sure toilets flush. Make sure, again, the roof stacks are there for each bathroom and kitchen. If you don’t have air behind water, plan on swimming in your own feces on the regular. Hey, if it’s bad enough, you may be able to pay for repairs with the click money you make livestreaming yourself making “shit-angels” in it. Just make sure it’s your own shit.
I have actually barely covered this topic of buying and selling a home. There are so many ins and outs, and I have just included the basics. Many others will have advice or stories to learn from, and that is both educational and great fun. I look forward to the techniques other’s have used to get great deals on a home. If I forgot anything important, please add it.