For 600k, the house will be modest, though. That will only get me a 2 bedroom house around 2000 sq ft.
My advice would be to not buy a house in the bay area. That market is priced for perfection and full of speculators. It is cheaper to rent and in the next housing downturn you’ll be in a good situation to buy a house at a much lower price rather than being underwater.
Not saying I don’t actually believe you, just that it’s crazy that there are parts of the country that a modest house costs $600k
Someone always says that. But someone else always points out that a bigger house doesnt add people to the family - what furniture you had in your old house should continue to meet your needs in the new house, even if it doesnt fill out all the new space. If everyone had a bed to sleep in at the old house, there’s no need to buy any new beds just because you now have more bedrooms. If everyone had a seat at the table for dinner at the old house, there’s no need to run out and get a bigger dining room table just because you now have a bigger dining room. There’s nothing wrong with growing into the new space over time, the truly necessary costs to furnishing a new home is rather minimal.
A few thoughts:
Utilities - try to estimate the cost of utilities - it may be significantly higher than where you previously lived and/or you may have to pay for utilities you didn’t have to pay for if you were renting or in a condo.
Mortgage broker - I used a mortgage broker for all of my purchases and refis. In every case, they were able to get me an equal or better rate than I could find myself.
Rebating agent - agree with what others have said. I used a “traditional” buyer’s agent who offered to match Redfin’s rebate.
Painting/refinishing floors - these are much easier to do in an empty house, so consider doing them post-close, pre-move-in.
Furnishing - we held off on buying a lot of new furniture. Only thing we did was buy an inexpensive bed from Wayfair for our guest bedroom, so at least we could have a guest stay over. Over time, we replaced our old stuff as it wore out with things that worked better for us.
Yard/landscaping - we moved in late spring and the local landscapers were booked up for months. Not that big a deal, but we had to get a lawnmower and do it ourselves.
Tools, etc. - We moved from a condo, so there were some things that we didn’t have that were pretty important in our new place. A good ratchet set, a couple of ladders, hoses, hex wrenches, Dremel, etc to fill out the tools we already had (hammers, drill set, electric screwdriver, pliers).
Plumbing/wiring - I spent a bunch of time figuring out and labeling the wiring and pipes in the basement. It took a while, but made it much easier to diagnose problems when they arose. Also helped professionals who came to fix things since things were labeled and they could spend less time solving problems. A couple of the breakers in the breaker box were mislabeled or partially labeled, so it was helpful to figure that out up front also.
Insurance - consider umbrella insurance if it makes sense for you. Also, shop around for homeowner’s insurance. One of our quotes (from a top tier company) was hundreds of dollars less than most others.
Maintenance - rule of thumb is to budget 1% of home value yearly for maintenance. In our VHCOL area, that’s pretty high. We’ve generally spent less than 0.25%/year over the past few years, though our house is in pretty good condition. Budget more if it’s an old house or needs a lot of work. Make sure you can either DIY or hire someone to check your heat/A/C system regularly. If insects are a problem, you can DIY pest control or hire someone. We found it easier to hire someone for pest control since for a fixed annual price, they will come out whenever you need them.
If you will be staying in the house a long time, prioritize things that will give you enjoyment, save you time or save you money over time. We did a bunch of home automation that saves us time and makes our lives a little easier. Glad we did that up front. Similarly for whole-home audio and entertainment center. Obviously budget dependent. We installed a second water meter for outdoor water which was expensive, but will pay for itself within 2-3 years.
When there is a shortage in your escrow account, do you pay the entire amount upfront? Or over the course of 12 months?
In my experience it should not be possible to have a shortage in an escrow account, because they collect a ~10% cushion, which should be enough for any increases in taxes and insurance. When you finance or refinance a mortgage, you have to fund the escrow account in such a way that would always make it 10% more than it needs to be (so re/financing in November requires more money than in May if your annual property tax is due in December and April).
One tip regarding the above: you can increase the principal loan amount during refinancing by funding the new escrow account, and doing this does not count as “cash-out”.
Escrow shortage has happened to me twice over the last ten years due to rising property value. My taxes this year are $350 higher than last year. My refinance was based on last year’s taxes so now there’s a shortage.
I forget that we have Prop 13 in CA – the base property tax rate (1%) can’t increase more than 2%/yr, so the only way property taxes go up more than 2% is if other fees are added to the tax bill (local propositions like community college bonds, vector control, etc). My guess would be that the mortgage co won’t front you the money, they’ll tell you what to do, and you’ll need to pay it upfront, but I don’t know…
The bank will pay the property tax even if there is insufficient funds in the escrow account. But when they do the annual escrow analysis, they will ask you to pay into the escrow account in order to have sufficient funds to pay future taxes. Conversely, when property values plummet, there will be a surplus in the escrow account and the bank will send you a big fat check (and then you’ll be like, “yay! free money!” ). Why have you been unaffected by the housing bubble in CA?
I’m not sure I follow your question, considering I just explained Prop 13 – it doesn’t matter how much housing appreciates in CA, the owner’s property tax bill cannot increase by more than 2% per year. For example, if I purchased a 400 sq ft studio for $500K in 2016 and it was worth $700K in 2017, the 2017 tax bill would still only show an assessed value of $510K (2% increase). So my base property tax (1%) would have been $5000 in 2016 and $5100 in 2017 (plus whatever local ordinances, usually 0.05%-0.2% around here). Let’s say my insurance premium is $1000/yr. Since there’s always a 10% cushion in the escrow account (($5000+$1000)*10% = $600 for 2016), it could only go negative if my insurance premium went up significantly.
Prop 13 was designed to keep retirees (people on inflation adjusted fixed income) in their homes. There are similar measures in some other states, it’s not just a CA thing. The side-effect is that there may not be enough money to fund schools and other things that property taxes are supposed to fund when inflation exceeds 2% and housing activity is slow. I believe this also allows loopholes like trusts, where the property is never sold (so it’s never reassessed) while the trust (a private document) beneficiary changes.
This probably varies by lender, but many lenders evaluate your escrow balance twice per year. This has taken care of the shortage in my (limited) experience.
I just received a escrow analysis letter where I was short escrow funds. There was some verbiage in the letter that if the shortage is less than 1 month escrow payment, it is due in the next payment, if it is more, it is averaged over the next 12 months. I am sure that policy probably varies by lender though.
My escrow is short $677 and the monthly escrow payment is $191. My options were to pay the $677 within the next 30 days or split the amount over the next 12 months but the total monthly payment would be higher.
There is likely two increases happening here. The $677 you are short from the previous year either needs to be paid in a lump sum or an increase of roughly $56 a month for the next year. Then to avoid the shortage happening again next year, they will likely be increasing your monthly payment an additional $55-$65 a month. I don’t believe they are allowed to charge any fee for spreading out the monthly shortgage, but IANAL.
I am looking at buying a house in the $200-$300k range. Does it make sense to get multiple pre-approval letters from the bank, say at $225k, $250k, $275k and $300k, assuming the bank is even willing to prepare that many letters?
I am trying to avoid a situation where I have a pre-approval letter for $300k, and I offer $225k on a house listed for $235k. I don’t want the seller to know that I can go up to $300k, and not be willing to deal (assuming that the market allows for this), instead I would much rather submit a pre-approval letter for $225k and say this is at the top of my budget?
Does this even matter? Won’t the price be agreed upon before they see your pre-approval letter?
It took me about 5 minutes each time to get a pre-approval letter updated with the offer amount (lower than the pre-approval that went through underwriters) from my loan officer. I used an online lender.
Not in a hot market with multiple potential offers. Your offer should have your pre-approval letter and earnest deposit. And OP is right, the letter probably shouldn’t be above the offered amount.
Just to echo the above, get one letter per offer amount. A good LO will turn these around in minutes.
Also, a per-approval letter doesn’t mean you’ll get a loan.