Another home remodeling project is almost complete. My back hurts, my hands are scraped up pretty good and I'm tired. Working on my house always makes me wonder if I made the right decision about buying a home. If I could go back in time and give a younger me advice, what would I say?
I know that hindsight is 20/20 and experience is the best teacher and all that stuff. That being said, I think I would advise against buying a home when I did. Let me describe my situation.
I was 26 and planning on getting married soon. I was tired of roommates and apartments. So was my fiance. We just wanted to get on with our life together. After all, it's easier to live with someone you're sleeping with rather than a friend or acquaintance.
So began the house hunt. I did some research and found that our state offers a first time home buyers program through FHA. FHA is a government agency that underwrites (subsidizes) home loans to poor people. These loans have a lower interest rate and require almost no money down. No money down was good (or so I thought) because I didn't have much.
I also discovered that we probably wouldn't qualify once we were married. Our income would push us over the limit. So I was in a hurry to find something. Back in 2000/2001 the real estate market was hot. Nice cheap houses didn't stay on the market for long. Our search lasted several months until Super Bowl Sunday of 2001. We were just randomly driving around and come upon a house that looked perfect.
We called our agent, looked at the house and had an offer in that afternoon. During the game, I got a call back. They had accepted. I was a home owner. I was pretty excited.
The house needed some work. Actually it needed a lot of work. The previous owners let us move in early (they had pushed the closing back because their new home wasn't yet finished). As we were moving in we noticed a funny gas small. I called the gas company and they came out and told me the furnace was shot.
The home inspector had told us to get a furnace inspection as it was old and didn't look good. Since our offer was contingent on a good inspection, I wanted to get it looked at but the current owner's said they had just got it checked out. The HVAC company sent us a letter stating they had checked the furnace and it was fine. I should have smelled a rat. Even though the heating and cooling company was large and supposedly reputable, they hosed us. I found out later (from my agent) that the seller knew the owner of the HVAC company.
Because we hadn't closed yet, I could have walked away. What we did instead was each party (each Realtor, the sellers and me) paid for a fourth of a new furnace. I got lucky I guess.
The point is you have to expect problems when you buy an older home or even an existing home. First time home buyer programs put poor people into poor houses. That's a bad idea. Broke people (like I was) can't afford a house. Dave Ramsey makes a living scolding these people on the radio. It's Murphy's Law, when you can least afford, bad stuff happens. And *hit happens constantly to broke people. I think if you surveyed most of the calls to Dave's program, you'd find that more that half are in trouble because they're in a house they can't afford.
Houses are Not a Good Investment
I don't care what the mortgage broker or the real estate agent says. Houses are a piss poor investment. Homes appreciate at about 3% (about the rate of inflation). Homes, unlike better investments (stocks), require constant care and maintenance. That means MONEY. You have to feed the money pit constantly. When you subtract your maintenance costs from the appreciation, you're looking at a negative return as you're not keeping up with inflation. Houses are not an investment.
First Time Home Buyer Programs Are a Bad Idea.
They put people in homes they can't afford. They keep prices for crappy houses artificially high. These programs insure that there will always be a market for low end spec homes and older dilapidated houses.
My advice to a younger me is as follows:
- Save up the money for a down payment.
- Don't be in a hurry, choose a home in good condition in a good neighborhood
- Pay off the rest of your bills (student loans, etc) first.
- Stay in an apartment a while longer.
- Save enough to afford a bit nice home, one that doesn't require a lot of work. In the end, you'll be better off.
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Comments
2 Comments so far
Sorry to hear about your bad experience.
A lot of your initial problems could have been solved if your lender had suggested you get a FHA 203K loan. This loan could have provided you all the money that you need to make the improvements necessary in the beginning.
There is opportunity out there for buyers who want to take advantage of the glut of homes on the market today. If they buy a home using a 203K loan (requires only 3% down) they can fix their new home in weeks not years.
I used FHA to purchase my first home and it worked out great. A good thing about it is that you are required to get an inspection and the house has to be up to FHA standards.