First Time Home Buyer Questions
When I was a kid, my Dad would play 20 Questions with me on long drives. In case you’re from Venus and have never played that game, goes a bit something like this- first few questions are very vague for the purposes of trying to narrow down the category of what the endgame is. Since I’m pretty sure everyone in existence knows how to play this, not gonna bore you and myself going through what that looks like. Long story short, person 1 asks a question and person two can only say yes or no. My everyday life as an agent is a game of 20 Questions, except there is rarely a yes or no answer. Some are elaborate and situation specific and require work and investigation. Most, however, are pretty commonplace and easy to figure out. And every time that I get asked these my client usually apologizes for asking the “dumb” question and I reply with, “no question is a dumb one.” While that isn’t necessarily true and I do get some truly common sense questions, it can feel a bit that way when you’re buying or selling a home and it isn’t second nature like it is for me at this point. I’ve gotten down a list of questions to go over that I’ve narrowed down to what I consider important and relevant to transactions I’ve had this year. Basically saying- You have no excuse to ever hit me with these questions ever again. Sorta kidding. But I’m going to literally send you this article if you do.
Can I buy a property as a primary residence, fix it up, and then rent it out?
To start, there are three main types of mortgage loans- primary residence, investment property, and vacation home. If you’re thirty years old and you’re buying a vacation home, I need to hang out with you more often because none of my close friends are those people. Therefore, gonna focus on the other two types. They’re pretty straightforward- one is going to be where you are going to be living after you buy it, the other is a property you’re planning on renting out and making an investment off of. I had someone ask me last month if he would be able to buy a house below what a fully renovated property might go for, live in it for a couple months while some renovations are done and then find a renter. While this isn’t something that my client might have been able to know, that’s considered mortgage fraud. Fannie Mae regulations state that if a property is bought as a primary residence (better insurance rate, lower down payment options, easier qualification) it must be lived in for a full twelve months before you’re able to either 1. Buy another property as your primary residence or 2. Get a renter in the property under a lease without you living there. Best case scenario for doing this: do your renovations while you’re living there and refinance as an investment property to avoid any complications. Decent chance with the fast-rising equity market that we’re in that you can get some of the closing costs paid for by the lender.
Should I buy now with a small down-payment and higher rate or save up and have a lower rate?
Disclaimer before I start- I’m always gonna say you need to buy now. Rates are stupid low right now and who knows how long that’s going to last. Been saying it all year, but election years are always insane when it comes to financial markets. Just take a look at the absolute slaughter going on with the stock market right now. Rates have stabilized some and they’re still rock bottom. There are advantages to waiting and saving for a more sizable down payment, but with our current market they’re dwarfed by the options to be able to buy now and let your house work for you. It’s like buying mutual funds and letting it mature in the market without you even having to work to make it grow. Usual market growth might look like a 3-5% yearly gain. This year, from January to September we already have 15% median price growth in Davidson. Don’t think there’s really much else I need to say on the topic. Buy.
What do I do if there’s nothing in my price range where I want to live?
In the year of absolute zero inventory, this has been the most common problem that I’ve come across. Here’s an example of a situation I’ve had for some clients for the entirety of 2020 (and Q4 of 2019), before all of our lives were turned upside down by this stupid global pandemic. We were under contract in the first quarter of the year for a new construction house. Place was sweet; in Franklin, had everything we were looking for, brand new. Unfortunately, COVID did it’s thing and screwed it all up. Came back to the market a few months later, and it was all dried up. We were looking for something in Franklin with 3,000 square feet, built within the last five years, and under $600,000. In other words, I was expected to walk into the middle of Demonbreun during rush hour and find a pot of gold while not being run over by a bachelorette party in an Uber. If you’re dead-set on your price point in a particular area but you’re never getting good results in your search, it’s probably time to realize one of two things- you need to up your price point, or you need to look in a different area outside of your number one. It sucks, but sometimes you need to know that every other buyer is looking for the diamond in the rough that you are. I was able to get these clients under contract for a similar property fifteen minutes away from what they initially wanted for $120,000 less. Let that sink in. That is a mortgage payment that is at least $560 less than what they would have originally had. We didn’t have to fight 17 other offers, didn’t have to come in way over asking. It was a breath of fresh air just because they were finally willing to have some flexibility. Stick to your guns if you want and fight the bad fight, but my advice is to broaden your horizons when the home search goings get tough. Another tactic to try and utilize if you have a decent down payment and are willing to up your purchase price, you can go in without an appraisal contingency knowing that you’re taking the risk of it being valued below asking price and you have to pay the difference.
What’s the best area of Nashville for me to buy in right now?
This is a super ambiguous question, but one I get surprisingly often. This is a very specific question that can have different parameters for every person that asks it. Do you like parks and green space? East Nashville is a good spot for you? Like to leave your car unlocked at night and a duffle bag of cash in the front seat? Then East should probably move down your list. Looking for great school zones with a moderately sensible cost? Mount Juliet is a great place to start. Want a bunch of locally owned restaurants and breweries to frequent around your house? Mount Juliet is super limited in that regard. Each neighborhood has it’s pluses and minuses, and it’s really up to you to figure out what matters most to you. Nashville is a tsunami for home values right now, and the rising tide raises all ships. Find what you’re looking for in the extra-curriculars and attack that market.
There are hundreds of questions that happen throughout each transaction; and rightly so. If you’ve never bought a home before you need to be asking those questions. There’s never a time that a question is asked that I’m going to get noticeably annoyed with you. If I do get annoyed, I’m going to tell Hillary about it and you’ll never even know anyway. My job is not limited to filling out contract paperwork, go to showings and inspections and collect commission checks. The majority of my job (in my opinion and I hope is the opinion of my clients when we’ve completed our transactions) is being a teacher of everything that the buying and selling process entails. It’s a beast that takes constant taming, and you need someone with the tools and temperament to help you walk through it successfully. As we roll into 2021, I hope that I get the chance to work with you or someone you care about to be a resource for the opportunity of being a home owner.