The lesson out of this should be that it’s not ALWAYS a good idea to buy a house. In many situations it is – but if you’re borrowing so much that small financial problems can keep you from making the payments, you should put it off until you can make a bigger downpayment. If you can’t afford the 5% that has been generally considered the minimum in the past, you probably shouldn’t buy. A bigger down payment is better because you get more wiggle room, but doing a zero-down home loan is risky on its own if there’s a chance you might have to sell later on. It’s very easy to get “upside down” if prices drop (where you owe more than your house is worth). A lot of people have been using little tricks like this for the past few years to get houses that are a stretch for them to buy. Now it’s coming back to bite them.

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And I’d think about reading blogs as a way to find an agent. It’s kind of strange to have it replace word-of-mouth or recommendations from friends, but you can get a pretty good idea of how knowledgeable someone is about their work by reading what they write about it. It’s hard to figure out whether they’re a crook or some of the other potential pitfalls, but those are a lot easier to figure out in other ways than whether someone knows their job. All it took me was a quick Google search for Austin real estate blog to find this one.

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1) They overpriced the home.

2) They had a lazy / bad broker who didn’t work to sell the house – and bungled the bids when they got a few.

3) They left it empty instead of “staging” it.

4) They moved out before testing the waters with the old house, and carried two mortgages.

The end result is that they’re running against the clock – at some point they have to sell the thing to make payments on the new mortgage, because right now they’re double-paying each month. That’s a bad situation to get yourself into – but you can take heart in that from what the story sounds like, you’d pretty much have to make ALL those mistakes to get that far along. If the broker hadn’t bungled the bids, they’d have sold above market. If they’d started out lower, they probably would have sold a long time ago. And even though they moved out before getting a good idea of what the market was like, they did at least have enough money to last six months without a sale. The last two may be debatable as to how much they constitute a mistake, but I think it’s safe to say they could have set up the transaction to run a little more smoothly by either doing more research or showing it before they moved, just to see what happened. At any rate, it’s something to be careful of – if you end up in that worst case scenario, you might have to be willing to knock quite a bit off your home price just to get out.

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For one, the information on how mortgage brokers operate is useful even if you don’t have an ARM. Most of the people who got into these problems did so because they didn’t read the fine print – they trusted the advertising or verbal assurances which turned out not to disclose everything. And people are still buying these – some states have up to 50% of new mortgages being set up as ARM’s. The problem is essentially that while there is a low minimum payment, by making it you’re adding money onto your balance (whereas a normal mortgage gets lower each month). Over time, that causes a big problem – and interest rate shifts make it worse because your rate isn’t tied down. As the article points out, this might also affect you by pushing down the value of your house – as people with ARM’s are forced to sell, many areas could end up as buyer’s markets.

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It’s also important to know that this average is skewed upward by the crooks. The highest overall set of charges was $11,395 – 6.3% of the loan amount! The best was a little over a thousand dollars.

Also remember that these numbers are VERY useful for negotiation purposes. Point them out to your lender and ask why the heck they’re charging so much compared to everyone else. You might be able to get the closing costs knocked down.

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My guess is because of local differences like this, you should take the numbers with a grain of salt. But for people who have yet to settle down permanently, they’re a good way to help you decide where to move if you want to end up in a bigger, cheaper house. Even if you like the city and aren’t willing to move out to the ‘burbs – which city you pick makes a big difference. Pick D.C., and you’ll pay about $800,000. Go to Philly instead, and you can get in for a little cheaper - only about $520,000. Go with New York, and you’re out $700,000 to $900,000 (depending on where you end up).

A lot of people think this doesn’t matter – but it can be the single biggest personal finance decision you make. Your house is going to be your biggest expense, period. It’s usually around one-third of your income. If you get similar pay in a cheap city, you can cut your monthly expenses, big time. Let’s say you’re picking between D.C. and Houston. That’s $800,000 vs. $155,000. In D.C., at 6% interest, that’s $4,800 a month. In Houston, you pay $929 a month. In reality, you’d probably just live in a tiny apartment in D.C. versus a house in Houston. But let’s assume you’ve got a real choice – same house in either city. How much could you save over time by picking the cheap city? $3,871 a month – at 9% a year – or about $2.4 million at the end of twenty years. So if you do it soon enough, pretty much all you’d need to do to retire is move off to a cheaper city. Most people don’t make anywhere near enough to afford a $4,800 mortgage, but they also don’t need $2.5 million in retirement, either.

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From Greg:

Whether you can get more blog traffic by posting on weekends, how you can lowball a home seller by being selective about when you make your offer, when the best time to list your house is, and problems that come up by moving before or after a closing date.

From Ardell:

Posts on how to price a house to take advantage of online listing price ranges, home staging, and a high school turned into a set of condos.      

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Remember that you’re paying for every penny that new Lexus costs. No one is giving you anything for free – if the person selling you a house is willing to buy you a $30,000 Lexus, they’re willing to cut the price of the house $30,000, too. They give you the car because they know many people will let their emotions rule and go with that house because it feels like they’re getting something great for free. It makes that house deal less boring and more fun. But complicated financial transactions aren’t supposed to be fun. “Spicing them up” by settling for a bad deal isn’t a good idea.

The other problem is that many sellers giving away these gifts insist that you act within a very short time frame. So not only are you basically buying something for yourself with your own money, you’re also forcing yourself to act within a very short period when you can’t fully mull over whether you really want that house. Don’t turn your brain off just because someone flashes something shiny and expensive in front of you.

When is it a good idea to accept the “free stuff”? Only when it’s something the home seller could be able to get a better deal on than you. For example, take landscaping. A construction company can probably get this done cheaper than you can – they do it all the time and know the local markets better than you do. So something that costs you $5,000 may cost them $3,000. They may be willing to cut the home price only $3,000 – but they’ll give you something worth $5,000 to you. But if we’re talking about a trip to Jamaica, there’s no reason they’re any better able to buy it than you. So they’d probably be willing to cut the price by the same amount as the value of the vacation. So watch out, and don’t get suckered into buying a house you don’t really like because of the extras you could buy on your own anyway.

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