Saturday, August 7, 2021

Buying a house and Mortgage Tips

I had an ex co-worker who moved from Texas to Pennsylvania and is asking for tips on how to buy a house. 

I have been asked a few of those questions in the past so I thought I should start putting it here so next time someone asks me, I'll just point them here, lol

Disclaimer: I  am in no way an expert but I have learned a lot from my husband who is tax savvy and by observing friends and listening to friends house buying horror stories. Also most of this is in Pennsylvania which has fairly lower real estate taxes than say, New Jersey.

Here goes.

Oh, before I continue, if you're here for the mortgage tip, just scroll down to the bottom. It's after the meditation image.

Tips when buying a house/condo/townhome

1. Stay away from properties with HOA (home owners association fee), it piles up.

Usually, they are for swimming pool, for lawn mowing & snow shoveling or for anything that requires manpower to maintain whatever area that you and your neighbors share. If you think you can mow your own lawn and/or shovel your own front yard & you really don’t need a swimming pool, then HOA property is a no-no. 

bonus points if you know why i use the flamingos in my HOA post :D

Average HOA is $200 according to google but when I asked my friends, it is always $300-350 a month. Multiply that by 12 is $3,600 - $4,200. Some states or county are even higher. That is a lot of money. Wouldn't you rather spend that on your vehicle loan or yearly travel expenses to some place nice? Or, to the more frugal, for your S&P 500 index?

Besides, mowing the lawn is good exercise.

P.S. also developments with HOA are very strict. They even tell you what kind of curtains you can put on your window. 

2. Do not forget REAL ESTATE taxes.

Some people buy properties thinking they hit a jackpot because the house is cheap and their mortgage is low. Then comes the time to pay real estate taxes and that’s the only time they realize their mistake. 

Remember, real estate taxes are forever (for as long as you own the property, ofcourse), even after you pay off your mortgage.

Here's the rule, real estate taxes depends on which State and which County and how big your house is.  Let me repeat that, real estate taxes depends which state, county and size of your house. 

For example, real estate tax in Pennsylvania (PA) is lower than New Jersey (NJ). real estate tax in Montgomery, PA county is lower than Bucks, PA county even if they are just right next to each other.

Tip: (a) the closer you are to malls and other corporate offices, the smaller the real estate tax is, (b) the bigger your house, the bigger the real estate tax (c) if you see more corn fields or meadows than office buildings, the higher your real estate tax will be.

Why do you have to pay attention to this? 

You probably bought a house because you're tired of paying $1,300/month on your rent, right? How do you feel then that you are still paying 1,000 in real estate per month (although usually, you pay your real estate annually, but I am just breaking it down for better visualization). Worst, you also have HOA of $300/monthly on top of that, for a clubhouse swimming pool that you never use because it always look like someone's pet has taken a bath in it.

Those 2 are the most important ones, for me. The next list below are something to consider too. I call this the medium-level "watch outs". In no particular order:

1. Ask if the property uses gas or electric. Gas is cheaper. So opt for gas.
2. Corner lot might be tempting but you will be dealing with a lot of traffic since you will have at least
        2 streets wrapping around your house. I don't know with you, but I hate the sound of passing cars.
3. Cul de sac is the best location. Safer for the kids (not a lot of traffic). You might say, "but if we have
        a big yard, why would I let my kids play outside in the street". Well, that's a good point but in my
        case, my kids like to ride their bikes and scooters outside on a paved floor, so... 
4. If you do get lucky to get a property in a cul de sac, don't get the house at the dead end of the cul de
       sac. Why? Because you will have headlights shining at your  house the whole time. Well ok, not the whole time but when it starts to get dark until all your neighbors in your cul de sac are home.
5. Check the school district. Make sure the public school has good reputation. But if you're planning to
       enroll your kids to a private school, then you don't need to check this, but you might want to find a
       house closer to that private school. 

google image of cul de sac with kids biking

6. Think "resaleability". I know, I know, you're madly in love with that property and you don't see
       yourself selling it, like never in a million years! but hear me out. We don't know what the future
       may bring. You might win a lottery and decide to live somewhere in Italy or go back to your home
       country. Or the location you chose is suddenly infested with drug addicts, etc. Fine, I'm being
       paranoid but it won't hurt to plan ahead. So, here are some things that buyer looks for:
    a. Atleast 3 bedrooms
    b. Atleast 2 1/2 baths for a 3-4 bedroom house (you don't want 3 people lining up to take a shower 
            in 1 bathroom)
    c. Basement (finish or's like a bonus room for buyers)
    d. Central air (for convenience plus if you want to do this later, you would need to tear down the
   better if this is already in place) 
    e. 2-car garage (one for mommy and one for daddy, or if you only have 1 vehicle, 1 for the guest)
    f. Garage is attached (you don't want to be running in the rain with a bag of grocery from your
            garage to your house, I assume?
    g. Cul de sac (less traffic and you won't have cars speeding up and down in front of your house).
    h. Swimming pool might be tempting (think of all the pool parties!) but no, don't do it. Believe it or
            not, buyers don't like pools because it lowers the resale value of the property, it's a maintenance
            nightmare (we have a friend who has a pool and it's just headache after
            headache), expensive to maintain, and increases your home owner's insurance....still not
            convinced?    here : things that don't add value to your home.
    i. Pond/Lake  This one’s tricky. pond or lake might not be a good idea too because kids can drown and parents can sue you for that. Although if you really want a pond/lake just ask what your  responsibilities will be for that pond/lake. Also, ask your home insurance agent what your
     owner's home insurance will be if you have a pond/lake in your vicinity (aside from drowning
            accidents, there's also a question environment responsibility associated to it).
    j. Trees. Be mindful of the trees surrounding the house. What's wrong with trees? I love them too but
            see if any of the tree looks like it will fall anytime soon and worst, if the tree will fall directly on
            your roof. Also ask yourself, will you be willing to cut off trees, at your own expense, if the next
            buyer wanted you to lose them (cutting trees are 500-above depending on the size of the tree)?
   h. Backyard. There are so many holidays in the US that are barbeque worthy. Need I say more?
   i. Location-location-location! is it near a grocery store or school? Is it near a sewer plant (those
           sometimes stinks and make your basement get flooded)? Is it near a Firehouse (you don't want
           those siren waking you up in the middle of the night).

google image : swimming pool

The rest of the list below are just aesthetics and low priority.

1. If you're into feng shui, it says near a cemetery is bad luck.
2. Stay away from flat roof as they leak a lot.
3. 4 or more steps before reaching the front door. Sounds innocent right, but imagine yourself hauling
         groceries. Ok, you're fine with that, but how about if some big furniture needs to be delivered to
         your house? Not your problem? Ok. How about if there's a freezing snow while you were away,
         and ice is on your front steps? 
4. Know the movement of the sun around your property. Are you raising your eyebrow? No, this has nothing to do with paranormal or astral thingies. I'll give you 2 examples why this might be important.    

a.  If you're thinking of installing solar panels on your roof, you might want to know where the sun rises. Some people does not like seeing solar panels visible in front of the house, they prefer it installed at the back side of the house. But if there’s not enough sun at that part of the property then you have no choice. Anyway, if you're one of those people who likes a good curb appeal but also want a solar panel, then yeah, know your “sun”. 

 b. My husband wants to have the morning sun shinning through the kitchen, so he chose the house where the sun rises where he wants it to be. So if you like to drink your morning coffee while watching the sun rises or do meditation during sunset, then you might want to know your “sun”

c. some plants needs morning sun and dappled afternoon sun (like the big leaf hydrangea)… if you’re into gardening, you definitely want to know if your plants will have enough sunlight….

google image: sunrise meditation

There you go. I hope those tips helps.
Now, what's next? 
Read on.

How to pay off your mortgage quicker

Disclaimer: We did not invent this tip and it's been around for a long time it even has an official name, but sometimes, things that are too obvious are the ones hardest to spot until someone pointed it out. 

Once you have decided on a property and got approved for a bank loan (if you have paid it in full then you can skip this part), don’t forget to request for a copy of the Amortization Schedule sheet from your bank. This is a computation of how much interest and principal you pay every month (or paycheck) to finish your mortgage. See sample below.

sample of amortization schedule

This is the most important tool you need to help you pay off your mortgage sooner. 

The trick is simple. Every time you pay your monthly mortgage, you need to pay the current month's interest plus principal plus the next month's principal (see above photo for illustration, pay attention to the colored boxes). It's called "Double Principal Payments". It’s nothing new really. So basically you are doing 2 Principal and 1 Interest every payment schedule.

Like I mentioned above, doing this will help you pay off your house a little quicker but you need to do this early on while the Principal is still low. Otherwise, if it's later in the amortization schedule, the Principal amount will be too high that your budget might not allow you to do this trick anymore. 

The next thing you need to know for this trick to really work for you is that you should be able to do this for as long as your budget allows you. If you can do this for 5 years, you will be able to chop off up to 5 years off your mortgage (ex: from 30 years to 25). You will be able to rip through your amortization fast.

Case in point. My husband paid off his 30-year mortgage in 17 years by doing the "Double Principal Payments" for 13 years. He stopped after 13 years because the Principal is already too high that he can't afford it anymore (this is why it's important to do this trick from the very first payment). In spite of that though, he was still able to chop off almost half of his mortgage. I thought that was pretty good. 

You have to get a copy from the bank, and mark it diligently every time you pay your mortgage and keep all receipts. At some point the bank might get confused and this is when your documentation will come in handy.  

Don't even try to compute this on your own, you have to use the copy from your bank to make sure you are both in sync with the numbers and such. They might charge you $10 for a copy of the amortization schedule, but it's a $10 well spent.

Good to know: Home mortgage interests is deductible on a Schedule A, meaning you can write this off on your tax refund. This mortgage exception is only for home mortgage interests and not the principal. Other samples of Schedule A items are charitable contributions, state income tax, local income tax, real estate taxes. Note that there is a $10,000 limit. Meaning you can only write off until $10,000. So if the total of all your Schedule A items amounted to $12,000 you can only claim the exception for the 10,000.

Good luck.


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