posted
I've gotten tired of spending 750 bucks to live in a remodeled garage, and I'd like to start building up some equity. Basically, I need to know what types of things I'll need to deal with and figure out for actually getting a home loan. What extra costs are incurred when buying a home for the first time? Anyone have any bad experiences? Good ones? What should I look for in a Realtor? What should I look for in a first home?
Posts: 3003 | Registered: Oct 2004
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I'm going to leach onto your thread, because if I move in the coming year, I really want it to be into a house and not another rental where I watch the rates go up faster than my salary.
I know we had a thread about this before, but it's a different world now. Call me a bottom feeder for thinking of it, but are foreclosures a good buy? How the hell do 'points' on your loan work? I know ARMs are the devil, other than a 30-year fixed mortgage, are there other alternatives out there? There was at one time (I think) government programs to help with a first time home buyer, is there anything like that today?
Posts: 1368 | Registered: Sep 2002
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I'd say one of the best places to start is sitting down with a loan officer at a bank. They can break down all the options for you and probably point you to a bunch of first-time homebuyer services you weren't aware of before. It really helps, going in, to know how much home you can afford and what kind of help you can get.
With our first home we actually talked to the real estate agent first, because he was someone we knew, and he directed us to a loan officer he worked with. She turned out to be extremely helpful and probably made the difference in how much home we were able to get into. She answered a ton of questions we had about the different types of loans, and helped us get a nice grant towards our down payment. Armed with all the information she helped us gather, we went out home shopping with our agent pretty confidently.
Posts: 5957 | Registered: Oct 2001
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If I move where I think I might, I know some relators I'll either hire or ask for a reference. I'll probably take the same track then, and talk to them to look into a loan officer they've worked with in the past.
Part of my worry is that I won't even be able to afford a house. That's part of the reason I suspect I'll have to move to make it a reality (shame, I liked Phoenix).
Posts: 1368 | Registered: Sep 2002
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So we just bought our first home. We took advantage of both federal and state subsidies for first time homebuyers. We found about them through talking to a loan officer from Bank of America. It saved us about a half percent off our APR.
Points are essentially ways to buy down your interest rate. You can pre-pay some number of points in order to get a lower percentage. I found that unless you planned to be in the house for 15+ years the points weren't worth it (on a 30-year fixed like we were looking at).
Before entering into a relationship with a realtor, I'd recommend meeting with a loan officer to get a feeling for what sort of price range you could afford. We ended up working primarily from ZipRealty.com, which let us look at various homes online. We essentially did all our own leg work, and then only brought in a realtor at the very end. Because we performed our own search we were able to negotiate a bit off the closing costs with the realtor. When we buy our next home I imagine we will bypass the realtor completely and simply hire a real estate attorney directly to push the paperwork. Realtors provide good service, but (IMO) their utility is decreasing as people are getting more able to do their own home searches.
So, now comes the bad experience part of my post. When the closing date came we were informed by our bank that they had "lost" our paperwork and wouldn't be able to close on that day. This resulted in significant problems for us. Luckily (or, actually, unluckily as it turns out, but more on that in a minute) the owner allowed us to move in on the date we'd planned, even without closing. They had already moved out, and so we agreed on a short-term lease.
The day after we moved in (and three days before we planned to close), while we were away at church, a fire broke out in the kitchen, essentially destroying the interior of the house (although the structure wasn't damaged). This resulted in (so far) eight months of legal headaches, extra costs and various other problems. My advice: don't move in before you own the home. And if you do, make sure you have renter's insurance. If it weren't for our insurance, we would have been financially ruined, which would have been way harsh after spending years saving up for our down payment.
So what other advice do I have. You might go to a first-time homebuyers course. These may cost a little (ours was $100), but are often requirements for federal/state subsidies, and they can help explain the process, the documents, what each of the individuals in the process do.
Another thing to keep in mind is how much you want to put down, and if it's less than 20% whether you want to take out an 80/20 loan or pay Private Mortgage Insurance. The bank charges a monthly fee (of a couple hundred dollars) if you have less than 20% equity in your home. If you put down 20% or more, you won't have to pay. 80/20 loans essentially amount to taking out two separate loans, one (for 20%) to cover the down payment, then another for 80% to cover the rest of the mortgage. This helps you avoid the PMI, but you'll pay a higher rate on the 20% loan. It's probably worth it if you're looking at owning the home for 10 years or less, or if your Bank charges a reassessment fee to recalculate your equity in the home. Otherwise, you're stuck paying the PMI, which (at least in our case) would increase monthly payments by about 10%.
If you have any specific questions, feel free to email me and I'll try to answer them. That said, I've only bought one home and so take all my advice with a grain of salt (i.e. YMMV).
Posts: 2926 | Registered: Sep 2005
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A house in Phx is way high. An ARM is not necessarily evil- it all depends on your situation. For example, I havea five year fixed, then balloon. Since I know I am going to move before that time is up, it is a good option. So, how long you plan to stay is something to think about. Also, consider how much you can actually pay, not how much you qualify for. We qualified for 60,000 more than we used. But we did not need that expensive of a house. Also, think about how much fixer upping you want to do. My next house, I would be willing to recarpet, repaint and retile. I will not replace toilets of bathtubs or knock down walls. But my brother actually prefers a house where he can do all that stuff.
Posts: 1001 | Registered: Mar 2006
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quote:Originally posted by scholar: A house in Phx is way high. An ARM is not necessarily evil- it all depends on your situation. For example, I havea five year fixed, then balloon. Since I know I am going to move before that time is up, it is a good option.
This is true, but keep in mind that (1) buying and then selling within five years, particularly in a flat market may actually be (from a strictly financial perspective) worse than renting, and (2) setting a fixed horizon to sell by can decrease the amount you are able to command at re-sale point. Essentially, if you have to sell because your payments are about to balloon, you might be forced to take a lower offer than you otherwise would.
Posts: 2926 | Registered: Sep 2005
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When we bought our first home, no on warned us about all the little expenses. You always think about the big things, but there is a long list of stuff you're likely to forget about. Stuff you didn't need when you were renting like hoses, a lawn mower, garbage cans, curtains for the windows and the showers, a door mat, a rake for the leaves, and so on. None of its big stuff, but it adds up. If you've just put everything you've got into a down payment all those little things can come as an unexpected shock when you move into your first home.
Posts: 12591 | Registered: Jan 2000
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posted
Given the conditions here at my location, I'm staying a renter. However, I'm interested in learning this stuff, so thanks for sharing this info, it's appreciated.
posted
I have a bunch of other reasons for my move out date that can't be changed. Since my move out date is pretty firmly set, the balloon won't be why I sell. My market is also a bit weird. My tiny one bedroom apartment actually cost more per month then my three bedroom house. This changes the math a bit. I am not recommending that for everyone or even most people. I just wanted to point out that no rule is hard and fast.
Posts: 1001 | Registered: Mar 2006
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I was very lucky that the previous owner of the house I bought was moving into an apartment so didn't need the yard tools, mower, blower, weedeater, etc. nor the fridge. All that stuff can add up quickly.
Maintenance really is a lot. You have to paint the outside trim every x years, get a new roof every y years, paint the inside every z years, have wood floors refinished, new furnace and air conditioner when they break, replace wooden decks and exterior steps every q years, fix any plumbing problems that arise, repair broken windows, fix storm damage, and on and on. It definitely adds up. Be sure to put money in your budget for all that stuff.
Posts: 6246 | Registered: Aug 2004
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One piece of advice I'd give you from my homebuying experience is this: figure out how much you can afford to pay for a house and don't spend more than that. When I bought 3 years ago I saw a half-dozen mortgage brokers and they pre-qualified me for between 150-200K even though I'd done the math pretty carefully and knew I couldn't afford anything more than about 105K.
They're going to tempt you into buying more house than you can afford, and if you give in you'll end up with a nice house that you can't afford to buy groceries for.
Posts: 5462 | Registered: Apr 2005
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My brother bought a house using Zillow.com. Even if you don't use it to buy, it's fascinating to look around at the home values on the little maps.
If you are planning to get a home, I'd recommend spending some time getting your credit in shape before you go into the loan office. They check your credit as soon as you give them your social security number, and the very act of checking it lowers your score. So you don't want to go to more than one place (at least not as far as appying), and any issues with your credit should be cleared up before you go in. Which reminds me about that medical bill from 2003 that I paid, but is still on my credit report.
Okay, well, I don't really know what to tell you about the points. I know what they are, but I don't know if there's a darned thing you can do about them. It is a way of buying down your interest rate so your payment can conform to the forumula for your income ratio, and often these points are rolled back into the cost of the loan. Unless you're one of those freaks that actually has a down payment, and then it may come out of your down payment. Anyway, I know just enough about finance to get really frustrated by that crap but not enough to fight the bastards.
I guess one answer would be to not buy on the edge of what you can afford. Everyone in the process will push you to that edge because they all make percentages. Once they've helped you pick the house, they do make a show of negotiating the price down. Basically, they will push you toward a house that's 10% more than what you can afford, and then negotiate it into what you can afford. And I guess there's a logic to it, because they have to negotiate from the standpoing of "This is all these folks can afford, unless we really do some mortgage wizardry".
Well, apologies in advance to any realtors or mortgage bankers reading this. I know your kids have to eat too.
P.S. Some basic things are to look out for reverse growth mortgages, short lock ARMs (less than 2 years) and prepayment penalties. I think the subprime fire has cleared a lot of the brush, but you never know. Suze Orman says Americans find money more embarassing to discuss than sex, so I won't assume there's anything too basic that you might not know.
Posts: 11017 | Registered: Apr 2003
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There's a mortgage crunch, but it's also a buyer's market. I'm not quite sure how buying a foreclosure goes. I'd say there is no guarantee that it is a good deal, since the bank may be liquidating someone who paid too high a price.
Posts: 11017 | Registered: Apr 2003
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quote:Originally posted by pooka: If you are planning to get a home, I'd recommend spending some time getting your credit in shape before you go into the loan office. They check your credit as soon as you give them your social security number, and the very act of checking it lowers your score. So you don't want to go to more than one place (at least not as far as appying), and any issues with your credit should be cleared up before you go in.
I think having your credit checked because of a loan app does drop your score slightly, but when you do it multiple times in a short time period (60 days? 30 days?) only the first check has an effect. Otherwise you couldn't effectively shop around for a loan.
Posts: 6316 | Registered: Jun 2003
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We must have really been on the brink, then. As with all things, it depends. There are things you can find out about in shopping for a loan. If you're "A paper", that is, you have 2 years of tax returns showing the income level you're claiming and a 20% down payment, then you're more in control. Otherwise, there are ways to interview mortgage companies about what they offer without applying. The programs offered by various mortgage companies can vary quite a bit, particularly in the low-doc (non-A-paper) ranges.
I was under the opposite impression, that it takes 90 days for a credit check to stop impacting the credit score. Keep in mind too that one or the other of us might have gotten a bad recommendation because it's actually in the mortgage company's interest for you to have a poorer score. Does anyone out there know the real answer?
Posts: 11017 | Registered: Apr 2003
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Consumer advocate Clark Howard's site is a good resource for info, in this case home buying and credit. One piece of advice I whole-heartedly agree with:
quote: Get an owner's title insurance policy that covers you, not the lender, if your ownership is successfully challenged.
The mortgage company will get title insurance as part of the deal --you pay for it. But this protects them. You should also get title insurance that covers you. You can normally "piggyback" on the title insurance policy with the bank as the beneficiary, so the extra cost is not much.
Posts: 6316 | Registered: Jun 2003
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That he recommends getting your credit report 4-6 months ahead suggests the 90 day cooling period to me. I'm just throwing that out there because it happened to me once.
We had like 9 days to close on a house because another buyer fell through and our priority was based on being able to perform before the seller's move date. So we were looking at switching to another mortgage company, but they said our score had fallen below the threshold because of the credit check the week before.
Posts: 11017 | Registered: Apr 2003
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posted
I don't know about the 90 day cooling period. The effect is temporary though. My earlier point was that you are not forced into picking one mortgage company (or car loan company) because there is a time period where you can have multiple credit applications (for the same purpose--a car or a house) and it has the same effect as one application. I don't know the details or if you have to do anything special to get this advantage.
edit: and as far as I know, just getting your credit report on your own with no application has no effect on your score.
Posts: 6316 | Registered: Jun 2003
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I just recently bought a home. There was a 25 dollar class at my local college on home buying. I learned a lot from that class. Essentially I focused on my credit score (it was very mediocre due to not being good at paperwork more then not having money) and securing a loan.
I went to a loan officer and talked about options. He was highly recommended. We looked at my credit report. He closed some old college credit accounts. He gave me numbers to call to see if people would take dings off my report (they did...it was only for minor things like a gym account I never used and a lost credit card that I never paid a couple dollars on.
I got pre-qualified so I knew exactly what I could afford. I then spent three months looking for my ideal house. (We had the 20% down payment already saved).
We found it. Since everything was already prepared, I could act that day. That was nice because the housing market here is still high. The owner lived in Florida. He wanted to dump it because he used to rent and the renters were inconsistent with paying him (I found out later).
It was $30,000 below local market value. I jumped on it an hour after it opened and sent the $1000 earnest check immediately. After the home inspection, I requested another $10000 off (just to see if I could). He complied with a $5000 off counter offer.
My advice is to not even look for houses until you have your finances and credit secured. It was kind of cheesy, but one thing the mortgage class pounded home was, "Luck is when preparation meets opportunity."
Here is the money you need to look at:
You want at least $1000 earnest money you can put down to lock in your deal. It also sets a date when you have to pay for the house.
I forget what it is called, but it acts as a contract of sorts. It is called earnest money...thanks pooka!Once it is down in escrow, then you are committed to buying and s/he can't sell it to someone else who offers a lower amount. If you back out without a contractual reason, they keep the $1000.
A couple hours after we put my $1000 in escrow, he started to get offers at market value.
You can only back out if you have conditions set in....my conditions included a good home inspection report with nothing wrong with the foundation or ceiling. Your conditions leave you some room to back out as a buyer.
You want 0%, 10% or 20% for a down payment depending on the type of loan you get. I would try for the 20% down to get a lower rate and not have to pay mortgage insurance.
You also want some cash on hand to pay your loan processor. Everything else can be rolled into your loan. I think....
You also want to get a good home inspector. Mine was around a 100 dollars, but he did a very thorough job. Since inspectors aren't licensed, you should find one that is recommended.
Hmm..is there anything else? I will check my journal. Once started, everything blurred together.
EDIT: clarified the 1000 dollars is called "earnest money" per pooka's correction. Thanks pooka!
It's only recently that you could check your own credit at no charge or without a ding, and it's free once a year. Other times you can pay, but it shouldn't ding the credit.
Posts: 11017 | Registered: Apr 2003
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posted
I've heard (from a personal finance book & our car loan guy) that you can have your credit score "pinged" multiple times within a two-week period, and it will have the same effect as one check. I'm not sure how long the (small) damage takes to clear out.
Abhi and I are considering looking for a house or condo, altho we probably won't start looking seriously for at least a year. I expect the market in the DC area will be even better by that point, considering the number of condos currently being built in the area.
I do have some concerns though - location to keep the commute down for both of us (currently an hour round trip each in opposite directions), and the fact that we will likely have a set move-out date in five or so years (altho there's lots of work for professional economists in DC). The need to sell in five years is the biggest issue - the market will likely be picking back up by then, but there's no guarantee, and I'd hate the hassle of renting it out.
The company Abhi was previously working for was bought out, which left us a nice nest egg which could go towards a down payment. Does anyone know if putting that money into a house (or any other financial instrument) would help us from being killed on taxes?
Posts: 2409 | Registered: Sep 2003
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I'm not a lawyer or a CPA, but FWIW: Mortgage interest is tax deductible. That's the main tax implication of home ownership. Also, you have to own a home for over 2 years as your primary dwelling to not pay Capital Gains Tax on it.
I think I'm seeing the trouble now, multiple checks count as a single ding, but the single ding still has an effect. Well, we were kind of out of the shopping-for stage at that point. This was the transaction that happened when I had 5 broken ribs. Like lem said, it would have been nice if we had been prepared, and we were not entirely unprepared.
quote:I do have some concerns though - location to keep the commute down for both of us (currently an hour round trip each in opposite directions),
Yuck! Why?
I'm pretty sure the DC area will grow more after the election. It has not lost much ground compared to the rest of the country.
Posts: 11017 | Registered: Apr 2003
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Well, if they're commuting in opposite directions they can't really make the commute shorter for one without making it longer for the other. An hour round trip in DC actually sounds pretty good.
Posts: 5462 | Registered: Apr 2005
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But is it really an hour or effectively 2 1/2 hours on a normal day? I guess that's more what I'm wondering.
Posts: 11017 | Registered: Apr 2003
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It really is an hour (occasionally slightly longer), which, as JT points out, is pretty good for the DC area. That's why I'd be hesitant to move from our nice apartment to a condo, unless the location were equally good.
For those familiar with the area, we live in Rosslyn, Abhi works near Tyson's Corner, and I attend school at Georgetown. There's no parking near the university, so I either walk, bike, or walk to the free shuttle. I love the walk over the river (and it ends up being good exercise if I'm running late for class), but it takes about 30 minutes door-to-door. Abhi has something of a reverse commute, but the traffic around Tyson's Corner is always a bit hectic, so it ends up taking a good 30 minutes for a 15-mile drive. But, like I said above, in DC that's really nothing to complain about.
Back on the housing issue, I have no doubt that DC will continue to grow in the future - it's not like the government is going anywhere. But given the extensive building taking place right now, along with the nation-wide housing market issues, I suspect that the local market is going to stagnate for a least a year or two.
Posts: 2409 | Registered: Sep 2003
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This issue is still looming in the front of my mind, particularly now that I know I'm staying in Arizona for the immediate future. I'm planning on taking first-time home buyer's courses as soon as I find ones that aren't being solely offered by a realtor (rather go the unbiased route, as much as possible).
Gut-check question: Is it possible to purchase a home (say $190,000 give or take $10k) with a $45,000 salary? I have approximately $7k worth of car and student loan debts remaining to my name. Down payments would be minimal to absent (depending on closing costs), so PMI would be a must unless I go hat in hand to my parents.
I'll be talking to Mortgage Expert soon (with Bank of America), but for now... Realistic possibility?
Feyd Baron, DoC
Note: While equity is nice, the aim of buying a small home in my case is to pursue hobbies and interests in. It's hard to build furniture in your apartment (or even RC airplanes)...
Posts: 1368 | Registered: Sep 2002
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posted
Kinda depends on the cost of living there, but it's doable, although you may be squeezed pretty tight. $190,000 at 6% is $1,139.15 a month, not including taxes. If your current apartment includes W/S/G in the rent, you'll have to factor those costs in as well - not to mention insurance and PMI.
If you can rent a room to someone, it becomes a lot more feasible.
Posts: 4313 | Registered: Sep 2004
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It may be difficult for you to get a loan for a little while, depending on local factors and further factors specific to you. If you had a normal-ish down payment, you'd be pretty likely.
Be warned, housing prices are likely to decline in real dollars for at least the next five years. This matters less since you aren't looking for equity.
Posts: 15770 | Registered: Dec 2001
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quote:Originally posted by pooka: There's a mortgage crunch, but it's also a buyer's market. I'm not quite sure how buying a foreclosure goes. I'd say there is no guarantee that it is a good deal, since the bank may be liquidating someone who paid too high a price.
I know that in FL there are some incredible deals out there, even if you don't have great credit. There is a house I am looking at now where the value is about $110,00, and $58,000 was paid before foreclosure.....and all the bank wants is someone to take over payments and pay closing costs.
I am seriously considering it, depending on how things go at work. Posts: 15082 | Registered: Jul 2001
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quote:Originally posted by pooka: There's a mortgage crunch, but it's also a buyer's market. I'm not quite sure how buying a foreclosure goes. I'd say there is no guarantee that it is a good deal, since the bank may be liquidating someone who paid too high a price.
I know that in FL there are some incredible deals out there, even if you don't have great credit. There is a house I am looking at now where the value is about $110,00, and $58,000 was paid before foreclosure.....and all the bank wants is someone to take over payments and pay closing costs.
I am seriously considering it, depending on how things go at work.
I'd be careful with a foreclosure property. I did a bit of research on it myself and there's a bunch of stuff you need to watch for. This site has a pretty good introductory to foreclosures in it. The basics, if the bank won't let you inspect the house or examine the title on the home, there's likely a major pitfall in there. For instance, the foreclosees may have done considerable damage to the interior of the home to take out their anger at getting foreclosed (particularly when they had a good bit of equity, such as in the house you mention), and if the previous owners had a lien against the title of their home (also likely, since they might have taken out additional home loans to keep themselves from going under as soon as they could have) you are liable for the payment on all of those accounts if you purchase the foreclosure. Anyway, give that a read and see what you can find out Posts: 3003 | Registered: Oct 2004
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Foreclosures right now also are not that cheap. Because a lot of the foreclosures where on houses bought when property costs where high and where bought with interest only or other weird mortgages, they can be just as high if not higher then a normal home purchase. Plus you have usually a fixer upper. I personally would not go more than 3X your yearly salary for a home (so about 150,000). In PHX, prices are dropping so you might actually be able to find something in that range.
Posts: 1001 | Registered: Mar 2006
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