A total noob to buying a first home! MEGA Questions:

[Zeze]

We finally found a place we really like (in Northern NJ). Let's get to them.

Pros:

1. We saw about 15 places so far. Some terrible houses at 450-520K range so far- some have water damage and shit. This one is a slam dunk in terms of renovation. Everything is sparkling new.

2. In a nice suburban area. Unlike busy streets, the houses on the road are spaced well, and have deeper front lawns, making for a picturesque block (if you do google street view)

3. Nice fully fenced backyard with a good porch space. Well kept.

4. Again, the house is in immaculate shape. Cleanest house we saw out of 15-20.

5. Ridiculously large master bath & finished basement

Cons:

6. This area seem to have shitty school system. Their ratings are 3-5 out of 10 compared to our original area which have 8-9 scores (via zillow)

7. This place is over-renovated and priced highly for it. In other words, the entire block & other blocks nearby, this is the most expensive property at $509K. Along 3-4 avenues, literally other 50-60 properties are all 350K to 425K. I don't think this is good (what about when we have to sell it down the road? this is unlikely our perm home) What are your thoughts?

8. One BR is painfully small. The basement is nicely finished but rather small.

9. Overall, home is bit on a smaller size- very similar to your first home with Shilpy, but it has upstairs with BDs.

10. I'm not 100% happy with the layout. The livingroom with fireplace is a 'dead space' where you can't put a TV in it. The actual expanded entertainment space is rather small, but it's enclosed. No bathroom on first floor. Must go up or down. No big deal i guess, as master BD has its own bath.

11. No central AC- estimate received at 10K.

Other things:

Home has been out on the market for 130 days. New price drop to 509K from 525K- my agent tells me because it was overpriced (see #7), it is still on the market.

Home Improvements: The seller printed a list of improvements to justify their price:

1. Boiler 2001
2. Water heater 2012
3. Electric & plumbing 2010
4. Fences 2007
5. Replaced the deck & handrails 2007
6. Kitchen renovation 2010 (beautiful)
7. Basement refininshed 2011
8. Basement bathroom 2011
9. Master closet 2011
10. Front door 2011
11. Crown molding & new wall skin coat the whole house 2011
12. Re-polished wooden floors 2011
13. Above ground pool 2012 (ewww)
14. White carrera marble bathroom 2012
15. Roof, gutters 2014
16. Siding & 2/4" home insulation
17. Windows 2014
18. Garage door 2014
19. Blue stone / brick front steps 2014
20. Aluminum handrails 2014
21. Shed 2014
22. Laundry room 2014 (really nice)
23. Underwater sprinkler system- 2 zone, rain sensitive

Questions:

1. I'm concerned about #7 (over-renovated, most expensive in all homes), because I have an assumption that it may not sell as high down the road when we look to move (7-12 yrs?). Or 1 house being too highly priced in the middle of all other homes at much lower is not a good thing (which I can't seem to articulate actually). What are your thoughts?

2. My agent tells me she'll do her research as to what would be our offer price. But it's not in my nature to trust people in business because we all know, no one has your best interest but yourself. Can I pull an figure out of my ass and put in an offer for 450K? That would be insulting, you think? Or put it in 475K and expect a counter offer? Because the home is beautifully finished (truly outstanding in the entire block), I did see good traffic during this open house.

3. Other thoughts? General feedback and whatever comes to mind?


----------- OP below---------
Total noob here and I just started to research. I thought I'd start asking questions here. I live in Northern NJ and look to buy around that area within reasonable commute to our work in Jersey City and NYC.

When to buy:

1. Is it true that mortgage rates will be going up- why & how? Can you provide any substantiation? Someone told me govt will be increasing it soon which subsequently lenders will.

1b. If true, who/what exact government body sets the rates?

1c. Is this true? Govt set rate + lender margin = lendee's rates

Under these impressions, wife wants to buy our new home asap (within 3-6 mos) because the increased interest will have a significant impact.

1d. Well, just what is the significant impact? How much % do we foresee going up? And on a 400k loan (100k down) with 30 year term, what is the high-level impact?

How to buy:

2. Is my method of engagement correct? Look up zillow/trulia/CL -> find what I like initially -> contact their realtors -> see the homes -> see other homes by realtor -> enter home buying process (which is a huge process on its own). So generally, is this fine? What else am I missing in terms of searching?

3. Basically sellers have a listing price. How the hell do I know if that is a good price or not? When I make a counter-offer, do I basically just pull a number out of my ass? Where do I accomplish a baseline?

Others:

4. Other great resources / community / forums / calculator for home buying?

Let's start with these first, thanks in advance.

 

[Ferzerp]

2. Get your own realtor, don't work with the listing agent. Your first step if you're serious is to find a good realtor.

3. Research, and having a good realtor of your own.

Zillow/Trulia/etc suck. Most of the listings you see are already under contract if the area is not a really slow market..

 

[dank69]

1a. Nobody can predict the future for sure but there has been increased talk about a small bump in rates in the near future due to the continuing economic growth reports.

1b. The Fed sets the rates.

1d. Find any mortgage calculator online, plug in your numbers and see how much difference the rate makes. $400k over 30 years every little bit will make a large difference.

 

[rcpratt]

The Fed sets the rates, and yes they are widely expected to start raising rates in a few months. It won't be anything drastic though, so I don't think you need to rush. If you're ready, go for it, but don't rush into it.

Every half point is $125/mo initially at $300k. I don't see it moving more than that in the next year.

 

[NoTine42]

The Fed sets the rates, and yes they are widely expected to start raising rates in a few months. It won't be anything drastic though, so I don't think you need to rush. If you're ready, go for it, but don't rush into it.

Every half point is $125/mo initially at $300k. I don't see it moving more than that in the next year.

Great advice.

3) a great Realtor will "read between the lines" and knows the best price. For my 1st home, my Realtor suggested a 1st offer so low, I thought it would be insulting...it wasn't, and after a counter, I got the home for less than I thought possible.

 

[purbeast0]

i recommend redfin for browsing houses.

 

[gururu2]

If you are intent on buying soon, all you can control is what lender will give you the best rate. At a 25% down they should be giving you below the average. We bought this year and couldn't get below 3.75. We had a 3.5 in the past and that .25 point extra hurts a helluva lot...

You can study houses until you are blue but don't bother. The realtor will give you everything on MLS and if you press, even houses that will soon be listed. That is when the best purchases will be made as most houses for sale shown on zillow or w/e have skeletons in the closet or are priced too high. Your realtor should be taking you out at least once a week to see 4-5 houses. They should send you an email with the itinerary beforehand so you can knockout any houses before each trip.

 

[NAC4EV]

Can't help you to much regarding interest rates and realtor...

If you don't know anything about house construction or repair....GET YOURSELF A LICENSED HOME INSPECTOR and have the property inspected.

 

[Fanatical Meat]

Can't help you to much regarding interest rates and realtor...

If you don't know anything about house construction or repair....GET YOURSELF A LICENSED HOME INSPECTOR.

Always do this

 

[LegendKiller]

Overall, rates are likely to go up in the next year or two.

Finding out how much of a difference it makes is simple. Just use Excel to calculate the PV of the loan you can afford using a 30yr mortgage, current (and expected) rates, and the monthly payment you can afford.

If you can afford $1,400/mo, for 360 months, and the rate is 4% you can afford a $293,245 monthly payment. At 5% you can afford a $260k mortgage.

Put this formula into Excel

=PV(E12/12,E11,E10)

Where E12 = interest rate

E11 = months of mortgage (NPER)

E10 = payment

 

[gururu2]

Can't help you to much regarding interest rates and realtor...

If you don't know anything about house construction or repair....GET YOURSELF A LICENSED HOME INSPECTOR and have the property inspected.

Our inspector gave me a 5 minute rap about our chimneys maintenance. After he left I realized there was no chimney...

If you don't have a personal acquaintance who knows a lot, an unknown inspector won't add enough to rely on but you won't have much choice. They go through a standard explanation about hvac, roofing/basement/attic (if they don't feel it's dangerous), plumbing, renovations, irrigation, etc. With our last 3 inspectors seemingly reciting the same material on 3 different houses, it seemed canned which explains the chimney issue.

 

[jpiniero]

Mortgage rates are based on several factors. The Fed rate is just one of them. You should expect it to go up but it's not a direct correlation. OTOH, it should cool off sales... especially since most people buy (beyond) the top of what they can afford and every point makes a difference. You'll need to shop around to get the best rate.

Don't bother with Trulia and Zillow, their data is woefully out of date. You need something that has the MLS database and up to date; Redfin is a good option. Redfin also has price history so that can be a good idea of what other people paid in the area.

Oh and don't expect the Relator to do much more than open doors and some of the paperwork once you agree. You could just look at Open Houses yourself, you don't need a relator for that.

You'll have an easier time getting "a good deal" if you do it in the Winter. It'd be a PITA if it snowed on moving day but that's why it's easier.

 

[Stopsignhank]

The interest rate you will be charged is based on the prime rate and your credit score. When the economy crashed the feds lowered to prime rate to 0%. http://www.federalreserve.gov/faqs/money_12849.htm As the economy is getting better they will raise the rate. When and how much? That is the billion dollar question.

You are right, the banks build a fudge factor into the mortgage rate. The rate you are charged is also based on how long of a mortgage you take out. The traditional loan is 30 years. There are shorter term loans that have a lower interest rate, but then you will have a higher payment.

The prices are supposed to be based on "comps". Meaning the comparable values of the houses in the neighborhood. So if all the homes in the last six months have sold for 300K, then you can expect to pay about 300K for your house. This of course assuming the houses are the same size and the same condition.

You should have a realtor show you around and look at as many houses as you want.

One word of advice, you will have to put down around 20% or else you will have to pay PMI. This is an insurance that is forced on you and can only be canceled once your home value reaches 78% of your loan. This is really just a waste of money to you.

 

[tracerbullet]

Agreed on pretty much all the above.

Rates vary, but IMO the house is more important. Find the place you really want, don't let a rate make you buy something you aren't sure about.

You can browse stuff on your own, it'll help the realtor out if you can give them an idea of what you are interested in and why. But definitely get them involved. In my limited experience my realtors have been great, giving me very good advice (as I sometimes found it later) about what areas of town to avoid, which ones were on the rise, and without going into details she was simply very good at evaluating what a house was "really" worth.

Also agreed about PMI, it is worth putting 20% down by any means necessary!

 

[LegendKiller]

The interest rate you will be charged is based on the prime rate and your credit score. When the economy crashed the feds lowered to prime rate to 0%. http://www.federalreserve.gov/faqs/money_12849.htm As the economy is getting better they will raise the rate. When and how much? That is the billion dollar question.

You are right, the banks build a fudge factor into the mortgage rate. The rate you are charged is also based on how long of a mortgage you take out. The traditional loan is 30 years. There are shorter term loans that have a lower interest rate, but then you will have a higher payment.

The prices are supposed to be based on "comps". Meaning the comparable values of the houses in the neighborhood. So if all the homes in the last six months have sold for 300K, then you can expect to pay about 300K for your house. This of course assuming the houses are the same size and the same condition.

You should have a realtor show you around and look at as many houses as you want.

One word of advice, you will have to put down around 20% or else you will have to pay PMI. This is an insurance that is forced on you and can only be canceled once your home value reaches 78% of your loan. This is really just a waste of money to you.

The prime rate has *never* been 0. Fed Funds is about zero. Prime rate is typically Fed Funds + 3.25%. Prime has been 3.25%, IIRC the lowest it has ever been. If rates are set on the Prime rate then why have they fluctuated so much in the last several years despite Prime being fixed?

Mortgages are *NOT* set off the Prime rate, or the Fed Funds rate, or the 30yr treasury. They are mainly set around the 10yr treasury, adjusted for credit, down payment..etc. More accurately, they are set upon funding for RMBS. Agency RMBS supply was constrained for years by the Fed purchasing most of the RMBS, limited supply, large demand = low rates. The Fed has stopped purchasing RMBS outright but is keeping their balance the same, while mortgages prepay and amortize, meaning they are still buying. This also lowers mortgage rates. If the Fed stops purchases, rates will go up. When the Fed increases the Prime rate, rates will go up. Not because they are indexed to Prime, but because other investments that are indexed to prime are more yieldy, thus demand for them goes up while mortgages go down. The market technicals are very deep, but your information is wholly incorrect.

You don't have to put 20% down. You can do a 90/10/10 and still get a Prime conforming mortgage. The second 10 can be in the form of a HELOC or HEL. You don't have to pay PMI then.

PMI is not a waste of money. It's an economic calculation. If you can't afford 20 (or 10) then somebody has to take the risk that you may default. For them taking that risk you pay them and you get to buy a house. That's life.

 

[Wreckem]

The interest rate you will be charged is based on the prime rate and your credit score. When the economy crashed the feds lowered to prime rate to 0%. http://www.federalreserve.gov/faqs/money_12849.htm As the economy is getting better they will raise the rate. When and how much? That is the billion dollar question.

You are right, the banks build a fudge factor into the mortgage rate. The rate you are charged is also based on how long of a mortgage you take out. The traditional loan is 30 years. There are shorter term loans that have a lower interest rate, but then you will have a higher payment.

The prices are supposed to be based on "comps". Meaning the comparable values of the houses in the neighborhood. So if all the homes in the last six months have sold for 300K, then you can expect to pay about 300K for your house. This of course assuming the houses are the same size and the same condition.

You should have a realtor show you around and look at as many houses as you want.

One word of advice, you will have to put down around 20% or else you will have to pay PMI. This is an insurance that is forced on you and can only be canceled once your home value reaches 78% of your loan. This is really just a waste of money to you.

Its a trade off. If you have 10% down and have to wait another 9-12 months to get the other 10%, in the market atleast in hot markets, the prices of houses will easily go up more than it would have cost to purchase a single payment pmi premium.

Not to mention, you could always switch to bi-weekly payments to more than make up for the added expense. In reality a single payment premium BPMI with 10% ltv is peanuts in the grand scheme of things. Now if it was an FHA loan where pmi stays through the mortgage unless refinanced, yeah I'd see your point. However, the mantra you must have 20% is wrong. It all depends on a person's circumstances.

In many people's circumstances it makes sense to buy with 5% or 10% down. Or do the 90/10/10 as Legendkiller suggested.

My wife and I are only going to put 10% down, but we are doing a single payment premium at closing. We'd rather have ample cash reserves than put 20% down as at 10% our PITI+HOA fees will equal the rent we have been paying comfortably for 2 years. We could wait another year but, DFW is one of the hottest markets and it is only going to get worse throughout the next 1 to 1.5 years as major companies(Toyota, Toyota Financial, among many others) are relocating to the area.

Hell right now in the sub $400k market, people going with mortgages are having a hard time getting into homes as they are having a hard time competing with all cash buyers/investors. As a result my wife and I are having to go new construction. New construction in the area we are looking at is going for the same as 1920s gutted to studs remodels that are heavily prevalent in the area. The bonus of new is now wonky floor plans that can arise from said remodels. The downside is, it will be sometime next summer before we can close.

 

[SparkyJJO]

Don't buy the biggest house you can "afford." A lot of realtors/banks will tell you that you can afford up to X amount, but they don't really know your entire finances, nor do they really care how close you're cutting it each month. They just make more money if they sell you a more expensive place.

Living paycheck to paycheck is a bad idea if you can avoid it, and when owning a house it is even more important to not do that. Retain a decent buffer in your monthly budget. If it helps, make it a "bill" that gets paid each month by having automatic deposit to a savings account. That way you have money available if you have a major repair come along (I replaced my furnace this year as an example, although it was planned).

Besides, a bigger house requires more time to keep clean

I got my mortgage through a local bank, 10% down, no PMI. 3.5% on a 10/1 ARM. Did the math, worst case scenario I'd pay about the same as a 5% fixed APR for 30 years, best case I save thousands of dollars over the life of the loan. Once I saw the hard numbers that was a no brainer.

 

[Ferzerp]

Don't buy the biggest house you can "afford." A lot of realtors/banks will tell you that you can afford up to X amount, but they don't really know your entire finances, nor do they really care how close you're cutting it each month. They just make more money if they sell you a more expensive place.

I couldn't agree more. My housing costs were extremely low compared to what most people spend as a percentage of their income in the last house I rented. When I decided to buy, other than what I had available for a down payment, I knew I didn't want to finance an amount that would raise my monthly housing cost. I could "afford" 3 or 4 times this, but I feel like that is just silly.

 

[Charmonium]

Avoid adjustable rate mortgages. These are the type that reset your interest rate on some schedule, usually 1, 3 or 5 years. They will be cheaper initially but that doesn't do you any good if you can't make the higher payments in a few years.

And rates will be going up. The only issue is when and how quickly. So far the fed has been reluctant to raise rates but there's a general consensus that they will bump them by a quarter point sometime this year. Most bets are for a Sept increase. But fed actions tend to have more of an affect on short term rather than long term rates. So I wouldn't worry about what rates are going to be over the next 6 months but I would be concerned about what they might be in 1, 3 or 5 years.

 

[SparkyJJO]

Generally I agree, but as in my case sometimes the ARM does make sense. Mine has fairly stringent limits on it though so even if interest rates go through the roof in 10 years my interest rate (and thus payment) won't follow very far at all. Benefits of a local small town bank!

That said, you do have to be VERY careful with ARM as many are not nearly so limited. There are some pretty scary ones out there that I wouldn't touch with a 10 foot pole. Generally I wouldn't touch an ARM from any of the major banks as their terms generally seem to suck.

 

[Newbian]

Total noob here and I just started to research. I thought I'd start asking questions here. I live in Northern NJ and look to buy around that area within reasonable commute to our work in Jersey City and NYC.

There is your first problem.

 

[Charmonium]

Generally I agree, but as in my case sometimes the ARM does make sense. Mine has fairly stringent limits on it though so even if interest rates go through the roof in 10 years my interest rate (and thus payment) won't follow very far at all. Benefits of a local small town bank!

That said, you do have to be VERY careful with ARM as many are not nearly so limited. There are some pretty scary ones out there that I wouldn't touch with a 10 foot pole. Generally I wouldn't touch an ARM from any of the major banks as their terms generally seem to suck.

That's a good point. The precise terms will vary from one bank to another. So one might have an absolute cap on rates while another might only limit the change at any given reset point. If you're prepared to read and understand the fine print and have no issue with terms, great. But that's something you might want to go over with whatever lawyer you will have do the closing.

The problem during the last crisis wasn't just that people were getting hit with resets but that they had been qualified at artificially low teaser rates that were below what the current rate was. So at the first reset, they got the double whammy.

Right now in NJ, there doesn't seem to be much difference between a 30 year and a 5 year ARM. The lowest rate for the former seems to be about 3.75% while it's about 3% for the latter. That can mean the difference between qualifying and not though. Check the bankrate.com link above to see what things look like for a particular down payment and credit score.

 

[MongGrel]

Avoid adjustable rate mortgages.

This.

 

[CLite]

So you aren't looking for a condo in Hoboken/JC? Bayonne has some nice 2 family homes you can rent out a floor to alleviate costs. Having bought/sold a condo in Hoboken and bought a house in the suburbs I have a few thoughts.

1) Find a good Realtor

2) Tell him/her to print out MLS sold/UDC listings for the areas you are looking to buy in for the last 6 months. Trying to get comps on homes is much harder than Condos, look towards sqft/style/finishes/# bedrooms/#bathrooms/land area. If you identify homes you like then you might look back a year or two in listings to find homes sold in that specific neighborhood. No Realtor will be as thorough as you can be if you put in sweat equity. They can run searches fast for you to sort through. If they say no, then find a different realtor.

3) Figure out your plan. Is a stepping home? At 500k you won't get a good school district within commuting distance of NYC/JC. If you don't want kids no problem. If you do then consider how many years until your next home. If less than 5-7 years and you don't want to become a landlord consider an ARM, they can save exceptional money. If more than 5-7 years or if you want to become a landlord and keep the property for income then go fixed. Do a 30 year loan, your money is too valuable right now to get hit with 15 year payments.

4) See past ugly paint/furnishings/trash/etc. This was impossible for me given my wife, maybe you will have better luck.

5) Don't get stubborn during the process. Even if you are right and the seller is wrong but the argument is over a couple thousand, who cares. It washes out over 30 years of payments.

6) Stay on top of your attorney during attorney review, make sure they are closing it out ASAP (if you use a Realtor they may do this). Stay on top of your mortgage broker, make sure they are hitting all the milestones and getting into underwriting ASAP.

 

[CLite]

Avoid adjustable rate mortgages. These are the type that reset your interest rate on some schedule, usually 1, 3 or 5 years. They will be cheaper initially but that doesn't do you any good if you can't make the higher payments in a few years.

And rates will be going up. The only issue is when and how quickly. So far the fed has been reluctant to raise rates but there's a general consensus that they will bump them by a quarter point sometime this year. Most bets are for a Sept increase. But fed actions tend to have more of an affect on short term rather than long term rates. So I wouldn't worry about what rates are going to be over the next 6 months but I would be concerned about what they might be in 1, 3 or 5 years.

5-7 year arms lock in a rate for that time period, and a lot of these then have an incremental capped rate increase after that. You are right about teasers but those teasers last the full period of rate lock. I knew I was moving/selling in less than 7 years and got a 2.25% arm saving a truckload of interest and accumulating principal at a faster clip at a lower monthly payment. I ran calculations out a number of years assuming worst case rate increases and still was making money long past the time I was planning on leaving. On the other hand I got a 30 yr fixed on my 2nd home. It all depends on your life situation.

disclaimer: read all the fine print and do all your own calculations. Generally if it's from a community bank, credit union, or national bank they won't straight up lie to you, but you never know.