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

[z1ggy]

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.

1.I believe the Federal Reserve ultimately sets the rate, but it's not like it goes up hugely all at once. They purposely hike the rate up slowly. But yes I hear it is supposed to be going up in the future.

1d. Don't be lazy, you're a smart guy. Go into excel into the loan amortization spread sheet and look up how much changing the rate affects your payment.

2. Honestly, I'd just hire a Realtor and sit back and let them do 100% of the work. There's no point of you putting in much effort when they have all the insider hook ups (if they are good) and are already trolling Zillow/MLS/Trulia for you anyway.

3. Comps. Again, the Realtor should be experienced enough and have had already looked up the comps in your area to know what a fair market price is. I wouldn't attempt to do much work in this area, too. You have a budget... You stick to it unless you see reasons to deviate.

4. What do you mean by "calculator"? If you're trying to predict your mortgage, you can again, get a pretty good feel for it by using the loan amortization sheet in excel. Don't forget property taxes and insurance though. For me, my mortgage includes all of these things, and tends to fluctuate year to year due to rising or falling property taxes. So far though... It's only gone up every year....

Buying a home ultimately comes down to two big things: How much are you willing to pay, and what are your special requirements. You should define how many beds and how many baths you want, along with any additional home features and a ceiling price. Ie, Zeze & wife was a 4bedroom, 2bath house, with at least a 1 car garage, and no less than 1800sqft, for no more than $400k. The realtor can run with that, and will likely end up showing u some 3 beds, or 4bed 1.5baths etc, at a much lower price or a combination of other amenities that could be enticing.

Hope that helps.

 

[gorcorps]

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

Never had that issue when I was looking. They were great ways to see what was available and what they were going for.

 

[Fingolfin269]

I know others have mentioned this but don't buy as much house as the banks say you can afford. We're double income, no kids, no debt. And I cannot imagine paying what these calculators say I could be paying. I guess if we wanted to roll everything into a house and forego maxing out retirement accounts and ever doing anything fun outside of the house then yeah that would be the way to go.

Dave Ramsey can be pretty crazy about just how tight he wants people to be but I definitely fall more closely in line with his methods when it comes to mortgage payments. 25% of your take home pay on a 15 year mortgage. That's not for everyone but it works for us.

Just did a calculator for the heck of it. Says we could potentially be approved for a house that's ~3x what our current house is worth. No thanks.

 

[Zeze]

3. Comps. Again, the Realtor should be experienced enough and have had already looked up the comps in your area to know what a fair market price is. I wouldn't attempt to do much work in this area, too. You have a budget... You stick to it unless you see reasons to deviate.

What is comps? I see few people mention that word.

Also do buyers get their own realtor in NJ? It looks like they all work for seller and seller pays for them. (And I use them of course).

 

[purbeast0]

I know others have mentioned this but don't buy as much house as the banks say you can afford. We're double income, no kids, no debt. And I cannot imagine paying what these calculators say I could be paying. I guess if we wanted to roll everything into a house and forego maxing out retirement accounts and ever doing anything fun outside of the house then yeah that would be the way to go.

Dave Ramsey can be pretty crazy about just how tight he wants people to be but I definitely fall more closely in line with his methods when it comes to mortgage payments. 25% of your take home pay on a 15 year mortgage. That's not for everyone but it works for us.

Just did a calculator for the heck of it. Says we should be in a house that's ~3x what our current house is worth. No thanks.

ive never seen a calculator say what you "should" be in a specific priced house, but rather what you realistically "could" afford at the top of your budget.

 

[dank69]

As a buyer you should definitely get a realtor because typically the seller pays the realtor fees for both parties.

Also: Comps = comparables. What have comparable homes sold for in the neighborhood. This is an important factor that the lender will look for to make sure you aren't overpaying for your house. They will deny financing if they think the price is too high.

 

[woodman1999]

What is comps? I see few people mention that word.

Also do buyers get their own realtor in NJ? It looks like they all work for seller and seller pays for them. (And I use them of course).

Comps refer to comparable houses in the area that recently sold or are currently for sale/under contract. The recently sold ones should be considered when determining your initial offer as you are trying to compare apples to apples (sq. footage, #of beds, baths, etc.) when determining your initial offer. The realtor will have access to the MLS database and be able to see a little more information than you. On occasion, they may give you their login info so you get better access to what's coming up for sale.

You definitely get your own realtor. The seller hires someone to show their place as they don't or can't be home for showings all the time. They get a listing agent to put their house on the web, handle buyer inquiries and what not. At times, you can have the buyer and seller share an agent (dual representation) but that's not ideal as there is a conflict of interest for the agent.

We are about a year in to our house in northern NJ and are please with what we got. Depending on what towns you're looking, be prepared to pay a considerable amount for access to the city. It's shocking just how much you have to pay to be within an hour commute. And do yourself a favor, don't look in other parts of the country for fun. It's incredibly depressing to see what your money would buy in Atlanta!

 

[z1ggy]

What is comps? I see few people mention that word.

Also do buyers get their own realtor in NJ? It looks like they all work for seller and seller pays for them. (And I use them of course).

I have only bought real estate in CT, so I'm not sure how it works in NJ... But I don't see why it would be any different.

Comps is short for comparables. It's a wishy washy way of trying to equate pricing from house to house. Say you're looking for a 4 bed 2 bath in town X (where you are looking to buy). 2 months ago, a similar 4 bed 2 bath house sold for $400k in town X, and you see a bunch of listings in your area for similar homes asking $450k. Odds are those homes are over priced, so your realtor would likely suggest offering very close to $400k, depending on other various things like condition of home, etc.

As far as working with realtors, you sign a contract with one and they work for you. Seller does not just pay for your realtor, it just so happens that sometimes the Seller will offer/allow the sale of the home to include some/all of the "closing costs" for the buyer, aka realtor fees, lawyer fees, etc.

For example, I bought my current home for $156k. Closing costs were $6k which was comprised of realtor fee (like 3-4% of sale price) lawyer fee for legal documentation, and probably the mortgage underwriter I'd guess? So all in all, my mortgage that I owed to Chase Bank was for $162k. Something to keep in mind when you buy.

 

[NoTine42]

What is comps? I see few people mention that word.

Also do buyers get their own realtor in NJ? It looks like they all work for seller and seller pays for them. (And I use them of course).

Comps = comparable home sales in that area. An appraisal will average actual recent sales of similiar homes (sqft, rooms, lot, schools...) vs the home you are looking at and will add or subtract to that number. Ie the home you are looking at is 100sqft smaller so your comp will be $X.XXX lower than average

Pretty much all Realtors list homes, but any Realtor in the MLS system can put in a buyers offer on any other Realtor's listed home.
Realtors get paid a % when they are the agent for listing and/or buying a home. I'm sure they like being both and getting a bigger commission check, but they don't have to be both.

 

[purbeast0]

just FYI since no one has said yet, comps = comparable homes in the area.

 

[IndyColtsFan]

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?

Plenty of good advice here, so I won't repeat it.

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?

Regarding the search - I would imagine that your local board of realtors has a site that has all house listings in the area; Indianapolis has a great one at mibor.com. That's the resource I use when looking for homes.

You have plenty of resources at your disposal to determine if an asking price is fair. I believe you can look on Zillow and it will tell you what houses in the neighborhood recently sold for and you can also look at public property tax records to see what houses in the neighborhood sold for (if not, a realtor can find this information to save you time). After researching several houses in the area, comparing sizes/amenities, etc, you should get a pretty good idea of what would constitute a "fair" asking price.

What your initial offer will be also depends on several factors. Are houses in the area selling extremely fast with multiple bidders on each? Or is it an area where houses may sit on the market for several months? If it is the former, you may have to offer near or at the asking price, but if the latter, you have tons of wiggle room. You also have to be ready to walk away from a house if they won't budge.

As an example, we bought our house in 2008 right as the market was crashing. As a result, the house was vacant for a long time. Anyway, I came in $20K under the asking price and the buyer scoffed and said they were "insulted" and countered back with the asking price. I knew the market conditions and I knew this house was vacant for a long time. This was also an expensive house (for Indiana anyway; it would probably sell for 4x to 10x their asking price on the coasts).

Anyway, I told them "I'm not playing these games. I was negotiating in good faith and since you don't seem willing to negotiate, I'll go find another house. If you change your mind, you know how to contact me." One week later they called me and had a "change of heart." I gave them one final counter offer (I offered $6K more) and told them "This is my final offer. Your delays have caused me to have to store all my furniture and at this stage, I have no real incentive to deal with you any longer. This is very much a take it or leave it offer." They caved in and sold the house to us. The reason I tell you this is because some people will refuse to walk away from a house and get fleeced in the process. Don't be one of those people and don't let the wife be one either.

I know others have mentioned this but don't buy as much house as the banks say you can afford. We're double income, no kids, no debt. And I cannot imagine paying what these calculators say I could be paying. I guess if we wanted to roll everything into a house and forego maxing out retirement accounts and ever doing anything fun outside of the house then yeah that would be the way to go.

Dave Ramsey can be pretty crazy about just how tight he wants people to be but I definitely fall more closely in line with his methods when it comes to mortgage payments. 25% of your take home pay on a 15 year mortgage. That's not for everyone but it works for us.

Just did a calculator for the heck of it. Says we should be in a house that's ~3x what our current house is worth. No thanks.

This is pretty good advice, but I will disagree with one point even though I did not follow my own advice. I have a 15-year mortgage at 2.8%, but normally I'd advise people to go with the 30-year mortgage and just pay it down faster. The logic is that the payment will be lower on a 30-year mortgage, so if you suffer job loss or something of that nature, you can stop paying the extra money every month and only pay the actual mortgage payment amount. Additionally, some will say that with interests rates this low, it is smarter to get the 30-year mortgage and rather than paying it down faster, put the difference between a 30-year and 15-year mortgage into investments which should have a higher return than your mortgage rate.

As I said, for me, I ignored my own advice because I wanted to pay the house off faster while paying less overall interest. The payment is also still quite affordable even on my wife's salary should I lose my job.

 

[dank69]

I have only bought real estate in CT, so I'm not sure how it works in NJ... But I don't see why it would be any different.

Comps is short for comparables. It's a wishy washy way of trying to equate pricing from house to house. Say you're looking for a 4 bed 2 bath in town X (where you are looking to buy). 2 months ago, a similar 4 bed 2 bath house sold for $400k in town X, and you see a bunch of listings in your area for similar homes asking $450k. Odds are those homes are over priced, so your realtor would likely suggest offering very close to $400k, depending on other various things like condition of home, etc.

As far as working with realtors, you sign a contract with one and they work for you. Seller does not just pay for your realtor, it just so happens that sometimes the Seller will offer/allow the sale of the home to include some/all of the "closing costs" for the buyer, aka realtor fees, lawyer fees, etc.

For example, I bought my current home for $156k. Closing costs were $6k which was comprised of realtor fee (like 3-4% of sale price) lawyer fee for legal documentation, and probably the mortgage underwriter I'd guess? So all in all, my mortgage that I owed to Chase Bank was for $162k. Something to keep in mind when you buy.

The way it was explained to me in CT is that the listing agent typically gets 5-6%. If there is a selling agent (buyer's agent), the listing agent splits the 5-6% with them. In my case, the listing agent got 3.5% and selling agent got 2.5%.

Always at least ask that the sellers cover closing costs. That's a typical nibble at the end of the negotiation process.

 

[Charmonium]

What is comps? I see few people mention that word.

Also do buyers get their own realtor in NJ? It looks like they all work for seller and seller pays for them. (And I use them of course).

Comps is short for comparables. It just means other properties that are similar. So if you're interested in something on say a quarter acre of land with 3 bedrooms and 2 baths, comparables would be other homes on a similar amount of land with similar features. Personally, I've never understood the idea since 2 houses that are similar on paper can be very different - age of house, type of construction, etc.

Not sure how realtors work. As a buyer, you probably want to work with as many as practical to get a feel for what they're like. Some listings will be exclusive to a particular realtor but I think they have conventions for splitting fees.

As you probably know, real estate taxes in NJ are a bitch. But some towns are better than others. I'd probably pay twice as much in taxes were I in a different town. So make sure you know what the taxes will be for any house you like. You can look up the rates yourself online here. Do a find for 'assessments'. Lots of other valuable public info too.

And remember, every home needs maintenance regardless of how good your home inspection report is. Forget to change your filter for a few months and you can kill the heat exchanger in your furnace. Electric water heaters only tend to last about 5 years. Roofs can leak. You can get insect infestations like termites and carpenter ants. You can get flooding even in non-flood zone areas. Trees can come down in storms and damage property. The list is nearly infinite. So ALWAYS, always make sure you have enough of a cushion that you can handle unexpected maintenance without needing a second mortgage.

 

[z1ggy]

The way it was explained to me in CT is that the listing agent typically gets 5-6%. If there is a selling agent (buyer's agent), the listing agent splits the 5-6% with them. In my case, the listing agent got 3.5% and selling agent got 2.5%.

Always at least ask that the sellers cover closing costs. That's a typical nibble at the end of the negotiation process.

Hmmmm, that sounds about right, but I wonder if it's always that way. My realtor told me (I'm currently selling my house) that when I bought it, the Sellers did not cover any of my closing costs. I wonder though if that's just additional money (part of that $6k) that they'd cover on top of the closing fee.

I'm guessing that you're correct though, and that my $6k fee was loan related (I got an FHA loan, 0% down) more than anything else.

 

[IndyColtsFan]

And remember, every home needs maintenance regardless of how good your home inspection report is. Forget to change your filter for a few months and you can kill the heat exchanger in your furnace. Electric water heaters only tend to last about 5 years. Roofs can leak. You can get insect infestations like termites and carpenter ants. You can get flooding even in non-flood zone areas. Trees can come down in storms and damage property. The list is nearly infinite. So ALWAYS, always make sure you have enough of a cushion that you can handle unexpected maintenance without needing a second mortgage.

:thumbsup:

People often think when you buy a house, you're done and can enjoy it. They're a LOT of work and if you're not very handy (like me), it can be challenging.

 

[Fingolfin269]

ive never seen a calculator say what you "should" be in a specific priced house, but rather what you realistically "could" afford at the top of your budget.

No! It definitely said 'should!' (Said the person who actually followed the calculator's advice...)

Ok, poor choice of wording there on my part. Fixed.

 

[dullard]

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.

I skimmed this thread quickly, some people danced around this questions, but no one really answered it either. That is, because only the US Federal Reserve System (fed) members itself have a good idea of what they are going to do. That said, the fed is usually quite predictable. I'm willing to go out on a limb and give reasonable predictions.

The fed has set us at a historically abnormally low interest rate for years. They did that because the great recession was truely worse than most people think and they were throwing everything they could at the problem. The potential downsides are that the low interest rates can potentially create one or more of the following: oversupply (cheap loans means businesses expand too much), price bubbles (on things like the stock market), deflation (if businesses expanded too much), massive inflation (if consumers decide to take the cheap interest rates and buy beyond their means), etc. Yes, I know two of those items are polar opposites, but either can happen depending on the conditions. Plus, with historically low interest rates, the fed can't really cut rates further, so they are out of ammunition in case the economy goes sour again.

So, why is the fed going to raise rates? They want to raise rates to diminish the possibility that any of those potentially bad things occur. Plus, it gives them their ammunition against bad economies again.

But, the fed doesn't normally raise rates fast, this is especially true now since the world economy is fairly bad at the moment. Also, historically the fed avoids changing rates during a presidential election year (Bush Sr.'s demise is often blamed on the fed's action during that election campaign).

So, knowing that the fed wants to timidly raise rates, but probably won't do it during the election, the natural conclusion is that they will do it in the next few months. They have only 8 meetings a year, so that means that rates are likely to go up between September and March. I personally predict two interest rate raises of 0.25% each during that time frame. They may go even more gently, as they sometimes move by 0.125% at a time, but that isn't common.

These rate increases aren't set in stone either, they are just goals. LegendKiller did well to explain how the rates actually change. Ultimately, it is a balance of the fed's goal rate, the world market on the day of the start of your mortgage, your particular bank/mortgage broker, the particular type of mortgage you go for, and your particular credit that determine the rate you will pay.

What does that mean to you? On a $400k home, a 4% mortgage rate means you pay $1333 in interest the first month (the interest drops every month as you pay off your mortgage). If rates go up to my predicted 4.5%, then you would start paying $1500 in the first month. Basically, it is a $167/month difference. But, do note, that higher interest rates are often correlated with lower house prices, so the net effect may be next to nothing for you (more interest on a cheaper house can be a wash).

I would focus on finding a home that is right for you and buying when the time is right for you. Rather than worring about a possible slight increase in your monthly bills (a slight increase that gets even slighter with every month).

To me, ARMs are great for the right purpose at the right time. Now is probably not the right time. If you can swing it, a 15 year mortgage at 3% seems the best option.

 

[Fingolfin269]

This is pretty good advice, but I will disagree with one point even though I did not follow my own advice. I have a 15-year mortgage at 2.8%, but normally I'd advise people to go with the 30-year mortgage and just pay it down faster. The logic is that the payment will be lower on a 30-year mortgage, so if you suffer job loss or something of that nature, you can stop paying the extra money every month and only pay the actual mortgage payment amount. Additionally, some will say that with interests rates this low, it is smarter to get the 30-year mortgage and rather than paying it down faster, put the difference between a 30-year and 15-year mortgage into investments which should have a higher return than your mortgage rate.

As I said, for me, I ignored my own advice because I wanted to pay the house off faster while paying less overall interest. The payment is also still quite affordable even on my wife's salary should I lose my job.

Yeah it's definitely not the most sound investment with rates where they are but at the same time I like the idea of paying it off sooner and/or building up equity faster if we decide to sell. I know one can basically accomplish the same by going into a 30 year and paying extra but we're in a good enough spot where I'd rather just save on the interest than pay for the added flexibility of a lower required payment.

 

[Phoenix86]

The difference between a good realtor and a bad one is a mile wide.

There are TONS of bad realtors.

 

[M0oG0oGaiPan]

sometimes redfin offers 1st time homebuyer classes.
https://www.redfin.com/buy-a-home/classes-and-events

you should check to see if your state offers any kind of down payment assistance program for first time home buyers.

 

[dank69]

The difference between a good realtor and a bad one is a mile wide.

There are TONS of bad realtors.

This is very true. Zeze, do you have any relatives or family friends that are realtors?

 

[blackdogdeek]

Where in nyc/jersey city do you work? Are good schools a consideration?

 

[chowderhead]

don't just factor in monthly mortgage costs. You have to factor in the cost of property taxes (which apparently are very high in NJ), insurance, maintenance/repair costs, etc.

 

[rh71]

When getting yourself a buyer agent, please interview them thoroughly by inviting them to your house. Don't just walk into your local Century 21 and work with the first person who greeted you. How lazy or thorough they are matters in this.

Get some leads off local boards like city-data's NJ forum or a local FB group. Or friends who've bought near you. I would stay away from friends/relatives as agents, but do take their advice.

BTW, there is never a "seller pays closing costs" around here. I doubt NJ has that either. We always go "whhhhhaaaaaaa?" when we see that happen on HGTV. I want to know if the sellers will pay for their first-born too.

 

[dank69]

When getting yourself a buyer agent, please interview them thoroughly by inviting them to your house. Don't just walk into your local Century 21 and work with the first person who greeted you. How lazy or thorough they are matters in this.

Get some leads off local boards like city-data's NJ forum or a local FB group. Or friends who've bought near you. I would stay away from friends/relatives as agents, but do take their advice.

Why do you say that?