Buying a House - Where to start?

[Jzero]

Originally posted by: dirtboy

Originally posted by: FrustratedUser
I have heard the same thing actually (that it will lower the amount I can borrow). Who is right?

I am right.

Not 100% right. Did I go through this with you in another thread?

BOTH are factored in - your total available credit (more is better), and the ratio of available credit to income (if you have more credit than you can ever possibly pay, lenders get nervous).

Having too much available credit CAN work against you.

Although in the case of $10k available, I don't think you have to worry about having too much credit compared to your income.

Take a look at this.

 

[Kelemvor]

First thing to do is call up (or go to) a coupel mortgage places with all your financial information and see what they'd approve you for. No sense in looking for a house if you don't know what you can afford. There are many many different things they can do with mortgages. I'd recommend getting someone who specializes in mortgages and not just some kid at a bank that doesn't know the various options. (If you're in WI or IA let me know and I'll hook you up)

After you get that figured out, Find yourself a Good REALTOR. They know the business, what to look for, what things should sell for, etc. You lose Nothing by using a REALTOR to buy a house and it can only help.

Sometimes closing costs can be included in the mortgage. SOmetimes you can get a mini mortgage for the down payment and then a big mortgage for the house. Then you don't have to wast emoney on PMI. Tons of options....

 

[C'DaleRider]

Always remember.....despite what any real estate agent says or how he/she presents themselves, the agent is the SELLER'S representitive and looks out for the seller, not the buyer. as such, many agents will attempt to "sweep under the rug" potential problems that are known but not glaringly showing up at present. These problems could range from weeping basements that are not showing when you look, leaking pipes that are "fixed" just enough to pass a quick look-through to potential zoning problems on the horizon (such as the city/county planning on eminent domain condemnation of part of the property in the future for road expansion but not yet "official"......)

Remember, the real estate agent is there to sell the house and protect the seller's interests, not yours.

Couple of other things.......consider an independent appraisal and independent insepction of the house. I wouldn't blindly accept insepctions the seller provided unless the inspector has a sterling reputation for being unbiased and fair......too many people taking too many kickbacks these days.

Also consider hiring your OWN real estate agent, one that represents YOU......this person will know the true ins-and-outs of the process and will work to protect YOUR interests in the house purchase.

 

[GasX]

however much you decide to put down, keep a cash reserve.

1. your closing costs will alsways be higher than what your mortgage company estimates.
2. your house will invariably need some unexpected work done in the first six months.

Whatever you think will be enough, will not be...

 

[Drakkon]

wow im surprized by the number of intelligent responces os far thanx guys all your ideas have given me a lot to think about!
I guess I'm stuck here for a few more months while i try and save up a bit more $$$ to do those "closing costs" or any money up front that might be needed cause it sounds like im gunna need a bit more than i have currently.
I have a pretty decent credit rating...never been late or had much of a balance left on any credit card ever but I've only had this one car loan for $8K and its being paid off monthly. The only other thing i can think of is I've been at my job only 6 months...I dunno how that effects me but i've had a fairly steady stream of imcome for 4 years now.
I might go poking around mortgage places though...may be worth a look at least

 

[dullard]

Thread started with good answers, then turned into useless and incorrect jibberish. So I'll try putting back in real answers. I just bought my first house 6 weeks ago.

1) You have to really rush if you want to do what you want. Typically you are looking at 6-8 weeks minimum to buy a house (for mortage approval, inspectors, appraisors, title check, or even just to get the previous owners out, moving yourself, etc). I'm not sure you can make it by the end of next month. Maybe you can extend your lease by 1 month.

2) You can easilly buy a house with $0 downpayment. The problem is that you get screwed financially by doing so. There are two ways that you get screwed (but some programs for veterans and low income families can help get around them):

(2a) You will be forced to buy mortgage insurance if you don't have at least a 20% downpayment - after closing costs which will run ~$3k-$6k. Thus to avoid the mortage insurance you'll need ~$25k for a $100k home. Mortgage insurance will run you nearly $100 a month. That mortgage insurance money will go down the drain and you'll get no benefit at all from it. It is your choice if you want to lose $1k a year for something useless just to get a house with a lower downpayment.

(2b) You can borrow the 20% downpayment and use that to get the house. But the banks know the first 20% downpayment is the most risky. Thus they will charge you interest which is ~ double what they charge you on the rest of the house. For example, I got a house for ~4.5% interest and they quoted me a ~8% interest rate if I wanted to borrow some of that downpayment. This is what Modeps was referring to (finance some or all of that 20% downpayment and get a mortgage for the other 80%). The extra interest will also make you pay a ton more per month.

(3) Go to some banks or credit unions to look for loans. Go there first to see what you qualify for. Home sellers and real estate agents are MUCH happier to work with you if they know you qualify for their home that they are selling. They see hundreds of people just looking at homes for entertainment or which are far beyond their means and waste time. Thus they like people with statements from a bank that you qualify for X amount of mortage.

(4) Don't bother with car loans or CC bills (unless the lender says otherwise). You most likely won't get any benefit from doing so. And contrary to what CrazyDe1 said above, they look at average CC balance from the previous few months (so the day of the month you pay them off won't affect you). If you are half maxed and half paid off during a month, the average is unaffected whether they look at you when you are maxed or when you are paid off. Don't close accounts or open new ones as both could hurt you.

(5) I narrowed my choices on the net. Then my wife looked at the narrowed down choices in person and picked 4 good ones (I was swamped at work). Then we went together and decided on our final home. Do whatever you can to narrow them down, but be sure to look at many in person to really get the idea what you want in a house. Try a few open houses this weekend (should be listed on the net) to really look at some different styles of homes and see exactly what you want.

(6) Things vary from state to state (in some states you use a lawyer instead of a real estate agent). But for the most part, the buyer gets their services for free. The seller pays for their agent, and the seller's agent must share with your agent if you have one. Thus the seller's agent may be more difficult to work with if you have one, but really that won't affect you or the seller (and you may never even see the seller's agent). When I bought a house, we got a buyers agent (free of course) who was very helpful in spotting potential house problems, in narrowing down the choices after we said exactly what we were looking for, gave us a free moving van for 4 days, gave us tons of free stuff, etc.

Good luck and have fun.

 

[dullard]

Originally posted by: Drakkon
The only other thing i can think of is I've been at my job only 6 months...I dunno how that effects me but i've had a fairly steady stream of imcome for 4 years now.

I don't know exactly how that will affect you, but just 6 months at one employer will likely make it more difficult for you to get approved with a mortgage.

 

[JulesMaximus]

Don't be scared by PMI. You can usually get them to drop this after a year or so if a) the house increases in value and or b) if you make your payments on time and maintain good credit. I did on our first home after a year or so (we only put 10% down).

I wouldn't recommend the 80/20 finance option. You will pay quite a bit more in interest on a loan like this in the long run.

My wife is a realtor. PM me if you like and I could have her refer you to a realtor in your area.

 

[wyvrn]

Quick response without reading this thread:

1) Don't leave yourself just one month to look for a house. Closing often takes a full month depending on various factors.

2) Down money depends on your credit more than anything. If you have good credit, you can put down as little as 5% and get a decent rate. You do not have to pay PMI if you put down less than 20%. Just get an 80-10-10 or 80-15-5 loan (actually two loans). Most lenders will work with you on this to get your business. Also count 3% of purchase price as closing costs which you will need in cash up front.

2) Don't pay off the car loan, save your cash.

4) Realtors give you access to the MLS, which will speed up your search considerably. You can drive around and try to find FSBO by yourself, but this is going to burn your time. IMO, paying a realtor is a better option.

5) Look for loans at your credit union or bank first. You have an established relationship with them and they are likely to give you the best rates. Check bankrate.com for lenders, but if you do, GET EVERYTHING IN WRITING. Internet lenders like to change stuff at closing like interest rates and closing costs, because you cannot have a face to face with them.

6) Another thing to consider is building. It's a longer process, typically 4- 6 months. This can help you get your finances in order and more money saved. You have more choices in customizing your home and picking your lot, but you also have to be patient. My wife and I have chosen this route and so far it looks good. Click link in my sig for pictures of our home being built.

 

[Ausm]

Originally posted by: welst10
You need 10% down payment (20% is better but not necessary) plus $4-6K for closing costs. You better get a realtor if this is your first time. For loans, try credit union first. Also check out bankrate.com for a list of local mortgage companies.

Any less then 20% expect to pay mortgage insurance.


Sysadmin

 

[dirtboy]

Originally posted by: dullard

Originally posted by: Drakkon
The only other thing i can think of is I've been at my job only 6 months...I dunno how that effects me but i've had a fairly steady stream of imcome for 4 years now.

I don't know exactly how that will affect you, but just 6 months at one employer will likely make it more difficult for you to get approved with a mortgage.

Yep.

 

[dirtboy]

Originally posted by: Jzero
Not 100% right. Did I go through this with you in another thread?

BOTH are factored in - your total available credit (more is better), and the ratio of available credit to income (if you have more credit than you can ever possibly pay, lenders get nervous).

Having too much available credit CAN work against you.

Although in the case of $10k available, I don't think you have to worry about having too much credit compared to your income.

Take a look at this.

I am so right that only about .0000001% time that you are right.

 

[dirtboy]

Originally posted by: Drakkon
I have a pretty decent credit rating...never been late or had much of a balance left on any credit card ever but I've only had this one car loan for $8K and its being paid off monthly. The only other thing i can think of is I've been at my job only 6 months...I dunno how that effects me but i've had a fairly steady stream of imcome for 4 years now.
I might go poking around mortgage places though...may be worth a look at least

Work on paying off your car. Being at your current employer for only 6 mo will hurt. Save money, pay off debts and figure out what you can afford.

 

[wyvrn]

Originally posted by: Sysadmin

Originally posted by: welst10
You need 10% down payment (20% is better but not necessary) plus $4-6K for closing costs. You better get a realtor if this is your first time. For loans, try credit union first. Also check out bankrate.com for a list of local mortgage companies.

Any less then 20% expect to pay mortgage insurance.


Sysadmin

Uh... no.

 

[Modeps]

Originally posted by: FrustratedUser

Originally posted by: Modeps
My advice: NEVER EVER pay PMI, it's money that's going nowhere. Either do an 80-10-10 (finance 10, pay 10, mortgage 80) or 80-20 (finance 20, mortgage 80) or anywhere in between. Problem with an 80-20 (mortgage/finance), you need near immaculate credit.

What does it mean? 80% mortgage I can understand but what does 20% finance mean?
Do you mean I could use CC to 'finance'?

80% would be the normal mortgage, the other 20% would be basically a home equity loan, it's called a piggyback loan. I'd steer clear of using a CC to finance that, you'd get a much better rate at the bank.

 

[badmouse]

Some good information here, and yes, definately find out what your mortgage options are. Don't assume anything - go ahead and talk to a couple of people.

A good way to find a GOOD realtor - there are a lot of bad ones out there - is to call the office and ask to meet with their top seller. Stands to reason that if they've sold a lot they know the market and they're pretty good. If you can't stand that person, don't go with them, of course.

Good luck.

 

[CrazyApe]

Didn't read entire thread, so sorry if this is repeated. Many banks and lenders have seminars you can go to if you're a first timer. Very helpful in regards to learning all the lingo.

 

[Vic]

This thread is so full of misinformation, it's simply shocking.
There is some good advice, but it's so intermixed with the bullsh!t and internet geek elitism that it's hard make heads or tails of it.

Drakkon, first let me answer your actual questions:

- At the very least, you should have, as a minimum, enough for the earnest money (typically $1k), the home inspection (~$250), and the appraisal (~$400), plus 2 months of the expected new mortgage payment (with taxes and insurance) saved up.

- Depending on your credit and income situation, there are a multitude of "zero down" options available, a large number of which do not require mortgage insurance. As a first time homebuyer, I strongly recommend that you look into an FHA/HUD program. FHA typically requires 2.5%-3%, but that can be gifted to you by someone else, and FHA has the advantage of very limited closing costs. Yes, the rate can be slightly higher than typical if you don't put the full 20% down, but you get the house right? Combination loans of a 1st and 2nd are also common and should be considered. The rate on the small 2nd will be higher, but that is typical and better than paying mortgage insurance (because of tax reasons). My advice is to use someone else's money before depleting your savings. The worst mistake any new homebuyer makes is draining everything they have to get the house, and then living one missed paycheck away from foreclosure. Keep some savings as a reserve. Any GOOD lender would encourage you to do so.

- Looking for the right lender can be the trickiest part. If you have friends or family members who own homes, see if one of them will refer you to a mortgage loan officer they really liked and trusted. Try talking to a loan officer at your bank or credit union -- you might get lucky with a good one, you might not. Shop around but be aware that (despite the common myth) a loan officer can't just pull numbers out his ass to quote you. He has to know both your situation and what you want in order to tell you what he can do for you. Automatically distrust any loan officer who just quotes numbers offhand without asking you questions first, or one who offers to send out an estimate in writing without taking an application from you first.
You do not need to pay off the car loan unless the payment interferes with your debt ratio. Referring back to the idea of keeping money in the bank for you after this is all done, I would suggest avoiding paying off the car loan unless it becomes absolutely necessary.

- Next trickiest part is finding the right realtor. Referrals from a friend or family member (as above), are still best. Otherwise, look around and try to find one you like and feel you can trust. Just like with your loan officer, if you feel you can't trust your realtor, find another.

- Realtors get paid by the seller as a cut of the final purchase price. NOT BY YOU. This is very important to remember. Their main interest is to see the house sell for the highest price possible. Keep that in mind.

Good luck and let me know if you have any more questions.

 

[Ausm]

Originally posted by: wyvrn

Originally posted by: Sysadmin

Originally posted by: welst10
You need 10% down payment (20% is better but not necessary) plus $4-6K for closing costs. You better get a realtor if this is your first time. For loans, try credit union first. Also check out bankrate.com for a list of local mortgage companies.

Any less then 20% expect to pay mortgage insurance.


Sysadmin

Uh... no.

Hmm I don't know what you are smoking but where I live PMI under 20% is a reality.


Sysadmin

 

[dullard]

Originally posted by: Sysadmin
Hmm I don't know what you are smoking but where I live PMI under 20% is a reality.

You are both correct. 20% is typically the minimum you need down to avoid PMI. But there are programs available to get around that - if you qualify. And you can get a loan for that 20% to get around the PMI as well (of course you get screwed in that loan interest, but PMI isn't a necessity).

 

[Modeps]

Originally posted by: dullard

Originally posted by: Sysadmin
Hmm I don't know what you are smoking but where I live PMI under 20% is a reality.

You are both correct. 20% is typically the minimum you need down to avoid PMI. But there are programs available to get around that - if you qualify. And you can get a loan for that 20% to get around the PMI as well (of course you get screwed in that loan interest, but PMI isn't a necessity).

Even if you're paying a bit more monthly due to a second loan, it's better than paying PMI. The interest on the second loan is tax deductable where PMI just goes to the mortgage company and you can't do anything at all with it.

 

[Mayfriday0529]

Sounds so nice for all of you to have house prices of 125k to 300k. I'm hoping i can buy a house by age of 30 but wow 20% of house price saved thats alot for houses here in NY costing on average 500k. I guess i have lots of cans to sell.

 

[Kelemvor]

Originally posted by: C'DaleRider
Always remember.....despite what any real estate agent says or how he/she presents themselves, the agent is the SELLER'S representitive and looks out for the seller, not the buyer. as such, many agents will attempt to "sweep under the rug" potential problems that are known but not glaringly showing up at present. These problems could range from weeping basements that are not showing when you look, leaking pipes that are "fixed" just enough to pass a quick look-through to potential zoning problems on the horizon (such as the city/county planning on eminent domain condemnation of part of the property in the future for road expansion but not yet "official"......)

Remember, the real estate agent is there to sell the house and protect the seller's interests, not yours.

Couple of other things.......consider an independent appraisal and independent insepction of the house. I wouldn't blindly accept insepctions the seller provided unless the inspector has a sterling reputation for being unbiased and fair......too many people taking too many kickbacks these days.

Also consider hiring your OWN real estate agent, one that represents YOU......this person will know the true ins-and-outs of the process and will work to protect YOUR interests in the house purchase.

That's why there are BUYERS agents and SELLERS agents. That's why you get YOUR OWN REALTOR. Never talk to the one selling the house, get one that is there to help you BUY your house.

And if you get a good realtor (ask friends for references) they will educate you on tons of things you probably had no idea about.

 

[Vic]

Originally posted by: FrankyJunior
That's why there are BUYERS agents and SELLERS agents. That's why you get YOUR OWN REALTOR. Never talk to the one selling the house, get one that is there to help you BUY your house.

And if you get a good realtor (ask friends for references) they will educate you on tons of things you probably had no idea about.

Wrong. There is the Selling agent and the Listing agent (respectively). There is no "Buyers" agent, and both agents work for and are paid by the seller only.

The Listing agent (what you called the "Sellers" agent) works exclusively for the seller.
The Selling agent (what you erroneously called the "Buyers" agent) works for the buyer only insofar as finding a home that meets the buyers' wants and qualifications. Once that home is found, the selling agent then works for the sellers in making sure that the buyers work with the process and submit an offer that the seller is likely to accept, etc.
Say "Buyers" and "Sellers" agents in a government underwriter's office and you're likely to be kicked out permanently. Those are marketing names, not approved legal terms.


It is quite easy to get a loan program where you get put less than 20% down and still avoid MI (damnit people, PMI is a company and a brand name). In general, these program require a slightly higher interest rate but, as MI is not tax-deductible while mortgage interest is, it generally makes more sense to pay the slightly higher rate.
MI does NOT go to the mortgage company, nor does your lender profit off of it in any way. In order for a loan that requires mortgage insurance (per program underwriting requirements) to be properly packaged, portfolio'ed, and securitized, then a mortgage insurance policy must be acquire for it. The funds collected (either paid monthly, which is typical, or by "super single" upfront premium) go to the mortgage insurance company, the largest of which are PMI, Radian, MGIC, and RMIC. The purpose of mortgage insurance is to insure the lender in case the borrower defaults, and the lender is forced to foreclose and possible "short-sale".
In a loan with a LTV > 80% (i.e. down less than 20%) where the lender does not require MI, the risk is absorbed into the slightly higher interest rate, as mentioned above. This can be done one of two ways: either a single loan at the slightly higher rate, or the most ideal way, which is a combination of 2 mortgages, the 1st at or near the prevailing rate and at 80% LTV, and the 2nd at or near the prevailing rate for 2nd mortgages for the remainder.


My last tip about mortgages, real estate, and home buying. It seems to me that there is no industry in this country where people who know almost nothing about it think that they know more than the professionals who do it every day. For the last 10 years, I have taken more mortgage applications every single week (except when on vacation) that the average homeowner will fill out in their lifetime. Unless you are dealing with an idiot or a green rookie, you do NOT know more than the professional working for you, and if you are working with a less than ethical individual, thinking and acting so is an easy way to get screwed.

 

[Jzero]

Originally posted by: Vic
The Listing agent (what you called the "Sellers" agent) works exclusively for the seller.
The Selling agent (what you erroneously called the "Buyers" agent) works for the buyer only insofar as finding a home that meets the buyers' wants and qualifications. Once that home is found, the selling agent then works for the sellers in making sure that the buyers work with the process and submit an offer that the seller is likely to accept, etc.
Say "Buyers" and "Sellers" agents in a government underwriter's office and you're likely to be kicked out permanently. Those are marketing names, not approved legal terms.

Maybe it's different in your state, but semantics aside, as a buyer in PA, my agent is under contract to seek out not only a home that suits our needs, but also to be our advocate in getting the lowest price possible. My agent has told us flat out more than once, "I don't care what the asking price is, that house is not worth more than $X, and if they turn down such an offer because it's too low, they are doing you a favor."
She does not work for the seller at all, and often times she is actually fighting the seller who is doing things under the table that are less than ethical.

Naturally such a contract is hard to enforce, so you have to find an agent that you trust to uphold the ideals in the contract, but nonetheless, here in PA the "buyer's agent" regardless of the correct terminology, has a contractual duty to NOT work for the seller's benefit.