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Tips for Buying Your First House; I need some
Posted: Thu Oct 26, 2006 10:35 am
I'm already pre approved for a mortgage.
I know how much I want to spend based on what I'm comfortable paying.
I have a good realtor, a good mortgage broker, and I have access to the MLS so whenever I want i can see how much taxes are for any given house/what it sold for last time, how much the current owner owes on it, etc etc.
I'm able to calculate monthly mortgage/taxes/insurance costs with that information.
I'm in no rush, but I'd like to be in my new home by April/May at the latest. In the meantime, I've got no debt except for a car payment, credit around 700, and 20k for a down payment, but part of the reason I'm not buying tomorrow is because I want to save more so I'm not broke after settlement.
So, I think I'm in good shape, but I wanted to hear from some other home owners about their experiences/things i should look out for, etc etc, as this will be my first home. How was your experience when you purchased your first home?
Oh and, provided I find a home I want in the price range I'm looking, I WILL be putting enough down to avoid PMI.
Advice? Thoughts? Comments? Anything?
thanks in advance.
Posted: Thu Oct 26, 2006 1:33 pm
Buy a first house is kind of scary, the only thing I can stress is getting a reputable home inspection done once you put an offer on a house. If your realtor suggest somebody, try to stay away from them, they're probably getting a kickback.
Make sure you figure out the bills before hand, see if you can get copies from the current owner. Make sure everything that the house come with works properly. The home inspector should check it all but do a double check on you own.
If you can don't get a house at the limit of your credit. Save some room for a personal line of credit from the bank. You're going to need money to fall back on when something expensive breaks. Aslo if you can afford it, pay your taxes on a monthly basis, it's easier than paying a lump sum.
I'm sure more people with have other thing to post but that all I could think of right now.
Posted: Thu Oct 26, 2006 1:44 pm
When youdo find the house you want make sure you look at everything. Then when you do your final walk through make sure anything that needs to be fixed or cleaned up is in the owners to do list. If you think you can fix or replace whatever it is then thats fine to. Make sure you know everything you need to know beforehand. Make sure you have the heating and airconditioning unit checked and that it is all up to code have the water heater checked (we got slammed by that one) to make sure it is strapped properly and that it is not full of stuff thats gonna can cause you to replace it in 5 months or sooner. Also make sure you get the warranty for the house and make sure it covers all that (heater air conditioning appliances that come with the house water heater plumbing.)
thats all I can think of right now
have a great one and ride safe
Posted: Thu Oct 26, 2006 3:29 pm
Get a good inspection, be prepared to walk away.
Btw, a pre-approval is pretty useless. Applying for a mortgage is a real pain involving a lot of paperwork and submitting information that you probably never dreamed you would ever need. Been at the same job for less than two years? That might also hurt you.
I purchased a house less than a year ago. My first house. Here's the major things I learned:
-Do your homework. Research everything on the net. There should not be a single term on any paperwork that you do not understand going in. Understand the difference between discount and origination points.
-Get your HUD1 at least a month before you close. Do not let your mortgage company tell you that your good faith estimate is good enough. Its not. A HUD1 is legally binding, a good faith estimate can be way off.
-Expect to bring at least 5k for closing costs. Some of this can be negotiated onto the seller.
-Your real estate agent is not your friend. They don't work for you, they work for the seller. Even if the seller has an agent, AND you have your own agent, your agent wants you to spend as much as possible
. The more you pay for that house, the more your agent makes. They are a necessary evil to buying a house.
-4 things you need to shop independently for. 1) Mortgage company, get at least 3 good faith estimates. 2) Insurance, homeowners...double-check with the mortgage company that the insurance you are buying is sufficient to what they require for the loan (keep an eye out for exclusions). I ran into this problem and it was a headache, don't assume the loan agent is going to check anything. They just want to make the sale and move on. 3) Title company. Your agent will probably try to get you to use theirs, but shop around and compare how it affects your closing costs. You can save alot at the table and the agent is serving their interests, most of them get kickbacks by referring you to these people, they are not getting the best deal for you. 4) Any estimates/appraisals/inspections...it will cost up to a thousand dollars to decide whether the house is ripe for sale, money that you will not get back if you bail out. Accept it, because you want people working for YOU, not your agent.
-Very few homes are financed with 20% down. With the cost of housing, its not realistic. If you put 5% down or more, you should not be paying PMI.
-Pay for your full credit report NOW, from all 3 agencies, and correct any mistakes before you even start looking. Don't even think of signing up for any more loans, auto, department store, or otherwise. And once you get your loan approved, don't do anything to your credit...including paying off any debts or collections. Once its approved, probably a month before you close, your credit must not change at all or you may end up having to go through the process over again.
-You will have to pay a full year of insurance up front, at closing, remember this when you figure your closing costs. It should all be on the good faith.
-Escrow accounts are fine, but they will cost you more. Many will require you to pay 14 months of taxes, to prevent any kind of shortage. So you will be paying monthly to make up for that amount, but it also keeps you out of trouble come December.
-Don't fall for the scam of splitting your payments into twice monthly. They say it will allow you to pay a 13th month on your mortgage, but often these are accompanied by extra fees. You can easily save it on your own and make your OWN 13th payment without fees (if you dont think you are disciplined enough to do this, you should also be escrowing your ins/taxes).
-This will be one of the hardest things you do. It will be annoying, stressful, and difficult. They will throw things at you that you wont understand. They will do everything to confuse you into accepting 'fees' on your HUD1 that dont belong there. Remember that ALL fees are negotiable, and you should question every single one. If they dont have a satisfactory explanation for any fee, refuse to pay it.
-Don't forget homeowners association dues. We bought our house in December, but they sent out 2006 dues in November 2005, so we never got the bill. Come February we got a letter with a late charge. They were understanding, but this was something we simply overlooked. (after writing thousands of dollars in checks you just want the madness to stop!
-Check the neighborhood. Check the police reports and local crime rates. These are all available on the net. Check the sex offender registry in the neighborhood. Look at the local schools. Elementary, Middle, High. What are the test scores like? The demographics? What is the income range of the other residents? Are you buying the most expensive house on the block (not good!)? What did your neighbors house cost?
-Drive around the neighborhood. Look in backyards (discretely from the street! you can see in the slots
)...are they full of junk? Do people leave broken cars outside? Are they yards well tended? Are houses in disrepair? These are things that hint to the future outlook of the community. Are there children playing in the street?
-This may sound silly, but fire up Google Earth and take a look at the house. The photo will be a couple years old, maybe more. Was there a bunch of junk in the yard? That would indicate the house was not well cared for.
-Your credit will determine your negotiating room. Poor credit will have a rough time, because you are a greater risk. Great credit (750+) and you will be looking at some purchasing power. Btw, they will look at all 3 of your scores and average them. But they will also consider your lowest score. Between agencies, your score can vary by 100 points or more! Get that report!
That's all I can think of for now. Good luck! Its a hair-pulling process but once you are in the house and you let yourself make good decisions (rather than emotional decisions) you will be very happy.
PS: Regarding the water heater, if the house has been unoccupied for any length of time you just might have sediment build up in it. You will need to flush the whole thing (hopefully it will be in your garage so you can hose it right down the driveway) several times...brown water in the hot tap just means its dirty. As long as its hot (assuming your heater is on) you just keep flushing until its clean. Took us 2 days and about 6 full flushes to get it completely clear.
Posted: Fri Oct 27, 2006 1:27 pm
All very good points!
A few more that are good in my opinion - I'm a "banker", well I work for a credit union, and I have gotten some mortagages over the years...
Choose a local bank or credit union. You generally do not need a mortgage broker if you have good credit. 700 is ok, but it could be better - 720 is the point of better. (620 is the point of bad!)
They should be able to lock your rate for 45 days for free. You can pay an additional 0.25 (quater point up front) to lock for up to 90. Unless you are constructing new, you should not be seeking to get a loan so far in advance you need a 90 day rate lock...but if you want, those points are tax deductible.
A point is 1% of the loan balance. They are generally tax deductible in the year you buy. They are a "good faith" thing that give the lender $ up front - but - you must get something in return: longer term, lower rate, etc...
PMI is generally required when you have below 85% equity. On about $100,000 balance, it would be about $38-45 per month. BUT when you reach 85% equity, you can ask it be removed.
An FHA loan is more forgiving on your ratios and down payment; however, you will need to fund an MPI (similar to PMI) account and pay the premium for the life of the loan. If you refi within about 7 years, you can get a refund of what is left in your account - but they can't tell you what it is prior to paying off the loan. I don't think you will need FHA...
There are two type of realtors - sellers' realtor and buyers' realtors. If you find a buyers' realtor, they will watch your interest - but like said - they do work on commission. How to fix that - do your own negotiation on the price, or ask YOUR attorney to do it. Do not allow the realtor to handle this. Remeber - your realtor works for you. You dictate what you want them to do or not. Their main job is to accompany you and let you into the property. Oh, the have the standard forms for the contract - but so does an attorney, or the statoinary store (bloomberg forms).
Get your "own" attorney. The seller will have one, and the bank will have one. In most cases, the bank's attorney and you have the same interest. Since you will pay for the bank's attorney - choose one from their list by calling them and talking to them - find one who you feel comfortable with, and negotiate a fee for them to rep you too. Usualy, you will only pay them an additional $250, where if you got a totally different guy, you'd pay antoerh $500+. (You will pay at least $500 for the "banks" attorney, but the seller shoudl pay for his own).
A local bank or credit union is on your side. They want to invest in the community and build a relationship with you. If you are nice to them, they will be very good and nice to you. Do not fib, white lie, half truth on anything! Be upfront and let them deal with it.
Mortgage companies (Beneficial, Country Wide) don't care a hoot - they are huge conglomerates that will take your home as soon as contractually able. A bank or credit union has a very regulated process for delinquency and foreclosure - plus, if you have issues, they will try and work with you. I know this to be true from working withthe collectors - they are good people with a hard job. At our credit union - our collectors get sent flowers, candy, lunch!! They HELP people in trouble!!
Visit your potential property many times at differet times. Night, day, afternoon, evening, weekend, weeknight...understand the "noise" and traffic level. Walk the whole property.
Get that inspection!! Make sure you check the chimneys!
Escrow accounts have the benefit of ensuring you have your tax and insurance money when you need it.
Get life insurance to cover the outstanding balance for your spouse or s/o. Once of the biggest tradgedies is when one spouse dies, and the other can't afford to pay off the mortgage or make the payments. For a very small premium, you can ensure that it wil be paid off worry free.
+1 to not getting the max loan you qualifiy for! Your taxes, insurance and all other expesnes will increase faster than your salaries! You never realize how much you spend on day to day stuff until you don't have it.
Title search, title insurance!!!
Survey, or survey endorsement (part of title)!!!
If you are paying rent - get copies of one year's worth of receipts or canceled checks.
If you sign a contract - have your attorney reveiw it. If you do not think you will meet a deadline - get an extension withthe seller - they can take your deposits if you don't!!
RELAX! Yes, it is stressful, but if you prepare, keep organized, and get good people - a good lender, a good attorney, and a realtor you trust, it should be ok! Also - home prices are coming down nicely! Prices fell almost 10% from this time last year! It's a buyers market!
PS - a bi-weekly mortgage is a specific product where the payment is required to be made 2x per month - the benefit is mortgages are simple interst loans - the interest accrues daily on the outstanding balance. If you pay down principal faster (ie bi weekly) you will pay less interest as well as pay more in a year that a monthly payment loan. It will generally knock 7 years off a 30 year amortization.
A monthly payment loan may not allow you to split the payment into two 1/2 payments per month. there is really not much benefit when a loan is paid biweekly and it is monthly - they will generally hold your 1/2 payment till the other 1/2 comes in, and apply it all at once on the due date (or when it's 100% there). It could be a posting nightmare for their system. (we do not allow 1/2 pmts, or biweekly on monthly payment loans)
Solution - if you get a monthly payment loan, simply pay - by seperate check - 1/12th extra principal each month, and write on the check "TO BE PAID TOWARD PRINCIPAL" and check you statements to make sure it is being applied correctly.
Posted: Fri Oct 27, 2006 2:51 pm
Good advice, Candy. I'd like to mention also about locking in your rate, some banks will lock in your rate without really approving you for the loan (mine sure did!
). Until you have your HUD1 and your loan approval in writing (not a preapproval or a good faith) everything is up in the air. This means that even though your rate is locked, the loan hasn't gone through underwriting and may be rejected, forcing you to renegotiate the loan under new terms and even possibly with a different rate.
Posted: Mon Oct 30, 2006 1:30 am
-Pay for your full credit report NOW, from all 3 agencies, and correct any mistakes before you even start looking.
Why pay? You are entitled to one free credit report a year per agency and in some states, like mine (Georgia) we can get 2 free a year per agency!
If you want to see your credit score, then you can expect to pay out, but that's not neccessary to look for and crack down on any errors.
Go here for information and phone numbers: http://www.ftc.gov/bcp/conline/pubs/cre ... eports.htm
Posted: Mon Oct 30, 2006 10:15 am
I got my credit report from all three agencies for free from my mortgage broker.
Thanks for the info, although I highly doubt my reale estate agent wants me to spend as much as possible, as she's a lifelong friend of my mothers who is just here to help out.
But even if she was, I already know how much I can afford and what I want to spend, so it doesnt really matter what they think.
As far as home owners association fees, they are all listed on the MLS listing for the given property. They're only on condo's and flats and things like that. Not what I'm looking for, so association fee's wont come into the picture for me.
I know a pre approval isnt the same as the actual mortgage, but it does mean that i will GET approved, which is all I wanted to know. I've been at the same job for almost 5 years, so that is not an issue.
So anyhow, right now i'm keeping an eye on the market, and just saving some more money. My maint concern is getting into a house but having little to no money left over once I'm there. I dont want to rush this process and luckily I'm in a situation where I dont have to.
Posted: Mon Oct 30, 2006 11:01 am
A homeowners association fee will be present in any community with a homeowners association, not just condos and townhouses. They typically range from $200-$500 a year. Homeowners associations are pretty standard fare in new neighborhoods and many older ones. Heck, when I was shopping for a house I didn't see ANY that didnt have a homeowners association. They do help keep the curb appeal. If there is no association, think twice, because your neighbor might decide his front lawn is a great place to park is rusty old truck.
Condos and townhouses have additional "Maintenance" fees that, depending on the community, can nearly equal your monthly P&I payment! When shopping for a home I saw some townhomes with community fees of $400 or more a month!
Definately keep at least a thousand dollars in the bank. Just the cost of moving, transferring utilities (assuming you dont need to add on any deposits), and buying the inevitable things that you never realized you were missing until you got into your own home, will cost you a bit at first.
Keep us updated!
Posted: Mon Oct 30, 2006 11:16 am
Yep, those fee's are all listed on the MLS as well.
But I've mainly been looking a older houses (80-120 years old) within the borough of a specific town (Phoenixville, PA), so there are no association/community fee's with those houses. I dont know however if there are additional trash removal fee's or anything like that. Maybe that is included in the local taxes? I dont know, but I can easily find out since my sister lives in that town currently.
Aside from all that, I'm also looking at buying a triplex or duplex, and renting part of the property out. Anyone have any experienjce with that?
Posted: Mon Oct 30, 2006 11:53 am
Trash is usually lumped in with your water bill.
Posted: Mon Oct 30, 2006 11:57 am
I got into a house with $0 out of my pocket.
I did an 80/20 loan (2 loans) to avoid PMI, and I negotiated that the seller covers all closing costs. Doing the 80/20 over the 20% down was a lifesaver. I really didn't want to throw down $49k to avoid PMI... since I have nowhere near 49 thousand dollars, it wasn't an option anyway. Doing the 80/20 vs one loan, I'm only paying about $20-30 more a month in interest.... definitely worth not spending the 50 grand cash, plus closing costs (which were like 12 thousand dollars when everything was said and done).
I ended up in my house with no money out of my pocket except for my personal home inspection.
Posted: Mon Oct 30, 2006 1:24 pm
Investment property lending is my bread and butter!
Most banks/credit unions will do a commercial
mortgage on a non-owner occupied 1-4 family - it depends on their investor. Some will allow a consumer loan (which will be the statndard stuff you already know
) Once you have 5 units, it is def commercial. We try to do anything non-owner occupied as commercial.
A commercial mortgage will be for up tp 80% (sometimes up to 90%, sometimes only 75%) of the appraised value. They will look for a debt service coverage of 120% - computed as net operating income divided by debt service. Net operaitng income is gross rent, less vacancy factor and expenses (excluding depreciation and interest). Debt service is principal and interest for the year.
You should ask the seller to "share" his fed return schedules E - where he reported income and expense. You want to research rental rates in the area, and compare them to what he is charging. Ask for lease copies (you will want to execute new leases after closing).
You will pay a bit more in closing costs - but you will get the same stuff - appraisal, title insurance, hazard insurance, survey... You will pay an origination fee of about 1%.
You might want to form an LLC - speak to your attorney.
Rates will be based on something like the 5 year T bill - which was 4.69 on friday - plus like 3 - 3.5%. They will usually want a varaible rate - adjusting each 3 years. Plus - you will get a balloon - a 5 - 10 year term and a 20 - 25 year amortization.
PS - For YOUR house - If you buy an older home, you may have a well and septic, not town water ans sewer...like mine (over 100 years old). So no water or sewer bill. Also, I pay my trash to a private company - it's $52 every other month for a 65 gallon bucket, weekly pickup.
Posted: Mon Oct 30, 2006 2:36 pm
Everything I've read is that balloon payments are a bad idea...right there with interest-only and 50 year mortgages! ARM are not worth it IMO, better to take a fixed with a slightly higher rate...then you can refinance on your terms (like when rates crash) instead of being forced to accept a new rate when the bank chooses (usually higher!).
Posted: Mon Oct 30, 2006 3:07 pm
A balloon on a residential mortgage is generally bad for a regular person who wants to live in the house for like "forever". The residential ARM can be very very bad in a rising rate environment (where we are now). If there are circumstances that make you pretty sure you;d refi in say a three year priod, any of these are ok. As for getting those 2 notes, the issue would be if you MUST sell it in a few years, you may be upsidedown - you will owe more than it is worth. But, hopefully there will be no reason to sell, and you will live there for a long and healthy time!!
A commercial loan is a different animal all together. These are for investment properties, which will be sold, refinanced, rehabbed, etc. Having a 10 year term is fine - if you still want to have the investment after this time, you will either refinance or sell. Generally having a 5 or 10 year term on investment real property is standard. after the term, you can refinance it with the same lender, as long as it still "works".
The shorter term gives the lender an "out" if the property falls vacant or to bad disrepair. Over the years, I have seen some doozies in the foreclosure process...
Posted: Fri Nov 03, 2006 10:51 am
well, i'm going to look at 5 houses Saturday morning. I'm not really sure why, because I'm not ready to buy, but my Reale Estate agent says I need to start looking, because it might take a while to find the one I really want.
Posted: Fri Nov 03, 2006 11:37 am
Waiting will save you money. Prices are coming down in all of the markets.....
It's not a bad idea to LOOK, because it will give you an idea of how much house is for how much money.
Don't let them pressure you if you really aren't ready.
I am of the mind that if I look I will buy. True of cars, bikes, gloves, lipstick, whatever! So, I wouldn't bother to look till I was ready to buy. I always say I accidently bought my jeep on the way home from work. I only stopped to look, and I ended up buying. When I only went to look at the option of trading in my 600 for my 750, I was consumed, and did it. But that's just me. I guess if I am actually moved to look, I'm really going to do it. I just "buy" under the guise of "looking".
(do I sleep under the guise of napping, eat under the guise of tasting...am I living a lie?)
Posted: Sun Nov 05, 2006 1:57 pm
Thanks for the information in this thread, guys. While I'm not quite looking yet, I am always looking for more information.