First Time Home Buyer (Any Advice?)

[Loaded NightraiN]

So i'm looking to by a home, and soon, to take advantage of the tax rebate...


What kind of tips can u guys give me from your experience?


What type of loan is best if you have about 10% to put down, what are some obscure things to take into consideration as far as the condition of the home?

[pilferk]

Beat this into your head:

FIXED RATE, 30 YEAR MORTGAGE.

Don't do adjustable, don't do any of the crazy mortage products (many of which disappeared when the economy went *poof*) like "interest only", and don't...for the love of all that's holy...buy more house than you can afford!  Ideally, you want your monthly payment (including mortgage, escrow, PMI...EVERYTHING) to be 30% (or LESS, less is good!) than your monthly income.

DO NOT SIGN ANY NOTE THAT CONTAINS ANY MENTION OF "Baloon payments"!

FHA, Fannie (except for their 7 year baloon offering), and Freddie are all decent products if you qualify (you should, at least, qualify for Fannie or FHA).  Doesn't really matter who your lender is....just make sure they're reputable, are offering you a good rate, and are not completely raping you on fees (origination, appraisal, legal, etc). 

I would also suggest NOT using a broker if you can help it...they just tack on more $$.  You may not have a choice....they can make the process a lot easier and have access to some esoteric lenders with great products that will save you $$.  But before you use one, make sure they're worth the price you're paying (you won't pay them up front, but you'll see their fee in your closing packet...it'll be rolled into your mortgage or paid as part of "closing costs").

ESCROW your property taxes, hazard insurance, and even your homeowners Association dues (if any).  Trust me, it's the better option than trying to pay that out of pocket every year. Many lenders require it, anyway...but not all.

DON'T FORGET:  There will be closing costs in addition to your down payment.  Make sure you take those into account when telling your lender what you want to put down. 

10% down is good, but depending on appraised value vs loan value, TRY to get to the point where you do NOT have to pay PMI (Private Mortgage Insurance).  Typicall that level is about 20% down, or less than an 80% loan to value ratio.  If you can't do it....that's fine.  But keep in mind your monthly payment will increase by about $55 a month PER $100,000 of your loan  (ie: if your loan is $200k, you'll be paying around $110 a month in PMI).

Another tip:  When applying for mortgages, you can apply as many times, with as many lenders, as you want WITHIN 30 DAYS of the first appilcation, and they'll all count as ONE application against your credit score (yes, too many applications for things effects your credit score!). 
Don't be afraid to shop around,

Do NOT use the lender your real estate agent suggests simply because they suggest it. 

In addition to RATE, the most important thing coming from your lender are the fees they're going to charge you...and there WILL be FEES!!  When comparing lenders, if one is giving you 5.25 but charging you an additional 5k in fees compared to the lender offering you 5.4...it's time to break out the calculator and see who's really giving you the better deal.

Make sure you see a proposed copy of the HUD-1 Settlement document BEFORE you close so you can see exactly what fees are being charged to you.

That's all I got for now....

[Loaded NightraiN]

Good shit right there Pilfrek thanks!!

I'm definitely goin with a fixed rate, but my buddy swears to go w/ an FHA no closing cost mortgage, but he didnt have any down payment when he did his...

Its my understanding i'd pay alot more w/ the .5 higher interest rate over the life of the loan, compared to the upfront "savings"

[D]

Damn! Killer shit Pilferk. U should write a book!

[pilferk]

Good shit right there Pilfrek thanks!!

I'm definitely goin with a fixed rate, but my buddy swears to go w/ an FHA no closing cost mortgage, but he didnt have any down payment when he did his...

Its my understanding i'd pay alot more w/ the .5 higher interest rate over the life of the loan, compared to the upfront "savings"

1) The FHA no closing cost is usually tougher to qualify for.  You have to have a pretty good credit score to do it. Might not be a big deal for you, but keep it in mind.

2) Even then "no closing costs" usually just means you don't PAY them at closing.  They just get rolled into the loan and thus, reduce your loan to value ratio...and make it more likely you''ll pay PMI...and PMI, over the life of the loan, will likely DWARF the closing costs in total.  You'll pay, on a 200k loan, roughly $1300 a YEAR in PMI.  And it won't go away for a good long time, considering the first few years you'll be paying butkiss toward principal (a couple to a few hundred a month).  Figure if you have to make up 10% of your loan to value on a 200k house, after putting 10% down, is going to take you roughly 6 to 8 YEARS.   

$1300 x 8 = $10400

So be careful!

.5% savings? Yes.  Because even if you roll the fees into the mortgage (and thus, pay interest on those fees) the rate savings should save you a pretty decent amount.

.25%?  It'd be VERY close, and you may save yourself money paying the higher rate over the life of the loan.....

If you mortgage 150k at 5.25%, you'd pay 298,200 over 30 years
If you mortgage 155k at 5.00%, you'd pay 299,500 over 30 years
If you mortgage 155k at 4.75%, you'd pay 291,090 over 30 years.

So, if you compare scenario 1 with 2, you're actually better off with the lower fees and higher rate, by about $1300. Yes, over 30 years, it's "chump change"...but it IS a savings, and it gets more pronounced the bigger the gap in fees is.

[pilferk]

Damn! Killer shit Pilferk. U should write a book!

I've been through this process now a BUNCH of times. 

We took out a first for our house, and a parallel construction loan for remodel and upgrades.

We took out a 2nd to pay off the construction (it didn't have a roll over provision).

We refinanced about 18 months ago, to roll the two into one loan and drop our interest rate (from 6.8% on the first and 6.75% on the second down to 5.65%).

We're contemplating (and probably are going to do) an FHA streamline with our current lender who's waiving just about every fee they can AND dropping our interest rate a bit more than .5%, down to flat 5.0%.  It'll cost us, total, out of pocket, about $1000 (includes all closing, fees, etc).  They don't have to do anything (reappraise, run credit) and since we're sticking with the same lender, they don't even have to do a "real" payoff.  It's all general ledger stuff.  The only bad part is that we reset the 30 year clock again.  My goal is, in 6 to 7 years, to get us into a 15 year fixed.

In addition, I've helped my Mom through the process twice (a first, and then a refi) and, since she (coincidentally, actually) has the same lender we do...once I'm done with our streamline, I'm probably going to try to get the same deal for her.

[Loaded NightraiN]

Ok so this is what i'm looking at right now after visiting a bank...


The asking price for the house is $72,000, so this is price its based on...

They offered me a "Rural Development Loan" which has 100% Financing w/ no money down... It has a 2% guarantee fee, BUT no PMI..

The closing costs w/ Escrow would be about $8000 (so much for that hefty down payment), which includes pro-rated taxes as well...

This is just another option thrown in, thats making my head spin

[pilferk]

Ok so this is what i'm looking at right now after visiting a bank...


The asking price for the house is $72,000, so this is price its based on...

They offered me a "Rural Development Loan" which has 100% Financing w/ no money down... It has a 2% guarantee fee, BUT no PMI..

The closing costs w/ Escrow would be about $8000 (so much for that hefty down payment), which includes pro-rated taxes as well...

This is just another option thrown in, thats making my head spin

What's the house appraise at?  Do you know?

They'd likely be able to roll a portion of the closing costs into the loan, provided the house appraises high enough.  With No PMI (and I'd make sure I got that in writing, even if you blow the 20% cap with the closing overage), the only worry would be that you don't want to be (and they wouldn't let you, at origination) upside down in the mortgage at any point (meaning you owe more than the house appraises at..and with the market as it is, I'd want a good 5% cushion on appraisal value vs loan value). 

You pay what you can from your "down payment" funds, and let the rest roll into the loan.  Sounds like it'd only be about $800-ish.

The other questions are (and these are real estate, not mortgage):  What's included in the house price?  What's NOT included (and make them be VERY specific...in terms of appliances, fixtures, etc).  Make sure you point out any issues with the house, cosmetic or otherwise, and see if you can negotiate a seller fix, price reduction, or seller "give back" to address them.  You CAN'T negotiate out paint and carpet, fyi.  Those are pretty much considered "wear and tear" items. IF you can afford one, a home inspection wouldn't be a bad idea, either, prior to buying the property.

ONE other thing:  Make sure you have enough reserves (cash, preferably) to move INTO the house.  By that, I mean being able to buy paint, pay for carpet (if needed) and furniture (if needed).  What you DON'T want to have to do is move into this new place...and then max your credit cards making it liveable/comfortable.   You'll be takin on a sizeable financial commitment in the mortgage....you don't want to add to that, if you can help it, with a big bump in monthly credit card payments.

[Loaded NightraiN]

I do not know what its appraised at, yet! Soon to find out..

The house is live-able right now and all i'd have to buy is a Refrigerator... There are some carpet/wallpaper issues, BUT thats only because I dont like them... They can stay until I have the money to replace them....

I plan to get the house inspected before closing, and the closing cost also includes and estimate to hire a real estate attorney (1% is the going cost)....  

[LunsJail]

Ok so this is what i'm looking at right now after visiting a bank...


The asking price for the house is $72,000, so this is price its based on...

They offered me a "Rural Development Loan" which has 100% Financing w/ no money down... It has a 2% guarantee fee, BUT no PMI..

The closing costs w/ Escrow would be about $8000 (so much for that hefty down payment), which includes pro-rated taxes as well...

This is just another option thrown in, thats making my head spin

Look into an FHA loan. They only require 3.5% down and are a much better deal than the rural development loans. I am a mortgage originator and that's what I'm recommending to my clients.

[Loaded NightraiN]

Look into an FHA loan. They only require 3.5% down and are a much better deal than the rural development loans. I am a mortgage originator and that's what I'm recommending to my clients.

How so exactly?

[LunsJail]

Look into an FHA loan. They only require 3.5% down and are a much better deal than the rural development loans. I am a mortgage originator and that's what I'm recommending to my clients.

How so exactly?

They usually come with better interest rates and lower closing costs. $8000 on a $72,000 loan is absolutely ridiculous. It should be about half that or lower.

[sandman]

get a home inspection done. it will be the best $300-$500 you'll spend in the process.

[Albert S Miller]

You also have the option of asking the seller to pay your closing costs or a percentage of them .  it is also alot nicer to have your taxes and insurance incorporated into your payment, so you do not have to cought up extra doe.  The biggest surprise you may get is the possibility of a escrow shortage the next year, but it isn't usually an amount you can't get your hands on.  This has happened to me for the last two years.  What pisses me off about it is that I choose to pay the shortage in full, yet my mortgage co likes to break it down and add it into my house payment.  I do not work it that way, as the mortgage co will take that every month even after you have satisfied the shortage.  They just did it to me, and yet the next month they were still charging me for it, however I called them on it immediately and made them reverse it.

[Layne Staley's Sunglasses]

Is this $72,000 house in the Las Vegas area?

[Loaded NightraiN]

Is this $72,000 house in the Las Vegas area?

ha, not even close, why do you ask?

[GNRreunioneventually]

pilfreak, how do you know all this shit?

[pilferk]

pilfreak, how do you know all this shit?

I am an "OCD" type planner AND I'm a numbers/data guy by both personality and profession.

So, when we started looking into buying back about 8 years ago, I did my homework.  I've continued to do it, as we've gone along.  That, and the overall experience of going through this process (directly or indirectly) a whole SLEW of times now....you pick stuff up.

[pilferk]

You also have the option of asking the seller to pay your closing costs or a percentage of them . 

You CAN ask..but be prepared for the seller to refuse.  You CAN negotiate,to some extent, and it IS a buyer market right now.

That being said, in some cases, you can't get blood from a stone.  The market is SO deflated right now, that many sellers don't have a lot of wiggle room in their price (which they've already lowered) or their resources to make up any shortfall from the buyer.

What I've heard, lately, is that some sellers will pay closing IF you pay them full asking price.  If you want a break on asking price (and you almost always do....almost nobody gets 100% of their asking price), though....they won't budge on closing costs.

Which brings up the next thing: NEVER offer asking price unless you feel you'll be in a bidding war with other buyers on the property and you HAVE to offer asking (or more) to get the house.

Be reasonable, check out the area home values (you can use zillow.com, but it's not the BEST source) and what area houses have sold for.  Then offer something reasonable. 

[pilferk]

They usually come with better interest rates and lower closing costs. $8000 on a $72,000 loan is absolutely ridiculous. It should be about half that or lower.

It's at the upper end, for sure.

I would want to see the HUD-1 on it.  IF it's an older home, and IF it includes lead paint/asbestos inspection, and IF he was going through a broker, and if it includes the escrow funding for this year and...well..there's lots of if's thrown in there that could be covered.

On a STANDARD mortgage, directly through a lender, I certainly wouldn't expect to see closing costs that high...unless by "closing costs", they're including a points buy down in the figure.

My first question to the lender/broker would be "what's the origination fee".