Who'd like to help educate me about house buying? :)

[BeTheChange]

My husband and I recently moved and would like to buy a house. Infact, we saw a house this weekend that we would have bought had we already been preapproved.

What I would like to do is get a firm loan offer that we accept so that we know that the financing is available and will stay available for a couple months. Ive done preliminary research by registering with Lending Tree and prequalifying. I am trying to figure out how to pursue the situation. We have already pulled our credit scores and are in the process of correcting a couple errors. Should we find a local lender? Will they give us a better mortgage rate? I anticipate my Fico to go up by about 20-30 pts when the errors are removed. Should we wait to get pre approved until then? Is 5.75 % a good rate on a 30 year fixed? Can I pay off my in 10 years or will I incur some type of penalty?

How long does the preapproval process typically take?

Any tips or recommendations?

[laylah]

1. I'll try.

Local lenders would probably just sell your note after closing. 5.75% for a 30 yr. fixed is excellent and early pay off is usually available with no penalty however, ALWAYS ask. No need to wait to get preapproved as long as you tell the potential lender what is going on with your credit report. You will need last year's W2's, most recent pay stub, banking info, etc. to start the process. I was preapproved within 3 days, myself. It probably depends on the party you go with. Another thing you definitely want to invest in is a home inspection. They cost about $300 - $400 and are worth every penny!

Hope this was helpful.

Jenn

[sbj405]

2. Just to add

The preapproval is typically good for 60-90 days. In terms of local vs Lending Tree, just check out a few banks and their rates.

[BeTheChange]

5. Great!

I think Im over analyzing the actual pre approval process. It's good to know that it doesnt require a 3 week/month ramp up period. We just want to make sure we have our ducks in a row.

[Gormy Cuss]

3. Get preapproved. Prequalifying is next to useless.

My advice: go to the bookstore and buy a book. There's a ton of information out there and the first purchase is the most daunting. It helps to have a single reference handy like a printed book, and use online info sites to supplement.

Preapproved means you can make an offer with credibility and the buying process will be a bit faster.

Preapproval is generally quick, usually under a week.
Fixing your credit report is a good idea even if the errors are minor, but if the effect is only a modest change in your score it may not result in a better mortgage rate. If you have very good credit (score over 750) the corrections won't matter at all. Where the corrections will make a difference is if they boost your score over a threshold. The myfico.com site has a tool to illustrate the comparative rates one might be offered at different credit scores (this site is maintained by Fair, Isaac, the company that developed the FICO scoring system so they ought to know. ;-) )

Definitely make sure you are quoted a loan with no prepayment penalty. The other factor to consider when comparing rates is the effective interest rate when there are points. A point is essentially a prepaid chunk of interest paid upfront. It's deductible just as other interest is, but it does represent an additional cost at closing. If you have enough cash to put down paying points may be better than seeking out a no points loan. There are worksheets available to help you figure this out (how-to books generally cover this.)

Speaking of having enough cash, if you can put 20% down, you will avoid paying PMI (private mortgage insurance)--a costly additional expense that isn't deductible. PMI is good if you don't have the cash and plan to stay put for a few years in a market where houses are appreciating.

Do not even consider buying a house without an inspection by someone you hire. Ask coworkers or friends for recommendations. A good home inspector can save you from buying a money pit. Check this inspector's association site for some good info: www. ashi.org

Good luck. It's not as hard as it sounds but the more you know, the easier it is to get through the process.

[BeTheChange]

7. Thanks for touching on "points"

That is still an area of fog to me.. but Im headed to a book store tonite to do some research. I also found a free class on first time home buying in my area sponsered by the parks service :)

[tigereye]

4. if you can do it,

I would go with a 15 year... we did - my h put the comparison of 15 vs 30 yrs on a spreadsheet and we ended up saving many thousands of dollars. We also have the mortgage co. pay the taxes, that was also pretty convenient.

There might be deals with better rates depending on what kind of area you want... we worked with a woman from a local bank - we didn't have a lot of money to put down - and she was very accomodating with all types of loans, and options for govt. programs if you are willing to buy in a non-suburban environment.

I agree that you should get some books - then you know what to expect.

Good luck! Just don't go with the first thing you see and "fall in love with," be selective and not too sentimental! ;)

[AirmensMom]

6. I second that idea.

We did that, too (15-year mortgage). And we rounded the payment up to the closest $100. That took enough off the principal so that we cut over 2 years off the mortgage.

Another thing to keep in mind is just because they'll qualify you for a loan, it doesn't mean you can make those payments. If we had bought the houses we qualified for, we would have been stretched too thin on the mortgage. When you buy a house, you want to have some money left in your budget for paint, lights, window coverings, etc.

Get those books and read. Good luck! :hi:

[yellowdogintexas]

8. be sure your escrow account is set up to cover you

adequately for the taxes and homeowner's insurance! I run into situations all the time where the homeowner thinks this has all been done, only to find out that the escrow wasn't set up at closing. If it isn't set up at closing, by the attorney or title company, the loan company won't set it up unless you call and ask them to and then you have to send a deposit before it can be set up. The other problem is that the escrow is lowballed to keep the payment down, then when the taxes come in and they are much higher than anticipated, a big shortage can happen and the second year the payment jumps.

If you live in California, you can expect a supplemental tax bill sometime in the first 6 to 18 months of ownership. It will NOT be sent to the mortgage company and it isn't part of the escrow. If you request it, the mortgage company can pay it out of escrow for you, but it can cause a shortage. Easier to pay back in 12 installments than all at once though.

Remember no matter what the payment looks like when you are in the pre approval stages, the escrow has to be added on. You will need to put down a deposit for the escrow of usually 2 or 3 months of taxes and 3 months of insurance, plus you will need to pay your 1st year of homeowner's up front, usually. Your taxes and insurance will be added up, divided by 12 and added to the monthly payments. Much better than having to scrounge around for the property taxes in a lump sum. Plus, if your taxes go up, your loan company will pay whatever is billed to them and then adjust your mortage once a year to balance it back out.

With many loan companies, you can set your mortage up for 30 year plan, but then you can use what is called an equity accellerator to make your payements. The mortgage servicing company can set it up for you. It is an automatic deduction from the bank account of your choice, 1/2 of your monthly payment, escrow and all, every other week. At the end of the year, you have made 13 months of payment. That 13th payment(escrow and all) goes straight to principal. This is over and above any extra you may apply to principal independently.

This alone can cut 7 years off of a 30 year mortgage, and save a ton in interest.

Many of our customers set it up to add an extra $50 or $75 or whatever to each installment to be applied to principal, so you get a double benefit that way.

Some mortgage companies offer a weekly installment version of this plan as well.

this allows you to be committed to the lower 30 year payment, while lowering your potential pay out all at the same time. I highly recommend it.

[BeTheChange]

9. Thanks for the tip..

Im going to spend some serious time with some books this weekend. Our hope is that we can pay this house off by devoting one of our salaries to it's payment plus extra (Tax refunds, Bonuses, etc) for 5 years. Or, optionally, for three and then refi the principal balance back over 15 years and just live on one of our salaries so we can start a family.


To a young couple starting out, what financial maintenence should we begin doing? Should we meet with anyone about long term goals? Is there some type of Financial Stewardship 101? :)

Thanks.

[yellowdogintexas]

15. get a 401K if your employers offer one, and put in

enough to get the maximum your employer will match if you can.
You should both have one if both employers offer it

Check into Roth IRA accounts if they still exist. They are also a pretty good deal. Your bank will know about these, or you can google them to read up.

sign up for flexible benefit plan for medical out of pocket reimbursement if you have that too. If you have it available but have never taken advantage of it or don't understand it, PM me and I will answer your questions.

I LOVE my flex plan..lowers my taxable income and I get reimbursed for my copays, OTC meds, non covered medical items etc.

Have some easily available savings of course.

These are things that helped me out.

[Buddyblazon]

10. Yea...

scope the sewer line. It cost about 125$. But in the end can literally save you thousands of dollars.

Scoped ours when the house was under contract, found a break that was easily fixed for 1200$. But the seller had to fix it. If we hadn't, it would've only gotten worse. And at some point, the line would've collapsed and then the repair could've been as high as 10g's.

It happened to my mom's friend. She's been in the house for over 30 years. However, my GF bought one, didn't check the line, and after being in it a year, the sewage all came back into the house. She walks out into the yard...huge sinkhole. Because she couldn't afford the 10 grand to fix it, she ended up losing the house. That is the extreme end however.

But a 125$ inspection would've prevented all that heartache. I know it save me at least a grand.

Nobody wants to think about the "shit pipe"....because it's full of the stuff we don't want to think about. But if it doesn't work, nothing leaves the house, and one morning you'll literally wake up ankle deep in caca.

But don't be worried if they find roots. They're common. Can be rooted out. And you'll just have to have it snaked every year or so. But that's a 100$ a pop.


My other recommendation:
Set a price...a REALISTIC price (based on what you can afford a month)...and stick to it. I set my price at less than 120k. The market here in Denver is hot...and everybody said, "There's no way in hell you'll find a place for that price.". But I was patient. Took me eight months to find something in my set price, in an area that was still going to gain equity, AND a house that was worth it.

In the end, I bought a 90 year old house, in an up and coming neighborhood (homes going for 170-200k with HUGE yuppie redevelopement 2 blocks away with new homes STARTING at 250k and going up to 750k) and in my set price range. I got the house for 113,500. It appraised for 170 one month after purchase.

It can be done...but you MUST be patient. And as my brother in law who scoops up properties for living says, "Don't ever fall in love with a house." That's hard not to do. We really like our house. But the idea is to use it as a stepping stone. Look for a good investment before looking for, "a cute place".

We just got lucky that our place is cute too.

[BeTheChange]

12. I have to learn to be less emotional about house buying..

We have looked at exactly 1 house and I really love it.. but it has alot of the no nos-- the bedrooms are painfully small and I question if the home improvements were professionally undertaken. I still might ask for a disclosure from them if the house is still available in a couple of months.

The house is just so friggin cute. I know we could do the same upgrades for about 10 k in a more solid investment, but Im a sucker. It also backs to national forest. I do not want to live on top of anyone. The lot must be .5 acres and it has to have trees or one hell of a view.

I figure that we should definately make sure our due dilligence has been done in the process and then the right house will present itself.

[Buddyblazon]

14. My bro in law is constantly looking...

he says for every 100 props he looks at...he puts offers on 3...and ends up with one.

But that's because he is looking for specific things. Most importantly the price has to be significantly below market value. In other words, find out what the comps (comparables...similar square footage...that sort of thing) for the neighborhood are. And finding something below market value is tough. Especially right now. Deals are out there. They're just harder to find.

Our house is small. 1100 square ft. But the deal was hard to pass up. Substantial equity on closing is not something that comes around everyday. And I've lived in smaller places when I was younger. So this property was an investment we could put up with for a couple of years.

Another thing my brother in law reminds me all the time...starter homes are easier to sell when you get to that point. The more expensive the home...the longer it generally takes to sell it. There's always a market for starter homes.

Also, track a house. If it sits on the market for awhile, wait for the seller to discount it. When the do...offer them 20k less...or more. Lots of time, at that point they want out and may take the deal. And they may counter offer with something thats 10k less than asking price. Voila. You most likely get a deal. Don't worry about "insulting" the seller. They want offers. They obviously haven't gotten any. And if they are insulted, then oh well. You'll get another house.

It sounds like you're looking more for a long term situation than something you want to get in and out of quickly. Just be careful. DON'T over extend yourself. That's just setting yourself up for failure. What you can afford today...could you afford tomorrow if one of you got laid off?


On edit: I almost forgot. Remember this saying:
"You don't make money when you sell a house. You make money when you BUY a house."

When you find that property thats a good deal...you'll know what I'm talking about.

[vajraroshana]

11. Good Luck!!! (nt)

[bliss_eternal]

13. Good luck to you!

I'm sorry I have no tips to offer you, just wanted to wish you well with the process!

:D