Purchasing a home advice

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Originally Posted by TyWebb

I can however see the reasoning behind a 30 year with interest only for the first 10 years. As long as the rate is fixed for the duration.

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This is the loan I got. Lower payments for 10 years but 100% certainty for the entire loan.

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Originally Posted by RootSkier

My one bit of advice is this: just because you are approved for $XXX doesn't mean you should spend that much. Most lenders will qualify you for FAR more than you would want to spend every month.

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Excellent advice. You need to figure out what you can pay each month, not what they will lend you.

Definitely have the home inspected before you buy.

I had a realtor and a mortgage broker who I trusted, and that helps a lot. Sure, as someone said, you have to make the decisions, but getting good referrals to trustworthy people then trusting them made the process a lot less scary.

Also, realize that with the mortgage interest deduction, you may be able to afford more home than you realize. I changed my withholdings to 5 and saw an additional ~$400 take home every month, which made my mortgage essentially $400 less than it appeared. H&R Block's website (among others) has calculators to figure this out.

I just thought of something else I did when I bought my first place;
I'm guessing you're posting because the whole process is scary as hell and no matter what everyone is telling you you're worried you can't afford it, right?

Do this;
Go get pre-approved for a loan (not a bad idea anyway, especially if the market is hot) then start living like you're already making the mortgage payments. i.e. if your monthly payments will be $2000 a month and you're paying $1200 a month in rent currently, put that extra $800 a month in a SAVINGS account (not your checking account) and forget about it. If you can pay all your bills comfortably without cutting back too much then make the plunge. If, on the other hand you find yourself struggling to make ends meet and you're constantly tapping your newfound savings, it's time to re-evaluate. Either you'll need to keep saving to come up with a bigger down payment or you'll need to look for a cheaper home. In the mean time you'll be saving money and that's never a bad thing.

Remember you'll also get a big tax break on the mortgage interest but I wouldn't even consider that until after you've made the purchase.

I agree with RootSkier and Altagirl, a good realtor is a must, especially as a first time buyer. Some are better than others, and good referrals from friends or mags is the best way to go. If Rootskier gives you a bad referral someone might just loosen his DIN sttings when he's not looking.

Get a home inspection before buying, and a warranty makes the first year easier, when those problems arise and you are short of cash because you sunk it all into the house.

I bought my first house with an adjustable loan, but I knew I would be selling in a few years. My second home was purchased with a fixed loan, because we knew we would be here for a long time (12 years now).

Our first realtor gave us very good advice. Since she new we were just buying it to get in the market, and would turn it in 3-5 years she told us not to buy the home we want, but to buy the home that will resale easily. We did, and we sold it easily. That is what a good agent can do for you.

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Originally Posted by hutash

I bought my first house with an adjustable loan, but I knew I would be selling in a few years. My second home was purchased with a fixed loan, because we knew we would be here for a long time (12 years now).

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This is true. We just bought a new home and the APR is locked for only 5 years. We're thinking we're only going to live in this house for 2 years or so, so that makes sense.

A few mistakes from my past...

Our first house, we fell in love with the woodwork, the charm, etc. We then paid a bunch of money to have an inspection on the house by a company called Amerispec. They did ok with some but missed the major item, the blower motor on the furnace was held in place with a block of wood and a coat hanger. Now this is particularly embarrasing to me because my best friend from college, and one of the people that helped us move, owns a heating and air company. We moved in in Feb, and after a bunch of trips, we sat down for a beer. My buddy all of a sudden says "what the hell is that noise?" After a quick inspection he discovered the furnace issue. To compound things, the furnace was too old to get parts for, the block of wood had burned areas from the heat of the motor, and I got to buy a brand new furnace the first week in our new house. Now I did go after the inspection company, and lost. I also tried to throw it back at the seller, and got no where. So, the advice. If you have any friends in the construction, HVAC, or building trades, bring them along when you get close to making an offer. It usually will only cost you a beer or two, and your buddy will be looking out for YOUR interest.

If you are not handy, don't get a fixer upper. I made this mistake too thinking I could learn what I needed to know from books and VHS tapes. You can't. Then you piss off your friends and family who can because you're in over your head and the place is crashing in around you. It's not as easy as the folks on Hometime and Bob Villia make it look. Hometime used to be a client of mine and they employ large numbers of contractors to "supervise" the work for the show. You don't employ a bunch of contractors who are excited to be featured on your show. So unless you have a huge bank account somewhere that you can pay the professionals, get a house that needs some paint (anyone can paint, even me), and maybe some landscaping(a pretty easy and fun project-just takes muscle and the willingness to listen to the guy at the garden center). If it needs major work, let someone else buy those problems.

Good Luck,
Jay

ps A few posts above someone mentioned a warranty. Good thing but read the fine print. My furnace wasn't covered by our warranty, and it was pointed out to me in some fine print. Did you ever see the movie "the Money Pit", that was our first house times 10!!

I really have to laugh at several of the mortgage responses that have been posted. :rolleyes:

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Originally Posted by altagirl

A good Realtor makes their living by referral.

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As does a good lender. My goal is to earn the repeat and referral business of my clientele; which I would never get if I were out to screw people.

If anything, I have too many loan choices. What's important to me is finding the one that meets the needs of my client. See repeat and referral comment above.



Yes, I can lend in Montana. And most other states as well. [/commercial]

Mountainman...good talking with you for a bit and I'm stoked you're looking to get a place.

Inspector Gadget helped us with our loan and was WONDERFUL to work with. I highly recommend you PM him.

Not a home owner myself, but have observed the process closely more than once. Stick to it and fight hard for what you want. Don't let the snags along the way get you down. Good luck!!!!!

Wow. Thanks for all of the replies. Still wading through them all and reading stuff over again.

Lots of good advice in this thread. Altagirl knows her stuff. The REPC is scary and closing feels like you're signing your life away and getting screwed from all sides at once. But in my last closing I just confirmed that numbers looked right and was more or less giddy to be closing another deal.

Lots of us mags dabble in this field. As you have other questions down the road jump back in.

Think of lending or the loan as a tool. Not every project requires the same tool and you'll find the same is true with loans. For any home I intend to hold for any considerable amount of time I go 15% fixed. Otherwise in those early years your payment might as well be rent as all your money is going to interest. But if you plan to move the property quick and just want cheap closing costs or maybe you want the lowest payment possible to rent a home for a year or two with OK cashflow as you're counting on a boom in the area and then sell in a couple of years. Then you may go interest only or something else of that nature. It all comes down to what your goals for the property are.

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Originally Posted by hutash

If Rootskier gives you a bad referral someone might just loosen his DIN sttings when he's not looking.

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Well, since I am a freeheeler, that is out. :fuckyou: :tongue:

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Originally Posted by altachic

Mountainman...good talking with you for a bit and I'm stoked you're looking to get a place.

Inspector Gadget helped us with our loan and was WONDERFUL to work with. I highly recommend you PM him.

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Ditto here. IG has done a fantastic job taking care of my clients and I'd recommend him to anyone. Not to mention - one of my clients was the type that did loads of shopping around for the best deal and ended up with him. So not only is he honest and ready to close early and all that good stuff, but apparently finds the good deals too. :)

I'm closing on my first home purchase in two weeks. My advice is crunch numbers to see what the absolute most is you can afford. If you are planning on having roommates factor their rent into the equation, figure out what average electical bills, uitilities, cable, phone, the works and get the most house for your money. Then start scanning the MLS on-line for houses that will fit your budget. You can knock out 90% of the houses in your budget very quickly by viewing them on-line. Be sure to check out how much in specials are remaining on the house! It could be an old home, but if the street was recently re-done you could have to pay $8000 in specials which will be another payment you will have to make besides your mortgage. The other option with specials is to finance them into your home loan, however, if you sell the house in a couple years the specials balance goes with the house so its usually wiser to pay them seperately.

I found it to be very beneficial to me to NOT sign with a specific realtor. I started my search with a family friend who showed me a few houses. After I got a feel for what I wanted I let her know exaclty what the perfect house would be for me and gave her my price range. I assumed she would work for me and find me the perfect house. A house came on the market with her company that was perfect for me. It sold in 4 days and I didn't know about it till after I saw a sold sign in front of it. I called her about it and asked why she hadn't showed it to me. She said, "oh, did that sell already?" I learned two things from that. One, you need to search the MLS daily or a least a few times a week to see what has hit the market. Two, find a realtor that you can trust, and that is working for you. This realtor I had was obviously too busy to care about me (she was the #1 seller in the city for 3 years running). I easily switched to a another realtor recommeded by a neighbor because I wouldn't sign her contract. My new realtor was a younger guy who knew what I wanted, was trust worthy, and was willing to work for me. He found me numerous houses that I was interested in, would drive past the ones he knew I wasn't, and generally knew exactly what I was looking for.

It took 8 months to find the perfect house at the right price, but last week we did it. I was lucky as I didn't have to be out of any place so I had the time to look. My GF and I must have gone through over 200 houses that all had 75% of the stuff we were looking for, but we knew there had to be one that had exaclty what we wanted. In return for my realtors efforts, I signed a 6 month contract with him in case my offer fell through on the house to continue working with him. I felt he had earned it. Like mentioned before, work with many realtors till you find the one that fits your personality and style and that you can trust.

Financing wise was a struggle for me. The interest only ARM's were very appealing because I could essentially afford more house. After running numerous costs analysis and am. schedules I came to the conclusion that the risk involved with going with a 5/1 or 7/1 ARM just didn't pay. I concur with everyone else that 30 year fixed is the way to go. For sure look into Montana's FHA programs, but also watch for the pitfalls. Some programs hit you with steep pre-payment penalties if you decide to move in a few years.

My biggest piece of advice is if you have the time, wait until you find the house that feels like right fit. I almost pulled the trigger 4 different times, but something told me it wasn't quite right. With the market slowing down, the right place will come along. Good Luck!

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Originally Posted by Danno

Also, realize that with the mortgage interest deduction, you may be able to afford more home than you realize. I changed my withholdings to 5 and saw an additional ~$400 take home every month, which made my mortgage essentially $400 less than it appeared. H&R Block's website (among others) has calculators to figure this out.

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Danno- where on their website did you find this? I'd like to see what I can withhold and get out of my taxes at the end of next year.

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Originally Posted by Lloyd Christmas

Danno- where on their website did you find this? I'd like to see what I can withhold and get out of my taxes at the end of next year.

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It's a two step process. I think this is what I did.

First, you need to figure out what your estimated tax will be with the mortgage interest deduction: http://www.hrblock.com/taxes/tools/taxcal.html You'll have to come up with some estimate for the interest you pay annually (remember that the taxes and insurance escrowd into your payment don't count, nor does any principal you pay). Estimate low so your chances of not taking enough taxes out of your check will be minimized.

Then you do the withholding calc: http://www.hrblock.com/taxes/tools/w...alculator.html

You may have to do this whole process twice, once for the partial year you buy (assuming you buy early enough in the year to take advantage of it) and once for a full year. A word of caution: this doesn't help you if your mortgage is low (ie not paying much in interest), but for those of us living in places where property costs a fuckload, it can make a huge difference.

I was going by memory of how I did it, but if that turns out not to work, lemme know.

The big thing I learned is patience. Be prepared to walk away from any house that is not what you want/doesn't feel right/isn't the right price etc.

We ended up in a great house that is pretty much exactly what we wanted because we walked away from several that were almost right. We even balked at the final minute on one, having made an offer, had it accepted almost, and we were going to sign the papers when I said, "No."

We found an awesome realtor. We used a mortgage broker. Both were really helpful.

Remember, you owe nobody as a buyer (until you sign the mortgage papers.) If you've been dealing with someone, and they are not giving you the service you think is reasonable, find someone better. The idea of interviewing realtors is a good one.

When you find the house you want, decide on the price you are willing to pay. Then bargain hard to get it for less (if that is reasonable to do in your market.) If you can't get it for what you believe it's worth then remember my first piece of advice.

With regards to interest rates. Over the last ten years (or more) an adjustable rate mortgage has been considerably better than a fixed rate loan. Right now a fixed loan is probobly safer because the yield curve is so flat. Safer yes but better is a matter of opinion. Keep in mind that the long term trend for rates is still lower and bond rates have dropped 60 basis points in the last month. There is a chance that short rates could also go considerably lower over the next several years if inflation and growth moderate as expected. The people predictng much higher interest rates have been wrong. Bill Gross, CEO and manager of the largest bond fund in the world is predictng lower rates over the intermediate term.


"Citing a Federal Reserve study finished in September 2005 analyzed housing cycles in 18 different countries over a span of 35 years, the study said:

We find that real house prices are pro-cyclical and tend to reach a maximum near business cycle peaks, often after a prolonged period of buoyant growth in activity has raised output above its potential level and inflation pressures have begun to emerge. Subsequently, real house prices fall for about five years and their previous run-up is largely reversed. Real GDP growth slows during the first year or so after house prices peak as do growth rates of private consumption and investment.

House price booms are typically preceded by a period of easing monetary policy with FF rates bottoming out about three years before house prices peak. Rates then reverse quickly (after the peak) in response to falling GDP growth.

So Gross thinks that likewise, the Fed will be forced to start cutting rates again soon when housing softens further and that reverberates into the economy.

"On average," said Gross, "short rates have fallen by over 400 basis points once a peak in housing prices has been established, a necessary function of central bank policies worldwide in order to rejuvenate asset prices – housing, equity, and bond markets among them."

And here's what Sir Alan Greenspan had to say about Arms:

"Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade, though this would not have been the case, of course, had interest rates trended sharply upward.

American homeowners clearly like the certainty of fixed mortgage payments. This preference is in striking contrast to the situation in some other countries, where adjustable-rate mortgages are far more common and where efforts to introduce American-type fixed-rate mortgages generally have not been successful. Fixed-rate mortgages seem unduly expensive to households in other countries. One possible reason is that these mortgages effectively charge homeowners high fees for protection against rising interest rates and for the right to refinance."

4matic, something your analysis doesn't show is that some of us lived through the 1980's, when interest rates were double digits for a long time.

Don't use a realtor to be your "buyer's agent", it's a rip-off. They'll get a portion of the commission even when you do most of the leg work.

Have an attorney look over the contract before you purchase. I have heard many stories about buyers suing the sellers because of misrepresentations in their contracts. The extra money you use for a lawyer might save you a major headache down the road.

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Originally Posted by skuff

Don't use a realtor to be your "buyer's agent", it's a rip-off. They'll get a portion of the commission even when you do most of the leg work.

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Wow. You clearly have NO idea how real estate works.

If you don't use a buyers agent, the seller's agent gets 100% of the commission. You, the buyer, don't save a penny and in fact, probably spend more because your bargaining position is substantially weakened.

I nominate this as the worst response yet in this thread. :nonono2:

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Originally Posted by RootSkier

My one bit of advice is this: just because you are approved for $XXX doesn't mean you should spend that much. Most lenders will qualify you for FAR more than you would want to spend every month.

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WURD!
My .02 and I'm no expert but again:

1. Be conservative. Being house poor is not fun. I guarranteed you will not be in the house for many years so don't kill yourself. Buy less than you qualify for. THIS IS THE MOST IMPORTANT PIECE OF ADVICE I THINK YOU SHOULD ADHERE TO. I know people that make 30k a year and a couple of million a year and I've seen each of them be house poor and unhappy.

2. 30 year fixed; no ARM loans and not 15 year fixed at your age either
Predicting interest rates is a joke. Nobody knows what will happen to rates. Get a fixed to ward off surprises.

3. Whether your home is a good investment nobody really knows but the rule of thumb is that if you hold for several years you can make some money. But to conrast that, if you bought three years ago you would have a tough time selling in most markets right now.

4. No PMI. It's throwing money into the toilet.
Try 90% loan with a 10% home equity line or 80% loan with a 10% home equity line if you have little to put down.

5. Realtors have a bad rap but there are a few gems. My g/f just got out of real etate and she went the extra mile and never took advantage of anybody. In fact, some clients took advantage of her.

6. Home inspection by reputable company, esp the roof!

7. Never see a home in dark. Go during busy times to 'hear' traffic on adjacent road, planes overhead if you are under flight paths; are you behind infrastructure or close to it where you'll hear trucks unloading at 4am, etc?

My experience with signing a buyer's agent contract was terrible. She didn't need to do anything to receive a commission from a sale. She showed me some properties that were nothing like the descriptions of something that I would purchase. I ended up looking and finding a home to purchase, she had no incentive to do anything. Then, when I find something she's right there looking for her commission.

Why should anyone pay another commission to the buyer's agent when the agents typically split the commission from the sale?

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Originally Posted by RootSkier

Wow. You clearly have NO idea how real estate works.

If you don't use a buyers agent, the seller's agent gets 100% of the commission. You, the buyer, don't save a penny and in fact, probably spend more because your bargaining position is substantially weakened.

I nominate this as the worst response yet in this thread. :nonono2:

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Originally Posted by skuff

My experience with singing a buyer's agent contract was terrible. She didn't need to do anything to receive a commission from a sale.

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Well, that's fine. You had a sucky agent. They are out there. But a GOOD buyer's agent will make sure you are taken care of from the day you first see a house until after the closing.

Why didn't you fire her? If someone wants to get out of a contract with me...I will ask them why and then let them (hasn't happened yet, though).

Wow this thread is bringing back a lot of memories...
Another really big piece of advice, DO NOT, I repeat, DO NOT use an online mortgage company like Priceline or Lending Tree! We did that once to do what should have been a rediculously simple refi (< 50% LTV - i.e. we were the majority owners, not the bank). It took 4 MONTHS for them to finally close the loan and that was after I spent practically every day on the phone with them for weeks on end. What's more they managed to attach someone else's credit report to ours and refused to fix the error. Once the loan was closed we were absolutely innundated with junk mail and cold calls. They flat-out lied when I demanded they get my name off the junk mail lists, but miraculously the junk mail ended after I took names and threatend legal action. The final insult was they then called us back to try and sell us a second on the home (let's just say I'm glad I didn't have kids yet when that call came in :cussing: ).

How we got out of that without permanent damage to our credit report I'll never know...

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Originally Posted by Jim S

WURD!
My .02 and I'm no expert but again:

1. Be conservative. Being house poor is not fun. I guarranteed you will not be in the house for many years so don't kill yourself. Buy less than you qualify for. THIS IS THE MOST IMPORTANT PIECE OF ADVICE I THINK YOU SHOULD ADHERE TO. I know people that make 30k a year and a couple of million a year and I've seen each of them be house poor and unhappy.

4. No PMI. It's throwing money into the toilet.
Try 90% loan with a 10% home equity line or 80% loan with a 10% home equity line if you have little to put down.

7. Never see a home in dark. Go during busy times to 'hear' traffic on adjacent road, planes overhead if you are under flight paths; are you behind infrastructure or close to it where you'll hear trucks unloading at 4am, etc?

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Just a few comments here.

1. The standard idea is to buy as much home as you can afford, because your income will go up and you won't be house poor for very long. I think it's worthwhile to warn him of being house poor, but ultimately, it's a personal decision. I had to go house poor to get a place I wanted to live in, and less than 2 years later it is already easier to make the payments.

4. Your examples are wrong, you will pay PMI in the first scenario. The primary mortgage must be 80% or less to avoid it, if I understand correctly. And while PMI is a crock, your analysis is simplistic. Because you will end up with a much worse rate on that second loan. Though the interest from that second loan is tax deductible, while PMI isn;t. He should do the math. For ex., say a 90-10 situation vs an 80-10-10 situation. Compare the total payment including PMI in the 90-10 scenario with the payment on the 80 loan and the 10 loan. Also consider how secure that 10 loan is (variable rate, for ex.). Then decide. PMI sucks, and I do think it's usually worthwhile to do the 80-10, but not always.

7. Excellent advice. If you see a home you like and want to make an offer, try to check it out at different times of the day and week; no need to go in the house, just check out the neighborhood. Saturday night at 11pm is a good time (are there loud parties?). 7am on a weekeday is a good time (will things wake you up?). Also, there's the simple fact that the more you look at a place, the more familiar with it you become and the more comfortable or uncomfortable you will be with the purchase.