Posted on: 10th Jan, 2008 07:11 am
Hello again, I'm a first time home buyer looking for a home in the Coldwater, Michigan area. I've started this thread with the hopes that any mistakes that I am making will be cleared up before I really start digging into the further steps of the home buying experience. Also I am hoping that if I am forgetting anything that they can be pointed out to me.
Note: we have approximately 5 months until our renting lease ends. I hope to have a house to take possession by this time so we do not have to sign another lease (or rent month-to-month).
These are the steps that I have or am currently taking:
1.) Analyzed finances: compared renting to buying pros and cons, found that buying now/soon will be as favorable a time as any I can foresee.
2.) Found a location that is ideal and (with current plans) can see us living in for the next 10-15 years.
3.) Got a mortgage pre-approval at the bank we currently do business with for $100,000 (Number is higher than our target price range. This pre-approval has since expired due to length of time)
4.) Found a realtor that we trust the opinion of and genuinely feel is working in our best interest
5.) Started looking for homes in target area, scheduling appointments to walk through houses with our realtor
---------------------
Here are the things I am currently doing (and finding difficult at times):
1.) Seeking mortgage information and shopping for a mortgage.
I am finding this very difficult because I do not know what type of mortgage I need, mostly due to us not knowing what house we are going to buy. What I do know about the type of mortgage I want follows (in order of importance):
A.) Preferred none or very little down payment/money out of pocket
B.) Fixed Rate 30 or 40 year loan
C.) Lowest possible interest rate
C.) Clearly addressed prepayment penalties (if any) /options (can I put a 1 time lump payment whenever I want toward the principle?)
I also do not know what sort of repairs we will need to do on the house.. and if we need to replace something (roof/furnace etc.) I will need to include it in the mortgage loan.
2.) Seeking homebuyers insurance information and shopping for insurance.
I am finding this overwhelming due to the fact that I don't know how much the home is going to cost. Also if possible I would like to change my wife & my car insurance to have car + home insurance all from the same company for a discount.
I have spoken to my realtor about this and she is going to be giving me 2 insurance companies that she says are competitive and have good customer service.
-----------------
Here is some personal information to better understand our situation. We are a young couple I am 24 and my wife is 22. I have graduated from a 4 year university and have been working at my current job for 2 years. My wife is currently still in school and will be receiving her RN this year. She has been working at her current job for 4 years as a student nurse and LPN.
Our current annual income is ~ $50k. We have ~11k student loans debt and a 4,000 dollar personal loan we took out to pay off credit cards that will be paid off within 2 years. We will have no credit card debt once our tax return comes in. We own both of our cars. I do not know our credit scores (FICO?) but can pay to receive them if this will help us in any significant way.
I apologize for this being lengthy, but I am trying to get the most helpful information possible and have found this online community to be knowledgeable and helpful through reading other posts. Any opinions or advice is highly appreciated.
Thank you.
Note: we have approximately 5 months until our renting lease ends. I hope to have a house to take possession by this time so we do not have to sign another lease (or rent month-to-month).
These are the steps that I have or am currently taking:
1.) Analyzed finances: compared renting to buying pros and cons, found that buying now/soon will be as favorable a time as any I can foresee.
2.) Found a location that is ideal and (with current plans) can see us living in for the next 10-15 years.
3.) Got a mortgage pre-approval at the bank we currently do business with for $100,000 (Number is higher than our target price range. This pre-approval has since expired due to length of time)
4.) Found a realtor that we trust the opinion of and genuinely feel is working in our best interest
5.) Started looking for homes in target area, scheduling appointments to walk through houses with our realtor
---------------------
Here are the things I am currently doing (and finding difficult at times):
1.) Seeking mortgage information and shopping for a mortgage.
I am finding this very difficult because I do not know what type of mortgage I need, mostly due to us not knowing what house we are going to buy. What I do know about the type of mortgage I want follows (in order of importance):
A.) Preferred none or very little down payment/money out of pocket
B.) Fixed Rate 30 or 40 year loan
C.) Lowest possible interest rate
C.) Clearly addressed prepayment penalties (if any) /options (can I put a 1 time lump payment whenever I want toward the principle?)
I also do not know what sort of repairs we will need to do on the house.. and if we need to replace something (roof/furnace etc.) I will need to include it in the mortgage loan.
2.) Seeking homebuyers insurance information and shopping for insurance.
I am finding this overwhelming due to the fact that I don't know how much the home is going to cost. Also if possible I would like to change my wife & my car insurance to have car + home insurance all from the same company for a discount.
I have spoken to my realtor about this and she is going to be giving me 2 insurance companies that she says are competitive and have good customer service.
-----------------
Here is some personal information to better understand our situation. We are a young couple I am 24 and my wife is 22. I have graduated from a 4 year university and have been working at my current job for 2 years. My wife is currently still in school and will be receiving her RN this year. She has been working at her current job for 4 years as a student nurse and LPN.
Our current annual income is ~ $50k. We have ~11k student loans debt and a 4,000 dollar personal loan we took out to pay off credit cards that will be paid off within 2 years. We will have no credit card debt once our tax return comes in. We own both of our cars. I do not know our credit scores (FICO?) but can pay to receive them if this will help us in any significant way.
I apologize for this being lengthy, but I am trying to get the most helpful information possible and have found this online community to be knowledgeable and helpful through reading other posts. Any opinions or advice is highly appreciated.
Thank you.
great post wish all the clients were as thourough as you are
you doing right thing by planning this out.
here are a few things to point you in the right direction.
first of all the preaproval you got is nice but its not worth the paper its written on. in 5 months anything and everything can change. typically you will want to look for a preapproval 30-60 days prior to closing date if you want it to have any validity for you. (what you got now is an educaated guess based on todays market conditions and your situation)
your realtor will however need a preaproval letter from your lender to go shop a home for you. (so whatever you got now can prove usefull)
as far as shopping for mortgage is concerned. look at 2-3 diferent lenders you trust and go with better deal ( they should all be very close to each other). if you start shopping for the "best" deal you wont be doing yourself any favors. with a loan ammount of less then 100k you are looking at $10/mon difference if rate is 1/8 lower with someone else.
based on what you have stated you want however here is what i would shoot for.
a.) preferred none or very little down payment/money out of pocket
most conforming lenders offer 100% purchase programs. however alot of thouse programs require assets (2+ months worth of savings in your bank account or readily available to you such as stoks or retirement account or whole life insurance.) if you do not have that then there are programs out there that allow you to buy with as little as $500 brought to the closing table.
next thing to look at is closing costs. typically on a loan like that you will have 2000-2500 hard costs (standard costs that cant be changed) + 1% origination + 4 mon worth of taxes and insurance for escrow account.
in addition to this you will have to pay for appraisal and 1st year of insurance upfront.
most of this can be financed into your loan if you short on cash however your seller has to agree to pay them out of the sale proseeds, the new home must be worth enough to cover the loan ammount and most banks limit this kind of seller paid closing costs to 3-6% with 6% being more and more rare. these kinds of loans requre that you meet specific criteria in credit eligibility, income and rent history. the numbers are run through an automated underwriting system wich will tell a loan officer whether you are eligible. if for some reason you are not then the next best thing is an fha loan.
b.) fixed rate 30 or 40 year loan
id go with a 30 yr fixed because 40yr one will lower your payments only slightly and you will pay much more interest.
c.) lowest possible interest rate
lowest rate is not always the best. what you looking for is lowest rate you can get with no discount points that you have to pay to get it. also understand that rates on these loans vary on daily basis and from program to program so when you find what is affordable and seem good to you go with that. also find out how much mortgage insurance payments will be because thouse will affect your bottom line.
c.) clearly addressed prepayment penalties (if any) /options (can i put a 1 time lump payment whenever i want toward the principle?)
most conforming and fha loans do not have prepayment penalties so choose one of thouse.
as far as repairs are concerned in most cases you will not be able to finance thouse into a loan. you can however get a home equity loan down the line if your home has equity in it. mys usggestion for your first home find one you can comfortably live in right away.
as far as your income is concerned at 50k your monthly gross is $4150 and the banks will typically want you to be at 40-45% of it for your mortgage, taxes, insurance and other obligations. this means that all your loan payments + motgage payment + taxes/insurance should add up to no more then $1650-1850.
from what you posted i dont think there will be a big proble m with getting the right kind of mortgage for you at decent market interest rate.
so dont worry too much and good luck
you doing right thing by planning this out.
here are a few things to point you in the right direction.
first of all the preaproval you got is nice but its not worth the paper its written on. in 5 months anything and everything can change. typically you will want to look for a preapproval 30-60 days prior to closing date if you want it to have any validity for you. (what you got now is an educaated guess based on todays market conditions and your situation)
your realtor will however need a preaproval letter from your lender to go shop a home for you. (so whatever you got now can prove usefull)
as far as shopping for mortgage is concerned. look at 2-3 diferent lenders you trust and go with better deal ( they should all be very close to each other). if you start shopping for the "best" deal you wont be doing yourself any favors. with a loan ammount of less then 100k you are looking at $10/mon difference if rate is 1/8 lower with someone else.
based on what you have stated you want however here is what i would shoot for.
a.) preferred none or very little down payment/money out of pocket
most conforming lenders offer 100% purchase programs. however alot of thouse programs require assets (2+ months worth of savings in your bank account or readily available to you such as stoks or retirement account or whole life insurance.) if you do not have that then there are programs out there that allow you to buy with as little as $500 brought to the closing table.
next thing to look at is closing costs. typically on a loan like that you will have 2000-2500 hard costs (standard costs that cant be changed) + 1% origination + 4 mon worth of taxes and insurance for escrow account.
in addition to this you will have to pay for appraisal and 1st year of insurance upfront.
most of this can be financed into your loan if you short on cash however your seller has to agree to pay them out of the sale proseeds, the new home must be worth enough to cover the loan ammount and most banks limit this kind of seller paid closing costs to 3-6% with 6% being more and more rare. these kinds of loans requre that you meet specific criteria in credit eligibility, income and rent history. the numbers are run through an automated underwriting system wich will tell a loan officer whether you are eligible. if for some reason you are not then the next best thing is an fha loan.
b.) fixed rate 30 or 40 year loan
id go with a 30 yr fixed because 40yr one will lower your payments only slightly and you will pay much more interest.
c.) lowest possible interest rate
lowest rate is not always the best. what you looking for is lowest rate you can get with no discount points that you have to pay to get it. also understand that rates on these loans vary on daily basis and from program to program so when you find what is affordable and seem good to you go with that. also find out how much mortgage insurance payments will be because thouse will affect your bottom line.
c.) clearly addressed prepayment penalties (if any) /options (can i put a 1 time lump payment whenever i want toward the principle?)
most conforming and fha loans do not have prepayment penalties so choose one of thouse.
as far as repairs are concerned in most cases you will not be able to finance thouse into a loan. you can however get a home equity loan down the line if your home has equity in it. mys usggestion for your first home find one you can comfortably live in right away.
as far as your income is concerned at 50k your monthly gross is $4150 and the banks will typically want you to be at 40-45% of it for your mortgage, taxes, insurance and other obligations. this means that all your loan payments + motgage payment + taxes/insurance should add up to no more then $1650-1850.
from what you posted i dont think there will be a big proble m with getting the right kind of mortgage for you at decent market interest rate.
so dont worry too much and good luck
Thanks for the great reply! Just the sort of clarifications I was looking for.
You mention in the A.) section:
"Most conforming lenders offer 100% purchase programs. However alot of thouse programs require assets (2+ months worth of savings in your bank account or readily available to you such as stoks or retirement account or whole life insurance.)"
We do have several thousand dollars (not sure off hand, I tend to think of that $$ as being unaccessable) accumulated each in our 401k plans. Would this qualify allowing us not to have the money available in savings?
We currently plan on our offer(s) being set-up to include closing costs. I have been told that it is not an uncommon negotiation tool used by home buyers.
As we do not have large amounts of available cash I have worked into our budget plans to save enough for our inspection costs (general and septic/well), appraisal and 1st year insurance costs -- this alone can add up to more than I had ever realized, and I only hope that when we decide upon a house and have it inspected that all goes well.
The reason I have been inquiring about rennovation/repair dollars being included in the loan is the area we are looking (at the price we're looking) has primarially 1920s year homes and I would hate to not get a home that we want (for a good deal) because the roof/furnace etc. needs replaced.. then buy an inferior (in our eyes) home and have to replace the roof/furnace 3-5 years down the road.
You mention in the A.) section:
"Most conforming lenders offer 100% purchase programs. However alot of thouse programs require assets (2+ months worth of savings in your bank account or readily available to you such as stoks or retirement account or whole life insurance.)"
We do have several thousand dollars (not sure off hand, I tend to think of that $$ as being unaccessable) accumulated each in our 401k plans. Would this qualify allowing us not to have the money available in savings?
We currently plan on our offer(s) being set-up to include closing costs. I have been told that it is not an uncommon negotiation tool used by home buyers.
As we do not have large amounts of available cash I have worked into our budget plans to save enough for our inspection costs (general and septic/well), appraisal and 1st year insurance costs -- this alone can add up to more than I had ever realized, and I only hope that when we decide upon a house and have it inspected that all goes well.
The reason I have been inquiring about rennovation/repair dollars being included in the loan is the area we are looking (at the price we're looking) has primarially 1920s year homes and I would hate to not get a home that we want (for a good deal) because the roof/furnace etc. needs replaced.. then buy an inferior (in our eyes) home and have to replace the roof/furnace 3-5 years down the road.
i stopped reading (temporarily) when you said in your second section that you were shopping for a mortgage.
why, if you have already taken the time to see a lender who gave you a preapproval, do you feel it necessary to seek others to give you a mortgage? don't you think the time it took that lender to do that work was sufficient to warrant going back?
unfortunately, loan officers are paid on a commission basis. no money is earned by giving out preapprovals, and no money is earned when a borrower who has been instructed, stroked, tolerated, advised and preapproved goes elsewhere for the loan.
forgive me if i appear strident...it has been a difficult year for the entire industry, and when folk disappear after you have invested time and energy and resources in, it is, to say the least, a disappointment.
nevertheless, i wish you well in your quest.
why, if you have already taken the time to see a lender who gave you a preapproval, do you feel it necessary to seek others to give you a mortgage? don't you think the time it took that lender to do that work was sufficient to warrant going back?
unfortunately, loan officers are paid on a commission basis. no money is earned by giving out preapprovals, and no money is earned when a borrower who has been instructed, stroked, tolerated, advised and preapproved goes elsewhere for the loan.
forgive me if i appear strident...it has been a difficult year for the entire industry, and when folk disappear after you have invested time and energy and resources in, it is, to say the least, a disappointment.
nevertheless, i wish you well in your quest.
While I wasn't aware of the fact that the loan officers are paid on commission, I can assure you that we did not waste much (if any) of his time.
I obtained the preapproval by filling out a lengthy form online. We do our banking with one of the larger nation-wide banks. We perhaps met for 10 minutes with the officer where we signed and received a preapproval.
We originally were looking for a home 8 months to a year ago in a different area, but ended up waiting and resigning our lease to rent. That is how long ago it was, and I called the loan officer telling him that we were resigning our lease. We will most likely go through the same person for the mortgage as from what I understand we will not see much variance due to the size of our loan. I find it is easier to deal with a company you have established business with, so this works to our advantage.
I understand your feelings on the matter though, and will keep in mind that the people I am dealing with at the banks may not be paid on a base rate.
I obtained the preapproval by filling out a lengthy form online. We do our banking with one of the larger nation-wide banks. We perhaps met for 10 minutes with the officer where we signed and received a preapproval.
We originally were looking for a home 8 months to a year ago in a different area, but ended up waiting and resigning our lease to rent. That is how long ago it was, and I called the loan officer telling him that we were resigning our lease. We will most likely go through the same person for the mortgage as from what I understand we will not see much variance due to the size of our loan. I find it is easier to deal with a company you have established business with, so this works to our advantage.
I understand your feelings on the matter though, and will keep in mind that the people I am dealing with at the banks may not be paid on a base rate.
thank you for receiving my commentary in the spirit in which you did, agullotti. it's a typical situation that you describe, in which you received the preapproval many months prior to your actually moving forward.
an interesting question - did the loan officer in this case stay in touch with you, to see how you were making out and if you needed anything else? if not, perhaps this is purely a staff person within the bank and not on commission. if he did, then you can tell he is eager to get your loan done. when there is a mouth or two to feed, the pockets need to be full, too.
at any rate, your comment about dealing with a company you have already established a relationship with makes sense as well; as long as you have faith and confidence in them to do the job, that's probably the way to go.
frankly, i (and many others) feel that interest rates are not the most essential thing to deal with. rates are not much different from here to there, but the relationship you forge with your lender is an absolute necessity. be certain that he or she will be attentive to your needs; will answer questions not just prompty, but also willingly; that you will be kept abreast of all developments along the way. if a loan officer is not doing the above, then the required caring attitude is lacking - run away fast!
an interesting question - did the loan officer in this case stay in touch with you, to see how you were making out and if you needed anything else? if not, perhaps this is purely a staff person within the bank and not on commission. if he did, then you can tell he is eager to get your loan done. when there is a mouth or two to feed, the pockets need to be full, too.
at any rate, your comment about dealing with a company you have already established a relationship with makes sense as well; as long as you have faith and confidence in them to do the job, that's probably the way to go.
frankly, i (and many others) feel that interest rates are not the most essential thing to deal with. rates are not much different from here to there, but the relationship you forge with your lender is an absolute necessity. be certain that he or she will be attentive to your needs; will answer questions not just prompty, but also willingly; that you will be kept abreast of all developments along the way. if a loan officer is not doing the above, then the required caring attitude is lacking - run away fast!
To get the lowest possible rate, you will want to put 5% down. If you put 3% down then the rate will be slightly higher. A 30 year fixed rate mortgage is right around 5.50% right now so this would be the best option. Comparing apples to apples is the best way to compare. You can compare quotes by telling each lender how much you want to put down, and let them know you want a quote on a 30 year mortgage with no points. This allows you to compare equally. Ask about all closing costs, not just lender fees but all of them including title, origination, processing, etc.