Buying a home...questions

[Dulcee]

Alright I'm hoping you more experienced adults out there can provide some guidance


My Fiance and I are talking about the possibility of buying a home at the end of this coming summer when the lease of our apartment is up. Fiance is a new police officer (made it through the first month!) and I'm a paid graduate student. My credit is ok, his is a bit better and unfortunately I have a fair amount of student debt, about 30k. We're thinking that we could swing a home in the 80-100K range which in the area that we live in provides some pretty decent choices. Since were currently spending around 650 a month in rent I'd rather see that go towards equity in the future.

Anyway with all this thought we've been researching and there are lots of questions floating around.

1) I think an FHA loan is our best bet as were hoping to get by with a down payment of about 5K. Are FHA loans for all first time buyers? How does that work? Do FHA loans roll in closing costs or does that vary?

2) whats our first step? should we look for a mortgage pre approval before anything? And if thats the case how long are pre-approvals good for?

3) My fiancee being a state employee can join one of several credit unions in our area. We've heard they can offer better rates at times, is that true? and would us not yet being married affect our ability to do this?

I think those are the big ones, feel free to chime in with any other suggestions or tips.

[Hammer]

Let me see- I agree about the FHA loan. That is how I bought my first home. To give you an idea what I qualified for- I am single, one income (I made a lot less when I qualified for the FHA loan than I make now), ok credit and 18K in student loans I was paying off. I qualified for 85K 10 years ago. Closing costs were rolled into the loan.

I recommend getting pre-approval. Some real estate agents require it of first time home buyers. Also, when a seller knows you are pre-approved, they are more willing to negotiate.

Don't know about how your marital status could affect the loan, but credit unions usually offer good mortgage rates.

[dnickels]

I'm no expert, but having been through the process recently I'll give my best shot


1)Are FHA loans for all first time buyers? How does that work? Do FHA loans roll in closing costs or does that vary?

Not all first time buyers get FHA loans, they can get the traditional 20% down loans like anyone else. FHA loans are generally for people with less than 20% to put down and/or those with credit issues who would have trouble qualifying for a traditional loan. Closing costs can be rolled into the FHA loan to minimize the downpayment for the borrower, it just depends on the loan and what you're after.


2) whats our first step? should we look for a mortgage pre approval before anything? And if thats the case how long are pre-approvals good for?

Contact some mortgage brokers and find out if they handle FHA loans. Be prepared to shop around as their costs vary, some offer lower rates at higher costs and vice versa. They're generally happy to provide a pre-approval letter because they want your business. There's no particular set time for how long pre-approvals are considered good. Your realtor will generally want to see one to know you're serious about buying and any offer you make on a house will require a pre-approval letter.


3) My fiancee being a state employee can join one of several credit unions in our area. We've heard they can offer better rates at times, is that true? and would us not yet being married affect our ability to do this?

Best to go in and ask, as mentioned above, shop around for rates, it can save you thousands! Brokers / banks / credit unions. There's no harm in finding out rates from all of them.

Some additional considerations....

-The old adage of don't buy unless you plan to stay there for at least 5 years is something to consider. For every buy/sell cycle you undertake you generally lose about 10% of the purchase/sale price to commissions / closing costs / moving costs. Move every three years into a 100,000 home and that's about 10k that disappears into thin air instead of helping you to build equity.

-Rates are low and that's a good reason to buy. Our country is deeply in debt and this means eventually interest rates on that debt will rise, raising the cost of other debt such as mortgages. I don't know if that means mortgage rates will be 6% or 16%, I don't know if it will happen a year from now or 10 years from now, but they're going to be higher in the future. The flip side of that is higher mortgage rates should put downward pressure on home prices so there's some offset involved.

-Make sure you have something more than just the downpayment set aside when buying a house. The air conditioning / heating / roof have a remarkable ability to require replacement soon after a new purchase. If you needed an $8,000 roof replacement two years after the purchase would you be able to afford it? Those things are expensive and can put someone in the hole in a hurry.

Best of luck whatever you decide to do.

[Daisy'sMom]

Look into the USDA rural developement home loans if you are in a rural area. THey do 100%.:mickey:
Best thing, go in and talk to a mortgage broker. Ask them what is available. Also talk to a realtor. They also know what's out there. Good luck:mickey:

[WishingStar2006]

Also just chiming in here with a few notes.

A pre-qualified letter carries a lot more weight than a pre-approval letter from a lender/broker. The pre-qualified letter lets the seller know that you have been through the credit check/employment history/FICO score etc. check and that based on that analysis, the lender is willing to loan you $X under certain circumstances.

I think not only you but the property you want to buy have to qualify for FHA financing. It's not just a $$$ transaction...I think.

The financial expert with the short blonde hair (I don't think I can write her name here) says that to safely purchase a home nowadays...that you should have 20% to put down and an 8 month emergency fund. Just like the previous poster said, things have a way of breaking, plus there are costs associated with buying a new home...moving/increase in utilities/ insurance and property taxes/lawn mowers....etc.

The fact that you are not married doesn't effect the application process...they are going to look at your individual credit worthiness.

[sassafras]

I would definitely check out the credit union rates. They are usually cheaper and they will be more likely to work with you to get you going in the right direction. That said, some credit unions require at least 20 percent down and will only go 15 years on a mortgage. They will look at both of your credit histories, before making a decision. Usually they have a set debt ratio (income to debt) they have to go by. I know this after spending the last 20 years in the credit union industry. Also some lenders will "sell off" your mortgage after a period of time to free up their lendable cash. Therefore, you might end up sending your payment to some company in another state or region of the company. Also, see if they will hold your property taxes and homeowners insurance in an escrow account which will be paid into every month.
Another thing to think about is sticking to your guns when you tell the realtor what your price range is.Some will try to head you to a higher price range than what you feel you can really afford. We always operated on finding a home with good bare bone. Check the age of the roof, AC, furnace, etc.

[TiggeRia]

Hello! I bought my first home (at the age of 28) almost three years ago now. While I do live with my fiance, at that time I purchased the home in only my name, so my pre-approval amount was only based on my salary, and in all honesty, they quoted me much higher than I could ever afford. And this was when all the home loan/mortgage companies were starting to reign in the amounts they offered. Shop around for rates and do daily research online to find the best rate.

Anyway, I started off by finding a real estate agent and they recommended some mortgage companies to me that I called and had a pre-approval within minutes from several companies. I have very good credit, but only had a few thousand to put down, so I went with an FHA loan, which really worked out better for me. The interest rate for FHA is slightly higher (I got 5.5%) than a conventional loan, but I only pay a small amount in insurance. I recently looked into changing into a conventional loan at a lesser interest rate, but because I don't have a lot of equity in my home yet, the insurance portion of it shot up and I would actually be paying more monthly than what I am now.

My closing costs were not part of the loan and had to be paid on closing day. I think what you pay for closing varies from state to state and other factors. I think mine were about $5000 or so.

Just take your time and do a lot of research. When I started out, I had not a clue as to what I was doing, but your real estate agent and mortgage broker will help you along the way. And use the internet to look up all sorts of information, too. Good luck in your home search!

[DizneyRox]

One word of advice: Pay for a home inspection, pest inspections, etc. I see way too many poeple skip them due to price, and it's in your best interest to have them done. Don't listen to your agent for names, etc, get unbiased recommendations from family/friends.

[DisneyMom12]

As well as being pre approved, I recommend using a buyer broker. Someone who represents you, and works to get you the best deal, and gives you good advice. I was so lucky to have that. My DH and I had no idea what we were doing. Good luck, hope you find your dream house.

[disney obsessed]

I second the idea of getting a realtor first. The issue is how to find a good one? Ask everyone you know, that has bought a house, for a recommmendation. Don't be afraid to shop around. Interview them. Go see properties with them and see if you hit it off and feel that the person is a good fit and very knowledgeable. There are many differant selling styles and you will soon fugure out who/what you are confortable with. I would never be able to tolerate a pushy, intense sales approach but some people need that to be able to make a decision. A great sales person will give you what you want and need without you realizing it.

Good luck and have fun!

[princessgirls]

The Real Estate section of your area weekend paper usually runs all the banks mortgage rates.

I went with our local bank for our mortgage, and I have found that buying a home in 2007 was a completely different ball game than our first home in 1994. In 1994 we put $7,000 down and our mortgage approval took about 2 days for a home that cost $125,000. In 2007 we provided mounds of paperwork, were putting 40% down and have good income and income to debt ratio. It took 3 weeks to get a mortgage commitment.

Here are the new rules:
Good Credit
Banks look at everything very carefully including your income to debt ratio
Don't expect more than 2 1/2 times your annual income. For example...if you make $50,000 a year in income, most banks aren't going to loan you more than $125,000

The banks are very competitive in my area, as I'm sure they are across the country. Rates are good. We were able to refinance our mortgage in 2010 into a 4.75% rate, down from 6.25%. Sweet.
Remember...Credit is key, and go with a reputable lender.
Also, do your due diligence, get all inspections. It's worth it. The banks will require one anyway. Bank will also do an appraisal. They want to make sure that the home is worth what you are borrowing.
Good Luck! It's so exciting to buy your first home!!
Julie:mickey:

[Ian]

I worked six years for one of the largest mortgage lenders in the country and also have purchased two homes myself, so I have a good bit of information for you ...

Definitely get a pre-approval before you do anything else. When I worked in the business they used to tell you to then cut that number in half, but I think now pre-approvals are much more conservative and realistic. To give you an idea, though, assuming you financed a total of $95,000 you'd pay around $500 a month for principle and interest.

Now what's with a rate of 5%, which of course will vary greatly depending on the value of the home you pay as compared to how much you're borrowing on it (called the loan-to-value ratio and a key driver of interest rate on a mortgage). Loan to value is simply the ratio of how much you'll owe on your property as compared to what it's worth. So if you buy a $100,000 house and need to finance $80,000 to buy it, your LTV is 80% (there's also CLTV, which is combined loan to value but that only applies if you have other financing against the property, like a second mortgage). Lenders today look for LTV's under 80% to get the best rates, but that doesn't really apply to FHA.

The other key drivers of your rate are going to be your credit score and your debt-to-income ratio.

Your credit score for the purpose of a mortgage is determined by taking the lowest score of all borrowers on the loan from the middle ones from the three ratings agency. That's a sounds a bit complex, but let's say your credit scores from the three agency are 700, 720, and 740 and your fiance's are 720, 740, and 760. The score used for your interest rate would be 720, which is your middle score since your's is lower than your fiance's.

Your debt-to-income ratio will actually be measured twice ... once as a ratio of your housing expense to your income and once as a ratio of all your expenses to your income. Typically, they're going to want your housing ratio around 20% and your total debt-to-income ratio in the 35% range. Since they use gross income and not net this allows for things like taxes, living expenses, etc. and anything else that doesn't show up on your credit report.

In regards to your specific questions, yes an FHA loan will be your best bet and yes they'll let you roll your costs into the loan. Be careful, though, because remember you'll end up paying interest on those expenses and also it's going to drive up your LTV and your total mortgage balance, so if you need to sell your house for some reason you technically could need more to pay it off than the house might be worth. And FHA charge upfront PMI on homes with an LTV >80%, so account for that in your closing costs. I forget what they usually charge, but for some reason I think it's roughly 1% of your mortgage. Not sure about that, though.

And yes on the credit unions. At least look into it, although my guess is you may end up doing better with one of the mega-lenders like a Wells Fargo. They typically can borrow funds at a lower rate and therefore can lend at a lower rate.

[magicofdisney]

Every mortgage we've ever had included escrow (insurance and property tax) in the payment. Keep this in mind when determining your monthly expense. It's nice to pay that monthly as opposed to one lump payment each year.

[White Rose]

I actually work for a credit union and can guarantee they often offer lower rates for not only mortgages, but most other loans as well! Ian probably gave one of the BEST explanations of how mortgages work and such. I'm not trained in real estate/mortgages but I just wanted to add that you should REALLY considering joining a credit union. Rates on loans, as discussed, are often lower, but a lot of the time, credit unions don't offer the fees and such you seem major banks having.

So, yes, join a credit union and shop around for those interest rates!

Also, I just wanted to add: it's against the law for someone to consider denying you joint credit because you and your fiance are not married yet. Therefore, your marital status should have absolutely NO BEARING on ANY loans you apply for, let alone your mortgage.

[Ian]

Rates on loans, as discussed, are often lower, but a lot of the time, credit unions don't offer the fees and such you seem major banks having.Oh this brings up a good point that I left out of my first post.

Remember that your APR is the real indicator of how much you're paying for your loan, not your interest rate. Your APR is your Annual Percentage Rate and it takes into account fees you pay on the loan in addition to the interest rate you're paying, so it helps compare apples to apples better when comparing rates between lenders.

For example, is a loan from Lender A with a 4.5% fixed rate for 30 years and a 1% origination fee a better deal than a 4.8% fixed rate of interest and a .5% origination fee.

That's a super simplifciation of APR (trust me ... I once asked for a printout of the system logic used to calc the APR and was given a stack of 38 pages of code!!! :eek:), but I just wanted to highlight that it's an important indicator of the true cost of your loan.


Also, I just wanted to add: it's against the law for someone to consider denying you joint credit because you and your fiance are not married yet. Therefore, your marital status should have absolutely NO BEARING on ANY loans you apply for, let alone your mortgage.Definitely 100% correct.

[titleistboy]

Alright, my wife and I bought our first home a year and a half ago, and went FHA...definitely a good way to go because of the lower down payment, etc...a couple cautionary notes our mortgage guy didn't really go into a lot of detail about but caused us some anxiety:
For an FHA Mortgage to be approved, the house must have an FHA inspection (separate from the actual house inspection) where the home is evaluated for structural and maintenance issues...they do this so that you're not buying a money pit that you can't afford, but as an example, if the roof is deemed to need replacement by the FHA inspector, the roof then must be replaced prior to closing, period, and either yourselves or the seller's going to have to pay for it. So it's important that you find a home that's in reasonable shape, which you probably would otherwise.
The second issue, which can factor in as far as financing the closing costs: the home has to have an FHA appraisal...the appraiser basically takes comparable home sales, looks at the neighborhood, etc. and applies an appraised value on the home. That appraised value must at least be the total value of what you finance, if not more. So, if you offer $100,000 for the house, and let's say you finance $5,000 for your closing costs, the house has to appraise for over $105,000...otherwise you'll either have to walk away, or come up with the difference yourselves in cash. This has affected two friends of ours on a couple occasions...so you definitely want to make sure that it's written in to your conditions on your offer.
Hope that helps, and good luck!

[Ed]

One word of advice: Pay for a home inspection, pest inspections, etc. I see way too many poeple skip them due to price, and it's in your best interest to have them done. Don't listen to your agent for names, etc, get unbiased recommendations from family/friends.

I absolutely agree with DisneyRox (and Mike Holmes :D ) - - - an unbiased inspection is a 1000% necessity. Not only will it give you a clear picture of the overall condition of the home, but it will also give you some leverage in negotiating with the seller over who pays for what necessary repairs.

And probably most importantly - - don't make the mistake of "falling in love" with any home until a comprehensive inspection has been completed and you are totally comfortable with what the report says. Remember that right now, there's plenty of homes to choose from, and at cut-rate prices. Don't buy based on first impressions; make sure you know the condition of the structure, the foundation, and all the vital systems - - electrical, plumbing, HVAC, etc.

Good luck!

[magicalmom]

Once you purchase your home, arrange with your lender to make half of your payment every two weeks - this way, you actually make 13 mortgage payments per year, build equity faster, pay less interest, and pay off your loan sooner.

We're in a 15 year loan which will be paid off in 13.5 years. If you're looking at 30 year loans, making 26 half payments per year will actually get you paid off in 22 years!

We also have our payment taken out automatically every payday, so we can't forget or be late. It's also easier to budget this way.

[brivers222]

One word of advice: Pay for a home inspection, pest inspections, etc. I see way too many poeple skip them due to price, and it's in your best interest to have them done. Don't listen to your agent for names, etc, get unbiased recommendations from family/friends.

I was just going to say this! our realtor was a family friend (another mistake) so we trusted her when she said she had an inspection guy... he looked the part alright but it was a HUGE mistake. Nothing catastrophic, but in remodeling we found many things that weren't up to code that should have been caught at the inspection part. When it came down to it the color green is all that mattered... He passes the house, we close, she gets her commission.........

Definitely do not get names of inspectors from either agents!!!