Keep me from buying a 'homebuying for dummies' book.
November 29, 2013 3:20 PM
My wife and I are trying to wrap our heads around the process of purchasing a home. We know a little bit, but we also know there are gaps in that knowledge.
We're looking for information on how to go about the process, and what specifically we should be doing to assess the prudence of home-buying
After a year and a half of crazy (un)employment situations, a new baby, and a couple of cross-country moves, life is settling down for us. We're still in recovery mode from life throwing us through the wash, but things are finally stable, and not only looking good, but they're looking REALLY good. We're happy, and content. We actually have boring weeks from time to time (a true gift!). We would like to move towards owning a home, but we've kept this off the table for a while.
My wife almost makes it a hobby of cruising real-estate listings just to see whats out there, and what will eventually be in our price range. She stumbled across a house that, while it isn't perfect by any means, fits most of our criteria for a permanent home. We're realistic about houses, and refuse to 'fall in love' with one (unless you know of a bungalow in inner-SE for like...$60 bucks). So our interest is piqued, but we're not rushing out to do anything about it. This has cascaded into us wanting to know more. We have kept ourselves a little bit under-educated about home-buying to keep us from obsessing over it. We know a little bit about the process, but we know there are probably plenty of gaps in that knowledge.
We've run the numbers through Rent-vs-buy calculators, mortgage calculators based on our credit scores, everything we can think of. Even paying PMI, home-owners insurance, taxes and every other extra cost we can find on the day-to-day, it seems as though owning a home in this particular price range would cost us at *most* $2-400 more a month for approximately twice as much space as we have now. We've seen offers from places like Key Bank on No-PMI first time home-buyer offers and stuff, but we're really wary about shit like that, because of all the ruckus mortage-backed securities caused in the past few years. We're a bit spun when it comes to the options, offers, and details. We also have no idea what home-buying does to one's taxes.
BUT, We don't know much about the process of buying a home. There are so many variables, and we want to be thorough. We went to our credit union a while back, to see where we stood in terms of 'is home-buying good for you' or not, and they only thing they said needed to be looked at was a weird blip on my credit report (since fixed) and our debt to credit ratio on our Credit Cards (which we are destroying each month), and our lack of down-payment.
This is our situation:
-We live in a rental house, in SE Portland (Lents neighborhood). The house is on the cheaper side, but we also pay 100% of our utilities, sewer/water, garbage, and we pay for minor repairs (this is an agreement we have with our landlord to help lower the rent, this has played in our favor). Living here, in this house is not a long-term solution. The neighborhood is not the best, and the schools that baby.furnace would attend are lackluster at best. Even moving to a slightly nicer neighborhood adjacent will help his schooling prospects dramatically. We know it's not a perfect analog to home-ownership, but it has given us a better picture of what home-ownership is like. This savings is very temporary, as once he hits school age, we will move to a better school district, even if our rent is higher.
-My wife has an amazing union job in the next county over, it is very secure, pays well.
-I have an amazing non-union job that is better-than-average secure, and pays less, but still decent compared to my wife.
-Our health insurance is very low deductible, and we are all fairly healthy. We've chosen this plan to keep emergency costs to a nearly nonexistent level.
-We lease a new VW Jetta, to keep emergency repair costs to a nearly nonexistent level (which is worth every penny not to worry about).
-My wife's credit score is in the low 700's, and my credit score is in the higher-mid 700's.
-Our CC debt to credit ratio is about 60% right now, but we're slated to pay it off completely in about 6-7 months.
-Our savings is quite minimal, only a few thousand in an emergency fund.
Everything we've done since moving back to Oregon has pushed us towards financial-risk-reduction. We're mega frugal, because had to take on alot of (credit card) debt, just to move back 'home.' We've brought our financial risk of emergency down very, very low on purpose to allow us to focus on paying off our debt. The flip side of this is that we don't really have much in savings...only short-term savings of a couple thousand. We know this is not ideal, and will re-direct all cc debt towards savings once the card is paid down to not carrying a balance. We're realistically 5-7 months from paying off the credit card entirely. There is the possibility of having some familial help with that, but we've decided against it for the time-being (money and their strings and all...).
The extra-snowflake goodness of this puzzle for us is just exactly where we live. Portland's housing market isn't as insane as like SF or NYC, but it's not tame either. We're aware that we can't see into the future, but property values didn't really tank here like they did in the rest of the country during the recession...things just sorta slowed down a little bit. We're fairly concerned (and we feel this is fairly legitimate, but feel free to illustrate otherwise!) that if we wait a few years to have a sizable down-payment, we will be priced out of the neighborhoods we'd really like to live in, which has actually happened during the last year, and we've had to readjust our desires for home-ownership.
Another flake that pushes us towards the 'sooner-than-later' camp is that interest rates are still pretty low....I know we have good credit, but i'm not sure how much that plays into the 'lowest rate' you can get. We're concerned that the longer we wait, the higher interest rates will rise, and again, we'll be priced out of a decent neighborhood.
TL;DR- What resources should we be looking at to help us grok the home-buying process?, and what specifically should we be doing to assess the prudence of home-buying?
After a year and a half of crazy (un)employment situations, a new baby, and a couple of cross-country moves, life is settling down for us. We're still in recovery mode from life throwing us through the wash, but things are finally stable, and not only looking good, but they're looking REALLY good. We're happy, and content. We actually have boring weeks from time to time (a true gift!). We would like to move towards owning a home, but we've kept this off the table for a while.
My wife almost makes it a hobby of cruising real-estate listings just to see whats out there, and what will eventually be in our price range. She stumbled across a house that, while it isn't perfect by any means, fits most of our criteria for a permanent home. We're realistic about houses, and refuse to 'fall in love' with one (unless you know of a bungalow in inner-SE for like...$60 bucks). So our interest is piqued, but we're not rushing out to do anything about it. This has cascaded into us wanting to know more. We have kept ourselves a little bit under-educated about home-buying to keep us from obsessing over it. We know a little bit about the process, but we know there are probably plenty of gaps in that knowledge.
We've run the numbers through Rent-vs-buy calculators, mortgage calculators based on our credit scores, everything we can think of. Even paying PMI, home-owners insurance, taxes and every other extra cost we can find on the day-to-day, it seems as though owning a home in this particular price range would cost us at *most* $2-400 more a month for approximately twice as much space as we have now. We've seen offers from places like Key Bank on No-PMI first time home-buyer offers and stuff, but we're really wary about shit like that, because of all the ruckus mortage-backed securities caused in the past few years. We're a bit spun when it comes to the options, offers, and details. We also have no idea what home-buying does to one's taxes.
BUT, We don't know much about the process of buying a home. There are so many variables, and we want to be thorough. We went to our credit union a while back, to see where we stood in terms of 'is home-buying good for you' or not, and they only thing they said needed to be looked at was a weird blip on my credit report (since fixed) and our debt to credit ratio on our Credit Cards (which we are destroying each month), and our lack of down-payment.
This is our situation:
-We live in a rental house, in SE Portland (Lents neighborhood). The house is on the cheaper side, but we also pay 100% of our utilities, sewer/water, garbage, and we pay for minor repairs (this is an agreement we have with our landlord to help lower the rent, this has played in our favor). Living here, in this house is not a long-term solution. The neighborhood is not the best, and the schools that baby.furnace would attend are lackluster at best. Even moving to a slightly nicer neighborhood adjacent will help his schooling prospects dramatically. We know it's not a perfect analog to home-ownership, but it has given us a better picture of what home-ownership is like. This savings is very temporary, as once he hits school age, we will move to a better school district, even if our rent is higher.
-My wife has an amazing union job in the next county over, it is very secure, pays well.
-I have an amazing non-union job that is better-than-average secure, and pays less, but still decent compared to my wife.
-Our health insurance is very low deductible, and we are all fairly healthy. We've chosen this plan to keep emergency costs to a nearly nonexistent level.
-We lease a new VW Jetta, to keep emergency repair costs to a nearly nonexistent level (which is worth every penny not to worry about).
-My wife's credit score is in the low 700's, and my credit score is in the higher-mid 700's.
-Our CC debt to credit ratio is about 60% right now, but we're slated to pay it off completely in about 6-7 months.
-Our savings is quite minimal, only a few thousand in an emergency fund.
Everything we've done since moving back to Oregon has pushed us towards financial-risk-reduction. We're mega frugal, because had to take on alot of (credit card) debt, just to move back 'home.' We've brought our financial risk of emergency down very, very low on purpose to allow us to focus on paying off our debt. The flip side of this is that we don't really have much in savings...only short-term savings of a couple thousand. We know this is not ideal, and will re-direct all cc debt towards savings once the card is paid down to not carrying a balance. We're realistically 5-7 months from paying off the credit card entirely. There is the possibility of having some familial help with that, but we've decided against it for the time-being (money and their strings and all...).
The extra-snowflake goodness of this puzzle for us is just exactly where we live. Portland's housing market isn't as insane as like SF or NYC, but it's not tame either. We're aware that we can't see into the future, but property values didn't really tank here like they did in the rest of the country during the recession...things just sorta slowed down a little bit. We're fairly concerned (and we feel this is fairly legitimate, but feel free to illustrate otherwise!) that if we wait a few years to have a sizable down-payment, we will be priced out of the neighborhoods we'd really like to live in, which has actually happened during the last year, and we've had to readjust our desires for home-ownership.
Another flake that pushes us towards the 'sooner-than-later' camp is that interest rates are still pretty low....I know we have good credit, but i'm not sure how much that plays into the 'lowest rate' you can get. We're concerned that the longer we wait, the higher interest rates will rise, and again, we'll be priced out of a decent neighborhood.
TL;DR- What resources should we be looking at to help us grok the home-buying process?, and what specifically should we be doing to assess the prudence of home-buying?
"Home Buying for Dummies" is actually a fantastic resource for first-time homebuyers. Don't hate: several of my lawyer friends have used it and recommend it.
Ah, the dream of home ownership. So you're basically saying you think you can time not only the PDX housing market, but also the market for mortgage interest rates. Market timers usually fail, but who knows?
In your shoes, I would not buy a home at this time, even though this seems to you like The Perfect Market Time (always debatable… past performance is never a predictor of the future...) unfortunately, you don't have enough of the necessary boxes checked financially. You still have credit card debt. You still don't have 6 months' worth of living expenses in savings.
How would you pay closing costs, and moving costs, let alone come up with enough of a down payment? Sure, maybe you could pull this off with a little economic support from Mom and Dad, but some folks think that's a recipe for a lifetime of being behind the 8-ball financially. It sets up a pattern of living way beyond your means, on top of the "strings" concerns you rightly mention.
posted by hush at 3:44 PM on November 29, 2013
Ah, the dream of home ownership. So you're basically saying you think you can time not only the PDX housing market, but also the market for mortgage interest rates. Market timers usually fail, but who knows?
In your shoes, I would not buy a home at this time, even though this seems to you like The Perfect Market Time (always debatable… past performance is never a predictor of the future...) unfortunately, you don't have enough of the necessary boxes checked financially. You still have credit card debt. You still don't have 6 months' worth of living expenses in savings.
How would you pay closing costs, and moving costs, let alone come up with enough of a down payment? Sure, maybe you could pull this off with a little economic support from Mom and Dad, but some folks think that's a recipe for a lifetime of being behind the 8-ball financially. It sets up a pattern of living way beyond your means, on top of the "strings" concerns you rightly mention.
posted by hush at 3:44 PM on November 29, 2013
Keep me from buying a 'homebuying for dummies' book.
Okay, clearly those aren't the books people display proudly on their shelves, but they have a lot of information between two covers delivered by people who aren't selling you anything other than information.
I think you might want to check it out the next time you're in the bookstore and consider getting a copy. (We did. Shhhhh.)
posted by A Terrible Llama at 3:44 PM on November 29, 2013
Okay, clearly those aren't the books people display proudly on their shelves, but they have a lot of information between two covers delivered by people who aren't selling you anything other than information.
I think you might want to check it out the next time you're in the bookstore and consider getting a copy. (We did. Shhhhh.)
posted by A Terrible Llama at 3:44 PM on November 29, 2013
Homebuying for dummies actually is a great book. I used it when I bought for the first time. Agree with other posters that your lack of savings is going to be a big problem. Where is your downpayment going to come from?
posted by waylaid at 3:54 PM on November 29, 2013
posted by waylaid at 3:54 PM on November 29, 2013
I know you didn't post anonymously and thus probably don't want to lay out the numbers, but I think it's very telling that you shared your debt-to-credit ratio and not your debt-to-income ratio. If you only have a couple of thousand dollars in short-term savings (assuming the other savings is retirement accounts), you are not ready to buy a house. It is possible for first-time homebuyers to purchase with low down payments, but the bank does want to see that you have a buffer and that you can handle the first couple of months of mortgage payments.
posted by stowaway at 3:55 PM on November 29, 2013
posted by stowaway at 3:55 PM on November 29, 2013
Thanks for the heads up on home buying for dummies. Consider it at least borrowed from the library at this point (not to thread-sit).
posted by furnace.heart at 3:59 PM on November 29, 2013
posted by furnace.heart at 3:59 PM on November 29, 2013
I've purchased a few homes, and the biggest lesson I've taken from that is that there are so many costs even aside from the mortgage and closing costs and taxes. Doesn't matter whether the house is an older fixer-upper or a brand new construction, there are a ton of costs (just different ones in each situation). You don't have money. Don't buy now.
You need the debt paid off, and you need a down payment of 20% - and you also need a significant chunk of savings to cover other costs, like the home inspection, moving costs, painting the walls, getting a new appliance/new curtains/new fixtures, and so on - maybe $10K. Make this your goal. I'm estimating this will take you 2 years even though I have no idea what your income is or what your home purchase price range is, but I do know once you get your CC debt paid off you can start pouring that into your down payment fund. You don't know how the market will be in 2 years, but there will be something that you can buy that you will like. Depending on how things go you might be looking at fixer-upper houses or condos or foreclosures or whatever to get the location you want, but there are ways to find houses in hotter markets that are more reasonable, and it's more important to be financially secure with your plan.
When you're ready, get a good buyer's agent recommended by a friend, who you trust, who won't try to upsell you, and get pre-approved for an amount you have calculated you can afford.
posted by treehorn+bunny at 4:00 PM on November 29, 2013
You need the debt paid off, and you need a down payment of 20% - and you also need a significant chunk of savings to cover other costs, like the home inspection, moving costs, painting the walls, getting a new appliance/new curtains/new fixtures, and so on - maybe $10K. Make this your goal. I'm estimating this will take you 2 years even though I have no idea what your income is or what your home purchase price range is, but I do know once you get your CC debt paid off you can start pouring that into your down payment fund. You don't know how the market will be in 2 years, but there will be something that you can buy that you will like. Depending on how things go you might be looking at fixer-upper houses or condos or foreclosures or whatever to get the location you want, but there are ways to find houses in hotter markets that are more reasonable, and it's more important to be financially secure with your plan.
When you're ready, get a good buyer's agent recommended by a friend, who you trust, who won't try to upsell you, and get pre-approved for an amount you have calculated you can afford.
posted by treehorn+bunny at 4:00 PM on November 29, 2013
I just bought a house -- my Dad died and left a fairly substantial estate to my Mom, who gave me a large chunk of money for a down payment.
Even WITH this money and a fairly minimal mortgage (less than 50K) my savings, chequings and lines of credit have dropped to almost zero. Seriously. Even though I knew, in advance, that there would be hidden costs, and even though I knew, in advance, that I'd be spending tons of money, I'm still amazed at the rate at which my accounts emptied: it's like someone attached an industrial vacuum cleaner to the bottom of my net worth and turned it on. There's moving costs and lawyers fees and closing costs and insurance and taxes and inspections and blinds and curtains and getting the roof fixed and getting the gutters cleaned and buying appliances and, and, and, and...15K above what I expected, and I've still not paid for the washer and dryer or for the window coverings. I figure it's going to set me back 20K and I figured on about 5K.
I'd save up. Seriously. I'd save up. SERIOUSLY. The mortgage is only the smallest cost you'll have.
posted by jrochest at 4:16 PM on November 29, 2013
Even WITH this money and a fairly minimal mortgage (less than 50K) my savings, chequings and lines of credit have dropped to almost zero. Seriously. Even though I knew, in advance, that there would be hidden costs, and even though I knew, in advance, that I'd be spending tons of money, I'm still amazed at the rate at which my accounts emptied: it's like someone attached an industrial vacuum cleaner to the bottom of my net worth and turned it on. There's moving costs and lawyers fees and closing costs and insurance and taxes and inspections and blinds and curtains and getting the roof fixed and getting the gutters cleaned and buying appliances and, and, and, and...15K above what I expected, and I've still not paid for the washer and dryer or for the window coverings. I figure it's going to set me back 20K and I figured on about 5K.
I'd save up. Seriously. I'd save up. SERIOUSLY. The mortgage is only the smallest cost you'll have.
posted by jrochest at 4:16 PM on November 29, 2013
Oh, and I make a very nice salary, so it's not like I was broke to begin with -- although I am now!
posted by jrochest at 4:17 PM on November 29, 2013
posted by jrochest at 4:17 PM on November 29, 2013
Yeah, even if you have the downpayment taken care of somehow (financed, gifted, etc) you will need around 5k or so in your warchest for inspections, fees, and so on. Anything extra after you move in can go for repairs or furniture or something.
My basic advice I give to all new home buyers is: Assume The Banks Have Never Completed A Mortgage Before. Seriously. The dudes that sign the papers with you may seem confident and what not, but the flunkies in the back room have no idea what is going on and/or are hampered by crazy bureaucracy. So you will need to have more knowledge, time, and patience than you may think going in.
The spouse who does not have to deal with the bank gets to buy the wine. They will make out like bandits.
posted by robocop is bleeding at 4:24 PM on November 29, 2013
My basic advice I give to all new home buyers is: Assume The Banks Have Never Completed A Mortgage Before. Seriously. The dudes that sign the papers with you may seem confident and what not, but the flunkies in the back room have no idea what is going on and/or are hampered by crazy bureaucracy. So you will need to have more knowledge, time, and patience than you may think going in.
The spouse who does not have to deal with the bank gets to buy the wine. They will make out like bandits.
posted by robocop is bleeding at 4:24 PM on November 29, 2013
Your county or city housing agencies might have a first time homebuyers class. They could be a good resource for general information and about programs offered in your area.
posted by amarynth at 4:27 PM on November 29, 2013
posted by amarynth at 4:27 PM on November 29, 2013
-Our CC debt to credit ratio is about 60% right now, but we're slated to pay it off completely in about 6-7 months.
-Our savings is quite minimal, only a few thousand in an emergency fund.
Everything we've done since moving back to Oregon has pushed us towards financial-risk-reduction. We're mega frugal, because had to take on alot of (credit card) debt
Wait a year. Pay it off and add to your savings. Nothing about buying a house is cheap. There are a million expenses that come up.
posted by rr at 4:46 PM on November 29, 2013
-Our savings is quite minimal, only a few thousand in an emergency fund.
Everything we've done since moving back to Oregon has pushed us towards financial-risk-reduction. We're mega frugal, because had to take on alot of (credit card) debt
Wait a year. Pay it off and add to your savings. Nothing about buying a house is cheap. There are a million expenses that come up.
posted by rr at 4:46 PM on November 29, 2013
The ability to choose paint colors and knock holes in walls and get pets without asking permission is nice, but it's not nice enough to outweigh constant fear of a tree falling on your house or roots growing into your sewer pipe. I am a homeowner with lots of debt and not much savings to speak of and I frequently wish for the carefree life I used to lead where I paid the rent and didn't think of housing expenses beyond that.
If you do decide to buy a house with minimal down payment and savings (FHA) my advice to you would be to ONLY buy a house that you do not have ANY reservations about whatsoever: great location, great schools, enough space, on and on. Because if you dislike something about a house before you even move in, you will really grow to hate it when you're been there a while and are stuck there for the foreseeable future because you can't afford to sell it and move. Ask me how I know.
posted by rabbitrabbit at 4:57 PM on November 29, 2013
If you do decide to buy a house with minimal down payment and savings (FHA) my advice to you would be to ONLY buy a house that you do not have ANY reservations about whatsoever: great location, great schools, enough space, on and on. Because if you dislike something about a house before you even move in, you will really grow to hate it when you're been there a while and are stuck there for the foreseeable future because you can't afford to sell it and move. Ask me how I know.
posted by rabbitrabbit at 4:57 PM on November 29, 2013
Based on what you said in your post, if you do buy a house within the next, say, year, you will be close to marginal for getting approved for a mortgage. Therefore, figuring out what a bank is willing to lend you should be your top priority. I would suggest calling a mortgage broker, or someone who handles mortgages at your bank. They should be happy to talk to you in speculative terms about different scenarios, and will be able to quickly give you at least a ballpark view of what you might be capable of getting approved for. Nothing else matters as much as this.
We've seen offers from places like Key Bank on No-PMI first time home-buyer offers and stuff, but we're really wary about shit like that, because of all the ruckus mortgage-backed securities caused in the past few years.
Are you being serious? The mortgage is a contract saying you can live in the house as long as you make payments; it has nothing to do with mortgage backed securities. If you are implying that you're worried the bank will lend you more than you can comfortably manage to pay back, 1- lending standards have changed since then, and 2- the cure for this is to do research into what you can afford.
posted by deadweightloss at 5:14 PM on November 29, 2013
We've seen offers from places like Key Bank on No-PMI first time home-buyer offers and stuff, but we're really wary about shit like that, because of all the ruckus mortgage-backed securities caused in the past few years.
Are you being serious? The mortgage is a contract saying you can live in the house as long as you make payments; it has nothing to do with mortgage backed securities. If you are implying that you're worried the bank will lend you more than you can comfortably manage to pay back, 1- lending standards have changed since then, and 2- the cure for this is to do research into what you can afford.
posted by deadweightloss at 5:14 PM on November 29, 2013
If you are implying that you're worried the bank will lend you more than you can comfortably manage to pay back...
This isn't really what I was implying, and should have been more clear. I have been seeing what appears to be programs other than FHA loans, that seem to be focused at first time buyers, and low/no down payment folks. I was wondering if this was legit, or what the here and now status was of programs like this.
We're quite aware of how much we can afford to borrow, and we've been looking at houses well below that mark, because we try to avoid risk. I should have been more clear about specific programs.
In the post I fully admitted I don't know everything about the topic, and am trying here as a first step to start in the direction of researching my options.
posted by furnace.heart at 5:38 PM on November 29, 2013
This isn't really what I was implying, and should have been more clear. I have been seeing what appears to be programs other than FHA loans, that seem to be focused at first time buyers, and low/no down payment folks. I was wondering if this was legit, or what the here and now status was of programs like this.
We're quite aware of how much we can afford to borrow, and we've been looking at houses well below that mark, because we try to avoid risk. I should have been more clear about specific programs.
In the post I fully admitted I don't know everything about the topic, and am trying here as a first step to start in the direction of researching my options.
posted by furnace.heart at 5:38 PM on November 29, 2013
I know you've already heard this, but Homebuying for Dummies is a legitimately good resource. I used it when buying my first house, and have no shame about it being on my bookshelf.
I understand the desire to own your own place, but there can be significant unanticipated costs. Again, to echo many above: you need more savings. When you own the house if something breaks it is on you. That something could be the furnace (expensive! Cannot be delayed).
Work on your debt, then put that money into savings. Consider a financial planner; alternatively, are there local programs for first time home owners? I believe those often involve some financial counselling.
posted by maryrussell at 6:06 PM on November 29, 2013
I understand the desire to own your own place, but there can be significant unanticipated costs. Again, to echo many above: you need more savings. When you own the house if something breaks it is on you. That something could be the furnace (expensive! Cannot be delayed).
Work on your debt, then put that money into savings. Consider a financial planner; alternatively, are there local programs for first time home owners? I believe those often involve some financial counselling.
posted by maryrussell at 6:06 PM on November 29, 2013
We also have no idea what home-buying does to one's taxes.
The interest you pay is deductible from your income for federal taxes. Living in another state, I don't know about your state taxes. While nice, it's not a reason in and of itself to buy a house.
I'm on house #2. On house 1, 15 years ago, I had PMI as I only put down 5%. It was taken off when I had 20% equity. On house 2, I learned it "ain't that way no more". If you have to get PMI, you are pretty much stuck with it unless you refinance. As far as I could find, PMI was flat out required unless I put 20% down this time around.
The whole mortgage backed securities melt down was one reason this changed - people were getting loans for more house than they could afford, but it didn't matter to the bank, they were just going to sell the note as soon as possible. Hence the "NINJA" loans - no income, no job or assets" yet the loans were written. Now, things have tightened up ALOT.
Which brings me to another point - My first loan was sold (you cannot control this) and I ended up with a bank that was not very nice to deal with and has no local branches. Thankfully I paid them off.
On house 2, I got a loan with a bank(BB&T) that has a policy of NOT selling loans, is local, and is very nice to deal with.
DO NOT attempt to save money by not having your own (buyer's) real estate agent. Get a good one, and pay them to look out for you. If you act as your own agent with the seller's RE agent, you are gonna get took. I caught a 7 or 8 thousand "boo-boo" at my first closing. My RE agent wasn't so good, even my lender didn't catch it. When I pointed it out, she said something like "I wondered about that." Sheesh. Me, Mr. First Time Homebuyer caught it. The closing atty didn't even catch it. That would have been like flushing 8 grand down the toilet.
This time I got someone I trust, fairly experienced guy I've known years before House 2 came around. You cannot know too much, you need to understand all the gobbledy gook that is in each piece of paper connected with the sale. If you don't understand, find someone who does.
Look very hard at shorter than 30 year notes. I re-fied house 2 recently, went from 4.875 on a 30 year to 2.875 on a 15. My payments went up less than 10%, I'll save 10's of thousands in interest. It cost several thousand to re-fi.
Interest rates will also vary with your credit rating, so a loan now might not necessarily be cheaper than a loan later. I believe, though I may be wrong, that they also vary by how much you put down. Good question for a banker.
One other suggestion, when you find something you like, go park in your car near it on Friday and Saturday nights if you have ANY doubts about the neighborhood, maybe even if you don't. Check the police reports for the area if you can. If you have kids, you might want to check the sex offender registry, though personally, I think that whole mess is way overblown.
House 1 was in an area that seemed a bit sketchy to me (I've rented in some very not so nice neighborhoods, like SE DC). The Friday/Saturday night scene was cool around House 1, but I still ended up living next to some drug dealers in the rental next door later on. Took about 3 years to run them off. Rest of the neighbors were lovely, and I regretted leaving the neighborhood when I went to House 2.
Ask around the neighborhood - any problems with minor flooding due to inadequate drainage systems? We have whole areas of town that flood regularly during heavy rains. The corner down the street here gets up say 3-4 feet on a bad rain on a high tide. People's yards flood down the street. I live up the hill a bit.
That's about all I can think of right now, good luck, and remember, you don't own the house, the house owns you.
posted by rudd135 at 6:40 PM on November 29, 2013
The interest you pay is deductible from your income for federal taxes. Living in another state, I don't know about your state taxes. While nice, it's not a reason in and of itself to buy a house.
I'm on house #2. On house 1, 15 years ago, I had PMI as I only put down 5%. It was taken off when I had 20% equity. On house 2, I learned it "ain't that way no more". If you have to get PMI, you are pretty much stuck with it unless you refinance. As far as I could find, PMI was flat out required unless I put 20% down this time around.
The whole mortgage backed securities melt down was one reason this changed - people were getting loans for more house than they could afford, but it didn't matter to the bank, they were just going to sell the note as soon as possible. Hence the "NINJA" loans - no income, no job or assets" yet the loans were written. Now, things have tightened up ALOT.
Which brings me to another point - My first loan was sold (you cannot control this) and I ended up with a bank that was not very nice to deal with and has no local branches. Thankfully I paid them off.
On house 2, I got a loan with a bank(BB&T) that has a policy of NOT selling loans, is local, and is very nice to deal with.
DO NOT attempt to save money by not having your own (buyer's) real estate agent. Get a good one, and pay them to look out for you. If you act as your own agent with the seller's RE agent, you are gonna get took. I caught a 7 or 8 thousand "boo-boo" at my first closing. My RE agent wasn't so good, even my lender didn't catch it. When I pointed it out, she said something like "I wondered about that." Sheesh. Me, Mr. First Time Homebuyer caught it. The closing atty didn't even catch it. That would have been like flushing 8 grand down the toilet.
This time I got someone I trust, fairly experienced guy I've known years before House 2 came around. You cannot know too much, you need to understand all the gobbledy gook that is in each piece of paper connected with the sale. If you don't understand, find someone who does.
Look very hard at shorter than 30 year notes. I re-fied house 2 recently, went from 4.875 on a 30 year to 2.875 on a 15. My payments went up less than 10%, I'll save 10's of thousands in interest. It cost several thousand to re-fi.
Interest rates will also vary with your credit rating, so a loan now might not necessarily be cheaper than a loan later. I believe, though I may be wrong, that they also vary by how much you put down. Good question for a banker.
One other suggestion, when you find something you like, go park in your car near it on Friday and Saturday nights if you have ANY doubts about the neighborhood, maybe even if you don't. Check the police reports for the area if you can. If you have kids, you might want to check the sex offender registry, though personally, I think that whole mess is way overblown.
House 1 was in an area that seemed a bit sketchy to me (I've rented in some very not so nice neighborhoods, like SE DC). The Friday/Saturday night scene was cool around House 1, but I still ended up living next to some drug dealers in the rental next door later on. Took about 3 years to run them off. Rest of the neighbors were lovely, and I regretted leaving the neighborhood when I went to House 2.
Ask around the neighborhood - any problems with minor flooding due to inadequate drainage systems? We have whole areas of town that flood regularly during heavy rains. The corner down the street here gets up say 3-4 feet on a bad rain on a high tide. People's yards flood down the street. I live up the hill a bit.
That's about all I can think of right now, good luck, and remember, you don't own the house, the house owns you.
posted by rudd135 at 6:40 PM on November 29, 2013
If you want to do this you can. Pound money into savings- it makes the bank see you as a good risk and you need it to cover closing costs. Figure out what you can afford and STICK TO IT, or better, find something that does what you need it to do for a bit less.
A good buyer's agent can help you, but it sounds to me like you'll want to have at least 20, 25 grand in savings if you want a nice, reasonable loan on a groovy house.
posted by vrakatar at 6:49 PM on November 29, 2013
A good buyer's agent can help you, but it sounds to me like you'll want to have at least 20, 25 grand in savings if you want a nice, reasonable loan on a groovy house.
posted by vrakatar at 6:49 PM on November 29, 2013
Oh, and buyer's agents tend to have good contacts at local banks, and that makes the whole contract smell good.
posted by vrakatar at 6:52 PM on November 29, 2013
posted by vrakatar at 6:52 PM on November 29, 2013
So glad you're in Portland... I always recommend the Portland Housing Center. Their classes were so helpful to me when I was thinking about buying. They demysitfied so much of the process for me.
That being said, if I were in your position, I would look at buying in about a 1.5 years. Give yourselves the 6 months to pay down your debt. Then 9-12 months to get yourself a down payment. The housing classes will help you figure out how much of a down payment you need. I'm not sure you can buy with less than 5%. And on top of that 5%, you also have closing costs.
As for interest rates, when you are plugging numbers into the mortgage calculators, and see how much of a difference in your monthly payments, one percentage point makes. There are ways, however to buy those down when you first get your mortgage.
I also recommend figuring on your own, how much you can afford each month. Don't trust the bank to tell you how much house you can buy. I've bought twice, and both times, they qualified me for something $50k - $100k more than what I knew I could afford. Trust your instinct. And don't get a variable rate or balloon loan.
posted by hydra77 at 8:12 PM on November 29, 2013
That being said, if I were in your position, I would look at buying in about a 1.5 years. Give yourselves the 6 months to pay down your debt. Then 9-12 months to get yourself a down payment. The housing classes will help you figure out how much of a down payment you need. I'm not sure you can buy with less than 5%. And on top of that 5%, you also have closing costs.
As for interest rates, when you are plugging numbers into the mortgage calculators, and see how much of a difference in your monthly payments, one percentage point makes. There are ways, however to buy those down when you first get your mortgage.
I also recommend figuring on your own, how much you can afford each month. Don't trust the bank to tell you how much house you can buy. I've bought twice, and both times, they qualified me for something $50k - $100k more than what I knew I could afford. Trust your instinct. And don't get a variable rate or balloon loan.
posted by hydra77 at 8:12 PM on November 29, 2013
We just went to a first-time home buyer seminar a few months back. The news wasn't that pretty.
Before the real estate boom, just about anyone could get a loan. Now, people are understandably wary of lending, even to people with good credit ratings (like us). You can get a loan, and technically there are still ways to get loans with no down payment, but lenders will NOT be fond of seeing that. You almost certainly can't get a loan from a standard lender with less than 5% down, and echoing what posters above have said, you'll still have to pay PMI for anything under 20% down.
There are still some wacky loans out there, like the FHA 203K, where they give you a certain amount of money to do renovations on your house (I can't remember if it has to be in a historic district, or a certain age, or what). But that can be a pain in the rear because they won't give you the balance of the loan until you pass every inspection, and if you run into delays it can, well, delay that. But it is legit.
Not every bank or credit union offers every loan, though, so particularly if you're looking for something out of the ordinary (like the 203K) you might have to go to an online lender or another place you wouldn't normally do business.
Some other things we learned at the class (which you should sign up for RIGHT NOW):
--If you expect a relative or someone will give you money to help with a down payment or something, PUT IT IN YOUR BANK ACCOUNT. The bank will want to know that you have access now, not in a while.
--If you schedule a showing, be aware of the realtor rules that mean that you might unknowingly form a business relationship with them. (The regulations might be different where you live.) Open houses shouldn't have these issues.
--If you schedule a showing, the realtor will probably want to know if you're pre-approved. You probably shouldn't schedule a showing without being pre-approved.
Go to a first-time homebuyer class.
posted by Madamina at 9:49 PM on November 29, 2013
Before the real estate boom, just about anyone could get a loan. Now, people are understandably wary of lending, even to people with good credit ratings (like us). You can get a loan, and technically there are still ways to get loans with no down payment, but lenders will NOT be fond of seeing that. You almost certainly can't get a loan from a standard lender with less than 5% down, and echoing what posters above have said, you'll still have to pay PMI for anything under 20% down.
There are still some wacky loans out there, like the FHA 203K, where they give you a certain amount of money to do renovations on your house (I can't remember if it has to be in a historic district, or a certain age, or what). But that can be a pain in the rear because they won't give you the balance of the loan until you pass every inspection, and if you run into delays it can, well, delay that. But it is legit.
Not every bank or credit union offers every loan, though, so particularly if you're looking for something out of the ordinary (like the 203K) you might have to go to an online lender or another place you wouldn't normally do business.
Some other things we learned at the class (which you should sign up for RIGHT NOW):
--If you expect a relative or someone will give you money to help with a down payment or something, PUT IT IN YOUR BANK ACCOUNT. The bank will want to know that you have access now, not in a while.
--If you schedule a showing, be aware of the realtor rules that mean that you might unknowingly form a business relationship with them. (The regulations might be different where you live.) Open houses shouldn't have these issues.
--If you schedule a showing, the realtor will probably want to know if you're pre-approved. You probably shouldn't schedule a showing without being pre-approved.
Go to a first-time homebuyer class.
posted by Madamina at 9:49 PM on November 29, 2013
On the 203K - that was the loan I had on house 1. You need a good bit of money to get started on the work and get to your first construction draw, maybe 5K - on top of the down, which can be small if you are buying a wreck like I did. . I did a BUNCH of the work myself - which I had budgeted in the loan paperwork to have Contractors do. End of the renovation process I ended up with about 12K in the bank.
It can be pretty complicated, I ended up having to buy Builder's Risk insurance to cover the job while I was working on it - bank required insurance of course. I ended up with a policy from Lloyd's of London, purchased from a local Ins. Agent.
I was looking for 203K's here in Georgia for a friend, and could not find anyone here that still offered them.
Standard disclaimer - I grew up around a wood shop, built airplanes for a while, then went into architecture. Personal knowledge and grabbing good subcontractors off jobsites I was doing construction administration on was what made it work for me.
posted by rudd135 at 7:16 AM on November 30, 2013
It can be pretty complicated, I ended up having to buy Builder's Risk insurance to cover the job while I was working on it - bank required insurance of course. I ended up with a policy from Lloyd's of London, purchased from a local Ins. Agent.
I was looking for 203K's here in Georgia for a friend, and could not find anyone here that still offered them.
Standard disclaimer - I grew up around a wood shop, built airplanes for a while, then went into architecture. Personal knowledge and grabbing good subcontractors off jobsites I was doing construction administration on was what made it work for me.
posted by rudd135 at 7:16 AM on November 30, 2013
My experience is limited, but FWIW:
I used the calculators to display various options: down payment, interest, and so on, so that when it came time to analyze a prospective contract we would at least have the terminology and its curves on familiar ground. This didn't stop pencil and paper work later on, but it really helped us, especially when the prices were at the high end of our budget.
I found that high-price pockets exist in various places (here in Oregon). We needed to buy our home in one of the spendy areas for reasons that had to do with RedBud's family, so the home we finally got was a bit less than one we might have gotten for the same price 50 miles upstream, toward Roseburg. My pony would have been for RedBud's family to be based on Maui or someplace, but you have to work with what you have.
In our case, we both had good credit ratings (810/830), so the interest was easy enough to bargain for. I waited until, A) I had a substantial down payment, and, B) enough money in reserve to do to our new house what you have to do to any major investment of this type, namely make certain modifications.
Taking this approach gave us enough flexibility that we got a good view in a quiet area at the edge of a small town. I was able to landscape the yard, put a roof on the deck, and finish the garage to accommodate RedBud's workshop.
I realize your situation, though similar to ours in some ways, has its own numbers and location requirements. But the system we used was valid, and the deal we got was the best we could do with what we had to work with. Also, the loan officer I used was a colleague of my sister-in-law, who is a real estate agent. This didn't save us any of the commissions involved, but we were able to assume that the loan officer was giving us his best advice. This was important to me. Also, he showed up at the closing and signing ceremony. This is a big deal. The stack of paperwork you will go through is enormous, and it's nice to know the guy who puts you at the table with a pen in your hand has been candid about what you will have to pay, and what you will get for it.
Our case had this profile: we signed a mortage of just under $200K dollars. I bought down the points with a $40k down payment. I had the option to use a VA loan, with no down payment, but I got a good enough rate (4.5%) so that I used a private lender. In my case, I didn't haggle on the seller's asking price. It turned out that I could get a better deal by buying down the points and having the seller assume most of the negotiable fees. As I remember it, aside from the down payment, I had to bring about $3K to the signing. I folded the property taxes and insurance into the escrow payments. This added only pennies to our monthly payments, on a 20-yr contract. Our house is a modular house, so we weren't able to get a 30-year contract.
When we moved in, I put another $27K into the house in various modifications. I guess about half that was really needed, and the rest was candy (hot-tub hookup, front porch roof, back porch roof, and so on. I did most of the landscaping myself, hiring out to a yard-service to scalp the lawn and make a couple of mounds, which I hooked up to our drip system. The original system watered a front and back lawn with sprinklers, which, over the period of two years, I replaced with various drip lines, that serviced a few bushes and other yard plants in the front yard, and the greenery associated with the rock garden I put I the back yard. I used my pickup truck to puissant rocks that I got from various places, and had some of the tonnage delivered when I could get a good deal from a local quarrier. Eventually about 40 tons of rock made its way into the yards. I like rocks. When I say "I" naturally I mean RedBud and me. I got the outside of the house as my projects, she got the inside. Still does.
You may not want to do such extensive work right away, but I'm sure you'll find that several thousand dollars' work on your new home will come in handy. You may need to revamp the central heating, or some other thing that has come to the end of its service life, but didn't notice.
I mention all this to emphasize that owning isn't renting, and you are free to lower the value of your property by any amount you please, as long as you don't move into an area with zones that make your neat ideas unwelcome. This item (zoning) may turn out to be not trivial. Some sub-divisions have owners' counsels of various sorts, and they can tell you which and whether you can do certain things with your property. This is something you don't want to discover at the signing.
Good luck with this. The first home you buy is a special thing. It's in a class by itself.
posted by mule98J at 1:17 PM on November 30, 2013
I used the calculators to display various options: down payment, interest, and so on, so that when it came time to analyze a prospective contract we would at least have the terminology and its curves on familiar ground. This didn't stop pencil and paper work later on, but it really helped us, especially when the prices were at the high end of our budget.
I found that high-price pockets exist in various places (here in Oregon). We needed to buy our home in one of the spendy areas for reasons that had to do with RedBud's family, so the home we finally got was a bit less than one we might have gotten for the same price 50 miles upstream, toward Roseburg. My pony would have been for RedBud's family to be based on Maui or someplace, but you have to work with what you have.
In our case, we both had good credit ratings (810/830), so the interest was easy enough to bargain for. I waited until, A) I had a substantial down payment, and, B) enough money in reserve to do to our new house what you have to do to any major investment of this type, namely make certain modifications.
Taking this approach gave us enough flexibility that we got a good view in a quiet area at the edge of a small town. I was able to landscape the yard, put a roof on the deck, and finish the garage to accommodate RedBud's workshop.
I realize your situation, though similar to ours in some ways, has its own numbers and location requirements. But the system we used was valid, and the deal we got was the best we could do with what we had to work with. Also, the loan officer I used was a colleague of my sister-in-law, who is a real estate agent. This didn't save us any of the commissions involved, but we were able to assume that the loan officer was giving us his best advice. This was important to me. Also, he showed up at the closing and signing ceremony. This is a big deal. The stack of paperwork you will go through is enormous, and it's nice to know the guy who puts you at the table with a pen in your hand has been candid about what you will have to pay, and what you will get for it.
Our case had this profile: we signed a mortage of just under $200K dollars. I bought down the points with a $40k down payment. I had the option to use a VA loan, with no down payment, but I got a good enough rate (4.5%) so that I used a private lender. In my case, I didn't haggle on the seller's asking price. It turned out that I could get a better deal by buying down the points and having the seller assume most of the negotiable fees. As I remember it, aside from the down payment, I had to bring about $3K to the signing. I folded the property taxes and insurance into the escrow payments. This added only pennies to our monthly payments, on a 20-yr contract. Our house is a modular house, so we weren't able to get a 30-year contract.
When we moved in, I put another $27K into the house in various modifications. I guess about half that was really needed, and the rest was candy (hot-tub hookup, front porch roof, back porch roof, and so on. I did most of the landscaping myself, hiring out to a yard-service to scalp the lawn and make a couple of mounds, which I hooked up to our drip system. The original system watered a front and back lawn with sprinklers, which, over the period of two years, I replaced with various drip lines, that serviced a few bushes and other yard plants in the front yard, and the greenery associated with the rock garden I put I the back yard. I used my pickup truck to puissant rocks that I got from various places, and had some of the tonnage delivered when I could get a good deal from a local quarrier. Eventually about 40 tons of rock made its way into the yards. I like rocks. When I say "I" naturally I mean RedBud and me. I got the outside of the house as my projects, she got the inside. Still does.
You may not want to do such extensive work right away, but I'm sure you'll find that several thousand dollars' work on your new home will come in handy. You may need to revamp the central heating, or some other thing that has come to the end of its service life, but didn't notice.
I mention all this to emphasize that owning isn't renting, and you are free to lower the value of your property by any amount you please, as long as you don't move into an area with zones that make your neat ideas unwelcome. This item (zoning) may turn out to be not trivial. Some sub-divisions have owners' counsels of various sorts, and they can tell you which and whether you can do certain things with your property. This is something you don't want to discover at the signing.
Good luck with this. The first home you buy is a special thing. It's in a class by itself.
posted by mule98J at 1:17 PM on November 30, 2013
My finance and I just bought a house (like, we closed on Wednesday). Its our first home purchase. I bought the NOLA Press book "Buying a House in California" and it was very helpful. Here are some of the things we did that made us feel comfortable doing this:
1. We visited a financial advisor a few months ago. We outlined our respective finances and he gave us some numbers to consider as to what we could afford.
2. We had 20% down. For us, that was a dealbreaker and set the limit of how much we wanted to spend.
3. We can afford the house in my income alone (and plan to live on that for a little while at least). We can afford the house on about 75% of my income if he can make up the other 25%.
4. He has no debt. The only debt I have is a car loan, which I got more than a year ago. I did have significant debt but paid the last of it off early this year. We both have excellent credit ratings.
5. In addition to the downpayment, we had about another $25,000 in savings to work with.
6. We made up a sample budget that included things we wouldn't otherwise thing about paying for: garbage service, homeowner's insurance, HOA fees (we were considering condos, which we ended up buying), property taxes, etc.
7. We talked. A lot. Endlessly and with full disclosure about absolutely everything we could think of to ensure we were on the same page with the big stuff and the little things that start little but turn annoying when you're on the hook to pay for it.
In the end, we've bought a great place for us and we think that we did it at the right time FOR US: our finances are stable, the market in our location has started to come back but hasn't peaked yet, it's a place we really really want to live in (both the house and the location), and interest rates are really good.
And while everyone tells you it's more expensive than you think, with all these additional costs you don't think about: it's SO TRUE OH MY GOD. We were prepared, we have our buffer but... thousands of dollars just float out of your hands and while you know where they're going its still a SHOCKING thing to happen in such a short period of time.
posted by marylynn at 7:15 PM on November 30, 2013
1. We visited a financial advisor a few months ago. We outlined our respective finances and he gave us some numbers to consider as to what we could afford.
2. We had 20% down. For us, that was a dealbreaker and set the limit of how much we wanted to spend.
3. We can afford the house in my income alone (and plan to live on that for a little while at least). We can afford the house on about 75% of my income if he can make up the other 25%.
4. He has no debt. The only debt I have is a car loan, which I got more than a year ago. I did have significant debt but paid the last of it off early this year. We both have excellent credit ratings.
5. In addition to the downpayment, we had about another $25,000 in savings to work with.
6. We made up a sample budget that included things we wouldn't otherwise thing about paying for: garbage service, homeowner's insurance, HOA fees (we were considering condos, which we ended up buying), property taxes, etc.
7. We talked. A lot. Endlessly and with full disclosure about absolutely everything we could think of to ensure we were on the same page with the big stuff and the little things that start little but turn annoying when you're on the hook to pay for it.
In the end, we've bought a great place for us and we think that we did it at the right time FOR US: our finances are stable, the market in our location has started to come back but hasn't peaked yet, it's a place we really really want to live in (both the house and the location), and interest rates are really good.
And while everyone tells you it's more expensive than you think, with all these additional costs you don't think about: it's SO TRUE OH MY GOD. We were prepared, we have our buffer but... thousands of dollars just float out of your hands and while you know where they're going its still a SHOCKING thing to happen in such a short period of time.
posted by marylynn at 7:15 PM on November 30, 2013
This thread is closed to new comments.
I'm pretty conservative financially, so maybe I'm going to be an outlier here, but personally I would not buy a house if I couldn't cover these types of repair costs comfortably.
posted by primethyme at 3:37 PM on November 29, 2013