Mortgage advice for a young couple in Houston
August 22, 2013 8:13 AM   Subscribe

I married my wife this spring, and we're ready to get out of an apartment and into a house or townhouse. We're going to talk to some mortgage broker she found online today, and I'm not really sure what I'm supposed to do. I've printed out all the forms they've asked for, but I have no clue what questions I should be asking. Our communications with the guy we're seeing have been great and he seems helpful, but I'd love to hear your mortgage advice/stories. Also, if any Houstonians have specific recommendations I'd love to hear them as well.

Also any previous threads along this line would be cool, when I searched for mortgage stuff most of the results were people with problems with their existing mortgages.
posted by DynamiteToast to Work & Money (14 answers total) 3 users marked this as a favorite
It's important for you to know the ratio of your after-tax monthly income to mortgage payments. Generally you want a ratio of 3:1 or higher. For example, if your monthly after-tax cash flow is $10,000 (before any expenses) you should comfortably be able to service a mortgage of $3,333 or lower. Make sure you deduct from your monthly after-tax income any other debt you have.

It's also important to understand the various types of mortgages (fixed rate versus adjustable rate, etc.)

Were I you I would also become familiar with loan amortization tables and prepayment penalties. There is a lot of information online about these things.

The mortgage industry is full of jargon. Depending on your broker's abilities, he will either be able to explain this jargon to you or not; if he uses the jargon without being able to explain it to you, write down the terms that he uses which you do not understand and verify that you understand them by googling them.
posted by dfriedman at 8:17 AM on August 22, 2013 [1 favorite]

Oh the other thing to consider is that you need to understand for whom the mortgage broker is working. Does he owe a fiduciary duty to you or to the lenders whose mortgages he is selling? I am not sure of the answer to that question, but that could color the advice he's giving you. In an ideal world, a mortgage broker would be looking out for the interests of the person to whom he is selling a mortgage, not the company who is lending the money. But that may not be the case.

It is likely helpful to retain the services of an attorney who can advise you on the nature of your relationship to the mortgage broker, which nature should be explained in whatever services agreement you sign with the mortgage broker.
posted by dfriedman at 8:23 AM on August 22, 2013 [1 favorite]

Look into every possible option for first-time homebuyers. There may be great incentive programs in your area.

Is there a local Housing Authority or the like? Sometimes these places offer first-time homebuyer classes and even very low-interest loans toward downpayment assistance. Even if you don't think you qualify or need such things, go to the workshops and consider the loans to augment what you already have. I did this a long time ago in another state and got $10k at 3% to add to my savings. May not sound like a fab rate now, but when you consider that my mortgage was at 6% it really made a difference.

Good luck and enjoy the process!
posted by AnOrigamiLife at 8:25 AM on August 22, 2013 [1 favorite]

I don't have anything too specific -- but I am in Austin and our mortgage person was amazing. She stays in touch with her clients and does a lot of education and follow-up communication. Her site has some FAQs that might be useful.
posted by pantarei70 at 8:37 AM on August 22, 2013 [1 favorite]

This book is great:
100 Questions Every First-Time Home Buyer Should Ask

However, it has not been updated since the 2008 crash, which might make many of its specific recommendations about mortgages outdated. Nonetheless, its advice about the process, and about other aspects of buying (negotiating with an agent, negotiating an offer, getting an inspection) are very good and still highly relevant.
posted by OrangeDisk at 8:57 AM on August 22, 2013 [3 favorites]

Use rate calculating sites (e.g.)to take a look at what the prevailing rates are, and see if you can use those to leverage down your rate, especially if you have good credit. We used this approach and had good results with it a year or so ago.

Mortgage companies and services are nearly fungible; I wouldn't spend a ton of time considering anything but your bottom-line prices: the amount you need to fork over at closing, the amount you're paying every month, and the total price you will end up paying for the property under the mortgage.

In my experience a lot of brokers were trying to push ARMs hard; if you haven't done your research on those yet, I'd start there. The short version is that they can be good for some situations, but if you might be in your home for a while there are probably better options. If the mortgage you're looking at has any adjustability in the rate, make sure you understand what best-case and worst-case scenarios can look like if the rate goes up (which it likely will, if it's possible).
posted by craven_morhead at 8:57 AM on August 22, 2013

I would go into the meeting with the expectation that this is not the only mortgage broker you will ever meet with, this will just be the first. So ask every single stupid (hint: they're not stupid) question you can possibly think of and use this as an opportunity to learn. Then when you are dealing with other mortgage brokers in the future you won't feel at the disadvantage you're feeling right now. And if it turns out that after talking to another broker or two that he's the one you'd like to work with, then, great. Call him back and work with him.

But here are some things to think about before your meeting:

1. There is a difference between how much you can afford to spend on housing and how much banks are willing to lend to you. This typically tilts toward the bank being willing to lend you more than you really should be paying, so if the broker mentions things like "x% of your monthly income," keep in mind that that should probably be well above what you are going to spend on your mortgage anyway. (There are some circumstances where this maybe isn't true, but just consider avoiding an automatic association between what the banks are willing to lend you and how much your housing payment should be).

2. Don't feel pressure to buy right away if the broker tells you interest rates are rising. They may rise or they may not rise, and the list of people who made a really terrific decision to rush to purchase a home to avoid rising interest rates is probably short, but the list of people who made a not so great decision to rush to buy a home to avoid rising interest rates is long.

3. This is just my two cents, but only talk to the broker about 30 year fixed rate mortgages. Don't talk about other products (ARMs primarily, or even 15 year mortgages). One reason to do this is because it will be easier to compare apples to apples. But another reason to do this is because ARMs are good for three situations--(a) when you won't be in your house long or (b) when you are betting that interest rates will go down in the future or (c) when you can't afford a high monthly payment now, and expect your income to rise later so you can cover it. I'm just giving my own opinion here, but these really, really, really are not situations where it's a fantastic idea for people to purchase houses. The chance of it going horribly wrong gets a lot higher when you're in one of these situations.
posted by MoonOrb at 8:59 AM on August 22, 2013 [2 favorites]

Just because you meet with him, it doesn't mean you have to do business with him. A mortgage is an ephemeral thing. You'll work with one particular person and institution through the purchasing process, but after your loan closes, they'll probably sell it to a completely different institution. Also, if this guy doesn't want to teach you about the process, find someone who does.

Rates are going to be pretty standard across the board. They are what they are. Some institutions may have incentives, etc. But if the prevailing rate is 4%, that's what it is.

You are going to want either a 30-year fixed rate mortgage or a 15-year fixed rate mortgage. Adjustible rates, when rates are going up, are not a good idea. Neither are interest-only loans.

Only buy a house if you think you'll be in it for at least 10 years.

I know this goes against the experiences your friends and parents may have had in the past, but this is the new housing market. Welcome!

Mortgages are front-loaded in interest payments. Which means for the first 5 years or so the bulk of your mortgage payments will be straight interest, with very little going to the principle to pay down the mortgage. So if you have a $100,000 mortgage with 4.0% interest on a 30 year mortgage, you'll pay $475 in Principle and Interest (this does not include escrow, Private Mortgage Insurance payments, Taxes and Insurance). After 5 years, you will have paid, $28,500 total and you'll only have paid down $9,729 of the total $100,000 mortgage.

If you don't put 20% down on the home, you'll pay Private Mortage Insuarance. On a $100,000 loan expect to pay about $75 to $100 per month for this. Then find out what the tax rate is in your area, you'll pay that into your mortgage as well. Ditto your homeowners.

Being in Houston, I'd be SUPER concerned with the cost of homeowners insurance, especially wind and flood insurance. After Hurricane Andrew hit Miami, it was nearly impossible to get homeowners insurance in South Florida. I had to go through a state agency that was underfunded, and the cost was high. Talk to your insurance agent.

Now, I'll tell you what I tell ALL prospective home buyers. You will pay MORE owning a home, not less. If you're okay with that, only buy a home if you can tick the following boxes.

1. Can pay 20% or more in down-payment to avoid PMI.
2. Can pay closing costs, which are typically 3% of the total loan cost.
3. You have a 6-month emergency fund, in case someone gets hurt or loses a job.
4. You have about $10,000 in a "shit gonna break" fund, because trust me, shit gonna break.
5. You have $1,000 for a FANTASTIC inspection that includes, mold, radon, a camera down your pipes (I've replaced the sewer line twice, don't skip this) and an infra-red camera to detect heat/cold loss around doors and windows. Hell, get the door-blower test!
6. Have an arborist check your trees. We paid $5,500 to take down dead trees. Glad we did, because I personally know two people who had trees fall and destroy their houses in the past 3 years. I had a neighbors 60 ft pine crash through my backyard. I had a tree limb destroy the front end of my car at work. TREES ARE KILLERS!
7. Have an inspection on a brand new house too. I've done it and both times they found stuff that needed to be fixed.

Don't let the fact that the seller will buy you a 12-month warranty soothe you out of a good inspection. It's nice, but it doesn't guarantee a damn thing and it won't buy you a brand new HVAC system if your 20 year old system dies.

Plan to spend your weekends doing stuff around the house. A lot of stuff.

Good luck to you!
posted by Ruthless Bunny at 9:11 AM on August 22, 2013 [7 favorites]

Here's some credit union propaganda for you to consider.

I recently purchased a house and I shopped around for a mortgage. For the exact same type of mortgage, the closing costs & fees at my local credit union were half what it cost with a mortgage broker. HALF. I am very much in favor of talking with someone at a credit union if there is a good one nearby.

Another thing to realize is that mortgages are bought and sold all the time, which means that the company you deal with to actually make the payments can change - it can change multiple times. Look around ask metafilter a bit and you will find lots of nightmare stories of things going wrong when a mortgage or mortgage processing switches to a new company. My credit union keeps mortgages it makes in house and services them itself. One fewer thing to worry about for me.

Aggressive mortgage brokers and banks will want to get as much financial information from you as possible right at the beginning of the process. You don't have to give it to them. I have more than one friend who had a bank or mortgage broker take money from their checking account for various fees (appraisal or credit check) without authorization. If the person you're talking to doesn't have all your account information, this can't happen.
posted by medusa at 9:45 AM on August 22, 2013 [3 favorites]

I highly recommend speaking directly to a few mortgage departments at local credit unions. Mortgage brokers are working for themselves, and they make money off of you. You are not likely to get the very best deal from them, particularly as a first time home buyer. We went through a mortgage broker when we bought our first home, and I regret it. It ended up costing several thousand dollars over what a credit union would have cost. Even if you end up keeping your appointment DO NOT under any circumstances sign ANYTHING saying that you will definitely go with them. Listen to what they say, and say you will think about it. Don't let them pressure you into making a choice. Go to a credit union and listen to what they have to say, and do your own shopping. The mortgage broker will get you an "ok" mortgage that puts the most money in their own pocket.
posted by stoneweaver at 9:53 AM on August 22, 2013 [1 favorite]

I am a Houstonian, and I used to do mortgage loans. However, it has been 20 years.

Two areas that come to mind are flood insurance and foundation repairs. There are new flood maps that are in the works, and you might get a surprise when your lender requires flood insurance. The surprise is that flood rates are set to increase a lot. If your broker knows how to get the true insurance picture for the homes you are looking for, in advance, this would be helpful.

As you know, Houston soils are mobile, and the drought has been messing with foundations. You may be asked to prove that the house you are buying is stable, or has been fixed (and guaranteed), or will be fixed as part of the purchase deal. This can be quite stressful, both for you and the seller, so find out how to prevent the hassle by asking about it.

You will be asked to prove your income, your net worth, and show that your down payment is in hand. You will have to answer about quirks in your credit report. Depending on how long you have held your jobs, you may need to verify income for more than jsut the current one.

The more cash you have in the bank, the better. After you close on your new house, you will find that cash just flys out of the door as you get that house set the way you want it.

Good luck!
posted by Midnight Skulker at 10:12 AM on August 22, 2013 [1 favorite]

Get at least three quotes from three different companies. Make up a spreadsheet and enter all the info from the three companies, to make it easier to compare. This is what I did when I bought my house, and it brought to light some surprising differences between the companies.

Some of them had very confusing paperwork, and it was a giant pain to sort it all out and be able to compare apples to apples. I went with the one who had the most transparent paperwork, as well as the best rate: Stacy London, at Houston Capital Mortgage. [Email: slondon (at)] Everything went very smoothly, and everything was correct, to the penny. There were no surprises at signing. Ms. London is now listed on her card as Executive Vice President, so I don't know if she still deals directly with clients, but that's who I would start with.
posted by MexicanYenta at 12:09 PM on August 22, 2013

I would highly recommend using to shop around for mortgages. I used it for my first house. For my second (current) house, I used a company that had a discount program through my employer; it worked out in my favor.

n'thing a FIXED RATE mortgage. If you can afford the payments on a 15-year mortgage, you should do it. Most first-time buyers can't.

For my first house, I put down a HUGE down payment (close to 35%). I WILL NEVER MAKE THIS MISTAKE AGAIN. "Just" 20% is fine if you can afford it, but that's HARD, particularly for first-time home buyers. I bought in 2004, thinking I'd be in the area forever. Due to a job change, I had to move to a different state less than four years later. I put my house on the market in January 2008, just as the housing crisis was starting to ramp up. It didn't sell until April 2009 -- for $70,000 (!) less than what I paid for it (AND I had put in about $25,000 in improvements to the house too). During that year and a half, I was paying a mortgage payment AND rent. My homeowners' insurance company dropped me about 6 months in because the house was vacant (I didn't tell them that. Not sure how they found out). It is damn near impossible and expensive to get the insurance your mortgage company is going to require on a VACANT house -- I ended up paying about 4 times what I paid for insurance when I was living in the house.

I'm STILL recovering from the financial pain, and I'm currently still struggling (though the house isn't the only reason for that).

With my current house, I put in a much smaller (12%) down payment. So now I'm paying PMI, which in my opinion is a waste of money, but I couldn't pay 20%. I have an FHA mortgage. FHA mortgages only require a 3.5% down payment, and are far less stringent in terms of credit requirements. You may want to consider that option if you can't afford 20% down. Conventional mortgages with < 20% are much more expensive, though you'll be paying PMI in both cases. I qualified for a conventional mortgage, but the payments would have been about $800 (!) more per month.

Shop around. Contact at least three different mortgage companies or brokers. (If you use a broker, check them out first -- there are lots of scam artists out there.)

Once you're in the house, as a general rule, you only stand to benefit from a refinance if you can lower your interest rate by a full 1% or more -- otherwise the closing costs on the refi are likely to obliterate any money you would save on your monthly payments over the life of the loan.
posted by tckma at 1:05 PM on August 22, 2013 [1 favorite]

Thanks for all the advice guys, the meeting went well and he was very helpful, though we already were planning on meeting more people about it, and will go ahead with that now. I appreciate all the help from y'all.
posted by DynamiteToast at 6:28 AM on August 23, 2013

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