Home purchasing timeline
September 22, 2020 11:15 AM Subscribe
I'm considering buying a home while interest rates are low. I have snowflake questions.
I would qualify for a USDA loan so that's what I'm trying to use. I would be a first time homebuyer and would be doing the 0% down payment even though that isn't ideal from a financial standpoint that's what I have to work woth. So, how does this work? Do you get a lender who facilitates USDA loans to pre-approve before you look at houses in your target area? How early before finding the home can you get the pre-approval (aka how long does a pre-approval last)? Who do I speak to about what is necessary to only use my income/credit and not my spouse's in the purchasing process? How do you know which lender is good? How do you manage the process if you live an hour from where you want to buy and it is also a different state?
Let's assume that in my case I decided buying is better than continuing to rent for various reasons and I have job stability so this is not a high risk proposition. I would appreciate any formulas you know for calculating how much house one can easily afford, factoring in insurance, property taxes, repair budgeting etc. I do not want to borrow what I will be approved for as I don't want to end up house poor.
I would qualify for a USDA loan so that's what I'm trying to use. I would be a first time homebuyer and would be doing the 0% down payment even though that isn't ideal from a financial standpoint that's what I have to work woth. So, how does this work? Do you get a lender who facilitates USDA loans to pre-approve before you look at houses in your target area? How early before finding the home can you get the pre-approval (aka how long does a pre-approval last)? Who do I speak to about what is necessary to only use my income/credit and not my spouse's in the purchasing process? How do you know which lender is good? How do you manage the process if you live an hour from where you want to buy and it is also a different state?
Let's assume that in my case I decided buying is better than continuing to rent for various reasons and I have job stability so this is not a high risk proposition. I would appreciate any formulas you know for calculating how much house one can easily afford, factoring in insurance, property taxes, repair budgeting etc. I do not want to borrow what I will be approved for as I don't want to end up house poor.
Do you get a lender who facilitates USDA loans to pre-approve before you look at houses in your target area?
You can look at as many houses as you want without pre-approval. It's fairly common to do so. You can even submit an offer without pre-approval, but it would likely be put at the bottom of the pile of any offers received by the seller. Pre-approval is generally considered a requirement for a competitive offer.
How early before finding the home can you get the pre-approval (aka how long does a pre-approval last)?
60-90 days is common. Getting a new pre-approval as you approach the end of that timeline is quite easy. Assuming you make no substantive changes to your credit or your job, usually you can just ask for one from your lender's agent and they'll give you a new one with a revised timeline.
Who do I speak to about what is necessary to only use my income/credit and not my spouse's in the purchasing process?
When you fill out a loan application, just include your income/credit and indicate to the lender that your spouse is not a co-borrower. This is common - I have a similar arrangement on my mortgage. You can put your spouse on the deed whether or not your spouse is a co-lender. If you do not put your spouse on the deed, the house is still marital property and subject to division in a potential future divorce.
How do you know which lender is good?
Define "good". Lenders are in the business of funding loans and tend to do so efficiently in order to get paid. Really, the biggest variance is the amount of hand-holding you get and the interest rate provided. The two are usually connected - higher interest rates will get you more hand-holding and quicker service. You should assume your lender will resell your loan to Fannie Mae and Freddie Mac. So, once the loan is funded, your contact with the lender will stop (for better or worse) and you will deal with a third party loan servicer in the future.
I suggest going to a local credit union for a first purchase - they tend to be a nice middle ground between lowest interest rates/no hand holding and full service banks. After the purchase is complete, consider immediately refinancing to a lower rate. Refinances can be done on any timeline, whereas purchases need to be complete quickly for the purchase to happen. So, having somewhat better than minimum service for a purchase is generally a good idea.
How do you manage the process if you live an hour from where you want to buy and it is also a different state?
It's basically the same as buying in-state except with additional travel time to visit the house you want. Other than closing, you can basically do a complete home purchase from anywhere in the country. Depending on the bank you get a mortgage from, you may need to close the mortgage in the state you're purchasing from. However, many banks are able to close mortgages in other states. Buying out of state is common.
I am hoping rates will continue to fall over the winter, but USDA rates never get too high IIRC
USDA mortgages are simply mortgages insured/guaranteed by the government. The interest rates for them is more or less tied to conventional mortgage rates. So, if mortgage rates go down, USDA rates will also go down. If mortgage rates go up, USDA rates will go up.
posted by saeculorum at 11:34 AM on September 22, 2020 [5 favorites]
You can look at as many houses as you want without pre-approval. It's fairly common to do so. You can even submit an offer without pre-approval, but it would likely be put at the bottom of the pile of any offers received by the seller. Pre-approval is generally considered a requirement for a competitive offer.
How early before finding the home can you get the pre-approval (aka how long does a pre-approval last)?
60-90 days is common. Getting a new pre-approval as you approach the end of that timeline is quite easy. Assuming you make no substantive changes to your credit or your job, usually you can just ask for one from your lender's agent and they'll give you a new one with a revised timeline.
Who do I speak to about what is necessary to only use my income/credit and not my spouse's in the purchasing process?
When you fill out a loan application, just include your income/credit and indicate to the lender that your spouse is not a co-borrower. This is common - I have a similar arrangement on my mortgage. You can put your spouse on the deed whether or not your spouse is a co-lender. If you do not put your spouse on the deed, the house is still marital property and subject to division in a potential future divorce.
How do you know which lender is good?
Define "good". Lenders are in the business of funding loans and tend to do so efficiently in order to get paid. Really, the biggest variance is the amount of hand-holding you get and the interest rate provided. The two are usually connected - higher interest rates will get you more hand-holding and quicker service. You should assume your lender will resell your loan to Fannie Mae and Freddie Mac. So, once the loan is funded, your contact with the lender will stop (for better or worse) and you will deal with a third party loan servicer in the future.
I suggest going to a local credit union for a first purchase - they tend to be a nice middle ground between lowest interest rates/no hand holding and full service banks. After the purchase is complete, consider immediately refinancing to a lower rate. Refinances can be done on any timeline, whereas purchases need to be complete quickly for the purchase to happen. So, having somewhat better than minimum service for a purchase is generally a good idea.
How do you manage the process if you live an hour from where you want to buy and it is also a different state?
It's basically the same as buying in-state except with additional travel time to visit the house you want. Other than closing, you can basically do a complete home purchase from anywhere in the country. Depending on the bank you get a mortgage from, you may need to close the mortgage in the state you're purchasing from. However, many banks are able to close mortgages in other states. Buying out of state is common.
I am hoping rates will continue to fall over the winter, but USDA rates never get too high IIRC
USDA mortgages are simply mortgages insured/guaranteed by the government. The interest rates for them is more or less tied to conventional mortgage rates. So, if mortgage rates go down, USDA rates will also go down. If mortgage rates go up, USDA rates will go up.
posted by saeculorum at 11:34 AM on September 22, 2020 [5 favorites]
Some of this stuff you can learn from a first time home-buyer course and I believe they are also a requirement of the USDA loan. These are going to be very locality specific, so you'd need to search for courses held in the state you want to buy in. (For example, my credit union had free homebuying courses I could sign up and take- it was 2 hours in an evening, and held every month- I attended one 3 years before I even considered buying, but it helped answer some basic questions that I had specific to the housing market I was considering buying in. )
Pre-qualification is non binding, and basically it just shows that you've spoken to a bank. Pre-approval is a more involved credit and income check, and usually includes a rate lock for about 60 days (again depends on bank).
As to lenders, I started with my local credit union, but ultimately got a better mortgage rate with a Big Bank- the cost savings over 30 years were worth it in my case.
As to your questions about buying only with your own income/name on the deed, it's definitely possible. You will need to decide if you want the title of the property, the mortgage and insurance only under one name (or both), and how local law applies to the situation (common law vs not). Again local laws will somewhat guide you towards what is advisable to do.
"the house is still marital property and subject to division in a potential future divorce. " This is actually subject to local law, and if you include your spouse on the deed or not. Keep in mind that different states have vastly different rules here, so it really behooves you you check what holds up in local court.
Good luck!
posted by larthegreat at 11:42 AM on September 22, 2020
Pre-qualification is non binding, and basically it just shows that you've spoken to a bank. Pre-approval is a more involved credit and income check, and usually includes a rate lock for about 60 days (again depends on bank).
As to lenders, I started with my local credit union, but ultimately got a better mortgage rate with a Big Bank- the cost savings over 30 years were worth it in my case.
As to your questions about buying only with your own income/name on the deed, it's definitely possible. You will need to decide if you want the title of the property, the mortgage and insurance only under one name (or both), and how local law applies to the situation (common law vs not). Again local laws will somewhat guide you towards what is advisable to do.
"the house is still marital property and subject to division in a potential future divorce. " This is actually subject to local law, and if you include your spouse on the deed or not. Keep in mind that different states have vastly different rules here, so it really behooves you you check what holds up in local court.
Good luck!
posted by larthegreat at 11:42 AM on September 22, 2020
would be a first time homebuyer and would be doing the 0% down payment even though that isn't ideal from a financial standpoint that's what I have to work with
Please do not think this way. It may mentally put you in a position to buy a house that is less (because you don't have downpayment) or more (to feel more fancy) that you need, depending on how you are looking at it psychologically.
There is nothing particularly special about down payments for housing, it's more a economic class indicator than anything else and specifically meant to keep lower classes from owning property.
How do you know which lender is good?
A good lender will quote you a rate you are actually going to get (not hidden in nonsense like points - not that there is anything wrong with points, but some use points to make their rate seem better than one without them), and won't continually ask for the same paper work.
posted by The_Vegetables at 12:29 PM on September 22, 2020 [3 favorites]
Please do not think this way. It may mentally put you in a position to buy a house that is less (because you don't have downpayment) or more (to feel more fancy) that you need, depending on how you are looking at it psychologically.
There is nothing particularly special about down payments for housing, it's more a economic class indicator than anything else and specifically meant to keep lower classes from owning property.
How do you know which lender is good?
A good lender will quote you a rate you are actually going to get (not hidden in nonsense like points - not that there is anything wrong with points, but some use points to make their rate seem better than one without them), and won't continually ask for the same paper work.
posted by The_Vegetables at 12:29 PM on September 22, 2020 [3 favorites]
I would get in touch with your local USDA Rural Development office to start. They can do an eligibility assessment and put you in touch with lenders - you may be able to find one who operates both in your current and target area. It is a bit of a specialty product so you’ll definitely want to find a lender who knows it well.
USDA does have more stringent property requirements than other programs, so it’s a good idea to work with them and a knowledgeable lender before you commit to a specific property.
Something else to keep in mind- the process will be slower than a conventional mortgage. It’s definitelynot too soon to start if you are thinking about a January closing.
posted by tinymojo at 12:30 PM on September 22, 2020 [5 favorites]
USDA does have more stringent property requirements than other programs, so it’s a good idea to work with them and a knowledgeable lender before you commit to a specific property.
Something else to keep in mind- the process will be slower than a conventional mortgage. It’s definitelynot too soon to start if you are thinking about a January closing.
posted by tinymojo at 12:30 PM on September 22, 2020 [5 favorites]
I bought a house in June with a conventional loan.
My out of pocket costs (excluding down payment)--closing costs, attorney fee, etc--was almost exactly 5% of my home price, within literally a couple hundred bucks. Online calculators estimate 3-6% as a national average. I am in Chicago and my closing costs were exactly 5%. If you have $0 for a down payment, you need to deeply internalize this. The process of buying a house is expensive beyond the actual cost of the house. You need to have at least 5% of your home budget in cash on hand.
There is nothing particularly special about down payments for housing.
For whatever it's worth as a data point, there were multiple bids on the house I bought, and I wasn't able to outbid the highest bid. But I was coming in with a conventional loan and the other guy was coming in with an FHA loan, and the sellers sold to me figuring I was the healthier borrower and would be more likely to make it to close. It was the deciding factor.
posted by phunniemee at 12:49 PM on September 22, 2020 [9 favorites]
My out of pocket costs (excluding down payment)--closing costs, attorney fee, etc--was almost exactly 5% of my home price, within literally a couple hundred bucks. Online calculators estimate 3-6% as a national average. I am in Chicago and my closing costs were exactly 5%. If you have $0 for a down payment, you need to deeply internalize this. The process of buying a house is expensive beyond the actual cost of the house. You need to have at least 5% of your home budget in cash on hand.
There is nothing particularly special about down payments for housing.
For whatever it's worth as a data point, there were multiple bids on the house I bought, and I wasn't able to outbid the highest bid. But I was coming in with a conventional loan and the other guy was coming in with an FHA loan, and the sellers sold to me figuring I was the healthier borrower and would be more likely to make it to close. It was the deciding factor.
posted by phunniemee at 12:49 PM on September 22, 2020 [9 favorites]
I suspect pre-approval requirements may vary a lot with region. When buying three condos in large cities in the industrial midwest, no agent would even talk to us without a pre-approval with a specific figure in writing. I'd suggest finding an agent you like and asking them for advice.
All lenders are awful. But, they'll sell your mortgage to a random third party within a few months, so it doesn't really matter who you choose except for the infuriating phone calls before you buy. Expect total incompetence, innumeracy, and dumb lies. (Unless you're lucky enough to be a member of a credit union that offers financing in region in which you want to buy.)
posted by eotvos at 1:17 PM on September 22, 2020
All lenders are awful. But, they'll sell your mortgage to a random third party within a few months, so it doesn't really matter who you choose except for the infuriating phone calls before you buy. Expect total incompetence, innumeracy, and dumb lies. (Unless you're lucky enough to be a member of a credit union that offers financing in region in which you want to buy.)
posted by eotvos at 1:17 PM on September 22, 2020
Dave Ramsey, my go-to guy for these matters, says you should spend no more than 25% of your net monthly income on mortgage and house-related expenses - and that's on a 15-year loan. Don't let the banks and real estate agents tell you that you can afford more. You may qualify on paper, but the payments will make you miserable and leave no room for wiggle in your budget. Go take a look at daveramsey.com and you can get a good education on how to plan for this.
posted by summerstorm at 6:47 PM on September 22, 2020
posted by summerstorm at 6:47 PM on September 22, 2020
I just bought a house and my advice is to make sure you have plenty of cash for what may seem like incidentals. Our house was in very good repair and above and beyond mortgage, taxes, insurance, and assorted closing costs, we still had to pay thousands for things like the inspections (plural—the main inspector found issues she couldn’t confirm the extent of and told us to get a plumber and electrician in to look as well), subsequent minor repairs, movers for our furniture, a moving truck for the boxes we moved ourselves, chimney cleaning/inspection, and all the yard care stuff like mower, tools, ladder, etc to take care of our yard. We had to get some additional furniture too since our house is bigger than our apartment, although this was mostly done on the cheap via Craigslist.
Also, take your time getting the financials in order before starting to look at houses. YMMV depending on the market, but the process moved crazy fast for us and we had to make decisions about our bidding strategy, earnest money, and contingencies in the span of an afternoon. We went from having seen our house for the first time to owning it in about 7 hours total and barely had time to think, let alone do additional financial homework. In my area, you can look up property taxes and average utility costs online. Some of this info should be on the house listing; pay attention to it and work out the combined monthly cost. We knew but it still felt like sticker shock when looking at the total number.
Do you have a realtor to work with? I very much appreciated ours, as she was able to give good advice and walk us through the process and answer questions like these.
posted by music for skeletons at 8:56 PM on September 22, 2020
Also, take your time getting the financials in order before starting to look at houses. YMMV depending on the market, but the process moved crazy fast for us and we had to make decisions about our bidding strategy, earnest money, and contingencies in the span of an afternoon. We went from having seen our house for the first time to owning it in about 7 hours total and barely had time to think, let alone do additional financial homework. In my area, you can look up property taxes and average utility costs online. Some of this info should be on the house listing; pay attention to it and work out the combined monthly cost. We knew but it still felt like sticker shock when looking at the total number.
Do you have a realtor to work with? I very much appreciated ours, as she was able to give good advice and walk us through the process and answer questions like these.
posted by music for skeletons at 8:56 PM on September 22, 2020
There is nothing particularly special about down payments for housing, it's more a economic class indicator than anything else and specifically meant to keep lower classes from owning property.
Unless I am wildly misunderstanding things, a higher downpayment decreases the likelihood that if house prices fall you will owe more on your mortgage than the house is worth. It may be a good bet to buy a house with a 0% downpayment but that depends very much on the facts of the case.
Useful rules of thumb are no more than 28% of your income on your mortgage, or no more than 33% of your income on mortgage, tax and insurance. 1% of purchase price per year on repairs and maintenance (on top of anything that needs doing when you buy it). Another rule of thumb that I like is that your mortgage payment should be less than you'd get for renting it out.
And always have cash/savings to deal with the inevitable thing that will go wrong in the first year with the heating/plumbing/electrics or whatever. For us, it was the drains which was an unpleasantness that I was grateful to have the money to get fixed promptly.
posted by plonkee at 11:16 AM on September 23, 2020 [1 favorite]
Unless I am wildly misunderstanding things, a higher downpayment decreases the likelihood that if house prices fall you will owe more on your mortgage than the house is worth. It may be a good bet to buy a house with a 0% downpayment but that depends very much on the facts of the case.
Useful rules of thumb are no more than 28% of your income on your mortgage, or no more than 33% of your income on mortgage, tax and insurance. 1% of purchase price per year on repairs and maintenance (on top of anything that needs doing when you buy it). Another rule of thumb that I like is that your mortgage payment should be less than you'd get for renting it out.
And always have cash/savings to deal with the inevitable thing that will go wrong in the first year with the heating/plumbing/electrics or whatever. For us, it was the drains which was an unpleasantness that I was grateful to have the money to get fixed promptly.
posted by plonkee at 11:16 AM on September 23, 2020 [1 favorite]
You say that your lease is up in January but buying a house will take a while so you should start soon. The closing process (once your offer is accepted!) can take a while; the average is 46 days and the USDA loan will probably slow things down a little as well. Actually finding the house which matches your needs will take a while; if the market is at all hot you may find that you will need to put in offers on multiple houses to get accepted.
In short, get started soon. Even better, see if you can flip your lease to month-to-month once it completes and that way you won't have to tie your house purchase timing to your current living arrangements.
posted by bsdfish at 10:33 PM on September 23, 2020
In short, get started soon. Even better, see if you can flip your lease to month-to-month once it completes and that way you won't have to tie your house purchase timing to your current living arrangements.
posted by bsdfish at 10:33 PM on September 23, 2020
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posted by crunchy potato at 11:25 AM on September 22, 2020