Learn me first time home buying

So, I'm looking to buy a house. Currently renting in the area and I've found a sweet prospect with a huge garage that my wife and I would both be happy with. What are the next steps? This place is well within our means so we should be able to put down 20% no problem. Where best to shop for a mortgage? What are the basic logistics here?

Did you do your pre-approval yet? Go to the bank and do that - they run your credit and do some calculations based on your savings, liabilities and income that you tell them. You'll need that piece of paper before making an offer. It doesn't really matter where you do this; you can shop for the mortgage elsewhere later.

Also, a lot of banks and credit unions have first time home buying seminars. It might be equal parts sales pitch and information session, but they're usually free and at least worth your time.

Is there a bank that you already deal with? Even just the bank where you have a checking account. Go talk to them. It really is as simple as that.

turtl631 wrote: Currently renting in the area and I've found a sweet prospect with a huge garage that my wife and I would both be happy with.

Be prepared to spend your time on house projects instead of in that garage.

I bank with ally which is online only.

ProDarwin wrote:

turtl631 wrote: Currently renting in the area and I've found a sweet prospect with a huge garage that my wife and I would both be happy with.

Be prepared to spend your time on house projects instead of in that garage.

Haha. This place at least is cheap enough we could afford to pay people to do most house projects. I'm sure it will be more than I expect though.

Shop around for a mortgage if you're not a member of a credit union or bank that's known for really low rates. There are some amazing deals out there, but usually not with the bigger names.

That said, for home buying the recommendation is usually to go find a local broker or bank, as it's easier to expedite or unstick the process if you're standing in front of them.

Some of the really big credit unions also have really good rates (PenFed comes to mind) and if you're paying on the loan for a looooong time, that makes a difference.

Also important - make sure you have a healthy cushion for closing costs, stuff that the home inspector overlooked and general unexpected costs that come with buying a home after raiding the savings for the downpayment.

If you can swing the payment comfortably, I'd also look at a 15 year mortgage. It'll lower your interest cost considerably plus I personally like the thought of owning the place sooner rather than later.

Oh, and even if you think you have already found the house of your dreams, if it's your first house get a good realtor to help you with the purchase. Too many possibilities to screw up if you try to DIY it. Please keep in mind I suggested a good realtor. Those aren't easy to find unfortunately, but they're worth their commission (which the seller tends to end up paying anyway).

Coming from the voice of experience, If you can't do the work yourself, avoid the project home. It will just keep sucking up your money. I've put almost 35K into my place over the last 9 years and I've still got another 45K easy to spend. It all adds up very quickly.

Lucky for me house prices have went up here and I can recover all of that and then some.

On the mortgage front, Don't forget the cost of taxes and insurance when you putting your budget together. It's easy to forget and it's not insignificant.

Another way to pay the loan off more quickly is bi-weekly payments. It's an additional payment a year and it helps reduce the mortgage to about 22 years.

ProDarwin wrote:

turtl631 wrote: Currently renting in the area and I've found a sweet prospect with a huge garage that my wife and I would both be happy with.

Be prepared to spend your time on house projects instead of in that garage.

you aint kiddin. That's the part of homeownership I wish someone had warned me about.

First time home buyer lets you qualify for various weird things, all the way down to the local level. But you've got to check to find them. Usually not well advertised.

Rates vary, shop them. The online checkers do work well to compare rates.

Don't set up a mortgage with payments so high you can barely make them. Leave yourself some room. You can always pay more towards principle, which is very effective.

Don't blow all your savings on a down payment. Repairs and improvements will come with the new home. Leave yourself money for this.

If you are a veteran, use the VA loan program.

Buy WAY less house than the bank approves you for. Banks are good at giving you enough rope to hang yourself with.

The 15 year mortgage is a good idea. An even better idea is the double payment on a 30 year (as if I had the money to afford this.....). As there is no prepayment penalty on paying off a mortgage early making double payments on a 30 year allows you to pay it off completely in just 6 years.

The tax credit on your mortgage interest is nice, talk to your accountant about it. If you don't have an accountant, get one.

If you don't have DIY skills around the house, this is a good time to learn. Hiring professionals to do all the jobs will get pricey.

Don't get a 15 yr. Don't make early payments. Invest your money elsewhere instead. You'll make a LOT more than you are saving given the rate of the loan.

If you are planning on paying people to do the work, ensure you know what its going to cost in advance. It may end up being a lot more expensive than you think. Also, even with other people doing the work, it is going to be a black-hole time-suck. Seriously. Be prepared for this.

KyAllroad wrote: Buy WAY less house than the bank approves you for. Banks are good at giving you enough rope to hang yourself with... ...An even better idea is the double payment on a 30 year (as if I had the money to afford this.....). As there is no prepayment penalty on paying off a mortgage early making double payments on a 30 year allows you to pay it off completely in just 6 years...

I did this with my first house and it was awesome and worked out as I moved from the area after 8 years. Not having to worry about selling the place when looking again was huge, as I didn't have to worry about 2 mortgages. I rent out the first place now, $1600 a month in my pocket for basically doing nothing is nice.

A good home inspector is worth his weight in gold. A bad one (lot of em out there) will lead you into house hell.

Foundations and water in the basement are the nightmare scenarios. Still asbestos and urea-formaldehyde insulation and aluminum wiring to be concerned about. Chinese drywall with a high sulfur content was a thing; eats your wiring.

Make sure that the garage is permitted. Else it could become your nightmare. For that matter, its worth checking city records to see what if any work was permitted on the place.

Your wife is going to discover she wants a new kitchen and bathrooms. It's like shoes; accept it and move on. Nothing to be won here.

Neighbors. You are a car guy. Wrong neighbor can make your life hell. Where is the garage in relation to the neighbors area and are there any city by-laws or covenants that are going to come into play?

Is it a flip? If so, be aware that everything you see is cheap E36 M3.

Lots of helpful comments!

Listed price is about 2/3 my gross annual income, definitely choosing to buy less than I could so the money can go elsewhere. I plan to do 20% down, 30 year and probably pay off quicker. I also have some decent student loans but it looks like everything is gonna end up around 4% when those are consolidated so I'll probably be trying to max out retirement savings and pay these off more slowly.

This particular house was owned by a family with kids who did a bunch of renovations, but they bought 8 years ago so wouldn't call it a flip. It doesn't appear to need any significant work done, but that's what an inspection is for. I would like to eventually finish the basement and some landscaping would be nice. 3BR 2BA (3.5 car garage!), quiet burb with decent schools. We saw it yesterday with a realtor. I don't want to get too attached to it since we're clearly just getting started here and someone else could easily buy in the meantime. Regardless, we're ready to buy so this will have been a great impetus to get started with things if nothing else.

www.bankrate.com

A 15yr mortgage will likely have a lower interest rate than a 30yr that you plan to pay off faster. So you will be paying for the flexibility or potential of paying the smaller monthly mortgage. Also check with the banks you are dealing with as they can choose to handle extra premium in different ways.

Plot the long-term trend of housing prices (average, median, high) in the area you are shopping. We bought based on short-term trends and in the end lost a ton of money when the market crashed (we are in one of worst spots for recovery in the country).

Only other suggestion is to set up a detailed budget with actual PITI and put in a home improvement / project line item. At 2/3 of annual income it should be no issue.

bankrate.com is a good starting point to shop around, just keep in mind that it doesn't list every available rate. You still need to do some additional shopping around.

Not all realtors are the same, there are good ones and bad ones. Same goes for mortgage originators. Don't put up with working with idiots. The overall cost at the end of the day may not be any different, but I can tell you if you work with idiots, you will spend a LOT of time fixing their mistakes and doing everything yourself - and then you will still pay them.

Definitely watch the taxes. You will be done paying mortgage after a time (6, 15, 30 years, etc), but taxes are forever. If the tax assessment is much different than the purchase price, then the first year you own the house is a GREAT time to officially contest the assessed value with the local govt. Like I said, if you bring the assessed value down, that saves you money on taxes forever.

KyAllroad wrote: Buy WAY less house than the bank approves you for. Banks are good at giving you enough rope to hang yourself with.

Let me add to that: Buy WAY less house than the bank approves you for. Banks are good at giving you enough rope to hang yourself with. Oh, and Buy WAY less house than the bank approves you for. Banks are good at giving you enough rope to hang yourself with. And another thing, Buy WAY less house than the bank approves you for. Banks are good at giving you enough rope to hang yourself with.

Three other things to consider:
1 Buy WAY less house than the bank approves you for. Banks are good at giving you enough rope to hang yourself with.
2 Buy WAY less house than the bank approves you for. Banks are good at giving you enough rope to hang yourself with.
3 Buy WAY less house than the bank approves you for. Banks are good at giving you enough rope to hang yourself with.

And finally, Buy WAY less house than the bank approves you for. Banks are good at giving you enough rope to hang yourself with.

And shop for mortgage rates. My first house was through a referral from a friend. A local guy who was a broker and got well below anything else out there. Ask friends and family where they got their mortgage from, many are not advertising. My second house was through a small local bank. They had a great program at the time. My current house was through a large bank chain (PNC) who waived a lot of fees and got me a great rate. My vacation home in the Caribbean...ok that's still a dream. But the point is to look around, a lot.

pinchvalve wrote: My vacation home in the Caribbean.

you're doing it wrong, always set that one up as your primary residence for tax and banking benefits.

I had a broker I liked, but he was a victim of the implosion. For my last refi, I just sorted bankrate by APR, sent a few emails to the top contenders, and one of them was on his game - emailing me back with information versus pitch in minutes not hours. Went with him.

Decide if you are buying houses to play the market or to live in.

I bought a house to live in and paid it off as soon as possible. People call me crazy because I could be investing the money with the criminals on wall street.

However, the value proposition to me is that I have a place to live if times go bad. I live quite well because I don't have a mortgage, but have the option of going turtle and pulling in if things went bad with job or economy. It's like an insurance policy for bad times that does not cost me anything.

The list of people that make money on houses are: real estate brokers, banks, Home Depot, Local Municipalities, home builders, insurance companies and lawyers. Notice that homeowners are not on that list.

Honestly, Home ownership is like rent control. You know what you are going to pay every month for the home.

Taxes on the other hand.....well, let's not talk about that. I just got my appraisal for 2015 and it jumped 17%. Luckily they cap it at a max 10% increase each year but it just means that it's almost guaranteed to be another 10% hike next year and probably the year after that too.

I took the different approach than NOHOME and although I have the money to pay my mortgage in full, I'd rather not. I keep my home home payments low, I have a 3.75% interest rate on a 30 year with about 60% equity now with the current market conditions, and my money is invested and earning good returns. Both approaches are good. It's just a matter of your tolerance for risk.

With the rates where they are though, going to a shorter term than 30 years may not be that good of a proposition. You can always pre-pay and pay it off more quickly but it gives you cash flow options.

ProDarwin wrote: Don't get a 15 yr. Don't make early payments. Invest your money elsewhere instead. You'll make a LOT more than you are saving given the rate of the loan. If you are planning on paying people to do the work, ensure you know what its going to cost in advance. It may end up being a lot more expensive than you think. Also, even with other people doing the work, it is going to be a black-hole time-suck. Seriously. Be prepared for this.

A 15 year is a recipe for being house poor. I don't know how mortgage rates work in the USA, but in canuckland, you get a loan based on the amortization, but the rate can be locked in for differing periods of time (so 25 year amortization, with a 5 year fixed rate for instance).

The amount of money you "save" on the 15 year amortization is not worth the stress that can be caused. Lets face it, owning is expensive. But its the best way to build true equity and have a real asset. No point in killing yourself over it, at the end of the day, you'll be further ahead having owned with a 25 year mortgage than not.

In reply to HiTempguy:

In the US, you lock in the rate for the life of the loan, so you don't have to shop for a loan every 3-5 years like you do in the UK or Canada.