I've been looking, casually, for awhile now... with the warmer weather here... it's time to get serious.

We've found a few listings I like, and I've been recommended a good realtor by several friends...

But what should I do first? Should I go get approved for a mortgage someplace?

Should I let a realtor handle everything?

 

Okay, so.

Try a couple of websearch engines for real estate. I personally like:

http://www.rmls.com
Http://www.realtor.com

Figure out generally what you want and where you want to live.

You also need dollar value. I personally figure no more than 2 weeks of pay should go to a house. This means Principal, Interest, Property Taxes, Insurance, PMI.

So, find out how much you can afford. This is your upper limit.

You also need to know how much to put down. Rates vary depending on whether you put 0%, 5%,.., 20% down. Once you get past 20% down, you no longer have to pay PMI (~$45/mo.) This time I could only afford to put down 10%, so I did an 80/10/10. 80% financed, 10% down, 10% second Line of Credit (Interest only) on a 7-year ARM financed over 30 years.

Also remember that closing costs are on the buyer (mostly). $3K in closing costs, plus somewhere between $1K-$3K gets dumped into escrow. So you need to figure that you'll have to have $6K in cash nearly to buy it.

http://www.bankrate.com

For a realtor, ask your co-workers and friends if they have any recommendations. Otherwise, I usually call the biggest non-national realty company and ask for their Top 10 producer for condo/townhouse/area, etc. depending on what you want. You want someone who knows the area very well. How well does the area appreciate? How are the homes built? Who built them? How fast do homes move off the market? etc. They should not have to look up these answers.

Then, go through and really take a look at what you want. Narrow it down. PIck one that is what you want in terms of layout, age, features, and price. I picked out something that was a bit more expensive and bigger than what I wanted, but the location was excellent, it backs up to a greenway, and it's property that should be in high demand in 5 years when I turn it around. The bad thing is that I'm having to repaint the entire inside, and replace all the carpet ($4K total). On top of that, I have to buy a refridgerator and washer/dryer ($2K).

Also, don't be afraid to ask your realtor questions. That's what they are there for. They are YOUR agent.

Also don't be afraid to change realtors. You aren't paying them, the seller is. If you don't get along, they don't want to spend the time, or they don't know crap about the area, find someone else.

 

Then you need financing. You can go to a broker. Get one that is very flexible. Never get financed for more than your offer on the house is if you need too. If they seller sees you are qualified for more, then they will have a tendency to counter with a higher offer.

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My example.

Let's say I bring home $1500 every two weeks. By using those calculators, I'd pay right around $1500 with property tax, HOA, insurance, second finance (LoC) added for a $250K 80/10/10.

The house is a cottage home with 6 feet between houses, but backs up to a greenway. It's a predominantly upper-middle class white neighborhood. Sounds racist, but property values go down when hispanics move in. It's just the truth. Family oriented to, so I have a 4 bedroom instead of a 3 bedroom. Built in 2001, and thus when I sell it in 5 years, it will still be under that magic 10 years old. The neighborhood generally appeciates at 4-6%/ year.

 

Get and understand your credit report first. Get it from all 3 major players.

You should then get pre approved for the mortgage before you even start looking. That way you at least know what your price range is. Anyone can pre approve you. You can even let the broker's financial contact do that for you. Just because someone pre approves you doesn't mean you need to take a loan from them. While you are looking for a house shop around for mortgage rates. Also, check to see if your state offers any kind of deal for first time home buyers.

Once your broker finds out what you are pre approved for they will probably only want to show you stuff in that range. If you are approved for $400k don't be afraid to look at 300k stuff.

Don't believe this buyer broker BS. They say they represent you but in reality they represent themselves. Because they are on commission, it's in their best interest to get you into the most expensive house you can get a mortage for (note: I didn't say "that you can afford"). When you go to make an offer, don't think your broker doesn't know what the seller is willing to accept. Those slimy brokers talk to each other all the time. Even though its illegal for them to do that, they do it.

The broker will try to act like they are your friend. They are not your friend, they are your broker. Don't forget that.

 

Adam, Get pre-approved. I did that before I started looking. Basically the bank will let you know what kind of budget you'll have. I knew what I wanted to borrow, but the bank told me I could borrow 100K more if I needed to. Pre-approval will show sellers that you are serious. You don't have to use the bank that you get approval for as your lender. It's just a step that let you know what you have to spend.

I did the same thing you did. Causal browsing, then when I got serious, I hooked up with a realtor (in the area I wanted to buy in, recommended by my cousin). The toughest part of dealing with a realtor is getting them to know what you are looking for. It took about 3-4 weeks of looking at places for my realtor to get on the same page with me (and for the type of listings I was looking for to come up on the market). I wanted a 3 br with 2 car on about an 1/2 acre w/ good highway access, and that's what I got.

The realtor should be able to set you up with properties to do "drive bys" to. If you like what you see, the realtor will schedule a showing so you can look at the inside.

Don't forget a home inspection (the realtor can probably recommend someone).

Pre-approval, getting a realtor, looking at places, making an offer, signing a purchase and sale, home inspection, obtaining financing, and setting the closeing are the basic steps, but http://www.realtor.com has a couple great buyer articles.

I bought my 1st house in 2001, so if you have any questions let me know.

 

#1 = Get a GREAT Realtor recommended from family/friends. Makes everything easier.

#2 = Bypass a 'mortgage broker'...stick with the big companies. Brokers always have more fees in the small print and a commission drive. Big co's(Countrywide, Wells, etc) all have basically the same rates, it's mainly the service that differs. I think BigPimp is a Countrywide lender, they are a great company, never had problems with my mortgage with them.

Realtor need not know how much you are approved for...YOU are buying the house and they WILL over-sell you if you don't keep focused. It's very easy to get strapped with too large a house(payment).

Once you decide where you want to live & what price range that enatils...have your mortgage company write you a pre-approval for that amount(approximately). That way, you stay in the price range YOU want, not what the realtor throws at you.

There is no mystery to figuring out your mortgage payment. Once you settle on where you want to live, have the realtor give you the property tax amount, association dues, and get a quote from your insurance company for home-owners coverage. Then, it's as simple as adding up your escrows, divide by 12 and combine with your mortgage payment.

$200K home...6% loan = $1199
Prop/School Tax = $2000/yr
Home Owners Ins = $400/yr
Home Owners Assoc = $400/yr
Payment $ 1433

 

All great stuff, but I'll add my two cents. Most new homeowners forget the costs of fitting out a larger residence, which may include new/more furniture, yard maintenance equipment, a security service, etc.......... Unless you're already moving from a fully fitted out rental into homeownership of the same size, you will want/end up with more. Suddenly, yo find yourself at IKEA fitting out two rooms that you did not used to have.......

I'm not a great proponent of new developer built houses unless the developer has an excellent reputation; I suspect that far greater capital gains can be had by investing in a "marginal" neighborhood that has "good bones' and then riding the gentrification ladder up the capital gains scale in excess of inflation and the usual real estate escalation. It may mean living in a neighborhood that is "in transition", but the payoff can be formidable. Older cities, like Albany, frequently have great housing stock that has great quality of space, supurb construction and established landscaping for less than a new residence in a development. You may have to dial in some refurbishment costs, but it may be worth it.

My wife purchased her first home with her first husband about 25 years ago in what was a stable lower middle class urban ethnic neighborhood. The house has increased 150 times, (not percent) since the original purchase, and a recent renovation next door by a boutique practice architect is now valued at more than $1M. We picked a neighborhood that was stable, but ethnic; our house, after eight years, will go on the market at 5.5 times our purchase cost, well in excess of what has happened in real estate in the area in general. When we moved into the area, the average car on the street was a conventional sedan, there are now a scattering of Saabs, Bimmers, and one Merc. As an architect, I kind of have a fetish for things like real palster, thick exterior walls, floor joists that are 4x12's space at 12", which means that the floor never wiggles, creaks or strains, high ceilings, etc. My thing, but something worth thinking about. I know too many folks in the residential development business to think that these guys are building for the ages.........

 

1) Get pre approved
2) Don't buy the first thing that you see that you like
3) Enjoy your new house!

 

When I bought my first home (Summer '99) it was a seller's market because buyers were racing to lock in as rates were rising. Therefore, I rushed a purchase decision. Another mistake I made, was following my real estate broker's recommendation when I had my home inspection.

DO NOT DO THIS! Find a reputable home inspector on your own, even if you are buying a 'new' home.

Sadly, I was out $3200 bucks after I moved -- to replace a broken sewer line which was not discovered by my inspector.

 

Lots of good stuff here...

I'm with Ric, I didn't buy in a development, as I don't like those types of neighborhoods. Especially if they have a HOA (home owners association). I just don't like having other people tell me what I can and can't do. Don't get me wrong, I keep up my property pretty well (no cars on cinder blocks in the front yard yet..lol), but some HOA's have some pretty ridiculous rules (like what color xmas lights you can display).

Chris made some good points, and one thing in particular that I forgot to mention. Make sure you know the property tax rate for the town/city you're buying in. One of the reasons why I moved into the town I'm in was beacause of the affordable property taxes (in MA). If I had moved into RI (a couple of miles down the road), my taxes could have been significantly higher.

I set a budget on what I wanted to spend (monthly payment), not based on what I could borrow. I had my agent show me houses at the lower end of my price range, and it quickly became apparent that I was going to have to spend a bit more to get exactly what I wanted. My agent did try to oversell me at first, but quickly learned with I was looking for and what I wanted to spend.

Chris' numbers are spot on too...

I learned alot buying my house. It's a starter home, so I might not be here forever. The knowledge I've gained thru this purchase will help with buying (or building another home) later on down the line.

 

Yep, keep in mind that you're agent has a vested interest in selling you more house because she/he get's paid more. An old adage is to always buy as 'much' house as you can afford - meh, call me conservative, but I don't agree.

There is no guarantee that homes will appreciate at rate X. Houses are a lot more illiquid than stocks - I think many flippers/speculators in hot markets will get burned as rates rise.

Good luck in your search

 

My wife and I purposely underbought our income at the time, much to the horror of the broker, but we stuck to our guns. We didn't want to be housepoor, and we wanted plenty of cash available for renovations and effective maintenance as well as for furnishing the place.

and you're right, there is no guarantee. In order to mitigate that, I prefer to buy in a community where the values are established and, if anything the property values will escalate as the neighborhood changes.

 

I think the saying goes..."Buy the worst house in the best neigborhood"...

I made the mistake of passing one up due to some repairs that needed to be done...2 houses later, I still wish I'd have bought that home. The neighborhoods values just continue to rise as it's one of the nicest places to live in Northern DE.

And ric, you are spot on...'transitional neighborhoods' are an excellent investment just plain Smart Money. If you get in before too many houses are remodeled/updated, you will see some substancial increases in property values. Only downside(not really) is that those older 'hoods sometimes have larger property and larger property tax as a result.

 

There's always the "one that got away". I once did a survey of the public school district in Jersey City in the late '70's, just before everyone figured out that you could get to Wall Street from there faster than you could from the upper east side. Beautiful townhouses were going for back taxes, usually a few thousand bucks...... Now, of course, Jersey City has been gentrified into oblivion, and the old rail lines are now highrise developments..

 

I am not sure if this was said yet, but your first step is to figure out your credit report. If your credit is in good shape, then you should call a lender to figure out how much of a house you can buy. Btw, a good lending institution will discuss your credit with you, discuss options and payments. Once you know what money you can get and where your payment will be, you can start looking for a property.

A good realtor will help, especially for a first time buyers. Look to get into a starter home, where you will be 3-5 years and then look to move on. Generally, your total monthly expense with the housing payment should not exceed 30-36% of your monthly gross income.

 

Thanks for the nod Chef Chris, I am with a very large lender but not countrywide.

 

Ah, close but no cigar. Either way, he's better off with you than a broker.

 

ok... i finally sat down with a realtor... sifted that out.

got pre qualified from my bank for more than i want to spend anyway...

and we've found a few places we like at the lower end of my price range.

going to look at this one place tomorrow that looks really promising from a few photos and a drive-by.


in the end, i don't really want to spend much more than 200K...

what should i be looking at in terms of mortgage rates?

the only thing on my credit with room for improvement is a personal loan with a balance of $2000. Will it do me any good to go pay that off right now? Or would I be better off using that money for down payemnt/expenses etc? i don't even owe any payments on the loan until sometime in 2007 because i always pay 10-15x the minimum monthly payment on it. it's about 2-3 years old.

 

Save that money Adam. Buying a house is a big money-zapper. There is always something to buy once you move in...

 

As long as you can handle the mortgage, buying a house is the safest investment you can make.

Soopa, rates are rising, so lock in something quickly, and don't go for a 30-year fixed. You pay a premium for locking in a rate that long, and most people refi or sell before even coming close to taking advantage of a 30-year rate. I refianced in February at 5.375% for a 5/1 ARM, but rates have been rising steadily ever since.

 

Your credit score and the amount of money down will determine your interest rate. Definetly go with something that is fixed for a shorter term like a 5yr adjustable that will allow you to have a lower monthly payment and you will move within 5 yrs anyway.

 

Don't buy into the hype, rates are higher than all time lows but historically we are very low. Make sure you find a house that you like and want to live in.

 

Hype? Long-term interest rates have been dropping while short-term rates kept rising. Eventually, that has to change. It always takes a little time for long-term rates to rise since it's tied to the 30-year T-bill. It's no coincidence that rates started climbing after the last Fed rate hike. But, yes, rates are still pretty low historically. By the end of the year, I bet 30-year fixed rates will average 6.5-6.75%

 

TLover=Worst advice ever! If rates are RISING, why get an ADJUSTABLE RATE MORTGAGE? Not to mention the fees associated with such a product or the availability to a first-time home-owner.

http://story.news.yahoo.com/news?tmp...eratemortgages

And my post simply states that while purchasing a home, he should keep as much cash available as possible due to the numerous little nickel-dime things one has to buy when you are a new homeowner. Plus, it makes the bank all the more willing to lend to you if you show some decent savings.

 

Do you know what a 5/1 ARM is?

 

5/1 is good if he is going to move in 5 years. Otherwise he will probably end up having to refi in 5 years because rates will most likely be higher.

Don't bother paying that 2k debt now. As long as you are in good standings with all of your loans you are good to go.

Also....

Who are you moving in with? Girlfriend? I urge you not to get into a dual ownership with her. Things can change fast, then you are going to have a problem. Once you get married you can do the dual ownership.

 

True. Everyone has to adjust to their situation. I know I won't be here in five years. But nearly no one will stay in one house under one mortgage for 30 years. Hence, my advice not to get a 30-year fixed mortgage.

 

Yes, she'll be moving in with me, and paying a small portion of the bills... but I'm buying the house and putting the lump sum down.

That's why I'm buying a house "I" can afford. I'm sure everything will be fine with us but I know as good as any that shit happens and it's a PITFA if you're not married... and i'm definately not there yet.

There will be no co-signage/accounts/papers/whatever...

 

I need pointers to more info on types of mortgage if ya'll have them.

I "assumed" 30-year was what I wanted but I have no fucking clue.

I'm guessing i'll be here about 5 years or a little less. I'm buying a house that is "sufficient" but well below my income bracket simply because I like to have alot of cash on hand.

I'm sure in 5 years i'll be more settled in my affairs and wish to buy something a bit bigger.

 

Why don't you call

 

Chris:

$400 for a yearly homeowners association fee?

Christ, I pay $214 a MONTH!

 

Bingo.

I actually ended up with a 7 year ARM in an 80/10/10 at 5.15%. The extra 10% is actually a Line of Credit rather than a second mortgage as well. I plan to be out before the house is 10 years old, and thus = 5 years + margin.

 

I pay $40/mo.

 

Then I'd go with a 5/1 ARM, or if you want to play it on the safe side, then go with a 7/1 or 10/1 ARM to give yourself some options. But even if you get a 5/1, the amount the interest rate can go up after the fifth year is capped. The longer the locked in portion of your loan is, the higher interest rate you'll pay.

 

I got an interest only loan. My house has gone up 20k$ in value since I bought so there's my 'equity'. If you're buying in an area that's in demand, you might want to consider going interest only. Payments are lower.

 

True, that's what I did, too. Just make sure it's not a negative amortization loan.

 

I've been a lender for over 10 years, I have a faint idea.

We're not talking a rural area where Adam is looking. He's in an urban area which means he may stay there longer than 5 years...costs associated with moving every few years + higher property taxes in general in those areas mean people(normally) stay put longer than in places like lil old DE etc.

I would still recommend a 30 year even if you were going to move in 5 years because you write off the interest anyhow...AND...the down money/qualifications will probably be easier to deal with than with an ARM(BigPimp correct me if I'm wrong on that buddy).
Goes back to my earlier statement...keep as much money liquid as possible. Sure, the payment/rate will be a tick higher if you pay 0 points on a 30 year, but by paying less fees/points, you are able to hold on to that money & spend it on furniture, any repairs you discover(almost certain with an older home) and improvements, etc. Putting a few grand down to save $50 a month in payment, then having to finance purchases for the home on a credit card(with no tax deductions) is not smart money.

I normally only put people in ARM's on the small business side. Usually when you buy a rental, you plan on a refi every few years or so anyhow to squeeze out the equity, etc...but I digress.

 

I only pay $148 a year with like $1200 in property/school taxes combined...and that's in the expensive county...

Gotta love Delaware...

 

Well, I qualified for a 5/1 interest-only ARM with no money down and no points, so I don't see how the harder qualification is a factor. And it was my first home purchase.

And why would you want to pay more interest, even if it's tax deductible? It's about monthly cash flow AND cash on hand.