Club PA 2.0 has arrived! If you'd like to access some extra PA content and help support the forums, check it out at patreon.com/ClubPA
The image size limit has been raised to 1mb! Anything larger than that should be linked to. This is a HARD limit, please do not abuse it.
Our new Indie Games subforum is now open for business in G&T. Go and check it out, you might land a code for a free game. If you're developing an indie game and want to post about it, follow these directions. If you don't, he'll break your legs! Hahaha! Seriously though.
Our rules have been updated and given their own forum. Go and look at them! They are nice, and there may be new ones that you didn't know about! Hooray for rules! Hooray for The System! Hooray for Conforming!

What is the process of buying a house?

samsam7samsam7 Registered User regular
edited July 2011 in Help / Advice Forum
Ok so I've just graduated and I got a new job that pays well. I'm tired of cramped apartments and I want a house. I live in Arizona where housing is pretty cheap compared to other places and I'm wondering how I go about getting a house. I really don't understand things like mortgages and house loans and their pros and cons and how people manage to afford these things or sell it before they've actually paid it all off or what kind of down payment to expect. I was considering just renting a house but it makes more sense to be putting that money towards owning the dang thing. I have excellent credit and one credit line that is my own and another that I'm on under my parents.

samsam7 on

Posts

  • MyDcmbrMyDcmbr Registered User regular
    edited June 2011
    How old are you and what is your current credit line worth?

    It is not as easy as it once was to get a mortgage. Down payment wise, expect at least 10%, with 20% being a possibility depending on your length of credit history and your highest previous limit.

    MyDcmbr on
    Steam
    So we get stiff once in a while. So we have a little fun. What’s wrong with that? This is a free country, isn’t it? I can take my panda any place I want to. And if I wanna buy it a drink, that’s my business.
  • samsam7samsam7 Registered User regular
    edited June 2011
    I'm 22 and my limit is 5000. Around here, renting a house is about 1000 month then factor in all the extras so like 1500 a month to live comfortably I think.

    So basically I'm understanding that a mortgage is a loan to buy a house? I've always been under the impression that a mortgage was a bad thing to have. Does it make sense to simply get a mortgage and pay it monthly as opposed to paying around a 1000 month? Feels like I'm missing a gigantic catch. What happens if I decide in a given number of years that I want to move to a different state or something? Do I have the option to sell? Is it better to (assuming I make more as experience comes) just keep paying the mortgage and have that property on the side that hopefully goes up in value?

    samsam7 on
  • schussschuss Registered User regular
    edited June 2011
    You're probably not ready. I'm just going to say that right now. Especially in this market, you'll need to have some level of real downpayment (check housing prices in your area, and assume 20%), plus you'll be on the hook for anything that breaks in the house, which can add up quickly.

    schuss on
  • MushroomStickMushroomStick Registered User regular
    edited June 2011
    For Arizona, he might not be that far off. My best friend's parents are about to retire in Arizona because they can get a house with an in ground pool for like $50,000 there. Over here, in the suburbs of Chicago, you couldn't touch a house like that for under a half mil or so.

    MushroomStick on
  • bowenbowen How you doin'? Registered User regular
    edited June 2011
    In this day and age? Save up 30-35% of the house ranges you're looking at (triple your salary).

    For instance, if your salary is $65,000 the house ranges you'd be looking for are probably $150-200,000. You'll want 30% of that. $60,000. $40,000 of that is going towards a down payment. The rest is closing costs, inspection, minor repairs, appliance upgrades (spending the $1000 for a new fridge might save you $300+ a year in electricity costs for instance and upgrading your central air, etc).

    If you can deal with a smaller house? That's fine too, adjust accordingly.

    bowen on
    Ladies.
  • OricalmOricalm MDRegistered User regular
    edited June 2011
    Ok. I just recently (April of this year) bought a house, so while I am no expert I'll offer what I can.

    Mortgage- This is the loan you will obtain for the purchase and financing of your home. They come in many varieties, shapes and sizes. The most commom ones are either 15 or 30 years (As in, you will pay it off with monthly payments over the course of 15 or 30 years), and are either a fixed rate ( Your interest rate never changes - Generally a GOOD thing) or an Adjustable rate (You interest rate may start lower than a fixed rate, but if interest rates go up, so does your rate. Quickly. Alternatively, if they go down - and they can't go down much lower- your interest rate goes down)

    Now, in terms of obtaining a mortgage, no, it's no longer as easy as it once was but it's not impossible either. Especially if you have good credit.

    Your first steps should be this: Find out how much money you have saved that you could use as a down payment. Figure out what your monthly expenses are. Talk to a loan person and have them run your numbers for pre-qualified/pre-approval. This in NO WAY obligates you to accept their offer, but they will tell you what type of loan you qualify for (Most likely an FHA loan) and what the ball park is for your "maximum" you could afford. You can also ask them what this translates to in a monthly payment sense.

    DO NOT TRY TO GO TO THE MAXIMUM THEY GIVE YOU. You want to stay a fair bit below it if you want to live comfortably still.

    Now, here is the "catch" as you put it.

    They will quote you a number on what your monthly payment would be. This does NOT include property taxes, PMI (Private Mortgage Insurance. Required if you don't have 20% to put down. Means the bank gets paid if you default), or insurance (As in, if your house burns down or a tree falls on it insurance). Taxes, insurance and I think PMI are lumped together under an "Escrow" account. Depending on the property you look at, this can make a significant difference in your monthly costs. I.e. 1200 in taxes/year = 100 a month. 2400 in taxes = 200/month.

    The next step is finding a realtor. This is where the fun begins. There are good realtors and bad realtors. I lucked out in that I used a family friend. Anyway, they will ask what you're looking for in a house and then their job is to find what you want/can afford. When you find something you like, go see it. Then either you or your realtor need to talk with the loan person to run all the numbers and get a rough estimate on what the monthly payment would be. You can also request copies of past utility bills to see what gas/electric/water would run you.

    After that comes the bidding and negotiating. This is a crap shoot, and your realtor should help guide you through this. Basically, you and the seller try to agree on a price (Very rarely do you offer them the full price they are asking). If you come to an agreement, you ABSOLUTELY SHOULD get a home inspection and make the contract dependant on the results. Check the inspection company's references. Walk through with them during the inspection. Take note of everything they point out and everything in their report. Also, get a termite inspection.

    If there are any issues with inspection, you can (usually) try to renegotiate the price or request the seller correct the problems. If you make it past that, you wait a couple weeks for paperwork to be drawn up and then you and the seller meet with your realtors and loan people, have a pow-wow and sign a bunch of shit. then you get the keys, a handshake, and a lot poorer.

    I may have glossed over some things so feel free to ask for any clarification or more details. I'm sure a bunch of other people can chime in too. My experience wasn't exactly like this (I bought a foreclosure which is a whole extra set of problems) and I got a special loan type (Homepath loan/house. Pretty good deal if you can swing it)


    Oh, and one last thing. The other "catch". With renting, when the hot water heater goes bad, or the roof leaks, the landlord (is supposed to) take care of it. And it's not your problem. With a house, when the hot water heater goes out or the roof leaks, that's YOUR problem, comes out of YOUR pocket and it generally not cheap.

    Oricalm on
    Xbox Live: Oricalm
  • ihmmyihmmy Registered User regular
    edited June 2011
    Owning a home is more expensive than renting, even if your rent / mortgage payments are the same. You also have property tax, plus every single maintenance/repair cost is all on you, solely on you. Need new shingles? All you. Need a lawnmower for teh grass? All you. Want to reno the kitchen? All the dollars are on you. A lot of new home owners don't realize that there's more to your costs than just the mortgage and utility payments. I've read in a few places that they recommend putting aside 10-30% of your mortgage payment a month for upcoming repairs and renovations.

    ihmmy on
  • schussschuss Registered User regular
    edited June 2011
    Also, if you ever feel like you may want to move, it's a hell of a lot harder, as you can't just wait for your lease to be up.

    schuss on
  • a5ehrena5ehren AtlantaRegistered User regular
    edited June 2011
    Hate to be flip, but you need to do some reading before even thinking about buying a home:
    This one is mostly general information.

    This one is about just mortgages.

    a5ehren on
  • ParielPariel Registered User regular
    edited June 2011
    ihmmy wrote: »
    Owning a home is more expensive than renting, even if your rent / mortgage payments are the same. You also have property tax, plus every single maintenance/repair cost is all on you, solely on you. Need new shingles? All you. Need a lawnmower for teh grass? All you. Want to reno the kitchen? All the dollars are on you. A lot of new home owners don't realize that there's more to your costs than just the mortgage and utility payments. I've read in a few places that they recommend putting aside 10-30% of your mortgage payment a month for upcoming repairs and renovations.

    The difference being that with a mortgage, you have an asset, whereas renting just gives you a place to live till the lease runs out.

    And yes, houses take work. Realize you will either need some money and a lot of time to do it yourself (and there will be some things that you really shouldn't do yourself anyway), or a whole bunch of money to pay someone else to do it.

    Pariel on
  • EggyToastEggyToast Registered User regular
    edited June 2011
    I'll skip the heavy details and start with the "things you should do when you're thinking about buying a house."

    First, head to a place like Zillow and look at houses for sale in the neighborhoods you're looking to live. See what the average price is for the properties that appeal to you, and what you get for your money. Then, compute 20% of the price of those houses. For example, a 120,000 house would be 24,000. Then, compare against your bank account. If you have 20%, consider buying a house.

    If you're close, then: pop your house price into a mortgage calculator -- these are quite common around the internet. Put in the price of the house, interest rate at 6%, and the amount in your savings account. Hit compute. Is that number substantially lower than your rent?

    EggyToast on
    || Flickr — || PSN: EggyToast
  • DarkewolfeDarkewolfe Registered User regular
    edited June 2011
    Also, if you're buying a house, remember that you can't just move. You're going to have to sell it if you decide to live somewhere else, and until you do you'll have to keep paying that mortgage. With real estate the way it is, you can't feel confident that you'll even be able to sell it at all. Plenty of people are betting that the real estate market is going to see another drop before the recovery, so you could end up upside down on your mortgage (owing more money than you could possibly sell the house for).

    My general advice is not to buy a house unless you're absolutely sure you want to stay in an area for at least five years?

    Darkewolfe on
    What is this I don't even.
  • ceresceres When the last moon is cast over the last star of morning And the future has past without even a last desperate warningRegistered User, Moderator mod
    edited June 2011
    If you have even the slightest inkling that you might want to move in less than five years, do not buy a house.

    ceres on
    And it seems like all is dying, and would leave the world to mourn
  • Dr. FrenchensteinDr. Frenchenstein Registered User regular
    edited June 2011
    Darkewolfe wrote: »
    My general advice is not to buy a house unless you're absolutely sure you want to stay in an area for at least five years?

    This, for the closing costs to be worth it, you need to stay in a house for 5 years at least. and that's assuming you sell the house for the same amount you bought it for.

    You also pay the interest over equity at first, so you are paying down very little of your principal balance in the first few years. I've been in my house going on 3 years and i think i have about 6k in equity (i didn't put any money down, which in hindsight was a mistake. But the payments are affordable, so whatever.) on top of my house losing (allegedly) about 50k in value, i'm pretty screwed loan wise. As long as i can afford to make payments, i'm ok though.

    Basically, unless you are loaded, nobody just graduating from college has enough stability or money to buy a house. try to find a house to rent, and keep track of all the times you have to call the landlord to fix stuff. When you buy a house, YOU are the landlord, and you are on your own.

    Dr. Frenchenstein on
  • DjeetDjeet Registered User regular
    edited June 2011
    The catch is when you owe 100K on a house that could sell for 80K and you need to move for work reasons or whatnot, what are you going to to? Raid your savings for 20K just to get out of it? Rent it out? Throw into the equation a declining economy, and high unemployment, and poor local job prospects; this is a worst case scenario. You always have the option to put your house on the market, but someone has to want to buy the house, and be able to buy the house in order for you to get out from under the mortgage. If you're seeing really low asking prices and a lot of homes on the market then that means that right now, a lot of people don't want to buy those homes and/or cannot secure financing to do so; so those owners cannot get out of those mortgages, and may not be able to even if they lower their prices.

    1st question to ask yourself is are you prepared to live in the same place for at least 7 years (range really is 5-10)? If so then your holding period has a good chance of innoculating you against housing bust cycle, there are of course exceptional markets. Often if you need to sell a house you have to make concessions to move it (bounties to a selling/buying agent, closing costs for the buyer, repairs) that are going to cut into sales price.

    Another consideration is whether it's worth your while to buy instead of rent. The old rule of thumb was if the property value is less than 15 times the annual rent it can command, then it might be worth buying (e.g. $1K monthly rent, $12K yearly rent, if the house next door can be had for $180K then it might be worth it to buy); however in a lot of highly in-demand markets you cen seldom acquire property at that price. And in poorer markets most properties could never command 15*annual rent. So what you see is in areas where the demographic shifts are not favorable and there aren't many jobs availabe you find affordable houses for sale, and vice versa.

    Address whether or not you have the discipline and want to make the lifestyle compromises to service a mortgage and take care of a house, then you can look into the particulars of securing financing and buying a house.

    Djeet on
  • darqnessdarqness Registered User regular
    edited June 2011
    My wife and I did an FHA loan which only required 3.5% down.
    Luckily we had bought a house that appraised at 20% over what we were paying so we already had 20% equity in it (over that actually with our 3.5% down).
    Since we had 20% equity in it, there was no need for PMI insurance.

    A rare story, but it can happen.

    darqness on
  • JadedJaded Registered User regular
    edited June 2011
    One thing to remember in regards to mortgages...
    If you can make payments bi weekly, do it.
    I believe I shaved 27 months off my mortgage (25 year) by making my payments bi weekly.
    You save a metric fuck tonne in interest.

    Jaded on
    I can't think of anything clever.
  • DruhimDruhim Registered User, ClubPA regular
    edited June 2011
    Pariel wrote: »
    ihmmy wrote: »
    Owning a home is more expensive than renting, even if your rent / mortgage payments are the same. You also have property tax, plus every single maintenance/repair cost is all on you, solely on you. Need new shingles? All you. Need a lawnmower for teh grass? All you. Want to reno the kitchen? All the dollars are on you. A lot of new home owners don't realize that there's more to your costs than just the mortgage and utility payments. I've read in a few places that they recommend putting aside 10-30% of your mortgage payment a month for upcoming repairs and renovations.

    The difference being that with a mortgage, you have an asset, whereas renting just gives you a place to live till the lease runs out.

    And yes, houses take work. Realize you will either need some money and a lot of time to do it yourself (and there will be some things that you really shouldn't do yourself anyway), or a whole bunch of money to pay someone else to do it.

    Correction. You only have an asset in what you've actually paid off. The remaining balance and interest is a very real liability.

    Druhim on
    belruelotterav-1.jpg
  • Iceman.USAFIceman.USAF Major East CoastRegistered User regular
    edited June 2011
    Jaded wrote: »
    One thing to remember in regards to mortgages...
    If you can make payments bi weekly, do it.
    I believe I shaved 27 months off my mortgage (25 year) by making my payments bi weekly.
    You save a metric fuck tonne in interest.

    More so than that, by paying over your monthly (or bi-weekly) payments by even $50, you can save a lot of money on the life of the loan.

    Iceman.USAF on


  • mr_michmr_mich Registered User regular
    edited July 2011
    I'm gonna toss my hat in the ring, cause I lucked out in buying a place a year after college.

    First off, I bought a condo. A lot of people here aren't fans, for understandable reasons...you have to worry about neighbors, condo fees, and depending on the market they can be very volatile in relation to the market. Where I am in Maryland, the job market is pretty stable and there's a lot of yuppies, so condos have held their value pretty well. I also bought a short sale. Short sales are basically someone that's been defaulting on payments, and just short of foreclosing. They sell the place, and the sale is mostly handled/administered by the bank.

    It was 3-4 months of hell. My lease was running out in my current place and I had no month-to-month option. I was dealing with a huge bank that was slow to get back to me, and missed deadlines. If something failed inspection, the bank told me I could fix it myself or find a new purchase.

    I added up all the numbers, and came out way ahead. I got a condo that appraised for 200k for about 150k, despite having no credit (read: not bad credit, just no credit whatsoever). Being able to do the 20% down was clutch, without that you get the dreaded PMI which is both expensive and in my experience got me crappy treatment.

    As mentioned, homeowning can be expensive. I paid to fix the things that didn't pass inspection (water heater, bathroom sink, etc.). I put in a lot of money and "sweat equity" to make my place feel like a real home...new paint everywhere, putting up new fans and light fixtures, granite countertops, etc.

    The point is that you can, at your age, get it done. You'll just need good credit and/or a good down payment, then you have to be willing to hunt for deals and buckle down for a lot of work and some stressful months. Things will go wrong, people will miss deadlines, and you'll be amazed at how bad realtors and bankers are at their job.

    In the end it was worth it to me; I can do whatever I want to my condo and don't have to worry about finding a new place to live or the landlord jacking up rent on me. I live with other owners, instead of renters, which makes a huge difference. You just need to consider all of these things because it's an enormous purchase and an enormous commitment of time/effort/willpower.

    mr_mich on
  • chaosisorderchaosisorder Cupcake Princess and Pinny Whore OregonRegistered User regular
    edited July 2011
    Check out your local community college- they will undoubtedly offer 'continuing education' or 'community education' courses. One of these is likely to be a series of seminars on home buying. You really need the basics, and that's a good place to go and should be a really cheap way to get the information and it will be relevant to your area.

    chaosisorder on
  • samsam7samsam7 Registered User regular
    edited July 2011
    ceres wrote: »
    If you have even the slightest inkling that you might want to move in less than five years, do not buy a house.

    I have that inkling. I know I'll be here in Arizona for at least 2 years and I know if I do stay long term, I'll want something better by 5-7 years. My main reason to get a house is that I'd be putting around 1000-1500 in rent anyways and my main reason that I want a house as opposed to a condo or something is I'm seriously wanting to live somewhere with space, no shared walls, a backyard etc, basically the complete opposite of what I've been dealing with for a very long time up to this point.

    It sounds like I'm underestimating how hard it is to actually sell a house once I want to move and the number of things that can and probably will break and all the extra little fees. I appreciate the info guys.

    samsam7 on
  • a5ehrena5ehren AtlantaRegistered User regular
    edited July 2011
    You could rent a house if you want the privacy. Shouldn't be too hard to find one since there is plenty of inventory on the market.

    a5ehren on
  • dojangodojango Registered User regular
    edited July 2011
    I am in the process of buying a house right now... it has taken about 3 months and maybe $1000 dollars in out-of-pocket expenses. That's not including the money we'll need to sink into the place to fix it up. On the plus side, the house is going for about 2/3rds of what it sold for 6 years ago, so it is a good time to buy. Mortgage-backed securities market willing, we should be taking ownership next week.

    In my experience (and that of some friends), houses that are being short-sold are a giant pain in the neck. Both the owner-occupier and the bank(s) in question have to approve the sale. Foreclosures seem to be a better deal, the banks are more interested in unloading those than they are in approving short sales. Buying from an individual is also an option, and they might be more willing to negotitate.

    You can get an FHA loan with only 3% down. Which is handy if you don't have the down payment cash on hand, but do have a steady income at the moment. People here say you might break even at 5 years, I've also heard 7 years is a good rule of thumb, so yeah, if you are planning to leave town or move, maybe a house isn't the best thing. Renting a house can be nice, although you're basically helping someone else pay off their mortgage... which might not necessarily be a bad thing, unless they end up being foreclosed upon.

    dojango on
Sign In or Register to comment.