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Looking to buy our first house
Kirbith
Registered User regular
Registered User regular
My husband and I are looking to buy our first house next year and we could use some advice/information on a few different areas regarding this. We’d be looking to be in a house in May next year, as our current lease on our apartment will end then. The price range for houses we’re looking at is in the 125K-140K range. We’d be looking to make a 10% down payment. We’re doing a great job of saving money right now; however, there are a few areas where we’re uncertain as to how much we’ll need to save.
Specifically, we’re unsure of the closing costs/fees/anything besides the down payment associated with buying a house. I’ve seen a very wide range of numbers on this when trying to find information on this, as well as I’ve seen that some lenders let you include these costs in your loan amount. Could anyone help shed some light on what’s typical in this regard? How much do these fees/costs normally run? And is it common for them to be included in the loan amount?
The other area we’re uncertain about is when exactly we should start talking to a lender to get pre-approved. We’d ideally like to be able to move into a house in late April or early May, as we want to avoid much overlap in paying rent on our apartment and paying the mortgage. Based on this timeline, how far back would we need to start talking people/ start looking at houses?
Specifically, we’re unsure of the closing costs/fees/anything besides the down payment associated with buying a house. I’ve seen a very wide range of numbers on this when trying to find information on this, as well as I’ve seen that some lenders let you include these costs in your loan amount. Could anyone help shed some light on what’s typical in this regard? How much do these fees/costs normally run? And is it common for them to be included in the loan amount?
The other area we’re uncertain about is when exactly we should start talking to a lender to get pre-approved. We’d ideally like to be able to move into a house in late April or early May, as we want to avoid much overlap in paying rent on our apartment and paying the mortgage. Based on this timeline, how far back would we need to start talking people/ start looking at houses?
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I'm not sure where you live, as this may just be a 'places with winter' thing, but the big season for selling a house by me(WI) is spring/summer/early fall. So most of the houses start coming onto the market in late Feb/March. So that may put a damper on your April closing plans.
Here's a rough timeline:
1) Your realtor sends you MLS listings
2) You look at them online, pick the ones you like, and schedule showings/go to open houses
3)Repeat 1& 2 maybe a lot
4)Find a place and make an offer
5A)Get countered)
5Ai) Counter the Counter return to 4
5Aii)Accept the counter go to 6
5B) Offer Accepted
6) Written into your offer is a bunch of timelines that kick in now.
Example deadlines(you right the times into the offer, these are all days after you receive the accepted offer, and business days generally):
2-4 days: You have to make an earnest money deposit 2-4k; you can lose this is you fail to close on the house(with exceptions).
10 days: Have the home inspected, send report to buyers for them to agree/reject any needed repairs
20 days: Appraisal-the bank does this to make sure the house is worth what they are loaning you on it
35 days: Secure Financing
Close: This is a specific date you set in the offer; generally a weekday since it tends to be at a bank. call it 2 weeks after the financing deadline though you can have it be later we got a month because of wedding stuff. Sign a redwoods worth of paper and ta da the house is now yours.
First mortgage payment is due the 1st of the month 2 months after you close. So close March 15, payment for march is baked into closing; your next payment is due by 5/1 to pay for April.
Pre-approval took a week for us. We had a personal relationship with the realtor so it wasn't a huge deal, but I got the impression that realtors more or less require you to have it now before they will take you on as a client now. Our pre-approval was good for 90 days I believe, but it really means jack since once you get an offer accepted you basically re-apply anyways.
If you loved the first place you walked into, were pre-approved, made an offer, realistically it will take 8-10 weeks to close. More flexibility here if no one is living in the house.
The other thing to consider is your 10% down payment means you will probably need to get Private Mortgage Insurance. PMI really sucks, because it basically a payment you make every month that doesn't pay off your mortgage in any way. Various lenders have options that can let you get a loan without PMI while putting <20% down, but you have to meet various qualifications.
e:
Don't forget to factor in taxes when planning out what you can afford
Also mortgage points http://www.investopedia.com/articles/pf/06/payingforpoints.asp explains it well. I'm far from bad at math, and I they still confuse the hell out of me.
What Ceres says above is true about things fluctuating by state. I'd go even further and say it varies by county and city even. The main difference from place to place is going to be the property taxes. Your lender will require you to either pay this separately or more likely include this in your monthly payment that goes into an escrow account for use when the tax is due.
Speaking of escrow, you'll also be paying for homeowner's insurance this way most likely as well. And the most common rule is if you are not having a down payment of at least 20% then you will be paying for mortgage insurance as well for at least the bulk of the loan unless you pay off the principle early to get past that 20%.
All these things will get prorated at your closing and your lender will require some sort of buffer put into escrow to begin the loan. Ours is basically two months worth of the insurance, mortgage insurance, and taxes.
So, you've got down payment, the escrow stuff I've mentioned, first month or two of mortgage payment. But thats not all!
You'll need to pay for any inspections. Depending on what you do and your local market I'd say you are going to spend anywhere from 500 to 1000 USD, at least, just for inspection services.
Keep breathing because you will also need what they call earnest money. This is a check you write that just shows your intent to purchase but doesn't get cashed until closing and goes toward your loan but is not included in your down payment. This also fluctuates by who the seller is. We started with 500 earnest money bit the seller is using a relocation service and they required earnest money 1000.
There will be other stupid charges your lender will have but they will include it all in the final closing costs. Again depending on where you live and the specifics of your eventual deal you may or nay not be paying or sharing costs with seller for the commissions for the realtors.
First step is to get prequalified for a loan amount. This is not locking you in to a loan or even an interest rate, just the lender saying they will more than likely give you a loan for a maximum amount. You need to have your down payment in liquid funds at least. Also it can help some lenders if you have a property in mind, but not necessary at this point.
Next step is then going around finding a house. This can be fun, frustrating, daunting, all of the above. So find a realtor, they are free at least until closing, and in our case totally free for us as the realtor fees here are all paid by the seller, except for the case of for sale by owner.
Also, I would also like to point out that it is wise to factor in any costs associated with changing utilities, including the probable increase you will have in owning and just being in a presumably larger place.
Good luck, have fun!
Just to chime in on this, we were talking to a builder yesterday about potentially buying one of their inventory houses, and he told us the earnest money is for whatever we want it to be, down payment, principle, upgrades, whatever.
We're in an extremely competitive market so we were not able to get the seller to pay for anything. In fact, we had to offer $50k over the asking price in order to get the place. We were lucky to get it since a lot of houses in the $300-500k range are going for $100k+ over asking.
Realtors are always looking for clients, and you can look at houses and figure out what you really want in one. I used it as a screening of realtors. I had recommendations of realtors from friends, so I went to a open house they held. For me, one of them had a packet on Indiana information from a bank. It would have been torture to have her as a realtor, but the information was great.
You only put 5% on a conventional loan?
... I guess you're paying PMI then?
Also fun in this market (I live in the Bay Area as well and closed on a house 3 months ago) is that the place probably won't appraise for the sales price, so that's even more cash out-of-pocket.
Interesting thing I found out yesterday.... PMI on a conventional loan is less than PMI on an FHA loan. Something like 1.35% vs 0.66% of the purchase price.
Regarding talking to a lender, usually the pre-approvals have an expiry attached to them, I think ours was something like four or five months. But it shouldn't cost you anything to go in and talk to the lenders to get an idea of what they'd be willing to give you, and that's an important number to know. I'm not sure what the financials are like in the states, but up here going to a mortgage broker tends to be viewed as a savvy decision.
Definitely make sure you can handle the monthly cost of a home before you jump in. Not just the mortgage, but paying for ongoing maintenance, and taxes. Holy cow, I was not prepared for property taxes when I became a homeowner. If you're looking in an area that's missing certain typical services (city water, city sewer or a drainage system, etc) follow up with the local government to find out what plans are. I've had family members end up on the hook for tens of thousands of dollars when the county/town/whatever takes the initiative to install storm sewers or a new water system, and then hangs the costs on the homeowners.
2nd we paid down as much debt as we could and saved as much as we could, we also put down 5% on a conventional loan and ay PMI which despite what everyone says is not a big deal. Its money you pay that does not benefit you, but there was no way we were coming up with 20%. And the amount is not significant.
step 3 go to a bank and get preapproved. They will likely approve you for more then you will want to spend, so make sure that its at least as much as your budget has already said you can afford. Oh the budget, you already did that right? you accounted for mortgage, interest, taxes, PMI, and a rough guess at your bills? good!
Step 4 find an agent and start looking at houses. there were generally 2 classes of houses we saw. the majority were houses that had been on the market for a long time, and you could see why. Poor condition or over priced. The minority were well priced, well taken care of houses and they did not last long on the market. You will probably tour all the former houses, and then wait with everyone else for each of the later to come on the market and make a mad dash to buy it. We toured about 60 houses over the length of 7 months, we bid on 5 and lost out on the first 4. The 5th, the one we bought was on the market for 12 hours when our bid was accepted.
Step 5 the offer, your agent will help you with this. Its a back and forth and you can ask for closing costs, or repairs or anything you ant really, like the furniture? put it in the bid. really anything goes. But remember that teh seller will take the best price with the least requirements.
Step 6 the inspection. GET AN INSPECTION, heck, i would almost recommend getting two. This is your best and cheapest way to find out that your house is great or a huge money pit. your offer is likely contingent on the successful completion of an inspection and or the completion of anything you had added to the bid, like fixing a leak or whatever.
Step 7 the closing, be prepared to write a huge check, and sing your name a hundred times and walk out with some keys! yay you are a home owner.
Step 8 move in, I hope you saved some of that money. you will have a lot of stuff to spend it on. This was actually where we spend like half our savings (The other half was on the down payment) New yard equipment, new furniture to fill out the house, new tools, lots of service people to make small changes to make it our own. Like running cable TV into the master bedroom, or doing some light plumbing (HAHA light plumbing) Some minor electrical work, painting, blah blah blah. You'll find lots of new projects in your new home!
Step 8 only ends when you sell the house and start the process over btw.
Yes, we will be paying PMI but it's only about $135/mo on a $320k mortgage.
We were lucky in that the home we're closing on appraised for $2k over our offer but yes, if you do come in over appraisal that's cash you have to come up with since a lender will only let you borrow what it appraises for minus your down payment.
The interesting thing with PMI will be in this steadily increasing market it may be relatively easy for us to shed the insurance after only a year or two of owning since any appreciation adds to our equity. It'd be great if prices went up another 10-20% over the next few years just as long as we aren't headed for another bubble.
That's fucking terrible, though perhaps understandable given the state of Freddie/Fannie.
PHEW. i never wanted to do FHA again for other reasons, but now it's for sure!
if at all possible try and be able to put 20% down (borrow from family? liquidate some savings?) that is the magic downpayment number you need to avoid having mortgage insurance which is a significant add on to your monthly payment(s).
Start early start early start early. Get your credit report NOW, and start clearing up anything that is on it ASAP, then find a realtor in the area you are planning on moving to (doesn't need to be anyone you actually plan on working with in the long run) and get them to start firing off automated MLS listings well before you actually plan on buying, that way you and your husband can review and track and just "get a sense of what is realistic" and what you might have to compromise on.
If I can get you to do one thing and one thing only: figure out what month you plan on really hitting it hard on your house search.. then Start 3 months earlier.
In my area the market shifted in January and I found myself scrambling to get into a place whereas before I thought I had all the time in the world. I did get into a place, and I am happy with the location, but major major fixer upper.. as in new windows, redo floors and new roof before I even move in :P. But the price was right and the yards are huge, and the location is amazing.
Good Luck!!!!
GIS is evil
This is good advice. When we first started with a realtor I kind of expected to do the typical thing you see in movie where the realtor drags you around to different open houses and shows you where the bathroom is etc.. What really happens is you set some parameters with your realtor on the MLS and it automatically emails you new listings that fit into those specs. It's not a lot of work for a realtor so if you go and tell them you're just getting started and would like to receive the listings for a few months before doing anything they probably won't mind.