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Quest: Find Shelter by nightfall.. [First-time home buyer]
Redspo0n
Registered User regular
Registered User regular
Greetings all!
So my wife and I have decided we need to start looking at purchasing a house... and we've not the first clue where to start. Down payment? Get the morgage 'approved' before we shop properties? Inspections? Who do I even talk to about a morgage that isn't all predatory? I hear first-time buyers get all kinds of benefit - is that really a thing?
Halp! If we don't find shelter by nightfall, the zombies will come! :P
So my wife and I have decided we need to start looking at purchasing a house... and we've not the first clue where to start. Down payment? Get the morgage 'approved' before we shop properties? Inspections? Who do I even talk to about a morgage that isn't all predatory? I hear first-time buyers get all kinds of benefit - is that really a thing?
Halp! If we don't find shelter by nightfall, the zombies will come! :P
"Hey, want a Skull Servent? He's Evil."
XFIRE:redspo0n (Yep, Zero in there) XBL: Pinkspo0n
XFIRE:redspo0n (Yep, Zero in there) XBL: Pinkspo0n
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Ask friends, family, coworkers about any that have bought property and who they used for a realtor. Because you'll want a realtor. It sorta sucks but the industry is pretty damn well dead set on keeping them required.
Then the first thing the realtor is going to tell you is to go get pre-qualified for a loan. This is really quick stuff, the bank will basically ask about income, debts, and monthly bills and probably run a credit check on you. They'll let you lock in a rate and give you what they're willing to (probably) loan you. Credit unions can usually be better than banks but you won't be locked into any lender at this stage.
Look at houses. Realize they're mostly crap. Find a house that isn't crap. Get outbid. Repeat until you've gone crazy.
But seriuosly find a good realtor. For you buying a house is going to be a major event that you don't get a practice run at. For your realtor, it'll just be tuesday.
Oh, FHA loans are what you'd be looking for. The thing with FHA loans is they have a much lower down payment requirement than a traditional mortgage. (Like 5% versus 20%.) They're also way more strict on inspection requirements and will require you to carry mortgage insurance so they're not an every one thing but do vastly expand the number of folks who can buy a home.
You can't do that with FHA. So FHA vs conventional isn't as cut and dried as you might think. Credit requirements are lower though so it depends on your situation.
Go get prequalified. Then figure out how much you are actually comfortable at paying. Then look at what that can get you.
Right now, most places in the US. Inventory is cleared out, usually this happens before school starts. Most things on the market aren't going to be great and the good ones will get snatched up quickly but you might be able to find a deal.
Find a lender you like. I'd recommend a regional bank that will service the loan. Nearly all loand are sold to fanny mae and freddy mac, but it is still nice to have a place to actually go and talk to someone is you have an issue. Skip the big banks.
I'll probably post more advice later.
Source: I'm an assistant to a realtor.
but they're listening to every word I say
Most mortgage people are decent, but stick to conventional products like a 30 year fixed and don't get fancy. Doing a double loan to avoid PMI is pretty common and not that sketchy - most of the shadiness can be avoided if you stick to the income recommendations (less than 30% of gross) around payments and the fees/rates you see on zillow mortgages, as no one you deal with should be too far off that.
Here's a copy of my standard advice around homebuying:
Instant Dealbreakers:
Foundation Issues
Major Mold Issues
Flood zone
Aluminum Wiring
Major Asbestos usage
My Priority List (also the order of how easy things are to change):
1. Location - School Districts, on or off a main road, neighborhoods etc.
2. Location on Lot - are the facings/windows correct for north/south facing? Is the yard sensible?
3. House Style/Size - is it something you like?
4. Room Layout - bedroom sizes good? Kitchen size good? Good layout for how you use a house?
5. General finishings/Materials - Is everything worn down or ok?
6. Quality of Kitchen - This is the most expensive to redo
7. Quality of Bathrooms - are they usable enough and laid out properly? Moving plumbing can be expensive
8. Paint colors etc. - easy to fix
Also - understand there is no perfect house, but there's also no reason to make serious compromises. Have you and your spouse make a top 5 of "things you like about houses" and top 5 "shit I absolutely do not want". Compare those to every house and resolve any where you have something on your favorite and she has one on her hated etc.
Also be realistic on your time frame and if you have time, take it. There will always be more houses coming on the market so not getting the one right now isn't the end of the world or make it worth overpaying for. Obviously a different scenario if you've got some sort of time limit on moving that you need to be concerned with.
First, when you start shopping for homes, have a general list of things that are musts. Convenience to work? Large enough to start a family? School districts? Just sit down and belt out a list, and be serious, 'cause if you go through with this, it'll put you in serious debt eventually. Now take your list, and realize that very, very rarely will you find a home that has everything on that list. Prioritize which are the most important. And then realize that the most important may not be in every home, so usually 1-2 things become the things you must have. Be prepared to compromise with your partner!
As for loans - first, make sure you know your credit and debt threshold. Once you've got that, figure out if you want to do a conventional loan or an FHA loan. Essentially, if you're down payment isn't going to be 20% of the value of the home, you're forced into an FHA loan. As mentioned, you'll have PMI tacked onto your mortgage until you get equity in your home. Good news, PMI is tax deductible though!
Also, figure some out of pocket expenses on your part. Home inspections run about $500 or so, and closing costs are a catch all term for an array of expenses, like lawyers, title insurance (which you absolutely should purchases), notaries, fees and taxes, and God knows what. You'll also need to provide your insurance company 1 years worth of insurance payments on your home up front - which is an expense that caught me by surprise. Your payments you make will roll into next years mortgage insurance, but you still owe this years.
If you're currently single, do you want a family eventually? School districts take on a whole new meaning when you have a kid.
Concerning prequalifiying, you will generally prequalify for more than you should want to spend. Better to go for a more modest home and have more set aside each month for the regularly occurring "oh shit what now" home-ownership problems than overleverage yourself into a fancy home and be stretched to cover repairs and upkeep.
When buying in your region, look at the style of houses that existed before centralized heating and cooling existed and find something similar. Until such things came to be, houses were built to be efficient in heating and cooling, which is why you never saw massive multi-story mcmansions in Florida as they heat up like a sweatbox nor comfy, stilted bungalows in New England as they don't hold heat whatsoever. While modern heating and ac can compensate, the more they have to strain to keep your house at livable temperatures the more you will be paying. For example, we used to live in a two story, vaulted ceiling townhouse which cost a fortune to keep cool in Florida. Our single story, low roofed home is twice the square footage and costs less than half to cool far lower than the townhouse due to design.
It's not required, but often a perk, if your house has major windows only facing north and south rather than east and west. Most modern builders angle the house NE, NW, SE, SW to avoid direct sunlight into the front and back of homes now as they increase heating through your windows and can be bothersome in glare, but older homes were less concerned with such and more designed for airflow in relation to the era (especially if laid out before 1950).
Be less than 30 minutes away from work in normal traffic. Being able to get home quickly from work, makes such a huge difference in your quality of life, that I would sacrifice size of house and size of yard for it.
Next, live close to stuff like restaurants, supermarkets, banks, schools, hair salons, etc. Within easy biking distance, if not walking distance. This makes life much easier in the evenings and weekends, as you barely have to travel for chores like grocery shopping or haircuts.
You will pay a premium for both those things, but it's worth it. Less time spent traveling, for both work and for chores, means more time spent on yourself, on your family, doing enjoyable or relaxing activities. And that extra time adds up quick.
To build on this - living where you want to be on the weekends, but having that cost you hours of commute time per day (along with the $$$$), is likely a poor trade-off for living somewhere that is convenient for your day-to-day and then traveling on the weekends. People significantly underrate the quality of life difference that comes with having a short commute (or not having one at all). You save literally years of your life not just in time, but in stress as well.
That isn't really correct. FHA loans have lower credit requirements and often a lower downpayment of 3.5% conventional loans typically are 5% minimum. Obviously if you have the money higher down payments are better and 20% is ideal to avoid PMI or the federally insured FHA loans. FHA insurance is usully more expensive than PMI.
So... Like I said it is complicated.
You'll want to look into first time home buyer programs. Typically these are run by the state. Look for your state housing authority website to see what these are.
but they're listening to every word I say
When doing the home inspection get years for major appliances, and mechanical items.
Heater AC dish washer water heater oven fridge.
If the HVAC is over 20 years old plan to have them replace it next off season (fall winter for AC spring summer for heat). If your appliances are over 10 years old think about replacing them. Definitely replace old water heaters and dish washers. They wreck floors.
Depending on your household income and where you're planning to buy, there also may be USDA Rural Development loans available.
http://www.rd.usda.gov/programs-services/single-family-housing-guaranteed-loan-program
They have lower downpayment requirements and no PMI even if down payment is less than 20% (instead there is a flat 2% fee at purchase time that can be rolled into the loan). They do have income and location limits. That said, I live like 15 minutes from a modest midwest city and the location was fine.
Things you should do before you even start looking
1 - know your budget: split out how much you can afford for your monthly payments, insurance, water, electrics, etc. You do not want to be house poor.
2 - do you have some kind of down payment set aside? Add additional 3%-5% for closing cost. Many people tend to forget this.
3 - look into your state/city/town programs for First Time Home Owner classes/workshops. This can help you with getting a lower rate and they may offer a down payment assistance program. My rate was dropped .08% because I took a class.
4 - You can look for lotto programs for affordable housing, but be weary on the locations they are in. Sometimes it's in amazing locations, and sometimes they're in places that the cities are trying to improve.
5 - Get a realtor who is willing to work with you and guide you. If they're not willing to, you better find a new one. Don't sign any paperwork that they are representing you unless you are sure you want to work with them.
When you find a place, always do a home inspection. I'm not kidding. If there is a cause that the seller doesn't want you to do it, or you're feeling like you can skip it, don't. Home inspections are there to protect you and to ensure that everything is safe and up to code. If you live in a place that has well water, do run all the taps to ensure you don't run out of water. That just happened to a buddy of mine when he did his home inspection. Would cause a few thousand to get a new well set up to ensure that doesn't happen if he bought the place.
Looking for Edith Finch Pin!
There are a ton of things to check, and it would just be a mess to call out every item, shoot me a PM if you want to talk about the inspection in more detail.
Where to start:
As others have said, your first steps are the following, and in no particular order but of equal importance.
1) Get pre-approved from a financial institution, be it your bank or a credit union. You can also discuss terms such as down payment requirements and whatnot.
2) Find a realtor. Don't be afraid to shop around a bit if their personality doesn't jive with you. Remember, their job is to help you through the whole process and find your perfect house. That can be hard if you don't like them or feel they aren't treating you fairly.
3) Sit down and figure out what you're comfortable with, financially. Note, this is more than likely going to be (substantially) less than what you are pre-approved for. It's probably gotten better in the last 6 or so years, but even I was pre-approved for a big chunk more than I knew I could comfortably afford.
Your realtor is going to want to know the price range you're looking at. Give them a decent range including perhaps slightly above what your ideal price would be. You can talk someone down if need be, but if your limit is say 250K, there may be things in the 260-265K range that would be ideal for you, and you could negotiate them down closer to your budget.
Not knowing where you are (or what country even), here's some rough tips for the whole house hunt:
-There are some properties out there that offer special financing options. Assuming you're in the US, these include HUD, FHA, USDA, VA, and (at least around here) Homepath (a Fannie Mae thing). Each has slightly different perks/rules/requirements and usually more strict inspection requirements. They all will allow you to get a loan with a better rate, a lower down payment, and reduced or no PMI.
- The cost of the mortgage is not the cost of the mortgage. This seems a bit odd, but many times what you see advertised (Get this house for $XXX mortgage) is misleading. The true cost of your mortgage is that, PLUS your home owners insurance, property taxes, and (where applicable) HOA and City taxes. All that non-mortgage stuff goes into what's called your "Escrow" account. This is what the bank/mortgage company uses to pay all those items on your behalf. so your actual mortgage cost is the mortgage + your escrow. When looking at a house, take all of that into account. That house might look like a good deal pricewise, till you realize the taxes and HOA are going to cost you 500+ a month.
- HOA's. Home Owners Associations. These are sort of like the neighborhood council/union. They collect "dues" or HOA fees and what they are in charge of varies. Some provide snow removal. Some provide parks and outdoor spaces. Some just dictate that your car can't be parked on the street, or that you must mow your lawn in a diagonal pattern, and only on Thursdays after 5pm. You should be provided a copy of any HOA bylaws should you be putting a contract on a house that has one. If not, run.
- Foreclosures and Shortsales. These can look like a good deal. And some are. But they can also be disasters. A foreclosure is someone who couldn't afford the house, and the bank repossessed it, and are now trying to offload it for cheap. Oft times, the prior owners do damage on the way out. Sometimes significant damage. Most times these will be winterized and not have power or water when you come through for a walkthrough. If you're handy though, you can get a much bigger/nicer property for less money. If you're not, factor in the cost of having these repairs done. Also, and you should be doing it anyway, but GET AN INSPECTION and make it a contingency. the utilities have to be on for the inspection, so if the water heater explodes or the toilet ruptures, you want to have that happen on the bank's dime, not yours.
Shortsales- This happens when someone owes more money than they can realistically sell the house for, and they try to make a bargain with the bank to sell the house for less than owed to avoid a foreclosure. Banks will oft agree to this because foreclosing can be a long and costly process. That said, expect a shortsale to take FOREVER and just because a house is listed for a certain price, that does not mean the bank will actually accept that price. Because the house (and taxes) are still on the current owners dime, the bank will take their sweet old time dealing with it.
- Big Ticket repairs: There are some items that are pretty costly, and have to be fixed/replaced as part of routine maintenance. You'll want to keep an eye on them and ask their age or check these things out for every house. They include, but are not necessarily limited to:
* Water heater - 8-12yr lifespan
* Roof 20-30 years. Sometimes they put a "second roof" on over the old roof. A second roof oft times has a shorter life than a completely new roof
* Appliances - assuming they are staying. If not, 3-5K for a full new set is not unheard of.
* Plumbing - polybutylene plumbing was huge in houses built in the 70's/80's. It's a flexible gray tubing and most home insurances won't cover it anymore. Why? because it has a nasty habit of rupturing suddenly and without warning and flooding houses. If the house has this plumbing, it needs to be gutted. Note, this is different than PEX, which is acceptable for today.
* A/C and Furnace (HVAC) - Anything 15+ years old is going to be so inefficient that it would be well worth the cost in the long run. Really they say every 8 years the efficiency rises enough to warrant it, but that would be excessive.
We've found a house we like! What now?
Well, now you get to put in a contract. This means you'll sit with the realtor to come up with your desired purchase price (this does not have to be the list or asking price. Your realtor can help guide you with what would be a "reasonable" offer, usually slightly under asking). You can also include in here riders such as closing cost assistance, contingencies such as inspections, financing, appraisal. You can also include language that limits how long the contract is valid (i.e. response required within X days). That may seem overkill (and in most cases it is) but in some cases like short sales, it can prevent you from being locked in a contract holding pattern for months. The seller may counter offer and you can either accept, counter back, or walk away. Remember. You can ALWAYS walk away, and that can be your most powerful asset.
Also, expect to have to make an escrow deposit around this time. A couple thousand dollars to essentially say "Yes. I'm serious". In my case, it was a check I gave to the realtor but was never cashed until I had a contract that was accepted.
We were accepted! Now what happens?!
Now shit gets crazy. You'll want to schedule your inspections, and YOUR bank will probably want an appraisal for the financing. When it comes to inspections, you want the most thorough one money can buy, because it will always be money well spent. You at minimum want the generic home inspection and a termite inspection. These will go over the structural integrity of the main house, including foundation, roof, walls, doors, appliances, utilities, etc. Be there for it. You will want to see everything and let them directly point stuff out to you. Ask questions. Ask ALL the questions. See a worrisome crack? ASK! Curious how old the HVAC is? ASK! At the end, you'll get a report with all the details and findings. Termite inspection should be self explanatory. They're bad shit. Additionally, depending on the property, you may also want : Chimney inspection, pool inspection, well inspection, mold inspection, radon inspection.
Depending on what the inspection(s) find, as well as the appraisal, you'll be able to again try negotiating the price. For example, if the inspection says the deck is too wobbly and needs to be repaired, you can ask for the seller to either fix it, or take the cost of the repairs off of the purchase price. Once those negotiations are done, you'll set a closing date.
Closing? What's that!?
Closing is where you go to sign your life away, hand over (what will probably be) the largest check in your life, and get the keys to your house. Hooray! It's Yours! But lets rewind a minute. The day of/before closing, you should have a final walkthrough. This is to prove the house you're getting, Today, is still the same condition as the house you wanted to buy. Many times closing is 30+ days after you initially submit a contract, and a lot of shit can happen in 30 days. It's also where you can verify that things the seller was supposed to fix are actually fixed.
Also, at closing, you'll be expected to fork up the money for closing costs/down payment unless that is being rolled into the mortgage/a second mortgage. This varies based on the cost of the house. As a first time buyer, you are exempt from transfer taxes. It's not much, but should save you a few hundred bucks. Beyond that, it may depend on the state/current incentives.
When I say you want a long serviced by the bank I mean the loan will almost certainly be sold to fannie or freddy. Unless you are an A+ king of the world kind of client the loan won't be owned by the bank. Most then have you call somewhere else with loan problems or payment issues.
Some banks will sell the loan but still service it. Which means they will contact fannie or freddy for you with issues. And they should act as your advocate. Look for this in a loan. Look for a good loan officer who explains things to you and communicates promptly.
skip the big banks
but they're listening to every word I say
I have recent personal experience with huge plumbing issues. I had ~50 year old cast iron plumbing under my house, and perhaps someone did tell me it was near the end of its useful life, but I didn't take it to heart nor think about how I would know whether it was. If you find such a house, I'd recommend paying to have the plumbing tested, with a hydrostatic pressure test, where the plumber temporarily blocks of drainage to the main sewer line, and pumps water into the plumbing under the house to see if the water level holds, or if it drains meaning you've got leaks. In my case, I would have found significant drainage going on, which I'd suspect is why I also had to get my foundation repaired, and most people probably can't afford to fix both at the same time. :Potentially the owner won't agree to it, but I'd consider it very non-invasive testing.
Get as much information as you can about property tax rates in your area. Where I am in Austin, market rates are increasingly pretty rapidly, so I can expect a pretty consistent increase in my property taxes paid each year for many years to come, but I also know that appraisal increase is capped at 10% via Texas state law, so I was able to factor that in to what I thought I could afford in my monthly payment.
XFIRE:redspo0n (Yep, Zero in there) XBL: Pinkspo0n