First Time Home Buyer

[Trey22]

Attempting to wrap my head around the entire process, a step at a time. I've been reading a lot of material on the home purchasing steps.

What complicates things is that I live in CA and we're looking to buy a house in MI. We both have what would be considered excellent credit, have enough for a down payment, etc.

Find a real estate agent? Will they walk you through the process, or are there areas that you need to figure out or learn yourself?

Get a pre-approved loan? If so, from where? My bank? A bank in the area I'm looking to purchase?

How does a short sale differ from a regular house-for-sale? Is there bargaining space in both instances?

There are so many acronyms on listing pages it's mind-numbing! Any advice to those that have gone through the process would be appreciated. Especially if you've purchased a house outside the area you lived in.

Cheers,

Trey

 

[Syrch]

Don't trust your loan officer or your real estate agent. They are getting paid way too much. Take your time and find a house you will love to live in for a long time.

Short sale is a home about to be foreclosed on.

Yes get preapproved so you know what amount you can afford for a house

and i would get a real estate agent, they can at least show you some nice homes.

 

[xalos]

I would get an agent. It will be "free" for you especially if the seller has an agent since they split commission. They can help out with everything and make your life so much easier.

 

[OCGuy]

Your agent and bank will have to be licensed in the state you are looking to buy in.

Are you moving there or is it a rental? Is your job there secure? Is it in the same line of work you are in now? Do you start right away? Do you have a 2 year job history in the same field with little or no gaps?

Short sales take months and months. If your real estate agent is good, your loan will be free (seller crediting costs).


Just finally got a short-sale accepted for my buddy after 3 months. He is putting 3.5% down, 5.375% on a 30 year fixed, seller paying all costs.

 

[phoenix79]

Get an agent that specializes in first-time buyers, they will walk you through the process every step.

 

[mcurphy]

Originally posted by: Trey22
Get a pre-approved loan? If so, from where? My bank? A bank in the area I'm looking to purchase?

When I purchased my home 2 years ago, several people suggested to apply for pre-approval at several different banks. Of the 6 I applied at, the local bank in the small town I moved to had the best interest rate and lowest closing costs. Even better than my Credit Union for which I have been a long time member.

 

[Trey22]

Originally posted by: OCguy
Your agent and bank will have to be licensed in the state you are looking to buy in.

Are you moving there or is it a rental? Is your job there secure? Is it in the same line of work you are in now? Do you start right away? Do you have a 2 year job history in the same field with little or no gaps?

Short sales take months and months. If your real estate agent is good, your loan will be free (seller crediting costs).


Just finally got a short-sale accepted for my buddy after 3 months. He is putting 3.5% down, 5.375% on a 30 year fixed, seller paying all costs.

I will be moving there. When is a matter of if the house is in or near move-in condition (our preference), but we are willing to take a property that needs works (two of my family members out there run their own building and construction companies).

I've been with my current company for 11 years, and plan to stay with them and work as a remote tech.

Appreciate the info.

 

[HardcoreRobot]

I would get a good buyers agent in the area you are buying, but rely on them only to facilitate the documentation, closing, negotiations etc. You should be able to find a lot of properties to look at via the web, then have your agent set up the showings. many buyers agents will also return a portion of their commission to you for using them.

ask friends for recommendations on lenders. get as many quotes as you can tolerate the paperwork for. preapprovals are good to know your budget, but IMO if you cant figure that out properly on your own you should not be qualified to buy...

 

[Sea Moose]

i am going through the same thing

1) Do your homework. How much can you borrow, how much do you earn, all banks have online calculators do up a budget
2) put information into a folio and then book an appointment to see how much you can afford to borrow
3) Once you have loan approval, and you know how much you can borrow, go house hunting


thats as far as i am in the process

 

[dullard]

A good real estate agent should help you on most things. They'll answer all of your questions that you posted here. But, do realize, that they get paid based upon the final price. So, ultimately, a real estate agent's goal is to get you to pay as much as possible (yes, this is true even for a buyer's agent). A buyer's agent is your best friend up until the time that you make an offer. Then they are your worst enemy. I suggest that you get a buyer's agent, but think carefully about their price suggestions.

The current trick for them to earn more is to have the sellers "pay" for your closing costs. Basically here is how it goes. I'll use my very own house that is being sold right as I type. My house was on the market for $185k. I would have accepted $180k and would have been happy in this market to get $180k. The buyers came in wanting to pay $180k AND have me (the seller) pay their closing costs (about $5k). I told them it is one or the other - either (1) they get the $180k price or (2) I pay their closing costs on a $185k price.

To the buyer, both deals seem the same - they net $180k out of their pocket at the time of the purchase with either option (1) or (2). But, here is the catch, the real estate agents (buyers and sellers) get $150 more each in option (2) since they each get 3% of the price, not of the net price. On top of that the buyers will now pay mortgage interest on that $5k for the next 30 years AND the house will be taxed at a far higher value. The sellers THINK that they are getting a great deal by having me pay their closing costs, but in the end I lose $300, the buyers lose thousands (interest + tax), and the real estate agents gain $150 each. Of course, both real estate agents strongly pushed option (2) and that is the option that the buyers took.

Yes, get pre-approved. It costs nothing and it lets you know what you can afford to buy. That way, you aren't wasting your time on houses that you can't buy. You also don't waste the buyer's time and the real-estate agent's time. Any bank will do for a pre-approval. You don't have to use that bank when you get your mortgage.

A short sale means the seller sells the house for less than they owe the bank. There is bargaining space in both cases. But with a regular sale, you only have to have the seller agree. With a short sale you have to have the seller, his/her bank, and anyone else with additional mortgages agree. This process takes a lot more time (3 months at least, my fiancee took 9 additional months for her house) and is more difficult. But, you can get a great deal that way if you are willing to wait.

 

[RyanPaulShaffer]

Originally posted by: dullard
A good real estate agent should help you on most things. They'll answer all of your questions that you posted here. But, do realize, that they get paid based upon the final price. So, ultimately, a real estate agent's goal is to get you to pay as much as possible (yes, this is true even for a buyer's agent). A buyer's agent is your best friend up until the time that you make an offer. Then they are your worst enemy. I suggest that you get a buyer's agent, but think carefully about their price suggestions.

The current trick for them to earn more is to have the sellers "pay" for your closing costs. Basically here is how it goes. I'll use my very own house that is being sold right as I type. My house was on the market for $185k. I would have accepted $180k and would have been happy in this market to get $180k. The buyers came in wanting to pay $180k AND have me (the seller) pay their closing costs (about $5k). I told them it is one or the other - either (1) they get the $180k price or (2) I pay their closing costs on a $185k price.

To the buyer, both deals seem the same - they net $180k out of their pocket at the time of the purchase with either option (1) or (2). But, here is the catch, the real estate agents (buyers and sellers) get $150 more each in option (2) since they each get 3% of the price, not of the net price. On top of that the buyers will now pay mortgage interest on that $5k for the next 30 years AND the house will be taxed at a far higher value. The sellers THINK that they are getting a great deal by having me pay their closing costs, but in the end I lose $300, the buyers lose thousands (interest + tax), and the real estate agents gain $150 each. Of course, both real estate agents strongly pushed option (2) and that is the option that the buyers took.

Yes, get pre-approved. It costs nothing and it lets you know what you can afford to buy. That way, you aren't wasting your time on houses that you can't buy. You also don't waste the buyer's time and the real-estate agent's time. Any bank will do for a pre-approval. You don't have to use that bank when you get your mortgage.

A short sale means the seller sells the house for less than they owe the bank. There is bargaining space in both cases. But with a regular sale, you only have to have the seller agree. With a short sale you have to have the seller, his/her bank, and anyone else with additional mortgages agree. This process takes a lot more time (3 months at least, my fiancee took 9 additional months for her house) and is more difficult. But, you can get a great deal that way if you are willing to wait.

For some people (especially first-time home buyers), they don't have the cash laying around to bring the down payment plus thousands in closing costs to the closing table. So, having the seller pay the closing costs, even if it raises the mortgage and tax bill a little bit, is the best option for them.

 

[dullard]

Originally posted by: RyanPaulShaffer
For some people (especially first-time home buyers), they don't have the cash laying around to bring the down payment plus thousands in closing costs to the closing table. So, having the seller pay the closing costs, even if it raises the mortgage and tax bill a little bit, is the best option for them.

That possibility is the reason that I didn't fight the choice for option (2). It only cost me $300 to make certain that I get the house sold soon. But, that reason is not valid for all first time home buyers. The real estate agents will push it hard though.

My basic point is that real estate agents are great, but when it comes down to two similar options, they almost always push the option that nets them more money. That MIGHT be the best option for you. But, don't just blindly follow their advice. If the buyers instead blow it on things that they don't really need (probably quite common for young American buyers), then in the end it hurts them.

In my particular buyer's case, they'll be paying $100 more per year on taxes and $300 more per year on interest. If they didn't absolutely need the money up front, then that $400 a year will cost them (and more than "a little bit" as you mentioned). Also, that trick tends to get people into more house than they really can afford. If you can't afford to get the down payment and closing costs, you might not be able to truely afford the house. But we don't need to get into the causes of the recent housing crash in this thread, I assume you know all about that.

 

[RyanPaulShaffer]

Originally posted by: dullard

Originally posted by: RyanPaulShaffer
For some people (especially first-time home buyers), they don't have the cash laying around to bring the down payment plus thousands in closing costs to the closing table. So, having the seller pay the closing costs, even if it raises the mortgage and tax bill a little bit, is the best option for them.

That possibility is the reason that I didn't fight the choice for option (2). It only cost me $300 to make certain that I get the house sold soon. But, that reason is not valid for all first time home buyers. The real estate agents will push it hard though.

My basic point is that real estate agents are great, but when it comes down to two similar options, they almost always push the option that nets them more money. That MIGHT be the best option for you. But, don't just blindly follow their advice. If the buyers instead blow it on things that they don't really need (probably quite common for young American buyers), then in the end it hurts them.

In my particular buyer's case, they'll be paying $100 more per year on taxes and $300 more per year on interest. If they didn't absolutely need the money up front, then that $400 a year will cost them (and more than "a little bit" as you mentioned). Also, that trick tends to get people into more house than they really can afford. If you can't afford to get the down payment and closing costs, you might not be able to truely afford the house. But we don't need to get into the causes of the recent housing crash in this thread, I assume you know all about that.

I agree with your statement that I bolded.

As for your last paragraph, the millage rate is so high in your area that adding an extra $5000 costs them $100 more a year in taxes? Wow. Where I live, adding $5000 to the assessed value of the home would add like...$30 a year in extra taxes.

Doing the rough calculations with a mortgage rate calculator, financing at $180,000 (assuming 0% down, which no banks really allow any more, but I don't feel like doing the math with a down-payment ) with a 5.5% interest rate (which is the average for a 30-year fixed right now) gives a payment of $1022.02, and financing $185,000 at the same rate gives a monthly payment of $1050.41. So, even assuming that ALL of the extra payment amount is going to interest, that is $340.68 extra a year. Now, maybe at the beginning, that will go towards interest, but that won't always be the case throughout the life of the loan. Over the life of the loan, they will have paid $10220.40 for that $5000 (so roughly double) but again, not all of that amount will be money entirely wasted on interest. And there is always the option of paying more than your monthly payment amount and applying it to the principal (paying the money gradually instead of all up-front as lump sum), thus lessening the impact of borrowing a little bit more to cover closing costs.

I guess my point is that many people can afford the monthly payments, but they just don't have an extra $10,000+ sitting in the bank ready to drop at closing. And it isn't some huge, gigantic waste of money...they will pay a bit more long-term, but for some, it is worth it. That is always the case when you borrow money...you pay more long-term in order to get the money you don't have now.

But, I understand your sentiment, that a buyer shouldn't just blindly do whatever the realtor says. You need to evaluate your situation and make an informed decision.

 

[dullard]

Originally posted by: RyanPaulShaffer
As for your last paragraph, the millage rate is so high in your area that adding an extra $5000 costs them $100 more a year in taxes? Wow.

It is in Nebraska - house values are low and they have a lot of expenses due to the area size of the state (and counties/cities). That means the house tax rate is high. I don't have the exact numbers handy, but I remember that it is right about 1.9x% of the house value each year. So I rounded up to 2%, $5000 * 2% = $100.

So, even assuming that ALL of the extra payment amount is going to interest, that is $340.68 extra a year...

I didn't recheck but your numbers seem reasonable. You are correct that the $340 will drop as the loan goes on.

If they need the $5000 in closing costs, then it may be a good choice. But, if they don't need the $5000, then they'll be paying a lot more - probably without ever knowing.

 

[RyanPaulShaffer]

Originally posted by: dullard

Originally posted by: RyanPaulShaffer
As for your last paragraph, the millage rate is so high in your area that adding an extra $5000 costs them $100 more a year in taxes? Wow.

It is in Nebraska - house values are low and they have a lot of expenses due to the area size of the state (and counties/cities). That means the house tax rate is high. I don't have the exact numbers handy, but I remember that it is right about 1.9x% of the house value each year. So I rounded up to 2%, $5000 * 2% = $100.

So, even assuming that ALL of the extra payment amount is going to interest, that is $340.68 extra a year...

I didn't recheck but your numbers seem reasonable. You are correct that the $340 will drop as the loan goes on.

If they need the $5000 in closing costs, then it may be a good choice. But, if they don't need the $5000, then they'll be paying a lot more - probably without ever knowing.

Right on! I agree. :thumbsup:

That option should only be considered if they know they absolutely cannot afford to bring the closing costs to the closing table. I do get what you were saying though...a lot of folks will be like, "Wow, I don't have to pay $5000 when I close? Sign me up!" when they actually have the money, and don't understand the long-term cost associated with borrowing more.

 

[Red Squirrel]

Definably get an agent. See if someone can recommend you a good one. I recently bought a house through a real estate agent and it was a great experience. We had goot laughs and fun along the way, does not always need to be super serious. Every weekend he'd take me and usually my mom or sister for a drive to see a few houses from total junk to mansions, just to give an idea of what is out there, and of course houses in my price range.

While the agent does his/her job finding houses you should still house hunt and call up your agent if interested to see a home. The one I ended up buying was one my agent did not show me without me asking. It had lot of repairs so either he totally never thought of showing it to me, or it had JUST went on sale. Think that was the case, I caught it before he did.

And make sure the agent knows it's your first home. Mine gave me good tips on stuff to look out for in the house, when looking at one. Things like foundation cracks, electrical. Step near the toilet to see if the ground feels soft (indicates leak/rotting) all simple inspections you can do on your own.

Then when you do find "the one" make sure to put a house inspection as one of the conditions, so you get it inspected within the alloted time (think it's a week) and that way if there's too many issues you can cancel the deal and keep looking.

On and always bring someone with you, as a first time buyer every house has potential, but someone else can help you decide if it simply has too much work or not.

 

[Trey22]

Time to: find an agent, get pre-approved.

The houses we're looking at are in the 50k range (bungalow style 3br/2ba/garage/basement).

My brother-in-law will be handling the inspection.

 

[Red Squirrel]

Originally posted by: Trey22
Time to: find an agent, get pre-approved.

The houses we're looking at are in the 50k range (bungalow style 3br/2ba/garage/basement).

My brother-in-law will be handling the inspection.

Yes for sure, forgot to mention that. No point in looking for a house if you don't know what the bank will give you. You don't want to find "the one" only for the bank to reject it.

for 50k it's not so bad, that's like a 35k mortgage if you put 15k down which is a reasonable downpayment, so if you actually find something decent for that price, then awesome. That's like a 5 year mortgage probably.

Just to give an idea I'm fairly new to the "real world" (2+ years working full time from College) and I was preapproved last year for 150k and this year 200k, ended up buying for 165k. As a rule of thumb try to buy about 50k lower then what you're preapproved for. This will give you more breathing room.