What is the very first step when you're thinking about buying a home?

[Erica in PA]

Or I should say, if you're wondering if buying a home is even a possibility for you? Our rent just went up again, and several friends have told us that we could own something decent in our area for less than the price of our rent. So we're considering that maybe purchasing a modest home might be a responsible move. However, our income is on the low end, our credit is probably average to good, and we're wondering with the tightened credit we've been hearing about, if we will qualify for any amount at all. What should be our first step? Talk to a mortgage broker? A credit counselor? Attend one of those first-time buyer seminars?

 

Dh and I are blessed to have very, very many things in common, which is generally a very good thing. However, one thing that is unfortunate to have in common is that we are both *completely clueless* about finances, budgeting, credit, real estate, investments, and anything like that. So when I say we have no idea what we are supposed to do, I really mean it! No idea.

 

So any information you could pass on would be very helpful. Thank you!

[WTMCassandra]

Some quick thoughts:

 

1. Assemble a downpayment. You probably have to save up several months for this. I would say you should have a minimum of $10,000. Save $3000-$5000 more for closing costs. (Some lenders will let you roll closing costs into the loan, but some won't.) Lenders will want you to buy additional mortgage insurance if you are putting down less than 20% of the cost of the home. So save as much as you possibly can.

2. Talk to a bank you trust and ask to be pre-approved for a conventional (fixed-rate) mortgage. They will walk you through what you need to do. They will tell you what your financial picture is. You don't have to use that lender, but getting preapproved by someone makes the realtor and seller understand that you are serious, and it gives you a good ballpark for what you can afford.

3. Then, and only then, start looking at real-estate listings. Don't buy more house than you can afford. A house payment should only be about 20% of your monthly take-home earnings to be affordable.

Edited April 1, 2009 by WTMCassandra

[springmama]

I used to be a realtor in PA so I feel like I can offer some input. My advice would be to first talk to a mortgage broker and find out what kind of mortgage you will be able to get and how much your payment would be. If the monthly payment is too high for your comfort level, then obviously figure out how much you can mortgage and be happy with the payments. Most realtors are going to want you to be preapproved for a mortgage before looking at homes. Getting preapproved does not mean you have applied for a mortgage or even committed to a particular mortgage company. It's just a process that will tell you how much you can borrow. You would also want to discuss things like closing costs and downpayments with the mortgage broker.

 

After you have some idea of how much you can and want to spend, then you can go find a realtor and start shopping for homes.

[FloridaLisa]

Well, finding a house probably won't be the issue in this market. SO, if you are wondering about financing, I would find a *local* bank to begin talking with. Rates are low, low, low. Find out, based on your credit history and income stream, how much the bank is willing to lend. We have found local banks more attentive and approachable. I also think many local banks are still strong despite the fix many of the flashier national banks are in. Many times it helps if you are willing to transfer all or the bulk of your accounts to the local bank.

 

Once you find out how much the bank will lend and based on your budget, how much you can afford, just go shopping! You're a rare commodity these days so you should be able to find a wonderful deal.

 

HTH,

Lisa

[Erica in PA]

Some quick thoughts:

 

1. Assemble a downpayment. You probably have to save up several months for this. I would say you should have a minimum of $10,000. Save $3000-$5000 more for closing costs. (Some lenders will let you roll closing costs into the loan, but some won't.) Lenders will want you to buy additional mortgage insurance if you are putting down less than 20% of the cost of the home. So save as much as you possibly can.

2. Talk to a bank you trust and ask to be pre-approved for a conventional (fixed-rate) mortgage. They will walk you through what you need to do. They will tell you what your financial picture is. You don't have to use that lender, but getting preapproved by someone makes the realtor and seller understand that you are serious, and it gives you a good ballpark for what you can afford.

3. Then, and only then, start looking at real-estate listings. Don't buy more house than you can afford. A house payment should only be about 20% of your monthly take-home earnings to be affordable.

 

Well, I read #1 and ROFL!! It would take us about 8 years to save up $10,000!!! And then another $3000-$5000? If that is what is needed to buy a home, then we need not look any further, because that is definitely not possible for us.

[FloridaLisa]

Well, I read #1 and ROFL!! It would take us about 8 years to save up $10,000!!! And then another $3000-$5000? If that is what is needed to buy a home, then we need not look any further, because that is definitely not possible for us.

 

 

Oh, but haven't you heard? You can buy with NO MONEY DOWN. ;):001_huh::glare:

[springmama]

Just talk to a mortgage broker before you rule anything out. You do need PMI (mortgage insurance) if you are borrowing more than 80% but it may be worth it if you are currently renting.

[WTMCassandra]

Well, I read #1 and ROFL!! It would take us about 8 years to save up $10,000!!! And then another $3000-$5000? If that is what is needed to buy a home, then we need not look any further, because that is definitely not possible for us.

 

:grouphug:

 

I'm sorry. But banks really like to see a downpayment, in general, so they know that people are not getting in over their heads.

[Erica in PA]

:grouphug:

 

I'm sorry. But banks really like to see a downpayment, in general, so they know that people are not getting in over their heads.

 

No, I appreciate your input. Really, dh and I are fine with renting indefinitely if need be. We're not the kind of people who have a burning desire to be *homeowners.* We just want to try to be as responsible as possible, and if owning would be more responsible for us than renting, then we want to consider that option. That said, if you knew us and our income level and standard of living, you would know how ludicrous it is to think of us having $15,000 in cash saved up! :lol: Really, that is not possible for us, in any way, whether that's what is needed to get into a house or not.

[Julie in Austin]

I'd talk to a local bank anyway and see what they can offer you. I say that because some people can see a hefty tax break for the interest they pay on their mortgage, which means that there might be some cost savings there for you compared to renting.

 

On the other hand: not only will you have a mortgage payment, but also homeowner's insurance, property taxes, exterminator fees, maintenance fees, repair costs, HOA fees, and utilities that you might not be paying as a renter. So be sure to consider all that in determining what you can afford.

 

Good luck.

[Pam "SFSOM" in TN]

Oh, but haven't you heard? You can buy with NO MONEY DOWN. ;):001_huh::glare:

 

Well, we have bought, to date, three homes with no money down. So... ?

 

I would look at extra expenses that you're not thinking of right now. Maintenance, repairs, emergencies (like when the heat pump goes out in the middle of winter), property taxes, insurance for the area you're buying in.

 

And don't see a credit counselor if your finances are in order. If you mean a mortgage broker, yes, do see one and see what's available to you with your current income and credit. But not what is passed off today as a credit counselor.

[FloridaLisa]

Well, we have bought, to date, three homes with no money down. So... ?

 

 

Great! I'm sure there are many who have successfully bought a hosue like this. Just a lighthearted comment given our economy. ;)

 

Also, Erica, there are great tax incentives for first time buyers so be sure to take that into consideration.

 

Lisa

[Mommyof4ks]

I would talk with a mortgage broker (that is just how we do it but others do have success with local banks). The credit crunch is talked about alot on the news, but so far we don't know anyone that has been turned down for a mortgage. There is a program through the government right now (USDA loans) that some of the 'bigger' institutions are offering that require no money down. We are selling our house to a couple with one of these loans, and the closing cost will be partially paid by us and partially rolled into the loan. There will have no money down, but there is the cost of the survey ($400 in our area), appliances (fridge, w/d, microwave if you don't have them), HOA fees if applicable, any repairs that the current owners are not willing to pay for, possibly new paint or flooring if it needs it, homeowners ins. is higher than renters ins., and of course furnishings.

 

Don't forget the $8000 tax credit for 1st time home buyers and credits through the local, state, and federal government for energy efficient upgrades to older homes. There is the tax break for interest on your home that might help off set some of the cost.

 

We like owning, because we can change up the house however we like and we don't have to think about the owners selling the house and so forth, but renting does not require maintenance and moving is not nearly as much trouble as when you own (we don't have a home to move to yet, and we close on the one we are selling in a few weeks, yikes).

 

Good luck, it is a hard choice to make!

[Pam "SFSOM" in TN]

 

Don't forget the $8000 tax credit for 1st time home buyers and credits through the local, state, and federal government for energy efficient upgrades to older homes. There is the tax break for interest on your home that might help off set some of the cost.

 

We like owning, because we can change up the house however we like and we don't have to think about the owners selling the house and so forth, but renting does not require maintenance and moving is not nearly as much trouble as when you own (we don't have a home to move to yet, and we close on the one we are selling in a few weeks, yikes).

 

Good luck, it is a hard choice to make!

 

And please understand that "first time home-buyer" in this instance doesn't exactly mean that. It means that you haven't owned a home in the two years before acquisition of the property.

[Delighted3]

but you do have to pay mortgage insurance, which will make your house payment higher. I would go to a mortgage broker. We used lending tree with great success. People lining up to help us find a loan. That is just what worked for us.

Joy

[Pam "SFSOM" in TN]

but you do have to pay mortgage insurance, which will make your house payment higher. I would go to a mortgage broker. We used lending tree with great success. People lining up to help us find a loan. That is just what worked for us.

Joy

 

And when you've paid down your mortgage to the point that you have 20% equity, you no longer have to pay this.

[amyco]

And when they say, "Don't buy more than you can afford," they mean it. Sure, your broker might tell you that you qualify for a big enough loan to buy your dream house! But keep in mind there are other factors to consider. Houses can be money pits to keep up, and even well built ones will require maintenance (i.e. time and money). Many people can do their own painting and plumbing but sometimes larger expenses come up, or jobs that you don't have the time to do. Also you'll probably have to buy appliances like a refrigerator.

 

And this doesn't even include any cosmetic changes you might like to do, such as new carpet, interior paint, furniture, window coverings, and other decor.

 

So, my only advice is to look at the proposed mortage payment (what they call the PITI payment that includes the principle, interest, taxes, and insurance) and make sure you can comfortably afford that as well as a maintenance budget. If not, then look for a cheaper house/smaller payment. Trust me. We've owned our house for 11 years and I am still amazed that things break! Or need repairs! Crazy. Some days I wish I could just call the office and have them send over the maintenance guy...

[FlockOfSillies]

It's called something like Buying A Home for the First Time, or something like that. We found it pretty helpful when we bought our house 13.5 years ago.

[Sweetpeach]

No money down . . . ummm, yes, I know something about that. :D

 

To answer the original poster's question:

 

Pre-approval is key. (Many folks speak to finding a trustworthy agent, and I agree . . . but even more important is finding a mortgage broker who understands the game. I would need referrals and a long chat over coffee with anyone who was securing me mtg $$$. If it were my first home, I'd find an agent with gray hair. You want someone who's been around the block more than 100 times!:tongue_smilie:)

 

Money down is lovely but if you can get in with no $ down and can still swing mtg payments based over 25 years, then definitely consider that.

 

Renting indefinitely is making somebody else rich. It's that simple. We have rental props, and I feel very sad for the folks who blew their credit out of the water and have no choice but to rent.

 

If you have good credit and feel confident with your $ management skills, I would most definitely take a look at owning a home.

 

It feels like a hill to die on . . . with worry and how much $$ it will cost, but I think you'll be pleasantly surprised as you begin this journey. Build a team and enjoy the ride. Buy wisely. Stay above water.

 

Warmly, Tricia

[fivetails]

Well, I read #1 and ROFL!! It would take us about 8 years to save up $10,000!!! And then another $3000-$5000? If that is what is needed to buy a home, then we need not look any further, because that is definitely not possible for us.

 

Yeah I read that and went :001_huh: and :lol: .....save 15K in a few months? Oy. Most people that I know don't even *make* that much money in a few months, nevermind be able to save it out.

 

I'm in the same boat as you, btw - haven't got a clue about these sorts of financial things... we've only ever rented...

[3littlekeets]

I wouldn't even see a mortgage broker until you have pulled your own credit and made sure everything is clean as can be and accurate. Your school will be "hit" each time you let someone pull it, so pull it yourself first and your score won't drop. Then, if you have errors, get them fixed!

 

Try to look at your credit report and see what you can do to maximize your score. It will matter for interest rates. Are your balances to high or sadly, too low? Do you need to dispute lates or errors?

 

Once you have tackled your credit report, THEN and only then, see a mortgage broker :-).

 

Good luck!

[Sara R]

Renting indefinitely is making somebody else rich. It's that simple. We have rental props, and I feel very sad for the folks who blew their credit out of the water and have no choice but to rent.

 

 

This is the conventional wisdom, and it is true in most economic times. But lately, in many bubble areas, the landlord is getting poorer each month that their property is rented. Rental prices were far lower than fixed rate mortgage payments (like, a thousand dollars or more per month lower), and that's not even including the costs of maintenance and repairs. A landlord would have had to bought the house before the recent run-up in prices in order for renting to make any money, let alone making more money than a CD. There are a lot of "reluctant landlords" out there that are renting because they can't sell their homes, and they are usually losing money every month.

[Sweetpeach]

This is the conventional wisdom, and it is true in most economic times. But lately, in many bubble areas, the landlord is getting poorer each month that their property is rented. Rental prices were far lower than fixed rate mortgage payments (like, a thousand dollars or more per month lower), and that's not even including the costs of maintenance and repairs. A landlord would have had to bought the house before the recent run-up in prices in order for renting to make any money, let alone making more money than a CD. There are a lot of "reluctant landlords" out there that are renting because they can't sell their homes, and they are usually losing money every month.

 

ITA with you about the reluctant landlords out there who are losing money every month . . . if the numbers barely worked before the bubble burst, or if they refinanced, they'll be in a world of hurt for a long time.

 

I still think buying is more profitable then renting over the duration of 25 years, although that decision must be made with brains and not heart/dreams about living in a way that doesn't reflect one's cashflow.

 

Warmly, T

[Kanga]

Jae at www.dollarsandsensebyj.blogspot.com has a series of articles for the first time home buyer. Here is the first article: First Time Home Buying 101. She has 7 - 10 articles in the series and walks the reader through every step of the process, explaining terms along the way.

 

 

ETA: Jae has now started aseries on easy DIY home renovations.

Edited April 1, 2009 by Kanga
add tidbit about renovations

[Zoo Keeper]

One of the best things you can do before you talk to a bank about the possibiity of buying is to pay off some of your current debt. Can you work on paying down a credit card balance? Pay off a vehicle? Student loans? Try to reduce as much as you can before the bank runs a credit check on you. Banks look very closely at how much debt you are currently carrying before they factor in a mortgage.

 

Also, try a local credit union; they tend to be a little more flexible with their lending policies.

 

Happy hunting!

[Guest janainaz]

I know things have changed in a year, but we bought our first home last year - by miracle. We had credit that was on the bad end and about $6,000 in the bank. We had a lot of medical bills, but not any credit card debt from the five years prior. I don't know what they use in considering qualification (not then and not now). I had been working on my credit for a while and I wanted my husband to apply for a loan just to 'see' what would happen and find out how far off we were. We knew a good real-estate agent and he was good with first-time home buyers. We applied for a loan and did not hear back for a week. We figured the mortgage company could not stop laughing. We were shocked when we got approved.

 

We bought what we could afford. I would say that it would not hurt to just find an agent and let them help you through the loan application process. Our agent had a mortgage company he worked with and he was someone we trusted as far as getting a good loan and not pushing us to buy more than we could reasonably afford. It never hurts to try.

[Erica in PA]

Thanks everybody. I appreciate hearing all of the advice and suggestions from you all. I think we're going to put this idea on the backburner for now. We are okay where we are, and we don't have any extra money as it is. I think being a homeowner would only negatively affect our stress levels and time together at this point. While ultimately I think owning a home is a great thing to be able to do, I think that renting is the more responsible path for us right now. Thanks again!

[Erica in PA]

Thanks everybody. I appreciate hearing all of the advice and suggestions from you all. I think we're going to put this idea on the backburner for now. We are okay where we are, and we don't have any extra money as it is. I think being a homeowner would only negatively affect our stress levels and time together at this point. While ultimately I think owning a home is a great thing to be able to do, I think that renting is the more responsible path for us right now. Thanks again!

 

 

Just wanted to add, everyone's advice here was very helpful. Reading the reminders about all of the hidden costs, and all of the money that you need to have onhand when you are a homeowner, was just what I needed to hear. Even if we could get a mortgage payment that is close to our current rent payment, the extra expenses (insurance, taxes, utilities, repairs, the *stuff* we would need to own to take care of the house, etc._ would add up to far, far more money than we currently pay. And we just don't have that kind of wiggle room in our budget. Maybe in a few years when we've paid down some of our debt, we can revisit the issue then.

[Sara R]

Hi Erica! I just found

that walks you through a spreadsheet that compares the different aspects of the rent vs. decision. His

presents crazy Silicon Valley bubble numbers. With the spreadsheet, you can plug in your own numbers.

[Evergreen State Sue]

Erica, I just wanted to say you are a very wise woman to know up front what you can and cannot afford. It is so smart to think ahead, plan, pay down your current debt, and save for your future dreams. I think so many people have gotten in over their heads because all they saw was the dream of owning a home, and at what cost? Many people are one paycheck away from losing their home. You don't want to be in that situation.

 

For your situation, can you find a home for less rent. I'm wondering if there are houses that are sitting unoccupied because they can't sell where the owner would love to have responsible renters like you. The beauty of renting is you can generally pick up and move if you need to.

[keptwoman]

Erica, I just wanted to say you are a very wise woman to know up front what you can and cannot afford. It is so smart to think ahead, plan, pay down your current debt, and save for your future dreams. I think so many people have gotten in over their heads because all they saw was the dream of owning a home, and at what cost? Many people are one paycheck away from losing their home. You don't want to be in that situation.

 

For your situation, can you find a home for less rent. I'm wondering if there are houses that are sitting unoccupied because they can't sell where the owner would love to have responsible renters like you. The beauty of renting is you can generally pick up and move if you need to.

Yes I agree. It's so sensible to not overstretch yourself. Perhaps if you could rent for less you could save a deposit slowly too.

[Jami]

Erica, this really would be a good year to consider buying if you can swing it. With the 8,000$ tax credit (just passed as part of the stimulus package) and the market being friendly to buyers, I'd encourage you to see if you can make it work. :) There are loans that cover 100% of financing. And in a buyers market you're more likely to find sellers who will cover things like closing costs as part of the deal.

 

Jami--who has been renting for 2.5 years now and is looking forward to house hunting next fall. :)