Planning to purchase first home - need education

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Topic Author
rex
Posts: 72
Joined: Sun Nov 04, 2012 2:58 am

Planning to purchase first home - need education

Post by rex »

Hi Folks,

We're thinking about purchasing a home in the next year or so and was wondering if someone can point the various facets on which we need to educate ourselves , with pointers to some resources if possible. We have never purchased any real estate / property before and would probably need to start with the basics - from house selection to getting good mortgage rates etc.

Thanks for your help,
Rex.
bloom2708
Posts: 9855
Joined: Wed Apr 02, 2014 2:08 pm

Re: Planning to purchase first home - need education

Post by bloom2708 »

A wide open question...

1. Save up 20% to avoid PMI
2. Have a 6 month emergency fund in place
3. Don't have any consumer debt (like to have)
4. Take out a 15 year mortgage if possible
5. Limit your payment to 25% of take home pay
6. Calculate all the expenses and maintenance. Taxes, Insurance, repairs. Make sure you can do it all and have a nice monthly cushion. Factor in savings (Roth, 401k)
7. If the bank says you can borrow $300k, that doesn't mean you should borrow $300k
8. Check your local credit union and get a few mortgage rate quotes. Think about options like buying the rate down or asking for closing costs.
9. Don't plan on buying your dream home the first time around.
10. Don't plan on making money on your house. Think of it as a place to live and you'll be ok. If you make money it is a bonus.

I'm sure most of these are debatable. Personal preference.

Do your homework, research neighborhoods, don't fall in love with the first house you look at, be on the same page. Good luck.
physicsgal
Posts: 74
Joined: Fri Dec 13, 2013 4:14 pm

Re: Planning to purchase first home - need education

Post by physicsgal »

Just be sure to find a house you really love that will be good for a long time. We almost bought a couple of different houses when we were looking but I'm glad we waited. I love my house! I love being a homeowner even if it's a pain sometimes.


All the stuff already recommended is also good. I had to get a 30 year after getting divorced but 15 is better if you can swing the payments. It all depends on where you are.
WorkToLive
Posts: 729
Joined: Thu Nov 12, 2009 1:19 pm

Re: Planning to purchase first home - need education

Post by WorkToLive »

Good advice above, I'll add to check school district information if you have/plan on kids. Some may also want to check sex offender registry, nearby parks, commute, noise level, walkability, and sidewalk availability. In an ideal world, my house would face north/south. I might look for shade trees, buried power lines, and community amenities like pool, gym, snow removal, and HOA status.
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celia
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Location: SoCal

Re: Planning to purchase first home - need education

Post by celia »

Make the purchase subject to a successful house inspection. Then YOU choose and pay for the inspector and be there during the inspection. You will learn a lot. Anything that is found wrong is a bargaining chip for the seller to fix or allot a dollar amount for it to be fixed which brings your purchase price down.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
Topic Author
rex
Posts: 72
Joined: Sun Nov 04, 2012 2:58 am

Re: Planning to purchase first home - need education

Post by rex »

Thank you all for the advise - very helpful.

Can someone elaborate on how to get the best mortgage rates / how to shop around for mortgage ? I noticed that some CUs have different rates tied with different closing costs . Any thoughts on that ?
bloom2708
Posts: 9855
Joined: Wed Apr 02, 2014 2:08 pm

Re: Planning to purchase first home - need education

Post by bloom2708 »

For our last/final mortgage we did a 5/1 ARM with ING Direct (now Capital One 360). At the time they had a $500 off closing costs. Their other fees were insanely low.

We closed a $130k mortgage for <$300. The Title Co. rep said he had never seen closing costs even close to that.

So check out local options and online options. I loved having our mortgage with ING Direct. I could plop an extra $100 or $200 of principle on anytime I wanted. Overall you should "hate" your mortgage and get rid of it, but you can at least feel you got a good deal, paid low closing costs and got a good rate.

https://home.capitalone360.com/home-loa ... e-mortgage
music_man
Posts: 150
Joined: Mon Apr 28, 2014 12:22 pm

Re: Planning to purchase first home - need education

Post by music_man »

rex wrote:Thank you all for the advise - very helpful.

Can someone elaborate on how to get the best mortgage rates / how to shop around for mortgage ? I noticed that some CUs have different rates tied with different closing costs . Any thoughts on that ?
Try this site: http://www.bankrate.com/. You can search rates from lenders nationally to see if you are getting good deal or not. Another site you can use, which is more of a broker is LendingTree.com. Just be prepared to get a deluge of calls if you go there.
SicEm
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Joined: Mon Jun 02, 2014 4:46 pm

Re: Planning to purchase first home - need education

Post by SicEm »

Up front warning: The following is based off my experience in 2012. Laws and/or practices may have changed. Do your own homework.

It's worth getting a recent book on the topic of loans/mortgages. I bought a new home in 2012 and I am very glad that I bought two books on the topic. Having heard everyone tout credit unions, I went down to my local credit union where I have my main checking/savings accounts and I met with their loan officer. Thanks to my research, I knew what to look for and spotted that she was hiding $3k of overage on the back end of the loan. She lied to me with a straight face about it while trying to slide a second piece of paper over the spot that I was pointing to. I got up and left. I'm not sure that I would have noticed if I hadn't been prepared. I then went elsewhere and found an honest agency.

In the wake of the housing bubble breaking in 2008, laws were changed so that independent loan agencies must reveal all costs in a very explicit, up front way. Like at a car dealership, they will add on plenty of BS fees that are just cost of operating fees. (I asked my car dealership why they didn't have a "window cleaning fee" and a "fake potted plant fee", since they spent money on those, too. They were not amused). So, with independents, you should see every penny clearly itemized. You just have to figure out if any of the fees are junk. Some are absolutely legit, though! Banks and credit unions, however, lobbied to make sure that the new transparency law didn't fully apply to them. They can still hide overage if you aren't careful. This is the reason that many independents were forced out of business (they made the majority of their profits from hiding the true costs of loans). Your bank or credit union may offer you the best deal. But they might also try to steal $3k from under your nose. They will probably also have the same scammy fees that shady independents will foist on you.

And remember - don't shop only by rate. That's like buying a car only based on the price without checking what the delivery fee, advertising fee, document fee, loan fees, etc. are going to be.There is far more involved than just the interest rate. The sharks make money off you by repeatedly pointing to the rate and distracting you from the costs piling up elsewhere.

Buy a book on the topic. You will probably save more than the cost of the book. Try to find a book that was published in the last few years, since the laws have changed dramatically since 2008-ish. The books I used were written before then, so I had some incorrect information, but they still taught me all the correct questions and tricks to be watching for.

Edit: I used Carolyn Warren's books. I highly recommend going to an independent Mortgage Broker in addition to any bank that you contact. Warren's books are very good, though they do not address the new GFEs mandated by congress in 2010.
Last edited by SicEm on Sat Jul 12, 2014 12:05 pm, edited 1 time in total.
General Disarray
Posts: 230
Joined: Sat Feb 08, 2014 12:35 pm
Location: Body in the east coast, but heart in the west coast

Re: Planning to purchase first home - need education

Post by General Disarray »

Maybe start by taking a First Time Homebuyer's class. They tend to have these classes everywhere, either for free or for a small fee. Start there, but keep reading Bogleheads. And take your time with the home purchase.
Topic Author
rex
Posts: 72
Joined: Sun Nov 04, 2012 2:58 am

Re: Planning to purchase first home - need education

Post by rex »

Thank you all - this has been most helpful. I'll probably circle back to this thread with questions. But for now have some studying to do in this area :)
mhalley
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Re: Planning to purchase first home - need education

Post by mhalley »

Make sure you have a good home inspection and have the homeowners correct any major problems. Remember that lots of things are negotiable. Sometimes you can get the homeowner to pay part of the closing costs. Visit the neighborhood at several times of day and several days of the week. Who knows, perhaps the next door neighbor always throws a wild party on the weekend. Try to visit the house when it is raining if there is any concern about leaks. or possible drainage problems.
Having a mortgage pre-approved makes things much easier.
Mike
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