Buying a home for the first time (mortgages!)

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camillus24
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Buying a home for the first time (mortgages!)

Post by camillus24 » Fri Dec 30, 2016 3:55 pm

Hi,
Wife and I are planning to return to the US from an international assignment and buy a home for the first time in Texas. We have location picked out and a few candidate homes (range from 350K - 450K) already in mind. Financial context below the line.

However, have never had a mortgage of any kind and would like any input / opinions on the following:
1. What is the best process to ensure getting the best interest rate / lowest fees? e.g., are there helpful websites vouched for by Bogleheads, do we need to call / visit a variety of banks in advance, etc.
2. Given the financial context below, is there a particular type of mortgage that bogleheads would recommend ? e.g., fixed vs. ARM, 15 vs. 30 year, doc loan, etc.
3. Any other tips or thoughts unrelated to above that might be helpful?

Thank you all in advance!
_______________
Age / Profession: 35-year old health care consultant (formerly a physician) for him; 34-year old teacher for her

Income(s): His -- ~435K in 2016, 295K in 2015 (likely back to ~2015 levels for the next 2-3 years though with job flux /loss a risk; note: even with job flux willing to take risk of home ownership for psychic reasons); Hers-- 35K in 2015 and 2016 (though will be stay-at-home mom for next 1-2 years)

Retirement: Max out each year tax-advantaged accounts (51K for him and 18K for her) for the last 5 years given late start to earning years and debt pay-off; excess goes into taxable (simplified description given impact of international assignment taxation quirks)

Debt: None; Emergency fund -- 6 months of expenses in place with I-bond / cash mixture

Demographics: 2 kids (5 and 3 years old)

Down-payment ability: Yes, though upto about 100K limit without liquidating taxable due to bonus pay-out

Credit rating: Very good for him (770+); mediocre for her (600+) due to missed bill dispute with apartment complex in 2012

remomnyc
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Re: Buying a home for the first time (mortgages!)

Post by remomnyc » Fri Dec 30, 2016 4:23 pm

With respect to mortgages, I would start by calling Wells Fargo and assume minimum 20% down and loan equal to 2 to 3x salary max. (If the homes you want are outside of these parameters, I would save more money.) I would then compare rates with a mortgage broker and call other national banks (Chase, Bank of America, Citi) for quotes. The last time I checked, many major banks no longer work with brokers. You can tell them your credit rating so they don't have to pull it for a quote. Make sure you know upfront fees, etc so you compare apples to apples. I would stick to a 30-year fixed if you are staying put. Ask if you can get one that allows recasting if you want to use your bonuses to reduce principal AND monthly payments. If you are buying your starter home and planning to upgrade in 5 to 7 yrs, you could get a 5/1 or 7/1 ARM. If so, make sure buying and selling costs make buying for shorter periods worthwhile. (I like the NYTimes buy vs rent calculator.) Given your lack of liquidity and job security, I would steer away from 15-yr loans. If you plan to pay it down quickly, I love 10-yr interest only loans. Given your significantly better credit rating, you may want the mortgage in your name only but you can add your wife to the title. Your lender can let you know the rate differences from having her on the mortgage. Also, make sure you have sufficient term life insurance for your family. If you are a one-income family with dependents, I would increase your emergency fund to at least one year of expenses, probably two if you have a big mortgage.

ff4930
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Re: Buying a home for the first time (mortgages!)

Post by ff4930 » Fri Dec 30, 2016 4:35 pm

1. What is the best process to ensure getting the best interest rate / lowest fees? e.g., are there helpful websites vouched for by Bogleheads, do we need to call / visit a variety of banks in advance, etc.
2. Given the financial context below, is there a particular type of mortgage that bogleheads would recommend ? e.g., fixed vs. ARM, 15 vs. 30 year, doc loan, etc.
3. Any other tips or thoughts unrelated to above that might be helpful?


I may not have the most experience in financial background but I did recently purchase a home and can offer my 2 cents.
1 - Def shop around. Not only the big banks (Citi, Chase, etc) but also smaller private banks. I was able to get a really good interest rate with a smaller bank. Also remember is the interest rate that matters, the bank don't. Essentially your mortgage may very well be sold to another bank shortly after. My mortgage was sold to another bank after a month. So no need to be "loyal" to any bank.

Also pre-qualify means nothing. Even pre-approval sometimes don't mean anything but gives you a decent idea on if you qualify or not. Also, do not be afraid of frequent credit checks because essentially each bank may need to run your credit. Your credit score will get impact the same as if you ran your credit check once vs 4 times at a given interval say 1 month period.

Also, do hire an attorney. They are relatively inexpensive. Mine was $500 and she did everything from title search to lien search to anything legal questions I had. My attorney was with me every step of the way including day of closing. So I would def look into an attorney.

2 - Fixed or ARM, or 15 vs 30 is all depends on your preference. If you plan on staying in the home for many years then do fixed. If you want a piece of mind and can afford the bigger monthly mortgage payment then do 15 years.

Hope I was helpful.

hille141
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Re: Buying a home for the first time (mortgages!)

Post by hille141 » Fri Dec 30, 2016 4:58 pm

We just completed a refinance back in October. What I did was go to Zillow Mortgages and put in the basic info and it comes back with many lenders and estimates. I took the lowest 3 and got quotes from them (requiring slightly more information emailed to them). You can compare these easily to the big banks, just check their sites (they won't be close).

The lender we selected was Home Point Financial. No fees, no points, 15 year fixed, 2.75%. Looks like even now a similar loan would be 3.25%.

We went with a 15 year fixed since paying off the house early will give us more options. We will be ~45 with a paid for house instead of ~60. Allowing us to move up in house or retire early with no worry of a house payment. Even on a 15 year, PITI is only 17% of our gross income. Looks like you would be in a very similar situation with your income and home price.

What I would recommend is with your wife's credit and relatively small income, you get approved for the loan on your own. Your income and credit score should easily qualify for the best rates, especially with a strong down payment.

Best of luck.

mattshwink
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Re: Buying a home for the first time (mortgages!)

Post by mattshwink » Fri Dec 30, 2016 5:33 pm

1. Most helpful I have found is http://www.mtgprofessor.com. Best advice is to shop around. I have had three mortgages: First was a 4.875 ARM in 2006 http://www.amerisave.com. Second was a refinance in 2013 20 year fixed for 3.375 with http://www.goodmortgage.com. Third was this July for a 30 year fixed at 3.375 with http://www.aimloan.com. It's the biggest purchase you will likely ever make (until your next house). The mortgage professor has some great tips for mortgage shoppers and how to shop for a loan.

Second piece of advice is to not be cash myopic. Some people get caught up in the fees they are paying in a mortgage. You have a good cash position (20% downpayment and ~50k left for closing costs. If you feel you will be in the home for a few years, don't be afraid of paying points to lower the rate (the mortgage professor has some great calculators that will show the breakeven point).

2. Hard to determine since you think you might not be in the same place (but don't know for show). You have really good income, so a 15 year may be worth while. But if your holding period will be short (5 years?) then an ARM may be useful. Since rates are rising, though, I would stick to fixed rate, unless you don't think you will be there long.

3. Nope, good luck!

bds3
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Re: Buying a home for the first time (mortgages!)

Post by bds3 » Fri Dec 30, 2016 8:52 pm

Your profession puts you in an advantageous position for loans, so don't forget about the physician mortgage loan. The larger banks that have them in each state can be found on some websites (just do a google search), otherwise ask your colleagues and they may know of some local banks as well. The benefit to most young (younger than you) physicians is of course 0% down with no PMI, but those are often only for ARM... since you can put 20% down you will likely be able to get a very competitive rate for a fixed mortgage. I am just now looking at this very issue. I can get 0% down no PMI for 3.5% for a 10 yr ARM, but with 20% down I think the same bank was offering 30 yr fixed for 3%. I'm not 100% sure about the rate - I don't have 20% to put down so I didn't pay close attention to that option, but it was around 3.0%. All physician mortgage loans with them were up to $2M with no changes for "jumbo" loans and no origination fees. Something to look into.

Wakefield1
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Re: Buying a home for the first time (mortgages!)

Post by Wakefield1 » Sat Dec 31, 2016 5:04 pm

I assume that most mortgage lenders want to see copies of your last several years' Federal Tax returns in order to consider you for a mortgage lock or to actually move on making the mortgage loan?

onthecusp
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Re: Buying a home for the first time (mortgages!)

Post by onthecusp » Sat Dec 31, 2016 6:04 pm

We have had a number of different mortgages over the years. Some from big banks and others from mortgage brokers suggested by real estate agents. Things we learned to do:

1 Decide what you want. 15 yr, 30 yr, ARM etc. For us the 15 fixed always appeared to be the sweet spot for rates and our time horizon.

2 Go with the no fee, or less than $100 or so in fees. And no points. Unless you want to deep dive into mortgage calculations and tricks of lenders all these do is make it hard to compare.

3 If you are talking to a big bank get a comparison from a broker. And vice versa.

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grabiner
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Re: Buying a home for the first time (mortgages!)

Post by grabiner » Sun Jan 01, 2017 10:08 am

onthecusp wrote:2 Go with the no fee, or less than $100 or so in fees. And no points. Unless you want to deep dive into mortgage calculations and tricks of lenders all these do is make it hard to compare.


Use mortgages with similar points for comparison. If Bank A offers a 3.25% APR with no points and Bank B offers a 2.875% APR with 1.625 points, you are comparing apples to oranges. But if you can also see that Bank B offers a 3.125% APR with 0.125 points, then you can see that Bank B is offering the better deal, and you can then decide whether to pay the points or not. (For a 15-year loan, six points are about equal to 1% of interest rate, as in the example here; paying the points is a better deal if you expect to keep the loan for the full duration.)
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Meg77
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Re: Buying a home for the first time (mortgages!)

Post by Meg77 » Sun Jan 01, 2017 10:47 am

Hi there! I'm a mortgage banker in Texas and would be happy to help.

1. Leave the spouse with the lower credit score off the mortgage. It'll increase your interest rate if you leave her on, and she won't be earning income anyway so there is no benefit to having her on there. She can be put on the title even if she isn't on the loan. FYI Texas is a community property state, so she will be half liable for any debts acquired while living there and also half owner of any assets acquired by state law anyway, regardless of whether she is formally listed on the title or mortgage.

2. If your mortgage will be higher than $417K, Wells Fargo usually offers the best rates in the industry on standard loan types (30 year fixed, 15 year fixed, 5 year ARMs). WF is hard to beat when it comes to purchase money jumbo loans, at least here in Texas - and I don't work for them I just compete with them! Save yourself a lot of time shopping and just go with them. They are good at closing on time typically as well. I usually use them personally on all my purchases, though a couple of times on refinances I found better rates online via LendingTree.com (WF isn't quite as competitive on conforming size refinance rates).

3. Make sure you have the down payment funds in your checking/brokerage account available for 60 days prior to applying for the mortgage, if possible, and minimize all big money movements starting 60 days out from application. Also don't apply for any new debts - credit cards, car loans. Otherwise you will have to jump through some extra underwriting hoops getting letters from your employer about bonuses pending, justifying debts, and writing endless memos about what this wire transfer was for and where this deposit came from.

Lenders are big on verifying source of down payment funds these days and it can be a real pain if you have a lot of moving pieces in various accounts. Only provide statements from primary checking/brokerage if there is enough in there to prove liquidity. I made the mistake of providing all 4 of my checking account statements on a recent refi shortly after moving lots of money from all accounts out to make an investment. It took me several hours one day and 8 very specific memos to explain it all to the analyst - and I"m in the business and know what they want to see!

4. Plan to put down 20% if at all possible. Best rates that way for sure, and you avoid PMI.

5. I think the size home you're looking at based on your income makes sense and shouldn't represent approval issues - unless you have a ton of other debt such as student loans, etc.

Good luck!

PS you won't qualify for any physician loan programs if you aren't currently licensed and practicing as a physician.
"An investment in knowledge pays the best interest." - Benjamin Franklin

cherijoh
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Re: Buying a home for the first time (mortgages!)

Post by cherijoh » Sun Jan 01, 2017 11:27 am

onthecusp wrote:We have had a number of different mortgages over the years. Some from big banks and others from mortgage brokers suggested by real estate agents. Things we learned to do:

1 Decide what you want. 15 yr, 30 yr, ARM etc. For us the 15 fixed always appeared to be the sweet spot for rates and our time horizon.

2 Go with the no fee, or less than $100 or so in fees. And no points. Unless you want to deep dive into mortgage calculations and tricks of lenders all these do is make it hard to compare.

3 If you are talking to a big bank get a comparison from a broker. And vice versa.


For a first time home buyer, item #2 may be a bit confusing. I assume you mean something like an "origination fee". It is likely that OP will end up paying lots of what he/she regards as "fees" - many of them mandated by the locality. So closing costs can vary a lot depending on where one lives.

OP - be sure and get disclosures on all fees to ensure an apples-to-apples comparison. Lenders are required to disclose all fees, but I'm not sure if it required until after you have already applied for the loan. Definitely don't just compare the total estimated closing costs without knowing the line items.

The last time I was shopping for a mortgage was pre explosion of the internet and it was time consuming to do comparison shopping. Therefore, I used a mortgage broker that came highly recommended and did some spot checking on my own with local major lenders. But there are undoubtedly more efficient options for comparison shopping now.

cherijoh
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Re: Buying a home for the first time (mortgages!)

Post by cherijoh » Sun Jan 01, 2017 11:32 am

Wakefield1 wrote:I assume that most mortgage lenders want to see copies of your last several years' Federal Tax returns in order to consider you for a mortgage lock or to actually move on making the mortgage loan?


I don't remember about tax returns, but I did have to supply copies of W-2s, current paystub, and copies of recent bank statements. Expect them to verify that you are still employed the day before closing.

If you are self-employed or a contractor (i.e., form 1099), I would expect that a tax return would be required.

camillus24
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Re: Buying a home for the first time (mortgages!)

Post by camillus24 » Sun Mar 19, 2017 9:09 pm

****Update post****

We just had an offer for $419K accepted for a new build home (~4100 sq. feet) in a suburb of Houston that will be complete in around a month.

For context, the list price was 496K which had been "cut" to 459K (even though Zillow had the zestimate at $418.5K) so in theory we got an ok deal for 5 bedroom/ 4.5 bathroom. Inspection is still pending though as final construction pending.

The builder is now asking for "earnest" money of 10% of purchase price (~42K) when we sign the contract. This seems extremely high and so a few questions to those more experienced at this:

1. Is the "earnest" money level ok? Are there conditions / recommendations you have for those in this situation? Or should we press for a renegotiation?
2. Are there other questions we should ask at this point? Tips ? Not much faith in our real estate agent so we are researching around (and trust the bogleheads more)

Rmats
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Re: Buying a home for the first time (mortgages!)

Post by Rmats » Sun Mar 19, 2017 10:57 pm

Congrats on the accepted offer. I'm a Broker in CA, so not familiar with your market, but can offer some general guidance.

There will be a difference between a builder deposit and earnest money generally. Usually for new constructions the builder will ask for the builder deposit. This is because they are building custom to your specifications and carry a little more risk if you were to back out. This is typically 5-10% and usually non-refundable. This is different than earnest money, which is usually 3%, held in a trust and is only used as a hedge against liquidated damages. You can try to negotiate these, but in my experience they are usually pretty firm on them, at least in our area. Both are meant as a way to show good faith in entering the process.

With regard to general tips, I highly recommend getting your own set of inspections. For the amount you're spending its crazy not to spend the couple hundred extra dollars to have a licensed inspector review things. With new constructions this is even better as you can have them out before the sheet rock is up to inspect plumbing, wiring etc. I had a client once who's inspector noticed the builder was cutting corners on the roof and window flashing. We were able to request a fix prior to build out. A big storm hit a year afterwards with all the neighbors having water damage. . .but not my client.

Best of luck!

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