Advice for first time home buyers?

[veda]

Anyone have any bits of advice for first timers? We have started looking around & have gone on a few showings & are starting to talk with lenders/realtors...

Which companies have you had experiences with (good or not so good), how long did the whole process take, is it best for first timers to get a 15 or 30 year mortgage, what is a "good" interest rate for first time, etc? any words of wisdom?? thx!

[AustinRealtor]

Hi, I'd be happy to help you if I can. The mortgage interest rate doesn't depend on whether it's your first house, so I would just recommend shopping around with different mortgage brokers to get a good interest rate. A 30-yr mortgage will have a lower monthly payment, so I'd recommend it over a 15-yr, especially if you don't plan on paying off your house before you sell it. Do you know what percent you'd be able to put down? If you can't put down 20%, I recommend doing an 80-10-10 or an 80-15-5 over an 85% or 90% mortgage with PMI.

In terms of house-hunting, start thinking of what features you'd like in a home, and maybe drive around different neighborhoods to see which ones you like :)

Does that help?

[veda]

Yes, thank you...

What is a 80-10-10 & a 80-15-5 and also I'm not sure what a PMI (primary mort interest??) We'll be putting at least 15% down and would actually prefer a 15 yr since we're getting a place in a growing area (not sure what thats technically called, but the home's values are increasing greatly) but had heard that first time buyers usually don't get approved for any less than a 30 year mort, is this true?

Our plan is to go for one around $200 - 225k & then put around $30k worth of improvements, then resell in three to five yrs. Is this a good idea from your expertise? I know its difficult not knowing ALL of our details, but have you heard success stories from this basic idea? thank you:)

[Trina]

I used to be a Realtor, as well, and hopefully I can help answer your question regarding 15-year versus 30-year... I, too, would suggest you going with a 30-year mortgage--especially right now when the interest rates for either aren't that much different. Just be sure that there will be no penalties for paying off your mortgage early (although, most morgage companies don't charge for that anyway).

PMI stands for Private Mortgage Insurance, which you must pay if your note is 80% or more of your home's value (and it's NOT tax-deductible, either). That is why doing an 80-10-10 or an 80-15-5 is so much better... even though you'll have two loans on your home in the meantime. usually, the smaller loan will hold a higher interest rate, though... just keep that in mind (it's more like a regular bank loan--although you'll still get to write off your mortgage interest on both loans).

However, it appears that you probably don't even need to worry about an 80-10-10 or 80-15-5 if you've got 15% available funds to put down on a home loan. Good luck!

Hope that helps! :)

[Margarita]

Definitely comparison shop for a mortgage company. We didn't do that our first time, but we did this time, and I'm pretty sure we got screwed the first time around. Oops!

Also, I highly recommend doing whatever it takes to avoid PMI. It's basically a waste of money (it's insurance for your lender in case you don't make your payments). You'll need at least 20% down to avoid it. We didn't have that much for our first home, so we had two loans to avoid it. I think that's the 80-10-10 thing they're talking about.

Finally, ask the lenders if they sell their loans. You don't want that. Selling a loan means if you go to Company A and get a loan, then they sell it to Company B, all of the sudden you're with a different mortgage company, one you may not care for. I recently saw on the news that lots of people have had MAJOR problems with Washington Mutual, payments getting lost, foreclosures, etc. It would be scary to get a loan and have it sold to them!!!

Good luck!

[Deana]

I agree with what everyone is saying about avoiding PMI (even though it sounds like that's a non-issue for you guys ;) ) We just re-financed and our PMI went away because we have more equity in the house now (I think that's why at least...)

Also, when we refinanced, (and we shopped around a lot - every lender wants your dollar, so it's great for buyers/ refi'ers) we were advised (across the board) to only get a 15 year loan if you planned on being in the house for quite some time. We don't know if we will be in our house for more than 3-5 years, so we decided on a 30 yr loan.

[veda]

Originally posted by Deana
we were advised (across the board) to only get a 15 year loan if you planned on being in the house for quite some time.

why is that? If you don't mind posting again! ;)

[AustinRealtor]

Another idea in terms of the mortgage is to do an ARM (adjustable rate mortgage). Right now, you can get a 5-yr
ARM at a crazy low rate, but the rate is only fixed for the first 5 years. That is, it will most likely be adjusted upwards after 5 years. So if you know for sure you're going to sell within 5 years, you would have a really low rate for the whole time you own the house. But if there's a chance you might own it longer, you'd have to look into how high the rate could fluctuate after 5 years.

Also, about putting $30K of work into a $250K house.. I don't know about the housing market where you are, but here in Austin, that price range is not selling very well, so people who've put that kind of work into a higher-end home aren't necessarily getting their money back because the buyers are negotiating the price down. But, that's mostly because we're in a bit of an economic low spot here. Things may be different where you are, so you should definitely talk with your realtor about it.

[Deana]

Originally posted by AustinRealtor
Another idea in terms of the mortgage is to do an ARM (adjustable rate mortgage). Right now, you can get a 5-yr
ARM at a crazy low rate, but the rate is only fixed for the first 5 years.

We did that too.

Veda, the reason that we were advised against a 15 year loan was that we were really trying to lower our monthly payment now. With a 15 year loan your payment would be higher. Since we think we won't be in that house forever, we were advised to take advantage of the lower monthly payment over having it paid off sooner. Sure, we won't have as much equity in our house when we turn around and sell but I don't think it will be *that* material, especially if we sell within the next 3-5 years.
So, for our overall goal, we were advised to go for the 30 year.

We also figured that we could take extra money (with our now lower payment) and invest it into things that will produce a higher yield (rather than banking on the equity when we sell, if that makes any sense).

[nicolef888]

When we refinanced our house, we chose a 15 year loan and our mortgage payment dropped (it is now lower than the payment we were making for our 30 year loan). We only plan to be in our current house another 1-2 years as we are running out of space. We don't plan to sell it when we move to a new house, we will rent it out and hopefully the rent payment will cover the monthly mortgage.

[Deana]

Originally posted by nicolef888
When we refinanced our house, we chose a 15 year loan and our mortgage payment dropped (it is now lower than the payment we were making for our 30 year loan).
Wow, that's cool. Your interest rate must have gone down considerably. We bought our house in March of 2001, so interest rates were still reasonable. Our refi will take us from a 6.75% interest rate to 4.0 :D
My sister bought in 2000 and refinanced in 2002. Her interest rate went down over 4%.

[angelrenee]

Funny, our loan was sold to Wachington Mutual and we've had zero problems with them other than the recent letter we got saying that our insurance wasn't up to date. The insurance company called them and fixed that for us.

As far as loans being sold off, we didn't care because we have an FHA loan with a fixed rate. No matter what a company wanted to do, they wouldn't be able to due to government regulations. Honestly, we don't even communicate with them since we do our payments using bill pay from our bank.

While you can get a very low rate for an ARM, unless you plan to move for sure before that loan goes into a non-fixed mode, I would recommend looking at fixed rate loans. Should you end up staying and rates go up significantly over the next five years, you may get hurt. Do most of the ARMs have rate caps? That might save you a lot of trouble as well. Now if the rates go down further you won't benefit, but with rates as low as they are, I personally, was not too concerned.

As much as I'm sure you know this already, I feel the need to warn against coming anywhere near a loan known as a balloon payment loan. I'd describe it but I'm sure I'd mangle the concept. With your apparent good credit and available down payment, it probably won't be offered, but run if it is. My parents had one and it kept their payment very very low for a while. Then my dad lost his job, the housing market crashed, and the balloon payment came due. They lost the house and their credit rating... Not a good thing. Basically it counts on you definitely having a fair amount of money in the future and we all know things happen sometimes to prevent that.

[Margarita]

I'm glad you haven't had any problems with Washington Mutual. I don't know how widespread they are, but it sounded like a possibility I definitely prefer to avoid. We had problems with our property taxes because of the stupid Assessor's office, and they were a bear to fix!