How ironic that just as we paid off our mortgage our S and DIL are starting the process of looking for a first home.
Things seem to have changes since we bought our home 20 years ago. It seems that banks are necessarily the place to go for loans? More like other lenders???
We are trying to help them with the process and I’m not really sure these days how they should start.
Can you share a “first 5 things to do to start the process of buying a home” list or “how to find a lender” list???
S is a teacher - here in Ohio there is some program called Ohio Heroes which provides mortgage assistance for down payment process (???). Anyone familiar with this???
They want to get pre-approved and they need to figure out what they can afford monthly. Neither is currently making big bucks but they can have at least
It was 36 years ago that I both get my first place, a condo. I met with a bank representative a few times. We went over all the scenarios of my current and projected income. We talked about down payments and how putting more down would effect the monthly payments. When I saw My Place, I had the mortgage approved That day.
Well, the first thing they should do is determine how much THEY think they can borrow. Lenders will lend them an amount so that three payment does not exceed 28-30% of their gross monthly income. You can find a mortgage calculator online and enter the principal, term and rate and get the monthly payment. But then don’t forget to add in the RE taxes and insurance to get the whole PITI payment.
Just because someone will lend them that amount, does not mean they should borrow that amount. See what that number is and then see if it is similar to what they are currently paying in rent. Keep in mind that they will need to save for repairs and things that they don’t currently have to pay for.
A good real estate agent can point you to lenders but it is also worthwhile to go to your bank or credit union and see if you can get a pre approval.
We have already talked to them about the difference between what a lender might say they can borrow and what they can actually or want to afford.
They went to their bank initially but honestly the bank doesn’t seem to be very aggressive in getting them the info they want/need. They seem to be hearing that friends are now going to alternative lenders rather than major banks like we did.
The Ohio Heroes looked pretty legit to me. I wish we knew a couple of people who have used it.
I have purchased 4 homes in my entire life. First one was at age 28. Every time I got most of my guidance and information from my real estate agent. I was very lucky to have excellent agents (I know there are plenty of bad ones out there too!) who helped me even though I knew that technically they work for the seller. I did not hire a buyer’s agent. So I guess my advice is to find a good real estate agent you can trust.
My D and her fiancé bought their first home just about an year ago. They had a real estate agent that they liked and she referred them to a local broker for a nationwide mortgage company. The lender talked with them and told them what information she needed from them to get pre- approved. The amount they told them was beyond what we thought they could approve. Closing costs and escrow fees needed to be added to the down payment to have a cleaner cost of cash needed on hand. The mortgage company didn’t make it easy. Her fiancé because he didn’t have 3 years of work history they wanted a copy of his college transcripts. My D also had to account for every deposit going into her napbank accounts going back several months. My D had moved some money from an online bank to an investment company and reversed the deposit once they decided to buy a house. They scrutinized every transaction.
If my D hadn’t had a recommendation from her real estate agent we would have suggested they get a recommendation for a mortgage broker. A broker will shop the loan to different companies and get them the best rate.
Congratulations and good luck to your S and DIL in finding a home.
My advice- don’t skimp on inspections. Trust but verify is the MO in real estate. If the inspector says a pro inspection is needed for sewer etc. DO IT. And never get wedded to a house. What looks like a dream home on the surface can turn into a nightmare if it has hidden issues. Pros can help discover the hidden problems.
Your son and daughter in law need to do some solid research on their own. They should also ask colleagues (other teachers, for example) about their experiences with the Ohio Heroes option. In my personal case, my employer had a program that gave a preferred mortgage rate with one of the major lenders (something like 0.25 or 0.5% off of the rate I otherwise would have qualified for), so I went with that–but I researched available rates on the open market to make sure I was getting a good deal. There are many places to start looking for info: Bankrate.com used to be a good source for comparative rate information (it’s been a few years since I’ve followed them, however), and there are many personal finance sites (Kiplinger, SmartMoney, etc) that can give you the basics of credit/lending and what is involved in buying a home. Your son and daughter in law should also start looking at their credit scores to make sure there aren’t problem areas that are keeping them from qualifying for good rates. A mortgage broker can do the legwork for finding a loan, but as with other broker services (real estate agent, financial adviser, etc) you do tend to pay for that service in some way. Another thing to consider: if you are a racial minority, in many (not all) metropolitan areas, it can be very difficult to get an affordable home loan: https://www.revealnews.org/article/for-people-of-color-banks-are-shutting-the-door-to-homeownership/
There is no easy solution to this problem, but being aware of it would be the first step in managing it on a personal level, and I would think that institutional programs like the Ohio Heroes program would be less prone to bias.
I’d recommend being involved and understanding all aspects of the process. For example, many people I know describe their home buying experience as a realtor drives them around to a few properties and they make a bid on the one(s) they like. Instead one can consider a far larger number of potential homes by searching through online databases at Redfin, Zillow, Realtor, Trulia, or similar that is appropriate for the buyer’s region. My realtor let me use his password on a private realtor site, which had some additional search tools, not found elsewhere. This can also help to think about what things you’d especially like to have in a home, including locat8ion(s). Understand the advantages, disadvantages, and risks involved in less common types of home sales such as short sales, REOs, foreclosure/pre-foreclosure, etc. .Understand different lending options and the full costs of home ownership beyond just the mortgage (closing costs, property tax, maintenance and repair, lawn/pool care, insurance, HOAs, etc). Understand why you are getting a certain interest rate, what it would take to get a better one (for example, improving credit or switching lenders), and what you can truly afford. Consider how home prices have changed in your area and what would happen if there was similar change in home prices to past history. If something is important to you, don’t be afraid to make a unique offer that mentions what is important to you. This might include things like keeping certain existing furnishings or features of the home, or having a particular timeline. When you are ready to buy, understand the many charges and documents. Don’t fall prey to unnecessary charges, but also don’t skip important ones, like a good inspection. Don’t be afraid to walk away or revise offer, if the inspection finds something serious or there is other new information.
Look into PMI insurance, things have changed. It’s what you have to pay if your down payment is less than 20%. Now it has to be paid for the life of the loan, which was not the case years ago.
Shop around for mortgage rates. The rates can differ significantly, and it’s all about how much you have to pay, and even when someone quotes them a rate, they shouldn’t be afraid to ask if thats the lowest rate available.
I have heard credit unions may be a good source for mortgages.
As someone else said, don’t get too attached to a house. Make sure all the inspections get done.
Being house poor may not be fun. Consider why they are buying a house, in addition to everything else.
My son who graduates in May was thinking about buying a house ASAP, but eventually realized that wasn’t such a great idea.
Great advice so far. My H certainly knows more than me in this area but I’m trying to become educated since he can sometimes be a little harsh and forward when talking to them. It’s serious business of course, but H tends to present things in a way that seem overwhelming and makes us all anxious!
I feel we have good knowledge on what to look for in a home - and absolutely would insist on a good inspection - no question. It’s the loan process that has us a little stumped.
Housing prices in our area are low. They can get a nice 3 bed, 1-2 bath 2 story older home (the styling they probably prefer) in an established area for the low-ish $100-120’s if they look hard. They have been out of school and working for 4 years now and paying rent for that time. They may be forced out of their apt before too long (the property is being sold) so it seems like a good time to look for a starter home that can fall in the payment range of their apartment.
Most banks and credit unions will bundle up a bunch of stuff into the “monthly payment”, just assuming you want mortgage insurance, property taxes and home insurance escrowed and paid by them. Sometimes if you have less than 20% down they will insist that they escrow everything. This means you will have a higher monthly payment than just the loan amount. This might be good for people who do not budget themselves well but it is a loss of total financial control.
Private Mortgage Insurance is just throwing money out the window. You are basically paying an insurance premium that guarantees that the mortgage payment will be made to the bank no matter what happens. It rarely ever kicks in. First priority is to find a lender that will not require PMI insurance based on the down payment. Some lenders will drop the PMI requirement if you can get the down payment anywhere above 10%.
Most likely the Heroes program requires less down payment than a regular loan. If they can do that, without PMI, then even a small increase in interest rate compared to other lenders will definitely be an advantage.
S2 is no dummy. In fact, he’s one of the smartest people I know. But I had a good chuckle when he was looking to buy his first house. He said to me, “OK, so I’ll get a 30-year mortgage. But I’m not going to be staying in this house for 30 years. So, how does that work?” It was a reasonable, simple question that just demonstrates how much we don’t get taught in school!
Remember to include property taxes, and insurance in the monthly payments along with mortgage. My kid wants to buy a house. The mortgage payments would be less than his rent…but when you in the other costs…it’s almost double. Property taxes in some areas would almost double the monthly payment.
I agree…they should try to sock away 20% down payment if they can.
The other thing…if they can get prequalified for a mortgage, their offers might trump others who aren’t.
And lastly…make sure the have a few thousand extra dollars. They probably are looking at older homes. While everything is OK now…something is bound to fail…and they will need a slush fund for repairs or replacement.
Most lenders do this to protect themselves. Expect to have to escrow everything if you put less than 20% down and possibly even if you do. But always add in the taxes and insurance to come up with your full PITI monthly nut.
It’s true that PMI protects the lender - but very few lenders will waive that requirement unless you put 20% down.
Goodness – we escrowed our taxes and insurance when we owned our “forever” house, but we put down a heck of a lot more than 20%. We found it to be a huge convenience.
We now live in our “downsized” house, with no mortgage, but we have to come up with the big bucks several times a year to pay the taxes and insurance. It’s a pain.
(Yeah, if I were more organized I could put 1/12 the amount in some account every month.)
