First time home buyer...what's out there?

[detz]

I know a Mac forum(or any forum) is not the best place for home ownership advice but it's more of a fishing mission to hear people's experiences.

We want to purchase our first home this year or the beginning of next(2010) so I want to start to gather as much information as possible. What's the deal with FHA and first time home buyers programs, are they worth it..what are the restrictions? From what I understand if we can't afford the 10-20% down payment we will have to have PMI. I'm assuming this is bad(Can't write it off etc..) but if it's the only option it's better than waiting for 5-7 years to save up the bug down payment I'm assuming?

Our only debt is my car($350), student loans($250) and a personal loan that was used for school($350) plus normal bills(phone, cable).

 

[nadyne]

First-time home buyer programs depend a lot on where you live. Your first step might be to simply go to your bank and tell them that you're considering buying your first home and asking for their advice. They'll be able to walk you through what's available in your area, what kind of mortgage you can expect to get, what your monthly payments would look like, etc etc etc. Going to them to ask these questions doesn't obligate you to get your mortgage through them, so it doesn't hurt to ask.

The other issue is that there's not a lot of credit available right now, no matter how good your credit score is, but that could change. Today, a bank or other lender is very unlikely to give you a mortgage if you don't have a down payment at all, or if you have a very small one (5% or less). But that wasn't the case a couple of years ago, so there's no way of knowing which will be true when you're ready to buy a place.

PMI (Private Mortgage Insurance) is required if you are putting down less than 20%. PMI protects the bank in the case where you are unable to pay your mortgage because it's riskier for them to lend to you.

Personally, I bought a home in February 2008. My timing turned out to be pretty bad, since that was the beginning of the mortgage market imploding. My boyfriend and I were told repeatedly by banks that we were perfect customers (perfect credit, 10% down payment ready and waiting, good jobs, etc) but that they couldn't make any loans right then because the rules were changing. We got everything sorted out, but it was weird for a few days with everyone telling us that we were doing everything correctly and shouldn't have anything to worry about but the mortgage industry didn't know what was happening. And then a little while later, both Freddie Mac and Fannie May imploded, so the cause of the whole mess became a little bit clearer.

To prepare for buying a house, one of the first things that I did was to get copies of my credit report and make sure that they're accurate. You want your credit report to be pristine when it's time to start applying for mortgages.

Good luck!

 

[bruinsrme]

Well, PMI sucks, but shop around.
Ask your friends who they have used to finance/refinance.

Whatever you do please don't sign a variable rate anything.
Don't fall into the interest only sales pitch either.
Stay with the traditional loans; fixed rates.
Some banks/brokers will do a 80/20 to avoid PMI.

Buying a house is very emotional and it is easy to fall into the yeah we can afford it if we.........

I am sure you have done your homework but some other things to consider when you ae calculating how much you can afford.
1. property taxes
2. water/sewer
3. trash pickup
4. insurance
5. closing costs

We just refinanced $131k @ 4.5% for 15years
That sets the mortgage around $1010 a month
With taxes, insurance the mortgage the monthly payment is around $1450.
With water/sewer and trash its just over $1500.

 

[mysterytramp]

Whatever you do please don't sign a variable rate anything.
Don't fall into the interest only sales pitch either.
Stay with the traditional loans; fixed rates.

In 1985, my wife and I were determined to own our own home. Traditional loans were about 6 percent, which priced all but the most rundown shacks out of our reach. An ARM with a start-off rate of about 4 percent meant we could make the big jump from a $350/month rent to $600/month mortgage.

This particular ARM reset every year, with an index that meant the first several years were sure to increase. The max was 13 percent, but it would take years to get that high.

As I recall, the monthly payments climbed to $770 at their peak in about three years. That wasn't much of a problem because my wife and I had just started out in our careers. The rising payment ate a lot of our income growth, but at least we were enjoying equity.

After hitting $770, the monthly payment pretty much slipped, averaging probably $550. We refinanced about 10 years later for a 2 percent ARM with a max percentage rate of 10 percent. We paid about $400 a month.

All the while, people were saying we should get a fixed rate, but it never made any sense. If you're young and you expect your income to grow, an ARM -- DEPENDING ON THE TERMS -- might be a good deal.

We moved three years ago. We could have afforded a fixed rate loan but we chose instead for an interest-only. A) we paid for half the house in cash and B) we could (and did) make monthly contributions to the principal. Granted, the credit difficulties over the past year have had us concerned; we need to refinance by Nov. 2010 to beat whatever rate we get from our existing loan. But banks in recent weeks have been loosening credit and rates are coming down. We should do fine.

I can't say that in hindsight I would have opted for a conventional loan three years ago. The interest-only loan was the right loan at the right time. I'm not advocating them for everybody, but in some situations, they make sense. Be wary of the people who demonize them. Yes, they've been overused by the wrong people and now they're in a heap of trouble But look closely at your condition. They could save you a lot of money.

mt

 

[iAthena]

It's a buyer's market out there, but you should count on having more saved for the purchase than you might think. Every house I've bought has resulted in getting a supplemental property tax bill the first year and of course you'll need money to get moved in and settled too.

 

[Sun Baked]

There are also some down payment assistance programs.

But in AZ, the entry level home is easier to afford, the $380k 2-3k square foot home has slipped to $80-87k in some areas thanks to the foreclosures sacking the market.

Though you do have to watch those, since they tend to be in areas with HOAs -- and they may be near bankrupt and will likely try to collect overdue payments, or have special assessments of thousands per homeowner in the future.

So older foreclosed homes may be good alternative if they qualify for assistance, and in 2009 it is likely that these homes will be moved into the federally backed loan pool.

Edit: In order to get a lot of these homes moving again and remove the stigma, while making them qualify for fed backing and assistance, you'll likely see the push to require the banks to clean them up, make them habitable, and provide all the reports/inspections on the home.

 

[bruinsrme]

I guess I was demonizing the interest only loans.

 

[petermcphee]

This isn't the book I bought, but it's darn close:

The book helped me learn which type of loan was right for me, which steps I should take prior to looking, etc. It was a good use of $12.

My wife and I bought our first home when we were 23 and 24, respectively. We've owned that house for 4 and a half years now and put a ton of sweat equity into it. Because I am graduating law school this year, we are considering selling it and buying a new home.

I recommend home ownership. For me, it has been an intensely positive and rewarding experience. I realize that it is not this way for everyone. Perhaps I am the home-buying-type.

 

[mysterytramp]

I guess I was demonizing the interest only loans.

I didn't mean for my comment to be taken personally. LOTS of people have equated the current credit fiasco with interest-only loans. Lots of people did get in over their heads buying homes they couldn't afford, and interest-onlys were part of that. But in SOME cases, they make sense. That's all I meant.

mt

 

[detz]

I'm 28, she's 23 and we're both out of school with secure well paying jobs. We currently rent for $1100/month so around here doubling that should get us into a nice house which we can easily afford. It's kind of scary and confusing looking at houses, there are so many things you have to pay for(taxes, insurance) and potentially pay for(snow removal, trash, waster, repairs...) it just gets confusing fast when you're used to paying one fee a month and everything is taken care of for you.

I'm more worried about the loans, I just want to make sure I get the right one and I guess more importantly I get the right house. I figure an apartment we can change in a year but it's a lot harder to change a house so I want to make sure I can afford and maintain a house that I will be happy in for at least 10 years. We're desperately running out of space in our little 700sqft apartment so it looks like this year will be the year we finally do the research and take the plunge.