Need real estate/first time home buyer advice

We're going to be in the market to buy a house in the next 6-12 months. For house loans, how deep do they dig into your finances? Would they see the ATM withdrawals in Vegas as a red flag? My fico score is ~800 on credit karma and my wifes is the same. We both have clean credit histories and no missed payments on anything in the last 10+ years. We would like to get into a starter type of home initially and look to move up in 5-7 years unless we find a killer deal.

I know nothing about this entire process so any and all info is great. We're looking to buy in the SF Bay Area market, well South Bay really because houses in the peninsula and north bay start at 1mil+ and the commute would make me go postal.

 

Also if anyone is knowledgeable in the foreclosed home market, please chime in. Is the process the same? There are an abundance of pre foreclosure/foreclosure homes in this area.

 

I'm not even sure that ATM w/d information would be available to people doing a credit check. Long as you have a reasonable income, the property is assessed at or near what you will pay, and you are not overburdened with credit card account balances or other potential credit drains, you should be okay.

You posted again while I was writing. Foreclosed homes are more complicated and often take a long, long time to close, even if you don't need a loan.

 

This^ Took us over 5 months to close on a foreclosure and we paid cash. The entire process was just a giant clusterf*ck in 2008 and the house was abandoned, so it's not like we had to deal with eviction etc.

Maybe it's better now?

 

My one piece of advice is if you find something you and your wife fall in love with, don't let it get away due to it being a bit too expensive (10-15k or something) because you've gotta amortize that extra chunk of money over the life of your loan. Like, saving ab extra 90 dollars a month on your mortgage payment worth living somewhere you like instead of somewhere u love?

But also don't buy above your means. No matter what your friends and coworkers are saying/doing, don't buy based on what you think you should be able to afford by looking around at them. ..buy based on what YOU feel comfortable with.

 

No worries on your credit scores. You will be asked to provide x months of checking and savings statements. Lenders will ask weird questions on some line items. You'll be fine. Ask friends and colleagues for a realtor reference. Like every other field, there are great ones and duds. Actually, it is more important on the sales side, but you still want one that gets what you want, even if you end up like us being the ones who've found each house we've purchased.

Our current house was a short sale. It went smoothly. 10-12 weeks. (Actually, the bank didn't respond to our initial offer until one day too late, so we came back at a 10 percent reduction.) All distressed property deals are not easy. The key in a distressed deal is patience patience patience and and it could be trashed. A good 10-15 houses in our little 'hood here went short-sale or foreclosure the past three-four years and they were in an amazing array of conditions. Ours was fine as it was occupied and we could kill the deal at close and the seller would lose whatever nominal payout was coming, and he/she needed that. The one across the street was sold at auction and the place was gutted, and I mean down to the electrical boxes in the walls and the can lights. Another looked like the Manson family had done artwork on the walls and it was a de facto kennel with no clean up.

You gotta like your house, but 'hood/view/location/aesthetic are key. Don't chase a pipe dream, no matter how much you love it.

 

Keep in mind that there are more than 50 FICO scores within the 3 credit bureaus so what you are being told from credit karma is just one of them. Banks that use the latest (Fico 9) have almost 70 FICO scores. They are broken down by General, Auto, Mortgage, credit card, installment loan and personal finance. Most of these have more than 1. Mortgage right now just has 1 score for each of the CB's. Mortgage scores of course consider more factors than the others.

But regardless of which Fico score you were given, an 800 is very good so I think you'll be just fine.

 

I used to be a real estate agent in my past life (many years ago). First thing you should do is to check with a mortgage person (banker, mortgage broker, mortgage company, etc.) and get prequalified for a loan. That way you can find out exactly how much you can afford. A real estate agent can also help you to prequalify and determine "generally" what you can afford.

That is paramount, I have seen many people think they can afford and qualify for higher loans and higher priced property but then be totally disappointed when they find out exactly what they can afford. With the problems with failed mortgages a few years ago, banks are tightening up their loan requirements so best to be realistic and find out exactly how much you can afford. Also note that many mortgage people can direct you do different loans. I think there are some FHA or other loans for first time buyers (sorry I've been out of it for a few decades so not sure what types of loans are available now) that may have lower interest rates. Also note that depending on your mortgage amount versus your down payment you may be required to take out PMI (private mortgage insurance). This enables you to take out a larger mortgage because it protects the lender from default.

Prequalifying also helps when you make an offer, that way the sellers know what you can afford and they know that you went to lenders to determine what you can afford. Sellers are more prone to accept your offer if they know that you did your homework and checked to ensure that you can afford the place. I have seen many buyers get turned away when their mortgage applications were rejected so even 20 years ago I made sure that the buyers were prequalified by lenders to prevent loan rejections.

While a good credit score is important the lenders also look at your debit to credit ratio and income to expense ratio. You have to show that you can afford the mortgage, they also look at your savings and checking accounts to see if you could be a mortgage risk. They have gotten burned too much when they were lax in giving out mortgages so now they are more selective and careful when checking your accounts and account history.

I would also recommend you find a good real estate agent to assist you with your first time place. Do research, check references and speak with other people who worked with the agent. You need to find someone that is competent and is there to help you find your dream home, not someone who is only interested in their commission. This agent can help you with the prequalify process and get you on track on what you can truly afford. The agent can also look at your wants and needs and requirements so you don't end up wasting your time looking at properties that don't fit your needs. While you don't really need an experienced agent it would be helpful because they can help you avoid all the pitfalls when purchasing a place.


The foreclosure market is another thing. It is really difficult with foreclosures, you really need to check the property to determine it's worth, any liens, also note that even though you bid on a foreclosed property it has to go to court for approval (meaning the owners could stop the sale by working out a "deal" with the lenders and courts, basically negating all the time and effort you spent to research and get the property.

Since you aren't real estate "savvy" I would recommend getting someone (real estate agent) who can help you with your first purchase. I did a lot of research before I bought my first place but it didn't compare to the assistance I received from a competent real estate agent who helped me get my place.

hope this helps you.

 

Thanks for the wealth of info everyone. Can anyone shed info into why its good to make X% downpayment ? benefits/disadvantages of fha(?) loans? Also what the hell are closing costs and what do they typically run?

My wife is pretty specific in what she wants (garage, 2+ bedroom, 1.5+ bathrooms and a backyard) so I think we'll take our time looking at a bunch of places.

Ken are most short sales that way where you can pull out at the last second? Like I said there a ton of houses around here in the distressed market and those typically seem like better deals. (2/1 townhouses are 350k+ on the normal market in crappy neighborhoods)

 

Thanks Makiki, I was mid posting that when you posted. When you get prequalified, its a hard pull on your credit correct? How long would the prequalification be good for?

 

Sellers like buyers who have big downpayments. that makes it easier for mortgages to get approved (as I mentioned in my last post you may be required to pay PMI if your downpayment isn't very large). You may have an easier time getting a mortgage with a large downpayment.

Benefits of a FHA (fannie mae I think it was) loan....usually for first time buyers the rates are lower than the norm. One drawback, (not sure it still is the same) they usually require a 20% downpayment. When prices were high there were also adjustable FHA loans to help buyers. I purchased my first home in the late 80's. I took out a graduated FHA loan, 1st year was at 9% (mortgage rates at the time were at 12%), rising up 1% every year or every other year ( I refinanced after 2 years when interest rates started dropping). Luckily interest rates are low so you don't need to get an adjustable mortgage nowadays but if interest rates start going up then you may see more of them.

Closing costs. there are many things that need to be done when purchasing a house. Here is an example of what is required for closing costs in Cali:
http://www.bankrate.com/finance/mortgages/closing-costs/california.aspx

Note that the fees may vary. My example was for a 200k loan so it could be more or less depending on the amount of your loan. Best to check with realtors because these vary with the area and what is required.

there are different ways to prequalify. usually realtors will go over your finances to give you a general prequalification (just give you a general idea how much you can afford). Going through a lender to prequalify helps to determine how much you can truly afford. I'm not sure how long the prequalification is good for, best to check with the lenders as I don't want to give you the wrong information. Going through the lender is more of a hard pull on your finances and credit, savings and checking, etc.

 

Most loans that I've seen in the last few years required 20% down to avoid PMI. But basically, the more you can put down the better position you can be with the bank/loan originator. Myself, I checked locally for rates then went online and contacted some loan companies (I used bankrate.com to find some lenders, but there are other ways to find legitimate lenders too) that have a license to do business in this state. The out of state folks were able to beat the locals guys on the interest rates, so I ended up going with them. I did everything with them over the phone, email, and fax. Never even saw the folks working my loan. When I refinanced a couple of years ago I did the same thing, found a better rate online and did everything via email. Again, never even saw the lady working my loan, but both times, they were johnny on the spot when I had questions or they needed an answer on something from me.

The closing costs can run all over the place. When you are looking at loan companies or banks, make that a question you ask as well as can you roll the closing costs into the loan itself to limit your out of pocket. Closing costs, like makikiboy pointed out, will be affected by things like, required termite or structural inspections <--don't skimp on this especially if looking at distressed properties, what the loan originator charges to do the paper work, title company fees, whether you want to pay points on the loan, etc. I got by easy on the first go around and paid about $5K in closing costs then about half that when I refinanced. I've known some people who got dinged for over $10K in closing costs for their loan that wasn't much more than mine. Really factor these in when doing research on where to get your loan. One place may have a lower rate, but kill you on closing costs. You gotta shop around to find the happy median.

 

There may be programs available in your region for first time buyers (like assistance with down payments). I thought it was FHA that would allow at least a first time buyer to get a loan with as little as 5% down?

There will be a RIDICULOUS amount of paperwork. You should have a lawyer go through it with you before signing anything.

Once you find a place, the buying process will take longer than it should. Weeks longer. Be patient.

When looking at a property, think about the little things first...

Good neighborhood?
Easy access to shopping/freeway? But at the same time, not right next to the freeway
Acceptable commute time? (If you're not sure, do some trial runs)
If you're looking at a townhouse/condo, understand how the noise will carry from the neighboring unit to yours.

Utilities - Does your preferred cable/internet provider offer service at that location? What utilities are you responsible for? If you've been a renter, you have no idea what water/sewer/stormwater/garbage service all cost. The costs can be pretty ridiculous. Sometimes they are included in homeowner's association fees, sometimes not.

Check mass transit routes in the area.

A local professional will give you a better idea, but some markets are smoking hot right now. That means you don't have a lot of time to make an offer on a place if you find something you like. It's incredibly unlikely that you'll find 2-3 things that you think are perfect for you, and then you have to weigh your options.

Don't get emotionally attached to the purchase. You want to find something that feels like home for you guys. But recognize you won't need to stay there forever. And it is possible that you put an offer in on a place, and they get a better offer. You need to be prepared for that.

I recently went through the prequalification process. It was good for 90 days, then they had to pull my credit again. Neither pull had a significant impact (and lenders know if they see multiple pulls from one or more mortgage companies, it's because you're shopping around).

Good luck!

 

Also be prepared for the home appraiser to screw you one of or both ways
first missing shit that you'll have to to pay to get fixed after closing
(Home warranties are worse less than toilet paper, and less absorbant)
and like my friend in DC just went through....to appraise the house for less than the loan amount
right at the last second

 

Thanks again for the great info guys.

We plan to put 20% down to avoid any penalty fees and are looking at a ~400k loan at most. We can afford more but for a starter home I think something in the 300-400k range is great. For that price, I'm sure we could purchase 3 homes in the midwest but out here in Kahlifonia that might get us in a townhouse or an sfr if we can find one on the distressed market. Its also good to know closing costs only run 5-10k typically. I don't know why but I was under the impression that they were 20-30k. Obviously the first step is to get prequalified and then we'll go from there.

 

Also beware the "starter home" trap. ..many people buy something they think they'll be in for "5 or 7 years max" and life gets in the way of their plans and next thing you know ten years later they're still there.

Good luck and happy house hunting!

 

We'd go all out with the first house but I just opened a new business so money is somewhat tied up. If by the end of the year business picks up and I'm getting an extra 5-10k a month, then we'll buy one that we plan on staying in forever.

Also waiting to see how this drought issue plays out. I know a few friends are already talking about moving to Oregon or Washington. It should effect the housing prices if people start leaving in droves.

 

California's water problem is not going to precipitate a cost-plummeting outmigration.

Home investments are a stair step. No reason at all to shoot for the pinnacle the first or even x time out. Patience and good moves pay.

 

Line up a very good, qualified home inspector. If you find the house that interests you, you'll want to be ready to have it inspected immediately.

I presume making an offer based on the home passing an inspection is part of the sale offer in the U.S. Friends' son turned down a house when the inspector found some very expensive problems in a seemingly excellent house.

 

You can write the offer any way you wish (well, that might vary by state - in our state we can). Sellers can drop the price or fix things that are identified in an inspection. We built our house, and our land purchase was conditional on passing the perk test (because we live in the country, the issues are different - need to be able to install a septic system and a well since we don't have access to city or county water or sewer....) And actually, the land didn't pass the first perk test so we hired (and paid for) a soil engineer to come out and do more advanced testing, which resulted in a positive perk but required a super expensive septic. Ah well. ("expensive" is relative; we're in rural North Carolina ;-)

There are almost always ways to get what you want. But you will pay for them! Just remember that money can solve all your problems. So when you don't have the money, try to avoid those problems ;-) When you are house shopping, know what things are easy & cheap to fix or change, and what isn't. Paint is cheap and easy. Many smells can be removed if you paint with kilz and remove carpeting (smoke, pet) but mold & mildew can be harder to fix. Drainage can be expensive to fix. Older houses without insulation and single pane windows can be expensive to upgrade.

(my husband & in-laws own a bunch of rental houses, so I've gone through the home buying process 2nd hand for years ;-)

Good luck, have fun! And if you do buy a fixer-upper, remember that you don't have to fix & remodel EVERYTHING all at once!