Need step by step on buying our first home

Helpppppppppppp! Never bought a house before obviously so we don't even know where to begin. Anyone who has the patience to help please FM me? What happens if credit isn't the greatest I know people can still get a mortgage, right?

Re: Need step by step on buying our first home

I have been wanting to post this same question but was embarrassed that I am so clueless about it
None of my friends have purchased homes yet and even my parents still rent. Any info. is appreciated!

Re: Need step by step on buying our first home

Sent FM to you both, it's long but does not cover nearly enough, so you will have questions, please feel free to ask them.

Re: Need step by step on buying our first home

can you post the info here instead of in FM

Re: Need step by step on buying our first home

Ok, You asked for it:

There is a book, Homebuying for Dummies. I cannot stress reading it enough.

Good credit will always help... get a copy of your credit reports, check them for errors. Get your credit score. Good credit scores start in the 600's. These scores will get you the best rates on mortgages.

Starting socking money away... can you eat a sack lunch, skip the movie, pass on that new blouse? Good, now put that $$ in a savings account, something that will give you a high return, if you are not planning on buying for the next year or so, put it in a CD.

Now go to banks, and mortgage brokers and get pre-approved. This is will involve giving really basic info - the stuff you would when applying for a credit card. They will ask your salary, how long you have been at your job or in your field, your social security number so they can run your credit report, etc. Then they will give you a price range to start looking in - now don't worry, the amount they give you is usually a lot lower than what's currently on the market. The pre-approval process is pointless but unfortunately necessary to prove to realtors and sellers that you mean business.

Now you are ready to look at what's out there - YIKES - first I suggest the internet mls sites, and realtor.com, wiechert.com, etc. Then go to a few open houses. It's good to go in with a good sense of what you want in a house - i.e., a basement, good schools, 2.5 baths, gas cooking, hardwood floors, etc. Whatever is important to you. At these open houses you will meet a bunch of realtors and they may decide to show you some other listings they have as well. don't get discouraged this process of looking takes forever, but it is worth it.

Once you have found a house, you go thru another series of challenges. You make an offer, then possibly a counteroffer, then you get a lawyer, sign a contract, get your mortgage.

Mortgages are a PITA.
You have the government assist, like Fanny Mae, SONYMA, etc.

You have the ARMs (Adjustable Rate Mortgage) usually these are a low fixed rate for the first 5 or 7 years of the loan, then it 'adjusts' itself to whatever prime (what our friend Mr. Greenspan dictates as the base percentage rate) is plus a couple of points (points are usually 1/4 of a percentage value). So for an example if you have a 5 year ARM, at the end of the 5 years, let's say prime is at 8% and then the bank tacks on prime + 2 points., your new rate will be 8.5%. Which can be an obvious disadvantage unless prime actually goes lower than it is at the time you sign the loan. What some people do is re-finance to a conventional loan just before the 5 years run out... which can be a gamble.

Then you have the conventionals - 30 year fixed, 15, etc. Typically, with the conventionals that's where you need the 20% downpayment. Otherwise you will end up paying PMI, Mortgage Insurance. Think of how high an average mortgage payment would be - then add $200 or $300 every month - that's PMI. The kicker is this money is not subject to the interest tax deduction ever April.

Now to add to your confusion: What we and a lot of other LIW brides did was an 80/15/5 loan. 80- is a 30 year fixed conventional for 80% of the full loan amount. 15- is a second loan for the remaining 15% of the full amount. This is usually an ARM); and 5 - is your 5% downpayment.

So now I have probably made your brain into oatmeal.

Once you got your mortgage approval and commitment, you are ready to close on the loan. Then you have a house.

Now I have left out a lot, but basically gave you the feel of it. I hope you were able to follow all of this. Please feel free to ask any questions, I know I just gave you a lot of info and it's gonna be tough to digest it all.

Good luck in your search.

Re: Need step by step on buying our first home

I also want to state that if you have contributed to your 401(k) and have enough in there, you can take out that money, usually without penalty, to help with a downpayment.

Re: Need step by step on buying our first home

Motley Fool has some really great articles that I read. There's a section all about the financing options and another section about the process of actually buying a house. After I read all these, I felt more confident and better educated.

Motley Fool Home Buying

Re: Need step by step on buying our first home

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Posted by Kriss2c

I also want to state that if you have contributed to your 401(k) and have enough in there, you can take out that money, usually without penalty, to help with a downpayment.

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This is not entirely true....In my case...I would have been able to take money out of my 401K and pay myself back....but then I wouldn't be able to contribute for 1 year...so that's money I would get taxed. So, although I would have been penalized and pay tax on the money I took out...I couldn't put money in either. Just find out from your investment company what the pros and cons are before you do this.

Re: Need step by step on buying our first home

This info is so helpful....thanks!!!

Re: Need step by step on buying our first home

Kris2C, you wrote:

Then they will give you a price range to start looking in - now don't worry, the amount they give you is usually a lot lower than what's currently on the market. The pre-approval process is pointless but unfortunately necessary to prove to realtors and sellers that you mean business.


Does that mean that when you get pre-approved it might be for like 300k but you can really get a mortgage for 400K? I am sooooo confused!!!! TIA!!!

Re: Need step by step on buying our first home

A good mortage broker will tell you that your mortage should only be a certain percentage of your income (which I am sorry I don't remember) and that your TOTAL debt should not exceed another percentage and this includes your CC, STudent loans, Mortage, Housebills, car payments extra.

We were preapproved up to almost 80k more than we spent. The mortage broker or banker we used told us what the approximate payments would be with a x amount in taxes (and we had him high ball that) and we said we would be comfortable with mortage payments of xxx amount, so he wrote the preapproval letter for the amount we wanted but we knew that if we wanted to, we could go up that additional 80k, in the end we went up 25k more then the original letter stated. We are still fine.

Sorry for the tangent. Basically they will tell you the amount in the middle not the cheapest house but not the top of what you can really afford and tell you to shoot in there and that is usually what they will write it for.

Does that make sense or did I go off on too much of a tangent???

Please let me know if you need any clarification

Re: Need step by step on buying our first home

i am familar w/ the steps mentioned above, but wondering if someone could provide clarifictaion in re: what happens once you have found a home (offer, inspection, title search, insurance etc).

thanks!

Re: Need step by step on buying our first home

Offer
Acceptance or rebargin
Engineer - ASAP
If all is Ok call your Mortage broker and lawyer ASAP
Sign binder- if you are having one
Sign contracts
Then from their your Mortage company and lawyer handle everything, all you have to do is make sure you get the necessary paperwork together when they ask

Go to closing!!!

Write a lot of big checks

Become homeowners!

Re: Need step by step on buying our first home

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Posted by swags1016

Offer
Acceptance or rebargin
Engineer - ASAP
If all is Ok call your Mortage broker and lawyer ASAP
Sign binder- if you are having one
Sign contracts
Then from their your Mortage company and lawyer handle everything, all you have to do is make sure you get the necessary paperwork together when they ask

Go to closing!!!

Write a lot of big checks

Become homeowners!

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and continue to write a lot of big checks.

Re: Need step by step on buying our first home

This stuff is amazing. Thanks to you RE experts!
So, now I have a dumb question about pre-approvals.
Are you bound to them? What I guess I am trying to get at is do you get financially penalized if you decide to not accept a mortgage before you go into contract?

Re: Need step by step on buying our first home

You don't get penalized per say. You can lose the interest rate that you lock in at. If it is a good rate and the rates are on their way up, you might have to pay to extend it.

Also don't forget to shop around for your mortage. Credit bureaus will not penalize you for doing this if you do them with in a two week stretch because they know that you will be shopping around for the best deal.

Re: Need step by step on buying our first home

A mortgage broker that was recommended by someone on the boards gave us a pre-qual for WAY MORE than we can afford. I even said 'you can't be serious' and the broker was like 'we're trying to help'. That's pretty scary, huh? We'd be foreclosing in a matter of months with that high of a mortgage.

I know pre-qual means nothing, but still, it seemed very unprofessional to obviously inflate the amount.

Re: Need step by step on buying our first home

If you need a recommendation for another, let me know. Ours was great, did not give us a single headache!

Re: Need step by step on buying our first home

preapprovals are offered at no obligation. I do them every day for HSBC and have been doing preapprovals for 11 years. Some people charge for them and some dont. I dont because i know that people will find my rates super competitive and will come back to me out of convenience. Clients can call me day or night. You do lose some along the way...its the nature of the business... You can get 1 preapproval and shop anywhere you so desire!

Re: Need step by step on buying our first home

bump