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First Time Home Buyer

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1:09 pm
April 21, 2014


jwmann2

Member

posts 7

I am nearing purchasing my first home and have a few questions since I've received mixed answers from realtors and loan officers. 

 

  • Is a 20% down payment on a home a guideline or a rule of thumb now?
  • Does mortgage Insurance eventually become un-required after a few years?
  • Are there any programs for first time home owners that could waive or take care of closing costs?
  • Is it better to open an escrow account or just pay the lump sum in property taxes come tax season?
  • How much is "too much" when it comes to H.O.A. fees?
  • Between income, credit, down payment and the debt ratio, which are the biggest determining factors in securing a loan?
  • In everyone's experience, which lenders tend to traditionally offer the lowest rates and provide the best customer service?
Thanks in advance for everyone's answers.

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6:55 am
May 28, 2014


John C @ Action Economics

Member

posts 8

A 20% down payment is a guideline. Many borrowers can get a mortgage for less than 20% down, but this comes with PMI and the added risk of being upside down in the house if you need to sell it in the not to distant future.  I have always put down 20% myself, so I am not 100% sure as to how the process works with getting rid of PMI. My understanding is that once you hit 20% equity you need to write a letter to your lender demonstrating you are a 20% equity in order to get it dropped, I'm not sure how painful of a process this is. 

 

There isn't a program to waive closing costs that I am aware of, but there are some options for not having to come off the cash.  The first option is reverse points.  Borrowers often pay points, each point being 1% of the value of the loan, in order to buy a  lower interest rate, essentially paying points is pre-paying interest.  With reverse points, the bank pays you to take a higher interest rate.  This can be beneficial if you need the cash now and most likely won't be carrying the mortgage for the full term.  Reverse points can be issued only to the extent that they negate the closing costs. So if closing costs are $3,000 you can not receive more than $3,000 in reverse points.  

Another option is to ask the seller to cover $X of closing costs.

 

There is the fannie mae homepath program for buying foreclosed houses.  The program offers 5% down payments, no PMI and "expanded seller contributions", which I think means they would try to get the bank that owns the home to pay some or all of the closing costs.  http://www.homepath.com/financing.html

 

As far as escrow goes I prefer to pay the lump sums myself.  There are many reasons for this.  First of all, if you pay in escrow, they hold a certain amount of months in reserve, and adjust your payments on what they think your bills will be.  They often overcharge, leaving way too much money in escrow.  Another reason to avoid escrow is to keep a closer eye on your taxes and insurance costs.  Mistakes can be made on these bills and you might not catch them if you have escrow.  You also get a discount on home owners insurance if you pay in full.  The only reason to do escrow besides the bank not permitting you to forgo escrow, is if you are bad at managing money, and don't trust yourself to make the tax payments and insurance payments yourself.

 

When it comes to HOA fees it depends on what the HOA does. I personally think any amount is too much and under no circumstances would I live in an HOA. I don't want the restrictions of busy bodies telling me I can't have a basketball hoop in my driveway or paint my house a certain color, or have certain types of plants.  I have also heard to many horror stories of HOAs foreclosing on peoples homes for a few hundred bucks and selling them.  

 

Income, Credit, Debt ratio and down payment are all large factors in getting a loan.  Any of those 4 categories can stop you from getting a loan, on the reverse side those factors can also lead the bank to want to lend you more house than you can truly afford.  

 

Base the house you want to buy on your income.  I like the Dave Ramsey rule of thumb of keeping the monthly house payment at 25% of your monthly net pay on a 15 year mortgage.  For a median household earning $51,000 a year, lets say $45,000 after taxes, this would result in a house payment of $865 per month. The bank is willing to lend upwards of 40% of gross!

 

Having bad credit, especially outstanding debts that aren't being paid are a big red flag to lenders.   Having large payments are also a big red flag. The banks have guidelines for how much your debt payments can be total as a percent of your monthly income.

 

Having a down payment is important to buying a house. They charge PMI for those putting down under 20% because it is a higher risk loan, they also charge a higher interest rate. I would highly recommend taking the time to save up a 20% down payment in addition to having a 6 month emergency fund.

 

As far as lenders go I have found that shopping around is necessary. The last time we looked for a home mortgage we had a $5,000 swing in closing costs.  There were 2 local credit unions that we were members of that had a major difference in closing costs.  There isn't a solid rule of thumb on this except to shop around and compare lenders.

 

I hope this information was helpful.  

I blog at Action Economics

Twitter @actionecon

Facebook Action Economics

 

7:47 pm
July 18, 2014


James Martin

townsville,qld

Member

posts 38

John C @ Action Economics said:

A 20% down payment is a guideline. Many borrowers can get a mortgage for less than 20% down, but this comes with PMI and the added risk of being upside down in the house if you need to sell it in the not to distant future.  I have always put down 20% myself, so I am not 100% sure as to how the process works with getting rid of PMI. My understanding is that once you hit 20% equity you need to write a letter to your lender demonstrating you are a 20% equity in order to get it dropped, I'm not sure how painful of a process this is. 

 

There isn't a program to waive closing costs that I am aware of, but there are some options for not having to come off the cash.  The first option is reverse points.  Borrowers often pay points, each point being 1% of the value of the loan, in order to buy a  lower interest rate, essentially paying points is pre-paying interest.  With reverse points, the bank pays you to take a higher interest rate.  This can be beneficial if you need the cash now and most likely won't be carrying the mortgage for the full term.  Reverse points can be issued only to the extent that they negate the closing costs. So if closing costs are $3,000 you can not receive more than $3,000 in reverse points.  

Another option is to ask the seller to cover $X of closing costs.

 

There is the fannie mae homepath program for buying foreclosed houses.  The program offers 5% down payments, no PMI and "expanded seller contributions", which I think means they would try to get the bank that owns the home to pay some or all of the closing costs.  http://www.homepath.com/financing.html

 

As far as escrow goes I prefer to pay the lump sums myself.  There are many reasons for this.  First of all, if you pay in escrow, they hold a certain amount of months in reserve, and adjust your payments on what they think your bills will be.  They often overcharge, leaving way too much money in escrow.  Another reason to avoid escrow is to keep a closer eye on your taxes and insurance costs.  Mistakes can be made on these bills and you might not catch them if you have escrow.  You also get a discount on home owners insurance if you pay in full.  The only reason to do escrow besides the bank not permitting you to forgo escrow, is if you are bad at managing money, and don't trust yourself to make the tax payments and insurance payments yourself.

 

When it comes to HOA fees it depends on what the HOA does. I personally think any amount is too much and under no circumstances would I live in an HOA. I don't want the restrictions of busy bodies telling me I can't have a basketball hoop in my driveway or paint my house a certain color, or have certain types of plants.  I have also heard to many horror stories of HOAs foreclosing on peoples homes for a few hundred bucks and selling them.  

 

Income, Credit, Debt ratio and down payment are all large factors in getting a loan.  Any of those 4 categories can stop you from getting a loan, on the reverse side those factors can also lead the bank to want to lend you more house than you can truly afford.  

 

Base the house you want to buy on your income.  I like the Dave Ramsey rule of thumb of keeping the monthly house payment at 25% of your monthly net pay on a 15 year mortgage.  For a median household earning $51,000 a year, lets say $45,000 after taxes, this would result in a house payment of $865 per month. The bank is willing to lend upwards of 40% of gross!

 

Having bad credit, especially outstanding debts that aren't being paid are a big red flag to lenders.   Having large payments are also a big red flag. The banks have guidelines for how much your debt payments can be total as a percent of your monthly income.

 

Having a down payment is important to buying a house. They charge PMI for those putting down under 20% because it is a higher risk loan, they also charge a higher interest rate. I would highly recommend taking the time to save up a 20% down payment in addition to having a 6 month emergency fund.

 

As far as lenders go I have found that shopping around is necessary. The last time we looked for a home mortgage we had a $5,000 swing in closing costs.  There were 2 local credit unions that we were members of that had a major difference in closing costs.  There isn't a solid rule of thumb on this except to shop around and compare lenders.

 

I hope this information was helpful.  

Great information. Thanks

1:37 pm
September 3, 2014


Invest Four More

Greeley CO

Member

posts 9

Post edited 1:39 pm – September 3, 2014 by Invest Four More


I am a Realtor and investor and I will answer these as well.  Maybe give a slightly different answer.

  • Is a 20% down payment on a home a guideline or a rule of thumb now?-guidance.  Owner occupants can put 0 down with VA or USDA rural loans.  FHA 3.5% and Conventional 5% or possibly less.  With a lower down payment you will have mortgage insurance which will raise your payment significantly.  For investors it is pretty much 20% down.
  •   
  • Does mortgage Insurance eventually become un-required after a few years? yes if it is conventional and your home appraises high enough to make your loan 80% or less of the appraised value.  If you get an FHA mortgage it is there forever, until you pay off the loan or refi.  
  • Are there any programs for first time home owners that could waive or take care of closing costs? You can ask the seller to pay closing costs which is common, but you may have to pay more for the house.  Some states have programs as well that lower closing costs.  
  • Is it better to open an escrow account or just pay the lump sum in property taxes come tax season?- almost every bank will require it to be held in escrow.  
  • How much is "too much" when it comes to H.O.A. fees?- depends on the house and your needs.  Some HOAs cover maintenance and others nothing.  
  • Between income, credit, down payment and the debt ratio, which are the biggest determining factors in securing a loan?- income to debt ratio, income and credit are the big ones    
  • In everyone's experience, which lenders tend to traditionally offer the lowest rates and provide the best customer service? it all depends on your area.  

- See more at: http://yakezie.com/forums/pers…..bIh58.dpuf

Real Estate investing, Fix and Flips, Rental Properties and Becoming a Real Estate Agent

http://www.investfourmore.com

3:26 am
September 4, 2014


Derek@LifeAndMyFinances

Member

posts 1298

Hi JWmann2. I notice that you posted this question back in April. Did you end up purchasing a house? What did you learn in the process.

There were a few surprises when I bought my first house, but I knew that wanted to pay of the mortgage ASAP. Four years later and I'm almost there. All of the details of interest and money down don't really make that much difference if you plan to pay off the mortgage early.

Derek @ Life And My Finances 

Website: http://www.LifeAndMyFinances.com

Twitter: http://twitter.com/LAMFinances

Email: derek@lifeandmyfinances.com

10:45 pm
September 5, 2014


OneCentAtatime

Florida, USA

Member

posts 1778

But Derek was it a good move to pay off mortgage that early. I mean in last 4 years capital market gained at a rate of more than 8%. I guess your mortgage was costing you less than 4%… WaDerek@LifeAndMyFinances said:

Hi JWmann2. I notice that you posted this question back in April. Did you end up purchasing a house? What did you learn in the process.

There were a few surprises when I bought my first house, but I knew that wanted to pay of the mortgage ASAP. Four years later and I'm almost there. All of the details of interest and money down don't really make that much difference if you plan to pay off the mortgage early.

 

But Derek was it a good move to pay off mortgage that early. I mean in last 4 years capital market gained at a rate of more than 8%. I guess your mortgage was costing you less than 4%… Want to know the rational behind paying off early.

SB

One Cent At A Time  (Yakezie Member Site)

 

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