LuvMyTSX

Hello all. I'm starting to get into the research phase on how much house I can afford, so I'm ready when I am seriously house hunting. I'm not sure what mortgage options are available to me, and I feel like I can't afford anything. But, I keep hearing about people buying homes with very little to no money down and wonder where in the world they got their mortgage, and what kind is it? How are they able to afford what they got? I don't have enough money yet for a down payment, and my salary doesn't afford me a huge mortgage payment that I'd have if I had to finance everything, so how are people buying this way?

I visited Wells Fargo's web site, and they have a list of options for first time home buyers, but I need to actually speak with someone there to go over everything. I was wondering what everyone else did when they were purchasing their first home. What mortgage did you get?

When I do my taxes (soon), I am going to have my accountant figure out how much I'd get back if I had a mortgage to try and see how much additional money I could have during the month to go towards a home after I change my deductions.

I also have an appointment to see 4 condos on Saturday and I'm nervous because I don't have all this research done yet, it's just a spur of the moment kind of thing to go see these places. I don't think I'm ready to buy just yet (need to save more).

So, what's everyone's take on first time home buyer mortgages?

Dan

Fixed rate mortgage only.

LuvMyTSX

Definitely. But what I'm not understanding is how the first time mortgages suddenly allow someone to afford a home when they couldn't by traditional means. I'm just confused as to how it works.

bz268

They have something called "Interest Only" mortgage. You are only required to pay the interest not the principal every month. You pay your principal whenever you like.

You can also put very little down payment too. But if you put less than 20% down payment, you are required to buy a mortgage insurance every year.

The city/government (FHA) has special loan program for first time buyer too.

http://www.hud.gov/

amisconception

You can get 100% 80/20 combo loans, that are fixed, for any number of years. If you combine that with a good Real Estate agent that's able to find you a home that's listed below market value, and you find a seller willing to pay closing costs, you have an excellent deal. You can get into a property with positive equity, zero down, and meanwhile pay very little in closing costs.

Also, different mortgage brokers are more creative, and have more options available to them, then others.

If your credit is excellent, and you have sufficient proof of income, you can practically qualify for anything sub-jumbo easily.

If you really are serious about buying a home, you would be best speaking to a reputable mortgage broker, and not a bank like Washington Mutual or Wells Fargo. Typically, mortgage brokers, because they can shop different banks for you, tailor specific programs to your needs. And you should also note that not all banks have the same lending guidelines. Guidelines are the items that determine whether or not a bank can lend to you.

Good luck

LuvMyTSX

Hmm, thanks. I will try a good mortgage broker instead. Any suggestions? Has anyone used E-Loan, Lending Tree, or that one called Ditech or whatever it's called? Thank goodness my credit is superb, or I'd be in deep doo-doo trying to get a loan.

juniorbean

iTrader: (5)

Great reply For our first home we got a mortgage for ~70% of the purchase price, and a Home Equity Line for ~12% of the purchase price, and we put down about 18%. We got a standard 30-year mortgage and we stayed away from Interest Only and ARM loans.

I have a friend who purchased his first home in winter of 2005 and he did an 80% mortgage with a 10% home equity line and only put down 10% himself. He also did a standard 30-year mortgage and stayed away from Interest Only and ARM's.

Whatever you do, just be sure your mortgage is no more then 80% of your purchase price, otherwise, you will pay PMI (Property Mortgage Insurance) which is not deductable, and even though the banks and lenders will tell you that you can be rid of it after you have at least 20% equity in the home, it's a bitch to have it removed from your payments. So be sure to finance no more then 80% on your mortgage.

juniorbean

iTrader: (5)

We used a mortgage broker on our first place and they were terrible. It was likely just that company though. My friend had great success using one on his home. For our current house, I did all of the legwork and called a ton of people as well as leveraging sites like LendingTree.com. We ended up using our builder's broker b/c we got incentives, and they also beat everyone else by more then a 1/4 of a point.

FWIW, I have used LendingTree twice to refinance our Home Equity and never had a problem either time...

LuvMyTSX

Good stuff, JB, thanks. I am definitely staying away from interest only and ARMs. I'm also doing my best to save so I don't have to pay PMI. I didn't know it was so hard to remove from your payments, so I'd rather avoid that if possible. I have a bit more saving to do before that will be possible, though. I was hoping for this summer, but not sure if that'll happen.

More info on the condos I'm seeing this weekend:

(All are in the same development)

2BR/1BA for $222,500 (needs quite a bit of work, incl. new kitchen & appliances)
2BR /1BA for $248,000
2BR/2BA for $257,900
2BR/2BA for $259,900

None have garages or basements, so storage would be tricky. Obviously, I'd prefer a 2BA for convenience and resale purposes, but don't know if I'd be able to afford it.

Living in that development would give me an hour+ commute to work, which sucks, plus it doesn't allow pets (I want a dog in the worst way), so I'd consider it, but would prefer something closer to work and also pet friendly, but I'm looking far away because everything is so damn expensive near work.

moeronn

Who is your appointment with? Be upfront and realistic with an agent if you are asking them to show you around. Not saying you have to have all your ducks in a row, first. Just make sure they understand your position.

Since you're in Jersey, and I know property taxes are really high there, make sure you take that into account when you figure out what you can afford.

As you mentioned, talking to your accountant - good idea.

Good luck.

LuvMyTSX

^^ Yeah, I'm trying to be careful about that since I'm not really ready yet. I told the agent this at the open house I met her at on Sunday, but I want to make sure she understands that this is just the beginning stages. I would have preferred to just go when there was an open house at these other places, but she offered to schedule an appointment so I said yes. I can't remember the name of the agency she's with, but it's smaller and newer, not Coldwell Banker or Weichert.

Yeah, taxes are a bitch here. The taxes for the 3BR/2BA townhouse I saw on Sunday in the same development were $8500 in 2006! For the ones I listed above, they range from $42xx for the lowesst priced one to just under $5k for the highest priced. The condo fee is also annoying - $205 for the ones I listed above, $285 for the townhouse. Taxes own you in NJ.

doopstr

Since you are in NJ consider this http://www.state.nj.us/dca/hmfa/cons...firsttime.html

I used it to purchase my first home in 97.

Scrib

Fixed. No adjustables. No interest only crap. Do it right and not what you're expected to pay each and every month.

LuvMyTSX

Thanks! I see you're in E. Windsor. I moved from Plainsboro 1.5 years ago. The condos I listed above are in Canal Pointe off Rt. 1 in West Windsor.

amisconception

One major reason why I highly recommend speaking to a good mortgage broker, versus Lending Tree or a traditional bank like Wells Fargo is because of options.

For example, conservative buyers will often demand 30 year fixed loans that pay principal and interest. That's fine. That's a traditional fully amortized home loan and is right for many people.

But, it truly is more complicated than that.

First of all, not all home buyers stay in their home for 30 years. If you're a first time home buyer, you can significantly lower your interest rate (monthly payment) by reducing the period by which that rate is fixed.

For example, you can have a home loan that is fixed for 2 years and adjustable after that 2 year period. There are pros and cons to this option. One pro is that you pay less monthly. Obviously, for someone who wants long term security that's not a good thing. But, if you know you're going to move in two years, it would be wise to opt for this. That way you end up saving money monthly.

Second, there is the issue of a pre-payment penalty. If, for example, you know you're going to stay in your home for at least three years, you can opt for a 3 year pre-payment penalty.

A prepayment penalty basically guarantees that the bank that is lending to you will make a profit if you move or refinance your home before the 3 year pre-payment penalty period is over.

The benefit of a higher pre-payment period is that your rate decreases incrementally as a result. You're adding security to the bank for three years. They're guaranteed a profit and are therefor able to offer you a lower rate.

Now, you can find these options, and more, available to you at any Wells Fargo or Bank of America. But, what they won't do is price out a specific scenario that is tailored for you across multiple banks. That is where the power of a good and reputable mortgage broker lies.

Like I mentioned before, different banks have different guidelines. And, different banks also have different programs and options they can offer you.

And, there are other more exotic home loans as well and they all really are designed for specific types of buyers. Realistically though, without you giving us details about your credit history, rental history, income history, or asset history, it's ultimately not going to be the most informed advice. Your best bet, assuming you find a good and reputable mortgage brokerage, coupled with a good Realtor, is to go over a whole plan of action that is tailored just for you and your Real Estate goals.

keg1997

I'd also STRONGLY suggest that you visit at least 2 or 3 different mortgage people with different companies. Some mortgage folks have very set perceptions of what you should get and how much. We ran into that. Different perspectives will give you some different ideas.

Also- do you work in the public sector? Teacher? Firefighter? Police Officer? I know that Bank of America does a deal for those types purchasing their first home. Just a thought...

Good luck!!!

LuvMyTSX

amisconception - Thanks for the info. I'm going to try to find some mortgage brokers and also see what LendingTree can do. I talked to a broker last year who seemed pretty helpful. He was recommended by the wealth management firm my boss uses.

keg1997 - Yes, talking with multiple people is a good idea. I don't want to get stuck with someone too set in his/her ways to look for different options for me. And no, I'm in the private sector. I work for a food ingredient manufacturer (small business).

cM3go

LuvMyTSX, I am exactly in the same boat as you, just in Chicago, IL. Its really tough, I started in October and I haven't found anything just yet. Not saying your luck will be the same as mine, but just keep strong and keep looking. Good luck!

LuvMyTSX

^^ Hey, misery loves company. I know, it's really, really hard, but I'm just going to keep saving. It's the only way I'll get anywhere with this. Good luck to you, too.

ReWritable

I would definitely NOT rule out ARM's or Interest-only mortgages, for the following reason: if you are planning to eventually move-up in say 3-10 years, an ARM would be a much better financial decision , lower interests for the first 3, 5, 7 years (3/1, 5/1, 7/1 ARMs) and you can sell your house BEFORE it turns into adjustable.
Now, the interest-only ARM mortgages are perfect if you have a high-income, why?: you are only obligated to pay interests for the first say 5 years, but there is NO prepayment penalty, so you can pay your mortgage + $$$ extra each month, therefore effectively building equity faster than a traditional 30yr-fixed, plus the benefits of tax deductions; and again you can sell before your fixed period is up.
just my

good luck!

AdamNJ

I just checked into this a little and it will be an option for me to consider. However it does look like it has some downsides. For most FHA, you need at least 3% down, which it fine...and any fha loan that starts with under 20% down will cause you to have to pay fha insurance. Sounds like it is the same as PMI, however you will have to pay the fha insurance for the life of the loan, where as, with PMI after you get 20% equity it can be cancelled.

Also if you sell the house w/in the first 9 years, you will have to pay tax on the profit. With a normal loan, as long as you don't sell in the first 2 years, the profit is tax free as long as it is under a certain amount (250k?).

And it looked like you can't refinance an fha/you are stuck with it?

note: maybe I'm wrong on all this.

juniorbean

iTrader: (5)

Tis true... and if you re-read my reply, I never steered HIM away from Interest Only's or ARM's... just mentioned that the two examples I provided (myself and a friend) stayed away for our own reasons.

Problem with ARM's or Interst Only's is that a lot of times first time homebuyers get into serious trouble b/c they do not truly understand the programs... and they really shoot themselves in the foot.

So if you know what you're getting into and you understand the risk and rewards or each program, it's not a bad option. I just know we went fixed, and I'm enjoying my low fixed rate as some of my neighbor's who did 3/1 ARM's b/c they thought they'd be gone by now are paying quite a bit more then me since they were adjusted. Additionally, most ARM's lately aren't much of a bargain... so if that's still the case (haven't checked lately b/c I have no need to), it's better to go fixed.

ludachrisvt

iTrader: (2)

fixed rate mortgages are the worst

juniorbean

iTrader: (5)

^

ReWritable

Agree... but by definition ARM's have lower interest rates (its called the "teaser rate") for the fixed period. Of course people with relatively low incomes are enticed by it and then have trouble keeping up with payments if they stay in their homes longer than expected.. but again, it all depends in your specific financial situation and timeline, people who understand how this works, can use it in their advantage and save thousands of dollars if they plan to keep a house for few years only, more so people in higher income brackets. But for most people, the fact that they have a "fixed rate mortgage" gives them a sense of control and security, which of course at the end comes with a big price tag.

LuvMyTSX

That is exactly what makes me nervous about ARMs. I want to know each and every month what my payment will be, and not have to worry about moving out when "my time is up." I'm tired of moving, I want a more permanent place, even though this probably won't be it since I'll most likely be looking at condos, and I'd rather have a townhouse or house (some place with a garage).

I wish there was a way I could make a quick $30k, lol.

MR1

Sad thing is that you can't have it both ways (low payment and fixed rate). To get anything that you want soon looks like you may have to gamble some.

While most are not likely to stay in homes more than 5-7 years, some do. The gamble is that when your interest rate adjust, you may not be able to sell or pay the higher rate. This is what is leading to all the foreclosures taking place now.

You are doing the correct thing to educate yourself and weigh all of your options. Realize that owning is not always the best way to go. You must decide how important it is and how much you are willing to sacrifice both before and after a purchase. Do you want to drive a POS car and eat beans for a while in order to make a purchase? Are you willing to move to a less expensive area? You gotta give some to get some. Again the question is what are you willing to give up?

juniorbean

iTrader: (5)

That's pretty much what I said



again... but the price tag depends. We put about 46%-47% down on this place and also pay a few hundred extra in principle each month. So we're sitting with a nice fixed rate and will never be adjusted. If rates go below where we are, we simply refinance (and likely do a 15-year at that point). So how big that payment is when doing a fixed rate depends on a person's financial situation.

LuvMyTSX

Yeah, that's why I'm trying so hard to save my money to come up with a sizeable down payment. I'm also looking into towns with cheaper home prices and taxes, but unfortunately, to get that, I'll have a long commute to work since I work in an expensive area. That means I have to also factor in higher gas costs if I have a longer commute, putting further stress on my monthly finances. I'm paying extra on my car loan right now and have under $10k to go. I bought used because I knew I wanted to save for the house.

The last thing I want to do is jump into this when I'm not ready yet, and just get excited about finally having my own home. I need to stay level-headed and carefully consider everything.

Luckily, I know how to be frugal and save my money. When I moved into my first apartment, and for a while when I was in my second one, I had to really skimp and save and watch every penny. I'd like to not have to do that again to that degree, which is why I'm waiting until I'm financially ready.

I'm also hoping the housing prices come down a bit more in the next year.

juniorbean

iTrader: (5)

^ You're in NJ... house prices should drop a little more this year. So save up and buy late in the year (fall/winter) when the market is slow

doopstr

When I did mine I had PMI and no FHA insurance. I think there are various loan options that they can hook you up with this program. I was able to kill my PMI when I got to 20%. You should talk to a mortgage broker about it. A broker was the one that pointed this program out to me.

Nicky Pass

I did a 5 year ARM and I got a 4.5% rate for 5 years. I'm planning on moving within a year...so if you don't plan on being there for a long time, then an ARM is smart....and it will save you money. My next place will be a fixed rate because wherever I go next is where I'll be for atleast 10 years.

1StGenCL

Hey man I do mortgages for Family First Mortgage and would be happy to help you if you have any questions. We lend in most states including Jersey and since i grew up in south Jersey I always like to deal with the area. Check your messages

LuvMyTSX

Thanks!!