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Old 03-13-2007, 10:45 PM   #1
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Need home buying/mortgage advice


I've been lurking in this forum since I joined just soaking up information and I finally have a question...How do I BUY a house? My girlfriend and I have just started a real effort to drive around to different towns in Central/Southern New Jersey and get a feel for schools, taxes, services, etc... Some good friends of ours just bought a house in one of the areas we've been looking at, so they've been a good resource.

Our friends' strategy was to obtain 100% financing through their credit union and use what would have been their down payment (About $10K) to cover closing costs plus leave some leftover for miscellaneous expenses. I am a federal employee and also a member of a credit union, and I am eligable for 3 different low/no down payment mortgages:

30 Year Fixed 97% - 6.125% Interest - 0.250% Discount Points

7/1 Year ARM 100% - 6.375% Interest - 0.750% Discount Points

30 Year Fixed 100% - 6.375% Interest - 0.000% Discount Points

My girlfriend and I are looking for a "starter home" that we can move into before we get married (we feel that spending a lot of money on a wedding before buying a home would be foolish) in order to stay for 6 or 7 years. In that time frame we would make some major improvements (kitchen, bath, addition, etc...) and hope that real estate values improve in general, with the end goal being to sell the home for (hopefully) substantially more than we bought it for. At that point we'd settle into something more permanent where we would raise our children and really establish ourselves.

The problem with all of this is that neither of us know much about mortgages and we're having a hard time figuring out what kind of a mortgage best fits our situation. It will probably help to have a little background on both of us. I work in the federal government and she is currently teaching Catholic school and attending graduate school. At the moment our combined income is about $65,000 per year, but we are hoping that within a year to two years we will both have better paying jobs. We both have excellent and relatively extensive credit history. Mostly credit cards and student loans but I am currently paying off an auto loan which I'm hoping will boost my score a bit.

The bottom line is this-both of us realize that we probably won't REALLY be ready to buy a home for at least another year, but these offers from the credit union seem very enticing. Will they work for us? What are some potential pitfalls? Are we just being a little premature about all of this? We're a little tired of living at home, but neither one of us is going to give in and rent either! We want to start investing in our future as soon as we possibly can.

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Old 03-13-2007, 11:53 PM   #2
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Need home buying/mortgage advice


I am/was in the same situation, young, not a whole lot of money, sick of living at home, getting married, etc. I didn't want to pay anyone else's morgage (rent) either. I think you can do it, you say $65k income like it's a bad thing! Some are making a lot less. As long as you're in the right state of mind, and are willing to sacrifice you can do it... it's worth it ya know?

I started a year ago my depositing the equivalent of a monthly mortgage in my savings, that way I could feel the "burn" and know I could afford it.
I ended up buying a house that was forclosed on from the bank. It's definately a fixer-upper but that's what I was looking for. sweat equity!
I never liked the idea of ARM mortgages, epsecially when rates are are pretty low now, the rates can only go up so why get adjustable and have to refinance in 5/7 years? That's just me. My folks always tell me how their fixed mortgage was in the double digits % years ago so I'm comfortable with today's rates.
Be sure you're looking at the APR as well. Just because a loan is a little lower in interest, other fees may make it less of a bargain.
I ended up going with a Huntington community reinvestment loan. You have to make below a certain amount relative to the area you're buying in

They let me tack upto $25,000 for rennovation onto my loan. I have budgeted about $35,000 in repairs. I got the house for 105k, and with my savings I have enough to get it done at about $140k which isn't too shabby for 1800sq ft and 1 acre in the burbs... all the other houses on my street are 200k+. Make sure you checkout the neighbors house values. Google your counties auditor website and do some property searches. ours has satellite photos and soil conditions and all sorts of cool stuff. It's fun to snoop on your friends/neighbors property too...

to keep the 'ol credit score up avoid:
-opening any new accounts
-having balances near your max limits, keep 'yer debt ratio low as possible
-missing payments
-prequalifying for a buncha mortgages

You can get a free annual credit report...the real deal, government mandated, not a pay site, and fix anything that may be incorrect
https://www.annualcreditreport.com

I have no idea how credit union mortgages work... can you keep the mortgage if you switch jobs or will you have to refinance?

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Old 03-14-2007, 09:21 AM   #3
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Need home buying/mortgage advice


Quote:
Originally Posted by elementx440 View Post
I am/was in the same situation, young, not a whole lot of money, sick of living at home, getting married, etc. I didn't want to pay anyone else's morgage (rent) either.
Amen!

Quote:
Originally Posted by elementx440 View Post
I think you can do it, you say $65k income like it's a bad thing! Some are making a lot less.
True, but although it has gotten better since the market has started to cool off, (and although I love this state and would never leave) New Jersey is still the overpriced home capital of the world!

Quote:
Originally Posted by elementx440 View Post
I ended up buying a house that was forclosed on from the bank. It's definately a fixer-upper but that's what I was looking for. sweat equity!
Me too! I am a hands on guy and my girlfriend is willing to help, plus I have more than a few friends/family in the building trades, her father is a general contractor, etc...so there will always be someone to call with a question or to lend a hand on a weekend in exchange for a few cold ones. Plus this site of course.

Quote:
Originally Posted by elementx440 View Post
I never liked the idea of ARM mortgages, epsecially when rates are are pretty low now, the rates can only go up so why get adjustable and have to refinance in 5/7 years? That's just me. My folks always tell me how their fixed mortgage was in the double digits % years ago so I'm comfortable with today's rates.
Be sure you're looking at the APR as well. Just because a loan is a little lower in interest, other fees may make it less of a bargain.
Ok here is where I get a little confused. So a 30 year fixed rate is just that-the rate is what it is come hell or high water for 30 years correct? If you get a low rate I guess that's pretty good, however, what about in 6 or 7 years when we decide to sell? With a 30 year fixed will we have made a dent in the mortgage at all if we go with 100% financing? I mean, we're hoping that over that time we can significantly increase the value of the home through upgrades, and increase our salaries so that we can move into or build our "dream home."

So, should we maybe plan to stay in whatever area we start with a bit longer? Maybe 10 years? One of our biggest concerns is children. We'd like to plan to move while they are still fairly young and the process of changing schools and making new friends won't be so traumatic. I am 25 and my girlfriend is 22. Roughly, we hope to be in a home within 2 years give or take a few months which will make us 27 and 24 respectively. I would like to hold off on having kids for at least 3 years after that because with trying to build "sweat equity" and planning a wedding it would be tough to balance starting a family. So let's say that we then have about 6 years before our first child is ready for Kindergarten, so we could feasibly move after 7 years which would give us 10 years in the home altogether. I guess I have to crunch the numbers but the basic question is this:

Does it make sense to buy a $200K home with a 30 year FRM with 100% financing with the stipulation that we would stay in that home for 10 years and make substantial improvements?

Quote:
Originally Posted by elementx440 View Post
I have no idea how credit union mortgages work... can you keep the mortgage if you switch jobs or will you have to refinance?
Most credit unions that I know of, including mine, allow you to be a member for life once you open an account. I currently have a savings account and an auto loan through mine. I got a rate of 5.3% for 60 months on a used (2003) vehicle, which is a full 2% lower than the best offers I got from E-loan, Wachovia, etc...so I'm confident that their mortgage rates are pretty competitive also. Thanks very much for the info! It's a lot easier to read real world answers on here than it is to try to read the "mortgagese" on the bank websites.

Last edited by Badfish740; 03-14-2007 at 09:23 AM.
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Old 03-14-2007, 03:53 PM   #4
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Need home buying/mortgage advice


I will try to weigh in on this for you. I am a newly wed about 8 mos ago, and we bought a house when we returned from our honeymoon. We got an early wedding present as our offer was accepted 2 days before our wedding. We bought a house that was over 60yrs old and have done tons of remodeling. Starting on landscaping and outdoor projects this weekend and will post some pictures on this site later this spring.

My advice is to make sure you are ready to buy a house and ready to give up a lot of free time especially if you are buying a project. I have spent 80% or more weekends since the first of July working on my house. Friends etc to help are great, just make sure you trust the workmanship makes more work if you have to correct stuff. I have had a ton of help from my dad, and some from my brother and a good friend that I know does good work.

My mortgage advice to you: I have a degree in finance but I can't really tell you what is best for you one way or another. I will try to give you some info to help you understand a mortgage. My personal opinion is I would never have a mortgage that is not a 30yr or 15yr fixed. T

he interest only loans were meant for someone like a doctor who will see a large spike in income in 3-5 yrs not your average joe who may get a few raises but wont see their income double or triple in that short of time frame. These will leave you with no equity after 10yrs, and a pmt about to jump. Only way to come out ahead is very large appreciation. Chances of this not looking good right now.

Low-No Down Payment: Some will tell you this is crazy and not a good idea. Yes there are obvious advantages of making a down payment. You have a slight advantage living at home to save money, but have extra money for projects etc in the beginning helps a lot especially if they pay off in the long run. Also 6% for the next 30 yrs beats waiting 2yrs to save up and getting 10% for 30 yrs. All depends on your situation and what you are ready to take on. If you look at what has happened in the market the past 2 days interest rates are going to go up. Banks have to make money to make up for all of the loses caused by lending to people they had no business lending money too. In the next few years loans are going to be harder to get. Banks are again going to require down payments and be much more strict than they have been. Read some articles on businessweek/msn etc about what has caused the collapse that we have seen the past few weeks. Banking on a large amount of appreciation is not a good plan. Although it is nice and helps people pay off more of the next house or move into a bigger house it is not a good idea to count on it.


These two links take you to a few websites that let you work out how much payments are for a loan and interest rate. Also has ammoritization tables that show you how much equity you get with each payment (take it with a grain of salt, its pretty disheartening when you look at it). This allows you to see what changes in your rate or purchase price affect your payment. Also get info from your insurance agent for homeowners insurance, and found out how much property taxes are for houses you are looking at. You can usually call the utilities company and see what avg power/gas/water bills are for an address to help you budget bills. If you have been living at home all through school etc, make yourself a generous budget for things like food, household goods etc, never know how expensive they are until you pay for all of them on your own.

http://articles.moneycentral.msn.com...Financing.aspx

http://moneycentral.msn.com/loan/loan.aspx

My suggestion is to spend a lot of time running numbers and make yourself a good budget that will include everything you spend money on and include saving for retirement etc. Find not only what you can afford but what you are willing to afford. If you buy a house you can afford this year instead of one you can afford in 2yrs you will be better off financially in the long run.

Please feel free to ask any questions about what a wrote or anything and I will try to help. Either reply here or send me a PM or email and I will respond. Hope I have helped more than I have confused you.
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Old 03-14-2007, 04:56 PM   #5
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Need home buying/mortgage advice


Thanks! That was a big help and a great explanation. I've heard from more than one source that the 30 year fixed 100% was a good way to go. I was skeptical at first but now I'm convinced that it makes the most sense. We would plan to stay in our first home for 10 years I think for a few reasons, one, so that we could spread out the projects and make them more managable, two, we'd have time between having kids and when they're actually ready for school, and three, it makes the most sense with a 30 year mortgage.
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Old 03-14-2007, 05:50 PM   #6
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Go with the 30 year fixed...

Prepay additional principal only if you can afford to...

Ya gotta live somewhere and the tax deduction from the intrest alone beats paying rent...
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Old 03-14-2007, 09:13 PM   #7
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Need home buying/mortgage advice


No problem glad I was able to help. I forgot to even mention the part about the tax deduction which is just a nice bonus. The other piece of advice they gave is also very very beneficial. If you can afford to make extra principal payments it will help you build more equity. This will be very possible if you and/or your gf start making more money over the next few years. Instead of refinancing or anything you can just pay extra principal. You just need to make sure you make a seperate pmt from your regular monthly pmt and make sure you designate it to go against the principal of the loan balance so it will not just be put towards your next payment.

Hope all the info helps and good luck finding a house. I have no complaints about my decision thats for sure.

Quote:
Originally Posted by Badfish740 View Post
Thanks! That was a big help and a great explanation. I've heard from more than one source that the 30 year fixed 100% was a good way to go. I was skeptical at first but now I'm convinced that it makes the most sense. We would plan to stay in our first home for 10 years I think for a few reasons, one, so that we could spread out the projects and make them more managable, two, we'd have time between having kids and when they're actually ready for school, and three, it makes the most sense with a 30 year mortgage.
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Old 03-15-2007, 05:28 PM   #8
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Need home buying/mortgage advice


My parents said to go with 15year... but who do you really know that keeps a mortgage until term? I went with 30 to keep the payment low while I'm starting out. I do expect to finish college in a few years and my wife is stay-at-home mom for now but has a degree so I'm sure that will help in a few years when she starts working. We'll see...

Look at your mortgage amortization calculators, you'll see that down payment don't effect your monthly payment that much unless you got like 10s of thousands down, and who has that on their first house? Now, getting a low interest rate and buying down "points" to lower the rate further really takes a bite out of the monthly payment... but its only a deal if you stick around for x-months, here's a site to help you with this:
http://homebuying.about.com/cs/mortg...zation+program

I have 0 down on my house, I chose to save all my extra money for the repairs. Just remember, the house's future value (after repairs) minus what you owe on it IS EQUITY you have in that house... it isn't only about money down at loan closing, ya know? I feel money down is just more that the bank can take from you if you foreclose anyhow . That's why lenders require 20% or whatever down... otherwise you have to pay PMI (private mortgage insurance), a 3rd party insurers the loan in case you go belly-up. However, some banks like Third Federal Savings and Loan have no PMI loans with I think 3-5% down. They always seemed to have the best rates around, be sure to check them out in your quest.

Wow it seems like a lot now that I think of it all, and it is! but if you feel overwhelmed just know I felt like that 90 days ago, today, i feel in control. knowledge is power as they say, keep researching.

i just read this about adjustable rate mortgages, it made me think to come back and post again...
http://money.cnn.com/2007/03/14/maga...ion=2007031411


Last edited by elementx440; 03-15-2007 at 05:35 PM.
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