Buying House information

[cercis]

We've had at least 2 threads about buying a house. Let's consolidate the info here.

1) Closing Costs - This will vary greatly.

I can't find my paperwork right off hand (it's been one week and already it's lost? Please let it be packed away somewhere), but here's what I remember as the buyer

Mortgage fee - don't remember a cost, but this is negotiable

Survey - $350-600

Appraisal - $175-350

Inspection (not required but a really good idea) - $50-100

Pest inspection (again not required but good idea) - $50-100

Title fee - $75-500 (this might be negotiable, you should ask)

Recording fee - mortgage/deed of trust and deed - this depends on your county in my county it is $20 for first page and $4 for each additional page - it was over $90.

Attorney fees - could be negotiable - $400-$1,000

Prorated taxes - not negotiable and varies greatly depending on the tax rate in your city/county/state and what time of the year you buy it.

House insurance premium - $1,000-$3,000 - definitely call around to find out the best rate. Ask about the discount to move your cars (and check that premium as well). For us, it worked better to leave the cars and the house with separate insurers.

Interest until the first payment is due (this could be 45 days or more - we closed 11/21 and our first payment is 12/1).

If it is escrowed, they will also want to start with the full amount of escrow "cushion" they require - in my case it was close to $500.

With our down payment and all the other fees we ended up paying about $6,300. We didn't put down much at all - only 3% so we could have money to make necessary updates and repairs without having to take out a home improvement loan.

I'm leaving out something, I know I am, please, everyone list what you can remember and feel free to correct my figures.

[cercis]

2) Actual payment

If your loan is escrowed you will be given the actual payment at closing. However, don't expect this payment to be static. Plan for your property taxes to increase at least 5% each year (I'm not saying it will, but plan for it). Also, plan for your house insurance to nearly double after the first year (and be prepared to call around to switch)

If you put down less than 20% or didn't take out what is called an 80/20 loan (which is 2 loans, one at regular interest rate and one at a much higher interest rate) then you will have to pay PMI - this is insurance for your mortgage company. If you default, then the insurance will cover a portion of the principle you owed. This will vary greatly. In our case it's always been between $50-65.

[cercis]

3) Don't forget moving costs.

We're only moving across town and most of our stuff will be moved in the car and the truck, but we do have furniture and appliances that would be better moved in a moving truck - so we'll have that cost. I haven't started calling about that yet, but I've budgeted $150 (please let it be less).

If friends will be helping with the heavy stuff - plan to take them out to dinner or otherwise feed them. We're hoping that his family will be good sports when they're down for christmas and help with this stuff, I'll have pizza and sodas and the ubiquitous iced tea.

[cercis]

4) pitfalls you should look out for

a) interst only loans. These are somewhat doable IF (and only if) the housing market you are in has homes increasing in value. But you shouldn't trust this. If you can't afford the house and also can't afford to rent (I know California is extremely high right now), plan to pay extra on your mortgage every chance you get - if you get money for a bonus or gift, send it in. It's the only way your principle will ever decrease.

b) negative amortization loans. These are a bad idea always. This is when your loan payment isn't even enough to cover your interest payment. With this sort of loan, even if you send in extra, it will be applied to back interest first.

c) buying a home where the seller says they won't accept your offer if you want an inspection. Insist on an inspection. Don't expect the inspection to find everything, but they should crawl under the house (if possible or necessary), check all the outlets, check out the attic space, check the plumbing, etc.

[jodi]

Good summary, cercis. Just a side note: be sure to check with a real estate agent, real estate lawyer, and/or mortgage broker or bank for estimated costs. They do vary a lot by area. I sell real estate in NY and could spot a few major differences in the prices you listed (i.e. home inspections in my area are hard to find for under $250, but definitely still worth the money). Sellers also typically provide the surveys, so that is not a cost to the buyer. Home insurance is quite a bit cheaper here too (not many natural disasters). It is my understanding that in some states, lawyers are rarely used (although I have found them to be well worth the money). The bottom line is to do your research.
I know real estate agents get a bad rap for trying to sell people a house no matter what the cost, but I tell my clients NOT to buy a house for the top amount that they are pre-approved for as they will not have money left over for repairs, renovations, emergency expenses, etc. I am usually amazed at what a bank will approve a person to spend on a house.

[34saving]

A note on inspections -- around here it seems they're well known as a "back out of the sale free" card since the inspector will ALWAYS find something wrong. So, don't be shocked if a seller won't take the house off the market until after the inspection. Also, inspectors (at least around here) are only liable for the cost of the inspection. So, if they miss something huge (for one friend they missed a serious water issue and for another they missed a serious mold issue) they might give you back your inspection fee, but don't expect anything else. In other words, do your own due diligence even if you have an inspector.

[ab3tx]

Make sure your mortgage broker/lender runs analyses on different types of loans. In my case, a FHA loan was a couple hundred dollars per month cheaper than the alternatives. (She actually asked if I "minded" having a FHA loan. Do I mind saving money? Of course not, bring it on! )

[cercis]

The thing to watch with an FHA loan is (well two things) 1) many sellers won't sell to FHA because they are more strict with their lending policies and the inspection and 2) often you cannot get PMI waved until you have paid down to 78% of value (this might have changed since I had my FHA loan, though).

Jodi, in Texas it is the buyers responsibility to pay for the survey. I thought that was extremely strange and I checked to be sure, but everyone I spoke with (including the attorney) said it was. Now, when we go to sell the house, provided it is within the next 15 years, our survey will be fine and it could be a negotiation tool.

Also, we do have hurricanes, floods and mold. Lots of mold issues. As a matter of fact, at least one major company (Farmers?) won't write any new policies down here because they've lost too much money on mold claims. So, that's why my insurance is so high. I didn't get mold insurance, though, as it would cost $300/year more and only cover up to $500 in damage - the chances of us having a mold claim in the first year and a half was a gamble I was willing to take.

I forgot to mention on the home insurance - make sure you call all the major companies and some independent companies. We're getting insurance through an Allstate company (which is highly rated) for a lot less than we were quoted through an actual Allstate office, just because I called an independent agency. I found them through our mortgage broker, she sees lots of bids and said they seem to come in with some great bids.

[jodi]

Regarding FHA loans...I have never met a seller that will not sell to a purchaser using an FHA loan. However, I have worked with MANY that chose to go with an offer for a conventional loan over a similar offer with an FHA loan. So in that sense they are better, but it is true that an FHA appraiser (who works for the bank - not to be confused with a home inspector, who works for you) will be more picky in terms of peeling paint, handrails, broken windows, etc. They are working to protect the bank's interest, which is greater if you are only putting 5% or less down (as compared to conventional, when you have a 20% down payment as your investment in the house, and therefore, less risk for the bank). However, like anything, that varies greatly by inspector and by area.

[cercis]

Jodi, I think this shows the variability in areas.

In OK, we had an FHA loan but the seller wasn't happy about it at all. They had to make a lot more modifications than they would have with a conventional. For instance- the gas water heater wasn't raised, which is not up to code. In a conventional loan (even one where you put no money down), that wouldn't have been an issue, but with an FHA loan, they had to fix it. They also had to replace all the window screens (I'm not sure what that was about, but there and here in TX we were told that it was an FHA requirement).

I think, in many cases, you get a better house if you go FHA because the seller will have had to make sure everything is up to code before you buy.

[cercis]

5) How much house can I afford?

Now, mortgage brokers will use all kinds of figuring, etc to tell you how much you can afford. The number they come up with may be right and then it again it may be too much.

My rule of thumb is to decide if I can easily afford my current house payment/rent and then look for the price range that fits that. If my rent is stretching me too thin, then I determine what I think would be right (usually $200 or more less) and work back from there.

If my rent is lower than I can afford and I can save money each month, I take the amount I'm saving/funneling towards other debt and cut it by 50-75% and add that to my rent amount.

The regular rule of thumb is no more than 1/3rd your gross income and no more than 40% of your net income to ALL debt payment - car, student loan, credit cards (I think that's right, Jodi, correct me if I'm wrong).

Now this is assuming that you don't put money away for special treats - eating out regularly, traveling etc.

What can happen if you follow that rule of thumb is that you become so tied to your house payment you find you have little money left for "fun" things. And if you lose a job or have a cut in pay, you can end up in foreclosure.

DH and I try to pay the bills with his income and use my income for debt reduction and fun.