where do I start? - First Home Purchase...

[whiskeytown]

Ok - here we go - I'm seriously considering leaving apt. living and going the home ownership route...

first off...where the [censored] do I start? - I know I don't want a house if possible - I'd rather do Condo or Loft - I have no kids or family (and can't plan on them for awhile) - and I don't feel like dealing with lawn mowing, chores, and all that crap -

I don't know how much a downpayment I need, or what my salary has to be - I heard plan 3 times your yearly salary for homebuying - that would be an ok home - 4 times I can get something pretty cool -

I currently have no down payment, but could probably scrape together 5K by December when my lease is up for renewal -

where the hell do I start? - Minneapolis residents esp. encouraged to apply.

RB

[MrMon]

The 3x rule no longer applies. Being a real estate agent, not in MN unfortunately, I'd suggest you start by contacting a lender. Let them tell you what the max home you can afford is. Understand where the number comes from and how you can change it. Don't use one of those online calculators except for rough estimates, actually talk to a lender to get some real data and a feel for how this works. And any lender that can't give you an answer in 60 minutes or less via phone probably isn't worth dealing with. (You probably want a 5 or 7 year ARM. At least use that to determine target price.)

Once you have a number, decide if you can live with the payments. Remember the tax benefits, this isn't the same as rent money. If it's too much, lower payment and target house price appropriately.

Now start educating yourself. Go to Sunday open houses, visit condo and loft developments. Go to different parts of your area, try different styles of house or condo. Just don't go look at things that you can't afford, you'll want them and it will make what you can afford look bad.

After looking for awhile, you should start to get a feel for what you like. Area, style, single level or two level, downtown or suburban, etc. Put down your ideal home, and see if it exists. It doesn't, trust me. Now you have to start to compromise, decide what's really important, what you have to have, what can be left out. Try to find that.

One final thing, never try to make a house fit your needs. It's a gut feel type of thing, you'll know it when you see it. If it doesn't scream "buy me", don't.

[jacki]

[ QUOTE ]
I'd suggest you start by contacting a lender. Let them tell you what the max home you can afford is.

[/ QUOTE ]

I think this is terrible advice, unless you're willing to make big cuts in discretionary spending.
My lender for my first house had us approved up to $200,000. Based on the monthly payments, we decided we could afford a $135,000 house.

[smokingrobot]

before you apply, you might want to obtain yoru credit report and make sure its kosher (nothing on it that shouldnt be).

get together your W-2's or 1099's tax returns from last year and the year before.

get your bank statements together.

for a mortgage payment, take the price of the home you want to purchase, divide by 1,000 and multiply that nuber by 6.

that will be your principal and interest payment assuming a 6% rate.

add that number to your monthly expenditures (only the ones that show up on your credit report) and divide that number into your monthly income. make sure thats below 50%, if not, buy a lower priced home.

ex:

Purchase price 100,000
p&i = 600

monthly CC bills and auto loan = 400

monthly income = 4300

1000 / 4300 = 23%, < 50%. so its good.

thats called your debt ratio btw.

if you wanna know anything else, pm me. i can write more for you later, but im about to fall asleep.

[IHateKeithSmart]

Also, figure in the development/regime fees if its a condo. And homeowners insurance and property taxes for additional bills you'll have.

[whiskeytown]

I'll go thru it -

for what it's worth, I work in services for a very large financial institution that does lending for homes - I believe we get extra benefits that make it worth my while to go thru my company - but I shalt investigate -

will probably be a few months anyways - nowhere near a downpayment - not even close, really -

RB

[morgan180]

[ QUOTE ]
before you apply, you might want to obtain yoru credit report and make sure its kosher (nothing on it that shouldnt be).

get together your W-2's or 1099's tax returns from last year and the year before.

get your bank statements together.

for a mortgage payment, take the price of the home you want to purchase, divide by 1,000 and multiply that nuber by 6.

that will be your principal and interest payment assuming a 6% rate.

add that number to your monthly expenditures (only the ones that show up on your credit report) and divide that number into your monthly income. make sure thats below 50%, if not, buy a lower priced home.

ex:

Purchase price 100,000
p&i = 600

monthly CC bills and auto loan = 400

monthly income = 4300

1000 / 4300 = 23%, < 50%. so its good.

thats called your debt ratio btw.

if you wanna know anything else, pm me. i can write more for you later, but im about to fall asleep.

[/ QUOTE ]

this is exactly right.

a few other things. many banks have 1st time homebuyer programs with little/no down needed. you pay a premium for it but don't have to come that much out of pocket. ideally if you can bring 10% down to the table you'll get some better interest rates.

there are some loan programs that will lend 103 - 107% of the purchase price so that your one-time non-reoccuring costs are in the loan too (title, escrow, lender fees, etc.)

make sure you don't over extend yourself. everyone is talking about a housing bubble, which may or may not hit. a safe assumption is to assume perhaps a 10% decline in the market value of your house over the next year - if you want to be a pessimist.

also negotiate like hell. come in low on the offer, review your HUD (settlement statement) thoroughly. throw out any junk fees, like sub escrow, admin fees, rush fees or any of that crap its all padding. also negotiate down the processing fee and underwriting fees. finally when you get near the end ask your real estate agent to cut their commission by a grand or two - they'll be so afraid to lose the deal that they usually drop their skirt.

[MrMon]

If you work for a financial institution, yes, that should give you the best possible deal. Where you'll really save is they'll usually charge little to nothing on origination fees, processing fees, etc. And you should get the best rate, especially if you'll agree to payroll deduction. (I work for a branch of Cendant and got a great deal on my rate for a refi, had to pay the standard 1% origination though.)

Also, since you're just inquiring about how much you can afford, you don't need all that other stuff. You can guesstimate. Be as accurate as possible. Only when you actually apply will you need all that other stuff. Just go at lunch and they should be able to tell you almost instantly.

Anyone who thinks you can get a prime loan at a 50% debt ratio is sadly mistaken. Industry standard has been 28%/36% of gross for some time now. (That's 28% of income for housing, 36% total debt including housing.) There are cases where you can push it, but you'll pay a higher interest rate. High income people can also push it, as they have more disposable income. Ratio is pretty stand for Average Joe.

[whiskeytown]

my only serious debt (besides a $100 cable bill, $50 electric, $60 phone) - is a $4000 credit card bill - rent ant other expenses are approx. 25% of my POST tax wages, pretax maybe 15-20 percent - I don't know if that counts -

I am way up there in credit rating - near 745 according to my CC company - so I'm gonna make that go away first before applying -

RB

[smokingrobot]

you get qualified off your gross income, so dont worry about that.

also they wont count your cell phone bills or cable bills against you either.

if you have a fico above 700, you can get pretty much whatever you want. you might even want to contact a local bank instead of a broker or mortgage bank.

they sometimes wont charge for things that a broker or banker would normally still have to charge.