My wife and I are planning on purchasing a house in the coming months and I wanted to ask a few questions as I value the opinions and experiences that others have had with lenders...

First, we are first time house buyers. We currently rent a large apartment and, to sum it up, we're sick of paying someone for something that she and I will never own.

My questions revolve around financing primarily. How does this process work? Has anyone had any experience with any of the 'online' lenders? ( www.countrywide.com www.lendingtree.com www.ditech.com )? How about some of the national lending corporations? (Wells Fargo, Banc, Etc)?

I'm needing some insight as I'm very confused and equally aprehensive stepping into this market. I'm also worried that I'll be 'screwed' by some lender who realizes that I'm a first time house buyer and generally uneducated when it comes to financing and home purchase. My college education, for some reason, didn't cover these subjects... oh yeah, I know why... because I'm a geologist. LOL!

Again, any help, insight, opinions, and/or experiences with any companies would be greatly appreciated. Thanks in advance.

RP

 

RockPick

The biggest disadvantage to an on-line mortgage company is that first-time homeowners often need hand-holding through the process, which the sites tend not to give. Also, when something goes wrong with escrow it's nice to be able to sit down and work it out....Also, on-line mortgage companies tend to be best suited for individuals with the best credit....

What do you have specific questions about? It's relatively hard for a lender to "screw you" as all the info is clearly evident and listed out....Great time to buy though, good rates, banks want the business....

I'd be happy to give you my email address if you have any questions along the way. I'm a CFP (Certified Financial Planner), but I don't practice as one publicly....I'm too busy being a CPA and shredding client documents before the SEC tells me to stop.....

 

cpadl,
i thought the best time to buy is when instrest is high and houses cost less. since you can always refinance...

 

rates just went up quite a bit yesterday (Tuesday) since the stock market is showing an upswing.

The current issue of Consumer Reports has a very informative special section on home finance, remodeling, and purchasing.

I would recommend finding a mortgage broker with a good reputation. Mortgage brokers have access to many different programs with many many different lenders. Most real estate agents have mortgage brokers they refer buyers to. If you want a new house, many builders have mortgage brokers and banks they refer buyers to.

Do it as soon as you can, it could take a month to find a house you like and another 60 days to close it. Lenders are swamped right now.

 

I noticed you didn't specify how long you intended to stay in the house. If you don't intend on staying for more than 5 years, look for 5/1 ARM (5 years fixed rate, then to yearly adjustable rate) mortgage. Interest rates for 5/1 ARM are substantially lower than 30 year fixed and still lower than 15 year fixed. I know a lot of people say that get the fixed rate when the rate is low, but if you know you're going to move and can't or won't keep the house as investment after that, then why pay higher interest rate? I got 30 yrs fixed for my house, but I know we'll have to move in 5-10 years unless the schools round this area turn things around dramatically. (no kids right now) I'm split as to keeping the house and renting it out, or outright selling it.

 

ARM's are good if you're nomadic. Just beware of the buy-down rates to get the interest rate lower. Some are outrageous. As low as rates are right now (40 year low), you'd be better off to get a fixed. I personally am waiting to see if it goes down again before the end of the year before I re-finance. Just don't buy into what you hear from the lenders on the radio. A realistic rate right now is in the 5.5% area. I've heard some of them claiming 4.5%.

 

RockPick:

I've bought and sold 6 places in the last 9 years, so let me tell you a couple things that I found out.

With rates this low get a 30 year fixed. You can always over pay the ammount, but you won;t be tied to a high payment. An extra $100 a month pays off a 30 year loan in 23 years.

The " estimated monthly payment at 6.25%" that they have in the paper does not include:
1) Mortage insurance (required if less that 20% down payment)
2) Taxes, which on my house add $500 a month.
3) Homeowners insurance ( required, probably in advance)
4) All the utilities that you may not see because they are included in the rent you pay now: Water,Sewer,Gas,Garbage collection etc.

Get an inspection of the house you want to buy from a licenced company that includes a guarantee, check the phone book ($200 to $500)

There are other costs that you may not know about like a land survey (about $150), title search ($75 to $200), tax stamps from city/state/county (prices vary) etc. Ask your realator for an estimated total, and a breakdown of all these costs.

Property taxes are based on Millage Rates ( X dollars per thousand dollars of value) and they vary a great deal depending on where you live. Your tax bill will be based on what you pay (minus a homestead exemption you are intitled to, don't forget to apply) for the house, not what the current owner's pay. If the current owners paid $800 last year and have lived there 30 years you may wind up paying 2 or 3 times that because of the increase in value. GET THE MILLAGE RATE!

Go direct to the lender and avoid brokers if you can. All they are is middle-men that sell you the loan that gives them the best commission. I got burned on my last place because I used a broker: I went to refinance and found that since the bank had paid the broker a commission on the loan, I was stuck with a clause that I couldn't refinance for 4 years ( so they could recoup the money) or pay a pre-payment penalty of about $4800. If I had gone to the bank direct there would have been no problem.

Good luck on the house; have a pro do your taxes this year, you are intitled to som great tax writeoffs; and with the stock market in the weeds a home is your best investment.

 

...Flafonman....keep all that in mind.

Other handy things to look for:

NEVER PAY PMI - get a compound mortgage (like 80-10, 80-15, 80-10-10, whatever the lender will do that fits your needs) so you can deduct the interest off your income taxes. Check your state laws to see if second notes' interest is deductible there, as well. PMI is generally money down the drain if you sell before the house is paid up. I used to have a second note (paid off in refinance this year), and did much better with that (after taxes) than I would have with a PMI payment. Remember to slice the rates on a mortgage with your effective income tax rate to figure your 'real' interest rate paid. Helps conceptualize for me. You can pay the second note off later, getting rid of PMI is a PITA. Big time.

NEVER PAY POINTS OR ORIGINATION - they are bonuses for the loan writers. Very tough trade for the shopper.

NEGOTIATE YOUR RATE - If you have good credit, you will raise the average of the notes they bundle and securitize (they sell what are called mortgage-backed securities), and should be compensated for it with a better lending rate. Always ask for less than advertised, particularly if your credit is over 700 and definitely if over 800.

I had great luck this year going to http://www.bankrate.com and shopping among the direct lenders which quoted rates on the site. There are simply dozens of them in most (local) areas, and the rates are very competitive. Shop hard for fees, I was quoted a range of upfront costs between $2000 and $6500; I bet you can guess what I paid....fees are gone forever. At the end of the day, I reeled in a rate 0.75% less than my bank quoted me (shame, shame Wells Fargo) and with half the fees, even with a "nice" string of accounts with Wells Fargo.

I think you can do very, very well if you are careful about the home (price!?!) you buy right now. The very best lending rate can't undo an equity loss. Financially, I can't recommend new construction right now, but we all understand that if Momma ain't happy, ain't nobody happy.....but, if you can sell her on a lived-in home that's been in the market a while, and facing the winter downturn, you could net a good fish right now.

Best wishes!

 

Talk to several lenders and compare closing costs. Everything is itemized and given to you as a 'good faith estimate'. Everyone is going to have some sort of origination fee - it will just be hidden somewhere in the costs. Some put it up front and call it an origiantion fee, some hide in other places.

Go and sit down with the lender and discuss all the costs. All of the ones we talked to were very helpful and were able to discuss the subject in layman terms. After all, the majority of their clientel is clueless on the subject.

Get references for the inspector and accompany the inspector during the inspection and ask questions. I got burned on this - the jackass showed up early and got started before I arrived so I missed part of the inspection. For the past 1.5 years I've been going through and fixing things that should have been found during the inspection (garage door installed wrong, duct work not done properly, AC drain line running up slope, etc...), and much more is on the list. I now can tell someone what inspector not to use, and that is sometimes better than telling someone who to use.

Our lender worked very hard for us and got us something like .5% lower than they advertised. But he told us at that rate (7.25% 30 year fixed) the bank would sell the loan, and they did 2 or 3 months later. We recently re-financed for 5.25% for a 5 year fixed, 20 year loan.

Here's another tip - don't buy a house from an engineer that remodeled it himself.

 

Watch out for a pre-payment penalty. My friend could not refinance recently because of a 5 year prepayment penalty with her mortgage company.

 

Great info guys, keep it coming. I myself will also be buying a house early next year as well.
All these fees is what scares me.

What do you guys think about the INTEREST ONLY MORTGAGES?

 

Well, I ain't the sharpest knife in the drawer but, interest only mortgages sounds like the time I got on the moving sidewalk at the Atlanta airport only it was a go'in the wrong way, so to try and make my connection I started walking as fast as I could.

(I thought just the New Jersy mob offered Interest Only Mortages)

 

A short term interest only loan can be great in SOME situations, like if you are SURE you are going to sell the house during the term of the loan. In such a situation, you can keep your payments very low.

IMO, a GOOD mortgage broker is a great asset. There are a zillion different loan options out there, and a good broker will help you find the option that works best for YOU.

OTOH, a bad broker (or bank loan rep) will steer you to a loan that is best for THEM. If the mortgage broker is not asking you questions such as how long you intend to keep the house, etc... or is acting like he only has a few loan options, be suspicious.

I had considered getting a mortage online when we bought our house, but I was very fortunate to have an excellent broker recommended to me. With the wrinkles that came up, we were lucky to have a real person to push the paperwork for us.

Also, interest rates are only part of the story. A super low rate with lots of up front costs is no bargain, especially if you are going to sell in the near term.

 

Folks,

Thanks a million for all the help and opinions. I'm very confused now and definately have ruled out the possibility of doing the loan through an on-line lender. As one of you said, I think I'll need someone to hold my hand through this process...

Wish me luck.


RP

 

Can lower your beacon score. Everytime you have a Lender run your credit it can hurt you. Try to stick to one lender perhaps someone who has referals from your family.