Mortgages? Anyone know anything helpful?

[vivalarev]

My wife and I are looking to buy a house in the next month or 2 and the mortgages have me worried? Does anyone have any helpful info? Pitfalls to look out for (Other than ARM loans)? How to figure out how much house you can afford? I need some help.

[trotsky]

1. Your bank likely has mortgage calculators on their website.

Just enter in the numbers you know, and it will compute the one you don't.

Yes, avoid ARMs. And if you can afford it, you will save tons in interest if you get a 15-year mortgage. Otherwise go 30, and see if you can sign up for a "13th payment" option where they take half your mortgage payment every two weeks, thus ending up taking a 13th payment over the course of 12 months. It will also save you lots of interest. But don't do this if you have other higher-interest loans to pay off - do those first.

[vivalarev]

5. Well, we dont have much to put down....

Maybe 25k, but with closing costs around 10k, thats not going to help us much. We're looking at a 275k house, but dont want to get in over our heads. How do you know if a mortgage company is good or not?

[trotsky]

6. Get a good mortage broker.

Your real estate agent, if you trust him/her, should be able to steer you towards a good one. They can shop around and get you the best mortage.

[Lex]

8. If you are a member of a credit union

they generally have lower closing costs and better deals.

Otherwise, I'd get actual recommendations from friends or co-workers about a mortgage company and loan officer there before I used them.

[Lex]

2. The information

at this website is objective (doesn't lead you to any particular lender or products).

I recommend it to my clients all the time:

http://www.bankrate.com/brm/rate/mtg_home.asp

Hope it helps!

[LynzM]

3. A couple things

Though I'm by NO MEANS an expert.

Your final payment (including insurance, interest, etc.) should be no more than 30% of your income, generally.

ARMs and balloon mortages are to watch out for, and fully understand, before you choose them.

Go to a bank and talk to their mortgage agent. They can help you work out all the details of all of that....

Good luck to you! It's intimidating, but talking to people will help. A lot of times, realtors have a mortgage agent you could talk to, as well.

[seriousstan]

4. Check about your state's PMI rules.

I always pay 20% down so as to avoid PMI. That savings is HUGE.

[vivalarev]

7. I would love to be able to do 20% down

to avoid the PMI, but I donto know if I can do that. We're young and this is our first house, and Im not sure where to turn. I dont trust real estate agents for the most part b/c they dont have our best interests in mind, they seem to just want theyre money.

[trotsky]

12. For your first house, don't get too worried.

We couldn't afford 20% down - not even close. Just buy a decent house in a good neighborhood, and sit on it for a few years while making your regular payment. It should appreciate well, especially if you make a few improvements. Then later, you can sell it for a nice profit and put that towards a bigger house.

If you don't trust your real estate agent, FIND A DIFFERENT ONE. There are plenty of reputable ones that are very trustworthy. Ask your friends, coworkers, and family.

[vivalarev]

11. Do different states have different PMI rules?

Where do you look to find out about them? Half of the charges seem ridiculous as it is, like title insurance, and courier charges for the title. Why do you need a courier? Why cant the info just be mailed? I feel like Im going to be screwed with some of this.

[matcom]

9. do NOT under ANY circumstances get an interest only

they WILL try and sell it to you. "more house for a lower payment" they will tell you. you WILL get burned.

stick with what you can get on a 30 year fixed (5/1 ARM if you ABSOLUTELY have to)

take what you can get. do NOT go mortgage poor.

[vivalarev]

13. Thanks mat....

Thats the one thing I do know. I want to have equity, so I will not go for an ARM, but I just dont understand all of the options available to me, and asking a lender doesnt seem like the best thing to do.

They already are suggesting an ARM, but Ive said no. Ill pay more per month happily just to have equity.

[REACTIVATED IN CT]

15. ARMs are not necessarily bad

I have one for the first 5 years I owned this house. Rates did go down the first couple of years, then headed up again. I refinanced last year with a 20 year fixed rate.

An ARM has a much lower interest rate than a conventional mortgage so the payments are more affordable. The danger is that when rates go up,your payment may not be affordable. My ARM had caps on how much the rate could be raised each year and over the life of the loan

You will always have equity as long as the value of your propery is going up - regardless of what type of mortgage you have;

IMO the most important thing to look for in a house is location. You;re better off buying the smallest house in a good neighborhood than a McMansion in a lower quality neighborhood. Being in a town with a good school system is important too

[Lex]

17. I agree. Particularly if you plan on being in that home for 5 or 6 years

which is about average for most people in their 20s, 30s, and 40s.

[yellowdogintexas]

21. ARMS even come w/up to 3 yrs fixed rate before the first rate

change date.

The one that freaks me out is the pay option ARM ..you can pay the minimum payment which is a negative amortization, a 30 yr amortization, a 15 yr amortization or an interest only payment.

And you can change the payment around each month. So if you are rich one month, you can pay the 15 yr payment.or just pay the mininum tha next month....explaining this stuff over the phone is very weird, let me tell you.

Even if you do have an interest only, there is nothing stopping you from paying against the principal as long as you stay within the limitations of the prepayment conditions in the note.

I have had an ARM and it was a great deal ...if the caps and ceilings are low enough you won't get in trouble.

Cap is the max % the interest can ever go for the life of the loan.
Ceiling is the max # of % points it can be increased at any one time.
Floor is as low as the interest can ever go
Margin is the % rate that is added to the index to determine your rate
Index is the anchor rate: like the Federal Reserve Rate, as an example.

So if you are linked to Prime and Prime is 6% and your margin is 1.5 then you will have a 7.5% loan. If Prime drops then your note can drop ;if prime increases then so can your loan.

FHA loans can get you in on lower rates w/less down, but you will HAVE to have the PMI. But if you don't have to have 20% down, it can mean the difference between having a house or not having a house.

Be sure your property taxes are correctly figured before you close the deal. You don't want to be in for a rude surprise the second year you are in the house because the taxes suddenly escalate (most common in new construction)

Also, the P & I may look good on paper, and that is the main part of the loan payment, but you will need to pay taxes and insurance, whether you pay them as part of the housepayment (escrow) or pay them yourselves. Just allow for it in your budget.

Closing costs can vary too.

I agree with the comment that there are plenty of trustworthy and dependable real estate agents. Ours were wonderful! We found them at an open house for the house we ultimately bought but after we made ther offer, we had decided that if this offer wasn't accepted, we were hiring them to be our buyer's agents and help us find the right house. You can engage the realtor to be YOUR agent and help you find a home just as a seller can engage a realtor to sell his/her home.

Go to open houses; investigate school districts if you have kids in school. Think about commuting distances, and whether or not you love mature homes with trees
Check out foreclosure lists and HUD offerings. Good deals can be found there too.

[REACTIVATED IN CT]

24. Lots of good info in this post!

I agree about finding a good agent. Go to open houses- its a good way to gauge how much house yuo can get for what you can afford to pay. If you find an agent you click with, have them act as your buyers agent. They have mortgage brokers and banks they work with all the time. My agent hooked me up with a mortgage rep at a bank who helped me to work thru the financial mess my ex left me with and to qualify for the ARM so I was able to buy this house

[REACTIVATED IN CT]

25. Lots of good info in this post!

I agree about finding a good agent. Go to open houses- its a good way to gauge how much house yuo can get for what you can afford to pay. If you find an agent you click with, have them act as your buyers agent. They have mortgage brokers and banks they work with all the time. My agent hooked me up with a mortgage rep at a bank who helped me to work thru the financial mess my ex left me with and to qualify for the ARM so I was able to buy this house

[Midlodemocrat]

29. I totally agree with matcom about the interest only.

It only makes sense if you live in an area where the housing costs appreciate ridiculously. Case in point, my brother bought a house in SanFran for $375, four years later sold it for $700 or thereabouts. Interest only would have made sense here because the equity came from appreciation.

Another thing you might consider is buying a smaller house than you originally considered, but one that you could add on to. That is what we did, and we couldn't be happier. The house is now worth three times what we paid for it, but our mortgage is still only $1150 a month.

[Kathy in Cambridge]

10. There are often programs for first-time homebuyers

my sister got her mortgage through a small local bank that offered 2K off of closing costs if you attended a two hour seminar on a Saturday morning. In Massachusetts, there are regional and state programs for low and middle income homebuyers. what state are you in?

on edit: she got a 5/1 ARM for a good rate.

[vivalarev]

14. I will be in NJ....

What is a 5/1 ARM? When I see ARM loan, it scares me. I dont want to be paying interest only for 5 years, I want some of the money going towards the house.

[Lex]

16. The first 5 years the interest rate stays fixed at what you started with.

After that, the interest rate can start to go up every year.

These make sense if you feel fairly certain that you'll only be staying with that particular house for around 5 or 6 years and then selling. The reason is that ARMs start off with a lower interest rate than a fixed.

[Kathy in Cambridge]

18. An ARM is not an interest only loan-it is a 30 year mortgage

you are locked into a lower rate for five years and after that, the rate is adjusted each year to market interest rate. here is a link to one of my local banks:

http://ecsb.com/rates/mortgages.asp

you may want to do some research on line, or pick up a book geared toward first time homebuyers.

[Gormy Cuss]

31. Get yourself a guidebook on buying a house.

There is a ton of information to consider and although online resources are good when you can find them nothing beats having a printed reference guide handy. Most home buying books have glossaries that would inform you that ARM stands for adjustable rate mortgage -- nothing else. Interest-only loans may be ARMs, but not all ARMS are interest-only, and ARMs are the right choice in certain circumstances.

Definitely follow up on the other suggestions here re: first time buyer programs and buyer's agents. You sound like a cautious type so choose a plain Jane fixed rather than variable rate mortgage if you can swing it. If you must use a 30 yr or 40 yr term, very little of your payments in the first few years go toward the mortgage, but it is better than nothing. You can always refinance in a few years when you're more comfortable with the whole process, and when you have sufficient equity to avoid PMI or reduce the term to 15 yrs or choose an ARM.

[GOPisEvil]

30. I did something similar. Called The Genesis Program.

The seller rebates some of the purchase price to be used as a downpayment, and if you attend their seminar, PMI is waived by the lender.

[vivalarev]

19. Thank you all for your help....

This by far the most difficult thing Ive had to deal with....

And I just got audited!

[bottomofthehill]

20. www.countrywide.com

This is not a push to use them but they have a pretty good web site which will let you look at a lot of rates and programs. You don't have to register to use it just use it as a guest. I went to their site often but ended up using a mortgage broker.

[yellowdogintexas]

22. my employer...and it is a damn good website.

our customers love it!!!!

Thanks for the nice comment, by the way.

They are an excellent company to work for. I fell into this job because I got tired of being laid of in medical insurance work (3 layoffs in 5 years got OLD FAST).

[grace0418]

23. ARMS aren't all bad if you don't plan on

living there forever. We have a 7 year ARM with 5 years left to go, but we only plan to stay one more year. We got a great interest rate in the meantime.

In terms of HOW MUCH to finance, my first tip would be NEVER borrow all they are willing to give you. It seems weird but banks will give you way more than you can afford to pay in monthly payments. The best thing to do is go with loan calculators to tell you what your monthly payment would be. It's best way to judge what you can manage on a montly basis. Don't forget to factor in things like maintenance, assessments (if you buy a condo), renovation, insurance and property taxes. Those are things you don't have to worry about if you're renting but become necessary when you own.

Good luck.

[seemunkee]

26. If you have an agent be careful about going to open houses

As soon as you walk in tell the showing agent you are working with someone. If not and you decide to put in an offer the showing agent can and most likely will try to cut your agent out of the commission.

Instead of doing the bi-weekly payment there is another option to speeding up payments. Take your interest and principle part of your monthly payment and divide it by 12. Add that amount to your monthly and you in essence do the same as paying biweekly. This may work out better depending on when you get paid.

There is a column in the Washington Post real estate section that always has some good advice.
http://www.washingtonpost.com/wp-dyn/content/article/2005/07/01/AR2005070101622.html

Before you go looking get pre-approved for your loan. Get a letter from the bank/lender saying how much they will loan you. When you make an offer you can include this so the buyer can see you have the means to buy the house.

[Wcross]

27. Calculators on this web site

http://www.bankrate.com/brm/default.asp

It is a very good web site.

My advice? Get a fixed rate plain jane mortgage. No arms,no interest only, no creative nothin! If you can swing it, try to do a 15 year mortgage- the payments are a bit higher but you will own your home quicker.

[AlCzervik]

28. 20% down will help you avoid PMI and i would go for a regular mortgage

not 0 down, not interest only-just a regular 30 or 15 year fixed. Please keep in mind property taxes and monthy bills like water, trash and electricity.