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I am thinking about purchasing a home instead of renting. The cost saving and benefit of doing so seem to outweigh the thought of long term renting. My problem is that I am fully overwhelmed with all of the options and different types of loans/mortgages. Just spending the last week searching and trying to learn the options available to me has my head spinning. Is there somewhere that I can go that can give me an honest evaluation of my options that I have open to me specifically where they are not affiliated with any bank / lender / government organization?

I just want an easy to follow list of my options and someone that I can bounce questions off of. Specifically, is there a type of business / service that is offered that I can pay for to help me with this? I know that I can go to a bank or lender but I feel that I would be offered their products over another or even over a state run program.

I just feel a little overwhelmed at this point and need to be able to work with someone in person to help guide me. The amount of time that I would spend myself researching all my options in detail seems wasted to me if I get it all wrong.

Specifically I live in Barnstable County in Massachusetts in case that helps get me some specific information.



ADDENDUM:

It looks like there is not really a good resource for getting help detailing mortgages (loans even) for the layperson. While the basics of mortgages and loans are easy to follow, when it comes to trying to fit myself into a preconfigured mold is not so straight forward.

The options are overwhelming; from one bank to the next the rates and requirements differ, THEN we have the state that offers a few different first time home buyer programs all at different rates and requirements. I mean how an I supposed to know if taking a state offered mortgage at a higher interest rate but with different requirements for insurance and down payments and no payment protection is worth it in the long run or do I take the standard mortgage from a local bank or an electronic bank or a credit union. Or do I take out a personal loan to make the 20% down payment to avoid PMI or does that cost me more in the long run or do I..... or do I .... or do I.....

So this is where I am at.... too many questions that will just take me way too long to sort out the pros and cons of each... I am more than willing to pay a professional to take my financial details and deliver a report of my options specific to me and the area. Someone who knows about the loans available so I do not miss out on anything. I am not looking to become a mortgage expert and it would be time wasted and possibly wrong.

Maybe I am on to a new business idea; a loan / mortgage adviser. It seems like this type of thing does not exist, at least in my area.



ADDENDUM 2:

I would call this question partially answered. I had already considered a financial adviser but they typically only deal with people who either have a lot to invest or have no understanding of the mortgage market.

Basically I am just going to go with what others in my office have done in the past. There is a state offered program that seems like, at face value, is worth it. There were a few answers here that suggested that I find out what I can afford before I pursue this but the entire question revolved around finding someone who could tell me what I can and can not afford. Building a simple list of monthly expenses is quite simple but what is left in your income is not exactly what you can afford. There are just too many variables to really know beyond a shadow of a doubt what is the best option.

I by no means would mark any specific response as the answer personally but the combination of all the information presented has turned me in one direction that has helped.

Thanks all.

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    Check whether the University of Massachusetts or another state university has an Extension Office in your area. At least in the Midwest, land grant universities have such offices as a part of their mission and usually the extension offices have programs for financial education of people needing such help, ranging from brochures and booklets to actual one-on-one appointments with advisors who help with budgeting or understanding credit card statements or the home-buying and home-selling process etc. (Whether MA has land-grant universities or not, I do not know). – Dilip Sarwate Sep 8 '13 at 21:11
  • @DilipSarwate Good tip. It looks like MA does have land-grant universities, although I don't know if they have such resources or not. – John Bensin Sep 8 '13 at 21:36
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    What questions do you have? I've been through a dozen mortgages, and always found the process pretty straightforward. If you start with the price range of the houses you are thinking of, and the amount you have available to put down, we will likely be able to help you along. – JoeTaxpayer Sep 8 '13 at 22:08
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I recognize you are probably somewhere in the middle of various steps here... but I'd start and go through one-by-one in a disciplined way. That helps to cut through the overwhelming torrent of information that's out there. Here is my start at a general checklist: others can feel free to edit it or add their input.

  • How 'much' house would you like to buy in terms of $$$ and bedrooms/sq ft. You can start pretty general here, but the idea is to figure out if you can actually afford a brand new 4bd/3ba 2,500 sq ft house (upwards of $500K in your neck of the woods according to trulia.com). Or maybe with your current resources you'll be looking at something like a townhome that is more entry-level but still yours. Some might recommend that this is a good time to talk to any significant others/whomevers and understand/manage expectations. My wife usually cares a lot about schools at this stage, but I think it's too early. Just ballpark whether you're looking at a $500K house, a $300K house, or a $200K townhome.

  • How much house can you afford in terms of monthly payments only... (not considering other costs like utilities yet). Looking around at calculators like this one from bankrate.com can help you figure this out. Set the interest rate @ 5%, 30-year loan, and change the 'mortgage amount' until you have something that is about 80%-90% of what you currently pay in rent each month. I'll get to 'why' to undershoot your rent payment later.

  • Can you really afford a house? round 1 Take the loan amount you get ... with a payment that is close as described above... and divide by .8. That would be about the amount you could pay for a house with 20% down. E.g. if your loan amount was $250K, bankrate.com shows a payment of $1,342 @ 5% for 30 years. You could buy $250K / 0.8 = $312,500 of house... as long as you had 20% down. ($312,500 * 0.2) = $62,500 or $312,500 - $250,000.
  • Crap... can't afford my dream house... If you don't have the down payment to make the numbers work (remember that this doesn't even include closing costs yet), there are other loan options like FHA loans that can go as low as about 5% down payment. The math would be the same but you replace 0.8 with 0.95.

  • Then, look at your personal budget. Come up with general estimates of what you currently bring in and spend each month overall. Just ballpark it...

  • Next, figure what you currently spend towards housing in particular. Whether you are paying for it or your landlord is paying for it, someone pays for a lot of different things for housing. For now, my list would include (1) Rent, (2) Mortgage Payment, (3) Electricity, (4) Gas, (5) Sewer, (6) Water, (7) Trash, (8) Other utilities... TV/Internet/Phone, (9) Property Insurance, (10) Renter's Insurance, and (11) Property Taxes.

  • I would put it into a table in Excel somewhere that has 3 columns... The first has the labels, the second will have what you spend now, and the third will have what you might spend on each one as a homeowner. If you pay it now, put it in the second column. If your landlord pays it right now, leave it out as that's included in your rent payment. Obviously each cell won't be filled in.

  • Fill in the rest of the third column. You won't pay rent anymore, but you will have a mortgage payment. You probably have a good estimate of any electricity bills, etc that you currently pay, but those may be slightly higher in a house vs. a condo or an apartment. As for things like sewer, water, trash or other 'community' utilities, my bet would be that your landlord pays for those. If you need a good estimate ask around with some co-workers or friends that own their own places. They would also be a good resource for property insurance estimates... shooting from the hip I would say about $100/month based on this website. (I'm not affiliated).

  • The real 'ouch' is going to be property tax rates. Based on the data from this website, your county is about 9% of property value. So add that into the third column as well.

  • Can you really afford a house? round 2 Now... add up the third column and see how that monthly expense amount on housing compares against your current monthly budget. If it's over, you don't have to give up, but you should just understand how much your decision to purchase a house will strain your budget. Also, you should use this information to look again at 'how much house can you afford.'

  • Now, do some more research. If you need to get a revised loan amount based on the FHA loan decision, then use the bankrate calculator to find out what the monthly payment is for a 95% loan against your target price. But remember that an FHA loan will also carry PMI that is extra on top of your monthly payment. Or, if you need to revise your mortgage payment downwards (or upwards) change the loan amount accordingly.

  • Once you've got the numbers set, look for properties that fit. This way you can have a meaningful discussion with yourself or other stakeholders about what you can afford. As far as arranging financing... a realtor will be able and willing to point you in the right direction for obtaining funding, etc. And at that point you can just check anything you're offered by shopping interest rates, etc against what the internet has to say.

Feel free to ask us, too... it's hard to give much better direction without more specifics.

  • I really do appreciate the very detailed response. The reason that I avoided asking about basic mortgages is that your questions are fairly basic and I already have a very clear and defined answer to most of your response. What the real question becomes is what are the pros and cons of one type of mortgage over another when taking into account my financial situation. What I am looking for is someone that can sit down with me and help me directly. Hence the question: "is there a type of business / service that is offered that I can pay for to help me with this?" Your answer is awesome btw! – m.j.b Sep 9 '13 at 17:04
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    It's .9%, not 9%. In comparison, my town lists at 18% (wow!) but the rate is actually 1.8. You read it correctly, the website confuses 'mil rate' with percent. OP's $250K house (for example) will have under $2500 tax. Not bad. – JoeTaxpayer Sep 9 '13 at 17:52
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    Thanks to you both, @JoeTaxpayer & mjb. Your edit makes it a lot more clear that you're looking for someone to make a recommendation that is custom tailored or optimal for your unique profile. I would zip off a few emails to local financial planners or speak w local credit unions like mhoran mentions – THEAO Sep 9 '13 at 19:05
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why not ask a fee only financial adviser? Contact a local adviser and ask how much they will charge to work through the process.

The options aren't as complex as they seem. The general idea is to first figure out what you can afford each month. This is a generally straight forward calculation. Then figure out the costs that are specific to your area, e.g property taxes.

Figure out how much of a down payment /closing costs you can gather.

Then start with your local bank or credit union. The number of options for mortgages will not be as complex if you already know how much you can afford and how much cash you can bring to the transaction. A simple table can be easily created based on what you can afford each month, how much cash you have, and the rates currently available. The bank will have a way to estimate the costs of each option as part of the required disclosures.

Another source of good info can be a highly regarded local real estate agent. Focus on one that will represent you as a purchaser. They want you to be able to buy a house. While they do have a bias, they want a commission, most of it is eliminated if you know how much you can afford before you meet with them. They will know all the government programs that can make the monthly costs or closing costs cheaper.

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    +1 for fee-based advisor. The banks or real estate agents are not disinterested third parties. As OP noted, there doesn't seem to be a specialist in this field, but any fee-based CFP can handle this if OP isn't willing to actually discuss his situation here. – JoeTaxpayer Sep 9 '13 at 18:02
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    www.napfa.org is a good resource for finding one. However, many will not have experience with real estate. You may want to consider hiring a Realtor on a flat fee basis as well. You should be able to find one willing to offer you advice on the market and the process for a flat fee. – JAGAnalyst Sep 11 '13 at 19:08
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It seems like you are asking two different questions, one is, how do I know if I can afford a house? The other is, how do I know what type of mortage to get?

The first question is fairly simple to answer, there's plenty of calculators out there that will tell you what you can afford, but rule of thumb is 30% of income can goto housing.

Now what type of mortgage to get can be much more confusing, because the mortgage industry makes money off of these confusing products. The best thing to do in my opionion in situations like this is to keep it simple.

You need to be careful buying a house. So much money is changing hands and there are so many parasites involved in the transaction I would be extremely wary of anybody who is going to tell you what mortgage to get.

I've never heard of a fee only independent mortgage broker, and if I found one that claimed to be I wouldn't believe him.

I would just ignore all the exotic non-conforming products and just answer one simple question. Are you the type of person that buys an insurance policy or that likes to self insure?

If you like insurance, get a 30 year fixed mortgage. If you like to self insure, get a 7 year ARM. The average lenghth someone owns a house is 7 years, plus in 7 years time, it might not adjust up, and even if it does, you can just accelerate your payments and pay it off quickly (this is the self insurance part of it).

If you're like me, I'm willing to pay an extra .5% for the 30 year so that my payment never changes and I'm never forced to move (which is admitedly extremely unlikely, but I like the safety).

I don't like 15 year term loans because rates are so low, you can get way better returns in the stock market right now, so why pay off sooner then you need to. Heck, if I had a paid off house right now I'd refi into a 30 year and invest the money.

In summary, pick 30 year or ARM, then just shop around to find the lowest rate (which is extremely easy).

  • I would not get an adjustable rate mortgage at this time. With rates historically low (at least in the US), there would be far more potential risk than potential benefit, unless you plan to sell the house fairly quickly (in which case buying may be a mistake). Average time of ownership is not recommended time if ownership. – keshlam Aug 18 '16 at 1:57

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