Steps to buying a home

Question

My wife and I are looking into buying a home. We are discussing home vs. co-op, I don't want the co-op I'm to worried about re-sale which I think will not exist.

Basically what are some good steps to start getting inline to buy a home. We would be first time home buyers.

I am looking for a generic list of things that should be accomplished/looked at before bothering with even looking for a home.

If any other information is needed just let me know.

Thank you,

EDIT More information was asked for in order to answer this can-o-worms.

State - New York

Income - I start a new Job on September 29th (I assume they are going to want two years of income from this job), so total household gross income will be about $110,000 (not much for long island)

Credit - Our scores need improvement where they are standing at 690 and 660, one of us has a bankruptcy that should be falling off in May of 2015 (I assume we should wait until this happens). Our credit is not bad per se, its just that we don't really use it, I know that is a problem.

Renovations - we are willing to do some moderate floor work, paint, wallpaper, new kitchen, bathrooms (fixtures, cabinets, flooring). We, well I am not willing to do foundation work or go to the studs.

I agree with the fixed rate mortgage because when we make the purchase I want that to be it, I am not looking to move in 5 or less so no need for a variable rate.

Answer 1

At this stage, I would think about education. You can attend open houses, and often times real estate agents and bankers put on seminars for first time home buyers. Borrow books from the library and I would watch some HGTV. Many of the shows are entertaining and quite educational.

Secondly you may want to get your finances in order. Make and stick to a budget. Start building a down payment and emergency fund. Pay down consumer debt/student loans. Picking up side work or overtime will help.

You will look far more attractive to a lender if you go in with a large down payment and an emergency fund then someone with better credit scores and 100% financing. That is if the lender does manual underwriting. If not, then use a different lender.

Once you get a budget figured out, how much of a down payment and emergency fund you need, and how much consumer debt to pay off, you can then predict when you will hit your goals. Then you will know when you are ready to buy. If it seems too far off, cut spending and work more if it is that important to you!

You can make a prioritized list about what is most important features to you and your wife. I would wait on doing this until after you view some homes. Open houses are a great way to do this, but be careful not to get "house fever" and rush into a decision. You will get some encouragement to do so by the selling agents.

After viewing some homes, and developing your list you can get an idea as of what the home will cost. This will further refine your budget, goals, and timeline.

I think that is a lot of work to start.

Answer 2

Pre-edit, Pete mentioned that he feels real estate agents would (a) like you to buy as much house as you afford, and (b) would love to show you three houses and have you choose one.

As a real estate agent myself, I believe his warnings were understated. As with any industry, there are good and bad people. Agents are paid to move houses. If the median US home is under $200K, and commissions average say 5%, the $10,000 to be gained is split between the buyer brokerage and selling agent. The $5000 to each is then shared with 'the house.' So, this sale would net me $2500, gross. Move one a week, and the income is great, one per month, not so much. Tire kickers will waste an agent's time for a potential decision to wait another year and continue renting. Their obligation is to tell you the truth, but not to offer financial advice.

Remember the mortgage crisis? It seems the banks and brokers aren't watching out for you either. They will tell you what they'll lend you, but not what you can afford. These numbers are worlds apart.

I strongly recommend a 20% downpayment. The FHA PMI calculator shows that a 90% LTV (i.e. a 10% downpayment) for a $100K house will cost you $1200/yr in PMI. Think about this. For the $10,000 that you didn't put down, you are paying an extra $1200 each year. This is on top of the interest, so even at 5%, that last $10,000 is costing nearly 17%. If you can't raise that $10K (or whatever 10% is on that house) in cheaper funds, you should hold off. Using the 401(k) loan for this purpose is appropriate, yet emotionally charged. As if suck loans are written by the devil himself.

"Buy the biggest house you can"? No. I have a better idea. Buy the smallest place you can tolerate. I have a living room (in addition to family room) that has been used 3 times in 20 years. A dining room we actually use. Twice per year. When your house is 50% too big, you pay 50% more property tax, more utility bills, and more maintenance. Closing costs, commission, etc, isn't cheap, but the lifetime cost of living in a too-big house is a money pit.