How do I buy a house? (1 Viewer)

[Yoshi Sugawara]

I'm 25 years old, and I'm seriously thinking of buying a house. But the problem is, I don't have a clue as to how much to put down, and what kind of house I can afford...
Like, how much is the monthly payment of a house that's $300,000, with about $3000 down?
Can anyone point me to any online resources to learn about this stuff?
I live in the San Francisco Bay Area (probably the most expensive place to live in the U.S.), so a $100K - $200K house is not plausible here, and I don't want to move out too far...
Thanks!!

 

[Bill Catherall]

A good approximation for monthly payments is $1000/month for every $100,000 you borrow (for a 20 year loan). Of course your monthly payment will depend on your interest rate and the length of the loan. So for a $300,000, 20 year loan with an interest rate of 7% then you'd be paying a little under $3000/month including taxes, insurance, interest, and principal.
To find out what you qualify for and to get all the information you need about what kind of loan you should get (there are many ways to borrow money) go see a broker. You'll fill out a credit application and pay them $20 for a credit check. They'll educate you and answer all questions for you. They'll also shop around for you to find the best possible loan.
If you go to a bank then you're stuck with what that bank offers. You'll also have to pay $20 for every credit application. With a broker it's done once and they do the shopping. Then their services are paid for by the lender (not you).
Once you know how much house you qualify for you can go to a realtor and shop around. Your letter of pre-approval will greatly help when making an offer. The seller will see that you've already gone through the credit checks and that you are ready to buy.
Once you find a house and make an offer you will give the buyer an earnest money deposit. This usually ranges from $1000 to $5000 to show your interest. In the offer letter you state the conditions (and the realtor will help you with this) of the offer. If all conditions are not met then you or the seller can back out and the earnest money is returned. If all conditions are met and you back out then you lose the earnest money.
Depending on the type of loan you get you may not have to make a down payment. Closing costs may also be paid for by the seller. We were able to get into a house with a $175,000 loan with only the $1000 earnest money. We had no closing costs. We actually even got a little money back from the lender after closing.
Good luck!
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Bill

 

[Eric Scott]

Bill's answer is very thorough. I would only add that now would be an excellent time to get a low "fixed" interest rate, proceed with caution (buyer beware) and do as much reading as you can about buying a home.

 

[Evelio Figueroa]

Here is what I went through when I bought my home.
First, you see how much of a loan the mortgage company can give you. I was approved for the amount of $86,000.
2nd, I started looking for a home thats costs less than that amount. That way if I decided on "upgrades" it won't go over the loan amount. The word "optional" is not listed on everything in the model home.
I ended up getting a V.A. loan. All I put down in closing is $1. Bad thing is I couldn't get that many upgrades cause the $3,000+ I needed to put down is "rolled" into the payments. Its not bad. I did get a few upgrades. Covered patio, rain gutters, and a better carpet pad. Everything else is standard.
I was living in an apartment and my lease was about to end. The builder told me it would take about 5 months to build the house. So I asked my parents if I can move back in and save money while the house is being built. They agreed. I moved from the apartment and went back to my moms house.
I can save allot of cash and buy the things I need when I move into my new home. (washer/dryer, fridge, ETC.)

 

[MikeM]

Yoshi, I also live in Oakland, and I'll just say that it's not going to be easy. A great site for calculating prices is http://www.coldwellbanker.com.

 

[Shayne Lebrun]

Yeah, it's the same here in Canada. 150K canadian will get you a two floor/1 basement house, four bedrooms, two or three car garage, and several acres of property, lakeside if you happen to be near a lake....anywhere except Toronto, Vancouver and a few other places.
In Mississauga, where I live, brand new three/four bedroom attached houses start at 220. Really sucks.

 

[Ted Lee]

bill -
you mention seeing a broker? i'm not sure what that is? could you expound on that a little? thanks!

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You step in the stream,
But the water has moved on.
This page is not here.

 

[Patrick Sun]

If you are wanting to get into a $300,000 house, you're going to need more than $3000 to get into that house. $10,000 - $15,000 is a better sum of money to have to buy a house in your neck of the woods.
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PatCave; HT Pix; Gear; DIY Mains; DIY CC; Sunosub I + II + III; DVDs; Link Removed

 

[Bill Catherall]

Ted,
Generally speaking a broker will offer any kind of financial investment service. The way we found our broker was through our real estate agent. Our agent works for Coldwell Bank but the broker doesn't work for any one bank. An easy way to find a good broker is to first find a good real estate agent. In fact that was the first thing we did. I contacted an agent that my company refers to new employees and told him we wanted to buy a house. He referred us to a broker that he new and trusted and we went from there.
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Bill

 

[Bill Catherall]

I just read Pat's post after posting mine. And I'll say that he is correct. But I'll qualify that with a "but it depends." Usually you need to make at least a 3% down payment. However, depending on your financial situation there are many kinds of first time buyer programs. One of them that is offered by FHA is a 97% loan with a 6% second mortgage. The second mortgage covers the 3% down payment and closing costs. So you end up with a total loan amount of 103% of the purchase price of the home. That's how we did it. The second mortgage ends up having a slightly higher interest rate (about 1% higher). You also end up paying a PMI (private mortgage insurance). But a PMI is always tacked on if the loan amount is greater than 80% of the purchase price. You can get rid of the PMI once the balance of the loan is 80% or less of the value of the home.
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Bill

 

[Scott Merryfield]

double post
[Edited last by Scott Merryfield on October 01, 2001 at 12:05 PM]

 

[Scott Merryfield]

double post
[Edited last by Scott Merryfield on October 01, 2001 at 12:07 PM]

 

[Scott Merryfield]

There is a limit to the size of loan that can be obtained via federally-guaranteed loan programs such as FHA. When we last sold/purchased a home, it was around $100,000 -- which is nowhere near the $300k Yoshi is looking for.
I agree with the comments about working through a mortgage broker. We have done that for the past several mortgages (including refinancings). You will have many more options with a broker than with a single mortgage company.
IMO, if you only have $3,000 to put down, you will have a very difficult time securing a mortgage for the remaining $297,000. Most mortgage companies will want to see more assets than that before approving such a large loan. Meet with a broker to see how large a loan you can qualify for first.
Living on either coast must suck when it comes to purchasing your first home. Starter homes in decent neighborhoods around here can be found for about $120,000. At those prices, all kinds of financing options become available.
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My DVD Collection
AFI 100 Films to watch: 40 -> 4

 

[Philip Hamm]

quote: If you are wanting to get into a $300,000 house, you're going to need more than $3000 to get into that house. $10,000 - $15,000 is a better sum of money to have to buy a house in your neck of the woods. [/quote]To say the least. You should have at least 5% of the cost of the house ($15000) plus money for closing costs and points if you pay them ($2000-4000+). This money must be cash, you can not borrow for this (except against your own money, i.e. a 401(k) loan).
There are solutions that can get you in a mortgage when you don't have cash but I would personally not go with something like that. I wouldn't buy a house unless I can have instant equity in it. - Disclaimer: This is my opinion only! There are perfectly valid reasons to buy a house when you can't afford real equity in it, and everyone's situation is different.
I recommend saving for a few more years.
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Philip Hamm
Pat's the best!™
AIM: PhilBiker
click on the little green house to see the evolution of my home theater!
[Edited last by Philip Hamm on October 01, 2001 at 12:13 PM]

 

[Ted Lee]

thanks for the clarification bill!
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You step in the stream,
But the water has moved on.
This page is not here.

 

[Yoshi Sugawara]

Wow, thanks for all the really descriptive, helpful replies - somehow I knew this forum would be the best place to ask!
Just a couple of questions:
Bill-
I was wondering how to go about looking for a broker. Can you recommend any firms? Also, I noticed you live in Concord (I assume that's as in Contra Costa County, CA) - do you know what the approximate price range of the houses in your neighborhood are? I actually wouldn't mind moving a little to the east, although I imagine it's like 20 degrees hotter
MikeM-
Thanks for the link! Yeah, I totally understand how you feel - a lot of these houses are just so overpriced in the Bay Area - I guess you have to pay a premium to live here...
By the way, the estimated maximum loan I got from one of these sites was about $110,000....which can't get me that far around here, but I'll look into other options (are there?).
Thanks again to all of you who replied!
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[Edited last by Yoshi Sugawara on October 01, 2001 at 12:37 PM]

 

[Yoshi Sugawara]

[Edited last by Yoshi Sugawara on October 01, 2001 at 12:33 PM]

 

[Bill Catherall]

There is a limit to the size of loan that can be obtained via federally-guaranteed loan programs such as FHA. When we last sold/purchased a home, it was around $100,000 -- which is nowhere near the $300k Yoshi is looking for.

I think things are different here in California. There's probably a limit, but it's going to be much higher than $100,000. Because homes are so expensive here the banks will even approve loans with higher debt:income ratios that banks outside of California will only laugh at.
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Bill

 

[Bill Catherall]

Yoshi,
I can't remember the name of the firm we used, I only remember the broker's name. I'll look it up when I get home tonight and let you know.
How much home do you need? 2 bedroom? 3 bedroom? Ours is a small 3 bedroom, 2 bath home with only 1038 sq. ft. The property is pretty small too at about 4000 sq. ft. (can't remember the exact number). We bought it a year ago for $169,000 (with a $175,000 loan as I mentioned before). We've been keeping track of what similar homes are selling for because we've been wanting to refinance. Homes the same size as ours but newer (ours is 20 years old) are selling for about $235,000 now. Also, we actually live in Antioch. I work in Concord (yes, Contra Costa County).
Other options are buying a condo or a townhouse. The problem with those is that the property values don't rise as fast, so when you leave you won't have as much equity as you would with a house. But it's better then renting.
Another issue you'll have to think about when working your finances is that when you own the home there will by maintenance costs that you don't see while you're renting. If you buy a minor fixer-upper, then you will want to fix things to put even more equity into the home. Also, stuff breaks and falls apart. Even with insurance you've still got to pay the deductible.
Our neighbor has been having some major expenses. Just when they had contracted to get a new roof (they really do need it) a family member caught the kitchen on fire. Fire damage was minimal, but most of the damage came from the firemen knocking the front door down to get in (nobody in the house was awake so they had to do it). Then just a couple days ago their garage door broke. So now they need a new garage door. The lists can go on. Home ownership can be a lot of work, and can cost a lot of money if you aren't prepared. But I still think it's better then renting.
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Bill

 

[Shayne Judge]

1. I would recommend you buy a book like the one I got, Home buying for Dummies. I have learned a lot.
2. One thing I learned from the book is the mortgage companies and websites that have loan calculators can be dangerous. They WANT to give you a loan, and oftentimes tell you the maximum you can afford. Unfortunately, the max you can borrow oftentimes does not allow you to take care of the additional costs of owning a home, like repairs and upgrades. Another problem can also be the inability to save money. The book does a great job of allowing you to see how much you are spending on bills, decide were to cut the fat(in my case HT

), and give you a nice figure that you can afford and still allow you to save for the future.
3. Its drastic, but something we did. Move. I lived in Mountain View, CA, and my wife and I decided our dreams would not be realized in the Bay Area, and I got a job transfer. We will be able to afford our dream home, earn almost as much money as we did in Cali, and save hundreds of dollars compared to our outrageous 2br apartment with no A/C. My wife really did well. A huge proportion of people in the Bay Area have a Bachelor's degree or better, and she was not very competitive(no degree). We moved here where the % of people with a degree is much less and she instantly became competitive simply with her experience and already got a better job than she had in the past.
4. Patience. I want a house now now now now!, but have decided to wait 1-2 years to earn 20% downpayment.