First time home buyers..

[thepolecat]

hey man- i am currently looking for my first house and I have to say that our agents have been a huge help. they have really been helping us learn the market and guiding us into home buying. I have to say that I would go with an agent- I would never have been able to do as much without them. [email protected]- its who we use and she and team realty are doing great for us.


Good luck fellow homebuyer!!!

[Jaimecbr900]

Alright folks, this is going to be one of my notoriously long winded posts, but I feel compelled since you're getting advice that's all over the map.

As a first time homebuyer(s), the very first piece of advice from being in the RE business for 12 yrs now is to get PROFESSIONAL ADVICE to any questions you have. Do NOT depend on a book. Do NOT depend on your cousin's second girlfriend's mom who was an agent back in 1950. Most certainly do NOT believe AD's that promise the world and sound too good to be true. 99% of the time there is a CATCH. Sometimes a little catch. Sometimes a HUGE catch. You have to ask questions and believe the ones that you feel comfortable with.

First of all, you can certainly get 100% loans being a first time homebuyer. FHA is an option, but I would only advice it under certain conditions. FHA loans, contrary to popular belief, is not designed to forgive bad credit....or to get you a better rate.....or to get you lower closing costs.....or to get you lower payments. As a matter of fact, FHA loans have Mortgage Insurance that unlike conventional loans which can and generally do terminate when you get to 80%LTV (Loan-to-Value or ratio of what the house is worth to what you OWE) it stays on the loan pretty much forever because 80% is not the cutoff criteria but WHENEVER the gov't feels like....i.e. NEVER.

FYI, Mortgage Insurance is a TOTAL WASTE OF MONEY. It is customary for lenders to force you to pay it whenever you have an 80%LTV on any ONE loan. Notice I highlighted the word ONE. There is a reason for that. There are ways to AVOID paying MI, but FHA loans is NOT one of them. Hence why I said FHA loans are good only for certain situations. There are LOTS of other options that may be better too.

Now, as for how to find your first home or any subsequent home for that matter? Well, you really have 2 choices: Agent or no Agent. If you have experience in finding homes, pricing homes, and negotiating contracts....then maybe you can go at it alone and be ok. Buying new construction is usually an exception to this because the "finding" part is done and the "pricing" part is not that much an issue because all the homes are usually priced similarly by the builder already. The negotiation part is the only thing left really, but most builders are pretty set in their ways and rarely go too far into negotiations. You pretty much are told what they'll do and you either take it or leave it. There are EXCEPTIONS, but for the most part builders have already a template of what they will and will not do well before you ever walk into their sales office. In their defense, they do some of those things due to very logical and business savy reasons. You don't want to build a $200k house only to then sell the one next door for $100k because you just screwed yourself for the 3rd, 4th, and 5th. So what builders usually do is leave the negotiations open on "upgrades" which can differ from home to home and it not affect the price negatively for subsequent homes.

Now, to buy anything else besides a new construction w/o an agent is not good advice IMO for first time homebuyers. There are several reasons:

1. You're basically matching YOUR wits against the seller's wits. If this is your first time around, your knowledge base is going to be limited. Again, there are always exceptions but vast majority of first timers are not savy enough to know what pitfalls to look for.
2. There is no out of pocket cost to have an agent work for YOU. The listing agent works FOR the seller, the buyer's agent works for YOU. In a perfect world, that's how it is designed to work. It is technically legal and actually happens often for an agent to be a DUAL agent (be working technically for "both" seller and buyer). REALITY is different, and I'll leave yall to read between the lines on that.
3. The majority of the time the seller already has a commission and/or closing cost amount built into the asking price. For example:

Seller A wants to sell his house and NET $25k to buy his next house. He prices the house at $125k because he KNOWS he owes $90K on the house, has to PAY 5% commission, and probably will pay for up to $3k of the buyer's closing costs. Do the math. $125 - 90 - 3k - 6250 = $25,750. So now what? How much room is there for negotiations IF he wants to net that $25k? Not much huh? Well, do you think that a FSBO (For Sale By Owner) right next door is going to price a similar house at $119,750 (125 - the commission)? Nope, he's going to price his house at the same $125k and POCKET the $6250 and rightly so since he didn't use an agent and did all the work. So exactly WHERE is the "deal" for the buyer for NOT using an agent????

Part 2 coming up.....

[Jaimecbr900]

Part 2.

Closing costs:

Contrary to popular belief they do in fact belong to the BUYER, they don't magically dissapear, and they do vary from lender to lender.

The only reason there are "closing costs" is because a LOAN is being obtained. Between the buyer and the seller....only 1 is getting a loan to do the deal....the BUYER. This is why technically the closing costs do indeed belong to them. The seller doesn't HAVE TO help pay for ANY of it. They do have to pay a couple of fees when they sell their home, but those fees are NOT closing costs. They only reason they agree to pay for any or all of the closing costs is as an INCENTIVE for you to buy their house instead of his neighbors. There are rules and guidelines to the madness too, so they can't anything and everything on every loan.

The closing costs are determined by the lender doing the loan. Some charge more than others. Some charge junk fees. Some pad them with BS words and important sounding uses. The most deceiving part is those lenders that advertise "no closing cost loans". The way that is done is thru what we call "premium pricing". Basically what that means is that we get paid a BIG chunk of money to sell you a HIGHER interest rate, and we use that money to PAY for YOUR closing costs that miraculously dissapear. So in reality WHO is paying for the closing costs???? This is where contract negotiations in the front end do indeed save the buyer out of pocket costs. Somebody is going to pay those closing costs. It will either be the seller, the lender, or YOU. That's it. There's nobody else in the deal left that's going to pay.

Part 3 coming.....

[Jaimecbr900]

Part 3....

Loan programs and rates.

There are a billion different loan programs. Right now, there are just a ton of programs that mirror each other. There are new programs all the time. Your lender is going to help you figure out which one works for you. There's a saying that goes, "there's a loan for everybody, but not everybody for a loan..". What that means is that even the worst credit and qualifications can usually get a loan, but the terms may be so harsh that it may not be accepted. Flexibility is the key.

You have to identify and be honest with your Loan Officer and tell him/her what it is that is important to you, prioritize. If your biggest concern is monthly payment, well cool say that. If your biggest concern is terms, well say that. If your biggest concern, is "get me in a damn house right now" then say that. Too often I see people with unreasonable expectations. They KNOW they got crappy credit, don't want to put down any money, been on the job for a month, live at home with mom and dad......yet want a $250k house with no down payment, interest rate of 3% fixed, and $900/mo payment in Buckhead. Doesn't happen folks. There's no smoke and mirrors. The lender is going to lend you the money based on RISK. The higher the risk, the worst the terms. It's only logical.

Pay attention next time you see a mortgage ad. It may say 5% fixed, but what you don't get to see because it's written in tiny tiny letters in the bottom of the page (always notice that the rate is ALWAYS followed by a * ) that there are quite a few restrictions and rules to get that 5% rate. Usually there is a minimum loan amount and it's not $100k. Usually there is a certain LTV, so that means you have to PUT certain amount in DOWN PMT. Usually there is a short "teaser" term and it ends up not being 5% for 30 yrs. Usually that's also a rate reserved for only the very best 9 page long credit report too. So when you come to me and you don't have ALL those things, don't get mad at ME for being truthfull when it was the bait-and-switch lender that steered you wrong to begin with. I hate to say it.....but look at it like you do a car ad. Take it with a grain of salt and ask a lot of questions.

Sometimes it makes sense to take a short term loan that is fixed for only a short period of time. Sometimes it's more prudent to get that 30 yr fixed. Sometimes its better to do an interest only. Sometimes its better to not. This why it's CRUCIAL for you to be honest with your LO from the beginning and be CLEAR on what your REALISTIC priorities are. We are going to find out everything anyway. Lying to us about your credit or other qualifications is really stupid because we'll find out anyway. Now WHO looks bad? Don't be pissed if you say you got perfect credit and I quote you something, only to find out you have WWIII as your credit and now I have to change the terms because you no longer qualify for what I quoted you before. I didn't have the WWIII credit. YOU did. YOU probably KNEW it already too. So just say, "I got shitty credit...". There's a loan for that. Just be realistic and understand that you are a bigger risk to the lender and therefore they're NOT going to give you the same terms they give someone with spectacular qualifications. It's logical.

Also remember that payment is not rocket science, it's plain math. The more you borrow, at higher interests, for longer time = high payments. There is a mortgage calculator on my website you can plug in numbers til you puke to see what payments are going to be. Be REALISTIC. You can't expect a $800/mo payment on a $250k house with no money down and shitty credit. Just won't happen unless I give you some kind of teaser 1 mo rate.

Also remember that you have to deal with escrows, both opening them and paying them. The vast majority of loans require escrows. They penalize you sometimes to waive escrows. Escrows is the account in which you deposit a portion of your payment to pay for your taxes and insurance later. The lender holds it, but it's YOUR money. They only hold it for you to be sure that taxes and insurance on their collateral (the house) get paid. You "open" the account at closing and the lender deposits a pre determined amount every month into it. When the taxes come due, they stroke a check to your county tax commissioner out of that account. If you're short, they'll send you a letter saying either A: pay the amount we're short or B: I'll UP your payment by X amount to make up for it. There are also overrages too. At that point, you get a nice surprise check in the mail for your overrage. Those are nice sometimes. As costs, both of insurance and taxes, go up....so must your escrow account to make up for it. The lender has ZERO to do with this. They are merely holding it and paying it on your behalf for their own peace of mind that it's getting done and you don't get LIENS on their precious collateral. You have to pay the taxes and insurance anyway, so most of the time it doesn't make sense to NOT escrow. Again, there are exceptions to this too, but the majority of people (especially 1st time buyers) should just do it and not pay that penalty.

[Jaimecbr900]

That's plenty of confusing reading for now.

If there are any more questions, I'd be more than happy to try and help answer them.

So post away.

[Jecht]

So post away.

Okay.

[Jaimecbr900]

One thing I forgot to mention:

Remember that people work for MONEY. Don't expect them to do all this work for you and look out for YOUR interest and help YOU and advice YOU and hold YOUR hand for FREE...... ......unless you are getting some kind of favor at which point you're probably not a newcomer to your lender....get my drift.

I don't advocate any kind of shady dealings or gouging. That's not fair. But it's also not fair to expect people to help you for FREE. They should get paid for doing a good job. So weigh your decision of whom you wanna work with not strictly on the cheapest closing costs by a mere dollar or who has the best rate by .000012%. Yes it may make some difference, but so does SERVICE and being there to hold your hand and giving you good sound advice and being available AFTER the closing for subsequent questions or problems. THAT should also be worth something. You may have saved a dollar on closing costs and .000012% on your rate, but if you get crappy everything else.....is it worth it?

You wouldn't believe how many people I help with their CURRENT choice of lender without ever even a glimmer of hope of that person becoming a dollar in my pocket. Sometimes SERVICE trumps a dollar in your pocket. Remember that.

[Jecht]

Sometimes SERVICE trumps a dollar in your pocket. Remember that.

Okay.