Steps for a first time home buyer (before even buying)

[rugorak]

So I am looking at potentially buying my first house later in the year (relocated in November, lease goes until this November and I want to build up some more money for a down payment). But I am kind of unclear on what my first steps should be. I have about $20k set aside right now for a down payment. I'd like to get a little bit more if I can just to hit the magic 20% down payment number (or at least be really close so I don't have to pay PMI for that long).

I have read things about getting preapproved, etc. But I am not sure where to even go for that. I have a checking account with a regional bank but that is it locally. I don't even know that they would offer me the best rate. I know others who have gone through mortgage brokers but they were not in this area so I can't use theirs. Most of my new workmates are either much older than me and very well established so they don't even remember much about their home buying process or they are as new the area and me and have yet to buy a home ever either.

I'm not looking to actually start looking looking until this summer at the earliest (and I may put it off for a year depending on finances and some personal things). But other than having a bit of money for a down payment what other steps should I take to prepare and when? Are there other considerations I should take into account? I've gone through most of the should I buy or rent and the scale is tilted heavily to buy (both financially and personal situation wise) so I don't need any advice in that regard. So now that that decision is made I need advice in where to go next. Any suggestions would be much appreciated and hopefully will be of use to quite a few others.

Thanks!

[honobob]

Know your market.  Know what your market was 10, 20, 30 years ago.  Get educated guesstimates for the future.  Why are the established NBHD'S dying/appreciating compared to other areas.  Are SFH'S the future or are condo's? 

[MrsStubble]

Congratulations!  It's great to plan early, it will give you a lot of time to prep.  There's lots of things you can talk about when planning to buy a home but it may help if we know more about what your looking for.

Is this the first house or have you owned before?

Have you started talking to a realtor yet?

Are you handy?  Do you want to be? (it will matter for what type of tips you get depending on housing your looking at)

How's your credit looking? (don't need specifics here, but debt matters and checking your credit is important since you need 3-6 months to fix errors/omisisons and reflect debts that have been paid down/off). 

Is this a forever house? or something you can own and flip or own and later rent out?

What do you know about the mortgage type and do you plan to tackle the mortgage debt quickly or do you need some time to pay it down/off? (or are you not planning to stay in an area for long)

Hope we can help.  Sorry for the 1000 question bombardment :)

[Mori]

A couple of calculators in case you haven't used them:

PITI calculator : http://www.realestateabc.com/calculators/PITI.htm

NYT Rent-vs-Buy (Awesome): http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=0

Steps I'd recommend:

Make your budget now after for after purchasing the house and make sure you are satisfied with how much you can stack away while paying down the mortgage. Try to calculate in repairs and extra utilities (if you look at the advance settings on that NYT calculator you can do a bit of this).

Know the property tax for the area you are planning on buying in--sometimes it's disproportionate to the home price (Ex: my property tax hovers around 2.5% of the home's value--if I moved farther into the suburbs it would be 1%).

If you have time and plan to DIY, get to know a bit about home construction and repair--the community colleges near me offer some classes for people to learn for fairly cheap.

Oh, check the school district near the house (it can be a big factor if you need to sell) and if you have the patience go online to look at the neighborhood and try to get some demographics--is the population expanding or contracting? why? How many foreclosures nearby? Short-sales? How many recent sales? It will let you see if the neighborhood is in flux which may help you decide if you want to buy there right now (it's hard to get a feel for a neighborhood if there are a lot of new people or empty houses).

Other stuff:

I was able to fill out most of the prelim mortgage information online for multiple banks. I then either had to follow up with the bank or they called me (the instructions were given at the end of the applications). No biggie. I actually ended up using a bank I had no previous relationship with for my mortgage.

That's all I got! Good luck!

[dragoncar]

It's great to discuss here (and I'm really not trying to stifle any responses/additional posts), but I'm sure there are better forums for the general ins and outs of homebuying.  I like the redfin forums, but this search turns up a few:

https://www.google.com/search?q=home+buying+forums&oq=home+buying+forums

[rugorak]

Is this the first house or have you owned before?  - This would be my first house. I have never owned before

Have you started talking to a realtor yet? - I haven't started talking to a realtor yet. I am still at least a few months out before being ready to know exactly where in this metro area I would like to look.

Are you handy?  Do you want to be? - I am moderately handy. I can handle most basic home things (simple wiring, simple plumbing, painting, etc). I would like to learn some more but thus far being a renter haven't had much in the way of opportunity.

How's your credit looking? - Credit is fantastic. According to Credit Karma the only things I have that are less than ideal is my longest open account has only been opened for 4 years (I only have 1 credit card) and that my total history I haven't had over 22 separate lines of credit (and I am not about to take out loans when I don't need them)

Is this a forever house? or something you can own and flip or own and later rent out? - Right now I am thinking very long term if not forever. So 10+ years at minimum.

What do you know about the mortgage type and do you plan to tackle the mortgage debt quickly or do you need some time to pay it down/off? - I am aware of the basics of mortgages and right now would lean towards a fixed rate mortgage. I'd prefer to have a paid for house to keep things as simple as possible and so I don't have to worry as much on stupid bank tricks, etc. So I have been thinking about a 15 year but I realize since I save and invest it may make more financial sense to go for a 30 and then just pay it down faster later on.

Hope we can help.  Sorry for the 1000 question bombardment :) - I appreciate the follow up. Sorry for the delay in responding. Been busy with work and fighting a stomach bug the past few days.

As for the other questions. I've done some basic research on the area. In general things are fairly stable. Rent vs buy is without a question buy. About half the cost to buy even with property taxes, home owners insurance, etc. thrown in.

I do realize I will need to figure out more exactly where I would be looking. Metro areas can vary widely. And that is going to take a little time. But I figure by mid summer I should have enough of an idea to potentially start looking. But any advice is welcome. As I said in my original post the earliest I would be ready is late summer. And I don't mind waiting a year. Depending on how big a deal the 20% thing is I may need to push it out to next year.

[phred]

Go to your bank for pre-approval.  They will tell you how much they're willing to risk on you and at what rate.  You can later use these figures when visiting other banks or mortgage brokers or even private invertors

[Eric]

Have you read this?

http://www.mrmoneymustache.com/2013/09/04/how-and-how-not-to-buy-a-house/

[Thegoblinchief]

A pre-approval won't lock-in a rate this far in advance, but it will give you a good idea of the total cost of a house, since the interest rate is a huge factor in the monthly payment.

I'd start thinking about neighborhoods. What is your commute going to be like? Are they bikable/walkable? If you're interested in kids, how are parks/schools? Once you have a couple areas selected, check listings and closed sales once a week to get an idea of what's a good price. That way when you're ready you know what's a good deal worth pouncing on right away.

[Iron Mike Sharpe]

Come up with a budget:  Know how much you are going to put down.  And then the max amount you are willing to spend a month on mortgage, HOA fees, homeowners insurance, property tax.  Also figure in monthly utilities and plan on setting aside 1% of the house value per year for maintenance, 

Once you know the price range for a house, you can at least look on Zillow and search your area for houses that meet your price range and other filters you set up.  The townhouse I ended up buying I found through Zillow and not through my agent's listings.  Anyway, Zillow can give you a rough idea of what the market is like and what prices certain types of residences are going for in different neighborhoods.

When you finally start looking for real and find a house you might like, call the utility companies and ask them the monthly avg bills for that address.  That can give you a rough estimate.  Though, if you live mustachian your bills should be lower.

[phred]

true that a pre-approval this far in advance won't lock in, but will give him some idea of how much house he can get - more or less

[ZMonet]

I'd use your local bank to get pre-approval, but definitely shop the rate.  There is quite a disparity in rates out there and some of the online mortgage brokers (I used Aimloan, twice) offer lower rates.  If nothing else you can try and use the online broker rates to try and get your local bank to match.

As a first time home buyer, I'd also recommend keeping an open mind about changes that can be done.  You need to understand what is an inexpensive fix (wallpaper, paint color, old faucets, etc.) and what is a major problem.  Most of all, when you get your first home, have some fun with making some changes.  Worst case scenario is you call someone in to finish the tile job or install the new faucet, but with Google and YouTube, I doubt you'll have that problem.

[zachd]

I know in this day and age you can get a lot of information from say.. posting on an internet forum... but for buying I house, I would highly recommend getting some books from the library or on Amazon about buying your first home.

What I learned from reading some books was very valuable.  For instance would you think about if the home was in a cul-de-sac or on a corner lot or in the middle of a street?  There are tons of little things like this that affect a home's value or re-sale value.  These forums probably can't tell you every little thing that you really would want to know.

From what I remember.. and it's been 10 years..  you really want to buy a house that is going to go up in value.  This might mean in an "up and coming" neighborhood or maybe one that you can fix up or both.  You don't want to buy a house that's at the peak of what it's ever going to be worth.

We found it was good to make a list of what we wanted, the location, and how much we wanted to pay. 
We wanted wood floors, large windows, walking distance to park and grocery store, and at a price we could afford (I'm sure there were other things too).  It too a long time but we found all those. And our house value is up 2x from when we bought it.  It's probably the best thing I've done financially and I can honestly say it was due to reading a $5 book from Amazon that I didn't muck it up like my other finances.

Also, the last time I re-financed I paid 0 closing costs.  The first time we bought a home and 2 other re-fis we paid something like $5k each time for closing costs.  On the last one a friend told me about his guy and we refinanced without ever even meeting this guy it was all over phone and email.  I thought it was too good to be true but I trusted my friend.  NO closing cost.  Where was this guy the other times?!  So that's something to look in to.  They close the loan then sell it to a bigger company and make their money that way.   

You can get a better interest rate for a 15 or 20 year loan..  it seems like the MMM thing to do, but I guess it depends if you are well versed in investing and think you can make more investing then go for it.

But.. read a book!  Find a home in an area that is on the rise. 

[rugorak]

I had previously read the article on how to buy a house. And I have been browsing Zillow. I also have been figuring out budget numbers as well. Financially the only thing I am not sure on is whether or not to wait until I have 20% or not. I guess I am not sure how much a difference PMI will make.

Remember any titles in particular? If so I can try and hit the library or buy if no other option.

So from the replies I am gathering my steps right now should be figure out the where and keep saving. Once I get the where (as in sets of neighborhoods or what not, not exact house) then I should go get preapproval and really start looking.

Anything else I should educate myself on or do?

[mh1361]

This might be worth a read. http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/

[zachd]

Pretty sure this was the book I read.

I think whether you need 20% down or not would be affected by the size of the loan and your credit rating and your current income.  You might want to figure out what you CR is if you don't know it, quizzle.com will get you a free one I think when you sign up if you don't already know it. 

Home buying is not an easy process. You might not know what you need to pay down until you have already gone through a lot of the process. It might be one of the more complicated things you ever do. 

But probably if you have 20% saved up for down I think you will be in good shape.  I did not have 20% it was more like 10%, but when we got the loan they didn't even want all of it so we ended up with some money in the bank.  (Which would have been better just to put down on the home, but I was not so wise then). Of course this was pre-home loan debaucle.  They are supposedly more strict now and want more down. 

Pretty sure this was the book I had and I lent to some friends also:

http://www.amazon.com/How-Buy-Your-First-Home/dp/B00BDJ8ILK

I'm not sure if it's been udpated since it came out.. but I'm sure a lot of the info about selecting the right home applies (neighborhoods, home types, how many bedrooms/bathrooms, lot size, lot location, pitfalls, etc)

[brycedoula]

I'd recommend Home Buying for Dummies. Doing a bunch of your own research online is really great, and this book is a great compliment.

A quick Amazon.com search reveals you can pick up a used copy for pennies, and certainly your local library would have it available also (just make sure you get the most recent edition).

I found it extremely helpful in terms of explaining the more "legal"aspects of home buying, like fully explaining all the terms you will come across when you see your first Offer To Purchase, or pre-approval paperwork, and explaining how title transfers work. Granted I'm a Canadian, and I read the Canadian version of the book, but I'm sure the American version is much the same.

Good luck! The first time you buy a home can be kinda scary (especially if you're doing it on your own) but as long as you've done your due diligence the "buyer's remorse" panicky-feeling should only be fleeting, and then you'll have a home to call your own (well, 20% your own, anyway).

[Bateaux]

Don't buy with less than 20 percent down.

[read books]

We liked Buying a Home: the missing manual. It's not new, but it has a lot of solid information.

Start seriously exploring specific areas way ahead of time. Go to open houses and community meetings in areas you're considering. Take walks, visit local library branches, festivals, restaurants, parks, stores, cafes--whatever. I found it well worth some pricey cappuccinos (which I love :) to spend a few hours checking out different areas of the city. I asked fellow cafe patrons if they lived in the area, what it was like, etc. Check out crime stats, of course, and local property tax rates.

If 20k is almost 20%, you might be in an area where it makes more sense (financially at least) to buy a house that has already been fixed up. That's the kind of area/city I'm in. Don't underestimate the time/opportunity cost of fixing stuff. Of course, if you want to fix, that's different.

I wouldn't buy without 20% down, but I can see that it might make sense in a few cases.

Get a good realtor who respects your priorities, and consider using a loan broker (as well as shopping rates on your own). Our broker made things much easier than the process tends to be, from what I hear.

Good luck!