Author Topic: Best place for a home loan?  (Read 10989 times)

Uncephalized

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Best place for a home loan?
« on: June 20, 2012, 02:20:35 PM »
My wife and I are hoping to buy our first house within the year. Currently we're saving up for a down payment (quite rapidly, thanks to Mustachian principles!). I want some opinions on the best places to apply for loans. We still have 9 months left on our rental lease, so I'll probably want to get pre-qualified in 4-5 months and start looking seriously then. In the meantime I'm just doing market research and identifying the areas I think are promising in terms of walkable/bikeable amenities, short commute to work, low crime, that sort of thing.

My main question is: where should I be shopping for a loan, once it comes time to get pre-qualified? Maybe there isn't a one-size-fits-all answer to that question. But I would also like to avoid any super-evil banks (I have heard awful things about Bank of America, for instance). I don't care whether it's online or brick-and-mortar, I just want a good rate/closing costs, decent customer service, and not to have smarmy salespeople crawling all over me trying to sell me things I don't want and haven't asked for.

For reference I'll be 25 in October, male, married, with a credit score of about 750 as of last November, if any of that matters. We live in the Phoenix area.

Thanks for input, friends! :-)

AJ

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Re: Best place for a home loan?
« Reply #1 on: June 20, 2012, 04:10:58 PM »
FWIW, we had a good experience with AIM loan. There rates were really good, and the process was the smoothest of the 6 mortgages I've closed. YMMV, though.

Another Reader

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Re: Best place for a home loan?
« Reply #2 on: June 20, 2012, 04:47:12 PM »
I own a number of rentals in the Phoenix area.  I would start with Arizona State Credit Union.  (azstcu.org).  Click on "Today's Rates" and use those as a benchmark for any other offers.  They can take a little longer to do the paperwork, but the rates are among the very best out there.  They hold a lot of their loans in their portfolio instead of selling them to investors.

Generally, a broker will shop your loan around and that's often the best deal for you.  Brokers vary in quality, so a referral to a low cost, local broker is necessary.  Often, your agent's brokerage company will have an "in house" or affiliated mortgage broker.  That person can be of varying quality, but has the incentive of providing good service and competitive pricing to keep his or her affiliation with the brokerage.

Bank of America grossly overprices their loans, at least in California.  They are also a pain in the neck to work with.  Most loans from banks are sold to Fannie or Freddie anyway, so pricing to the borrower is a function of the bank's profitability requirements.  One time Wells Fargo quoted me an uncompetitive price on a re-fi.  I went through my broker, got a lower rate, and Wells Fargo ended up servicing the loan, which was owned by Fannie. 

Hope this helps.

grantmeaname

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Re: Best place for a home loan?
« Reply #3 on: June 21, 2012, 06:32:39 AM »
Local credit unions are a great choice--they're like retail banks without the profit margins. Look at all the credit unions in your area, though, because mortgage rates probably won't be the best at the place that has the best CD rates or the best credit card rates.

While you're at it, there are some online-ish credit unions with fantastic rates, like Pen Fed, if you meet their membership requirements.

Best of luck!

Uncephalized

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Re: Best place for a home loan?
« Reply #4 on: June 21, 2012, 09:44:25 AM »
Thanks! Gives me a few options to think about.

Anyone who has been through the process before, how far ahead should I get per-qualified? I don't have enough saved up yet for a decent down payment so I feel like if I went to get approved now, as opposed to six months of hyper-saving later, I will get worse rates/smaller approval amounts. But I also want to leave enough time to make sure I have my ducks in a row when we find a house we want to put in an offer on. I don't really have a sense of what's a reasonable time safety margin to build in since I haven't done this before.

AJ

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Re: Best place for a home loan?
« Reply #5 on: June 21, 2012, 09:58:26 AM »
Others may have different experiences, but from mine there is really no reason to get "pre-qualified" other than for your own information. Before you actually submit an offer, you will want to have a pre-approval letter in hand. I would apply for the mortgage and get pre-approved as soon as you are ready to begin seriously looking at places (and by seriously, I mean if you found the right one you would write the offer the same day).

The truth is, the "pre-qualified" information is available to you online. It is pretty easy to find what lenders are looking for. How long have you been at your job (should be 2 years, with some exceptions)? How much do you make gross, and what are your monthly debt obligations (PITI should be less than 32% your gross monthly income, and PITI+other debt should be less than 38%, with many many exceptions). Any judgements/unpaid collections/forclosures in your past?

bogart

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Re: Best place for a home loan?
« Reply #6 on: June 21, 2012, 09:58:47 AM »
While you're at it, there are some online-ish credit unions with fantastic rates, like Pen Fed, if you meet their membership requirements.

Best of luck!

PenFed membership requirements are very open -- we joined a non-profit that provides support to military families, paying a 1-time $20 (?) fee, and qualified.  Their mortgage rates are fantastic.  Their website is functional, and the automatic payment system works fine; I haven't been thrilled with the ability of the humans who work their to keep things operating smoothly, e.g. they'll do things like tell us they're upping our payment amount to cover a larger escrow requirement and then fail to do it and tell us we owe them money, but they always get it sorted out and it's never been sorted in a way that was problematic for us (i.e. they don't charge stupid late fees or anything -- not that they should if it's their mistake, but I've worked with other financial organizations that would at least try to pull such stunts).

Worsted Skeins

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Re: Best place for a home loan?
« Reply #7 on: June 21, 2012, 10:24:39 AM »
Another vote for a credit union. 

As far as "pre-qualified" goes, it seemed that was a tool that was formerly used to suggest how much of a mortgage you can theoretically afford.  We chose to decide how much of a mortgage we wanted--not what someone else thought we could assume.


Uncephalized

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Re: Best place for a home loan?
« Reply #8 on: June 21, 2012, 11:31:32 AM »
Maybe the word I was looking for was pre-approved? I thought that was the same thing. Then what I am asking is how far ahead I should start the pre-approval process to make sure I'm in a good position to be able to make offers in March or April at the latest. I would like to be able to move soon after our lease is up (end of April), assuming we can find "our" house by that time. :-)

AJ

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Re: Best place for a home loan?
« Reply #9 on: June 21, 2012, 11:35:03 AM »
Maybe the word I was looking for was pre-approved? I thought that was the same thing. Then what I am asking is how far ahead I should start the pre-approval process to make sure I'm in a good position to be able to make offers in March or April at the latest. I would like to be able to move soon after our lease is up (end of April), assuming we can find "our" house by that time. :-)

Ah, I see. It takes between 1 day to 1 week to get pre-approved, depending on the lender, and assuming there is nothing unusual about your job history or credit.

Edit to add: Pre-qualified just means the lender takes you at your word and runs the numbers you state to give you a ballpark of what you might be approved for. It is a good tool for folks who have no idea how much they can afford, and aren't ready to take the hit on their credit report and actually apply. Pre-approved means they have pulled your credit report and agree to formally approve your loan, subject to some various things like finding a suitable property, good appraisal, etc.
« Last Edit: June 21, 2012, 11:40:33 AM by AJ »

ShavenLlama

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Re: Best place for a home loan?
« Reply #10 on: June 21, 2012, 11:35:29 AM »
bankrate.com will be a great site for you to keep an eye on, if you don't already.

When we bought a house almost 3 years ago, we got quotes from a bank, a credit union, and ultimately ended up working with a referred broker. The credit union was actually the worst offer of the 3, so do make sure that you check around with different types of lenders. You never know.

AJ

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Re: Best place for a home loan?
« Reply #11 on: June 21, 2012, 11:47:52 AM »
bankrate.com will be a great site for you to keep an eye on, if you don't already.

When we bought a house almost 3 years ago, we got quotes from a bank, a credit union, and ultimately ended up working with a referred broker. The credit union was actually the worst offer of the 3, so do make sure that you check around with different types of lenders. You never know.

IME, brokers have the fastest turn-around time (usually getting back to me same day), CUs the slowest (days or weeks without any communication). I expect the reason for that is brokers are paid on commission, whereas CU employees are paid hourly. That also means a broker is more likely to steer you towards the loan products that are more profitable for them, whereas an hourly employee doesn't really care what loan product you choose. YMMV.

ShavinItForLater

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Re: Best place for a home loan?
« Reply #12 on: June 22, 2012, 02:51:28 AM »
+1 for bankrate.com

I've gone through the process at least half a dozen times with purchses and refi's, and bankrate.com is my go-to site.  Rock bottom rates and closing costs, and unlike some sites, you don't have to give the site your personal info. and then get harassed on the phone by salespeople.

You do have a fair chance that your loan will end up at a huge bank--mine has been at Citimortgage, HSBC, etc. at various times.  If it's really important to avoid that, you need to ask the lender if they will keep your loan "in portfolio" (meaning they won't sell it).  The suggestions for credit unions are on target for that as they generally keep their loans.  Usually they won't have rock bottom rates though, so there is a price on that "feature".

Pre-qualification is a joke.  Once I went to a lender's website to get prequalified and they had a page where you typed in your info and printed out your own pre-qualification letter instantly, without talking to anyone.  It was more important to have it back when it was a hot real estate market and you had to move fast with an offer--this is the opposite kind of market.  Keep in mind as well that what you pre-qualify for is likely MUCH HIGHER than what you should actually borrow.

Uncephalized

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Re: Best place for a home loan?
« Reply #13 on: June 22, 2012, 07:41:57 AM »
+1 for bankrate.com

I've gone through the process at least half a dozen times with purchses and refi's, and bankrate.com is my go-to site.  Rock bottom rates and closing costs, and unlike some sites, you don't have to give the site your personal info. and then get harassed on the phone by salespeople.

You do have a fair chance that your loan will end up at a huge bank--mine has been at Citimortgage, HSBC, etc. at various times.  If it's really important to avoid that, you need to ask the lender if they will keep your loan "in portfolio" (meaning they won't sell it).  The suggestions for credit unions are on target for that as they generally keep their loans.  Usually they won't have rock bottom rates though, so there is a price on that "feature".

Pre-qualification is a joke.  Once I went to a lender's website to get prequalified and they had a page where you typed in your info and printed out your own pre-qualification letter instantly, without talking to anyone.  It was more important to have it back when it was a hot real estate market and you had to move fast with an offer--this is the opposite kind of market.  Keep in mind as well that what you pre-qualify for is likely MUCH HIGHER than what you should actually borrow.
I don't care too much if I end up at a "big" bank, I just want to avoid the very evillest ones like BofA. I'll check out bankrate.com. And yeah, the "how much mortgage can you afford?" calculators I've checked out have told me I would probably qualify for a $250k loan which is almost twice the price range I'm actually thinking of buying. I have no desire to take on "as much house as I can afford", I just want a decent-quality and reasonably sized house in an area close to work and good walk/bike access to groceries and amenities. Which in Phoenix I can definitely get for $150k or less.

Uncephalized

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Re: Best place for a home loan?
« Reply #14 on: June 24, 2012, 02:22:50 PM »
New question: I want to make sure I am accounting realistically for what my costs will be once I own a home.

I am planning on putting 20% down if possible, and I don't want to go for anything more than $150k. That makes my loan amount $120k. Assume closing costs of $3k, rolled into the mortgage, and that brings the loan amount to $123k, which on a 30 year loan term at 3.75% interest comes out to a monthly payment of ~$660, including .7% annual property tax, according to an online mortgage calculator. The 20% down payment will eliminate the need to pay PMI. Presumably I need homeowner's insurance, which I have seen estimated as $40-70 per $100k of home value per month. So conservatively that's an extra $105/mo, bringing the total to $765/mo.

Then there will be ongoing maintenance costs--which presumably are highly variable depending on the state and size of the home, the quality of construction and appliances, how old it is, etc. Say we're looking at 1970s construction, ~1500 sqft, 3bd/2ba, that has been reasonably well cared for and has been inspected with no major structural/electrical/plumbing issues, and does not have a Backyard Money Pit aka a swimming pool. Would another $1500 per year be a reasonable expectation for routine expenses related to the home, including any necessary repairs? That adds $125/mo to bring the total up to $890/mo, which is still $110 less than I'm currently spending on rent for a <1000 sqft 2bd/1ba in kinda run-down condition.

Am I missing anything significant? I really don't want to be blindsided by large unexpected costs.

I should also note that I used pessimistic numbers for everything. Given the state of the market here (Phoenix/Tempe), I'm hoping we'll actually find something suitable for much less, maybe as low as $100k, which would bring the above costs down to more like $625/mo. We have 9 months to look before our lease runs out and we start feeling a time crunch so I am reasonably confident we will be able to find something closer to that figure than the higher one. We might also get a slightly lower loan rate and/or a lower insurance premium. Here's hoping.

AJ

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Re: Best place for a home loan?
« Reply #15 on: June 26, 2012, 02:54:59 PM »
I believe if you roll your closing costs in, you will pay PMI. I could be wrong, but I believe they are basing the PMI off your loan-to-value ratio, where value is assumed to be the lesser of the appraised value or purchase price. So, you need at least 20% equity, not just 20% down payment. You can ask for the seller to contribute to the closing costs.

Other than that, I think your estimates are quite reasonable. $1500 (1% of value) is a good rule of thumb for a house in good condition, assuming you aren't planning any upgrades to it. We spend way more than that, but we also like to renovate :)

ShavinItForLater

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Re: Best place for a home loan?
« Reply #16 on: June 26, 2012, 09:40:40 PM »
Typical guidelines for home maintenance are 1-3% of value.  If it's relatively newer construction and doesn't need significant repairs soon (e.g., roof, HVAC, hot water heater, appliances, interior or exterior paint) then you might get away with budgeting around 1%.  However, if your area has depressed values (and I believe Phoenix qualifies), perhaps you should raise the percentage somewhat, since repair costs have not gone down in lockstep with property values, and they almost certainly will rise with inflation. 

Keep in mind some of these things are pure maintenance and not just repairs too--cleaning the gutters, HVAC tune ups and filters, rodding sewer lines, unclogging sinks and drains, etc. are now your responsibility.  Unexpected emergencies will also happen--basements can flood, fires can erupt on the stove, roofs can suddenly start leaking, pests can invade.  All of this is on you now, and if you're smart you're not using your homeowners insurance unless it's really, really major.

You mention 0.7% of value for property taxes--perhaps that's accurate for Phoenix, but I think it's worth pointing out that percentage is highly location dependent--my property taxes are 2.5%.  Yes, I realize that is crazy high.  Different states have different relative levels of property tax vs. income tax vs. sales tax, and specific counties can be much higher or lower as well.  The property listings generally will list the recent taxes, but also understand that the tax amount could change as soon as you buy it if the value is going way up or down from what the previous owner paid.

Other potentially unexpected costs:

- Utilities will likely be higher for more sqft.  Certainly as MMM advises, it's also highly dependent on you.
- You will likely need more furniture to fill up all your nice new bigger rooms.  Possibly higher quality stuff than what you got by with while renting--things all of a sudden can seem more permanent, and something nice that will last 20 years may seem a better deal than college dorm quality stuff.
- Upgrades and renovations were not really a possibility before, and you may be very tempted once you own the place.  I have spent a FORTUNE on renovations, additions, and upgrades to my home, none of which would have been spent if I was renting.  It isn't all just cosmetic either--you might want to add insulation or a solar hot water heater or solar panels or an attic fan or more efficient replacement windows, all to lower energy costs--but there can be a large upfront cost to get those savings.  Depending on what you want, finding the "perfect" house that has everything with no changes can be a challenge.
- Landscaping, lawn care, leaf raking, snow shoveling (OK probably not in Phoenix), etc. are now on you.  Lawn care alone is not just buying a lawnmower--having a nice looking lawn can require fertilizer, weed killer, pest control, a variety of tools and supplies, not to mention water.
- Donations to the local girl scouts and kids sports teams--are you really going to say no to all your neighbors' kids?  I literally get dozens of other miscellaneous people asking for money at my door every year, I say no to all of them but not the local kids.
- Decorations for holidays, which can again end up more elaborate when owning a home.  Candy for trick or treaters on Halloween--probably neighborhood dependent but I get a constant flow of people, to the point where sometimes it's easier to just sit on the porch.

I don't mean to sound like a downer, but hey you asked not to be blindsided.  Owning a home can be pretty expensive compared to renting.
« Last Edit: June 26, 2012, 09:52:42 PM by ShavinItForLater »

Uncephalized

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Re: Best place for a home loan?
« Reply #17 on: June 26, 2012, 11:02:31 PM »
Typical guidelines for home maintenance are 1-3% of value.  If it's relatively newer construction and doesn't need significant repairs soon (e.g., roof, HVAC, hot water heater, appliances, interior or exterior paint) then you might get away with budgeting around 1%.  However, if your area has depressed values (and I believe Phoenix qualifies), perhaps you should raise the percentage somewhat, since repair costs have not gone down in lockstep with property values, and they almost certainly will rise with inflation.
Good points. I will think about these for sure.

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Keep in mind some of these things are pure maintenance and not just repairs too--cleaning the gutters, HVAC tune ups and filters, rodding sewer lines, unclogging sinks and drains, etc. are now your responsibility.  Unexpected emergencies will also happen--basements can flood, fires can erupt on the stove, roofs can suddenly start leaking, pests can invade.  All of this is on you now, and if you're smart you're not using your homeowners insurance unless it's really, really major.
We Southern Arizonans have heard tell of these "basements" and "gutters" before, yes. I think I may have seen such devices on TV. :-D

Seriously though, yeah, I know things can break and whatnot. As far as HVAC and plumbing, I usually handle that stuff myself when possible anyway, since it's faster and less hassle than bothering the landlord over it and waiting for contractors to show up. As far as snaking drains and fixing toilets, I wouldn't think of calling someone to do something trivial like that when I could do it myself for free or cheap. So the main change will be that I will be responsible for paying for the infrequent, big-ticket items that I do get my landlord to handle now. I suspect, however, that when it is my dollars that have to go to the repairman or the tree trimmer or the plumber, that I will be much more motivated to do it myself. Certainly part of the reason I want to own my own house in the first place is that it's an excellent chance to learn some more DIY skills that I'm not allowed to practice currently because it's not my house to mess with.

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You mention 0.7% of value for property taxes--perhaps that's accurate for Phoenix, but I think it's worth pointing out that percentage is highly location dependent--my property taxes are 2.5%.  Yes, I realize that is crazy high.  Different states have different relative levels of property tax vs. income tax vs. sales tax, and specific counties can be much higher or lower as well.  The property listings generally will list the recent taxes, but also understand that the tax amount could change as soon as you buy it if the value is going way up or down from what the previous owner paid.
Tempe is generally in the 0.6-0.7% range. I made sure to find out; that's not just a number I picked. 0.65% is a pretty average value so I'm actually being slightly conservative. I'm well aware that this is ridiculously low compared to much of the country, which is one of the few reasons to be glad to live here rather than somewhere nicer.

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Other potentially unexpected costs:

- Utilities will likely be higher for more sqft.  Certainly as MMM advises, it's also highly dependent on you.
- You will likely need more furniture to fill up all your nice new bigger rooms.  Possibly higher quality stuff than what you got by with while renting--things all of a sudden can seem more permanent, and something nice that will last 20 years may seem a better deal than college dorm quality stuff.
- Upgrades and renovations were not really a possibility before, and you may be very tempted once you own the place.  I have spent a FORTUNE on renovations, additions, and upgrades to my home, none of which would have been spent if I was renting.  It isn't all just cosmetic either--you might want to add insulation or a solar hot water heater or solar panels or an attic fan or more efficient replacement windows, all to lower energy costs--but there can be a large upfront cost to get those savings.  Depending on what you want, finding the "perfect" house that has everything with no changes can be a challenge.
- Landscaping, lawn care, leaf raking, snow shoveling (OK probably not in Phoenix), etc. are now on you.  Lawn care alone is not just buying a lawnmower--having a nice looking lawn can require fertilizer, weed killer, pest control, a variety of tools and supplies, not to mention water.
- Donations to the local girl scouts and kids sports teams--are you really going to say no to all your neighbors' kids?  I literally get dozens of other miscellaneous people asking for money at my door every year, I say no to all of them but not the local kids.
- Decorations for holidays, which can again end up more elaborate when owning a home.  Candy for trick or treaters on Halloween--probably neighborhood dependent but I get a constant flow of people, to the point where sometimes it's easier to just sit on the porch.
I'm definitely budgeting for 50% higher summer electric bills. We're also getting ourselves used to leaving the house at 85 during the hot months, which makes a huge difference. The other 8 months or so of the year make up for it with extremely mild temperatures, though, so it ends up being pretty cheap on average.

We never buy cheap crappy furniture--most of the stuff we have is vintage or second-hand nicer stuff, solid wood, leather, etc. We don't buy stuff we don't actually like and I don't expect that to change just because we own the floor it's sitting on. So I dont foresee any need to "upgrade". And I don't think I'll be in any rush to "fill up" the house. We've been on a simplifying spree the last few months and we're both enjoying the sense of relaxation and comfort that having a little free space in the house provides. I'm sure we'll need to purchase a few items (particularly storage furniture) and I'm expecting that, but we'll likely be keeping 90% of our current stuff, and what we do need we'll wait on until we can find it used.

Renovations is one area I am worried about getting on the runaway spending train, though. I'm definitely planning on ripping out any carpet and putting down real flooring, and probably we'll want to nicen up bathrooms and stuff as well. Luckily I know how to do most of that kind of work myself (contractor for a dad) and what I don't know, I'm eager to learn. So I won't be paying anyone to do work for me. My plan right now is to establish a "home improvement account", put aside a small portion of my pay just for that, and only do improvements when I've had time to consider and plan them carefully and the cash is available to pay for them.

As for leaf-raking and lawn-cutting, what kind of awesome landlords have you had that do routine yardwork for you? I just assume I need to do that stuff wherever I live. It's also typical here for tenants to pay all utilities, including water, so that won't be any different. And I may not have a lawn at all--they don't make much sense in this climate. I might keep one if I get ambitious or I have a really nice yard for it. And, weirdly, I actually enjoy weeding by hand. No weed sprays for me! But I'll probably end up doing some nice xeriscape and avoid having to do much trimming or watering at all.

As for kids going on sales drives, I seriously doubt that's a frequent enough occurrence to significantly impact the household budget. I wouldn't give anyone going door-to-door more than a couple bucks out of my wallet anyway, since I only give significant sums of money to organizations that I am familiar with and have had the opportunity to learn about, and not because a small child was convinced to come give me googly eyes to play my social instincts for profit.

In the same vein I'm not much of a "joiner" and I don't get all that into holidays. My wife is a little more than I am, but then, she's also a creative type and likes to repurpose old stuff into cool artsy displays an drake her own decorations. Neither of us is going to Walmart to buy the motorized wireframe reindeer and sleigh with Christmas lights on it. I don't think we've spent more than $100 on decorations in 5 years and I don't expect next ear to be any different.

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I don't mean to sound like a downer, but hey you asked not to be blindsided.  Owning a home can be pretty expensive compared to renting.
Not at all! I appreciate the input, and it's definitely food for thought. And the better warning I have for this stuff, the easier it is for me to come up with ways to keep it from making me poor. :-D

ShavinItForLater

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Re: Best place for a home loan?
« Reply #18 on: June 27, 2012, 07:31:07 AM »
Certainly my comments are all colored by my personal experience, and there are many location-based differences for your circumstances.  I've probably missed some of the gotchas that apply in your part of the country since I've never lived there.

As for leaf-raking and lawn-cutting, what kind of awesome landlords have you had that do routine yardwork for you? I just assume I need to do that stuff wherever I live.

If you've been renting a house sure--my renting days were in apartments, where exterior maintenance was Someone Else's Problem.

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As for kids going on sales drives, I seriously doubt that's a frequent enough occurrence to significantly impact the household budget. I wouldn't give anyone going door-to-door more than a couple bucks out of my wallet anyway, since I only give significant sums of money to organizations that I am familiar with and have had the opportunity to learn about, and not because a small child was convinced to come give me googly eyes to play my social instincts for profit.

Yeah the stuff near the end of the list is minor--but I'll add this, I started reading MMM partly because I was looking at my recent spending and asking how the hell can we be spending so much.  After much analysis, almost every purchase can seem to make sense in isolation--the problem was that there were just too damn many of them. 

Our home is far and away our largest category of spending, and it also drives up all sorts of other costs indirectly, because we live in a relatively affluent area (which I know is not what you're planning, so maybe none of this applies to you).  People are driving nicer and newer cars, wearing nicer clothes, keeping well manicured lawns and landscaping (often hired out).  Kids all have the latest gizmos and talk about their cool international vacations, and my kids as a result think they are deprived (ha!).  Parents put their kids in a slew of organized activities, lessons, and enrichment classes. 

I know this might be getting a bit off topic for your circumstances, but I squarely put the root cause for most of our level of spending on our decision to buy our particular house and live in this particular neighborhood.  Nobody told me about any of this when I was deciding where to live, on the contrary I was encouraged to spend as much as I could afford and to live in the best possible location.

Uncephalized

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Re: Best place for a home loan?
« Reply #19 on: June 27, 2012, 07:47:19 AM »
Makes sense. Lifestyle creep due to increased social expectations... A good reason to move into a modest neighborhood! Thanks for taking the time to point all of that out.

Uncephalized

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Re: Best place for a home loan?
« Reply #20 on: July 03, 2012, 06:33:19 PM »
Well... that was unexpected...

Apparently I have nearly $30K of accrued cash in a trust that my mom and grandparents formed for me to pay for college expenses. I switched from private to state school after my first year and ended up not needing most of it. So the cash is just sitting there (growing) since I graduated a couple years ago, and I can take it and apply it toward a house purchase. It's like Money Grows on Trees Week for me!

So now I'm still going to save $1800+ every month, just because that's the correct thing to do, but I also magically have enough money to put a down payment on a nice house already. Which means we can keep our eyes peeled for a great deal and jump on it any time we find "The One" in the next 9 months.

I feel like dancing a jig. At $1800/mo my FI date just got 15 months closer in one week.

arebelspy

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Re: Best place for a home loan?
« Reply #21 on: July 03, 2012, 07:37:34 PM »
Awesome, congrats!
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grantmeaname

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Re: Best place for a home loan?
« Reply #22 on: July 05, 2012, 12:06:49 PM »
What an awesome week! Congratulations!

Uncephalized

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Re: Best place for a home loan?
« Reply #23 on: July 05, 2012, 12:09:57 PM »
Thanks! I almost feel guilty, like someone's handing me something I didn't earn...

But I'm still gonna use the shit out of that money! Just need to avoid inflating how much house we purchase or otherwise wasting the gift, and not allow any complacency to creep in as far as savings rates and whatnot. Now I feel like it's my responsibility to get as much value out of that money as I possibly can, because it was such a generous gift from my family!

igthebold

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Re: Best place for a home loan?
« Reply #24 on: July 05, 2012, 12:48:18 PM »
Thanks! I almost feel guilty, like someone's handing me something I didn't earn...

You did get handed something you didn't earn. So what? It's an opportunity, which you obviously realize. Enjoy! :)

But I'm still gonna use the shit out of that money! Just need to avoid inflating how much house we purchase or otherwise wasting the gift, and not allow any complacency to creep in as far as savings rates and whatnot. Now I feel like it's my responsibility to get as much value out of that money as I possibly can, because it was such a generous gift from my family!

arebelspy

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Re: Best place for a home loan?
« Reply #25 on: July 05, 2012, 01:48:58 PM »
But I'm still gonna use the shit out of that money!

Hah.  I laughed out loud.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Another Reader

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Re: Best place for a home loan?
« Reply #26 on: July 06, 2012, 11:39:29 AM »
There is a problem with what you have planned - lack of inventory.  In the last 8 months, the greater Phoenix market has turned overwhelmingly in favor of sellers.  It's hard to believe, but the market now is even more competitive than it was in the peak of 2005-2006.

There are currently around 7,800 single family residences for sale in ALL of Maricopa County.  That's a 30 to 45 day supply, and the number includes $45,000 2 bedroom fixers in South Phoenix up to $10,000,000 mansions in Paradise Valley.  Selling prices are up almost 33 percent year over year.  That means what cost $100,000 a year ago now costs $133,000.  Anything under $150,000 in a desirable area like the older parts of Tempe (the older areas with decent schools) attracts multiple offers within a day or two.  A house in Chandler received over 40 offers and I understand a house in the West Valley received 83 offers.

You will be competing with cash buyers, and people with much higher down payments.  I know of pre-approved buyers in your price range that have offered on 8 properties and been outbid on all 8.  As of this morning there are 12 active listings of single family residences in all of Tempe priced at or below $150,000.  Three are occupied by tenants with leases, one is accepting no more offers, and there are 4 listings less than 3 days on the market.  Not a lot to pick from.

The problem is there are 50 or more willing buyers that qualify to buy what you want to buy.  You will need a solid pre-approval from a major lender AND an agent that will search the MLS three times a day and get you into new listings as soon as they come on the market.  You will have to make a decision when you look at a property and submit your highest and best offer on the spot.  If you don't want to play the game, you will have to sit it out until prices and/or interest rates rise enough to cool the buying fervor and stabilize the market.

You mentioned Tempe a couple of times.  I own a number of rentals in Tempe and I think the older homes require an AVERAGE of two to three percent in maintenance, repairs and capital improvements every year.  For example, a new composition shingle roof for an 1,850 square foot home will cost $9,000 to $10,000.  A new roof-mounted HVAC unit will cost $4,000 to $5,000, more if it's a gas pack.  Water heaters are $750 to $900 installed, depending on size and fuel.  Paint you can do yourself, but expect to pay at least $1.10 per square foot for a basic interior spray job.  Carpet for the same house will run $2,200 for just above FHA grade.

My experience with Tempe taxes is that they run more than 1 percent of current value.  Tempe refused to reduce spending when the recession hit and raised the tax rate instead.  Mesa has no City property tax and the overall property tax rate is substantially lower.  You can look up the current taxes of any property by going through the Assessor's web page at maricopa.gov.

Hope this information helps.  Please ask if you need more information. 

Uncephalized

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Re: Best place for a home loan?
« Reply #27 on: July 06, 2012, 12:51:24 PM »
There is a problem with what you have planned - lack of inventory.  In the last 8 months, the greater Phoenix market has turned overwhelmingly in favor of sellers.  It's hard to believe, but the market now is even more competitive than it was in the peak of 2005-2006.

There are currently around 7,800 single family residences for sale in ALL of Maricopa County.  That's a 30 to 45 day supply, and the number includes $45,000 2 bedroom fixers in South Phoenix up to $10,000,000 mansions in Paradise Valley.  Selling prices are up almost 33 percent year over year.  That means what cost $100,000 a year ago now costs $133,000.  Anything under $150,000 in a desirable area like the older parts of Tempe (the older areas with decent schools) attracts multiple offers within a day or two.  A house in Chandler received over 40 offers and I understand a house in the West Valley received 83 offers.

You will be competing with cash buyers, and people with much higher down payments.  I know of pre-approved buyers in your price range that have offered on 8 properties and been outbid on all 8.  As of this morning there are 12 active listings of single family residences in all of Tempe priced at or below $150,000.  Three are occupied by tenants with leases, one is accepting no more offers, and there are 4 listings less than 3 days on the market.  Not a lot to pick from.

The problem is there are 50 or more willing buyers that qualify to buy what you want to buy.  You will need a solid pre-approval from a major lender AND an agent that will search the MLS three times a day and get you into new listings as soon as they come on the market.  You will have to make a decision when you look at a property and submit your highest and best offer on the spot.  If you don't want to play the game, you will have to sit it out until prices and/or interest rates rise enough to cool the buying fervor and stabilize the market.
You just scared the shit out of me. Good work.

But I don't see the "shortage" you're talking about when I look at listings on, for example, Trulia or Redfin. I just ran a search for homes under $160K in Tempe on one site and came up with 321 results. Where are you getting the number 12? You drive down practically any street in town and you see a "For Sale" sign hung out every few dozen houses. Many of these are in the $150K or lower range, which I know by searching the addresses and finding the active listing on real estate sites. Do you know something I don't that makes this approach non-functional or misleading? Are most of these homes not actually taking offers or something?

Quote from: Another Reader
You mentioned Tempe a couple of times.  I own a number of rentals in Tempe and I think the older homes require an AVERAGE of two to three percent in maintenance, repairs and capital improvements every year.  For example, a new composition shingle roof for an 1,850 square foot home will cost $9,000 to $10,000.  A new roof-mounted HVAC unit will cost $4,000 to $5,000, more if it's a gas pack.  Water heaters are $750 to $900 installed, depending on size and fuel.  Paint you can do yourself, but expect to pay at least $1.10 per square foot for a basic interior spray job.  Carpet for the same house will run $2,200 for just above FHA grade.
Yeah, plumbing and roofing and flooring are expensive if you pay someone to do them. Not as much if you DIY (still not inconsequential, of course). Which, luckily, I mostly know how to do, and anything I don't know, my contractor dad does. He's usually willing to come help me for little more than some celebratory tequila when we finish the project. I would also never dream of installing carpet in any house I own, yuck. I'd much rather go with sealed concrete, tile, or wood/laminate, all of which can be done for reasonable prices, are DIY-able, and last much longer than carpet. I hate carpet with a passion. Off-gassing, grime-trapping floor-pubes as far as I'm concerned.

Quote from: Another Reader
My experience with Tempe taxes is that they run more than 1 percent of current value.  Tempe refused to reduce spending when the recession hit and raised the tax rate instead.  Mesa has no City property tax and the overall property tax rate is substantially lower.  You can look up the current taxes of any property by going through the Assessor's web page at maricopa.gov.
...And this is probably partly why Tempe is still a reasonably nice place to live, whereas Mesa is almost categorically an ugly, deserted and crime-ridden shithole (I go to work here every day, I would know), where they keep shutting down public parks, they can't hire enough police or fire protection, and most of the commercial properties are sitting empty, at least the ones that aren't filled with fast-food chains and payday loan-sharks. You would have to pay me to live in Mesa. Of course the houses are super-cheap here--it's a crappy place to live! Tempe is still a very low COL area compared to most of the country and has WAY more amenities and lower crime. Thanks for the note on taxes. I'll need to revise my estimates accordingly.

Quote from: Another Reader
Hope this information helps.  Please ask if you need more information.
It does, thanks. Mostly in the "the buying process sounds like it will be harder than I thought" kind of way, not in the "I just got convinced not to do it" way, though.

Another Reader

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Re: Best place for a home loan?
« Reply #28 on: July 06, 2012, 01:50:47 PM »
The number (12) is the active (available) listings of single family homes under $150,000 in Tempe with at least 1.75 baths on the Arizona Regional MLS.  The total is 15 if you don't care about the second bath.  We looked the numbers up this morning on the ARMLS site used by agent members of the MLS.  There are 108 such properties with 1.75 baths that are AWC (the property has an accepted contract, with a mortgage or inspection contingency) or Pending.   Trulia, Zillow, and similar sites have lots of listings that are pending sales or sold months or even years ago.  The foreclosure listings on Zillow consist of anything their advertising partner, the foreclosure website people, shows as having at least a notice of default. These "foreclosures" are in the default process and for the most part not owned by the bank.  Most defaults will be cured or the houses will eventually be short sold.  These properties are not for sale today but appear as part of Zillow's inventory.

There have been several recent articles in the Arizona Republic about the changing market and you should look on-line for those articles and references to the most recent Cromford Report.  Better yet, start calling some agent referrals from friends and relatives.  Those folks (most of whom are very frustrated trying to make a living in the current market) will verify what is happening in the market for you.  They can also verify the status of any listing you see on Trulia or Zillow that is from the MLS.

I agree about carpet, but I'm dealing with tenants.  I'm giving you actual bids received in the last 6 months for cost reference purposes.  The cost of repairs, maintenance, and capital improvements have increased much more rapidly than rents and house prices, especially in the last 10 years. 

You should look at the Dobson Ranch area of Mesa if you think Mesa is a "crappy place to live."  Rents and house prices are higher than in Tempe on the other side of 101 between Baseline and Guadalupe.  The houses are better maintained and the Dobson Ranch HOA provides a wide wariety of amenities for a low monthly HOA.  Southwest and southeast Mesa both have excellent housing choices, with good schools and low taxes.  Other parts of Mesa have problems that are more demographic than property tax related. 

If you want to move forward, call some agents and get that preapproval letter in hand.   Let me know if I can answer any other questions from the investor's viewpoint.

Uncephalized

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Re: Best place for a home loan?
« Reply #29 on: July 06, 2012, 02:13:40 PM »
The number (12) is the active (available) listings of single family homes under $150,000 in Tempe with at least 1.75 baths on the Arizona Regional MLS.  The total is 15 if you don't care about the second bath.  We looked the numbers up this morning on the ARMLS site used by agent members of the MLS.  There are 108 such properties with 1.75 baths that are AWC (the property has an accepted contract, with a mortgage or inspection contingency) or Pending.   Trulia, Zillow, and similar sites have lots of listings that are pending sales or sold months or even years ago.  The foreclosure listings on Zillow consist of anything their advertising partner, the foreclosure website people, shows as having at least a notice of default. These "foreclosures" are in the default process and for the most part not owned by the bank.  Most defaults will be cured or the houses will eventually be short sold.  These properties are not for sale today but appear as part of Zillow's inventory.

There have been several recent articles in the Arizona Republic about the changing market and you should look on-line for those articles and references to the most recent Cromford Report.  Better yet, start calling some agent referrals from friends and relatives.  Those folks (most of whom are very frustrated trying to make a living in the current market) will verify what is happening in the market for you.  They can also verify the status of any listing you see on Trulia or Zillow that is from the MLS.
OK, makes sense. Once we get the down payment funds transferred to our account we'll go for preapproval and get in touch with some agents (we've got several referral names from family and friends). Lame that those sites are apparently so inaccurate. We would like a second bathroom but we're used to only having one so it's not a deal breaker at all.

Quote from: Another Reader
I agree about carpet, but I'm dealing with tenants.  I'm giving you actual bids received in the last 6 months for cost reference purposes.  The cost of repairs, maintenance, and capital improvements have increased much more rapidly than rents and house prices, especially in the last 10 years.
But I'm guessing that price increase is not due mainly to higher cost of building materials, is it? Much of it is surely contractor pricing. Why would the cost of a water heater or 1000sqft of shingles be higher in inflation-adjusted terms today than 10 years ago?

Quote from: Another Reader
You should look at the Dobson Ranch area of Mesa if you think Mesa is a "crappy place to live."  Rents and house prices are higher than in Tempe on the other side of 101 between Baseline and Guadalupe.  The houses are better maintained and the Dobson Ranch HOA provides a wide wariety of amenities for a low monthly HOA.  Southwest and southeast Mesa both have excellent housing choices, with good schools and low taxes.  Other parts of Mesa have problems that are more demographic than property tax related.
I have been all over Mesa driving around, and I just don't like anywhere that I see. My wife and I both really dislike the tract-home-and-golf-course thing, which is what Dobson Ranch is. Older neighborhoods are typically denser and closer to groceries and restaurants and fun. I don't want to have to use my car every time I want to go somewhere, and unless you are willing to take routine 5-10 mile bike rides each way for errands (which I'm not), Mesa is just not the town for that.

Another Reader

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Re: Best place for a home loan?
« Reply #30 on: July 06, 2012, 03:45:36 PM »
Labor costs are way up.  Blame the migration from California for that.  Materials costs have outpaced inflation as well, however.

If you have kids, you should check out Dobson Ranch.  Lots of organized activities for them.  It's one of the original HOA neighborhoods from the mid-late 70's.  It's just as "close in" as Tempe - it's just across the 101.  The lots are large and if you like brick, block and siding, you will like the homes.  The neighborhood is exceptionally stable.  One of my tenants there has been there for 12 years and his parents live a few streets away.  A previous tenant in another property had parents in the neighborhood and they eventually bought there.  The golf course is a public course.  The schools in the immediate area are good. 

Tempe's demographics are changing.  The city has more violent crime and a lot of property crime.  You should also check out the schools in your proposed neighborhood, and not just the state test scores.  Get a feel for the schools your kids (or future kids) would attend by hanging around in the morning or at the end of the school day.  Ask how much the parents are involved in the school.  Properties south of Guadalupe Road are in the Kyrene school district.  That's important to many buyers and is reflected in higher house prices.  Even if you don't have kids, buying in a good school district is a smart idea.  It helps when you want to sell or rent your house.

Take a deep breath and dive in.  Good luck with the search!