Author Topic: House Buying Newbie  (Read 1198 times)

Ellsie Equanimity

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House Buying Newbie
« on: October 16, 2015, 01:55:05 PM »
My husband and I are currently in the saving and dreaming stage for buying a house. As we get closer I want to feel some level of preparedness for how to think about it.

We know we want to put down at least 20%, maybe more. And for the mental satisfaction of no debt we would probably like to pay the mortgage off as soon as possible.

Are there general guidelines about how much money you should actually have - like if you want to put 20% down you actually need 30% of the cost available or something like that? What hidden house buying fees are there? How much should you increase your emergency fund?

Also, is there a significant time difference between saving to buy in cash vs putting 20% down (comparing the time of buying in cash vs the time of having the mortgage paid off)?

And what is the actual price difference caused by doing the mortgage route vs buying in cash? What extra cost are you paying in mortgage fees? Do any of the "hidden" fees disappear if you buy in cash? What mortgage tax deductions are there that offset fees?

I know that there are like a million variables and so all of this is actually impossible to answer/predict until you have the scenarios or at least some hypotheticals to play with. But I wouldn't even know how to set up the hypotheticals.

So my real question is: where do I begin? Are there general guidelines? Can someone point me to resources? Can anyone tell me what variables I need to consider?
« Last Edit: October 16, 2015, 01:57:19 PM by MrsEnder »

rocket354

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Re: House Buying Newbie
« Reply #1 on: October 16, 2015, 11:27:27 PM »
Hello,

I can help with a few of your questions, having bought a couple houses, myself.

In lots of places, the typical estimate is to reserve about 3% of the overall sales price for closing costs, assuming they aren't negotiated onto the seller in any capacity. That number, though, can vary based on where you live. As long as you have 25% overall that you can dedicate to the down payment and closing costs you should be fine, but you'd definitely want to verify that with your real estate agent.

Your emergency fund, if it's based off your monthly expenses, should only have to change to cover the change in the expense of the house vs whatever you were already paying. However, you might want to keep some cash in reserve to do some number of repairs or changes once you move in.

Mortgages have fees associated with them. They also have risk--even if you're pre-approved, you might not actually get approved for a loan on any particular property. What that means is you do pay more overall if you take out a loan as the fees will be tacked onto the principal. Also, since there's risk involved in dealing with a buyer who's taking out a mortgage (it might fall through), a seller will often prefer to see a cash offer, to the point they would be likely to take a lower offer if it's a cash offer. Therefore, mortgaging the property will cost you extra in two ways: mortgage fees and higher sales price.

However, the money you put into the property has an opportunity cost. With mortgage rates still in the 3s, you can always invest the money elsewhere and get a much better return. It's up to you and your comfort level.

The best thing you can do while buying a house is talk to a reputable lender and get pre-approved, and then get with a good agent who can answer any and all questions you might have, specific to your locality. Both a lender and an agent together can answer any detailed questions you have. As a buyer, your main concern is finding a property you like in a location you like. Just never forget the old adage when it comes to real estate: location, location, location.

ShoulderThingThatGoesUp

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Re: House Buying Newbie
« Reply #2 on: October 17, 2015, 05:24:44 AM »
Your down payment + mortgage fees + property taxes for an entire year (these will be pro-rated but sometimes it turns out the seller JUST wrote the check for the entire next year) + title fees ($2000 last time I sold a house) + transfer tax (1% from buyer in Pennsylvania)

About a week before closing your agent should send you a HUD-1 form that shows exactly how much you will owe. That should lock down transfer tax, title fees, mortgage fees, and you should already know your down payment. But have property taxes for an entire year available anyways. Last time I sold the municipality didn't bother depositing my check until very close to closing. I had to call them and listen as they sorted through a room full of checks that they were dry-aging or something.