Planning for First Mortgage

[rebaitme2]

Well a little quick info to help you understand my situation, I am a recent college grad who landed my first job and I'm looking into buying my first house. I am not very knowledgeable about how this process works, I know I can go to various banks to get a mortgage, but what should I have ready prior and are banks the only/best place to go? Also what is there to look for that can make one bank better than another and what to watch for such as hidden fees? What can I expect to hear from lenders so that I'm not caught off guard? Thanks for any help I'm quite apprehensive but hopefully you can help me out!!!

[Ben Dinsmore]

A good place to start before applying for a mortgage loan is to figure out what your budget is. Banks will often approve you for way more than you can comfortably pay back without making sacrifices in other areas of your life.

You want to avoid a mortgage payment that is any more than a quarter of you monthly take home pay, any more and you start entering a dangerzone that often will lead to sacrifices in other areas of your financial life. At current interest rates expect to pay about $1000 for every $150000 borrowed for a loan term of 30 years. This will allow you room to pay for other homeowner costs such as property tax, insurance, homeowner fees, and maintenance.

In other words, if your paychecks total $4000 a month, under my recommendation you shouldn't borrow anymore than $150K for your house. You can borrow more if you want to, but you may find your self cutting back in other areas of your life like retirement, college savings for the kids, vacations, etc.

It is also very important to not only have a good down payment to put on the house, but also to keep an emergency fund set aside in the event that you can't work due to illness, or someother unforseen circumstance. Many banks will actually require you to have additional funds set aside.

Once you have a budget in mind, it's time to check your credit reports just to double check that there isn't any thing on them that doesn't belong to you such as a fraudulent account. When you pull your reports you should also get your credit scores to see where you stand. You can buy your 3 credit reports and 3 credit scores from www.myfico.com. Getting any descrepancies on your credit report cleared up before going to a bank will save you a lot of headaches down the road. Check out the article that I wrote on the homepage about FICO scores and how they can save you $100K

If you've been house hunting around your area and you think that you might want to make an offer on a particular house this is when you want to start talking to banks about rates and pre-approved for the loan amount you want.

I'll talk more about the loan process when I get some more time, perhaps some of our other members can help you out too!

[swanberg22]

Great Questions! I work for a community bank and I recently refinanced my mortgage on-line, so I can give you some insight to both worlds. I hat to throw a lot at you, but there is a lot to say on this topic.

To start, there are other options than your local banks. In addition to online lenders there are mortgage brokers, which you can find locally or on-line i.e. lending tree, and I would even throw in Credit Unions.

As far as the best place to go, I would heavily consider places referred to me if you don't have the time to shop around. You never know what you're going to get from place to place or even person to person. So start by asking friends and family in your area who they went through and what kind of experience they had. If you're using a real-estate agent, I am pretty sure they have to recommend three different banks if you ask. From what I have heard they will generally recommend banks that will consistently close on the loan the quickest from start to finish.

Local Banks - I believe most of these sources will be upfront with you regarding rates and fees. If you're shopping rates it will probably take time to compare multiple banks, although you may find some luck with them posting rates and fees on their website. You also have the comfort of being able to walk into a building and being able to deal with a person face to face for service. In general I think you will find that you'll be paying for this service via higher rates than you may be able to find elsewhere.

Online Lenders - If you haven't yet, check out my post on upfront mortgage lenders. I refinanced through one of these companies and was blown away by the service I think with most online lenders you'd experience a lot of frustration with hidden fees, or higher rates than they lead you to believe you can get. I recommend checking out my post. There you can find a link where you can find a list of Cerified Upfront Lenders which give you all rate and fee information up front and they promise the deal will not change as applied for, as long as you qualify. Be prepared to have your mortgage immediately sold though, as many of these places don't specialize in servicing them. (I've been quite happy with the company mine was sold to.)

Mortgage Brokers and Online Mortgage Brokers - I have no personal experience with them. I have the perception that here is where you may find the most hassle with hidden fees, and not ending up with what you were originally expecting. Again, just my perception. Does anyone else have any experience with them?

Credit Unions - Again I don't have any personal experience here, but I think in general you'll find they may be a decent option. CU rates are usuaully decent, and I can't imagine they wouldn't be upfront about fees etc...

I personally feel the best place to ultimately end up if your planning to live in your home long term, is where you can find the lowest rate, assuming similar fees. I would certainly consider a national lender over a local bank for even a quarter point. That quarter point on $150k 30 year mortgage = $8,830 less in interest paid over the life of the loan. Is it worth $300/year to you for the local service? If you're thinking short term then you may want to find the lowest fees with a decent rate.

In order to complete an application be prepared to, provide verification of your last three years of income, i.e. tax returns, W-2's etc..., verification of assets, i.e. recent bank statements, possibly pay for an appraisal, authorize your credit to be pulled, among a few other things I can't think of at the moment.

You'll probably never find the "best" deal out there, so do your homework, find a place with a good overall deal that you're comfortable with, and run with it. It's a big decision so don't jump into anything too quickly.

If I think of anything else I'll let you know. If you have any specific questions as you're going through the process, post them here and we'd be happy to give our opinions and advice.

[Ben Dinsmore]

Pete made a lot of good points! Definately ask friends and family members if they or someone they know recently bought a home. Ask them to recommend a lender.

Here is a breakdown of some of the fees that you may encounter when buying a home, typically when you apply for a loan you will be given a list of these fees on what is called a Good Faith Estimate or GFE.

Loan Origination Fee

Loan Discount Fee
Otherwise known as "points" this is basically interest that you pay up front on the loan when you close (officially sign for the loan) for a lower interest rate for the term of the loan.

Appraisal Fee
This is a fee you pay the bank to cover a third party inspector to come out and determine if the house is really worth what you are paying for it. This fee can run from $200-500+ depending on your location.

There are a bunch of fees associated with buying a new house, here is a quick review of the major ones, I may of forget a couple but this is what I can remember from my experience.

Credit Report Fee
This is usually $12 or so and it covers the fee that the bank must pay to the credit bureaus to check your 3 credit bureau files.

Lender’s Inspection Fee
This may fee can be for an third party inspector to come in and make sure that the house that you are buying is sound and doesn't need any work that isn't disclosed by the seller.

Underwriting
Just an add on fee that some banks charge for determining whether or not you are a suitable borrower.

Loan Setup Fee
Another stuffer fee that the bank throughs in for a little extra profit.

Flood Certification
Most lenders will require you to have flood insurance if it within a flood zone. This Fee covers the search to determine if the propertly that you are buying is in a flood zone. This is typically about $10-20.

Loan Processing Fee
Another stuffer fee that banks sometime add to pad their profits.

Title Insuance
This fee covers a record check of the deed associated with the propertly that you are buying to make sure that their are no liens, and that the owner who is selling the house is indeed the actual owner. This can be a few hundred dollars $300-1000+.

Well, that's a brief rundown of the fees that you will encounter. If you have anymore questions, please ask!