1st Time Home Buyer Advice, Please.

[MrMusicMan1]

Hello,

In looking at some of your occupations in the job thread I thought this might be a good place for advice on buying my first house. Basically, I'm learning as I go and don't want to do anything stupid or damaging to myself in the process. There is a $8000 first time home buyer credit that expires on 12.01.09 and I would like to take advantage of that free money. I have excellent credit and plan to use that $8000 in addition to some extra money towards a down payment. (You now can do that in the form of a 0% interest short term loan.)

I would like to get pre-approval so I know how much I can buy before I find my dream house. I have a few in mind in the area that I know I can afford because of the amount of rent I am paying now. How do I find the best rate? I don't want to have my credit checked multiple times (fear of lowering credit score.)

If my logic sounds wrong, correct me. I'm learning, any advice is appreciated.

Thank you!

[mikeu]

I'm an appraiser, so here is the benefit of my limited knowledge. Hope it helps!

My understanding is that multiple checks of credit within a tight time frame from multiple lenders of the same type do NOT affect credit scores. They are considered a single inquiry.

If you're a credit union member, they often have extremely competitive rates. If not, shopping around is the best thing to do. Bear in mind that the mortgage people are SALESPEOPLE, and live on commission, with all that often entails.

Make sure you have a professional home inspection done. Your realtor will probably have someone they routinely work with - if not, ask friends for their recommendations.

The free money and lower values do make this a very good time to buy, especially with excellent credit. Best of lck to you!

[MrMusicMan1]

Thank you for the info! Any ideas on debt to income ratio, student loans, credit cards, auto loans? Does my current rent help/hinder my qualifications?

[AAlmeter]

First, though things have quieted down and lenders are more conservative, do not look at your pre-approval as an indication of what you can afford. Take a look at your monthly income, subtract all of your recurring debts, necessary and unnecessary expenses, your contributions to savings, etc. Once you've got an idea of your bottom line number, take 50-75% of that....that's what you can afford. The reason I say 50-75% is because all homes need maintenance, especially since you likely won't be buying new. Budget for that. You will, however, need to obtain a letter of pre-approval in order to work with most realtors.

Once you get an idea of how much cash you have on hand to put down and how much you can afford monthly, you put yourself in a better position for buying.

Take a good look at the mortgages....unless you're in a unique situation, you're best with a fixed rate mortgage, with as much down as possible.

Also, obtain a credit report. Make sure you don't have any outstanding debts. Pay off the credit card, settle any old dings on your report, etc. Many times, a simple certified letter to the collection agency that owns the debt from cable company on your college apartment can get it knocked right off there.

If you're not familiar with all of the systems involved within a home (structural and mechanical), a home inspection is a must. Accompany him, you'll learn the deficiencies and he will likely give some possible solutions. Whether you plan on doing any work yourself or hiring it out, the more knowledge you have the better off you'll be.

Good luck, and feel free to pm or post any more questions as you get rolling.

[AAlmeter]

Originally Posted by MrMusicMan1

Thank you for the info! Any ideas on debt to income ratio, student loans, credit cards, auto loans? Does my current rent help/hinder my qualifications?

A solid rent history will help...especially with some of the guv'mint sponsored loans and first-timer programs ...if you're eligible

Debt to income should be less than 35%. Much less if possible. Rule of thumb is that your mortage payment should not exceed 25% of your monthly income. Adjust for your personal financial situation.

[themoneycollector]

I would also recommend be very cautious about good faith estimates (GFE) from various lendors. It's not as simple as comparing apples to apples.

They are required to give you a gfe, but they are never accurate and you will not be pleasantly suprised when you get the actual bottom line come closing day.

Use bankrate's calculators Calculators for mortgages, savings, small business, credit cards and auto loans by Bankrate
they have one for how much house you can afford and paying points to help you decide what's best for you

Good luck and best wishes on your new home

[c2000]

I hate to say this but I agree with Adam.. Leave yourself a rainy day fund or you will regret it.. Also factor in home insurance that adds to the payment.

Jerry in Minnesota.

[stanthetaxman]

Agreed on the 25% of monthly income to mortgage. Also, 20% down and 15 year FIXED mortgage. Pay 1/2 the mortgage payment every 2 weeks, and the 15 years becomes 12-13 years.

[MrMusicMan1]

Thanks for all the great advice. I appreciate it! Backing up a step, what should be my very first step? Gather all my info and go to a major bank or two or three?

Should I wait a month or two before I go to a bank so I can pay down some credit card debt? I will also have some student loan forgiveness coming through in July or August for five grand. I'm thinking it might be to my benefit to wait until that clears or does student loans not really make that big of a difference?