Home buying thread

Yea I think you are around 4% right now without buying down the rate. Maybe a couple of months ago 3.x was possible with no cash, seems to have tipped over 4% now though.

Corndog_sl said:

Corndog buys a house thread?

Anyways, had my first meeting to get a pre-approval letter this morning. Apparently we won't get the actual terms for a few more days.

What I am wondering is this. How can I find out the best possible scenario for a first time mortgage loan. What I'm getting at, is what should I be shooting for? 3.75% is advertised at my current bank as the low rate. but I see online that there is someone offering 3.625

Our credit score was 776, which our bank said qualified us for the best possible rates. Our debt to income ratio would be 25% with the payments they were showing at the 300k loan. Basically I want to know what the best possible achievable rate is, so I know if I need to shop around more than what they come back with. We're looking at getting roughly 300k for a mortgage which will buy a starter home in our area. Only have about 16k in cash to put down for down payment/closing costs. But save roughly 3k a month currently above our expenses.

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I don't know your total situation, but assuming you are going conventional consider @ 300K you are looking at 15K for a down payment if you want to hit 95% LTV and save a bunch on MIP. Maybe it doesn't matter if you plan on smashing the principal every month to get below 80% so you can remove it and you can just go 97%, or maybe you don't care about throwing an extra $130 towards bank insurance every month to save the cash for immediate expenses with the new place. At 3% you'd have 7K for closing, which might not even be enough without credit so you may have to get a credit with slightly higher interest rate anyway.

For me, I had saved enough for 5% DP, moving expenses, a decent fund for random expenses (moving, landscaping, whatever) that I couldn't wait on, etc... for the end of May. Well found the house early so crunching the numbers, it ended up being worth it to still do the 5% DP, I'll just charge appliances and pay em off in a month or two. Thankfully I had shaky comps so I managed to outplay the sellers at negotiation and they just want to be done with the place and got 3.5K extra credit towards closing on top of what I wanted to pay for the place.

Personally, I could afford the extra MIP no problem but it really rustled my Jimmies to be paying the extra funny money out to the nameless insurance company every month so I'm just raiding all of my checking account to drop my LTV down slightly and I will eat like a pauper for a couple weeks. I'm still planning on paying it down to under 80% pretty quickly but fuck 'em.

Palum_sl said:

Yea I think you are around 4% right now without buying down the rate. Maybe a couple of months ago 3.x was possible with no cash, seems to have tipped over 4% now though.



I don't know your total situation, but assuming you are going conventional consider @ 300K you are looking at 15K for a down payment if you want to hit 95% LTV and save a bunch on MIP. Maybe it doesn't matter if you plan on smashing the principal every month to get below 80% so you can remove it and you can just go 97%, or maybe you don't care about throwing an extra $130 towards bank insurance every month to save the cash for immediate expenses with the new place.

Personally, I could afford the extra MIP no problem but it really rustled my Jimmies to be paying the extra funny money out to the nameless insurance company every month so I'm just raiding all of my checking account to drop my LTV down slightly and I will eat like a pauper for a couple weeks. I'm still planning on paying it down to under 80% pretty quickly but fuck 'em.

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One thing to note is that FHA loans now carry PMI for the life of the loan. So if you go FHA you're gonna need to refinance or pay the loan in full to get rid of it.

Yea FHA is a complete rip in the long term unless you simply need it to buy a house. Maybe once rates go nuclear it'll be competitive again with the PMI rules as is. Of course, PMI isn't tax deductible either, so...

Khane_sl said:

One thing to note is that FHA loans now carry PMI for the life of the loan. So if you go FHA you're gonna need to refinance or pay the loan in full to get rid of it.

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I thought I'd seen something saying that now that the housing crisis is in the rearview that they're going to be revising FHA to make it more appealing again. (Which I thought included a way back out of PMI...)

That not happen yet or I misunderstand it? (Was assuming it was going to be worth considering come the Fall when we're purchasing [always rented or been gifted houses previously so I'm pretty sure I qualify])

Vaclav_sl said:

I thought I'd seen something saying that now that the housing crisis is in the rearview that they're going to be revising FHA to make it more appealing again. (Which I thought included a way back out of PMI...)

That not happen yet or I misunderstand it? (Was assuming it was going to be worth considering come the Fall when we're purchasing [always rented or been gifted houses previously so I'm pretty sure I qualify])

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They did, they lowered the yearly rate from 1.35 to .85 for < 5% DPs, 1.3 to .8 for 5%<DP<20%. It's still a flat .85%/yr fee for the 3.5% DP mortgages though. Interest rates for FHA are still slightly lower. With top tier credit, conventional is just better long term. Even short term, with the right credit. The lender I had qualified me for 1.05 MIP, 3% down or .53 with 5%+ down. FHA can be better monthly payment wise depending how rates shake out, but while @ 80% you can ditch your MIP, FHA will be paying that PMI for the life of the loan. If you have no other options, it's still better than dumping money into a lease. Also, no idea how that might be different if you are on the ragged edge of conventional loan credit scores vs FHA.

So weird - figured the improvements would include the disgusting PMI crap. Ah well, better to learn now than in the Fall.

When my wife and I bought our house, we paid the PMI upfront since we were only putting 5% down

Arative_sl said:

When my wife and I bought our house, we paid the PMI upfront since we were only putting 5% down

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What do you mean you paid it up front? Was there a benefit to doing that? Why not use that to lower your principle to get you closer to eliminating your PMI altogether and lower your interest payments (as a whole over the life of the loan) as well?

Khane_sl said:

What do you mean you paid it up front? Was there a benefit to doing that? Why not use that to lower your principle to get you closer to eliminating your PMI altogether and lower your interest payments (as a whole over the life of the loan) as well?

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It's a timing thing. The way I've seen it quoted it basically makes sense in cases where you are putting > 5% down but < 20% AND youcannothit 80% equity within ~3 years AND you have the extra cash up front.

So, I suppose at larger house values and DTI it can be a better option to go 5% + PMI vs. say 6.5% if your income won't change, you don't plan on paying down the principal faster and you've saved up the extra cash. The thing is, it's also going to depend on tax bracket, too, because to a degree, taking lender paid with higher interest rate may net out a lot cheaper in your circumstance if you are getting 30%+ back off the top in deductions.

I'm having a hard time imagining how paying a flat, static amount that is built into your loan (PMI never changes unless you refi correct?) could ever be better than reducing your loan amount, thus reducing interest paid (because of amortization).

It seems, on the surface at least, like a scam to make sure you don't use your extra money to save yourself money in the long run.

Khane_sl said:

I'm having a hard time imagining how paying a flat, static amount that is built into your loan (PMI never changes unless you refi correct?) could ever be better than reducing your loan amount, thus reducing interest paid (because of amortization).

It seems, on the surface at least, like a scam to make sure you don't use your extra money to save yourself money in the long run.

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No, it's up front so it wouldn't be subject to interest. It's basically, you are pre-paying your entire premium for X% to 80% LTV so saving a bit overall. So you might pay 2% upfront instead of .65% yearly. Again, though, it seems beneficial to specific cases more than just a 'good idea' because A) savings might be negative or almost a wash and B) if you are buying a house with < 20% down you probably don't have a ton of liquid assets anyway so it's harder to justify putting it towards prepaying insurance even if it does net you a few hundred over whatever opportunity cost using that money towards something else would be.

Hrmmm....

I can swear my PMI payment was a flat rate that never changed until it was gone when I hit 80% LTV. Whether I paid that up front or paid it at regular installments the end amount paid would be the same. You're saying PMI "balance" contributes to your interest payment? That's not how I remember my PMI, did they change that? That doesn't make sense, it's insurance, it's a monthly premium not a loan re-payment. How can it be considered part of the principle and thus contribute to interest payments? If that's true then doubly fuck PMI.

Been putting in offers left and right in the bay area around 40-50k over asking and still not winning shit. Also seems like no wants to take a VA loan.

I would love to avoid PMI, it's definitely a jimmies rustler. Typically with any other purchase in my life, I would just wait and buy later. That being said, everyone one I've talked too and research estimates that the interest rate is going to go up. I could likely come up with a 20% down payment in 1 years time. However by then how much as the rate gone up? Half a point etc might end up costing more than the PMI all together anyways.

So really it comes down to securing a house now at a lower rate. Then seeing in a year if it's worth it to refinance out to lose the PMI.

Here are the three scenarios I see playing out.
1. Save another 40k. See where the interest rate is in 1 year. I could possibly save money this way.
2. Lock in the interest rate now, start building equity, and have PMI locked in. Refinance if it will save more than the PMI. I save money this way.
3. Lock in the interest rate now, lock in the PMI and interest rates go higher than the price of PMI. I save money this way.

All this is on the premise that I'm already paying $1400 a month in rent , with no lease. If I was to move to cheaper rent, I'd be locked into another year lease most likely. So seemingly I'm losing more equity if I was to wait another year to buy also. In my area also, it appears that house prices are steadily climbing. The last family members to buy a house was last year and they were in losing offers where they were bidding more than asking price. They obviously found one bidding enough over asking price.

I've been seeing houses listed on zillow at a lower price then 2 months later coming back adding on 20k etc.

Refinancing is rarely worth it unless you're getting a significant rate decrease or lower your term with a modest rate decrease.

Looks like a half point increase and you would save about 17k if you wait a year. A full point increase and you'd be down 10k vs the higher PMI option. Looks like you're right and don't really lose much and don't have to take the risks you outlined by buying now.

Have you considered a 15yr term mortgage? With the numbers above a 15yr would only cost you about 600 more a month which it sounds like you could swing and you could probably lock in a better rate on top of saving yourself over 100k in interest.

Corndog_sl said:

I would love to avoid PMI, it's definitely a jimmies rustler. Typically with any other purchase in my life, I would just wait and buy later. That being said, everyone one I've talked too and research estimates that the interest rate is going to go up. I could likely come up with a 20% down payment in 1 years time. However by then how much as the rate gone up? Half a point etc might end up costing more than the PMI all together anyways.

So really it comes down to securing a house now at a lower rate. Then seeing in a year if it's worth it to refinance out to lose the PMI.

Here are the three scenarios I see playing out.
1. Save another 40k. See where the interest rate is in 1 year. I could possibly save money this way.
2. Lock in the interest rate now, start building equity, and have PMI locked in. Refinance if it will save more than the PMI. I save money this way.
3. Lock in the interest rate now, lock in the PMI and interest rates go higher than the price of PMI. I save money this way.

All this is on the premise that I'm already paying $1400 a month in rent , with no lease. If I was to move to cheaper rent, I'd be locked into another year lease most likely. So seemingly I'm losing more equity if I was to wait another year to buy also. In my area also, it appears that house prices are steadily climbing. The last family members to buy a house was last year and they were in losing offers where they were bidding more than asking price. They obviously found one bidding enough over asking price.

I've been seeing houses listed on zillow at a lower price then 2 months later coming back adding on 20k etc.

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If you haven't settled on a house yet then you probably won't be buying one for 6 months to a year from now anyway. Some will rush into buying a home but I am assuming if you are only just about to start touring homes that you won't let Realtors rush you. Also Khane is right. If you can afford 15 year then go 15 year. It may be worth waiting just to save money to go for a 15 year mortgage. I refinanced a year and a half ago into a 15 year and never have I been happier.

Thats a good point about, maybe not purchasing for another 6+ months anyways, as yes we are just going to start touring like this week. I have considered the 15 yr option as well. I tend to be ultra conservative. I'm afraid of say my wife losing her job and having a problem paying the mortgage etc.

Assuming I have a mortgage that I can pay early on the principle. What is the difference between, a 15 yr and 30 year, if I make the same payment? Lets say I put down 2k a month on the 15 yr loan, or even if I have the 30 yr loan I put down the 2k? This is assuming I'm smart enough to do that and not just a statistic that pays the bare minimum. But so far in life, we have 0 debt, own 3 cars outright, credit cards are all paid off monthly etc. I don't see why we wouldn't continue this trend. My plan is to just auto pay 1k every 2 weeks towards the mortgage, this will result in a couple extra payments a year, and be paying extra each month on the mortgage. This will also let the emergency fund build back up and should allow renovations etc.

Corndog_sl said:

Assuming I have a mortgage that I can pay early on the principle. What is the difference between, a 15 yr and 30 year, if I make the same payment? Lets say I put down 2k a month on the 15 yr loan, or even if I have the 30 yr loan I put down the 2k? This is assuming I'm smart enough to do that and not just a statistic that pays the bare minimum. But so far in life, we have 0 debt, own 3 cars outright, credit cards are all paid off monthly etc. I don't see why we wouldn't continue this trend. My plan is to just auto pay 1k every 2 weeks towards the mortgage, this will result in a couple extra payments a year, and be paying extra each month on the mortgage. This will also let the emergency fund build back up and should allow renovations etc.

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I just got done doing a refi (dropped from 5.35% to 3.875%) and I could have afforded the 15 year but opted for the 30 year while putting extra towards principle. I don't remember the exact numbers but the 30yr will end up costing me a bit more even with the additional principal payments but I wanted the flexibility in cash-flow. I've got a couple of things coming up in my life (possibly relocating my business location plus wife could end up on strike) where it will be nice to have that lower house payment if need be.

What am I looking for in a Realtor? Seems like the minute anyone hears I'm house shopping they have "the best Realtor" that I have to use. From what I can tell, basically the Realtor is going to pull the MLS listing sheets I want, then show me the houses, then submit the offers I want to put in. I suppose they can help guide what is the right price etc. But I feel like, it would be a mistake to ask someone else what the right price is vs doing the research myself on one of the largest purchases in my lifetime.

It seems like I can look at selling history in the area, look at the neighborhood etc and determine if I want to live there and guess how the resale value will be just like they can. I'm a very nomadic shopper, someone offering input when not asked drives me insane. I don't need someone to say, oh look at this nice granite counter tops, they were done to help sell the house. All that tells me is, oh good, I'm paying the mark up on someone elses granite they've chosen.

So with that being said, so far the only thing I can see me swaying me to one realtor over another is the one by my bank, gives cash back supposedly. Like $1500 on the close, is this a standard practice, could I find someone giving back more etc?

I feel like hiring a house inspector, bringing in my uncle who is a plumber and has done all the plumbing for my family/business, my contractor who built my business, and my electrician in before I submit an offer will be much more valuable than any Realtor can ever give me in terms of value.

Corndog_sl said:

Thats a good point about, maybe not purchasing for another 6+ months anyways, as yes we are just going to start touring like this week. I have considered the 15 yr option as well. I tend to be ultra conservative. I'm afraid of say my wife losing her job and having a problem paying the mortgage etc.

Assuming I have a mortgage that I can pay early on the principle. What is the difference between, a 15 yr and 30 year, if I make the same payment? Lets say I put down 2k a month on the 15 yr loan, or even if I have the 30 yr loan I put down the 2k? This is assuming I'm smart enough to do that and not just a statistic that pays the bare minimum. But so far in life, we have 0 debt, own 3 cars outright, credit cards are all paid off monthly etc. I don't see why we wouldn't continue this trend. My plan is to just auto pay 1k every 2 weeks towards the mortgage, this will result in a couple extra payments a year, and be paying extra each month on the mortgage. This will also let the emergency fund build back up and should allow renovations etc.

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The biggest difference is you'll get a better rate on a 15 yr. Otherwise if you make equal payments the term and interest paid would come out the same (if the 30yr had the same rate as the 15yr).