How do I go about getting a home loan?

Factual Questions
1

I want to buy a house. How do I go about getting a loan? Do I just go to my bank and ask for one? What about Ditech? Let’s say I get pre-approved for a loan. Can I use that pre-approval to buy any house? (i.e., do I have to have located a house that I want to buy? Or can I get a piece of paper that says, “You may spend this much on a house,” and go looking from there? How big of a downpayment should I put down? Is there a maximum percentage I should put down? I’ve heard I shouldn’t pay cash, for tax purposes. True?

I want to buy a house before I quit my job because I think it would be easier to get a loan with nine years with the same employer and a good income. When I move, I don’t know how long it will take to find work. Is there a problem getting a loan or a decent rate if I don’t plan on moving for several months? (i.e., would they consider it a “non-resident” loan or a commercial loan (they might think I’m buying to rent it out) and charge me a higher rate or not loan me money at all?)

2

OK, the wife and I are just about right where you are in the home-buying process it seems, so let’s see if I can’t take out some of these questions.

First, shopping for a mortgage is a lot like shopping for the house itself. There are all kinds of different ones, and different lenders will have different programs for which you may or may not qualify. We’ve considered going to LendingTree.com and Ditech.com, but haven’t done so yet. Another way to go is to talk to a mortgage broker, which is someone a lot like a real estate broker–they assess your needs and financial condition and so forth and find programs that will work for you.

I’m pretty sure that once you get pre-approved for a loan, then you can buy “any” house, at least in the sense that you don’t have to get pre-approved for a loan on a specific house. Of course, the lender will want an inspection, title search, etc. done on any house you propose to buy, but getting pre-approved for a house for X value is usually the first step.

The down payment issue: this is complicated. First, depending on many factors (your credit, your income, the value of house you wanna buy, maybe other things), it may be the case that no lender is willing to loan you 100% of the value of the house. Also, if the home value is over a certain amount, you may be able to borrow 100% of the value, but you’d have to do so with more than one loan (and I believe the second one will generally be at a slightly higher interest rate). Also, if you don’t put 20% down, you will generally have to pay PMI, which is insurance for the lender in case you stop paying the mortgage.

Once you figure out how little you CAN put down, you then have to figure out how much you want to put down, which involves a realistic assessment of your other investment opportunities and some quality time spent over a calculator.

The reason that many people don’t want to pay cash for tax purposes is that interest on a home loan and real property taxes (but NOT payments for principal or PMI) are tax deductible, so in effect the government subsidizes these payments. Again, the decision whether to pay cash or not involves the same stuff discussed above (which maybe we can talk about later if you don’t know what I mean here).

That’s all I can help with.

3

If I remember correctly, you’ll be wanting to buy in another state, is that correct? I know some lenders restrict where they’ll let their money be used. For example, our credit union in FL would not finance the home we bought in Virginia. But our credit union in Virginia did lend us money to buy property in Maryland - their requirement was that the property be within 100 miles of the credit union.

Just something to consider when selecting a lender. Good luck to ya!

4

“Pre-approved” is useful for convincing potential sellers that your offer is real and it slightly speeds up the process of getting the mortgage. But the company will still do the usual checks to make sure that the house you eventually buy satisfies all their criteria. At the closing, they’ll usually check to make sure your income hasn’t changed.

Note that if you haven’t gone through this before, you may be somewhat stunned by the number of various fees that get tacked on and the amount of outgoing capital (at the closing, you usually have to show a receipt for the first year’s insurance, pay the first month’s mortgage and escrow and pay all sort of title insurance and bogus conveyance fees.)

Finally, let me just point out that a large mortgage is a damned scary thing to have if you’re expecting your income to drop dramatically for some unknown period of time.

5

Before applying for E-Z online mortgages go to a mortgage or banking message board to see how customer service is.

One thing to keep an eye on is how much your monthly payment will be. When you get the 30 year payment schedule it usually just includes the basic mortgage. One thing that happens is the lender will pay your local taxes and insurance out of money that’s added on to your basic mortgage (an escrow account). That’s actually good, because you don’t have to worry about that stuff, but it will up your payment. If your basic mortgage is, say $750 a month according to the payment schedule, your actual payment could be a few hundred dollars more. Something to consider if you’re anticipating tough times.

Another thing to be aware of is the appraisal. The appraiser determines how much the lender can sell the house for if you default, and the lender will base the mortgage on that determination. A trouble spot could be if the house is going for $150,000 but the appraisal comes in at $135,000. The bank will only lend you $135,000 so you’ll have to make up the other $15,000 somehow.

If you’re moving from an apartment to a house, chances are you’re going to want to ditch your apartment furniture and get new furniture for your house. Either that or you’ll use some of the apartment furniture but you’ll still have a relatively empty house. Either way, you’re going to be spending a boatload of money furnishing your house, so you should keep that under consideration.

6

All the other advice is good. Shop around for the best rates and make sure that the lender makes loans in the state where you are seeking to purchase the house.

Make sure the price of the house you want is not out of bounds with the price comparable properties are going for in the area. If the property is very unusual (in some way) and/or priced over the market (for whatever reason) it might be more diffcult to get funding.

Make sure you know what all the mortgage fees will be be. If there are points sometimes you can whittle the contract price down by specifying that the seller will pay some of all of the points. This is most often seen in first time home buyer purchases where the buyers don’t have a lot of ready cash, but it does not hurt to try.

I’m in commercial RE and I don’t know the rules and regs for the state you will be buying in, but as a general recommendation I might encourage you to consider getting an experienced “buyers representative” real estate agent. It will normally not cost you anymore as the agents will arrange for the selling commission to be split, but you will have someone representing your interests.

7

Johnny LA,

I just purchased a home in the past 2 years.

It isn’t all that hard but ** you must be careful! **

Do your research. Know what is a fair interest rate which is easy to find on the web. Make sure your origination fee is fair (1% when I last looked) and that other fees or fair. The web is your best friend.

Be careful as there are many sharks out there who will try to ding you with a higher interest and/or fees and/or points.

A good/non-shark mortgage broker will appreciate you being armed with your research knowledge. The reason being that you will recognize a fee as fair. To a good/nonshark mortgage broker, nothing is more annoying than people attacking ‘fair’ fees/interest rate.

To a shark, your knowledge will spark irritation and resistance. A good broker will be thankful you know something.

Once you have a broker, you get (I forget the name), but a maximum dollar amount they will loan you. It will usually be FAR higher than you would like to spend or should spend so be conservative. I personally favor 2-2.5x your gross income as long as income is stable. I also strongly recommend you have saved a 20% downpayment.

I get into many arguments about the 20% downpayment but it allows you to have a stronger hand and avoid PMI which is a huge waste of your $$$. People argue against this but my point is that if you can’t afford to have saved the 20% then you can’t afford the house…

Same goes for credit history. If your credit score is not good, you shouldn’t buy a house. Clean it up and save and come back to house buying later, IMO.

If you have specific questions, I’ll be happy to answer them

8

That’s a little discouraging. The only thing 100 miles from L.A. is more California! But I do have a Washington Mutual account, and they are obviously based in Washington.

That’s why I’m not looking for a $200,000 or $300,000 house. I only have about $90,000 in the bank, and I want to have money to live on instead of spending it all on a downpayment.

My apartment is rather spartan. I have a table, a bed, a dresser, and a director’s chair. The TV is on the floor, since I don’t want another piece of furniture that would have to be transported. When I get a house I’ll get a couch and some bookshelves.

I hadn’t thought of that. If I’m looking for a $100,000 house, then what would I be financing in addition to the mortgage? Another $10,000? Would I be better off paying the additional money myself, then?

9

If I understand your situation correctly, you want to buy a home in a location other than where you currently live and work. This could be a problem. When my company transferred me and I bought a home, one piece of documentation I had to provide was proof that I have employment in the state I was moving to, even though I wasn’t changing companies. The way it worked out I actually “moved” before the house was finished so the proof I provided was a pay stub with new work address on it.

Just because you are pre-approved or even conditionally approved for a mortgage does not mean you will not get asked to provide similar proof, and if you are not up-front with your lender about your intentions then you could get a nasty surprise when at the last minute you are disqualified for that lovely house of your dreams that you had a contract on and were all set to move into.

There are other requirements for buying commericial property - although it may not stop the loan they could find you in default if you actually didn’t try to lease the house (and they may want a lease signed before they lend you the money, that probably depends on your commerical credit history I’m not sure).

In the current economy, I doubt many lenders will lend you money if you don’t know when you’ll find a job, unless you come with a lot of cash.

It may not be ideal for your situation, but what you really need to do is line up a job before you sign a contract on a house. I’d go ahead and seek pre-approval and explain the situation to your loan officer, start looking at houses and explain the situation to your realtor. They will work with you in this circumstance but if you try to deceive anyone you could get yourself into a real mess.

10

Another thing you have to think about.

Insurance companies don’t like it when people leave their houses vacant. A vacant house is much more likely to be broken into and thrashed than an occupied home. They will want you to move in right away.

Also, heres a link to a good site concerning mortgage rates and home buying

http://www.bankrate.com/brm/default.asp

11

Have you investigated house prices where you want to live? 'Cause when I bought my house, 200K was my upper, you-have-to-be-kidding limit. Unfortunately, every house I saw at or below that price didn’t merit even getting out of the car. Moral of the story – you’ll almost always spend more on a house than you were intending. And Washington state isn’t necessarily a cheap place to live.

12

Which is why I’m looking for a house under $100,000 – so I can just pay cash if I have to.

Except companies in Washington won’t hire you unless you live in Washington. I saw one position that said “Strong preference for Seattle residents.” (IOW: Out-of-staters need not apply.)

Yes. A friend of mine bought a house in Birch Bay on 1/4 acre for $60,000. It was built in 1934, so it’s not the brand new home people dream about. (Actually, brand new homes are boring.) Another guy I know bought a 3,400 sq. ft. home on a 1/2 acre corner lot in Bellingham for $175,000 two years ago. I’ve also seen houses up there for a million. Basically, if I want a house cheap it will be older and probably need some repairs.

Try living in L.A.! In Birch Bay gas was $1.219/gallon last week. In L.A. it was $1.659/gallon. Rent and mortgages are cheaper. Distances are less. (I currently have to commute 43 miles each way to work.

13

Oh – I’ve e-mailed a loan officer at WAMU (where I keep most of my money) in Bellingham. I hope to hear from him by Monday.

Hermann: Checking the link now. Thanks.

14

You just might be putting the cart in front of the horse. Why don’t you rent, while you are getting established, and then go out and buy a home? How would you know long your commute will be if you buy the house first? How do you know just how large a mortgage you can handle? :confused:

15

Just to throw this out as a possibility, in case you run into trouble financing the purchase. You might find it easier to pay cash for the house, if you’re able, and then take out a mortgage on it after you’ve closed on the purchase. I don’t know for sure, but it just seems that it’s easier to borrow money against something you already own than it is to borrow money to buy something.

Also, I would be concerned that applying for a mortgage when you know you intend to quit your job could be considered fraud if you didn’t disclose that the the lender. Again, I’m not sure about this, just a thought.

Something else you might want to think about… see if you can find a house you can rent or lease with an option to buy. Move in and live off the cash until you get a job and get situated, then exercise the option to buy. You should be able to get the landlord/seller to give you at least some credit towards the purchase price for the rent you pay, so you’re not losing out on all of the money you’re paying in rent. Then, if things don’t work out, you only have a lease to worry about instead of defaulting on a mortgage, being stuck in a house that is too far away from your job, or just plain deciding you don’t like the house after all.

One thing about the length of time on your job. As long as you stay in the same line of work, changing employers may not make a difference. I changed employers three months before buying my house. The mortgage broker was only concerned with why and whether it was the same type of position. Ask the WAMU loan officer or whoever you end up talking to.