Additional Costs to your mortgage payment

Lately things have been quiet on the home searching front.  We initially got a quote from 5th Third Bank for a mortgage loan and were qualified at $103,000.  Essentially that means that our mortgage payment each month would be around $700.  But that was just the mortgage payment and didn't include the monthly mortgage insurance payment we would have to make, or the taxes that we have to pay into an escrow account so that when property taxes are due we can pay those.  

When we added the rest of that stuff up... and don't forget interest because you have borrowed this money... it was closer to $1100 a month.  Now this we cannot afford.  Unfortunately we are dealing with banks that don't take in to consideration all the other bills that a homeowner has to pay when they are approving loans.  I guess they figure you can live with out electricity and cable TV and internet.  All they care about is how much they can get you approved for because then the bank makes more money.  

Isn't this the same reason that people are in such dire straits and houses are being foreclosed on?  I wish that mortgage loan officers would act more like advisors and consider all the other payments you have to make when you are a homeowner.  They say they are on your side but really they don't take into consideration some of payments that we make every month.  The way they side step this issue is tell you it is not mandatory to borrow the full amount you are qualified for.

So now this is where we are at.  We thought that we could afford a home that costs $100,000.  Now we are looking at homes that are between $70,000 and $80,000.  The TOTAL monthly mortgage payment for these homes is closer to $800 (what we could afford).  Most of these homes are nice but need to be updated.  Which means that even if we do find a home for this amount we will probably want to borrow the remainder (up to $100,000) for updating.  Pretty frustrating.

Oh well, we are in no rush, maybe prices will drop again, maybe we will find a diamond in the rough.

Couldn't wait to post

Well I couldn't wait to post again until tomorrow so I will let you know what we have already done on our way to our first home.

First we went to the bank and asked them who we needed to speak to in order to get a home loan.  Banks have special workers called "loan originators" who deal with helping people find the right loan for them.  I guess you could say these people sell money.  

Our loan guy met with us and asked to see our W2 forms from last year and our last two paychecks from our current jobs.  He also had us fill out our employment information and wanted to know if we owed any money on other loans like those for college or cars, which we do.  After we got him all of that info he said he would be checking our credit scores and then sending us a letter with our pre-approval amount.

Last week we got our pre-approval notice in the mail for about $100,000.  So that means according to the bank and their system they will consider lending us $100,000 to buy a home.  Now, there are two ways the bank can loan us this money.

Disclaimer - I am not a professional loan originator.  Please do not take my word for it, go to your bank!

1.  The FHA loan 

F stands for "First Time" and H stands for "Home."  I don't know what A stands for, maybe "Association."  Either way, this is one of our options.  By going under the FHA plan we have to pay 3.5% of the total loan amount up front.  So before we even get the $100,000 we have to pay $3,500.  This seems like a lot but is actually the cheapest down payment option for us.  Plus there is a tax credit of $8,000 that you get the year after you buy your first home (with which I can only dream of the party possibilities).  Of the $8,000 we have to pay $0 back to the government... sweet.

Another perk of going the FHA loan way is that there is something called the 203K.  This states that if we find a home for less than the amount we actually borrow we can use the excess money to fix up the house on the inside.  We must use at least $5,000 and at the most $35,000.  The bank must approve the contractors that are doing the work.  The work must be started within 1 week of the approval and must last no longer than 6 months.  Even with these restrictions this sounds like an awesome deal.

In this market it seems as though sellers would be very motivated (my own assumption and according to our loan guy a correct one).  It is for this reason that under the FHA loan the sellers of any house are allowed to contribute up to 6% of the house to the buyers.  In most cases this is used to cover the closing costs or maybe repairs made to the house before the sale.  Again, I don't know the full possibilities of using this contribution.  That is something you would want to talk with your loan guy about.

One downside to the FHA loan is mortgage insurance.  This is insurance that you pay so that in case you default on your loan the mortgage company can still make money... I guess.  Anyway, I do know it increases your monthly mortgage payment.  And there is also an upfront mortgage insurance payment that increases the costs of closing on your house/loan.

That's a lot of info.  I think I'll wait to discuss the Conventional Loan option.  

Follow my home buying experience

I am 27, I am getting married, I don't make a ton of money, and I am buying a home this year... probably.

Come with me on my journey to purchase a home in the Metro Detroit area in the midst of one of the greatest depressions our country has ever seen.  With this blog I will document every step, provide info on all the mistakes that I make.  Let you inside the world of a regular person who is buying a home.

I am not an investor.  I do not know anything about the real estate market.  I don't want to "flip" my home.  I am just a regular dude who is sick of throwing money away by renting.  And I am getting married and my bride really wants a house.

Here are my goals for this process.

1.  Find an affordable house

2. Get the house for less than the sellers are asking for it.

3. Get a house in the location that I want.

4. Have at least 2 bedrooms and 1.5 bathrooms in the house.

5. Not go broke during the process.

That's it.  So if you are interested in what it takes to buy a home start following me!

More tomorrow after the home tours.