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.

Some helpful articles/Home update

I recently read these posts at the Metro Detroit Homes blog.  The topics include:

New information on the first time home buyer tax credit, now at $8,000 and you don't have to pay it back!

New information that first time home buyers should know like how to pick a realtor and what kinds of questions you should ask them.

We are working with a realtor that was suggested to us by a friend.  She lives in the area where we are looking and has been able to point out important things about houses that we didn't even think of like the roof, ceilings, windows and furnace.  Just make sure you are comfortable with your realtor.

Home Update

We are headed out again this Friday with our realtor to check out the dream house and some others that she has found.  

We also went to another bank to get a second opinion on interest rates and possible closing costs.  I found that different banks name their fees different names and so it has been hard to compare the two estimates we have got.  But basically we are looking at at least $4,000 up front.  Which means we have got to start saving NOW!

Found the Home

According to my fiance we have found the home we are looking for.  

#1 It is close to downtown Berkley one of the three areas we were looking at.

#2 It has 3 bedrooms including a master suite upstairs.  With the housing market in the shape that it is in we wanted whatever house we were going to buy to last us for a while.  With 3 bedrooms we will be able to have children and still have enough room.

#3 It has more than one bathroom, and the other bathroom is not tucked away in the corner of the basement.  A lot of the houses that we looked at before claim they have 1.5 bathrooms, and they do, but the second bathroom was located in a corner of the house that would be rather inconvenient to visit in a hurry.  This house has 1.5 bathrooms, one on the main floor and a toilet and sink attached to the upstairs master suite.

#4 It has a garage.  Although it is a 1.5 car garage I am used to parking my car outside year round anyway.  Plus my fiance's car is not doing so hot so we would definitely want to park it indoors in the winter.

#5 Although the outside of the house could use some updating, the inside has been completely redone with hard wood floors and new paint and windows (important on those cold Michigan nights).

#6 Low property taxes!  The taxes on this house are low right now.  Who knows what they will do as the years go on but Ferndale taxes were killing us!

Bonus:  There is a custom built wine cellar in the basement.  So now we have people over for dinner I can say, "I'll be right back with some wine from the cellar."

I have not had a chance to look at the house myself but my fiance went with our realtor to check it out the other day.  We are still not sure we will be able to afford it, $109,900.  But the good news is that it is bank owned and they are trying to sell it on a short sale.  This is the same house I talked about in one of my previous posts.

Market Analysis in Berkley and Ferndale areas

I found these two links very helpful.  Good information and laid out in an easy to understand format.  Stuff like Average price of sold homes and number of houses sold.  They also compare stats from the first two months this year and last year.

Market Analysis of Ferndale Housing February 2009

and 

Market Analysis of Berkley Housing February 2009

Crazy statistic --- The average price that homes sold for in February 2009 in Berkley is about double that of the price in Ferndale!

Second Opinion

We found out yesterday that there is going to be a pay freeze at my fiance's work and possibly a fee to keep health insurance.  So now we are rethinking the purchase of a new home.  That would stink for this blog but that is real life right now.  

Getting a Second Opinion

We are going to shop around a little more for home loans.  The one we can get from Fifth Third is good but we are interested to see what another bank, Flagstar, has to offer.  Plus this bank works with our realtor and comes recommended by her.

New Home to Look At

Plus, our realtor emailed us the other day about a new home that is a short sale located in Berkley.  Apparently the prices of homes in Berkley are higher but the taxes are lower.  The house that she sent us was originally for sale at $129,900 and is now priced at $109,900.  According to our Fifth Third loan this would still be out of our price range but I wonder if we could negotiate down to $90,000 or so?  In talking with a few people that have bought houses in the past, you should never pay the asking price.

What is a Short Sale?

A short sale is when someone can no longer afford to pay the mortgage on their house and the bank takes it back from them.  Then the bank tries to sell the house for less than it is really worth in order to recoup as much of the loan as they can.  So the house is being sold by the bank.

I wonder how much the bank is willing to drop the price?  If it stays on the market long enough they might be anxious to sell it.  

The Conventional Mortgage

This is what I found out about the conventional mortgage.

There is a higher down payment when you use a conventional mortgage.  The FHA requires a minimum 3.5%.  The conventional mortgage usually requires 10% but our banker told us we could put down 5%.  This means more money up front for your loan but it also means you will end up paying less interest.  It also means that your mortgage insurance premiums go down, which could mean a lower monthly payment.

I think he also told us that with a conventional mortgage the interest rates also go down.  I think this might be because you have to pay a higher down payment and it could mean a lower monthly payment.

With the conventional mortgage the allowed seller contribution percentage decreases.  Using the FHA the seller can contribute up to 6% of the total cost of the house.  With the conventional mortgage the seller may only contribute 3%.  I don't know why this is but it means that there may be less money coming from the sellers to cover closing costs.

The big reason we want to go with FHA instead of the conventional loan is that there is no first time home buyer tax credit.  Those that go the FHA loan route will receive an $8,000 tax credit paid to the home buyer a year after the purchase of their first home.  This tax credit goes directly to the buyer and does not require them to pay it back.

Also, the 203k option does not exist with a conventional loan.  The 203k allows first time home buyers (FHA only) to use at least $5,000 and at most $35,000 towards repairs and updates of the home.

We saw some homes

As I promised I am back talking about how the house hunt on Friday went.  

Overall I think it went well.  We saw 10 houses from $90,000 down to $40,000 and were excited about 3.  The total time we spent was probably 3 hours, but it felt like less than that.  Our realtor was able to point out a few things that we didn't really think of and we both learned a lot about looking for a home.

No Diamonds in the Rough

First, if you are looking for a house in the $40,000 range in Royal Oak, Ferndale or Berkley good luck.  The houses that we looked at for that price were old rental units, sometimes split into a two-family home.  They had not been taken care of very well and had obvious structural shortcomings.  One of the homes had a hardwood floor in the kitchen that was so slanted that when my fiance put her chapstick on the ground it rolled all the way to the wall.  There were cracks in the walls of these houses and they needed a lot of work done inside and out.  We would love to spend this much on a home that needs minor repairs and we are not going to give up on finding one for this price but it has proved as tough as I thought it would be.

Mid-Majors (in honor of the tournament)

Next, we looked at a few homes in the $70,000 price range.  These houses needed some inside and outside repairs but nothing major.  This was also the price range that the 3 houses we liked were in.  

The first house that we liked was located on Maplehurst in Ferndale.  This is just north of the Woodward Ave. and 9 mile intersection, which is the heart of downtown Ferndale.  The house is not impressive from the outside.  We had actually driven by this house before and dismissed it based on the front.  But on the inside it was a totally different story.  The house had been completely redone... from the floors to the counters to an added on living room and new paint the house was great on the inside.  We were also excited about the back yard.  It stretched pretty far back giving us room to do gardening or put in a pool later down the road.  Plus it had a two garage, something we are looking for now but hadn't thought of before this trip out.

There was one draw back.  The bedrooms.  Now we don't think we need a huge master suite for a bedroom but this house was seriously lacking in the bedroom space.  There were two TINY rooms that would barely fit the bed we have now (a queen size).  And we are thinking of upgrading to a king size, but not in this house.

The second house that we liked was located in a similar area in Ferndale on Beaufield.  We call it the Granny because of the decorations inside and the 1950's bright pink gas stove that greeted us as we walked in the side door.  This house was again not very impressive on the outside but on the inside the house boasted large living rooms and bedrooms, including a Florida room, which is a separate room attached to the house by a sliding door through one of the other rooms.  The two rooms could be used as one bedroom together or a bedroom connected to an office.  Also, the house had an upstairs bedroom.

The best part of Granny's house was the basement.  Finished basement with a wet bar... enough said.  I told my fiance that one requirement I had was guy's room where my friends and I could go and be guys and do guy things without disturbing my future wife and her nice house.  My fiance would of course be welcome in the guy's room, but the decorating is up to me.

One drawback to this house was the kitchen.  It was outdated and also very small.  We would have to do new cabinets and counters and also install a dishwasher.

The third house we liked was closer to downtown Ferndale.  Located on Leroy St. it was a mere 50 yards to downtown.  It looked great on the outside but was small inside.  The bedrooms were small and did not have much closet space (also something to look out for).  Apparently most of the older homes in the Ferndale area don't have closet space for the average person.  I don't know why this is but maybe people back then put their clothes in drawers and not closets... who knows?  This house also featured a wacky upstairs.  No rooms but a huge open room that took up the entire top floor.  The only problem was that the ceiling was A shaped and I wasn't able to stand up straight even in the middle of the room.  Most likely this would be a good storage space for all our junk.

Over priced and unimpressive

The last category of houses we looked at were in the $90,000 price range and had mostly been redone on the inside and did not require any outside work or were on the high end of square footage.  So we thought that these would be the ones that we would be drooling over.  But we were not impressed.  Yes, there was evidence of updates inside the houses and yes they looked good on the outside but not for the price tag.  In one home in particular they had redone the kitchen and the bathroom, but the other rooms did not match the updates and the juxtaposition was unattractive.  Plus with the high price tag we would not have any extra money we are planning on using to update the way we want.  Our realtor warned us that sometimes houses like these are bought by realtors or investors in order to update and then sell quickly for a profit.  This process is called "flipping" and may not be the best option for a first time home buyer.  Since only two rooms in this house were updated it is possible that whoever was flipping this house ran out of money before being able to get to the other rooms.

Lessons learned

We learned a lot on Friday and I wanted to sum it up in this last section.

1.  Look at the inside of the house... even if you don't like the outside.  

2. Consider closet space and cupboard space.  We hadn't before.

3. Look in the basement.  Check the furnace and when it was made.  Make sure you check for water or puddles in the basement.  Also check for possible guy rooms and wet bars!

4. Check the bathrooms - Many of the houses we looked at said they had 1.5 bathrooms, but the second toilet was in the corner of the basement totally out of the way.

5. Look at the ceilings.  Check for water stains, leaks or cracks, don't just look at the size of the rooms

6. Take a realtor with you.  They can point out things that you might be overlooking.