Preparing to buy a house

[Lauren8211]

FF and I decided last night that we''d really like to buy a house soon. I am still in school until May, and then have to try and find a job in MICHIGAN of all places in this horrible recession.

We realize that it will probably be at least 1 year, if not 2, before we can make the purchase.

I was just wondering what you can do in the mean time to prepare for this? We''ve decided to start trying to budget and save more money obviously, but is there anything else I should/should not do in the next couple of years to prepare?

This would be a first home purchase for both of us.

 

[KimberlyH]

Check your credit scores and do everything in your power to raise them, pay down debt, eliminate unecessary spending, save, save, save, for a down payment and so you have money in the bank to cover your mortgage and other expenses in case something happens to either of your jobs in the future (somewhere between 3-6 months worth of living expenses in the bank would be a good target).

Good luck!

 

[neatfreak]

Date: 12/8/2008 9:06:58 AM
Author: KimberlyH
Check your credit scores and do everything in your power to raise them, pay down debt, eliminate unecessary spending, save, save, save, for a down payment and so you have money in the bank to cover your mortgage and other expenses in case something happens to either of your jobs in the future (somewhere between 3-6 months worth of living expenses in the bank would be a good target).


Good luck!

Well said. Also, make sure to address any discrepancies in your credit scores sooner rather than later, it can take awhile if there are mistakes.

Also look into first time homebuyer programs in your area, some will give you a % off your loan or other good deals if you take a day long class.

 

[starryeyed]

Hi elledizzy.

Buying your first home is really something to look forward to!

Things are changing pretty dramatically in the first-time home buyer''s mortgage market. You may want to stop into a few banks/mortgage offices to find out what the latest requirements are. Get a feel for the kind of down payment you will need. Know your credit score and understand how to improve it or keep it high.

Of course understand the market and what you want. You will need to understand prices, neighborhoods, etc. You may want to think about your own requirements - do you want to live near a park or transportation, how important are schools, etc. Do you want high ceilings, an open floor plan, new or a fixer-upper, etc. Talk to your friends or parents'' friends about their home heating/cooling systems to understand the up- and down-sides.

See as many places as possible and have fun!

 

[Elmorton]

Credit score advice is major good.

The fun part - we went to open houses every Sunday for a year before we bought our house. It taught us two things: we wanted to do a FSBO because you save about 20% off the listing and it''s easier to negotiate and what we did not want in a house. (Mostly) everything that we said we wanted in our first house is not what we bought, because we figured out by looking at a ton of houses that there were other things that were more important to us.

 

[Lauren8211]

Thanks everyone for your replies! The thought of buying a house is so overwhelming I didn''t know where to start!

Does anyone know how much mortgage requirements have changed? My credit is not the best, but improving. I got into a bit of CC trouble in my early 20s, but everything is paid off, and has been for about a year and a half. I have credit cards now that are not very high limit, but I''m working on it. I joined Freecreditreport (not because of the snazzy songs they write!) so I could monitor my credit more closely and get alerts.

I didn''t realize there were first time home buyer programs, I''ll definitely have to look into that. Would a mortgage lender be able to help me with looking into those? Is it totally ridiculous to talk to a lender to find out about mortgages this early in the game?

FF and I have talked endlessly about what we''re looking for in our first home, and we have a good idea (Although I''m sure a lot of that will change)

Loving the idea of open houses, since I love looking at homes anyway. I was just worried about attending because I know I''m not purchasing, I wouldn''t be wasting anyones time, would I?

 

[NewEnglandLady]

Hey, Elle!

My husband and I are in a similar boat. We plan to buy in about a year (and have known for about 5 years). What we are doing is:

1. Going to many open houses in the areas where we would most like to buy. We've been doing this for about 2 years. Not only does it allow you to get an idea of all the features you want, but it gives you an idea of what you can get for your budget. We've been watching prices of homes fall, fall, fall in the past 6 months and now we are really pleased with the features and amount of house we can get for our budget...it's much different than it was even 2 years ago.

2. Saving. We have ambitious financial goals for the house, which means we live on very little now. Yes, it means we don't have a nice, big home now or live in the nicest neighborhood, but to me it's completely worth it. My mentality is that so long as I'm paying rent, I want it as cheap as possible, and it allows us to save quite a bit for the house.

3. We've lived in 4 different cities in the past 5 years. We really wanted the experience of LIVING in the towns we are considering before buying and it's really helped us to determine what towns we like best in terms of residents, commuting, etc. In fact, we've been living in our current town for a little over a year and are moving next month to a cute little house in the neighboring town. We will stay in the new house for a year or so...until we buy our house.

I don't really have any good advice...just wanted to say that I completely understand. I think the most frustrating thing for us has been realtors. The ones we've met tend to be a little on the pushy side and telling us what we can afford instead of what we are comfortable buying. Don't let ANYBODY determine your budget but yourselves!

ETA: Just saw your last post. I haven't looked into any first-time buyer programs, so I'm not well-versed in those. We definitely plan on having at least 20- 30% down to avoid additional insurance costs and we are just keeping our credit scores good. My husband's score is excellent whereas mine is just good, so I'm working my way up. Also, I don't think open houses are a waste of anybody's time. I just like to go and look around...the less I can deal with the realtor the better

 

[Lauren8211]

Hi, NEL!

Ok, FF will definitely be down for open houses. I''m actually pretty excited about that. Plus, not having to deal with a realtor is good. We happened to find a realtor we''d like to use, and it happened on accident. With the Michigan housing market in really bad shape (worse than most), so many people are renting, and realtors are getting invovled with helping to lease homes. She showed us someones rental condo, and developed a relationship with us. She showed us a few more rentals, found us a great deal that we loved, and she told us to call her when we''re ready to buy. So we will!

We''re jumping on the serious saving bandwagon too. Living frugally won''t be easy for me, but I have to focus on the long term. We have a seriously awesome deal on rent where we''re living now, about as cheap as possible in our area, with the option for month-to-month leasing after our initial lease is up at no premium. Hopefully we''ll be here until we find a house.

We are in love with where we live now, and know exactly what neighborhoods we like. So, we''re good on that, but we''re not sure what we can reasonably afford in the area, so the open houses should be really helpful. Plus, the school district where we''d like to buy is phenomenal. Property taxes are a LOT higher than I assumed, I was shocked! It would add 400-500 dollars a month to our mortgage on a 200,000 dollar home. Crazy!

Thanks for your reply!

 

[NewEnglandLady]

Ooo, it sounds like you''re off on a good foot! Yeah, I think if you can find a realtor you really like, that''s fantastic. We''ve used a realtor for all but one of our rentals and did find one we like, so when we plan to buy, we will call her.

It''s really great that you get a nice break on rent, it does help. And a lease at-will is really nice. Our current lease is the same (and our next will be as well) and we love the flexibility.

Have fun at the open houses (I really do enjoy them), just don''t get emotoinally attached to anything That''s how you run into trouble. I very rarely find something I think is *perfect*, which actually helps, haha. Also, I think it''s great that you''re looking at the property taxes in various areas. I didn''t realize how much they differed until we really started looking at them and now they are definitely a factor. Property taxes, school districts, downpayments and insurance rates...all fun parts of the process, haha.

I just hope that when we finally buy, we won''t get bored after a year and want to move! I have to admit that I love living in different towns.

 

[MichelleCarmen]

Before the credit crisis, anyone with good credit could be approved for a loan by just stating they made a certain amount (NINJA loans - no income, no job, no assets!), now in addition to impeccable credit, you have to have a good job and big downpayment. If your FICO is below 700, you're going to have to get it up higher! In certain states, banks are more picky about approving loans and I doubt a credit score of under 700 is likely to be approved, especially in Michigan. But, that is just my opinion. You should talk to a loan officer.

Sounds like you're trying to get your credit limits on your cards higher, which is good! The best way to raise your score is higher limits on credit cards with very low balances (obviously), having less than 1/3 of your total available credit being charged on. Now is a tough time to get your CC companies to raise your limits, but it's worth a shot calling them for small raises - anything is better than nothing.

Also, comb through your credit report as even the SMALLEST discrepancy may catch they eye of bank. When we purchased our last house a few years back, the bank found a very old "debt" on my credit report of $7.00 from a hospital bill before my son was born. I had OVERPAID on a bill, but it was accidently listed as a debt instead of a credit and the bank didn't approve me on the loan. I kid you not. $7.00. That was Wells Fargo bank! Isn't that insane? It was promptly removed from my credit report, but I wasn't able to be on that loan because our loan officer didn't tell me in time. I was okay for our condo.

 

[Lauren8211]

Date: 12/8/2008 11:27:03 AM
Author: MC
Before the credit crisis, anyone with good credit could be approved for a loan by just stating they made a certain amount (NINJA loans - no income, no job, no assets!), now in addition to impeccable credit, you have to have a good job and big downpayment. If your FICO is below 700, you''re going to have to get it up higher! In certain states, banks are more picky about approving loans and I doubt a credit score of under 700 is likely to be approved, especially in Michigan. But, that is just my opinion. You should talk to a loan officer.

Sounds like you''re trying to get your credit limits on your cards higher, which is good! The best way to raise your score is higher limits on credit cards with very low balances (obviously), having less than 1/3 of your total available credit being charged on. Now is a tough time to get your CC companies to raise your limits, but it''s worth a shot calling them for small raises - anything is better than nothing.

Also, comb through your credit report as even the SMALLEST discrepancy may catch they eye of bank. When we purchased our last house a few years back, the bank found a very old ''debt'' on my credit report of $7.00 from a hospital bill before my son was born. I had OVERPAID on a bill, but it was accidently listed as a debt instead of a credit and the bank didn''t approve me on the loan. I kid you not. $7.00. That was Wells Fargo bank! Isn''t that insane? It was promptly removed from my credit report, but I wasn''t able to be on that loan because our loan officer didn''t tell me in time. I was okay for our condo.

LOL. What a sobering thread! Way to bring me back down to reality!

My FICO is below 700, is it even possible to get it up above or near 700 in a year or two? What would bring it up? I assume some of the credit inquiries falling off my report would help, and hopefully getting my credit limits raised. There''s not much I can do about old credit defaults, I don''t think. Do those negative things have less of an impact the older they are? That''s really my only hope.

I''ve been monitoring pretty closely, everything looks accurate. Is there a way to get defaults off that are old? Can the collections people take it off?

I don''t know what else to do other than continue to pay on time, and keep credit usage low.

 

[MichelleCarmen]

There is a 7 year statute of limitations on old debt so you need to contact transunion, equafax and experian and get those debts removed from all three credit reports IF they are over seven years old. Otherwise there isn't much you can do yet. Just work on getting them off before applying for a loan. To put in perspective, my credit score was 730 when Wells Fargo turned me down! I had a HUGE amount of available credit (over $35K AVAILABLE!!! - with only a few thousand owed on my cards, that I was paying off over time but NEVER EVER LATE) and that helped raise my score after having a bad credit from the same thing you had - getting in trouble with credit cards in my 20s.

There are companies that will contact the credit bureaus and get your old debt removed. DH and I did that, but if you hunt on google, you can find form letters that you can send out and you can do all the work yourself.

You HAVE to get your credit limits raised. How many visa/mastercards do you have? If you only have 1 or 2, apply for a few more (say 2 more) and keep it at four and then only buy small items and pay them off monthly. Slowly as the credit crisis improves, you'll find your limits increasing.

 

[MichelleCarmen]

Oh, also another way of proving to credit card companies that you're "worthy" of credit line increases is by charging bills on a credit card and then paying the cards off at the end of the month. Say your power bill for two months is $100, for a $5.00 fee, you can pay your bill over the phone using a credit card. Then set aside that $105 and when the bill comes, pay it right off. I always pay my car insurance six months at a time and one of those times, I put it on my credit card and then paid the bill off when it came and I'm pretty sure it was actions such as that one that raised my limits. Keep in mind that credit card companies DO NOT like it when you pay your bill off on time since they don't make any money. If you have a small balance on a card with an interest rate under 10%, you'll find that they'll like you a lot more! Credit Unions always have great rates on interest. My husband's is only 6%.

 

[NewEnglandLady]

MC, you make a very good point about the credit score. A couple of years ago we were told that anything over 650 was good--we never had anything below 700, so we didn''t worry. Now we are in the high 700s and are working to get over 800 per our realtor''s suggestion...it''s a very different environment. We never planned to take out a mortgage, so we didn''t sweat it too much, but now we realize we will probably have to take out a mortgage and the process is stressful.

 

[Lauren8211]

I have 2 major credit cards right now, but limits are not high at all. Does opening a couple more really help my credit? I thought opening new cards brought your credit rating down?

I''m honestly a little scared that I could apply and get denied, and that would hurt my credit. I know my credit has done nothing but improve since the two cards I have were opened, but I know credit is really tight right now, and I don''t know if that''s a good risk to take -- getting a credit card app declined.

I''m getting a bit worried about mortgage potential as I am not near 700. Does significant down payment help you get a mortgage if your credit is lower?

I''m starting to worry that I''ll get laughed out of the lenders office!

 

[NewEnglandLady]

You are not going to get laughed out of the lender''s office! I promise! It''s just that the process is not as easy as it was a year ago, which isn''t necessarily a bad thing at all.

The idea is to have lots of credit to your name (hence the multiple cards), but not have a high balance. That way you have a low balance to credit ratio (that is not a real term, just how I understand it). My husband and I never really thought about our credit score previously because we didn''t want to borrow anything, thus why bother worrying about our score...the thought of having a good score to borrow more money is kind of backwards, you know? In any case, now we realize that we need to worry about it, so we each decided to open a second credit card. My husband actually applied for his, but I just did one of those pre-approval things you get through the mail. They keep increasing our limits on those cards (?), so I don''t think we''ll need to take out any more.

I think a significant down payment always helps. I would say aim to save at least 20 - 30% of the downpayment. Even then, you don''t want to put everything you have down...you never know what can pop up. Also, never consider your long-term (retirement) investments as any part of your downpayment. We were close to the 100% mark (pay cash, no mortgage) about 6 months ago, but the crashing market really hurt us and now we don''t even have 50%. In a year I''m hoping we can get back to 60 - 70% or so and even then, we''ll put down less than 50% and keep the rest in case of emergencies. We obviously aren''t comfortable taking out much of a mortgage, which isn''t normal, but I personally wouldn''t consider buying a home without 20% down.

I wonder if sitting down with a financial advisor might help you? We found it to be very helpful with both short and long-term goals, plus it helped to paint a very realistic picture of when we could afford to buy.

 

[neatfreak]

A significant down payment certainly helps a lot. But to be honest, if your FICO score is below 700 it''s going to be really hard in this environment to get a good rate on a mortgage. Does your FI have a much better score than you?

One of the best ways to get your score up is to pay off debt you have too, that can help your utilization ratio without having to open new cards. There isn''t a lot of credit available right now, so it might be difficult for you to get a few new cards immediately unfortunately...

But a LOT can change in a year with your credit score, so keep working at it!

 

[Lauren8211]

Sigh...


I don''t think applying for more credit right is a good idea for me. With my past credit card trouble, I''m not sure I necessarily trust myself with more credit cards. I''ve been good with my new ones, not maxing out, paying more than minimum, but I definitely could be better. There''s a lot higher potential for getting out of control with 3 or more CCs.

A financial advisor might be a good idea for us. I''m starting to wonder if this is even feasible in the time frame we''re looking at.

Unfortunately, it''s my credit rating that would carry FF and I. His credit history is limited. (He just got his first credit card last year, at age 2. Even though my history is spotty, I have a much easier time getting credit than he does, because I at least HAVE a history. His lack of history has been a pretty significant problem for him.

This has definitely given me a lot to think about. I''m going to have to relay all this information to FF tonight.

 

[neatfreak]

Date: 12/8/2008 1:11:17 PM
Author: elledizzy5
Sigh...



I don''t think applying for more credit right is a good idea for me. With my past credit card trouble, I''m not sure I necessarily trust myself with more credit cards. I''ve been good with my new ones, not maxing out, paying more than minimum, but I definitely could be better. There''s a lot higher potential for getting out of control with 3 or more CCs.


A financial advisor might be a good idea for us. I''m starting to wonder if this is even feasible in the time frame we''re looking at.

Unfortunately, it''s my credit rating that would carry FF and I. His credit history is limited. (He just got his first credit card last year, at age 2. Even though my history is spotty, I have a much easier time getting credit than he does, because I at least HAVE a history. His lack of history has been a pretty significant problem for him.


This has definitely given me a lot to think about. I''m going to have to relay all this information to FF tonight.

If you don''t trust yourself, don''t get new cards. Concentrate on paying off the ones you have first. And your FF needs to work on building his credit history ASAP. So he needs to use his new card and try to get another one if he can. And use both.

It will be hard if his credit history isn''t good either...but you really can make big changes in your credit score in a year if you are willing to work at it.

 

[NovemberBride]

Elle, I''d suggest that you and FF contact a free financial advising service or read some of the reputable financial websites that have been posted on these boards before you start following any action plan pulled together from a bunch of responses on this forum. Not that people haven''t given good advice - but you really need a cohesive plan based on your own credit history and credit scores. For example, trying to open new cards and getting a number of recent inquiries can be bad for your credit score, and may even cancel out the positives of having more available credit - especially if you get turned down and don''t wind up with the higher available credit. Also, as you may know, getting new cards makes your average credit history shorter, which is also a ding on your score. Again, I am not saying anyone here is giving bad advice, just that it might not be the right advice for you. I believe I recall that when I purchased my credit score last, the report I received listed the things I could do to make more score go up and also listed the reasons my score was lowered. THat might be a good place to start.

 

[Lauren8211]

Yeah, I am definitely going to continue to work at it, and pay down debt. If we just keep working, eventually we''ll get to the point where we can buy! It''s clear that right now we are in no position to do that. Hopefully, things will look a little different in a year.

Thanks for the suggestion, Novemberbride. All the advice I''ve been given is absolutely great, but again, there''s no way for anyone to know what is best for me. I was just getting a feel for what other people have done and gone through. I won''t make any decisions about what to do until I''ve done a bit more research.

I guess at this point we just save, save, save, pay bills on time, and maybe speak to someone who can send us in the right direction.

 

[starryeyed]

Sounds like you are getting some good advice elledizzy.

Maybe these site would help: HUD Guidelines and Mortgage Options.

 

[Tuckins1]

Hi elle! I think everyone''s suggestions are great- check your credit scores and do anything that is necessary to fix them if needed, SAVE money as much as possible, RESEARCH home prices in your area and go to open houses to get a feel for what you want (don''t be afraid of doing a little DIY work). I also live in Michigan and just graduated in August with a degree in elementary education. No need to tell you how dire the job situation is here in this state... I actually found a job BEFORE I even graduated! Don''t fret- there are a lot of jobs out there. Just keep telling yourself that you WILL get one and do not get discouraged if you don''t get the first one you interview for! Stay positive and good luck to you!