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Pre-approval should always be the first step. It tells both listing agents and your agents that you're worth the time they'll be spending on the deal, and it makes your offer stand out over those that just have pre-qualification letters.
Okay, so here's the situation:
Live in the bay area
Gross income is 55k
50k available for a down payment
Debt - 7k student loan, leasing a car with around 5k payments left(total value is 15k, not sure how it's calculated into the debt to asset ratio)
Basically, how do I get started on the process? my parents hooked me up with their real estate agent, she wants me to be looking at condos around the 250k range.
What's my next step? should I be approaching banks for pre-approval, or should I have an idea of what I want first? tbh the area doesn't matter much, it will most likely be
ty anyway.
Any home owners advice is appreciated!(special thanks to CC who already offered some great advice)
Pre-approval should always be the first step. It tells both listing agents and your agents that you're worth the time they'll be spending on the deal, and it makes your offer stand out over those that just have pre-qualification letters.
Any idea how much I should be asking for? for example, if I get preapproved for 250k, they will let me take only 200k of that, right?
That's something I'd talk over with your loan agent. Or maybe one of the financing people around here would have good advice for that. You certainly don't want to be looking at houses that are right at your approved amount, though. Even if the bank would give it to you, you're going to need wiggle room for all the extra fees and inspection costs and all of that.
One other thing that's important is to select good people to work with. If you can get recommendations from people you trust for loan and real estate agents they've had good experience with, start there. Too many people get ed because they go with the first people they find.
Your agent is giving you terrible advice IMO. You are absolutely looking at too much home/condo based on the amount of money you make. Even with your 50K down, you need to figure out what is right for you and your mortgage shouldn't be more than 30-40% of you monthly income.
Thanks for the info
I think I have a good real estate agent, she was the one who helped my parents get their house, so I'm okay with her.
When you say "loan agent", do you just means the banks? do I just approach as many banks/credit unions as possible and see what rates/offers they give me?
get preapproved then look at foreclosures
I'd say 50% of your income is top end I would go. Do you have savings after the 50k down payment? If not, I would strongly consider putting down only what you need (up to 20%) and buy something that leaves you with 20K of that 50K left over for savings (unless you already have 6 months of bills in your savings after all of this).
Yeah, I was a little uncomfortable when she said 250k, I wasn't considering higher than 150k at that point...
That being said, if the rule of thumb is $500 monthly payment per each 100k you borrow(assuming a good rate of course, which I should get with good credit) - even taking out 200k would be about 1k monthly, which I would be okay with since I woulden't have to pay the PMI if I put 20% down.
Technically I have 49500 right now, but once I factor the year end bonus+retro+bi weekly pay I will get on the 28th, I will be at around 52k.
So yeah, not much else other than those 50k - and you're right that I would definitely not want to put all that down since I would want some money for renovations/furniture/unexpected spending etc.
Are foreclosures really good value when buying houses?
Trust me - PMI, while not great, only makes up about $175-$200 a month in a 250K home (depending on your interest rate + down payment to figure out your mortgage payment).
I would strongly advise against looking at homes that expensive. You don't have a lot of debt which is great, but with your annual salary (which I am not knocking at all - just trying to give you context/advice) I would not feel comfortable looking at anything over 175K. Then if you put down that 50K, you should have plenty of equity, a very manageable mortgage payment and be comfortable.
What you can get approved for and what you can afford are very different things. If you can keep your mortgage (in it's entirety meaning PITI) in that 30%-40% range of your monthly salary, you will be doing the right thing. Anything above it, while you can make it work, is not wise IMO. Especially if you don't have a healthy amount of savings after the down payment is gone.
There are plenty of other factors that go into it, but at 250K, even with no PMI and 20% down, you are looking at a monthly bill of probably $1400-1600 depending on the property taxes in your area (just an educated guess). Depending on your income tax, you are probably taking home between 2600 & 3000 a month. A 1400 mortgage payment would represent roughly 45-47% of your monthly income.
55K gross in the Bay Area? 250k house...
I hope your salary goes up. Too steep imo.
You will be spending most of your money on a mortgage and will become a slave to your home.
Lotta people already got screwed on this kind of thing not that long ago. Godspeed...
This is some great advice, thanks.
Didn't realize the monthly payment would be so high with a 200k loan.....will definitely do some more due diligence when I go to get the actual rates/monthly payments from the lenders.
1. Get pre-approved
2. Search for homes that fit price range
3. Bid on the home / sign a contract
4. Start closing process
Make sure to pay for the active option so you can back out of the contract w/o liability if worst case you find something in the inspection that breaks the deal..and WHATEVER you do. STAY THE AWAY from buying ANY homes on short sales. If the MLS mentions short sale, you run the other way. I work with short sales for a large mortgage company, and I will tell you first hand they are a ing nightmare for everyone involved.
They can be if you have cash to get them at auction. If the foreclosure doesn't sell at auction and becomes an REO, most of the time you're gonna be paying fair market value just like any other home.
This. A lot of sellers won't even talk to you unless you have a pre-qual or bank statements showing your available balance to cover the purchase.
Last edited by DJR210; 02-18-2014 at 11:24 PM.
What do I need for the preapproval process? just show up to a bank/credit union with W-2 and bank statements of my assets etc?
Also, how does the active option work? do I get the money back if something comes up?
(I edited in a little more info to the OP)
Just go in and speak with a mortgage loan officer. Depending on the loan you select, the qualifications and requirements may differ. I'm currently in process of buying a home now (actually waiting to hear if our offer was accepted in the morning) and we had to provide the usuals.. paystubs, bank statements. We also had to justify any credit inquiries, have reserves in the bank at the required amount, etc.. Banks processes vary I'm sure.
As for the active option (you will see homes on the MLS listed as AO or active option) it allows you as the buyer to back out of the deal for any reason w/o being in violation of the contract. For example, you pay "x" amount of money per day for the option, then you will pay for the cost of the inspection. If the inspection finds, let's say.. foundation damages, you back out of the deal and all you're out would be the per day fee for the AO, and the cost of the inspection.
Got it, thanks.
50k gross income
250k house, thats about 5:1 debt ratio, i think u can handle it,.....or just rent it out or get married for another income helper...
why u looking at condos anyway....
250k in California's market will get you a ing shack tbh.
I think that if you can afford a down payment as high as 50k you ought to pay off your student loan first, knowing that the money you pay back will end up in the hands of a parsimonious student who urgently needs it to complete his/her education and to make the first step to fulfilling his/her American dream.
unless you plan on having a big fam just buy an airstream and save yourself a lifetime of being house poor and every other hassle that comes with owning a house. or build using cash like me, don't fall into a loan that you will never play off
also if you're going the condo route check on how many rentors live in your complex cause they up since it ain't theirs
Not all of California is San Francisco.
if 50% is the top you would go, then for average people that figure should be 70%-80% imho (based upon the height ratio of you to them), which would turn out to be a financial catastrophe for them. And the maintenance fee of a house is nothing comparable to that of an apartment or whatever the OP currently lives in.
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