Aim for a Sizable Down Payment

The days of getting a house for no money down are gone. If you want a competitive rate for your future house, show your lender that you’re serious with a big down payment. Can you put down 20% (or more) for the house? If not, what’s the most you can put down?

Having a larger down payment, you’re probably aware means you’ll have a smaller mortgage payment. That’s going be a big help for your monthly cash flow, which I’ll discuss in a moment.

Besides making your down payment, you should still have a buffer for your emergencies. Don’t completely drain your savings account. You might think this is overkill, but if you buy a house, please know that you’re not suddenly immune to layoffs.

Have an Enviable Cash Flow

You need to prepare yourself for having a mortgage by having a solid history of positive cash flow. Your lending will look over your finances with a fine toothed comb. They will want to know if you’re able to pay this mortgage. If you can keep your total housing costs (not just mortgage) under 30%, you’ll look more promising to lenders.

My recent experience has been that banks aren’t as conservative as you think. It’s best to run your own numbers and make sure you’re comfortable with the new mortgage payments and other home owner costs. We looked at homes $50,000-$70000 less than what the bank thought we could afford.

When you step up and show that you’re in control of your cash flow,you’re giving yourself a bit of leverage. You can shop around to find the best deal.

Hunt for Your Mortgage

Now you have a great down payment and you’ve optimized your cash flow and you’re ready to go house hunting. There are several sources for getting a loan and not all of them are equal. Be aware and ask questions on any fees associated with getting a mortgage through them.

• Commercial Banks
• Credit Unions
• Mortgage Brokers
• Online Lenders

Comparing your options is a great way for you to find the lowest interest rate and fees.

Your Thoughts on Getting a Mortgage

If you’re on the hunt for a house, what steps have you’ve done to prepare? If you bought a house, how did you get a great deal on your mortgage?

Pre-Closing Jitters

5ish am: I’m awake, but I stay in bed because I know I should getting some sleep. I can’t sleep, though, and I’m running through my head everything that we have to do today for closing. We have to do the final walk through at 8:30am, get our certified check, and then go to the settlement office.

6:44 am: I wake up and head to the bathroom to put in my contacts and start getting ready.

6:54am: My husband is still asleep, so I go ahead and start writing this blog post to pass the time.

7:26am: Husband is up and taking a shower while I’m reviewing the HUD-1 settlement statement for the the dozenth time since yesterday. I wanted to make sure that nothing went against the Good Faith Estimate we were given before.

7:52am: We leave to get coffee and go for the final walk through.

8:13am: We’re waiting in line at Starbucks. I’m worrying that we’ll be late since it is packed in the place, but the line runs like a well oiled machine and we get our coffee (tall and venti bold coffee with room) quickly. I realize that I put way to much sugar in my coffee when it’s easier to just batch open 6 packets of sugar in the raw. Oh well. We head to the house.

Final Walk Through and Getting the Certified Check

8:27am: We arrive at our future place and meet with Ryan to go through and check to see if all the items we requested fixed are done. We start at the top floor and work our way down. The place looks great and the stove that had scratches has been replaced. We go through the list and initial that they did all the work they said they would.

We review the builder’s warranty with the place and thank Ryan for his help. We call our real estate agent (he’s coming from out of town) to tell him the place looks good. We head over to Wachovia to get our certified check.

9:05am: Another surprise: no line at the bank. We give the information to the teller and we’re given the check.

9:18am: It seems like we’re ahead of schedule and debate whether to get there early or just drive around. We both agree to head to the lawyer’s office. We arrive and meet up with our real estate agent. The lawyer is ready in a few minutes and all of us get started with the closing.

Settlement Appointment

9:28am: In case you weren’t aware, there is a lot of paperwork that comes with a house. The lawyer is explaining the papers as we read them. I admit we should’ve been reading more slowly, but we were overwhelmed with all the information. Paperwork covered:

• The Contract
• The Loan
• Deed of Trust
• Homeowner’s warranty
• Homeowner’s insurance
• Termite certificate
• Title insurance

10:50am We’re home soaking in being ‘home loaners’. We call family and some friends to let them know of the good news. Funny thing, we mentioned we’ll use the tax credit to pay down our mortgage and the consensus is ‘why? ‘ My answer: We want to pay mortgage early and we have no high interest debt.

Some people are surprised about not having credit card debt or a car loan. Guess we’re not normal.

Reviewing all the Paperwork

8:00 pm: Spending time reviewing the paperwork from closing. It all looks good and I don’t see anything different than what was agreed upon.  In case you’re curious we have a  30-year fixed rate FHA mortgage with a 5% interest rate. Since it’s fixed, our interest rate will remain the same the entire life of the mortgage.

Your Take

How did your closing/settlement go with your house?

It looks like we're moving (again)!

I was scrambling to get things done this week, so posts were a little delayed to get out. We’re transferring the down payment money from our ING savings account. We have tried our best to ignore this account and not deplete it until we needed it, such as now for the house. We also have home insurance ready to go on the place.

We’ll slowly move into the new place as we’re in the short term lease apartment and we’ll have 60 days to move out. That will give us time to paint and prepare the place before we have to move in.

We’re going for a 30 year fixed rate mortgage for the place. We felt it was in our best financial interest to keep the interest rate steady and right now the interest rate is relatively low, which is another bonus.

We’re automating extra payments to the principle from month 1. Our goal is to pay off the house in 15 years, so we need to get started on it as soon as we can. Since the $8,000 Tax Credit for First-Time Homebuyers was extended and expanded, we’ll use it to pay down our mortgage and increase our financial cushion.

Your Thoughts

Have you had something similar come up at the last minute with closing? How did it get handled?

The big financial news this week is that the Tax Credit for First-Time Homebuyers that was set to expire on November 30, 2009 has been extended until April 30, 2010. It also has been expanded to include a$6,500 tax credit for current home owners who buy a new house. President Obama is expected to sign the bill this morning.

Do you plan on buying a house?

Eligibility for the First-Time Homebuyer Credit

There are some requirements you have to meet before you can get the First-Time Homebuyers credit.

• You must be a first-time home buyer and you must have a purchase contract by April 30, 2010 and closes by .
• The house you purchase must be your primary residence and is not greater than $800,000.
• The buyer must live in the home for at least three years after the purchase date. You will have to repay the credit on a home only if the home ceases to be your primary residence within 3 years from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased being your principal residence.
• The income limits have been raised for singles to $125,000 and married to $225,000.

Eligibility for the Existing Homebuyer Credit

• You must have lived in your current residence for 5 of the last 8 years.
• The house you purchase must be your primary residence and is not greater than $800,000.
• The buyer must live in the home for at least three years after the purchase date. You will have to repay the credit on a home only if the home ceases to be your primary residence within 3 years from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased being your principal residence.
• The income limits have been raised for singles to $125,000 and married to $225,000.

Please check out the NY Times for more details and other provisions in the bill.

Your Thoughts

Will you buy a house within the tax credit’s extension? How much did the tax credit factor into your plans?

Photo Credit: roarofthefour

My husband and I are in the process of buying a house. Reviewing  several books on personal finance and mortgages,  I’ve been reviewing information on down payments.

How Much Should Your Down Payment Be?

The direct answer is as much as you can afford.  What can you afford to put down without putting your finances in jeopardy?

You shouldn’t look at the minimum you can get away with. You should examine your budget line by line and see how much you can put down and still have a buffer. You don’t want to put yourself in a financially vulnerable position.

Running the Numbers

Have you ever wondered what is involved in owning a house? Do you want to see if you can handle the pressure?

How much can you afford for a down payment?

The best advice I can give is ask your friends who are home owners and see how much it costs. What if you’re nervous about asking them? What if you’re not sure if they’ll tell you because this is a personal question?

Before we went house hunting, we asked almost everyone we knew about owning a house.  We weren’t just looking at buying a home; we were looking at the 15, 30 year outlook. You might think such details are boring, but they are meaningful. We needed to know if we could do this month to month, year to year. That’s the issue to weigh.

Here’s how I have gone and asked some friends. Feel free to adapt this to your circumstances.

Me: Hey. We’re looking at buying a house, but we want to do right. I know you’re smart with your money, so I wanted to ask you for some advice.

Friend: Yeah, what is it?

Me: We want to make sure we can afford to live in it. We looked at the cost of mortgages, utilities, property taxes, etc, but is there something we missed?

Friend: Did you include ___ in your calculations?

Me: No, thanks for mentioning that. (Write it down or put it on your phone for refernece – show that they are really helping you)  What expense(s) was(were) higher than you thought?

As you can see, you’re not trying to be nosy, but you’re looking for concrete examples. Your friend feels (rightly so) that they are helping you and that they’re an expert. People love to be the experts, so let them be and learn from them.

Doing a Test Drive For a Mortgage

Put yourself ahead of the game. Start living as if you have bought the house. You got the information from personal research and interviews, so put it into practice.

Have extra expenses deducted (and put into savings) so it would match what you would spend as a home owner. If you can’t afford to maintain the extra payments, then you have at least put some money away in savings for a down payment. Cut back and look at what is important and not really important to you.

Our Down Payment and Emergency Fund

Our down payment will be coming from our joint savings account that we’ve deposited slowly in since we got married (some of the first dollars were actually gifts of money from our wedding). We have tried our best to ignore this account and not deplete it until we needed it, such as now for the house.

Our mortgage after the down payment will be well within our budget. Even if we didn’t have the $8,000 tax credit, this would be a house we could afford. We’ll build up our reserves a bit after we move and our plan is to use the tax credit to pay down the mortgage.

The Point Behind Running the Numbers

You may think it is a bit overboard to plan and write about this so much, but buying a house is the biggest purchase we have made. We want to make sure we do this intelligently and enjoy the house as much as our families have enjoyed theirs for the all these years.

Why is running the numbers so important? Why do I keep repeating the phrase? I read this somewhere and it really stuck with me:

If you waste your money, you are also wasting the time you spent to earn it.

Your Thoughts

How about you? Were you able to set aside money for a down payment? How did it turn out?