Am I on the right track? - First time home buyer - Please help~

[Anonymous]

Background

My wife and I are looking for our first home to purchase.

We have two young children.

I work at a small business and my employer reports a small portion of what I earn to the IRS.

A family member came forward and decided to become my co-signer to support my low documentable income(23k / yr), 

Between the co-signer and myself, the combined income is about 61k.

Our target price for a home is 150k - 200k

The total amount of money that we can come up with for purchasing of a home including down payment, closing cost and everything is 25K.

My fico score is 727.

Progress so far

I applied for an FHA loan thinking that it would be my best(only) bet.

I got pre-approved for 190,000 at 4.625% / 30 year fixed. (they would need a signed agreement before they can lock in my rate)

I'll receive my pre-approval letter in the next few days which is good for 90 days.

I met with a real estate agent today for a showing.

Questions

1. Is FHA a good choice for my situation?  If so, should I apply to other lenders to compare rates/fees?  (My current lender is Quickenloans.)

2. I understand that conventional loans would be out of my reach.   Are there other loan programs other than FHA that I should take a look at?

3. When do you sign a contract with a real estate agent to represent you? 

4. Other than down payment, how much in general would I need?

5. If you have to choose between great school area / older / smaller homes and average rated school / newer / larger homes , what would you choose and why?

6. My current rent is $1500.  If I put 10% down, what would my maximum purchase price be  to keep my monthly payment under 1500 including tax(350/month)?

7. How many homes have you looked before making final decision?

8. Can you put an offer on bank owned / short sale properties? 

Again, this is our first time home buying experience and everything is new to us.

Any help will greatly be appreciated.

Thank  you.

[Heavanly1]

I may not be able to answer all of your questions, but I'll do my best.

1. Is FHA a good choice for my situation?  If so, should I apply to other lenders to compare rates/fees?  (My current lender is Quickenloans.)

I really can't say if FHA is the best choice for you but it never hurts to shop around. All mortgage credit inquiries made with a 30-day period only count as one inquiry on your credit reports, allowing you the freedom to shop around without taking continuous hits to your credit score. Discuss your situation with your loan officer and whether a traditional loan would be a better fit for you.

2. I understand that conventional loans would be out of my reach.   Are there other loan programs other than FHA that I should take a look at?

Why do you feel that a traditional loan will be out of reach? Is it because of the low documented income? Again, I recommend that you discuss with your loan officer whether or not this is an option for you. 

3. When do you sign a contract with a real estate agent to represent you? 

Personally, I never sign the contract with the real estate agent immediately. You should give things some time to determine if you and the agent are a good fit. This is someone you're going to be dealing with A LOT over the next few months, so it's best that you actually like them,  you get along, and that  they're meeting your expectations when it comes to doing their job. I didn't sign my agent/buyer contract until I finally found a house that I liked and was ready to place an offer on it. Getting agent recommendations from family and friends who've gone through the house buying process is always a good place to start.

4. Other than down payment, how much in general would I need?

If you're going FHA, you'll need 3.5% of the purchase price for the down payment. You'll also need funds to cover the closing cost (which can range from 3%-8%, depending on your state). Some sellers will agree to concessions to assit you with the closing cost (my realtor adviced me to always ask for closing cost assistance). The lender may also want to see you have some reserves in the bank above and beyond the down payment and closing cost. Don't forget that you'll also need funds for other expenses that sometimes get overlooked like home inspections (possibly for more than one house, depending on how your search goes) and moving cost once you've purchased your new home.

5. If you have to choose between great school area / older / smaller homes and average rated school / newer / larger homes , what would you choose and why?

This is entirely dependent on what you and your family deems to be most important. I recently went through the process of looking for my first home and since I don't have any children (and don't forsee myself having any in the near future), the quality of the neighborhood schools didn't even factor into my decision; the best I could get at my price point became the more important factor. 

6. My current rent is $1500.  If I put 10% down, what would my maximum purchase price be  to keep my monthly payment under 1500 including tax(350/month)?

I suggest you do an internet search for a simple mortgage calculator and play with some numbers. Some are sophisticated enough to allow you to plug in the estimated property taxes. In addition to the property taxes, don't forget to factor in the homeowner's insurance, private mortgage insurance (since you're putting down less than 20%), and hoa fees (if applicable). 

7. How many homes have you looked before making final decision?

 Over the course of 6 months, I looked at a TON of homes! I made offers on 6 homes before I finally had an offer accepted. Everyone's situation is unique so you may be lucky enought to get the first home you absolutely adore. The best advice I was given during my home search was "never fall in love". Treat each house as a business transaction (because it is!) and stay focused on the numbers being presented and the price being paid instead of how great your furniture will look in the living room!

8. Can you put an offer on bank owned / short sale properties? 

Yes. I made offers on 5 bank-owned properties but ended up purchasing a new construction from a developer. I shyed away from short-sales only because I was on a short timeline to find a home and didn't have the time to wait out the short sale process.

Good luck in your search!

[Anonymous]

Heavanlyl,

Thank you for taking your time to answer my questions.

I have learned a lot from reading your post.

Thanks again~

[ShanetheMortgageMan]

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@Heavanly1 wrote:

I may not be able to answer all of your questions, but I'll do my best.

1. Is FHA a good choice for my situation?  If so, should I apply to other lenders to compare rates/fees?  (My current lender is Quickenloans.)

I really can't say if FHA is the best choice for you but it never hurts to shop around. All mortgage credit inquiries made with a 30-day period only count as one inquiry on your credit reports, allowing you the freedom to shop around without taking continuous hits to your credit score. Discuss your situation with your loan officer and whether a traditional loan would be a better fit for you.

If you have at least 20% down then conventional financing would also be something to consider.  Less than 20% down your loan would need mortgage insurance and/or a 2nd mortgage (2nd mortgages do not often permit non-occupying co-borrowers) and mortgage insurance companies can be fairly strict on that as well... which makes conventional a bit of a gamble since mortgage insurance isn't obtained until towards the end of the loan process/after the appraisal is complete.

2. I understand that conventional loans would be out of my reach.   Are there other loan programs other than FHA that I should take a look at?

Why do you feel that a traditional loan will be out of reach? Is it because of the low documented income? Again, I recommend that you discuss with your loan officer whether or not this is an option for you. 

3. When do you sign a contract with a real estate agent to represent you? 

Personally, I never sign the contract with the real estate agent immediately. You should give things some time to determine if you and the agent are a good fit. This is someone you're going to be dealing with A LOT over the next few months, so it's best that you actually like them,  you get along, and that  they're meeting your expectations when it comes to doing their job. I didn't sign my agent/buyer contract until I finally found a house that I liked and was ready to place an offer on it. Getting agent recommendations from family and friends who've gone through the house buying process is always a good place to start.

As a buyer, I also agree that you should not sign an exclusive agreement with an agent to represent you, it is definitely not typical in most of the country but there are a few pockets where it is common.  When you are selling a home, I can't imagine a real estate agent proceeding without signing an exclusivity agreement.

4. Other than down payment, how much in general would I need?

If you're going FHA, you'll need 3.5% of the purchase price for the down payment. You'll also need funds to cover the closing cost (which can range from 3%-8%, depending on your state). Some sellers will agree to concessions to assit you with the closing cost (my realtor adviced me to always ask for closing cost assistance). The lender may also want to see you have some reserves in the bank above and beyond the down payment and closing cost. Don't forget that you'll also need funds for other expenses that sometimes get overlooked like home inspections (possibly for more than one house, depending on how your search goes) and moving cost once you've purchased your new home.

5. If you have to choose between great school area / older / smaller homes and average rated school / newer / larger homes , what would you choose and why?

This is entirely dependent on what you and your family deems to be most important. I recently went through the process of looking for my first home and since I don't have any children (and don't forsee myself having any in the near future), the quality of the neighborhood schools didn't even factor into my decision; the best I could get at my price point became the more important factor. 

6. My current rent is $1500.  If I put 10% down, what would my maximum purchase price be  to keep my monthly payment under 1500 including tax(350/month)?

I suggest you do an internet search for a simple mortgage calculator and play with some numbers. Some are sophisticated enough to allow you to plug in the estimated property taxes. In addition to the property taxes, don't forget to factor in the homeowner's insurance, private mortgage insurance (since you're putting down less than 20%), and hoa fees (if applicable). 

Using that tax amount, and $900/year for homeowners insurance, with an FHA mortgage, it'd be $190,000 sales price.

7. How many homes have you looked before making final decision?

 Over the course of 6 months, I looked at a TON of homes! I made offers on 6 homes before I finally had an offer accepted. Everyone's situation is unique so you may be lucky enought to get the first home you absolutely adore. The best advice I was given during my home search was "never fall in love". Treat each house as a business transaction (because it is!) and stay focused on the numbers being presented and the price being paid instead of how great your furniture will look in the living room!

8. Can you put an offer on bank owned / short sale properties? 

Yes. I made offers on 5 bank-owned properties but ended up purchasing a new construction from a developer. I shyed away from short-sales only because I was on a short timeline to find a home and didn't have the time to wait out the short sale process.

Good luck in your search!

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I've added my comments in blue above.