How to Buy a House home

Learn the basics

1.

The Basics

2.

How much home can you afford?

3.

The Down Payment

4.

The Loan

-

Assuming a Loan

-

Owner Financing

5.

Qualifying for a loan

6.

Understand Closing Costs

Do the groundwork

7.

Get your finances in order

8.

Clean Up Your Credit Record

9.

Establish Credit if you don't have any

The Process

10.

Find a Lender

11.

Evaluate the bank's offer

12.

Start looking at houses

13.

Get the Disclosure

14.

Make an offer / Sign a Contract

15.

Have the House Inspected

16.

Problems on the Inspection?

17.

Renegotiate the terms

18.

Appraisal, Survey, & Insurance

19.

Appraisal went through?

20.

Closing!

After the purchase
Avoding scams
More about Mortgages
How much loan can you get?
Figuring your monthly pmt.
15- vs. 30-year loans
Prepaying your mortgage
Understand Compound Interest
Private Mortgage Insurance
If you won't live long enough to pay off the mortgage
Other Topics
Renting vs. Buying: Which is better?
Paying cash vs. getting a loan
The Debt Ratio
Tax breaks are actually welfare for the rich
Other
Links to helpful sites
Fan Mail
Michael Bluejay's home page
Email Me

How to Buy a House

Easy-Qualify loan in Austin

0% down

Michael Bluejay (the author of the website) is offering loans to homebuyers in Austin, Texas. Here are the terms:

  • Your credit does not matter, but your ability to pay does.
  • No down payment is required, though you can make a down payment if you like, in order to lower your monthly payments.
  • Your monthly payment will be about 1.15% of the purchase price, including closing costs, taxes, insurance. (e.g., on a $100,000 home, the payments would be about $100,000 x 0.0115 = $1150/mo.).
  • The interest rate is 10%, and I do not require private mortgage insurance. We'll roll most of the closing costs into the mortgage, so they'll be part of your monthly payment, and you won't have to come up with a bunch of closing cost money at the time of the sale.
  • If you already have a high-interest mortgage and would like to refinance at 10% for 30 years, I can do that too.
  • These loans are available for homes in Austin, Texas only.

If you're able to get a bank loan you should do so, because the interest rate will be lower. My program is intended for people who cannot get a loan from a bank.

Note that you're not married to the higher interest rate forever. If you start fixing your credit with my credit repair instructions, you should have good enough credit to move your loan to a bank in two years -- and get a lower interest rate.

Contact me at
(512) 322-0638

or use the form below.

Evaluating the Bank's Offer

« Back: Find a Lender «

» Next: Start looking at houses »


Now you know how much you can borrow! You should already have a rough idea of how much you can borrow based on the How much home can you afford? page, but now you get to find out exactly how much the bank is willing to lend you. Once the bank has processed your application and run your credit report they know how much they're willing to loan you. Sit down with them and go over the results.

Or more specifically, they know how much they think you can afford in the way of a monthly payment. Let's say they figure you're good for $1000 a month. For that $1000 a month you'll get a much bigger loan on a 30-year term than you will on a 15-year term. The lender will tell you how much they'll loan on each term, depending on how big your down payment is.

Get the Pre-Qual Letter

A lender who has qualified you for a loan can give you a "Pre-Qual Letter" which says that very thing. (That they've qualified you for a loan.) Having such a letter helps show realtors and sellers that you're serious about wanting to buy a house and that you're not just a window-shopper. Get a Pre-Qual Letter from each bank that qualifies you for a loan.

Evaluating Different Options

The bank will probably give you at least a couple of different, confusing options for your mortgage. They do this to make more money, because if you pick the wrong option you'll wind up paying more. Let's see how to evaluate the different options.

 

Fixed Rate vs. Adjustable Rate Mortgages

(FRM vs. ARM)

On a normal mortgage the interest rate stays the same over the life of the mortgage. This is called a fixed-rate mortgage, or FRM. If interest rates are low then your lender will try to sell you on an adjustable rate mortgage, or ARM, where the interest rate varies over the life of the loan. If interest rates are low they don't want to get locked in to getting a low rate from you for 30 years, so they'll hope you take an ARM so they can raise the rates later. Why on earth would you agree to this? Well, for starters, they make it look really attractive: They'll generally start out your first year or two at a rate below the current FRM rate. Then they'll tell you that they'll limit the increases to a certain amount so you won't have to worry about ridiculously high interest rates.

So should you take the ARM or not? The general rule of thumb is, take the FRM unless the rate is above 10%, in which case take the ARM (after scrutinizing it closely). Always make sure you read the fine print on an ARM offer, but unfortunately the details in ARM offers are varied and hard to analyze. . It's worth paying an independent financial advisor $50 to evaluate the offer for you if you don't understand it, or if you're not sure it's as good a deal as the bank says. Don't get this one wrong: the foreclosure crisis of 2006-07 was due in large part to buyers who took an expensive ARM and couldn't make the payments when the rates went up. They should have taken the FRM -- and if they'd followed my advice above about taking the FRM unless the interest rate is above 10%, they wouldn't have lost their homes.

 

Mortgage Points (Origination Points, Discount Points)

Origination Points

Most banks charge you a fee to give you a loan, on which you'll be paying them interest. Basically, they're charging you money for the right to charge you more money. Their fee for doing so is called the Origination Fee. The fee is a certain number of points. A point is 1% of the purchase price of the home. So if you're buying a $100,000 home, and the lender charges two points, you'll pay a fee of $2000 for the privilege of getting the loan. This is part of the closing costs, usually the biggest part, in fact. You can usually have this amount added to your loan amount so you don't have to pay it in cash at closing.

Different banks charge different amounts of origination points, and some banks don't charge origination points at all. This is something to consider when you're shopping around for a loan.

Discount Points

As you know, the lower the interest rate, the better. So many banks will offer you a deal: they'll offer you a certain interest rate, but they'll let you buy the right to an even lower interest if you pay them some points. For example, they might offer you a rate of 7%, but tell you that you can have a rate of 6.5 % instead if you pay 4 points (4% of the purchase price of the house. As we saw earlier, points are part of the closing costs and can usually be rolled into the mortgage.)

Okay, so in our example the bank is telling you that you can have 7% straight up on a 30-year mortgage, or 6.5% if you pay 4 points. How the hell are you supposed to know which is the better deal? Well, you couldn't know, unless you had these handy tables that show the effective interest rate based on the number of points.

Effective interest rate based on the number of points

30-year mortgage

Points

6%

6.5%

7%

7.5%

8%

8.5%

9%

9.5%

10%

10.5%

11%

1

6.09

6.60

7.10

7.60

8.10

8.61

9.11

9.62

10.12

10.62

11.13

2

6.19

6.69

7.20

7.70

8.21

8.72

9.22

9.73

10.24

10.74

11.25

3

6.28

6.79

7.30

7.80

8.31

8.82

9.33

9.84

10.35

10.87

11.38

4

6.38

6.88

7.39

7.91

8.42

8.93

9.44

9.96

10.47

10.99

11.50

5

6.46

6.98

7.49

8.01

8.52

9.04

9.55

10.07

10.59

11.11

11.63

6

6.55

7.07

7.59

8.11

8.62

9.14

9.66

10.19

10.71

11.23

11.75

7

6.64

7.16

7.68

8.21

8.73

9.25

9.77

10.30

10.82

11.35

11.87

8

6.73

7.26

7.78

8.31

8.83

9.36

9.88

10.41

10.94

11.47

12.00

15-year mortgage

Points

6%

6.5%

7%

7.5%

8%

8.5%

9%

9.5%

10%

10.5%

11%

1

6.16

6.66

7.16

7.66

8.17

8.67

9.17

9.67

10.18

10.68

11.18

2

6.31

6.82

7.32

7.82

8.33

8.83

9.34

9.84

10.35

10.87

11.36

3

6.46

6.97

7.48

7.99

8.49

9.0

9.51

10.02

10.52

11.03

11.54

4

6.62

7.13

7.64

8.15

8.66

9.17

9.68

10.19

10.70

11.21

11.72

5

6.77

7.28

7.79

8.31

8.82

9.33

9.84

10.36

10.87

11.38

11.90

6

6.92

7.44

7.95

8.46

8.98

9.49

10.01

10.52

11.05

11.56

12.07

7

7.07

7.59

8.11

8.62

9.14

9.66

10.17

10.69

11.21

11.73

12.25

8

7.22

7.74

8.26

8.78

9.30

9.82

10.34

10.86

11.39

11.90

12.42

In the table we see that a rate of 6.5% with 4 points is just like a rate of 6.88% with no points. And 6.88% is better than 7%, so in this case we'd tell the banker, "Hell yeah, I want those points. Put 'em on the table."

But what if they offered you 6.6% with no points, or 6.5% with 2 points? In that case we see from the table that a 6.5% with 2 points is really 6.69% -- which is higher than the original offer of 6.6%. In this case we'd slap the banker upside the head and yell, "Why are you trying to scam me by selling me points that will only raise my effective interest rate?"*

* Please don't actually hit or yell at the banker.

 

Get another offer

Don't forget our advice from our find a lender page: Shop around by getting a second offer from another bank or broker.

You don't have to make your decision about which bank or broker to go with right now -- you can save that for when you know exactly which house you want to buy.

Amount spent so far.   Red items apply towards the purchase. Amounts are typical, not exact.

$40

Credit Check

To the Lender

$40

Total

« Back: Find a Lender «

» Next: Start looking at houses »

 

If you liked this site then you might like some of my other sites:

How to Find Cheap Airfare     How to Save Electricity     How to get listed & ranked well in Google

Entire site ©2006 Michael Bluejay Inc. • All information is "use at your own risk"   Email me