First time buyer questions

OnTheWay · Joined: 15 Jul 2007 Posts: 6

Hi,
Finding this forum has been amazingly informative. We are looking to buy in the San Diego area. It will either be a fixer upper, foreclosure, auction, bank owned, etc. We are looking in the 200k range, don't laugh we have seen a few though they are far between. We have 10k to put down and hope to get financed for the rest. I have been all through the HUD site and CalHFA site. Our income seems to meet their eligibility, we are on the lower end. My girlfriend's credit is better than mine, but neither is stellar. We have been renting for 4 years at the same place, I don't know if that helps or not. We haven't contacted a realtor or lender yet, we're both a bit intimidated by the whole thing. Sorry for the lengthy intro, here are the questions. Is it realistic to think a realtor would even work with us with our low bracket? Should we get pre-qualified first? There is an auction 7/22 we're interested in, but we haven't even spoken to a lender yet. For foreclosures and the like we are considering realtytrac and another company called canal chalet which specializes in insurance settlement homes. Has anyone ever used these sites? Should we try to purchase on our own, or go through a realtor? Any tips or advice would be greatly appreciated. Thanks.

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

You'll definitely want to have some kind of representation on your side of the contract. Whether that's an attorney, a realtor, or something along those lines, you need to have someone that can help you write up that legal-document. You can always get inspections etc. for other concerns.

You definitely need to talk to a lender to get pre-approved. The rent history will be a great thing for you, but your credit carries a lot of weight as well. Depending on what kind of blemishes you have, may or may not make a difference to what you can do.

For that kind of loan amount, on a fixer-upper, you may want to consider an FHA - 203k loan (www.hud.gov for information) as you shouldn't be over the county limit for San Diego I'd imagine. This would allow you to finance the costs of the repairs, and is a tad bit more flexible on the credit side of things than your traditional conventional loans.

Keep in mind also that you will have closing costs to consider. While they're not as high in CA as they are on the east coast, they are certainly still a bit of cash that you need to consider. 10k is 5% if you're buying at 200,000, do you have enough to pay a few thousand in fees/taxes/etc. when you go to close?

The 203k loan is based on a higher percentage, which varies from state to state (97.75% in high-cost states, 97.15% in low cost, for your amount.) You would be able to finance based on the completed value of the home or the purchase price plus rehabilitation cost (which ever is less.)

As far as the realtor, look at it this way. Traditionally most realtors are making 2.5-3% on a deal. That's 5k-6k. There are some that will only work in certain brackets, but who would say no to a 5k paycheck for showing someone some houses, and helping them sign a purchase contract? You're looking for a unique style of home there, so it's not like you're going through 100's of houses a week or anything.

Hope that gives you some things to think about. Don't wait on the lender either. If you do have some credit concerns, you need to get your file underwritten asap so that you can have a commitment letter ready rather than simply a pre-approval letter. (Most companies "Pre-approval" letters aren't worth the letterhead they're printed on. Even if they do print it from an automated decision, it's only as good as the information they put in, which means the underwriter can change something and cause a different decision.) The commitment letter can take a bit to receive, because it requires not only your application, but also some documentation as they will be reviewing your income, credit, assets, and the potential property.

chow · Posted: Sun Jul 15, 2007 2:33 pm Post subject:

we are considering realtytrac and another company called canal chalet which specializes in insurance settlement homes.

Use a Realtor! The seller pays for them, so use them!
Get a home inspection and make the offer contingent on it passing as structurally sound, and you are able to afford the repairs.

OnTheWay · Joined: 15 Jul 2007 Posts: 6

Thank you Haplo and Chow for the responses. I have a few follow up questions. I have been looking at realtors, but I'm still a little confused. If I find a realtor, and they put me way on the back burner; can I change realtors? I have also seen realtors who are strictly buyer realtors. Is there any advantage to this?
In terms of loans. We went to inspect an auction home this past weekend, and spoke with the realtors representing the seller. They were pitching to represent us as a buyer. He told me that HFA would not give me a loan to buy a fixer upper unless I planned to flip it. Is there any truth to that? We are hoping to buy a fixer upper that is structurally sound, but in need of mostly cosmetic restoration. We want to do the restoration ourselves. If we apply for the HFA or HUD type financing, will we be required to take out a rehab loan? I've read on here that a lot of online lenders sell your information. Is it better to meet and fill out a loan qualification form in person? Is there any benefit to going through a credit union?
Thank you for indulging all of my questions. I have two last questions.
The 10k we are putting down is a gift from my girlfriend's parents; I have read on other threads that it could be a problem. Should we put it in a savings account in our name and let it sit there until we're ready to use it?
Lastly, I have seen listings for insurance settlement homes. Would it be more difficult to find a lender for this kind of home?

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

Quote: If I find a realtor, and they put me way on the back burner; can I change realtors? I have also seen realtors who are strictly buyer realtors. Is there any advantage to this?

It depends. Many times realtors will have a 'contract' with you that requires you work with them for a certain period of time. If you use someone else, or don't use them at all and purchase a home, you may owe them commission. Frequently there is an exit-clause for both parties however, so that you don't have to worry as long as you tell them you're not working with them (make sure you review whatever you're signing. Have them point out the exit clause before you sign.) Any decent realtor will be ok with this, as sometimes people just don't click.

As far as an advantage to a buyer only realtor, I'd say in general yes. This gives you someone whose sole purpose is to help you and other people purchasing homes. Just like a doctor. You can go see a general practice physician, but if you're in need of heart surgery you frequently are going to go to a specialist.

Quote: We went to inspect an auction home this past weekend, and spoke with the realtors representing the seller. They were pitching to represent us as a buyer.

DON'T EVER DO THIS. Period, end of story. They just want a bigger check, and there is NO BENEFIT TO YOU TO DO THIS. Think about it, you want the guy who's representing the other side to also represent you? Who's interest do you think he's going to serve most? The one who's paying him, probably...

Get your own realtor, for sure.

Quote: He told me that HFA would not give me a loan to buy a fixer upper unless I planned to flip it

Wouldn't he be surprised to find out that he was flat out 100% wrong? See my post above for information precisely to the contrary.

Quote: If we apply for the HFA or HUD type financing, will we be required to take out a rehab loan?
Yes, but that's hardly a bad thing. You will however have to prove that you are competent and have the resources (i.e. time/money) to complete the project, as it's not simply an open line of credit to do with as you please.

Quote: I've read on here that a lot of online lenders sell your information. Is it better to meet and fill out a loan qualification form in person? Is there any benefit to going through a credit union?
Online lead companies (e.g. Lending tree, etc.) sell your information. Online lenders (depending on the company) usually are going to retain your information for their own purposes, and contact investers who will provide you a loan. about 80% of my business is done online or on the phone, with people I never meet face to face. You simply have to be comfortable with who you are working with, and know for a fact that you can trust them. If that is a concern for you, then yes, go local. A credit union may have some benefits, but they have some drawbacks. Getting 100% financing from a credit union is going to be a chore with them using their own money on the project.

Quote: The 10k we are putting down is a gift from my girlfriend's parents; I have read on other threads that it could be a problem. Should we put it in a savings account in our name and let it sit there until we're ready to use it?

This is not a problem as long as you document the source. I.e. when you deposit the check get a printout from the bank for that day showing the deposit, get a copy of the cancelled check or a statement from the donor, and there is a gift letter that will need to be filled out and returned to your lender. If it is something to be provided at close, the availability will need to be determined, frequently a letter from the bank stating the account information can be satisfactory.

Quote: Would it be more difficult to find a lender for this kind of home?

A fixer upper is a fixer upper. It may be more of a pain for you, but for the lender if you're using a rehab loan, we look at what the home is going to be, not necessarily what it is now. You should be fine as far as that is concerned.

Hope that helps you out!

chow · Posted: Tue Jul 17, 2007 6:29 pm Post subject:

We went to inspect an auction home this past weekend, and spoke with the realtors representing the seller. They were pitching to represent us as a buyer. He told me that HFA would not give me a loan to buy a fixer upper unless I planned to flip it.

No flips, the Realtor was WRONG. A 203K is for Owner Occupied only.

Not if the structure is sound, and it passes appraisal. if there is no lead paint, ect. You are best served by talking to a loan officer from your area, get pre approved, have the loan in process and then find the house.

Is there any benefit to going through a credit union?

ahhhhh, this is unfair since my father actually stated a CU and ran a credit union that only did vanilla products-and to this day has just begun offering fannie products. (so, I will give you my humble opinion-m ay dear old dad not beat me up too bad) I would not go to a credit union for a rehab loan unless they think outside of the box.

The 10k we are putting down is a gift from my girlfriend's parents; I have read on other threads that it could be a problem.

Not as long as she's on the loan, in title. Why would it pose a problem? People think there is a problem with giving a child a gift of money to get a house? Under educated Loan officers make it a problem using lenders that know nothing of conventional and FHA guidelines.

I have a mortgage broker to take out to eat, must hop a plane and travel for a few hours...
see you all next week. :D

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

Tell him Haplo says hello!

chow · Posted: Wed Jul 25, 2007 12:34 am Post subject:

HUH? :shock:

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

Wasn't it Marvin?