Getting a mortgage is a bit more complicated than realtors and mortgage companies make it seem. I purchased my first home in 2010 with my brother- a condo that he and his girlfriend are currently living in. While going through that process I could not believe how much goes into buying a home. I was sure I wouldn’t have to do it again for a loooong time. Yet here I am. My husband and I are currently in the process (almost done, thank God) of purchasing our hopefully, forever home . And boy what a process it has been. I instantly remembered, and am currently re-living, what a pain in the ass it is , and since this ain’t my first rodeo I’ve decided to do a little public service announcement for anyone who’s never had the pleasure of going through the mortgage process. If you’re thinking of buying a home, here are some things to consider, mostly financial, that no one may have told you.
The purchase price may be a little more than you thought
This time, we are doing a VA loan through Quicken loans. The origination fee for the loan is $3,977. The fee was rolled into our mortgage, so instead of getting our house for $185,000 we are actually paying $188,977 for it. When I bought my condo I did a FHA loan. Quickly, a FHA loan is a government backed loan. It is insured by the Federal Housing Authority, and because it’s backed by them the bank will offer lower rates since it is less of a risk. As a first time home buyer, my origination fee was waived. Depending on your lender, and type of loan, plan on paying a few grand (or adding it to your mortgage) for them to start processing (originating) your loan.
I put this second because I feel like closing costs are often overlooked. Talk about buying a house and everyone immediately thinks about having a down payment. I very much agree – having a down payment is a smart thing to do and you should plan for it. However make sure you have money for closing costs! Closing costs can be an upwards of $10,000. Yes 10 grand or more, depending on the price of the home. Sometimes the seller agrees to pay some or all of the closing costs. With my condo, the seller agreed to pay half and I still had to come up with $4,000. This time, the seller did not agree to pay any of the closing costs. My husband and I are looking at about $6,000 dollars out of pocket at closing. This is including the lender credit we received towards closing of $1,800, and putting a $2,000 deposit down from our own pockets in the beginning. Ouch.
Speaking of closing, don’t get too attached to your closing date. With my condo, for whatever reason, the closing date got changed 3 times. There was nothing major going on, no repairs, no negotiating with the seller etc, so I’m not sure why it got changed, but it did. This time, the closing date changed once, and we are hoping it doesn’t change again. The VA appraiser needs to re-inspect the property after more repairs are made. The seller and their real estate agent have been great at getting everything done as timely as possible, but we will still be cutting it close. Bottom line, things change, so don’t go planning a major bash for the day you think you are signing papers.
A down payment is wise to have when buying your home. When I bought my condo I went with a FHA loan, because while I had some money saved, I did not have 20% saved. For a FHA loan you must put down at least 3.5% of the purchase price, compared to the usual 20% for a traditional mortgage. No down payment is required for a VA loan. Though you could, and should make one if you have the money. A down payment reduces the purchase price of the home (aka how much you are financing), and in turn, lowers your mortgage payments. Banks give better interest rates when you put money down. However, a lot of banks will work with you, especially first time home buyers, if you don’t have 20%. If you are thinking of buying a home start saving up for at least some type of down payment, and of course CLOSING COSTS!
When I bought my condo I did not worry about getting an inspection done because 1. The condo association takes care of the major things, 2. The inside was well maintained and in good shape, and 3. The units were newer. If you are buying a home, especially one with a private well and septic system I would highly recommend you have it inspected. Septic systems alone can cost $20,000 on a good day to fix, if something major is wrong. We paid $700 for our home inspection and $350 for the septic inspection. This may seem like a lot, but you will be saving thousands if major issues are brought to light. There is a list of little things, and one thing I consider somewhat “major” that was found during our inspection. Remember- little things add up. If the seller doesn’t agree to do repairs or reduce the purchase price, you can decide if you are willing to fork over the cash to pay for repairs yourself. Having a home inspection may also save you from purchasing a home with a major issue, for example one that isn’t structurally sound, giving you a chance to walk away from the whole deal. In our offer to buy the home, our realtor made sure the purchase of the home was contingent on the result and repair of any issues the inspection revealed.
Repairs prior to closing
So far the seller has agreed to fix most of the little things found in the inspection. You wouldn’t think these small fixes would be a big deal. Well, the seller has already spent $2,000 on fixing them. This does not include fireplace/chimney repairs. Our original inspector noticed
some a LOT of build up in the chimney. He suggested a chimney company come and perform their own inspection before we moved forward, to which the seller agreed. The chimney specialist found there was a previous chimney fire leaving cracks in the bricks. The fireplace is not operational until repairs are made. The seller paid for the extra inspection, which was an additional $350, and is now paying for the repairs which are costing $2,550! Do you see how easy spending money is when buying a house!? Most people, like us, are not made of money. I doubt we would have kept moving forward with this if we had to pay for all these repairs ourselves. The house is also cosmetically outdated and needs a complete overhaul in almost every room. Is it live-able? Yes. Is it pretty? NOPE. We are getting a good price for having 11.3 acres of land and someday, it will be pretty. The most important thing is that all the necessary repairs have already been made and paid for by the seller. Not having to pay for all the repairs, we will have some extra money after we close to do some of the cosmetic updates, like removing all the shag carpets and painting. The bigger things that need to be done, such as updating the kitchen and bathrooms, we will budget out over the years.
Title fees got rolled into my closing costs the first time. This time they won’t. We have to pay a lawyer to write the legal paperwork and be present for the closing. The quotes we have gotten ranged from $500 to $850. We will obviously go with the least expensive one.
If you’re going with a VA loan a VA appraiser must inspect your home. We had to pay $450 for this. Note that if they find anything that needs to be fixed, either you or the seller must fix it before they will approve your mortgage. The seller is paying for a few things the VA found. Unfortunately the VA does not let you DIY anything and they expect that you pay a professional to do any repairs. One thing we could not get repaired due to the winter was painting the exterior trim. We have to put the money it will cost in our escrow account. When it’s no longer winter, we will hire someone to do the repairs. The VA will re-inspect the repairs done. They then pay the company who did the services from the amount you put into the escrow account.
Homeowners insurance will be figured into your monthly mortgage payment. It’s worth it to shop around and find the lowest rate available. A lot of companies will give you a discount if you also carry car insurance or other policies with them.
It’s important to know the tax rate of the town you are moving to. Here in Connecticut the taxes are pretty high. In fact we will be paying about the same amount of taxes on our new home in Vermont as I do on my condo. For a comparison my condo is 1226 square feet and has no land. The house we are trying to purchase has 2300 square feet and 11.3 acres of land. Taxes were a big consideration for us when buying a home, as we know all too well how much they add on to your monthly payment. You can pay property taxes once year if you want to, instead of paying it monthly in your mortgage payment, but most people don’t go that route. The taxes on my condo are just under $4,000 dollars a year, which adds an extra $400 to my monthly mortgage payment. Just something to be mindful of.
Wait, there’s more? There can be, unfortunately. Some companies charge underwriting fees as well as application fees. Depending on the type of loan you get you may be required to purchase PMI (private mortgage insurance) which is usually 0.5-1% of the loan amount, paid monthly in your mortgage payment. Thankfully we did not get charged any of these fees with the VA loan, nor did we need to purchase PMI.
One last thing…
Prepare yourself to be stressed and annoyed daily by the bombardment of things that need to be done to move along your mortgage. Getting pre-qualified and looking at houses is the easy part. Once your offer gets accepted the work begins. The house you looked at could have been sitting on the market for a year, but as soon as the mortgage company gets involved suddenly everything needs to be done YESTERDAY. There will be negotiations with the seller about repairs that need to be done, if any. The mortgage company will basically want your life history and first born child in order to get your mortgage approved AND you’ll have to scan and upload all that info to them on a pretty much daily basis. You’ll be getting numerous emails and phone calls from your realtor and multiple people who are now working on your loan. Your dates will be changed. Fees will go up. You’ll be told you need to come up with more money for something that you were definitely not planning on. There will be deadlines for inspections and paperwork. If you’re like me, you’ll probably want to pull all of your hair out… but then you’ll remember how much you dislike your landlord and you’ll just keep moving forward. I don’t know, maybe getting a mortgage is like a right of passage or something. If you’re in the middle of one and you’re reading this, know that you aren’t alone, and I was dumb enough to do it twice.
Don’t be! Instead, be an informed buyer. If you are thinking of buying a home soon, do yourself a favor and start saving some extra cash now. Plan ahead and research everything. I survived it once, and I’ll survive it again. You will too. Just estimate that everything will cost more than you are expecting it to, and you should be well on your way to surviving the thorn in your side that is getting a mortgage. 🙂
I found all of the images on Pinterest.com