Beer Drinker Appreciation Society - Closed (Page 97)

 That's awesome Kevin!  What beer(s) are you gonna drink to celebrate!

Your friendly neighborhood real estate broker and attorney here to help!  

I'm not licensed in state other than IL, so this info will all be generalities.

• Get together all your bank statements for the last six months, all your paystubs for the last six months, and your last three or four tax returns, and keep them handy and safe.  Keep them updated and orderly.  
• Pull all three of your credit reports, and make sure they are not any mistakes or errors on them.  If there are, fix them.  Ensure they are accurate.  You can get your credit reports for free once per year at annualcreditreport.com
• If you have a monthly budget, look it over for the last six months, and see where your money is going, and what your surplus cashflow is, to determine what you can afford to pay each month.  Remember to factor in things like home repair, water, trash, gas, electric, lawn mowing, and the like.  Spend about four hours staring at your budget and determine where your money is really going.  Remember your triathlon habit!
• If you haven't started a budget, do so.  Dave Ramsey has a good system you can use as a baseline.  I don't use the envelopes, but I do track everything neurotically.

I personally built a monsterous spreadsheet where I could put in my purchase price, property taxes, etc., and it would spit out my monthly payment based on my own terms and assumptions.  I highly recommend it.  All the online calculators use basic assumptions that may or may not apply to your case.

Just because you have $50k in the bank, doesn't mean you have $50k to put down.  Closing costs vary wildly from jurisdiction to jurisdiction, so try to get a handle on that.  Your real estate agent should be able to help, as should your attorney if you use at closing in your area.  

Mortgages:

• Conventional:  probably what you want.  Generally require 20% down, and generally do not require PMI or MIP (a/k/a mortgage insurnace).  
• FHA:  for first time home buyers, people with cruddy credit, and people with less than 20% down (i.e., me).  Rates are lower, but you have to pay MIP of 1.35% per year.  FHA loans also have an up-front fee (usually financed into the mortgage balance) of 1.75%, depending on what you put down.  MIP premiums last between 6 and 11 years.  FHA is also an assumable mortgage, which means that, subject to FHA approval, someone else can take it over.  This feature can be great - think about in 10 years, when mortgage rates are, say, 7%, and you can sell your house with an assumable 3.5% mortgage and cash.  Buyer gives you cash (probably 8 or 10% more than a straight sale) and takes your mortgage.
• VA loans - great rates, low down payments, but have to be a veteran to qualify.

Another thing to consider is whether you want to be house-rich or house-poor.  Right now, the market is generally in a slight upswing, and the future looks bright; you're probably buying at a good time / slightly late.  Mortgage rates, looking long term, will likely go up, as will home prices.  So, the question becomes, where will you be in 10 years?  

For example, let's say you buy a $200k house at 4% (30 year fixed), your taxes are $5,000 per year, and your insurance is $1,000 per year.  Your principal & interest is $926, and your monthly payment is $1,426.

Compare to a $300k house at 4%, 30 year fixed, with $7,500 taxes and $1,500 insurance, for P&I of $1,389 and monthly payments of $2,139.

Now, assume both houses appreciate at 1.5% per year.  After 10 years, the first house is worth $232k, and the second is worth $348k.  The return on the money is higher, due to the increased leverage, but at a huge cost to cashflow.

I'll post more later.

Woohoo, first run in a long time. Nerve issue still sucks but...what can ya do. Physio at lunch today.

Coaching swimming session for a triathlete course at our local rec center tomorrow! Should be interesting to say the least! Then rushing off to coach my son's lacrosse game.

Busy, busy, busy!

So I was 7 mins late for the Dean's Future Scholars 5K on Saturday...ran it anyway and caught up and passed a lot of walkers and one or two run/walk participants.  Then headed to Tahoe for  great 2.4 mile rough hike to some water falls; absolutely beautiful views!  

Happy day after Cinco de Mayo.  Celebrated with carnitas, avocado salad and homemade margaritas!

Nice job on the run/hike! Please send out invitations to fellow BDAS members for next Cinco de Mayo! Sounds like a great way to end the weekend!

The point is that the more you spend in mortgage (with rates as low as they are, and with a high probability that they will go up along with home values), the rate of return on mortgage and equity is higher, so you can get more by spending more now.  Relatively speaking, houses are cheap now and money is cheap now, and money and houses will be more expensive later - buy low, sell high.

When it comes to real estate, there are three rules:  location, location, location.  Find out where you want to live, and where you can afford to live, and what it's going to be for your commute times, access to bike trails and road, fitness centers, swimming pools, school districts, community activities, grocery shopping, and the like.  

Be careful not to be swayed by pretty faces on houses.  Go watch a couple of dozen episodes of Holmes on Homes, and be sure to get a great home inspection.  I like Holmes on Homes because he explains and points out very common problems and issues, which can at least give you warning signs to major problems.  My inspections (three of them, on three different properties) ran $550 each, and I consider that money well-spent.  Every time I see fresh paint, I think of what a good coat of primer and paint can hide - things like mold, water damage, and all kinds of other problems.  The same with carpet.  Beauty is only skin deep.  

Getting a mortgage

Personally, I did not use a mortgage broker.  You may want to use one if you go with a conventional mortgage, but I don't think they are necessary, and I don't see why they get (typically) 1% for the privilege of talking to the bank for you.

Once you have reviewed and cleared up any issues on your credit report, call your mortgage companies - Chase, Wells Fargo, Bank of America, and any local banks you might have and do business with.  Personally, I don't hold debt where I bank, but that's because I am a neurotic, risk-adverse attorney in consumer finance, not because there is a serious risk of any problems.

Get at least pre-qualified, and look at current rates and points.  They will vary between lenders by a little bit, as will fees, and the rates will change day to day.  Once you have an accepted offer, you'll have to decide if you want to lock the rate or let it float to see if it goes lower - it's essentially a gamble.

Mortgages have three important terms:

1. Rate:  How much interest you pay.
2. Points:  Come in two flavors.  Discount points are points you pay to the lender at closing (1 point = 1% of mortgage amount) to reduce your interest rate.  Also known as "buy down," since you buy down the rate.  There are also "credit" points, which give you a credit at closing towards your closing costs.  With a credit point, the bank is essentially paying you for a higher mortgage rate.  Given how low rates are, discount points are pretty useless (for me, it would have taken 96 months for me to break even, so not worth it to me).
3. Fees:  the ancillary costs - usually an application fee, credit report fee, and appraisal fee.  These don't matter much; however, sometimes a lender will charge an origination fee of 0.5 or 1 point, which does matter and should be avoided, unless they are giving you a significant rate reduction.  

Mortgage prequalification or preapproval ususally last 90 days, so hold off until you are seriously looking.  When you do apply, apply within everyone within a few days, to get competitive comparisions.  Also, all the credit inquiries of a specific type within a week or so of each other count as just one inquiry on your credit report, so it minimizes damage to your credit score.

When it comes to lenders, they're all probably going to sell your mortgage on the secondary market to a new servicier, so it doesn't really matter who you go with.  I have a lecture on mortgage securitization and resale, if you ever need a sleep aid.

Real estate agents - they're all the same.  Really.  And they're all pretty useless.  I say this being a licensed real estate broker.  Use a website like Redfin, which will have pretty much all the same info the MLS service has, and is updated just as often.  The agent is really just a set of keys.  A good agent should respond quickly to your communications and set appointments promptly.  Real estate moves very fast, and a few hours can be the difference between getting a house and not.

The most important thing to realize is that the deal of a lifetime comes by every two weeks.  There will always be more houses.  It can be very disheartening, and I know it has caused issues with my wife and I, but it's a huge financial decision.  The fact is, even being a broker and an attorney, I think I only got it about 85% right.  

Advice put into practice

Here's what my wife and I did, and our closing is set for May 18.  We live in Wheeling, which is a transition neighborhood with solid schools and a good population.  She works in Northbrook and I work in Deerfield, so our commutes are about 10 miles one-way.  We bought a house in Arlington Heights, about 3 miles from our current apartment, in a very residential area, with houses ranging from $200k to $400k, so we bought on the cheap end.  We're also in a better school district, with the #10 ranked high school in the state.

The house is a 3 bedroom, 2 bath ranch with a full basement, detached 2.5 car garage, on a big lot.  It is also horribly dated - my dad's first comment was "The 1970s wants it's basement back."  Dated is great, since I know that all that wood paneling, circa 1975, has never seen any significant flooding, and no major problems have been painted over.  It also means that updates will go far in increasing value.  The residential neighborhood and great schools are desireable, so it will be easy to sell later if we need to.  It's a bit small, but the huge basement makes up for it.

Our mortgage pre-approval was for up to $275k, and I probably could have gone to $300k.  I purchased at $225k, on an FHA loan.  We went FHA because we don't have a ton of money saved, and having money in the bank is important, especially if we need to shell out for day care in the next few years.

My current rent is $1,170, and my mortgage should be around $1,800.

The real estate market is also red-hot here right now; we put in 11 offers to get this one - and we weren't playing around.

Hi Everyone - with the hopes of getting BT to make the BDAS 2 go live - let's be sure to post all our new messages in the new forum.  

Here is the link. 

http://www.beginnertriathlete.com/discussion/forums/thread-view.asp?tid=486826&posts=16&start=1

The most you post - the better the chances that they will move our group to the active section of the forum.

http://www.ninkasibrewing.com/beers/

lost you guys for a while. I was waiting for the new one and thought this one was shut down.

crossfit continues. feels good. trying to run and bike a touch. need to get into water. 

Come over to the dark side...

http://www.beginnertriathlete.com/discussion/forums/thread-view.asp?tid=486826&posts=16&start=1

David has us up and running over there.