What to look for in your first home mortgage?

[MBAustin]

Another vote for no escrow - I forgot to mention that the first time. Had horrible problems with our first two mortgages with escrow errors (not paying insurance or taxes on time) so have always gone no-escrow. In DE it didn't cost anything but in Texas it did, at least the last time (I don't recall the first time).

 

[Big_Hitter]

yeah +1 for no escrow

 

[Cobra9777]

If you are good at money management, pay the fee so you do not have an escrow account... when I had one they screwed it up almost every year.... I had lots of excess money sitting in escrow doing nothing for me year after year... not as important with this low rate, but back then it was real lost money....

+1 on avoiding the escrow account if you can. I hated dealing with that.

Bankrate.com is a great place to start searching for a mortgage.

 

[soupcxan]

$9K in 2 years would have to be a honker of a mortgage, and might be worth it, maybe, I guess.

Our $330k mortgage is a "honker"? The average mortgage today is $294k, although this was two years ago, so we're a little above average but not even jumbo.

Average mortgage loan size outpaces home prices | 2015-03-13 | HousingWire

 

[Animorph]

I tried to avoid escrow for my last two refi's but they wanted a 0.125% or 0.25% higher interest rate to let me do it myself (don't remember the correct bump). While some of the escrow calculations have been a little flakey, I haven't had any problem with them paying anything late.

 

[Texas Proud]

Our $330k mortgage is a "honker"? The average mortgage today is $294k, although this was two years ago, so we're a little above average but not even jumbo.

Average mortgage loan size outpaces home prices | 2015-03-13 | HousingWire

OK..... then what kind of interest rate do you have on your ARM and what rate did you use to calculate $9K savings....


I did a quick calc and used 3.5% vs 2.5% and the savings was $6.6K.... so it looks like you need a 1.5% spread between the variable and fixed to get your savings.... but I do not see that much spread in ARMs today... as I said, the ARM rate was actually higher than the 15 year fixed when I looked online...

 

[ronocnikral]

Get a real estate license and buy a home with a 3% discount, then give up the license if you do not want it anymore.

I'm curious on the practicality of this advice. If someone is just going to buy ONE home, is it worth it? Don't you have to pay to access the MLS? And associate with someone who carries some office support and liability coverage? Genuinely curious....

 

[Dash man]

I'm curious on the practicality of this advice. If someone is just going to buy ONE home, is it worth it? Don't you have to pay to access the MLS? And associate with someone who carries some office support and liability coverage? Genuinely curious....

I think the poster was joking around. You have to take a couple of courses and then pass an exam that is not difficult. Then you have to have a broker basically hire you to have a place to park your license. They actually expect you to work at trying to sell houses and spend time manning the office. An agent represents the broker and can't sell homes on their own until they get a brokers license, which requires experience and more exams and a different license.


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[pb4uski]

+1 on avoiding escrow and PMI, even if you have to put up a bit more. A good mortgage broker can be an advantage but it is hard to find a good one. I found one through my credit union. A CU or PenFed or similar might be a good place to start.

Avoid Quicken Loans... I had a bad experience with those shysters but luckily had a good trail of emails so came out whole at the end of the day.

 

[Bamaman]

You don't say where you live, but where are you looking to buy a $300K house? It'd be a dump in Toronto, but in Atlanta it'd be a 4,000 square foot house in a beautiful swim tennis neighborhood.

I'm with Suze Orman about housing and living in general: Live below your means. If you can afford a $300k house, buy a $200K house. If you can afford a new BMW, buy a 2 year old BMW or a used Honda Accord and keep it until it dies. Fund 401K's and Roth IRA's to the max. Take the extra and get the house paid off. Then you can seriously save.

 

[ronocnikral]

I think the poster was joking around. You have to take a couple of courses and then pass an exam that is not difficult. Then you have to have a broker basically hire you to have a place to park your license. They actually expect you to work at trying to sell houses and spend time manning the office. An agent represents the broker and can't sell homes on their own until they get a brokers license, which requires experience and more exams and a different license.


Sent from my iPhone using Early Retirement Forum

I don't think he was, but I'm sure he'll eventually chime in and "set the record straight."

But, thanks for confirming what my gut feeling was telling me, it probably isn't worth it to get your RE license for a home every couple years.

 

[soupcxan]

OK..... then what kind of interest rate do you have on your ARM and what rate did you use to calculate $9K savings....

When we got the mortgage the 5/1 ARM was 1.875% and the 30 year was 3.25%. Multiply by 330k by 2 years = 9k. I will take that bet any day of the week.

 

[Texas Proud]

When we got the mortgage the 5/1 ARM was 1.875% and the 30 year was 3.25%. Multiply by 330k by 2 years = 9k. I will take that bet any day of the week.

See.... I did get the spread right... so you have 5 years at the 1.875%.... is there a max increase per year after that

I would agree that big of spread would make someone think twice if they had some limits on increases or be able to pay it down if the rates shot up....


The spreads today and the probable rate increases soon would beg that it is not the best decision....

 

[soupcxan]

See.... I did get the spread right... so you have 5 years at the 1.875%.... is there a max increase per year after that

After five years, the most it can increase by is 2% per year. The minimum it will ever be is 2.25% and the max is 6.875%. The reset formula is 1 year libor + 2.25% so if it reset today it would be 3.1%. That's still less than the 3.25% for 30 years I could've locked in up front or the 4.0% I'd pay on a 30 year fixed note today.

I would agree that big of spread would make someone think twice if they had some limits on increases or be able to pay it down if the rates shot up....

Yep, we'd pay it down if it shot up. Or we might have already moved, who knows. But I do know that I'll have saved $22,500 in interest over the first five years.

The spreads today and the probable rate increases soon would beg that it is not the best decision....

I agree the fixed/floating spreads are not as favorable today, but people have been saying "interest rates will shoot up any second now!" since 2008. I still believe that a 30 year fixed rate has people paying for rate insurance the majority of them don't need, either because they move, or they refinance.

 

[JosephC]

Thanks everyone for all the comments, and sorry for the delay in response, I was out of the country for a bit. -- I'm looking through all of them.

Joe C,

How long do you think you'll be in the house? All the arguing about ARM or fixed rate is pointless without the answer to that question. Your plans might change, but what do you think today?

You are correct, it would all depend upon our job situation, but I see it as long term living (at least 12 years). It's a very family friendly neighborhood with a good university satellite campus nearby.

You don't say where you live, but where are you looking to buy a $300K house? It'd be a dump in Toronto, but in Atlanta it'd be a 4,000 square foot house in a beautiful swim tennis neighborhood.

I'm with Suze Orman about housing and living in general: Live below your means. If you can afford a $300k house, buy a $200K house. If you can afford a new BMW, buy a 2 year old BMW or a used Honda Accord and keep it until it dies. Fund 401K's and Roth IRA's to the max. Take the extra and get the house paid off. Then you can seriously save.

It's in the metro Seattle area.

 

[haha]

It's in the metro Seattle area.

And it $300,000?

I guess metro Seattle must involve a lot that I never suspected.

Ha

 

[Juliajones54]

We bought well below what we could afford, and we have stayed in our first home for 23 years. Paid it off in 15, have done many improvements, and the value has more than doubled. We will be moving to a different state this year and will be able to pay cash for our next home which we plan to retire in. We will still buy below our means. We won't mind a few improvements, but not to the extent of our first house. Your home can definitely work for you in regard to investing.