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Xenosaga, Say What?, Huh?


I... uhm. I got a call from Dan Crittenden, the mortgage guy, this morning.

I got approved.

First-stage only, there's still more to go through, but I got approved for a $450,000 mortgage. I have to put down $20,000, but that's way better than the $90,000 that Mike and Keith have been pushing for, and the payments are still lower, and I'm allowed to declare the $20,000 a gift -- meaning I can beg it off of mom from her inheritance, and it won't affect the approval. And the interest is 6.5% fixed.

I got approved.

...are these people INSANE?! o.O;


Okay. Slow down. :)

I'd suggest that you actually deal with a mortgage broker. Go to them, and get a letter of pre-approval (sometimes called a "letter of commitment"). They will require a credit check, as well as declarations of your assets, backed up by your last couple of paystubs and bank statements. They'll approve you for $X dollars, expiring on a certain data (up to six months in the future, often). They'll also tell you what you'd be looking at in a monthly payment, at the best rate you quality for, at that amount. Be careful; don't only look at the loan rate. Look at the fine-print terms (can you pay it off early? are there any penalties for doing so? what are the "junk fees"? etc.).

Mortgage brokers are good because they'll shop your loan around. If you don't use a broker, compare as many rates from as many different sources as you can to find something that you like. (You're basically doing what the broker would be doing, in that case, except yourself, manually, rather than getting to use their computer systems.)

You will probably want to do an 80-15-5 or something of that sort -- 80% on the first loan, 15% on the second, and 5% of your own money. That gets you to the 20% down payment needed to avoid personal mortgage insurance (PMI) on the loan, which is really important. The second loan will be at a slightly higher interest rate, but you can pay it off early if you want, and its interest is tax deductible, and you save the PMI. Furthermore, the 80-15-5 is especially good for you if you can get the size of your main loan down below jumbo-loan size -- jumbo loans have higher interest rates.

Once you have a letter of commitment, that'll show you the maximum amount of house that they'll approve you for. (The house must appraise for at least that amount before the deal closes.) However, this is often a much higher figure than you can actually afford; they don't really care if you have enough money left for food after you pay the mortgage. So you'll need to take those figures and do some calculating to determine what you can actually spend for a total monthly payment (including house insurance, etc.) and figure out what purchase price that is. (The Motley Fool site has some good tools for this.)

Letters of commitment are great because they're generic -- they're not tied to you buying a specific house. You could buy any house for that amount or less, and they'll give you a mortgage. (Indeed, for a less expensive house, you'd probably get a better rate, if your loan is no longer jumbo.)

You really need what's called a buyer's agent -- a real estate agent who is responsible for protecting your interests. In many states, the seller pays the commissions of all of the agents. It normally doesn't cost you anything to have a buyer's agent, so definitely do get one. The seller's agent is there to get as much money as possible for the seller. They don't care about you, even if they pretend they do. Get your own agent -- get a recommendation from a friend you trust.
This is a mortgage broker. To be honest, Dan Crittenden is the first person I've dealt with in all this who I /didn't/ feel pressured by. Dan's said 'well, we'll shop you around, see if we can find you a place willing to do this all for you, do your credit check and so on... if we find something that works and you want the house, then we'll talk to Mike more about it. If you don't feel comfortable with the payments or the price Keith's set, and you can't argue him down, and you still want to buy something to avoid renting, I'll work with you on that, too. And if you want to take more time to look through it all, that's definitely a good idea -- rushing into things isn't a good plan.'

So while I'm a little stunned that Dan managed to find someone willing to do the $450k at those terms, he also said 'I'm out of town right now, but we can meet up and I'll show you the pros and cons of this thing later when I get back, and we can discuss any questions you have and decide to keep looking or whatever.' So to be fair, while I feel like Mike and Keith are pressuring me, I do /not/ feel like Dan is.
Dan should be able to give you a letter of commitment for the $450K at a certain set of terms. You can then take that letter and do any type of house shopping you'd like -- whether existing houses or new houses. You then don't need to deal with him again until you've made an offer on a place.

In the meantime, definitely do get that buyer's real estate agent, whether you're deciding to get this place, or continuing to shop. They'll help you figure out if the price is reasonable, what your alternatives could be, handle the negotiation, and so forth.

Also note that in addition to your down payment, you will need a certain amount of money in closing costs, in cash. Closing costs could easily exceed $10,000 on a house like that.
The way I went to buying my house was as follows:

Looked up what I could afford. I think it was 2.5 or 3 times my salary. It depends.

Spent about 6-8 months looking for a house with keeping mind that it was an investment; so, I was thinking new construction, new neighborhood, new school district, etc...because I'd figure I would sell it in about 5 years.

Found my house. I went through a realtor's office.

My realtor suggested a few banks where I should go to obtain a loan for myself.

I secured the loan, and I have been making house payment ever since.

A cautionary note, you might be approved for $450k, but you could end up with a house, where you can't afford the taxes, utilities, furniture or food. :)