house buying, part 2

A couple of months ago, I started listing all the steps required in buying the house. At this point, we got our P&S signed - that means that we had to take off yet another day from work, drive heck-knows-where, and sign a million copies of the same form that specifies what it is that we're buying. The form, among other things, will list what appliances are staying, and when the closing date will be. Believe me, you're gonna need at least a month until you can close...

1. At this point, you should have your mortgage broker lined up, and he should have told you what kind of a mortgage you can expect. There are two kinds of mortgages: fixed and adjustable-rate. Adjustable-rate mortgages (ARM's) look good on paper, since the monthly payment will be lower to start with. But, their rates reset after a given number of years (1-5, usually), and if you rate goes up - so does your monthly payment. So, go with the fixed rate. It seems that the majority of the country did not listen to this simple advice, and that's why people are foreclosing left and right.


2. Check out the mortgage rates. They're about as easy to predict as the weather, but there are sites out there that try to do just that. If you're getting really into it, you can take a look at the historic trends, and breathe a sigh of relief - back in the early 80's, rates were as high as 18%. Nowadays, you can expect something closer to 6.5% - which is still a lot. Pretend that you can find a house for $100,000 - if you finance 100% of the purchase at 6.5%, you'll be paying the bank $6500 a year just for the privilege of borrowing their money. Ouch.


3. Check if your parents or somebody else you know is loaded. Steal their money. No, no, kidding - but, you can actually borrow money from them, and set up a "private" mortgage. Or, if the other party trusts you enough, they can accept the money as a gift (which is better for the giver as far as taxes go), and then you'll pay them back later - you can sign a promissory note to make sure that they get their money back if something happens to you.


4. Now you have to figure out the downpayment situation. If you can scrap together 20% of the purchase price, you're good - that means that you don't have to pay PMI (Private Mortgage Insurance), a special penalty for those who can't. Otherwise, another option is a piggy-back loan - you would take the first loan for the 80% of the purchase price, and then the second for the remaining 20%, at a higher rate.


5. If possible, arrange it such that the downpayment money has been sitting in your account for at least two months. Otherwise, you have to explain to the bank where you got it. Avoid the Bank of America trap that my friends fell into - they were promised one rate, when their account was flush with dough, but as soon as they put down their deposit, their balance dipped - and BofA claimed they were no longer eligible for the rate that they were initially quoted.


6. At this point, you can lock in the rate. Talk this over with your broker - a good one can offer you to re-lock for free when closing draws near, in case the rates fall.


7. Now your mortgage broker is ready to send you the loan application - the biggest pile of paper you'll ever see. It will have estimated fees - you're not gonna know the exact number until the day of closing. Make sure you're not paying an arm and a leg - those fees can add up to thousands. Speaking about arms, I twisted my loan broker's until he came up with a pretty good deal - we'd sign up for a line of credit (even though we didn't need it), and he'd make sure that all the fees added up to less than $1800.


8. In case your brain fluid is boiling, don't even keep on reading. Home equity line of credit (HELOC) is a way to borrow against equity, or the difference between what your home is worth and what you owe on it. You still have to pay the bank a percentage (usually adjustable-rate) on what you borrow, but it definitely beats getting into credit card debt. 'Cause there's nothing good about credit card debt, let me tell ya.


9. With the loan application, you have to submit a boatload of papers - W2's for the past two years, bank statements for the past two months, and a whole lot more. Individually, they're not too bad, but finding and copying them might take a while.


10. While all of this is going on, make sure that your loan guy is talking to your lawyer, and that your real estate agent is in touch with the seller's agent. At times, it will seem like you're orchestrating a dunce show.


11. Don't forget that you also have to figure out what to do with the place where you live now, and pack up your belongings. Finally, you're ready to close.

What happens next? Stay tuned for the next installment...