Help me buy a house! (with cliff notes)

[Nomad84]

I remember a thread that I read once where someone got the forum's help in negotiating for his new house. I enjoyed that thread and several others also expressed a desire for more of that type of thread in the future. Well, it's the future, so I figured I'd ask for help with my upcoming home purchase. I'll start with the long version of my situation and I'll give the Cliff Notes at the bottom.


First, a summary of who I am and what my plans are. I am 23 years old. I am single. I will be a first time homebuyer. I work in a stable job for the government and have been there for just over a year. My pay is good for the area and will be going up quite a bit in January 2009. I have never borrowed money for any purpose (at least in my name). I plan to buy a house (new construction) in the $220-240k range, most likely. I have a house in mind that I would like to buy and would like some advice on how to proceed.



My financial situation:

As I said before, I work for the government. Technically I can be fired for any reason within the next several months. I believe it is after 2 years of employment that I am considered "permanent", although there is a possibility that it is 3 years...I'd have to check. At any rate, I consider my job to be stable. I currently make just over $50k/year. In January 2008, that will increase to just over $54k. In January 2009, it will increase to about $65.5k/year. These numbers assume a 1.7% COLA (cost of living adjustment), which is what we got this year. That number could change slightly, but the overall salary numbers will be pretty accurate. These numbers (minus the COLA adjustments) are promised in writing in my job offer letter.

I currently have approximately $27-28k in a money market fund at Vanguard right now. In addition, I have about $800 in a taxable mutual fund that I plan to cash out. I also have two separate Roth IRAs worth about $9-9.5k, including $8k in contributions, and a TSP worth about $2k, although I don't plan on touching these. In an emergency, the Roth IRAs could easily be tapped for $8k though, obviously. I also own my car jointly with my dad. The financing is in his name, although I have making the payments since I graduated. It will be paid off in another month and is worth about $12k. It has about 65k miles on it and I plan to keep it for at least another 5 years, so no car payments for the near future. Totals: about $28k in savings for the house, $11.5k in retirement funds, and a paid off car worth $12k. I can get some assistance from my dad if necessary, but would rather not have to.

My credit history. Not much to say here. I don't have one. I got through school on scholarships, internships, and jobs. My dad bought my car for me until the last year or so, when I took over the payments. The financing was left in his name at 0%. I don't have any credit cards. I applied for one through my credit union a few months ago. Initially, I was declined (because I had no credit history), but when I explained that I was trying to build credit for an eventual home purchase, they agreed to give me a card with a $500 limit. I never followed through because I didn't know if a few months would be enough to make it worth the negative effects of new credit. I asked my dad to add me as an authorized user on his card (no late payments, over 10 years old, over $10k of credit with ~10% utilization). They told him that as an authorized user, it would not show up on my credit report. To get that, I'd have to be a joint account holder. He told them to do that. I doubt they've pulled my credit yet (they don't have anything with my signature authorizing it), but I'm sure they will before they make me a joint account holder. They are sending us paperwork. I'm thinking it doesn't even matter at this point. Basic summary is that I have never used any credit in my name and as far as I know I have one inquiry a few months ago.

Cash flow. Adding together my current rent, car payment, and automatic monthly contributions to my savings, I know that I will be able to comfortably afford to pay around $1600-1700 per month for all new home related expenses. That mostly means PITI and HOA fees of $200-300/year. Aside from higher bills because of the larger house, are there any other obvious expenses I should be aware of? I have been looking at new construction only, so maintenance and other related expenses should be very low, right?


The property:

I am not dead set on buying a particular house, but there is one that I like quite a bit. I like the floor plan, the materials, the neighborhood, the location of the neighborhood, and the location within the neighborhood.

I don't know what will happen to prices there in the future, but I believe that this neighborhood has a good chance of appreciating at least as fast as the rest of the town, and probably faster. It is a nice neighborhood with homes ranging from around the 220s (I think) to the 260s and 270s, with a couple that were listed at almost 300k. It is fairly close to several more expensive additions (and one less expensive, older neighborhood that seems to be OK). I believe the schools are good (the same schools as those expensive additions). It has easy access to the interstate, as well as to plenty of shopping and restaurants, but is just far enough from them to be quiet. The immediate area is all residential. I believe there will be fairly substantial commercial development along the interstate within 1-4 miles of this neighborhood within the next few years. Within the past year, a nice new Target Supercenter opened up in this area. There is more construction underway, but I'm not sure what for. In addition to the commercial development, there is some ongoing residential development as well. Currently, the neighborhood I am looking at is the only one in that immediate price range, although the initial dirtwork is beginning nearby for another development. I don't have any idea what price range those houses will be. There is more land available nearby, but it sprawls increasingly far from town. I feel like the new commercial development will create jobs faster than the new residential developments will create homes in this area, and I assume that this would be significant to future home prices. Are these some of the correct factors to consider? At any rate, I don't forsee any massive overbuilding by the residential developers. They seem to have done a pretty good job of scaling back in the current market as homes sit on the market longer. Anecdotally, it seems that inventories now in the neighborhoods I've looked at are less than they were a few months ago.

So those are my thoughts on the neighborhood. The house itself is a 3/2/3. I never really looked at houses with 2 car garages as they don't meet my needs. The square footage is around 2100. List price is $234k. I have a flier from a few months ago from the company selling the house that lists several houses for sale. I did some research on the ones that were listed as "available" at the time. I don't know what stage those were really at when the flier was printed, so theoretically, the flier could be "doctored", but when I looked up actual sales prices through the county assessor's website, most were within a couple thousand of the prices on the flier. Will I be able to negotiate this price down? Were these just idiots that didn't know that new home prices were negotiable? There were around 12-15 of them that were pretty close to the price on the flier, but notably, one was something like $12-15k cheaper than list. Are buyer's agents common in new construction? Will I be able to use the fact that I don't have one as a negotiating point?

Based on the other houses I have looked at over the last few months, I believe that the list price is not bad, but would obviously prefer to spend less. Aside from my research I mentioned earlier, I'm not sure what the list to sales price ratio is for other houses. I do have data on my work computer that I pulled from the assessor's website that includes all sales prices, sales dates, square footage, etc. from all houses in that section of the neighborhood. I have made a couple of plots with this (somewhat limited) data and they seem to indicate that the price on this home is not unreasonable, but of course there are a number of things that don't make it into that aggregated data, such as floor plans, location (corner, culdesac, etc.) and differences in finishes, materials, and other similar "upgrades".




CLIFF NOTES:

I am looking to buy my first house very soon. I have a stable job with enough income to comfortably support the payments and will have a guaranteed increase in income of about $15k within the next 18 months. I have about $28k in cash available right now, with the possibility of assistance from my dad as well. I have never borrowed money. I have picked out a house that I like and would like to make an offer on it. Asking price is $234k.


What do I need to do to place an offer? How much do I offer? What else to I need to do (regarding financing, etc.)? It's not the end of the world if I don't get this particular house, but I do like it and would prefer to get it, so I won't be doing any extreme low-balling or anything like that. For the same reasons, I would like to act as quickly as possible. What is my first move?

[jackblack73]

I'd say your first move is to buy your credit score (FICO) at myfico.com.

[Nomad84]

Will I have a credit score without having ever borrowed money? I know that in any case I at least need to get credit reports to make sure there isn't anything erroneous on there or anything that isn't mine.

[Nomad84]

What interest rates and closing costs can I expect to get in my situation? I plan to take out a 30 year fixed rate loan. I'll probably do 80/10/10 if I can. How much money will I be required to have in reserves, especially given that the Roth IRAs are easy to liquidate if required, and therefore could be thought of as an extension of my "emergency fund"? (I will exhaust all other options before draining the Roths though.)

[scotchnrocks]

Your interest rate will probably suck because of your credit score. I would estimate closing costs to be ~$6K. 2 months mortgage payment was required in reserves on my loan. Unless you plan on renting out to friends or you are married, I'd reconsider your price range. That is a lot of house for your salary, and I question whether or not you will qualify for a loan by yourself without putting more down.

My recommendation would be to get a few credit cards to build credit and to save up more money for a few years. Then plan on purchasing a house when the bump to 65.5k/year kicks in, by then you will have much better credit, more to put down, and the payments will be a lower % of your monthly income.

[Nomad84]

Assuming I can get financing at an acceptable rate, what do I need to do in order to make an offer on the house? I found some forms that are provided by the Oklahoma Real Estate Commission. Are these the forms I use to place an offer for the house?

Oklahoma Uniform Contract of Sale of Real Estate - New Home Construction
Financing Supplemental Agreement to the Sale of Real Estate Contract
Homeowners Association Supplemental Agreement to the Sale of Real Estate Contract



Also, are the following steps roughly correct?
1. get preapproved for loan (ideally)
2. fill out those three forms to make an offer
3. counteroffers (back and forth as necessary)
4. offer or counteroffer accepted
5. home inspections as necessary
6. find insurance
7. get lender to proceed with loan application
8. other documentation and paperwork as required prior to closing
9. closing

With 5, 6, and 7 happening within a short (specified) period after the offer acceptance.

Aside from financing, is there anything else I need to do or start prior to placing my offer?

Thanks!

[chalk7]

find a well respected realtor to use as a buyer's agent. the commission is paid by the sellers. it is no additional cost to you.

if you find a house on your own, the listing realtor will become a dual agent by default and will be representing the sellers at the same time. the listing realtor will get all of the commission and have a conflict of interest in representing your best interests.

[d0nkaments]

pm me i can help you out with this. i have many connections in the real estate field as well as loans (thats my job)

[Nomad84]

[ QUOTE ]
find a well respected realtor to use as a buyer's agent. the commission is paid by the sellers. it is no additional cost to you.

if you find a house on your own, the listing realtor will become a dual agent by default and will be representing the sellers at the same time. the listing realtor will get all of the commission and have a conflict of interest in representing your best interests.

[/ QUOTE ]

I've heard that it's no cost since the seller pays, but I've also heard (and it makes perfect sense) that the seller has it budgeted in already and if you don't use a realtor that it's basically another 3% price reduction that can be negotiated pretty easily. If I were buying an existing home, I'd almost certainly want to use a realtor, but I didn't really think it was necessary for buying a new construction house. I'm also unclear on how the commission issue works with their realtor because he is one of their staff members and not just some random realtor that they found through the yellow pages. Since he works for them on a daily basis (and only for them), is he still working off of commission? I'd guess yes, at least to some extent, but I don't know.

If I decide to use a buyer's agent, can I negotiate a rebate of a portion of that 3% fee since I'd basically just be having them walk me through the paperwork? I realize that represents a significant amount of work, but it's certainly less work than doing the same thing after locating and showing me a large number of available homes and helping me choose the one I want.

What are the downsides of not using a realtor? Obviously I don't know as much as I'd like to about what steps I need to take completing the purchase and related transactions/contracts/etc. Having a realtor would potentially solve this problem, of course. As for having someone involved who has my interests in mine, won't I need to get an attorney involved on my behalf to review the documents and ensure that everything is as it should be?