When do I start looking for a home if I plan to buy in two years and what do I have to present to the bank?

Asked by Sean H, Raleigh, NC Tue Oct 14, 2008

I am 22 years old, is this too young with my school loans and other misc bills? Is it too much? Should I maybe look into buying a duplex to pay for half of my mortgage?

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Devon Brough…, Agent, Cary, NC
Wed Oct 29, 2008
Hi Sean,

You have a great question and have received lots of great advice here. My specialty is working with first time buyers and in fact, 98% of my buyers are first-timers. Getting a good grip on the financial picture is first and foremost. When you sit down with a mortgage broker or banker, you will need to consider your monthly expenses---everything and see how an affordable and reasonable mortgage payment fits in. You certainly don't want to overspend your budget, and you know your finances better than anyone else. When I moved into my first house, I found a roommate to pay half the bills and that helps A LOT! Secondly, I tell my buyers to buy first because you love the house and secondly for its resale potential. You have to be comfortable where you choose to purchase and need to know that you're also making a sound decision.

Now, more specifically to your question: if you are planning on buying in two years, you do not need to start looking now. What is on the market today will most likely not be on the market two years from now. I have had buyers find a house in 1 to 5 trips out at looking. Sometimes more...but the idea is to narrow down on what it is you're looking for and toss the rest out. Generally speaking, you could need a month to a month and a half for looking and a month to two for the closing period.

Even if you are thinking of a purchase two years from now, it's not a bad idea to talk with a mortgage broker now to see where you stand with everything--for a couple of reasons. One is that you might be financially ready to purchase now and not know it; thus, you can take advantage of the low interest rates and the First Time Buyer's Tax Credit that expires next year. Another reason is when you speak with the mortgage broker, he/she will have to pull your credit to help get the entire financial picture. In doing so, you want to make sure there aren't any "hiccups" on your credit, or things that shouldn't be there. Therefore, you have ample time to straighten that out.

I hope this helps in your journey to realizing homeownership. I commend you for starting out so young--that is fantastic! If you have any questions about my answers or would like to talk with me further, please feel free to contact me. 919-368-7011
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Linda Trevor, Agent, Cary, NC
Thu Oct 16, 2008

Great question and the answer is that you can definitely start working on the home buying process now. First step would definitely be to talk to a lender. You can talk to your bank or also a mortgage broker, and I would be happy to recommend a few that would be happy to sit down and go through your finances with you. Having a plan in place to pay off debt and see exactly what you can afford is helpful to look at now and see where you want to be in the future. Also, you can always think of having a roommate to help with the mortgage payment. Being young, that is a great way to purchase a house and have help making the payment. Honestly, the younger you can buy a house, the better. You will not only be able to have the tax deductions every year, which is huge, but also, you will be paying down the principle of the loan for more years and definitely be steps ahead of your friends! Actually, with the economy being the way it is right now, it is 100% a buyers market. If you are out of school and have a full-time job and know that you want to stay in the area for the next few years, I would suggest looking into buying a home. Sellers are being more than generous with price reductions of their homes, interest rates are low, and also, the government is offering a $7500 tax credit if you buy before April of 2009. Let me know if you would like the name of some potential lenders to get started looking at what you can afford. Doing a little research right now will let you know if you would be able to buy now and/or what steps you need to do next to be ready to buy. I specialize in helping first time homebuyers and would be happy to answer any additional questions and help you along the way!
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Erica McClen…, , Raleigh, NC
Wed Oct 15, 2008
Sean, I've helped many first time buyers still in college or just headed to their first job. The most important thing is you buy smart, when you are ready. Speaking to a mortgage source is the first step to make sure you're qualified and looking in a price range that is comfortable.

I bought my first home with the intention that I'd stay 2-3 years and keep it as a rental when I purchased the next home. It's been a great plan for my retirement and financial growth. At 31, I now own 7 homes!

In the Raleigh area there are many options that will provide you with a home of your own for the same amount as rent. I'd suggest staying away from a duplex as your first purchase. It's a lot of maintenance and you also don't want to dive into being a landlord when you're just learning the pro's and con's of ownership. A townhome is another great choice for first time buyers.

If you're handy...there are some GREAT deals on foreclosed homes that need a little spit shine...

I'm happy to review our VIP Home Buyer program. It's free to use a Realtors help and we also have a $5000 savings guarantee. We pay you $500 if we don't negotiate at least $5000 off your purchase.

Good luck and happy house hunting!
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Bill Eckler, Agent, Venice, FL
Wed Oct 15, 2008

This is the perfect time to begin looking for your first home. As they say, knoweldge is power and the more information you can gather the better equipped you will be to identify the right opportunity for yourself.

Our recommendation is to visit a couple of mortgage agents now for the purpose of gathering financial information and obtaining a lender's perspective of both your stature now and as well as the road you need to follow for planning.

Your thought about purchasing a duplex is an indication need to be practical and stay within your financial limitations. This is a critical factor during these times. In addition to staying within your limits it is equally important to buy right, meaning finding a home that meets your specific needs, located in the perfect area, and offered at a price you can't afford to walk away from.

You can begin your journey now...................enjoy the ride and remember the best trip isn't always the fastest.........enjoy the scenery.

Best wishes,

The "Eckler Team"
Michael Saunders & Company

2008 Five Star Award for Customer Satisfaction
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, ,
Wed Oct 15, 2008
Sean! My suggestion is that you speak with a lender. We will be glad to give you feedback regarding your credit, what you need to try and save, and what your payments will be. Remember that you get a huge tax break when you purchase a home... one way to look at it is, "Buy a Home - Get a RAISE!" I am not an accountant, but I know folks who changed their W-4s so that actually brought more money home. I mention this because $900 in a house payment does not compare to $900 in rent because you are getting this tax break. Also - if you purchase prior to next summer, the government is giving first time homebuyers an additional tax credit of $7500! Now is a perfect time to get prequalified, and understand what it's going to take to purchase!
Web Reference:  http://www.ncfhaexpert.com
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Wendy Norman, , Raleigh, NC
Tue Oct 14, 2008
I purchased my first home when I was 26 or 27, so it's really OK to purchase whenever you're financially and emotionally ready for it. The process from home search to closing can take as little as one month to a couple of months...but it doesn't hurt to go to open houses and other things for the time being to see what all is out there in the different areas that you'd consider living in to narrow it down. Lenders look at your credit scores, your payment history, 2 years of tax returns, and most recent pay stubs to see if their investors think you're a good candidate for a mortgage loan. Currently with an FHA loan, you'd need at least 3.5% down. If you're buying a foreclosure, you'll most likely need proof of funds and perhaps even more money down.

There are some programs that will still do 100% financing, but not very many. One is the USDA Rural Housing loan, which is an option if you purchase a home in what's considered a "rural" area of the Triangle ( few parts of Wake and Durham Co. still qualify as rural). I think State Employees' Credit Union also has 100% financing options available to some of its customers. Your lender will analyze your debt-to-income ratio to make sure that you can handle the mortgage payment ON TOP of all of your other expenses and debt. The ratios differ depending on the type of loan you get. There are also loans available for first time home buyers through the NC Housing Finance Agency; however, recently their interest rates have been higher than FHA and VA interest rates.

You may want to consider purchasing a home that you can "grow" into over the period of a few years. Your family status may change, your job may change, and there may be other life changes in general that you can anticipate. It's important to choose a home that you think will meet your needs for at least 5-7 years in an area with good re-sale values so that you get the most bang for your buck. I have a list of the top appreciating subdivisions by area if you're interested in finding out more.

If you decide to get roommates, you may want to hold off on that decision until after you close on the house you choose...the extra income anticipated from the roommate could affect your qualifying ratios for certain loan products...but I'm not an expert in lending. I have a few folks you can talk to or email if you'd like. Sheri Rimel with Residential Community Mortgage/Wells Fargo is very informative (and we were friends long before I got into real estate). Her email address is sheri.rimel@residentialcommunitymortgage.com. You can also email Dan Flynn with FM Lending at dflynn@fmlending.com. He's the lender who has an affiliated office in our building (but we don't get anything for referring him to folks...he's just very knowledgeable and convenient).

Before you start house-hunting (maybe 6 mos to 9 mos out), you'll need to make a list of all of your "must haves", "would like to have", and "don't wants"... it will help your Realtor conduct better searches for you. (bedrooms, bathrooms, sq feet, flooring preferences, price ranges, exterior siding preferences, commute distances, age of the house, garage or not, townhome, condo, or detached home, amenities, preferred subdivisions or areas, etc.). Before you go see any homes, you'll need to meet with a lender to discuss your options and get a prequalification letter (generic letter that lets the agent know you're qualified to shop in the price range you're looking in). Once you find a house and submit an offer, it takes about 30-45 days with a re-sale home and can take lots longer if it's new construction.

Hope this info helps. If you have any other questions, feel free to shoot me an email. I look forward to working with you in the future when you're ready to buy. If you happen to know of anyone else who's currently looking to buy or sell, I'd love a chance to talk with them. Thanks and have a wonderful afternoon!
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Michael Colv…, Agent,
Tue Oct 14, 2008
Hi Sean
I would recommend starting to look for a home approx 2 to 3 months before you are ready to purchase and move. The bank is looking for pay stubs, and verification of down payment monies and w2's from that or previous years.Please contact me if I can be of any assistance.
Web Reference:  http://www.colvinm.hpw.com
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Lawrence and…, Agent, Plainview, NY
Tue Oct 14, 2008
Sean, Speak to a Mortgage Specialist...in most cases, this is a free service, and see what they recommend for your circumstances. They will be able to suggest what you will be able to afford and what time will be right for you...
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