I am going to suggest you see not one or two professionals at first.
I am suggesting three.
- The first person you should see is a professional lender. Find one you can trust. I believe that the lender who has to tell you everything is more trustworthily than one who doesn’t. I suggest you use a mortgage broker and not a mortgage banker. Here is why. Bankers don’t have to disclose nearly as much as a broker does. That means a banker can hide fees and YSP from you. I know you are asking what is a YSP? A Yield Spread Premium is a rebate the lender pays for your loan. If the going interest rate is 5.25% but the mortgage banker gets you to take a 5.5% loan he gets money on the backside of your loan. The mortgage banker doesn’t have to tell you about that money. If a mortgage broker has you take a 5.5% loan he at least has to tell you what he is making on the backside. You see mortgage bankers have a very powerful lobby in Washington DC. Brokers don’t. There really are very good reasons why YSP are allowed. For example suppose you have your down payment but not much more. Suppose your real estate agent wasn’t sharp and didn’t get the seller to pay your closing costs. A loan costs anywhere from $5000 to $10,000 and sometimes more. A good lender will use the YSP to pay those costs for you. There are other reasons for a YSP but we will save that for another time. Your lender will tell you how much you qualify for and thereby how much home you can afford. I suggest you might try one of two lenders. Cheapest is almost always just that the cheapest and nothing more. In lending just as in life you get what you pay for.
- The next person you should see is a tax professional. Tax planning is always best done before the fact and not after it. A tax pro will be able to tell you how a purchase will impact your personal tax return. A good tax pro will also be able to pick up the “fees” the lender will charge. You see many of the fees lenders charge on a purchase are named one thing but are really interest in disguise. That interest in disguise becomes a major deduction in the first year of your purchase. A good tax pro will tell you how to increase your take home pay to make buying your first home much easier. Because interest is deductible and rent isn’t a home payment is not the same as a rental payment. So $1800 in a home payment is usually about the same as $1500 in rent. A tax pro can explain and show that to you.
- Now you finally get to your real estate agent. A good agent will listen to you and show you a home you can afford. A good agent is more interested in making you happy than in their commission. There might be an exact home out there waiting for you. Then again there might not be. Pick a neighborhood in transition. If the right home isn’t available wait and it might appear. A proactive buyer might look at the cosmetic fixers in the right area. A proactive buyer might actually approach some of these absentee owners and make a lowball offer and find thereby find a heck of a bargain. Just because a home isn’t on the market right now doesn’t mean it’s not available for the right price. If you find an interested seller have your agent do the negotiating because that’s what they do. Just because you don’t find the right home right away don’t give up. Many buyers look for months to find the right bargain.
In previous posts I mention how to look for a neighborhood in transition.
Also how to tell if that neighborhood is actually in transition. Buying your first home should be an adventure, it should be fun. Have lots of fun.
Jim Johnson
