Well I have started to look for a home. I wanted to know if anyone had any advice on the loan aspect of buying a home. I also am unsure of how to decide if an area is suitable. I passed through Almaden Valley today in CA and it was fantastic. So any advice on a first time home buyer?
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Buying a Home
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Usually where you are working narrows down your choice of area - the longer the commute, the more time out of your life, and the more money too. (If you are not working, it's better to rent until you get a job, unless your job is one you can do anywhere.)Then there are the questions of where you'd feel happiest - city or suburbs or country; quiet or vibrant; access to things that are important to you; housing costs (generally, the nicer the area, the more expensive the houses); house size; the crime rate; electricity/water/gas supply; and local government charges. It always ends up as a compromise, since the biggest factor is always going to be how much you can afford.As far as loan advice is concerned, as I am in a different country with different laws and customs, some of my advice might not be right for you. But I would suggest that before doing anything else you should talk to your bank manager about how big a loan you can get, and what the interest is and what the repayments will be, and the repayment time. Money is much tighter now; but in any case you shouldn't spend so much on a house that repaying the loan will be difficult. The rule used to be that repayments shouldn't be more than 25% of your income - that's now considered difficult (especially if the house repayments have to come out of one income), but anything more than a third of your income should ring alarm bells. Loans where the repayments increase with time, on the grounds that you'll be earning more later, are dangerous, because you might not be; and they end up costing a lot more in total, because you are paying more total interest for the same % rate.Remember that a loan over a long period will end up multiplying the total amount you pay by a surprising amount. You should pay off more than the minimum amount each month if you can - it will save you a lot more than you pay. Expensive furniture can wait - thrift shop furniture and packing cases will do for now. Not all loans allow you to pay them off faster: here, bank loans normally do, but non-bank ones often don't (or have large penalties for doing so). You should check the situation where you are, as it makes a big difference.You can get a bigger loan from non-bank lenders than from banks, but you'll find the interest rates are usually much higher, and the terms and conditions, such as the right to pay off faster, may be less attractive.Because house prices are falling now and likely to fall further, the usual advice to buy as much as you can possibly manage, which I think is dangerous advice anyway, can be ignored.
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There are first time home loans available, but with the market where it is you have to have almost perfect credit to get a loan. Cali is hard to get a home in right now, though they are more affordable, the I am hearing credit scores over 750 is what you need...
Get prequalified, then start looking at what you can get a loan for. ALSO, many places want a minimum 10% down.
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Can I move in?
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Thanks for all the fantastic advice! I am just starting to look as my job is starting to flower into something better.@Stephie:Oh you know it, I think I know how you can pay me rent wink wink
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Another thing I forgot to mention is to check whether the interest rate is fixed or variable. Here, bank loans are usually variable rate, which means if interest rates rise you pay more interest, but if they fall you pay less. Fixed-interest loans give you some insurance, though they make you kick yourself if interest rates fall. Usually the rate for fixed-interest loans is based on a guess on how they might change over the life of the loan, plus an extra margin.
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Originally Posted By: Ineligible Fixed-interest loans give you some insurance, though they make you kick yourself if interest rates fall. But if they fall a few years down the road, and your credit is in good standing, you CAN re finance.
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But only if they let you get out of them. Here, at least, that's often not the case, or you can get out of them only by paying a large penalty.
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Most loans here in the US don't have prepayment penalties. I might be wrong, but I believe it's true.