It basically depends. When you go for pre-approval, the bank will generally want to know how much you're looking to borrow, and they'll run your credit report and see if you fit their profile for being willing to underwrite the loan. They will generally write a letter saying you are pre-approved to borrow up to the amount you asked for, which is all you need to show to the seller when you make the offer; if you get a good rep/ask the rep nicely (and, sometimes, have decent enough credit that they really want you (when we bought this house we had mortgage companies fighting over us and you don't want to know how sick our mortgage rate is) but often they'll do it for anybody), they will also write you letters for $10k and $20k less to use for negotiations. (IE, you don't want to show the seller that you're preapproved to borrow up to $375k if you're making an offer at $310k with 20% down and asking for the seller to pay closing costs, etc.)
The old rule of thumb was, to close you need around as much in cash as you're putting down on the loan, especially if you are taking points. This is usually not true anymore -- the housing market is shit enough in most places now that you can usually get the seller to pay closing costs, especially if the house has been on the market for six months or more. But do plan for at least $10k in closing costs. The rule of thumb that will never go away is that you should plan for at least 3-5% of the purchase price of the house in necessary repairs in the first year of ownership. (This is adjustable based on what the pre-sale home inspection looks like, but again, it's good to plan for at least $10k in major repairs over the first year.)
Just because you can get preapproved to borrow $X does not mean that you should buy a house that costs $X minus your available down payment. Rule of thumb: your monthly mortgage payment (principal + interest + escrow) should be around 30% of your monthly income. If you can swing it, you really want to put 20% down; it will keep you from having to pay private mortgage insurance monthly, which will be up to around $100 more per month. (We could not quite swing 20%, but that was just because we needed to hold back some money for immediate repairs; the place we bought needed a little work.)
To make an offer, you let your realtor know you want to offer on the house, and they'll put together all the paperwork. It is a lot of signing. (A lot of signing.) The seller may accept, or may counteroffer. (For instance, when we bought this house, we offered at listing price minus $30k and asked for them to pay $8k in closing costs. They countered with listing price minus $30k and $5k in closing costs. Sold! And I am going to rub my wife's nose in it for years, because I wanted to offer list minus $45k and get talked up, heh. There were a ton of extenuating circumstances, though, and such a lowball offer is not necessarily the best thing to do.)
You don't need to have anything before you start looking, really. We house-shopped for about five years, on and off, before we found this one. Some realtors will be pissy about clients who don't want to buy immediately, but we were working with a coworker of Sarah's who does it as a side job as a favor for her aunt who owns a realtor's agency, so she didn't have a lot of "must sell now!" pressure; she was willing to just take us around whenever we saw something we liked. We did all our own research and looking, with the help of Redfin and ZipRealty. (ZipRealty has better search; Redfin has more exposure of MLS data.) If nothing else, start watching realty sites regularly for your area and start to get a feel for how the market is in your area. (We held off on buying because a) we hadn't found the perfect house until this one, b) we were having a Difference of Opinion about how turnkey we wanted the place to be -- she placed the totally unreasonable restriction that any house we bought had to have a working kitchen and a working bathroom at the time of purchase, which I felt was completely cramping my style, but then again, I was raised by a general contractor and think nothing of the phrase "eh, who cares if it's load-bearing, that wall can come out no problem" -- and c) I was convinced that the market had not yet bottomed, even though it was hovering near the bottom, and that interest rates would keep dropping. Sure enough, when we did buy, we locked in at the lowest interest rate our area had seen in the last 36 months, and it's been going up since.)
Fixer-uppers are not necessarily as bad an idea as you might think, especially if you're at all handy (or willing to learn), but definitely get a home inspection done by an ASHI-certified inspector (anyone can call themselves an inspector, but ASHI certification is crazy detailed), ideally one that's using home inspection as a secondary career after having a primary career in the building trades -- they'll be able to point out what's "fixer-upper" and what's "The Money Pit waiting to happen". If you get to that point, I will let you know all kinds of things about how to pick a good inspector and what to look for. (I can also give you the rundown on what to make you run away very fast from a property before even getting to the home inspection/making an offer phase of things, if I get the energy, but my tales of the Death Trap House and other fun things in my real estate roulette tag will help you figure out some of the things to look for.)
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Date: 2011-12-08 02:03 am (UTC)The old rule of thumb was, to close you need around as much in cash as you're putting down on the loan, especially if you are taking points. This is usually not true anymore -- the housing market is shit enough in most places now that you can usually get the seller to pay closing costs, especially if the house has been on the market for six months or more. But do plan for at least $10k in closing costs. The rule of thumb that will never go away is that you should plan for at least 3-5% of the purchase price of the house in necessary repairs in the first year of ownership. (This is adjustable based on what the pre-sale home inspection looks like, but again, it's good to plan for at least $10k in major repairs over the first year.)
Just because you can get preapproved to borrow $X does not mean that you should buy a house that costs $X minus your available down payment. Rule of thumb: your monthly mortgage payment (principal + interest + escrow) should be around 30% of your monthly income. If you can swing it, you really want to put 20% down; it will keep you from having to pay private mortgage insurance monthly, which will be up to around $100 more per month. (We could not quite swing 20%, but that was just because we needed to hold back some money for immediate repairs; the place we bought needed a little work.)
To make an offer, you let your realtor know you want to offer on the house, and they'll put together all the paperwork. It is a lot of signing. (A lot of signing.) The seller may accept, or may counteroffer. (For instance, when we bought this house, we offered at listing price minus $30k and asked for them to pay $8k in closing costs. They countered with listing price minus $30k and $5k in closing costs. Sold! And I am going to rub my wife's nose in it for years, because I wanted to offer list minus $45k and get talked up, heh. There were a ton of extenuating circumstances, though, and such a lowball offer is not necessarily the best thing to do.)
You don't need to have anything before you start looking, really. We house-shopped for about five years, on and off, before we found this one. Some realtors will be pissy about clients who don't want to buy immediately, but we were working with a coworker of Sarah's who does it as a side job as a favor for her aunt who owns a realtor's agency, so she didn't have a lot of "must sell now!" pressure; she was willing to just take us around whenever we saw something we liked. We did all our own research and looking, with the help of Redfin and ZipRealty. (ZipRealty has better search; Redfin has more exposure of MLS data.) If nothing else, start watching realty sites regularly for your area and start to get a feel for how the market is in your area. (We held off on buying because a) we hadn't found the perfect house until this one, b) we were having a Difference of Opinion about how turnkey we wanted the place to be -- she placed the totally unreasonable restriction that any house we bought had to have a working kitchen and a working bathroom at the time of purchase, which I felt was completely cramping my style, but then again, I was raised by a general contractor and think nothing of the phrase "eh, who cares if it's load-bearing, that wall can come out no problem" -- and c) I was convinced that the market had not yet bottomed, even though it was hovering near the bottom, and that interest rates would keep dropping. Sure enough, when we did buy, we locked in at the lowest interest rate our area had seen in the last 36 months, and it's been going up since.)
Fixer-uppers are not necessarily as bad an idea as you might think, especially if you're at all handy (or willing to learn), but definitely get a home inspection done by an ASHI-certified inspector (anyone can call themselves an inspector, but ASHI certification is crazy detailed), ideally one that's using home inspection as a secondary career after having a primary career in the building trades -- they'll be able to point out what's "fixer-upper" and what's "The Money Pit waiting to happen". If you get to that point, I will let you know all kinds of things about how to pick a good inspector and what to look for. (I can also give you the rundown on what to make you run away very fast from a property before even getting to the home inspection/making an offer phase of things, if I get the energy, but my tales of the Death Trap House and other fun things in my real estate roulette tag will help you figure out some of the things to look for.)
Feel free to ask more!