Answers for first-time home buyers

June 12th, 2009, 3:00 am · 9 Comments · posted by Mathew Padilla

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

NewbieBuyer in Orange asks:

Q. I have been searching for a house but being a first time buyer, I would like to know what things need to be considered. If the house is $400,000 and down payment is 20%, how much in fees and interest should one pay?

A. First of all, congratulations on asking these questions early on in the process rather than waiting until you have found a home. Education is really important in all areas of the process, how to determine the right price range, what areas to look in, how to find an agent, how to find a lender, and then a bunch of other decisions you will have to make. Buying a home is worth a 250 page book on homebuying and mine on mortgages is another 250 pages so I obviously can’t cover them here. I strongly suggest that you either go to the bookstore or library and get yourself two books and curl up with them. I hope you will choose my book.

Regarding rates and fees, there are a number of sites that have current rates. One of the best is www.hsh.com. (Blogger’s Note: The average 30-year fixed-rate quoted on the site seemed high to me for loans up to $417,000, which generally have the lowest rates if the loans qualify for sale to Fannie Mae/Freddie Mac. I would compare to www.bankrate.com or, even better, get a rate quote from a credit union.)

Rates will be close but do not expect precision as rates are changing hourly in this volatile market. They also have a number of calculators so you can calculate your payment at varying loan amounts and rates. Don’t forget to add property taxes and insurance to calculate your real obligation.

As to fees, this is a really rough number, but you really ought to figure on paying 1 point for your loan (one percent of the loan amount). Zero-point loans make absolutely no sense now. Other lender fees, appraisal, escrow and title insurance will likely be about $3,000. Good luck and happy house-hunting.

Doug asks:

Q. I have a home in Orange County. The value today is $305,000. I have a balance of $93,000 at 5.25% fixed on a 15-year loan and am in my final 10 years on this loan. When I got this loan the goal was to have it paid when I reach 55. I am right on track. Would it make sense to refinance at a lower rate? And if yes, refinance into what kind of loan? Do they even offer a 5-to-7 year loan? My payments are only $1,100, including tax and insurance. I could afford more but is it even worth my time to look into this?

A. At the current rate, you will pay only $26,655 in interest on your loan over the next 10 years. It’s difficult to save a ton of money when you owe so little. However, there are five-year loans available and you said you wouldn’t mind paying a little more. How does $1,723 per month sound? You can refinance into a five-year loan and pay it off in five years instead of 10. The total interest on that loan would be only $10,394, a saving of $16,260, less the cost of doing the loan. (Blogger’s Note: Randy answered this question before rates jumped again.)

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question.

Johnson will answer up to three questions each week, so keep checking back for a response. If many questions are submitted, it could take a while to get a response, or he may never get to it. Also, readers keep submitting variations on the same question, which has already been answered: what to do when you can no longer afford your mortgage. I have decided not to publish most of those questions, because they are repetitive, although I appreciate the difficult situation many homeowners are in these days.

Read prior questions and answers by clicking on the headlines below…

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Paul Havemann says:

June 12, 2009 at 7:41 am

“One of the best is http://www.hsh.com. (Blogger’s Note: The average 30-year fixed-rate quoted on the site seemed high to me for loans up to $417,000…”

The average you saw is our FRMI - the Fixed Rate Mortgage Indicator - which averages loans of all sizes, from conforming to jumbo. It’s a better measure for states, like those on the coasts, where jumbo mortgages predominate.

We do publish a conforming average - fastest way to get it is on our Twitter page: http://twitter.com/hshassociates

Post Reply

Mathew Padilla, Reporter says:

June 12, 2009 at 7:48 am

I figured it was an average including jumbo. Where is the conforming average on your site? Post a link please.

Cool Twitter feed, maybe I will run that on my blog sidebar if it’s kosher….

Post Reply
- Paul Havemann says:
  
  June 12, 2009 at 11:15 am
  
  We don’t run the conforming stats as a regular feature on our site — we’re trying an SEO experiment invoving tweets and other channels. Ahd, yes, it’s kosher!
  
  Post Reply

shadow735 says:

June 12, 2009 at 7:49 am

Just a suggestion but for person #2 why dont you just pay an extra 700-800 a month and have it applied toward principle, you will pay your loan off in half the time and save money on interest.
If I am wrong on this please someone correct me.

john says:

June 12, 2009 at 9:12 am

You’re absolutely correct, but then a mortgage broker can’t make money refinancing the loan.

Week after week, this column seems very self-serving, promoting the author’s books and high-cost mortgages. It’s a great free ad for the author, but I think it’s time for the OCR to give it a rest.

Post Reply
- Mathew Padilla, Reporter says:
  
  June 12, 2009 at 9:44 am
  
  This is a bit unfair. On the second question Randy’s first response is it’s hard to save money by getting another loan. In the past, he has told readers to make extra payments to principal. I think that would also work here. But refinancing into a five year loan also forces discipline on making bigger payments, so it is worth considering.
  
  On the first question, most people who get a home loan for the first time have no clue what to pay. From my experience, $3,000 is roughly correct on closing costs, and paying a point is a good idea, unless there is strong likelihood rates will fall significantly in the future, which I doubt. I know Scott Simon of Pimco refinanced like five times when rates were dropping, each time doing a no-cost loan, putting all the costs in getting an interest rate above market. Each time he refinanced he got a lower rate than he had before the refinance, but a rate higher than market at the time. The beauty was that rates kept dropping so he kept following the market down until 2003. But a period like that ain’t happening again anytime soon.
  
  Post Reply
  - shadow735 says:
    
    June 12, 2009 at 11:04 am
    
    Mathew for the #2 question if they refied into a 5 year loan are the costs going to eat up a good portion of the savings? It might be a good idea to look into that as any interest savings might be eaten up.
    Me personally if I was in that situation I would just make the extra payments, at least that way its safer should any unforseen health issue or job related things happen. I would just hate to be locked into a higher payment and then something go wrong.
    But that is just my opinion and way I would go.
  - Liar Loan says:
    
    June 12, 2009 at 3:15 pm
    
    shadow-
    You are absolutely correct. Most of the interest savings would result from shortening the amortization, not from lowering the rate. He’s already paying 5.25%, so he wouldn’t get a much lower rate without paying extra points, which defeats the entire purpose. Just pay extra principal each month for the same savings.

Fred Solomon - freemoneyhour.com says:

June 14, 2009 at 9:55 am

3.5% FHA loan up to $729,750 in OC is why the low end stuff is seeing multiple offers.

Make sure you know that the appraisal process has changed & the homes are selling above the asking prices. When that happens, and the property doesn’t appraise for the purchase price - guess what?

Borrower has to come out of pocket with the difference? Hi Five! Hence, deal falls out of escrow.

Orange County Register