In order to be able to renovate a house, we first need to buy a house. We’ve now been here (in Rockford, IL) for a month and a half, however we spent most of that time going back and forth between whether to buy a house or rent an apartment. We looked at houses, we looked at apartments, then looked at more houses before finally deciding to talk to the bank and see what kind of mortgage we’d be able to get.
Having never bought a house before, we were pretty nervous about the whole mortgage preapproval process. We met with Pat O’Gorman at Riverside Community Bank and were pleasantly surprised at how easy and painless the process was.
It took about 45 minutes and started with a bit of conversation so that Pat could get to know us a little bit. It was very comfortable and we were excited to learn that he sits on the board of directors for Habitat for Humanity here in Rockford (We’ve worked on several different Habitat projects and are looking forward to getting involved here in Rockford in the future).
As we were talking, he was asking us various questions about our required expenses each month (those that we are obligated to pay), including things like car payment, credit card payments, etc. Using those figures and our monthly income, he did some quick math and explained how they come up with a figure for your pre-approval amount.
We talked through things like down payment (believe it or not, it’s even possible to buy a house with no downpayment) and private mortgage insurance (PMI) – a monthly amount that you pay (generally $35-50/mo.) until you’ve paid for approx. 20% of the mortgage. There are also things like property tax and homeowners insurance, however the bank takes all that into account when pre-approving you. It often seems like owning a home would be unattainable because of all those extra costs, but as long as you’re planning for them and take them into account when budgeting, owning a home can be a reality for almost anyone.
He let us know about a few different grant options available for first-time buyers, including one that offers $5000 toward your down payment in the form of an interest-free loan which is forgiven if you stay in the house for 5 years. If you sell it prior to that, you pay back a prorated amount (still interest-free), but only if you make a profit on the house. In other words, if you buy a house for $80,000 and sell it for $100,000 three years later, you’d pay back the full pro-rated amount, in this case $2000. If you bought a house for $80,000 and sold it three years later for the same, you wouldn’t have to pay anything back. If you made a profit of $100, that’s the max. you’d have to re-pay (the re-payment amount won’t exceed the profit). Any way you look at it, it’s a good deal and will give us a bit more cash to put into the renovation process.
From there, Pat took all the figures that we had just talked about casually and put them into the computer. He ran a credit report which he walked us through and even gave us a copy of, then gave us several brochures and some paperwork to read through later. We were in a hurry, so he promised to call later and let us know the exact amount that we were pre-approved for and then he would mail (and email) the preapproval letter for us to have when making an offer (or offers, in our case).
Needless to say, the whole process was quite encouraging. He answered all our questions and relieved any fears that we had. We left the bank excited that we, on a fairly small, single income, even with a beautiful new car and not quite perfect credit were able to buy a home.
Later that evening, Pat called to let us know the price that he had arrived at and promised to mail the letter the next day. All said and done, the pre-approval process was a good experience and gave us a set price that we knew we could afford, so looking for a house became much easier.