The home buying experience can be a daunting one, especially for first time homebuyers like myself. I’m actually just finishing the process myself and will update this post as necessary in the coming weeks. My goal is to simply help future home buyers, and it helps me as I get to document the process methodically. It’s one the biggest decisions you or I will make over a lifetime… and I understand that there are some consequences with making small mistakes.
Let’s look at an example from New York Times best selling author and personal finance expert, Ramit Sethi:
Scenario 1: Typical Mortgage
APR: 6%, $300K, 12 monthly payments of $1798.65, total interest paid over 30 years, $347,514.57
Scenario 2: Making an extra payment each year
APR: 6%, $300K,? 26 bi-weekly payments of $899.38, total interest paid over 25 years, $276,591
You just saved almost $71,000 in interest payments. Wow, that’s like 18,000 lattes or one every day for the next 50 years.
What’s happens if you have bad credit and have higher interest rates than 6%. Moving to every two weeks helps even more. At a 7% interest rate, you will shorten your loan by 6 years instead of 5 years for the 6% rate. Better yet, you save from paying $98,545 in interest.
Small things, like making an extra payment a year or just 1% difference in interest rate can save you $100,000 on the life of a loan. Shopping for interest rates in Las Vegas is extremely important (and something I’ve done for you), but more on that later.
Let’s take a look at the sections of this rather lengthy post, and feel free to skip along to the part of the home buying process you’re currently at:
- Improving Your Credit Score (and why you should wait if you have bad credit)
- Types of Home Loans (and programs for first time homebuyers)
- The Pre-Approval Process and The Best Mortgage Lenders in Las Vegas
- How to Find a Good Real Estate Agent in Las Vegas
- Location, Location, Location (and why realtors can’t steer you to “good or bad neighborhoods”)
- Find Your Dream Home and Some Thoughts on Short Sales and Foreclosures
- Negotiating the Best Deal on Your Home
- Final Thoughts (and recommendations for furniture, home services and more)
Improving Your Credit Score (and why you should wait if you have bad credit)
There are plenty of guides on how to get good credit score so there’s no need for me to cover that in detail, essentially it boils down to keeping your balances down and sending in your payments on time. A few things you should do before proceeding are:
- Check your FICO credit score – Caution on other free credit scores reports like CreditKarma, while a good guestimation, lenders will be checking your FICO score. Personally, I have free access to my credit score through Capital One.
- Examine Your Report – Make note of any errors, such as a late payment.
- Reduce Debt – Your debt-to-income ratio is important for determining how much you’ll actually get approved for… pay down debts months before you start the preapproval process.
- Fix Errors – I’m lucky and have never had any errors on my reports, but consumer groups estimate that 2/3rds of credit reports have errors in them.
This is pure speculation, but I’ve heard that anything over a 730 (excellent) is the same as far as interest rates.
If your credit is at least above 640, the “Home is Possible” program (details in the next section) has a fixed interest rate and it offers down payment assistance. The interest rate is higher than for someone with excellent credit, but you do get 4-5% grant for a down payment. For someone with average credit, their fixed rates should be a win-win situation. Though with lower credit, you may receive a slightly lower grant amount.
Types of Home Loans (and programs for first time homebuyers)
We went with an FHA loan, so I won’t have too much information on other loans, but feel free to ask your lender about which is the best for you. Here are a couple that I researched:
- FHA is the most popular for first time homebuyers, requiring buyers to just have 3% for a down payment. Zillow has a list of FHA requirements here.
- Another we did consider is the relatively new “Wealth Building Home Loan.” It came about because a conventional loan (FHA or otherwise), “is a lousy loan for building actual ownership or equity in your home during the first 5 or 7 years, which caused big trouble when housing crashed,” according to NPR. With the Wealth Building Home Loan you can buy down your interest rate to a rate that’s close to zero percent. One of the loans product developers say it’s a better alternative to an FHA loan, which are “high-risk and build wealth too slowly.” But again, it’s relatively new and there wasn’t much information when we were looking about the pros and cons of an FHA Loan vs the Wealth Building Home Loan (aka the NACA Loan). The NYTimes did have a brief rebuttal piece challenging the new program.
Nevada’s Home Is Possible Program
Nevada’s Hope Is Possible Program provides down payment assistance and is open to most homebuyers (not just first timers), provided you have a credit score above 640, income below $95,500 and are looking for a home under $400,000. The Nevada Housing Division states:
The down payment assistance grant amount can be as much as 5% of the loan amount, to be used for covering down payment and closing costs. For example, on a $ 200,000 loan amount, your down payment assistance grant, pending the qualifications specified below, may be as high as $10,000. This grant never needs to be repaid.
You can also combine that with the Mortgage Tax Credit (MTC) Certificate Program which has these benefits:
- Federal income tax credit equal of up to 30% of the interest paid on a mortgage loan – maximum of $2,000
- Savings will continue each year based on the actual mortgage interest paid
- Remaining interest can also be claimed as a tax deduction
- A $500 Rebate is available when combined with the Home Is Possible Down Payment Assistance Program
A list of approved lenders for the Hope is Possible and the Mortgage Tax Credit program can be found here.
There are still quite a few foreclosures, where the owner didn’t take care of it, or decided to ransack it upon leaving. For that the FHA 203(k) Rehab Loan allows you to finance up to $35,000 for repairs.
The Pre-Approval Process and The Best Mortgage Lenders in Las Vegas
Getting pre-approved by a lender is very important, this letter shows that you’re qualified to buy a home. Many realtors won’t take you seriously without one, or at least they won’t work as hard.
Note: Before proceeding I’d recommend checking your FICO credit score and correcting any errors if necessary.
I called about 20 local lenders asking about interest rates and other fees (“junk fees”) for an FHA Loan, and I found the best three to be:
- One Nevada Credit Union – Contact Numbers: (702) 948-5361, (702) 948-5364, (702) 948-5333 – 30 year fixed FHA loan mortgage is 3.25% and that they charge a fee of $561.
- Southern Fidelity Mortgage – Contact Numbers: (702) 228-2889 – The current rate for a 30 year fixed rate mortgage is 3.25%. No lender fees, but you pay for the title, appraisal, and escrow. He says there are ways to get assistance with the fees, such as taking a higher interest rate of 3.5%. This will get you $2000 in credits.
- All Western Mortgage – Contact Numbers: (702) 369-0905 – Interest rates are 3.375% to 3.5% depending on the exact FHA loan you are interested in because they do have some options for first time home owners. Also, there are no lender fees.
If you’re not going the FHA route, I do recommend calling lenders for interest rates and other fees. Just an FYI, the big banks (Chase, Wells Fargo, etc.) tended to have the higher interest rates based on my calls. And if you are getting the “Home is Possible” grant, interest rates will be fixed.
One thing I did not expect when house hunting – a mortgage lender can make or break a deal. When we found a house we liked, we were prepared to make an offer. We just needed a document from the mortgage lender, who took a few days to respond. Time is of an essence when house hunting and the last thing you want is to lose out on a house because of a delay from the mortgage lender.
BUT, a responsive lender is nothing if they offer higher interest rates. We showed in the intro that a 1% difference in APR can turn into tens of thousands over the life of a loan.
We went with One Nevada Credit Union even with the $561 junk fee, because they’re pretty well known in Las Vegas, they had the lowest interest rate, and credit unions generally have a better reputation than banks. I will say that they were slow to respond at times though, especially between Thursday-Monday.
How to Find a Good Real Estate Agent in Las Vegas
I will update this in the future, I simply contacted the listing agent on Zillow for the homes we liked and we stuck with her. You aren’t really obligated to continue working with someone if you don’t like them. Feel free to contact multiple agents and stick with the one you like.
Location, Location, Location (and why realtors can’t steer you to “good or bad neighborhoods”)
Realtors can he really helpful, but they can’t steer to or from certain areas because it’s a violation of the Fair Housing Act. The Baltimore Sun has more on what a realtor can and can’t tell you.
But as a local, I can help you out. Summerlin and most parts of Henderson are probably the best areas of Las Vegas. Northwest is nice, same with Southwest. But no matter where you are, you could easily be a block away from a lot of crime. Or your neighborhood or direct neighbors could have a lot of crime, even if it’s in a nice part of town. My biggest tip for solving this problem is, when you find homes you like, run the address through Crime Mapping. Change the radius to 2 miles, and the date range to the maximum (last 6 months). You’re going to see crime no matter what… perhaps a little higher if you’re near commercial areas. What you should do is compare, and look for crime in your neighborhood and/or direct neighbors.
Another thing I look to do is click on the crime types tab, and hit “clear all.” Then click on the crimes that disturb you the most, such as homicide. One could be a coincidence, but more than that I’d start to worry.
Here’s a current look of where homicides happened in the last six months (Note: Crime Mapping does not have Henderson Police Department crime records):
This map really coincides with Vegas locals thoughts, that the best areas are Summerlin, deep NW and SW. Henderson is also good, but as mentioned Crime Mapping does not have data from Henderson PD.
Find Your Dream Home and Some Thoughts on Short Sales and Foreclosures
Now this is a matter of opinion, but I think it’s reasonable to say that city centered around gambling, there is a decent percentage of locals who are anything but risk averse. Could that lead to a higher percentage of homeowners who fall back on payments leading to short sales and foreclosures? Maybe. That and of course we still have remnants of the great recession in the late 2000’s. How it happened could be a matter of opinion, but it’s a fact that Las Vegas had the highest foreclosure rate in the nation.
And when we searched for a home in 2016, we saw a lot of short sales and foreclosures. With short sales, the process can be a laborious one. Often taking months, perhaps up to a year to close… that is if the seller/bank doesn’t decide to accept another offer. Though there are many cons, the biggest pro is clearly the price. Because they’re often sold in as-is condition, the price can be much lower than comparable homes, but you’ll have to factor in repair and renovation costs. Personally, I’d rather avoid short sales, but wouldn’t oppose to seeing them. Had we seen a few short sale homes we liked, our plan would have been to make an offer with a 30-day deadline, thus hopefully speeding the process along. I’d also prefer to avoid short sales that were currently tenant occupied. Foreclosures, on the other hand, can close as fast as a traditional sale as it’s already owned by the bank.
Even if you already have an agent, setup a “saved search” on Zillow, there could be a few properties they miss. Narrow down your filters with at least the price and type of home (condo, townhouse, single family, etc.). Our primary filters were price, area, and single family home. You won’t be able to filter out auctions, as I believe it’s a form of advertisement for Zillow, but you can hide them on the map when they popup (Update: Zillow seems to be testing a new interface, and has removed the hide button for some people).
Negotiating the Best Deal on Your Home
To be honest, there might not be much wiggle room in the Las Vegas market. If you’re looking under $300k, houses go fast. Even faster under $200k. We’re talking multiple offers within days. Your realtor can offer the best advice as they have access to comps in the area. One thing you can consider is asking the seller to pay closing costs… which are usually around 3% of the home. If a home has been on the market for longer than a month, then you might have a little more room to negotiate. Homes $500k and up might be a different story.
FHA Won’t Let You Pay Too Much
Another reason, If you’re going the FHA route, they won’t allow you to purchase over the appraised value of the home. Thus, if you find a house you love, but it appraises for slightly lower than your offer you’ll have to pay the difference out of pocket or negotiate down to the asking price. On the bright side, this means sellers sometimes have to negotiate down to the appraisal price because so many buyers are going the FHA route.
Final Thoughts (and recommendations for furniture, home services and more)
The home buying process can be a daunting one, but writing this as I moved through the process really helped me. I hope my experience helps you and if you have any questions feel free to ask in the comments.
Other resources that might help:
- Don’t buy boxes at retail, search Craigslist for “moving boxes,” the free ones go pretty quick but there are plenty of people just looking to get a little bit of money back. I bought 50+ boxes (including the wardrobe boxes) for $40. Personally, I really wanted a set with wardrobe boxes.
- If you must have new moving boxes, U-Haul is insanely expensive, Walmart is probably your best bet at about $2 for a large box.
- 10 Places to Buy Furniture in Las Vegas (and here’s some thrift and consignment stores).
- A recommended plumber, especially if you want to install a new water heater or softener.
- From what I hear, the transportation system here kinda sucks. So factor that into your move. We did just get Uber/Lyft though.