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The home ownership bug. I have it. Need Advice.
azith28
Registered User regular
Registered User regular
Hi,
About 8 years ago i moved across the country to take a job in Cleveland, OH (Yes i know how odd that sounds). Since then i have been renting, first an apartment, then i moved up into a rental townhouse apartment. Now for a few years, ive been telling myself that I want something permanent, and the market has just been getting lower and lower in terms of interest rates and home prices, so ive been patient, but I'm starting to feel like next year will likely be the best time for me to buy, depending on the election and the economy.
Now I've got a pretty good job, I'm single, and most importantly (to me at least), no debt at all and an excellent credit score. I've used my credit cards occasionally but prefer to pay them off quickly, unfortunately this also means i typically dont have a lot of savings in my bank cause i pay as i go. However i cant help but feel im throwing my money away in rent and if i had bought something 8 years ago i would have about 100k invested in something by now.
So while ive been looking around for a while now, i still havent found the one house that instantly made me want it, and since its a buyers market, I figure i can get what i want. However i have several questions about financial rules and costs that i hope you guys can help me with.
Firstly, How much of a % down payment is pretty much the 'gotta have' at this point? With the interest rates going down, I know the standard 10% figure, while still suggested, is not necessary and i frankly dont have the cash for what im looking for, unless i got a loan from my parents or something.
I'm pretty sure i fall into the range of income where i dont qualify for the most obvious government assistance and i know the big tax break they ran a few years ago has expired but are there any other big obvious ones that i should look up?
An odd thing ive noticed is that new construction homes are almost as cheap as older homes of the same size, with the added bonus of having control of your design, I have to wonder what are the negatives of going this route. When a housing development lists a home price to build, how much hidden costs and upgrades should i expect to inflate that price? (I can do the math, but im sure there is a good bit of 'oh im sorry, did you want wire in that wall? well thats an extra 1k' involved in these things).
If i bought an existing home, i am aware that i should allow for maintenance/repair expenses on top of the price, but should i expect a new construction home to come with enough of a warrenty to give me a few years before i have to start worrying about stuff like that?
Is it a general rule that all property taxes you pay are completely tax deductable? I was looking at this one place that sounded great on paper but i wasnt happy with the design, but the lady i was speaking to about it was talking like the deduction was a complete given fact but it sounded a little too easy.
I've already spoken with the bank ive used for some time to see what kind of loan i could get, but ive seen some online morgage companies with much lower rates....even if they advertised as fixed rate, are these companies in any way reliable?
Thanks for any input.
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azith28 on
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Good to excellent credit and at least 20%. Banks only want sure things right now.
FHA is still a thing (can get you into a house w/less downpayment, though you'll have essentially buy mortgage insurance), and the site should help you find state programs (though downpayment assistance is unlikely given the state govt budget situations.
I wouldn't bank on a builder's warranty being worth much. If the builder is in good shape financially then maybe, but a lot aren't. I've heard a couple stories on new construction bits going south (e.g. tile) rather quickly and that defect would likely have already presented itself on an existing home. Though I've also heard of major issues not being discovered in existing homes during inspection, so there's risk regardless of how you choose. New homes tend to be more energy efficient due to evolving code and newer appliances/HVAC.
All property taxes as well as mortgage interest should be tax deductable. You need to itemize to get it though, so if you don't normally itemize and if your property taxes plus mortgage interest is less than the standard deduction then you'll see no benefit.
An online mortgage company shouldn't be inherently any mode dodgey than a brick and mortar mortgage broker. Though my co-workers and friends have all gotten the best rates by seeking out the volume broker in the region.
There are pros and cons to new construction vs old construction, you'd need to make a list to see which you'd prefer. i wouldn't say one was fundamentally better than another though. Watch out for HOA fees in new communities, they can be outrageous and the rules can be stifling.
I would not count on you having 100k in equity after 8 years, especially recently. I've owned my house for over 4 years and i am quite a bit underwater. with a mortgage you pay a MUCH higher percentage of your interest in the beginning of the loan. like say your payment is $1500, you probably pay about 2-300 in principal, and the rest is interest. this ratio increases through the life of the loan though.
The old rule of thumb was plan on being in your house 5 years to break even at least. Nowadays I'd give it more like 8 or 10.
How much do you think you've got to spend exactly? There are a ton of mortgage calculators out there, whats the price range you're looking at? Are you just trying to replace your rent amount with a mortgage payment instead?
"Big deal, I can't imagine why or how I'd pay off my mortgage early to begin with!" you may be saying to yourself right now. This is because you're thinking of buying a house; it hasn't occurred to you to wonder what happens when you sell a house. Don't jump at a low interest rate that comes with an attached prepayment penalty just to watch all the equity you built up get eaten out by that penalty when you try to move in eight years. Otherwise you would have been better off in the long run by throwing your money down a hole in an apartment lease; at least when you rent an apartment, someone else is obligated to take care of fixing all the stuff that breaks.
There are FHA downpayment assistance programs that will give you part of a downpayment to help too. If you stay in the house for 10 years, you don't have to pay it back (or something like that).
http://www.fha.com/fha_programs.cfm
I just realized that is a .com address, and in no way affiliated with HUD. so take those with a grain of salt.
20% is a nice rule, but with interest rates as low as they are, it's not as hard a rule as it used to be.
If you go with an older home: make sure you set aside funds for things that can (and will) go wrong after you move in. With my house, even though everything passed the inspection, had:
-Dishwasher died within 3 months
-Furnace died first week (!)
-Roof needed replacement (I knew about this one going in)
Since my house was a foreclosure, I was on my own for these things. Not killer, especially since I was expecting the roof, but it adds up. The furnace repair alone was $500.
Even with new homes, make sure you account for the different things you'll need that you didn't have in an apartment: Lawn mower, tools, more furniture, etc...
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Painful that i missed out. i got the 7500 tax rebate, but i have to pay it back. and they revised it to $8000 that you DIDN'T have to pay back, like 3 months after i bought the place.
I'm supposed to get an answer next month, so we'll see.