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House buying!
Graydeath
Registered User regular
Registered User regular
For the past year or so I have been considering purchasing a home. I plan on living in this area for the forseeable future and while I don't mind renting, I would like to be able to do things like paint walls and change things as I like without having to deal with landlords.
Couple of things about me that I know will probably get asked. I'm turning 23 in a few months. Work full time and also go to school. Current income is a little under 40k a year. My credit score as of a couple months ago was about 730. I don't have any debt right now, my car is fully paid off and my employer pays for my tuition ect. I pay a tad under 400 dollars a month in rent currently and have two roomates. I have been putting an extra 500 dollars a month in a savings account when I pay my rent for the past several months so I know I can at least handle that much. I have about ten thousand saved up for a down payment while still having enough of a reserve to cover me for 4 or 5 months if I lose my job. My work is steady and we haven't been hit too hard by the recession.
So... on to my questions.
1. Would it be a wise move for me to do this? I will be buying a house eventually and since I can (I think) afford it now and with the tax credit this year and house prices (at least around here) seem to be nearing the bottom this seems like a good time for me to buy.
2. I know I don't have enough for a 20% downpayment however I have seen that FHA loans can be aquired with a lower downpayment requirement and from everything I have read I should qualify. Is this the case or am I missing something?
3. Where do I start? I don't really know much at all about the home buying process. Do I talk to a realtor first or the bank about pre-approval?
4. Since I am younger than a normal home buyer, how do I get the bank, realtor, ect to take me seriously?
5. I get along great with my roomates and would love to have them move with me. Is it possible that I could get a loan that may be a bit more than I can afford on my own and have them as roomates still?
6. Anything else I'm forgetting or need to know?
tl;dr I want to buy a house. Don't know where to start. So give me some advice or tell me I'm an idiot for even thinking about it!
GO
Couple of things about me that I know will probably get asked. I'm turning 23 in a few months. Work full time and also go to school. Current income is a little under 40k a year. My credit score as of a couple months ago was about 730. I don't have any debt right now, my car is fully paid off and my employer pays for my tuition ect. I pay a tad under 400 dollars a month in rent currently and have two roomates. I have been putting an extra 500 dollars a month in a savings account when I pay my rent for the past several months so I know I can at least handle that much. I have about ten thousand saved up for a down payment while still having enough of a reserve to cover me for 4 or 5 months if I lose my job. My work is steady and we haven't been hit too hard by the recession.
So... on to my questions.
1. Would it be a wise move for me to do this? I will be buying a house eventually and since I can (I think) afford it now and with the tax credit this year and house prices (at least around here) seem to be nearing the bottom this seems like a good time for me to buy.
2. I know I don't have enough for a 20% downpayment however I have seen that FHA loans can be aquired with a lower downpayment requirement and from everything I have read I should qualify. Is this the case or am I missing something?
3. Where do I start? I don't really know much at all about the home buying process. Do I talk to a realtor first or the bank about pre-approval?
4. Since I am younger than a normal home buyer, how do I get the bank, realtor, ect to take me seriously?
5. I get along great with my roomates and would love to have them move with me. Is it possible that I could get a loan that may be a bit more than I can afford on my own and have them as roomates still?
6. Anything else I'm forgetting or need to know?
tl;dr I want to buy a house. Don't know where to start. So give me some advice or tell me I'm an idiot for even thinking about it!
GO
Graydeath on
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If you want your roommates to live with you, just have them pay you rent and use that to help in paying your mortgage. Don't try anything fancy with the loan being any more than what you need to buy the house.
Also, where do you live?
Call a Realtor just to kick around some things like your age and being able to secure a mortgage. You could ask your parents if you live in the same city to help out as well.
What you should do is check the area where you want to buy the house. Is it safe, are you surrounded by government housing (can deflate the value of the house), are you in the city or the county jurisdiction, what are taxes like, etc.
I would buy a house now, especially if you already have money put aside for a rainy day. You've got all the other smaller things checked off, and if your roommates are punctual in their payments you could really pay off your house in a decent amount of time.
After that, I'd definately get together with a realtor and have them start finding houses for you. They'll want to know what area you want, what features you require and how much you can afford. Again, this is where the pre-approval comes in, since if you know how much you can afford, your realtor won't waste your time looking for houses out of your price range.
The important thing, though, is to be honest in what you are looking for and how much you can afford. If you can't afford a $2,000 a month mortgage (including taxes, fees, HOAs, whatever) then don't let anybody convince you otherwise. If you are dead-set on getting a townhome with a basement and your realtor goes off and finds you a one story condo, don't settle. You're paying them for a reason.
Edit: Also, if you close before December 31st, you get that $8,000 tax credit. Which is really nice.
And the roommates thing. I would get a loan you can afford with no help. That way if they are paying rent, you can continue to put money away to save. Do you expect your roommates to live with you forever? What if they leave? What if one loses his job? Selling a house you can't afford is a heck of a lot different than moving apartments.
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1. Yes, now is a good time to buy a house
2. In a perfect world you would want to have the 20% down payment, but really just put down as much as you can. Mortgage people will pitch loans with like 3.5% down payment or no down payment but you do not ever want to do that. I would say put at least 10 or 15% down. If you cannot afford that, then now might not be the best time to buy.
3. Get pre-approved first by either a bank or some mortgage lending company. Then call a Realtor and start looking. Your Realtor will talk to your bank/pre-approver before hand and make sure you weren't lying.
4. They will take you seriously, don't worry.
5. That would be complicated and you should probably avoid it. I don't really know much about how it would work, but if things go south and somebody wants out, you would probably be in a pickle. Plan on buying a house for yourself and paying for it yourself. If you can rent out a room or two, cool, just don't be dependent on it.
Talk to a lender. Just say you want to determine whether this is feasible for you. They'll ask you all sorts of information and try and get you pre-approved. If you're pre-approved, well that means you're in.
Realtors want you to sign something that says you can't work with another Realtor while you're working with them. Fuck that.
I put down a 5% down payment. Conventional wisdom is 20% to avoid PMI (Personal Mortgage Insurance, I think?) I'm not paying PMI, because I told them I wasn't going to. I also didn't pay closing costs, again because I told them I wasn't going to. The conversation basically went like, "I'm not paying PMI and closing because it's a scam for you guys to pocket more money." "But..you have to." "No, I don't. I'm not going to." "...okay." Obviously I'm oversimplifying but that's the gist.
When you find a place, make sure you get it inspected. It's worth the $300 or so it costs, because they're going to find something you have no idea how to fix. In my house's case, all the electrical outlets near water didn't have the automatic shutoff breaker deal. I said I'd buy the house if they fixed that, and they did.
I kind of acted like I already owned the place. Maybe it's like women...act like you know they like you, and they do. Maybe I was just lucky, but I got everything I wanted.
You are correct about being confident and asking for what you want though :P
Sorry, thought I included that in the OP. Central California about an hour south of Sacramento.
Looks like everyone pretty much agrees that a mortgage I can afford without roomates would be the best which makes sense. The roomate thing just ran through my head so I thought I would throw it out there.
Could you elaborate a little on why those are worse than the 20% down?
With less than 20% down, you will pretty much be stuck paying PMI which adds to your monthly payment.
It is also a good idea to have significant equity in a home before moving in. A lot of people (including me) have lost significant value in our homes, and if you don't have any (or little) down you will end up with negative equity, which can be a very undesirable situation.
Not to mention, more money put down will increase your chances of getting a better interest rate.
If you get serious about a house, get a qualified home inspector. Do NOT trust the realtor or yourself.
Even though it doesn't apply to you right now, check in on the school district. Who knows what may happen a few years down the road.
2. FHA loans require a minimum 3.5% down. HUD is talking crack about letting folks use their 8K tax rebate up front as down payment. Talk to a mortgage company, they'll tell you what your options are. Another great option is NACA. Lots of hoops, but good results and they teach you good money habits before you buy.
3. Talk to a bank or mortgage company first (or NACA). If you can get preapproved, that makes going forward much easier, and you can also see what you can afford. After you get preapproved, sit down with your budget and bills and make sure that sucking-chest-wound mortgage is going to let you do clever things like eat and pay for electricity. I was preapproved up to a ridiculous amount (IMO) based on my income. I sat down with an online mortgage calculator that included taxes and insurance (Very Important), and found that I would be most comfortable borrowing about 60% of what I qualified for, and the contract I signed today was for about 51%.
4. Younger than normal might mean "doesn't have as much credit history" - ymmv, based on what you've done in your life. That said, if you get preapproved, you're in the game.
5. Nope, you would have to enter into the mortgage *with* them in order to do that. Anything the bank considers for you is going to be based on your income only, and they'd be kinda silly to preapprove you for more than you can repay alone or with your spouse's documented income. In our case, we did the whole thing based on my income alone because that seemed more sensible than getting tied up into a mortgage we both had to slave to pay.
6. You don't have to sign anything binding you to the realtor. Working with a realtor is an extra expense, but he's gonna know contractors and inspectors, and all sorts of other nifty stuff. This is a case where the old boy's network is a blessing if you're willing to get independent quotes for the same stuff, also. NEVER let a realtor represent you AND the seller.
The bigger the downpayment, the lower the priniciple balance on the loan and the lower the overall payments will be. At the beginning of your mortgage payments you'll be paying about 98% to the projected interest and very little towards the principle balance. If you make any extra payments outside of the scheduled amoritization it will all go towards principle and you will lower the total number of payments you will make. I think it's something like 2 extra payments a year will cut your loan time in half (from 30yr to 15yr).
Get a fixed rate mortgage. ARMs are the devil. If thats all you can afford dont buy the house.
Utilities and shit costs a lot more than it did in the apartment. Plus there is literally ALWAYS something that needs to be fixed/upgraded/added to/purchased (who would have thought i needed that many trashcans?) Make absolutely sure you can afford this on your own before you dive into it. You will also need to buy insurance, so that will add atleast a hundred to your monthly payment and property taxes are a bitch and a half.
Remember your realtor is there to work for YOU. Not the other way around. If they arent doing what you told them to, or listening to what you want then find another one. They make their money by selling you the most expensive house they can. Set a limit and stick to it. Unless you find a house where you walk in and go 'this is the one.' It might be $15k more than you wanted to spend, but over the period of the loan, the increase in payments is actually pretty small depending on your APR its like.
One type of loan that doesn't require 20% down and doesn't requite PMI is a USDA Rural Development Guaranteed loan. You can get them for 0% down payment (though obviously if you can afford it you can and should put money down) and they don't require PMI to be paid since the loan is guaranteed by the government. There is an UPPER income limit and they aren't available in all areas (specifically not available in metro areas and some surrounding areas).
As said, don't try anything with the roommates. If you wanted to try to get a loan that was more than you could afford by using a roommate, the roommate would have to end up being on the mortgage, which means that you'll both own (and be responsible for) the home. It's likely too much trouble.
As far as talking to a lender which several people have said is a good place to start, who should I talk to? I did one of those online pre-approval things a few months ago with Bank of America (I bank with them) and when their representative called me they said in order to process the pre-approval there would be a $350 application fee. Is this normal? I have had troubles with BofA in the past also... would a different bank be a good idea?
Get pre-approved as early as possible, it gives you lots of bargaining power and gives you a useful price cap so you don't go looking at some house that's too expensive. Try to avoid major financial or credit transactions because everything will be looked at...the mortgage company is asking us about two deposits that seem odd in order to make sure that we didn't recieve money as a gift or whatever. Don't open or close credit cards, shift money around retirement accounts, refinance other loans, stuff like that, at least not until you close.
Yes, definitely get an inspector. Ask coworkers and such for recommendations, and don't go with the cheapest one you find. Like brain surgery and parachutes, this is not something to be stingy about.
Only you can decide whether it makes sense to wait for a larger down payment or whether getting in now makes sense. Usually waiting is wise, but if the interest rates keep going up, that could mean a whole lot more money in the long run.
Spend some time organizing your financial records (pay stubs, credit statements, all that jazz) because the mortgage company will want to see all of it, especially for someone so young. Be prepared to have every aspect of your financial life examined, and be prepared to sign an infinite number of documents.
Oh, and I agree with TK-42-1...don't get an ARM, especially when a big reason to buy now is the low interest rates. Interest will go back up, and you'll be real happy sitting on a 5.5% or whatever when the ARMS jump up to 9 or 10%. The only reason you might want an ARM is if you are realistically planning on moving in the next 5 years or so (in which case it's probably smarter to just rent, so that you don't get REAMED BY FINANCIAL BARBED WIRE like my wife and I) so that it won't have much time to adjust.
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But there's one more thing to think about: in the first year, maybe two, you own a house, there are going to be a TON of expenses you're probably not thinking of right now. You're going to need lawn and garden tools for keeping the yard in order. You're probably going to find you want some additional furniture to fill up some of your expanded living space. You're going to decide that the people who lived in the house before you were color blind and "oh my god what were they thinking painting this room fuschia", so you'll likely be doing at least some light renovation work.
And that all assumes nothing major breaks. You'll want to have enough, ideally, to continue to build up a rainy day slush fund for when something big comes up.
Now, it sounds like, if you've got $10k squirreled away and a 4-5 month buffer, you'll probably be OK - but make sure that you're ready to drop probably an additional $3-5k in the first year or two as you settle into the house.
Holy hell, no. Shop around. I didn't pay a dime for my pre-approval (a few weeks ago) and got three different lenders bidding for my services. One took about five minutes with some basic information and the other two took about fifteen minutes with some more in-depth information. If someone is charging you $350 dollars just for a pre-approval application walk the fuck away.
You should also talk to your lender or realtor about getting the seller to cover closing costs. These can add up to several thousand dollars, and it definately helps to have your seller cover those. My realtor just got my seller to cover up to $7,000 in closing costs, so it definately can be done.
xbl - HowYouGetAnts
steam - WeAreAllGeth
I am renting a house right now and most of the furniture and things are mine so I'm pretty good on that front. I also pay all the utilities currently and my roomates pay me back so I'm aware of how much all of those cost and it shouldn't be much of a problem.
Also good call on the fixed rate mortgage. Makes sense.
edit:
As far as property taxes and PMI go, do they all get lumped in with the monthly mortgage payment or are they all paid seperately?
PMI is not a scam, but a Soft Second tends to be better because of the tax benefits. Not all lenders offer them, however.
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