Buying a house

[bluefoxicy]

Screw it, I'm going to see about buying that house. Anyone done this?

There's this house, it costs $170k, if I got it with zero down payment and some it'd be about $1187 ... 3.5% down and a 5% will get me $924/mo. First time home buyers might get a $10,000 grant... plus an $8000 income tax credit... plus I'd try to drop $7000.... $17000 and I get $2500 back later in my taxes. I could make out good. A 10 year fixed ARM could come at 4.11% (especially if my credit card is paid off by then) and I'll try to refinance to a fixed rate mortgage by the time the 10 years is up so I don't get an interest bump.

I figure it'll be cheaper than the $800/mo I spend on a garage and 1br apartment (plus my own utilities, plus inflated car insurance prices and inflated taxes due to my area). For 4 bedrooms, a basement, and a detached garage, and a huge yard I'll have to have taken care of (tree in the yard over power lines, a pool I don't want, the grass is ugly and ill maintained, etc), mostly by buying a lawn mower and some grass seed, and calling BGE to remove most of the tree (I'll mix some ANFO or something to remove the stump.... wait I need a license for that don't I?)

So... game plan:

• Open talks, shoot for ... maybe June?
• Take Clyde up on his offer; start pulling in an extra $300-$400/week working Friday nights at the bar.
• Finish paying off my credit card
• Start saving up lots of cash
• Work on transferring my 401(k) plans to all one plan (still!)
• Take a loan directly off my 401(k)
• Lay down as much down payment as I can
• Aunt is a mortgage broker, says she can get me 4+7/8% easy for fixed rate.

I can only take half my 401(k) as a loan though. Augh.

I think I can do this.

 

[WhosYerBob]

Good luck with the zero down part - that's gone from our area. The rest looks like a good start.

 

[bigred90gt]

0 down will be tough. Also, I would personally avoid any kind of ARM like the plague. That is what got many people into the mess they are in. Saying you'll just refinance after the 10 years sounds great, but you dont know what the situation will be in 10 years, or what the home will be valued at. If it is valued at less than what you owe, you will not be able to refinance, and you will be stuck with whatever rate they feel like putting you at. I say either get a conventional fixed rate loan, with however much you can get away with putting down (as a first time buyer, you should qualify for FHA, if the house meets the requirements, which should work for a low rate and about 3% down), or stay in the apartment. Never bank on the need to refinance something in the future.

We ended up with a fairly high rate (bought just before the bottom fell out when the rates were up) with only 5% down through a conventional 30 year fixed.

 

[bluefoxicy]

Good luck with the zero down part - that's gone from our area. The rest looks like a good start.

Zero down would be a financial disaster, look at the payment difference. Plus I can get a $10k grant anyway, but I'd rather shove $30k at it (can I put together $30k in 4 months? ... let's try).

Saying you'll just refinance after the 10 years sounds great, but you dont know what the situation will be in 10 years, or what the home will be valued at.

Yeah that's a bad idea. What you do is continuously look to refinance, pester the banks, look for something low, and pay extra into the mortgage. Let's say I can afford $400/mo more than I get a mortgage for... I can pay that $400/mo into the mortgage, and shop around looking for a loan about what I can get fixed. 5 years later the loan rates come down again, I jump it, but I'm playing on some $15,000 bigger down payment ($24000 in, but interest...). I could milk it for the remainder, but... risk.

Though there is the chance that in 10 years the rates will be 8% and my 4.11% loan becomes 5.11%, 6.11%, 7.11%.... 14.5% crud. One percent per year.

I say either get a conventional fixed rate loan, with however much you can get away with putting down (as a first time buyer, you should qualify for FHA, if the house meets the requirements, which should work for a low rate and about 3% down), or stay in the apartment.

Oh, good. Low rates. 4.78% I can probably get fixed, and possibly 3.5% down being $6250 and I might be able to get a $10,000 FHA grant.

 

[knlgskr]

+++++ on an ARM, run don't walk from them. The more you can put down on a house the better.

 

[82R100]

The loan off of the 401k is probably a bad idea. Aren't there penalties to pay for that?

Where's this house (Balto City? County?)? Do you know how much the annual property taxes are?

- Chris

 

[gaseousclay]

are you also figuring home owner's insurance with your mortgage payment? then of course there are property taxes to deal with as well.

 

[jadam318]

Hey, bluefox, good thread. I'm looking into buying a house withing the next few months, too. I'm gonna watch this thread.

 

[bluefoxicy]

The loan off of the 401k is probably a bad idea. Aren't there penalties to pay for that?

Where's this house (Balto City? County?)? Do you know how much the annual property taxes are?

- Chris

There's no penalties, just interest that gets paid back to the 401(k) fund. It's 5.4% right now, so if I pay $250 plus $20 interest I'm paying $270/mo into my 401(k) (not $250 and I lose $20). It's a loan from myself. If I default, it's considered a tax-penalized distribution (i.e. early withdrawal).

County. Annual property tax is 1.1%.

are you also figuring home owner's insurance with your mortgage payment? then of course there are property taxes to deal with as well.

Home owner's insurance comes from my current renter's insurance provider, at a discount.

I have roughly $1500/mo extra, plus $800/mo I pay in rent that I no longer have to deal with if I jump ship from the apartment, so $2300 if I stop paying into my 401(k). I think if I can get my mortgage around $1000/mo I can handle it.

Mind you I don't want to screw myself financially here. I'll look into a second job to help with this, and start hammering on my car payment more too. I want the car loan gone, that's $430-ish I don't need to pay. I don't actually know what my car payment is... I've never paid the minimum.

 

[AACJ]

You should not use your 401K as a loan source. I believe if you do, you cannot contribute any into it while you actually have a loan. Plus, you may not get your employers contribution as well. The matching funds that they contribute equalls a 100% return on your investment (as long as the 401K doesn't loose money itself.)

 

[Jim]

You may be required to carry mortgage insurance if you do not meet the % down required. That can be a big nut every month, check it out.

 

[bluefoxicy]

You may be required to carry mortgage insurance if you do not meet the % down required. That can be a big nut every month, check it out.

It drops off when you pay down the required amount, so if you pay extra this goes away faster. But yes. PMI or whatever sucks.

 

[Billy Pilgrim]

It drops off when you pay down the required amount, so if you pay extra this goes away faster. But yes. PMI or whatever sucks.

I may be wrong, but generally PMI hangs around until you've got 20 percent equity in your house. In your case, that's $34,000. With most of your payments being interest heavy for the first few years, that's going to take a long time.

I'm from the 20-percent-down-or-don't-buy school, but good luck. Just a word of caution that you might be toying with some things that got a lot of people in a lot of trouble ...

 

[bluefoxicy]

I may be wrong, but generally PMI hangs around until you've got 20 percent equity in your house. In your case, that's $34,000. With most of your payments being interest heavy for the first few years, that's going to take a long time.

I'm from the 20-percent-down-or-don't-buy school, but good luck. Just a word of caution that you might be toying with some things that got a lot of people in a lot of trouble ...

I'm in the "pay in extra" crowd, I'll hit what I can for a down payment and then shift my finances to shift extra towards my mortgage and car payment. I'll probably keep working at the bar on weekends just to get extra money to pay down my debts, not to spend.

Moving up the debt time table is always, always a good thing. And you're not wrong about that, PMI hangs around for 20% down.

 

[Amer]

PMI is a pain. We (wife and I) closed on a brand new home in July of '08 with 5% down because neither on of us had owned a home before or had saved enough to put 20% down. We wound up with an LPMI loan, lender paid MI. Hence, we don't pay PMI but we have a slightly higher rate. We end up paying more in the end, but the monthly payments were lower in the beginning, which was helpful for us. Of course in 10 years when the PMI would drop we'd be paying more. Unfortunately I don't think anyone really does LPMI anymore. We've looked into refinancing to a lower rate (we are at 7.0% fixed) but even then our monthly payments were higher because of the darn PMI. We sat down and calculated it out and it was going to take about 12 years for us to recoup the cost of refinancing plus the higher monthly payments, and we didn't see ourselves in this house still then. And if you're not making extra payments toward principal PMI isn't going away any time soon. Of our approx. $1450 monthly mortgage payment, only about $180 dollars goes to principal. The rest goes to interest and escrow.

Don't forget your escrow as well when calculating your payments. Mortgage brokers love to leave this out. They'll quote you something and your monthly payment is really 300 bucks higher due to money going into escrow for your home insurance and property taxes.

Also, with your property taxes your payments are going to fluctuate every year. Our first year we were only in the house for half a year, so our escrow had a surplus. They recalculated our escrow and our payment went down 100 bucks a month. Because they underestimated, our escrow was something like 500 bucks in the hole this last year. Hence our monthly payment went back up another 50 bucks or so this year.

There's also a lot of hidden costs involved for just owning a home. All of the maintenance and upkeep can take a good chunk of money every month, and you'll probably be busy every weekend for the first few months after you move in. Even if you buy a brand new home half the stuff in it will have to be fixed or worked on within a year.

Also, watch for fluctuations in utilities. The electric company here charges higher rates in the summer when everyone is running their air conditioning. The city utility charges higher rates in the winter on gas when everyone is running their heat. It's somewhat of a trade off, but it's not uncommon for our electric bill to be 30 bucks more in the summer and our gas bill to be over 100 bucks more in the winter.

 

[Commander Quan]

How old is this house? Does it need any updating? Will you want or need to replace carpet? What are your utilities going to look like for the year?

I'm not sure what the housing market is like in your area but this may be more of a house then you need, if it's just you.

 

[Billy Pilgrim]

Don't forget your escrow as well when calculating your payments. Mortgage brokers love to leave this out. They'll quote you something and your monthly payment is really 300 bucks higher due to money going into escrow for your home insurance and property taxes.

Wise words here. Also, don't forget about your closing costs, which can reach upwards of $5,000 to $10,000. Ask your Realtor for a "total cost to buy home" sheet. I'm sure there's a real name for it, but it's very helpful. Oh, and don't forget a home inspection, too. That's another well-spent $300 to $500.

 

[bluefoxicy]

How old is this house? Does it need any updating? Will you want or need to replace carpet? What are your utilities going to look like for the year?

No idea how old... built 1942.

Hardwood floors.

My utilities are going to look like hell. I can redo the insulation and such but it's a house... it'll need fuel to heat it. The cooling system is ceiling fans lol....

Wise words here. Also, don't forget about your closing costs, which can reach upwards of $5,000 to $10,000. Ask your Realtor for a "total cost to buy home" sheet. I'm sure there's a real name for it, but it's very helpful. Oh, and don't forget a home inspection, too. That's another well-spent $300 to $500.

Yeah I should be able to get grants for that for being a first time home buyer but I probably won't have $10k. :/

I suck at this.

Don't forget your escrow as well when calculating your payments. Mortgage brokers love to leave this out. They'll quote you something and your monthly payment is really 300 bucks higher due to money going into escrow for your home insurance and property taxes.

Ugh.

Yeah my aunt is a mortgage broker. I'll see what I can do. I may be working a second job for a while but I don't mind... hurm. (Mostly because I don't want to roll back my 401(k) contributions)

I may not be ready for this... I say this every time something happens in my life, and I'm usually right. I usually survive though....

 

[cricky101]

I closed on my first house in late November. And I've been working on projects pretty much every free minute I have, and planning future projects, but I'm really enjoying it.

I researched for months before I even looked at a house and took a couple classes offered by my city (community education things). One was about mortgage/financing and the other was about actually searching for the home. Those were VERY helpful and informative. I think the two classes cost about $10 each to attend. If you can find something like that I'd strongly urge you to look into attending.

The financing course went over different types of loans available, grants available to some, steps in the process, liens, title searches, and even interpreting the sometimes confusing documents/statements that you'll see throughout the process.

The home search class went over everything from how to find a Realtor, "red flag" items when looking at homes, and choosing an inspector.

It was a long process, and there were some speed bumps that came up along the way (which I've been told happen at some point or another when buying a home) but it was a worthwhile experience for me.

 

[jadam318]

I've seen a couple of you, including the OP, mention 'grants' for first time home buyers. Where do you find information on those? And by "grants', do y'all mean free money to go toward purchasing a place? I work in non profit, and that's basically what a grant is, to me. There will be stipulations on how the $ is used, but it doesn't have to be paid back. Does that hold true here?