Ok before long (aka around a year probably) I am going to be looking at buying a house. So I don't even know where to start as far as the money side. How much should I have for a down payment? How much should I spend total? Etc.
Ok before long (aka around a year probably) I am going to be looking at buying a house. So I don't even know where to start as far as the money side. How much should I have for a down payment? How much should I spend total? Etc.
Where do you want to live?
Have a wife?
Have kids?
How much space do you want?
A Realtor would ask you all these things.
convential loans typically require 20% down.
You can currently get FHA loans with as little as 3.5% down, but you will pay mortgage insurance (PMI) until your loan to value reaches 20%, making your effective rate a little higher.
Otherwise, yeah rules of thumb are mortgage should be no more than 30% of your income... you can extrapolate that backwards with online mortgage calculators to figure out how much home you can afford (dont' forget property tax / insurance / etc.).
Beyond that, shorter term loans are at lower rates, so a 15 year is cheaper than a 30 year. Whatever term you get, if rates are anywhere near what they are right now, get a FIXED rate mortgage... rates are near all time historical lows, money is cheap.
...beyond that, yep everything asked above. kids? school district? zoning laws? etc.
xflowgolf wrote: Otherwise, yeah rules of thumb are mortgage should be no more than 30% of your income... you can extrapolate that backwards with online mortgage calculators to figure out how much home you can afford (dont' forget property tax / insurance / etc.).
Monthly payment should be 30% of monthly income you mean?
Okay. The last time I did the math, the rule of thumb is 3 times your pre tax income is your theoretical max, i.e. if your pre tax income is $60k then you want a max of $180k mortgage.
carguy123 on here is a mortgage broker and has the lowdown on the changes coming down the pike on things such as debt to income ratio, etc.
On new construction, 5% was the normal down payment and for existing homes 20%.
In reply to PHeller:
Huntsville/ Madison AL. Will have wife. No kids and not having any for a while. Nothing big (two bedroom, one office, living room/ dining room two car garage and a decent master bath).
This is the best blog to learn about buying/selling real estate: http://www.searchlightcrusade.net
Datsun1500 wrote:xflowgolf wrote: You can currently get FHA loans with as little as 3.5% down, but you will pay mortgage insurance (PMI) until your loan to value reaches 20%, making your effective rate a little higher.After June 1st PMI will not go away after your loan is at 80%. FHA will not keep it there for the life of the loan. It's one of the reasons my 20 year bought a house last week.
Sorry but I'm a bit confused by this. So FHA won't require PMI even if the LTV ratio is under 20%? Or they will until it reaches 80% LTV?
Reason I ask, it's always been that the mortgage holder had to pay PMI until the LTV hit 20%, and that could be either from paying it down or from refinancing if the value went up.
All above is good stuff and I won't repeat. Unless you are shooting blanks, you will end up with kids. I would look for three BRs and at least 1.5 baths, preferably two. One of the first things we looked at was the schools (wifey is a teacher). Not only for your benefit when you get little ones, but when you come to sell. Never buy the biggest fanciest house in a neighborhood. We bought one of the smallest, cheapest houses in a neighborhhod in Montgonmery and made out well when I got E36 M3 canned and we had to sell ASAP.
I've said it before, if the company that E36 M3 canned me had let me move to the No ALA area, I would still be there.
What are the thoughts of getting a longer-term loan versus a shorter-term?
An advantage that I have heard about the longer-term (say, 30 year) is that extra money can always be paid on top of the mortgage payment every month, whereas a shorter loan will never allow less than the payment to be paid, should financial hardship occur.
Oh, and OP: as I mentioned in another house thread, watch the school district carefully. Do some research, find out where the good districts are and hunt in those areas.
Be sure to see which schools are good and which are bad in a given district. Ex: my mom's house is in a good district near where the attendance zones for three different high schools come together. Two of the schools are great, the other is full of dope dealers etc and constantly scores at the bottom of everything. The attendance zones are not neighborhood dependent, meaning some of the streets in her 'hood are zoned for the crappy school. It's entirely possible to buy a nice house in a nice neighborhood then find your kids are zoned for a war zone school.
It may not be important to you now, but when kids come along it will be. It will also be a big thing when it comes time to sell, houses in good school districts sell about three times as fast as those in struggling districts or zoned for schools that score poorly.
Mitchell wrote: What are the thoughts of getting a longer-term loan versus a shorter-term? An advantage that I have heard about the longer-term (say, 30 year) is that extra money can always be paid on top of the mortgage payment every month, whereas a shorter loan will never allow less than the payment to be paid, should financial hardship occur.
Price it out, know whether or not you'll be able to stay on top of paying extra every month, and also consider how long you plan on staying in the house. We recently re-fi'd at 2.875 for a 15 year. It will save us over $100k if we stay in the house that long. The BIG difference with the shorter term is that the principle is being paid off way more aggressively, so even if we sell, we'll at least make a couple bucks instead of being upside-down.
The math is pretty easy. The old adage is "You can't buy groceries with bricks" which is true, but if you're sweating EITHER paying your mortgage or eating, the extra (insert dollar amt) per month for the 15 year vs. 30 is probably the least of your worries.
15 year mortgages have reduced interest rates and the interest cost over the life of the loan is far lower. 30 year mortgages have higher interest rates, but a lower monthly payment and greater overall lifetime payment amount. If you're not sure you can swing the 15 year mortgage, get the 30 year. One extra payment a year will bring a 30 year down to about 23 years, and save you a ton of interest. Obviously, two extra payments a year would save you even more money.
We looked into a 15 year, but the payments can be a stretch. You can get many of the same benefits (save for the lower interest rate) by going with the 30 year and making a few extra payments. The benefit is that the 30 year should give you a little more wiggle room to make the payments, should you lose your job or have financial issues.
What I believe is that if you are looking for a house you have to commit to a location for 5 years to make it worth it. I don't have that kind of stability yet so I still rent, also my rent is super cheap, 2 car garage, live with friends from college and in a nice area.
fidelity101 is right about the time horizon also.
It's possible to shortcut that, but it involves things like buying a decent quality foreclosed house in a good neighborhood and keeping the repair costs down, thus starting you off with a lot of equity. That was pretty easy to do a year or two ago (I was able to) but now it's getting harder as the supply of good quality foreclosed houses dwindles.
On mortgages: there are also 20 year mortgages which can be an attractive alternative. Worth looking into.
I'd recommend avoiding balloon and interest only notes, to me those are far too much like a financial grenade with the pin pulled. In fact, interest only notes may not be readily available any more.
If you're able and can stay motivated, buy the E36 M3tiest house w/ the best potential in the best neighborhood. We bought in 20816 in 2000 for $250k. Median house price there when we sold in 2010 was close to $1M. We ended up making 2.4x what we paid which allowed us to move to 20815 to another project w/ a huge shop+basement+garage.
Yes, it's a huge commitment. Yes, in our case it was utterly worthwhile. That I can have a full machine and fab shop in the new place has made my new job possible. The garage has made going racing a reality.
A good realtor can answer all of your questions for the house part.
In reply to Datsun1500:
So I would have to pay down 20% or I am stuck with the PMI for a long time basically. Or am I stuck with the PMI for a long time?
spitfirebill wrote: All above is good stuff and I won't repeat. Unless you are shooting blanks, you will end up with kids. I would look for three BRs and at least 1.5 baths, preferably two. One of the first things we looked at was the schools (wifey is a teacher). Not only for your benefit when you get little ones, but when you come to sell. Never buy the biggest fanciest house in a neighborhood. We bought one of the smallest, cheapest houses in a neighborhhod in Montgonmery and made out well when I got E36 M3 canned and we had to sell ASAP. I've said it before, if the company that E36 M3 canned me had let me move to the No ALA area, I would still be there.
We aren't planning on having kids for a bit. We aren't sure we want to stay in this area past about 6-7 years so we wouldn't be necessarily be staying in this house with kids. Does that mean that it isn't worth buying a house?
93EXCivic wrote: We aren't planning on having kids for a bit. We aren't sure we want to stay in this area past about 6-7 years so we wouldn't be necessarily be staying in this house with kids. Does that mean that it isn't worth buying a house?
No. It just means that your are probably near the recoup threshold, so buy wisely. Don't spend money like you expect to live there forever.
Regarding kids... Don't forget most of the buyers looking at your house when it comes time to sell have kids. If you buy a 2 BR, you are severely limiting your potential buyers.
Where did you read the thing about permanent PMI? I have 20% saved up so I wonder if maybe I should wait until after the permanent PMI thing kicks in, may cause a dip in prices/demand.
A little clarification regarding mortgage insurance:
Conventional mortgage loans that exceed 80% LTV typically require PMI (Private Mortgage Insurance). The premium for this coverage may or may not be a separate component of your monthly mortgage payment. If it is, you can usually get the premium dropped from your payment once the balance of the loan drops below 80% of the home's value when purchased.
FHA loans typically require both an Up Front and a Monthly MIP (Mortgage Insurance Premium). The up front fee is usually financed into the loan and the monthly is paid by the consumer as part of their mortgage payment. The MIP charges vary depending upon the LTV and loan term.
Effective April 1st, the Up Front MIP charge will increase for most FHA borrowers.
Effective June 3rd, the rules for eliminating the Monthly MIP charges will change. There will no longer be a LTV threshold to drop coverage. Loans with an initial LTV greater than 90% will have the monthly charge for the life of the loan. Most other FHA loans will require the MIP for 11 years.
VA insured loans also have an insurance premium known as a Funding Fee. It is a percentage of the loan amount and usually tacked onto the loan. There are no monthly charges - just the up-front Funding Fee.
That's a very basic summary with many details omitted. The recently announced FHA changes are not likely to have a significant impact on the housing market overall but will likely shift some consumers from FHA to Conventional products - which is partially the intent.
Interesting. Since most can't come up with a solid down payment, I wonder what affect this will have on the market.
I can back up what Datsun is saying, the guy I spoke with from our builder of choice yesterday told us the exact same thing.
Add in our neighborhood has had quite a few foreclosures lately (meaning we will need to spend a chunk on the property to likely break even), means we likely won't be building a house anytime soon.
Enyar wrote: Interesting. Since most can't come up with a solid down payment, I wonder what affect this will have on the market.
Likely none. They'll just be paying PMI till eternity. The same type of people who had no business owning a house before will continue to buy houses with $0 down, I'm guessing. At least now, hopefully, they won't be buying a house that cost 3 times what it was worth, and walking away when it appraises for a third of what they paid. And hopefully the people who already walked away have had their credit ruined and are forced to rent with a huge security deposit.
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