Home buying decisions

[yh125d]

21y/o
~$40k/year, increasing (I've gotten 50% in raises the last 12 months)
Flawless yet only 3 year long credit, FICOs at 735/757
Only debt is ~$5500 in a car loan
I have $7k in the bank right now, and saving at a pretty decent rate (50 hour weeks likely to the end of the year, plus saving a lot of my $750/wk per diem I've been getting for business trips)

I really really want to buy a house. I'm responsible, independent, and genuinely happy with the city I live in (Tulsa), and not planning to go anywhere anytime soon. I'm paying $400/mo in rent (goes to $480 in april) for a pretty nice 1br apartment, but I don't like living in an apartment. I'm paranoid about being loud, being the 21 year old guy with quiet 30 year old neighbors. I can't throw parties (I am 21 after all), I don't have the room to do much, and since I'd rather wait to buy furniture for my house, I only have a desk and a bed.

I want to find a decent 3br/2ba starter home. Looking around, there are plenty of good homes to choose from in the area from $70-90k. Based on standard ratios and online calculators (and a very conservative estimate of income), I should be able to borrow anywhere from $130-$150k on a 30yr fixed @ 4% with the cash on hand right now. There's no need to spend that much in this area, so I'm looking at $90k list price maximum right now, mostly under $80k


Basically I have a few options here.

With the cash I have right now, I can comfortably afford the 3.5% down payment for an FHA loan on even the maximum $90k, which is only $3150 and have money left over for closing/moving costs

By next Jan/Feb I expect to have somewhere around $10-12k, maybe more. At that time I'd be able to afford a 10% down on a conventional. I'd still have PMI for a while, but interest rates may be a bit lower then if trends continue

OR, around that time, I could still do an FHA loan, and still have $8k+. That's be a mighty nice safety net/move-in money, since I only have a bed/desk/recliner

My lease is up in April. When its up, I could sign on for another 6 months to be up this time next year. I could have $16-18k at that point, possibly enough for a 20% down and no PMI. While this is probably the smartest option, its the one I personally like least, because I'd really rather not stay in an apartment a whole nother year, and who knows when interest rates/home prices are going to go up


What do the older wise folks of ATOT have to say? If I had to pick an option I'm leaning towards, it'd be option 3. Give me plenty of time to educate myself more on the whole process, find my lender, find my perfect house, close and move in right around the time this lease is up

 

[Red Squirrel]

Since you're in an apartment, that's a tough decision. You don't have quite enough to do a decent down payment, but on the other hand, if you get approved now for a mortgage at least any money you'll be paying will be going towards the house.

I say get a mortgage preapproval at your bank, and go from there. They'll tell you the max they'll finance you for, so you know to look for houses 50k or so under that. (you want room to breathe) When I got my preapproval they were ready to go up to 200k, so my max was 150k but I knew I could go higher. Ended up buying at 165k.

You may have to pay off that car loan first though, but I'd go see the bank and see what they say.

 

[Bignate603]

Here's a few things I can think of after skimming through your post
1. I wouldn't count on future raises to pay for your house, buy what you can comfortably afford on your current income
2. You're going to need a decent amount of money to set yourself up with everything that you need when you move in. Lawn equipment, furniture, appliances, etc...
3. You'll need to increase how much money you keep around for emergencies. You can chew through a few grand very quickly when something happens.
4. Make sure you add in all the other costs when you're making this decision. Home insurance, higher utility costs, property taxes, general wear and tear on the house, etc. Just because you can comfortably make the mortgage payment won't mean that you can easily afford all of the other things that you need to do as a home owner.

 

[yh125d]

Here's a few things I can think of after skimming through your post
1. I wouldn't count on future raises to pay for your house, buy what you can comfortably afford on your current income

I'm not really. I'm putting my gross with 40 hour weeks (37440/yr)into all the calculators, and the lowest result I've gotten was ~$130k. I'm looking to spend absolutely no more than $90k, and realistically probably $75-80k, so I should be comfortable there, even on just 40 hour weeks. However, every year I have worked I have gotten anywhere from 4-16 weeks of overtime if not more. For the first 6 months of this year I made ~$31200 gross yearly, the last 6 months I will be making ~$37440 yearly on straight time, but I expect to *actually* gross between 40-42k anyway. In addition to that, I will have several weeks of considerable profit on per diems for fairly regular field trips for work - I should profit about $2k-2.5k on that alone this year.

Also, I am considering having a roommate for the 3rd bedroom. I'm not *planning* on it, and surely wouldn't try to use that potential income when I apply for the mortgage, but it could pay the biggest part of my mortgage payment if I wound up doing that.

I'm very confident I can easily afford the price range I'm looking, and could probably have a 20% down payment ready within 12-16months, I'm just trying to figure out if it's worth waiting that long.

2. You're going to need a decent amount of money to set yourself up with everything that you need when you move in. Lawn equipment, furniture, appliances, etc...

My parents own rent houses and as a result have extra appliances I can get for cheap if they don't stay behind when I buy. Apart from probably a couch, dresser, and dining set (and some small accent pieces) I don't need to buy a house full of furniture day 1. I'm totally fine with taking a year or more to really flesh out my house, I intend to take my time on that

3. You'll need to increase how much money you keep around for emergencies. You can chew through a few grand very quickly when something happens.

4. Make sure you add in all the other costs when you're making this decision. Home insurance, higher utility costs, property taxes, general wear and tear on the house, etc. Just because you can comfortably make the mortgage payment won't mean that you can easily afford all of the other things that you need to do as a home owner.

Yep, all the calculators I've used factor in PMI/homeowners ins./taxes in "what can I afford". And I plan to keep at least $2-3k available for a busted water heater or the like and my credit cards free if things go real bad

^^

 

[pontifex]

In a similar situation but 10 years older.

Looking at something around $90k max but would be more comfortable around $80k

I have very good credit, over 700 and I was approved for $180k but as i mentioned, I'm only comfortable around $90k max to spend.

Most stuff around here in that price range is either a townhouse (not what I want) or crap that needs tons of work (and still asking for a pretty penny).

 

[MagnusTheBrewer]

Move out of Tulsa.

 

[Mr. Lennon]

Move out of Tulsa.

I get all jelly when I read others posting they are paying under $500 freaking dollars a month in rent. Then I google maps the area and feel a lot better lol.

 

[thedarkwolf]

I did it 13 years ago making $20k so you certainly can. Salvation Army/Goodwill, craigslist, old family crap, and used appliance stores got me started off pretty well.

 

[Mike Gayner]

Wow how much does an area suck that you can get a house that cheap?

 

[dank69]

Avoid PMI at all costs. Look into 80/5/15, 80/10/10 and 80/15/5 loans. They are becoming increasingly rare, but if you can find them, you will be much better off. If you can't find them, you will be happier just saving up the 20% down, even if you can't buy for another year. Interest rates don't look to be going anywhere for at least that long, and housing prices aren't going anywhere but down for awhile, too.

 

[dank69]

Wow how much does an area suck that you can get a house that cheap?

I'm sure you can find plenty of sheep in Oklahoma.

 

[Texashiker]

I'm not really. I'm putting my gross with 40 hour weeks (37440/yr)into all the calculators, and the lowest result I've gotten was ~$130k.

You make $37,440 a year?

That is $720 a week before taxes, lets say you bring home close to $500 a week.

So your monthly house note should be in the $400 - $500 price range? How are you going to by a $130k house on $500 a month?

 

[GotIssues]

1. Don't count on overtime. I know for the most part you aren't in your calculations, but the rest of your posts, you sound like you are assuming you'll always get it.

2. Avoid PMI if you can. It's a giant waste of money.

3. As has been said before, owning a house can be expensive at time. Example: 3 months after I moved into my house, my basement flooded because the sump pump cover shifted and didn't allow the pump float to move. That was $2500 down the drain.

4. Take an long, objective look at your job security. Don't rely on what you 'feel,' look at your industry, company's position in the industry, and your position in the company (which probably isn't strong, since you are 21 and it sounds like a union-type job - low man gets hosed in that setting).

5. Talk to your parents and get their advice. You think you know it all at 21 (most people do), and they've likely had similar life experiences (or know someone that has) and could give some good advice.

 

[dank69]

...

2. Avoid PMI if you can. It's a giant waste of money.

...

Not just a waste of money. It is a bitch to get removed.

 

[Anarchist420]

Here's a few things I can think of after skimming through your post
1. I wouldn't count on future raises to pay for your house, buy what you can comfortably afford on your current income
2. You're going to need a decent amount of money to set yourself up with everything that you need when you move in. Lawn equipment, furniture, appliances, etc...
3. You'll need to increase how much money you keep around for emergencies. You can chew through a few grand very quickly when something happens.
4. Make sure you add in all the other costs when you're making this decision. Home insurance, higher utility costs, property taxes, general wear and tear on the house, etc. Just because you can comfortably make the mortgage payment won't mean that you can easily afford all of the other things that you need to do as a home owner.

This.

The OP should continue renting. I'm probably not ever going to buy a house unless legal tender is repealed. Mortgaging a good house is too risky unless you work for a firm that doesn't go into debt. Plus you have a lot to still pay off on a car.

 

[Elbryn]

how much is the car debt? i'd consider paying that off as the revolving loan on that will be taken into account for how much you can afford to pay a month.

though on a 40k income, you can get a home in the 90k range and be ok with it.

as a single guy you probably dont need that much nice crap, thats mostly for when you get the wife and are required to upgrade. buddy and me bought a house when we went to grad school. we got furniture from goodwill type places and hand me downs. when we ripped out the old bathroom tile, we used the tv table as a cutting stand for sawing backer board.

you can get all the basic lawncare crap from craigslist cheap too.

i would reconsider the PMI piece and get enough money for the 20% down to avoid it. on a 86k loan on a 90k house, pmi adds another 65-70ish to the loan. that in itself is roughly 800 bucks. pretty sizable chunk to swallow.

prices/loans arnt going anywhere soon. we're looking at a double dip and the fed just did twist on long term rates. another year aint gonna kill ya. no sense getting a house before you're ready just to get one.

one option: if your parents buy homes to rent, have you considered having them buy the place you want and you renting it from them for a year or two? when you're ready, they can sell it to you

 

[Texashiker]

I'm probably not ever going to buy a house unless legal tender is repealed. Mortgaging a good house is too risky unless you work for a firm that doesn't go into debt.

Never own a home?

A mortgage is risky?

Why not live with mom and dad until you have enough money saved up to pay cash for a home?

 

[GotIssues]

This.

The OP should continue renting. I'm probably not ever going to buy a house unless legal tender is repealed. Mortgaging a good house is too risky unless you work for a firm that doesn't go into debt. Plus you have a lot to still pay off on a car.

Buying a house isn't an easy decision in his case, but home ownership >>>> renting, especially now that renting prices have spiked, mortgage rates are low, and house prices have gone down. There are a few more risks involved in home ownership, but taking the necessary steps to make an informed decision will usually yield a good result.

My mortgage+insurance+taxes on my 2400sqft, 5bed, 2.5 bath house with a two car garage is about $150 more than the rent we paid on a 1100 sqft 2 bed, 2 bath apartment, and one garage space. $150/mo is a small price to pay for 1300 sqft, extra garage space, and no shared walls with loud ass neighbors. Especially when you consider that $300/mo of the base mortgage is going toward the principle of the house, and thus recoverable when the house is sold. It was a pretty easy decision in my case.

 

[yh125d]

You make $37,440 a year?

That is $720 a week before taxes, lets say you bring home close to $500 a week.

So your monthly house note should be in the $400 - $500 price range? How are you going to by a $130k house on $500 a month?

The traditional values I've always seen are up to 28% of your gross monthly income on your mortgage, and up to 36% for mortgage + other debt. With my income, 28% is ~$873 available for a mortgage payment, and ~$1123 available for mortgage + other debt. My other debt is only $237/mo, so using those traditional values I could spend up to 886/mo without overspending. I'm looking at about $500/mo max, when I *could* spend almost $900/mo if I wanted to, so I'm looking at spending only a little over half of what I *could* spend (based on those traditional values).

 

[yh125d]

1. Don't count on overtime. I know for the most part you aren't in your calculations, but the rest of your posts, you sound like you are assuming you'll always get it.

2. Avoid PMI if you can. It's a giant waste of money.

3. As has been said before, owning a house can be expensive at time. Example: 3 months after I moved into my house, my basement flooded because the sump pump cover shifted and didn't allow the pump float to move. That was $2500 down the drain.

4. Take an long, objective look at your job security. Don't rely on what you 'feel,' look at your industry, company's position in the industry, and your position in the company (which probably isn't strong, since you are 21 and it sounds like a union-type job - low man gets hosed in that setting).

I'm pretty confident in my job security. My company stayed pretty stable throughout the worst of the recession (they cut hours to 36 for a few months, but never docked pay and only laid off one worthless guy). In the last year I've gotten 50% in raises without increased responsibilities. My boss specifically told me on both of my raises that they were based on performance, not just COL raises. He and my supervisors have regularly stated how I am one of if not the most valuable member here. Our company has over the last year hired a few new full time employees (small company), have more work than we can handle and are actually having to turn down some work. I'm pretty confident in saying that we're stable, I'm stable in our standing here, and if the worst were to happen, I'd be an attractive hire anywhere else in town.

5. Talk to your parents and get their advice. You think you know it all at 21 (most people do), and they've likely had similar life experiences (or know someone that has) and could give some good advice.

My dad was the one who first suggested buying now with an FHA loan instead of waiting. With the low amounts I'm looking at, the most I'd ever spend on PMI would be ~$2-3k, even less if I get below 80% LTV sooner (which I ought to). He even said he'd help me out with a down payment if I wanted to buy sooner (though I won't take him up on that)

I haven't talked to my mom much about the specifics fha/conventional, wait/buy now, etc, just that she agrees it'd be a great time for me to buy. I'll try to talk more in-depth with her about it

^^

 

[purbeast0]

one thing to keep in mind - closing costs.

my wife and i are looking at houses right now and didn't realize closing costs are so expensive. we're asking for seller subsidy in closing costs in order for us to put a 5% down payment to get a better interest rate. if we can't get any seller subsidy, then we can't put 5% down and will have to have a tad higher interest rate.

we actually put in a bid today and hoping to hear good news about it

 

[dank69]

My dad was the one who first suggested buying now with an FHA loan instead of waiting. With the low amounts I'm looking at, the most I'd ever spend on PMI would be ~$2-3k, even less if I get below 80% LTV sooner (which I ought to). He even said he'd help me out with a down payment if I wanted to buy sooner (though I won't take him up on that)

I haven't talked to my mom much about the specifics fha/conventional, wait/buy now, etc, just that she agrees it'd be a great time for me to buy. I'll try to talk more in-depth with her about it

That's my point, incase you missed it. PMI does not automatically come off once you hit 80%. You have to request it, and often pay for a current appraisal to prove the house is still worth 125%+ of what you still owe. With housing prices still on the decline, you may get down to 80% only to find out your house isn't worth what it once was, and you have to pay out of pocket to find that out.

 

[dank69]

one thing to keep in mind - closing costs.

my wife and i are looking at houses right now and didn't realize closing costs are so expensive. we're asking for seller subsidy in closing costs in order for us to put a 5% down payment to get a better interest rate. if we can't get any seller subsidy, then we can't put 5% down and will have to have a tad higher interest rate.

we actually put in a bid today and hoping to hear good news about it

Most sellers will agree to pay closing costs, especially in this market. Good luck. I hope you are getting a good deal on the price.

 

[ichy]

Wait another year, save up more money. You're only 21, there's nothing wrong with renting right now. New homeowners ALWAYS underestimate the expenses that come with home ownership.

 

[PricklyPete]

21y/o
~$40k/year, increasing (I've gotten 50% in raises the last 12 months)
Flawless yet only 3 year long credit, FICOs at 735/757
Only debt is ~$5500 in a car loan
I have $7k in the bank right now, and saving at a pretty decent rate (50 hour weeks likely to the end of the year, plus saving a lot of my $750/wk per diem I've been getting for business trips)

I really really want to buy a house. I'm responsible, independent, and genuinely happy with the city I live in (Tulsa), and not planning to go anywhere anytime soon. I'm paying $400/mo in rent (goes to $480 in april) for a pretty nice 1br apartment, but I don't like living in an apartment. I'm paranoid about being loud, being the 21 year old guy with quiet 30 year old neighbors. I can't throw parties (I am 21 after all), I don't have the room to do much, and since I'd rather wait to buy furniture for my house, I only have a desk and a bed.

I want to find a decent 3br/2ba starter home. Looking around, there are plenty of good homes to choose from in the area from $70-90k. Based on standard ratios and online calculators (and a very conservative estimate of income), I should be able to borrow anywhere from $130-$150k on a 30yr fixed @ 4% with the cash on hand right now. There's no need to spend that much in this area, so I'm looking at $90k list price maximum right now, mostly under $80k


Basically I have a few options here.

With the cash I have right now, I can comfortably afford the 3.5% down payment for an FHA loan on even the maximum $90k, which is only $3150 and have money left over for closing/moving costs

By next Jan/Feb I expect to have somewhere around $10-12k, maybe more. At that time I'd be able to afford a 10% down on a conventional. I'd still have PMI for a while, but interest rates may be a bit lower then if trends continue

OR, around that time, I could still do an FHA loan, and still have $8k+. That's be a mighty nice safety net/move-in money, since I only have a bed/desk/recliner

My lease is up in April. When its up, I could sign on for another 6 months to be up this time next year. I could have $16-18k at that point, possibly enough for a 20% down and no PMI. While this is probably the smartest option, its the one I personally like least, because I'd really rather not stay in an apartment a whole nother year, and who knows when interest rates/home prices are going to go up


What do the older wise folks of ATOT have to say? If I had to pick an option I'm leaning towards, it'd be option 3. Give me plenty of time to educate myself more on the whole process, find my lender, find my perfect house, close and move in right around the time this lease is up

You are 21...stay in the apartment for another year and make your decision when you have a better financial footing as well as a better idea of what you will be doing 5 years from now.