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Mortgage / New home advice needed

M

Megamorph

Senior member
I have noticed that there always seem to be knowledgeable AT'ers in OT that seem to be up on mortgages, buying homes, etc. Since this is definitely not my area of expertise, I need the advice of some of you more experienced guys and gals. Here is my situation:

*I am single (no plans for marriage in the near future) and have never owned a home before -- always rented.

*I have an established career as a commercial insurance agent and gross approx. $80-125K per year...depending on the market.

*I have a FICO score of 650. The only negative thing EVER reported on my credit was a 90-day late student loan payment, which was recently. I obviously do not have a cash flow problem...it was an error on my part...thought it was getting paid and it wasn't.

*I do not have any other debt aside from about $15K in student loans and $4K on one credit card. No car payment or other loans.


I live in Houston and would like to purchase a $225-250K home. Taxes on this home are $3K per year.

Realistically, do I earn enough to afford a home this expensive?

What kind of interest rate should I expect with my credit history and FICO?

What kind of down payment should I put down? 20% is a lot more than I can afford. How much will the mortgage company require me to put down? I could probably afford $10-15K.

And finally, I know everyone seems to be buying homes right now due to the low interest rates, but it seems to me that home prices are higher now than they have ever been. Should I buy a home during a time when prices are at their peak?

Any input or advice would be greatly appreciated.



 
you can defintely afford a $250K home with room to spare , but your fico score is not that great so you might end up having a little higher rate. you may want to look into adjustable mortagges like a 7/1 arm or 7/23 balloon. it will lower your rate and keep your monthly payments down.

it cant hurt you to ask around, get quotes from lenders. I called several places for rates and such. they can give you a document called a good faith estimate, its a fairly accurate prediction of how much money a mortgage will cost you.
 
Also, in my opinion real estate, especially in growing areas is a good investment in itself. my opinion is that as soon as you can afford to sustain a mortgage go for it, its worth it.

PS: i bought my house about 9 months ago and it was one of the best decision i made
 
Originally posted by: Megamorph
I have noticed that there always seem to be knowledgeable AT'ers in OT that seem to be up on mortgages, buying homes, etc. Since this is definitely not my area of expertise, I need the advice of some of you more experienced guys and gals. Here is my situation:

*I am single (no plans for marriage in the near future) and have never owned a home before -- always rented.

*I have an established career as a commercial insurance agent and gross approx. $80-125K per year...depending on the market.

*I have a FICO score of 650. The only negative thing EVER reported on my credit was a 90-day late student loan payment, which was recently. I obviously do not have a cash flow problem...it was an error on my part...thought it was getting paid and it wasn't.

*I do not have any other debt aside from about $15K in student loans and $4K on one credit card. No car payment or other loans.


I live in Houston and would like to purchase a $225-250K home. Taxes on this home are $3K per year.

Realistically, do I earn enough to afford a home this expensive?

What kind of interest rate should I expect with my credit history and FICO?

What kind of down payment should I put down? 20% is a lot more than I can afford. How much will the mortgage company require me to put down? I could probably afford $10-15K.

And finally, I know everyone seems to be buying homes right now due to the low interest rates, but it seems to me that home prices are higher now than they have ever been. Should I buy a home during a time when prices are at their peak?

Any input or advice would be greatly appreciated.
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You make that much and you still have CC debt 😕 Although you maybe able to afford the house, I would hold off another year or 2, pay off my debts, save more money, and then purchase the house.
 
I could pay off the credit card debt at any time; however, I am trying to hold as much of my cash as possible for this purchase. If needed, I could/would bring the credit card to a zero balance.
 
Most likely you can buy a home in that range but that recent 90 day late and only 5% max down is likely to hurt you. You might get approved for the lowest rate, but brace yourself for something about a point or so above market.

Don't talk about "cash flow" with a lender. Lenders do not care about cash flow. They care about your debt-to-income ratio -- the ratio of all your monthly debts (except auto/health insurance and utilities) plus your new monthly housing payment (including property taxes and homeowners insurance and MI if applicable) divided by your gross income. As it sounds like you're straight commission, you might have to provide more income documentation (2 years complete tax returns would be normal) and jump a few more hurdles. Your allowable income will most likely be calculated as an average over the last 2 years minus any non-reimbursed employee expenses.

With a 650, you could still go 0% down, but you'll pay for it in rate.

The last is a question everyone would like to know. Is there going to be a real estate bubble? Talk about the $6.4 trillion dollar question. One thing is that prices have gone up as rates have gone down. This is because, when everyone finances, price is a function of rate (and vice versa). The lower the rate, the higher the home price a buyer can afford and/or be qualified for. My opinion is that if rates do spike up, we will at the very least see a flattening of home values.
If you're only looking to be in the home for a couple of years, buying may not be the best idea for you. Long term though, home values always go up.
 
I read an interesting article the other day that said that rates will remain fairly low for the time being. Of course that could change on a whim, but I'd like to think that if rates stay below 7% for the next 5 years that the housing market will still be moving on at a fair clip. Rates are a hell of a lot lower than the 80's though!

 
Originally posted by: Megamorph
Does anyone know what the lowest rates have been during the past few years?
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On what type of loan? ARM? Conventional? 30 year? 15 year? You can find nice charts of most rates at certain lenders on google. Just search for mortgage rate charts or a similar derivative.
 
Keep saving.

As a general rule dont let your total house payment (PITI...principal, interest, taxes, insurance) exceed about 25-30% of your monthly take-home pay. If you are only putting down 5-15% you are still going to have to cough up PMI (Private Mortgage Insurance) which on a 200k+ loan could be substantial, although it will only be until the value to loan ratio dips under 80%.

The problem is that once you get a new house, you see lots of other crap to buy. Furniture, electronics, landscaping, toys to fill the garage etc. can really start to add up. And of course you have a new girlfriend who thinks you are now a sugar-daddy in your new digs, and expects to be treated accordingly. 🙂
 
Originally posted by: Sluggo
Keep saving.
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I really don't think so. 20% down = $50K cash. Not gonna happen. I make substantially more than most people, but I don't see myself saving up $50K...and I have relatively little debt. I honestly don't understand how normal people save up such huge sums of cash.

 
Originally posted by: Megamorph
Originally posted by: Sluggo
Keep saving.
Click to expand...

I really don't think so. 20% down = $50K cash. Not gonna happen. I make substantially more than most people, but I don't see myself saving up $50K...and I have relatively little debt. I honestly don't understand how normal people save up such huge sums of cash.
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If you are making 80-125k a year it should be easy to save some money unless you are really living a lavish lifestyle.
 
Originally posted by: Megamorph
Does anyone know what the lowest rates have been during the past few years?
Click to expand...
The 30 year fixed dropped to about 5% even for par retail pricing in mid-June of last year. That was the lowest since 1958.

Retail mortgage rates for the 30 fixed tend to track roughly 2% (give or take a 0.25% depending on market conditions) above the 10 year Treasury Bond. Graph

I believe that the 30 fixed will stay in the 6% range throughout the end of the year. Currently, it is in the 5.625% range and has been trending downwards since the first of the year.
Given the volatile nature of interest rates, I do not believe for one minute that they will remain below 7% for the next 5 years unless we enter a full-blown depression. After all, rates were above 7% just 2 years ago, and above 8% a little over 3 years ago.
 
Originally posted by: Mill
Originally posted by: Megamorph
Originally posted by: Sluggo
Keep saving.
Click to expand...

I really don't think so. 20% down = $50K cash. Not gonna happen. I make substantially more than most people, but I don't see myself saving up $50K...and I have relatively little debt. I honestly don't understand how normal people save up such huge sums of cash.
Click to expand...

If you are making 80-125k a year it should be easy to save some money unless you are really living a lavish lifestyle.
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No, I certainly don't live a lavish lifestyle. Saving "some" money isn't difficult; however, saving $50K in the short term definitely is. It should also be noted that as a single guy with virtually no deductions, write-off's, etc., I am redistributing over 45% of my income to the poor via Uncle Sam. I paid more in taxes in 2003 than most people earn in a year.
 
Originally posted by: Ferocious
I just have a gut feeling you shouldn't buy a house in that price range.
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I appreciate the input, but I don't plan on taking someone's "gut feeling" into account (certainly someone who doesn't know me) when making the largest purchase of my life, unless you can back it up with reasonable data (i.e. facts, statistics, etc.)

 
You will want to discuss this with your accountant. Owning a house could give you a substantial tax break - home interest is deductible.

Owning a house is not always an investment. Buy with an eye for eventual profit - can you get a house for less than the market rate from an acquaintance who is moving (if you buy privately, not thru a broker, they save the commission, and you can split the difference)? Or, do you have a good knowledge of the area and you know of an area that is going "up" in esteem? Or, for example, in my area, they recently opened a more direct train to NYC, which has made prices go up considerably; those who knew about it and make plans have profited nicely.

In other words, think like an investor, not a homeowner.

In like manner, avoid things that will detract from the resale value - mold; lead paint; wiring etc of a certain age that is wearing out; EPA regulations (when they designated our block a flood zone twenty years ago, it wiped out gains that long-time homeowners were counting on) and changes; and so on.

Anyway, good luck!
 
badmouse, I'm sure I will need to be on the lookout for some of the pitfalls that you mentioned. Unfortunately, there isn't any new construction in the area where I want to live. All of the homes were built during the 60's and 70's.
 
Megamorph - those were not so much specific instructions, just want you to be aware that there are different things to think about when you're buying investment property vs. falling in love with a house. Best, of course, is to love a nice property with good investment potential.

 
Originally posted by: Megamorph
No, I certainly don't live a lavish lifestyle. Saving "some" money isn't difficult; however, saving $50K in the short term definitely is. It should also be noted that as a single guy with virtually no deductions, write-off's, etc., I am redistributing over 45% of my income to the poor via Uncle Sam. I paid more in taxes in 2003 than most people earn in a year.
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Hmm... I know the feeling. And I'd say that might be a reason to buy right there. Between mortgage interest and property taxes, you should be able to deduct roughly $16k+ off your taxes.

Do this: when you prepare your taxes for 2003, draft up an alternative set of what it would have been like if you had owned a house last year (obviously don't send this set to Uncle Sam). Prepare a schedule A with $13k in mortgage interest and $3k in property taxes, and see what it does for your tax bottom line. And as just having the mortgage gives you enough deductions to start itemizing, see if that doesn't open the door to other smaller deductions you can tack on. Look to make sure than you aren't up against the AMT, where such deductions won't do you any good anyhow.

Buying a home is not all about appreciating values though, nor is it all about the tax deduction. It's about looking forward to the day when you pay it off. You'll never do that renting.
 
Talk to a mortagage broker. They'll tell you what you can afford based on your finiancial situation, and it won't cost you anything as they'll be hoping to get a $200K mortgage for you.
 


you can do the no money down option, get a loan for 80% and another loan for %20. I predict your monthly payment will be about $1400-$1500 a month.
Some other costs to consider: HOA fees - probably $50-$100 monthly, higher electric bill (depending on your house sq. footage, house insurance, etc.). Now also factor in you will need the following: refridge, washer, dryer, blinders for windows, garage opener, landscaping, dining room furniture, living room furniture, kitchen stuff, etc. Of course you don't have to get all those at once.
 
Originally posted by: Ornery
Why not buy a house at half that price, and save up for the next one?
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Unfortunately, the homes in the area which I wish to live are all upwards of $200K. The homes I am looking at are all on the lower-end of what's available.

 
Originally posted by: bernse
Talk to a mortagage broker. They'll tell you what you can afford based on your finiancial situation, and it won't cost you anything as they'll be hoping to get a $200K mortgage for you.
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I disagree. I think a mortgage broker would tend to lead me to believe that I could afford more than what I realistically could.
 
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