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Woot, looking at buying my first house...

Cuda1447

Cuda1447

Lifer
So me and my fiancee decided that its stupid to be paying rent of 800 a month in an apartment when we can afford a bit more and the housing market is down so low right now. Seems like now is a very good time to get our money in the housing market (florida) and it just kind of makes sense for us.

We aren't really looking for anything big, just something decent sized in a nice area. Maybe something a little older that could use just a little bit of work. No major work, I'm by no means a handyman.


Now we got qualified by this one guy for $125k (We are both part time employee's full time students graduating this year, so thats not to bad considering).

He wanted to set us up on an FHA loan with 3% down. His closing costs and other fee's seemed like they added up to be quite a bit though, somewhere in the neighborhood of 6 grand, which I think is a bit to high. He also gave us a monthly payment of 990, easily something we could afford. I'm curious though if in that monthly payment that generally includes taxes etc... or if we have to add more into that figure?

Now I realize that you can shop around for mortgages. Both my fiancee and myself have high credit scores (720's) so thats good news. I've been told that with those high scores we should be able to get approved for 0 down with the lowest market interest rate. I do not know what this original guy was giving me for an interest rate, I probably should have asked. But assuming we lowered the interest rate even a percent, that would allow us to afford a more expensive house but keep the payments about the same.

Also, I have a family member who used to work in the mortgage industry and he was giving me some advice. I just like to get ATOT's opinion on things, a diversity of opinions is always good. He was mentioning a 5 year ARM might not be a bad idea. ARM's' have a major negative connotation these days, so I was weary at first. After he explained it though it didn't seem like a horrible idea. We are both young and just getting ready to get started in careers. Chances are 5 years from now we will want to buy something nicer/newer. Not to mention EVEN if we did stay in it, we would be buying something well within our means to afford now, so it shouldn't be an issue 5 years from now if our payments became a bit more expensive.


Now, the whole reason I am asking all of these questions about interest rates and being able to afford more is pretty basic. Most of the houses we looked at that we liked were in the 130-140k range. A lot of decent options in that range really. Which leads me to my final 3 questions.

1. How negotiable are prices generally? Am I going to be able to find someone to go from 140k to 125k or is that way to big of a jump?
2. If I get approved for say 125k, do I need to find a house thats only 120k because I will have to afford something I am not thinking about, or can I go to my limit with that mortgage? In other words, do I need a buffer zone?
3. Ah shit, I forgot question #3. I'll edit it later if I think of it.



But in short, any advice in the mortgage process or home buying process would be GREATLY appreciated.



Oh, one last thing. Since I know some people will tell us to wait until we graduate etc, let me tell you why we won't want to. We want to have a bit more room right now. I yearn for a yard very very badly. Our lease is expiring on our apartment on 3 months and we don't want to stay here for another year. A few months beyond that is tolerable, we will just have to pay 50 bucks above market rate. So ya, that's that.

Next time, just cut and paste into a new topic in the right forum and delete the post information/title from the wrong forum.

moderator allisolm
 
The only real reason to use FHA is if you have bad or no credit.
Other companies offer much better deals if your credit is good.
 
Originally posted by: RamIt
The only real reason to use FHA is if you have bad or no credit.
Other companies offer much better deals if your credit is good.
Click to expand...

720's for both of us is plenty good, right?
 
Cuda, I'm in new home sales in Florida. RamIt's advise is very poor regarding FHA. If you'd like I can give you an accurate payment and give you a good overview of the housing econ in Florida right now. I'll send you a PM.
 
Originally posted by: Cuda1447
Originally posted by: RamIt
The only real reason to use FHA is if you have bad or no credit.
Other companies offer much better deals if your credit is good.
Click to expand...

720's for both of us is plenty good, right?
Click to expand...
Mortgage brokers have told me that your credit score doesn't matter as much as just seeing that all your payments have been on time and in full.

Also, I was reading your post, and just see a monthly rate - how long of a mortgage would this be? Do the numbers and figure out how much this will all cost you in the end after interest.
 
Wait till you get married first, graduate and one of you working full time. The housing market is still going down...
 
Don't forget to factor in Property tax and insurance along with your mortgage. I heard home insurance can be expensive in Florida because of hurricanes.
 
Do you have full time jobs lined up?

You're about ready to commit yourself to a 125k mortgage and you haven't even graduated. That's one hell of a ball and chain tied to your ankle. What happens if you get a really good offer outside of Florida? You'll be tied to that house, and right now basically nothing is selling in Florida. More foreclosures means more houses will be coming on the market. You might consider the fact that if you buy now it might be 10 years before you could escape the house while breaking even.

In other words, my advice to you is wait. The market in Florida will continue to decline. You don't want to catch a falling knife unless you are 100% POSITIVE that you don't mind being immobile for the next 10 years.

Listen, you're young. Take my advice, just graduating from college, you WANT to be mobile. Especially in an economy that's looking like it's already in a recession with no real sign of relief. You want a yard but my advice is to wait. Remember, those real estate agents and brokers make the most money by putting you into the most expensive house they can RIGHT NOW. They don't have your best interests at heart.

If you are serious, know that you have to pay PITI every month. That's principle, interest, taxes, and insurance. On top of that, you'll get nickel and dimed by home repairs. For an older home, figure you'll average 100-200 a month over a year. These are things you'll want to consider if you're really serious. There are a lot of hidden costs in home ownership.

I don't say the above because I am against home ownership. Homes can be used as a hedge against inflation, historically, but it just doesn't make much sense to buy right now, especially in Florida. You would probably be much better off finding a distressed homeowner who wants to rent an investment house out cheap, with a huge yard. You'll have your yard, a cheaper payment, and maximum possible flexibility.
 
By the way, a more accurate payment for you:

purchase price: $125k
downpayment: 3% (FHA)
interest rate: 6%, 30 term
property taxes: 2% of assessed value with $25,000 florida homestead discount... we'll say you get taxed on $75k
insurance: .75% of purchase price annually

your TOTAL payment (not including HOA fees or anything like that): $930.08
 
I agree with BigDH01... very good post, and while it isn't nearly as exciting right away as having your own home, I think he's right.
 
What area of Florida? Some areas are more distressed than others. For example, Ocala prices are appreciating, while Sarasota homes that peaked in the 240s are now selling in the 180s. Generally, south Florida is doing badly (Orlando, Tampa, Miami).

Look only at vacant properties (motivated sellers) that were never used as primary homes (speculators). Then lowball an offer with room to move upwards. That's how you're going to get the best deal on a house, but be prepared to stay 5+ years for the market to bottom out and start gaining value again.

Shop for your rates! Check it: www.madrate.com/morerates.jsp (30 Yr Fixed 5.75%)

Also, I just read and agree with BigDH01. Consider renting a house.
 
Good info guys, I'm taking it all into consideration. As for staying in this area, thats something we plan on doing for sure. We both have family in this area and most def. like it a lot. As for the area, its Tampa. I find it interesting that everyone says the market is going to go down further. I am not disputing that, but I'd be curious to see why exactly you say that. Its very difficult for most people to judge when the market will rise/fall in real estate just like in stocks. Maybe not as hard, but I can't imagine its something your average joe could do very well.
 
Many areas have had a lifetime of appreciation take place over the last 7 or 8 years.

Despite what you see in the news, many areas have not dropped significantly and macro numbers are skewed by certain areas where prices soared and have begun to crash (e.g. Miami, Phoenix, California).

Go through your local newspaper archives and see what peak price for type of home you want was, how much appreciation has taken place since begin of this century, and see what current price is; you may be shocked to find that drop from peak value is only $10000 - $20000, yet home price doubled in last 5 years or so.

And what happens when you want to upgrade to a better house several years from now? (hint: You might end up losing a lot of money because a house is an illiquid "investment" and there are significant, as in thousands of dollars, in costs associated with buying or selling a home).

 
Originally posted by: Cuda1447
Good info guys, I'm taking it all into consideration. As for staying in this area, thats something we plan on doing for sure. We both have family in this area and most def. like it a lot. As for the area, its Tampa. I find it interesting that everyone says the market is going to go down further. I am not disputing that, but I'd be curious to see why exactly you say that. Its very difficult for most people to judge when the market will rise/fall in real estate just like in stocks. Maybe not as hard, but I can't imagine its something your average joe could do very well.
Click to expand...

Not all that difficult. It can be a game of supply and demand. Look at how many homes sold in your area. Then look at the number of foreclosures in your area. Look at the number of houses on the market. Assuming no one else puts their home on the market voluntarily, how much supply is there at the current sales rate? It's up to years in some places, assuming no new or used homes coming on the market. Huge supply, low demand = lower prices.

You can also look at prices. What is the cost of renting vs cost of buying? Look at the median price of homes in your area. What is the median household income? If the median home is more than 3x more the median income, then expect prices to keep falling. If you take a really long historical average (ala Case-Shiller), you'll see that housing value increases inflation + 0-2% in most places. Take a look at the sales histories of the homes you are looking at. Find a time before 2002 when it last sold. Add 5% per year. That should give you an idea of the home's reasonable value (this is obviously not exact, but a rough approximation).

I still think you should answer the original question, do you have full time jobs lined up? I don't think you should even consider buying a home until you do.
 
- make sure monthly payments are less than half your monthly income - frustrating being house poor
- put at least 20% down - if you're serious
- get a fixed rate, simple interest mortgage - no surprises
- wait 2-3 years - the bottom isn't close
 
Your total monthly mortgage bill is made up of four different parts: principle, interest, taxes, and insurance (often called PITI). When comparing different mortgages, this is the amount you want to compare.

Principle and interest should be self explanatory.

TAXES:
In many parts of the country, lenders will also collect local property taxes and place this amount into a separate escrow account. Then, once a year, they will cut a check to your county tax office for the amount they collected. If everything goes right, this should cover your entire property tax bill.

Be aware that YOU and NOT your lender are required to pay your tax bill. In other words, if THEY screw it up, it's YOUR fault as far as the tax man is concerned. A few phone calls can prevent a whole lot of headache. Call your county tax office and find out when your taxes are due (it's probably going to be sometime in the fall to coincide with the beginning of the school year) and will be due the same day every year. Mine are due September 1st. Each year as you get close to tax day, ask your lender what day they are going to pay your taxes and for what amount. Call your county tax office the day after your lender was supposed to pay your taxes to make sure they received payment for the proper amount. Your local tax office's phone number should be on the bill you received from them.

Oh, if you get a letter notifying you of a tax increase, call your lender and make sure they know about it as well so they can start taking out a larger amount. If not, your wallet will be in for quite a shock come tax day.

INSURANCE:
There are three different types of insurance that you may have to deal with: homeowner, flood, and private mortgage insurance ("PMI"). Homeowner's insurance covers things like fires, tornadoes, burst pipes, etc, but NOT floods. It's pretty straight forward and payments for it are also often collected as part of your monthly bill and placed into an escrow account, but escrow payouts for it are usually either quarterly, semi-annually, or annual. If you are happy with your auto insurance company, give them a call and see if they also do homeowner's insurance and what it will cost. A lot of insurance companies offer multi-policy discounts. See if yours does and how big it will be. Don't be afraid to shop around.

Since you live in Florida, flood insurance may or may not be the bane of your existence. I don't know much about it. Find out if it's required in your area. I recommend talking to people you know and find out how much they have to pay for it. All I can say is flood insurance companies are REALLY hurting ever since Katrina and their premiums will show it.

Now for everyone's favorite topic, private mortgage insurance. Generally speaking, unless you put down 20% or more for your house, you're going to pay for private mortgage insurance. Unlike other insurances, this one doesn't cover you or your house - it covers your lender in case you default on your loan. That's right, you're paying someone else's insurance policy.

Until the recent mortgage industry melt down, you could easily find "split" mortgages called "80/20" or "80/10/10". These mortgages would split your total loan amount into two or more smaller mortgages. As long as no single mortgage was over 80% of the value of the home, you could avoid private mortgage insurance. (For example, the "80/20" mortgage would be two separate mortgages, one for 80% of the value of your loan and the other for 20% of the value of your home). This would dodge the 20% down payment rule, but leave the loan without insurance. As long as everyone payed, this worked fine from the lender's point of view. With the way the mortgage industry is right now (especially in Florida), I would be shocked if you can find any of these programs still available because if you default, the lender eats the full cost and doesn't have any insurance to reply upon. It sure can't hurt to ask though.

Hopefully all this drivel helps!

Dave
 
Wait until you have a full-time job and 20% saved up. It should be a piece of cake saving $20k in a year between 2 people.
 
According to Home Buying for Dummies, reason lenders used to require 20% down is because that amount of "equity" (remember, property is collateral for loan) protected them from significant loss if you default on mortgage.

I would suspect 20% down (could be more if lender's appraisal of home's worth is anticipated to continue to go down over time they anticipate you to have loan) is minimum you would need to get a good mortgage rate. You will also need conservative total debt to income ratios to quality for best mortgage rates.

And remember that 80% mortgage is going to be based upon the lender's appraisal of what the property is worth , not what seller is listing property for, or what you are willing to pay for it. If they anticipate significant further downside in appraised value, they may only be willing to loan you 70% of current appraised value, or not loan at all.
 
Not sure what the rush is to buy a place when both you are only working part-time and still in school. $800 a month for rent is cheap and you don't have to pay for maintenance, property taxes, home owner's insurance and water/sewer.

Do you plan on staying in the area for at least the next five years? I would suspect probably not based on the kind of full-time jobs you might get after graduation.

As other's have said, wait to after you graduate, get full-time jobs and have been able to save-up on a downpayment.
 
Originally posted by: Capt Caveman
... As other's have said, wait to after you graduate, get full-time jobs and have been able to save-up on a downpayment.
Click to expand...
What??? Are you suggesting saving up for something and then buying it? not very american...
 
Originally posted by: Capt Caveman
Not sure what the rush is to buy a place when both you are only working part-time and still in school. $800 a month for rent is cheap and you don't have to pay for maintenance, property taxes, home owner's insurance and water/sewer.

Do you plan on staying in the area for at least the next five years? I would suspect probably not based on the kind of full-time jobs you might get after graduation.

As other's have said, wait to after you graduate, get full-time jobs and have been able to save-up on a downpayment.
Click to expand...

I'm with the Capt and at least one other poster in thinking you should wait. You're both about to graduate and enter the work world. There are a lot of changes that are about to hit, plus the housing market is uncertain. I don't think it makes sense to buy unless you're going to stay there a number of years, so I'd wait until you've settled a little into your new lives before buying a house. Also gives you time to save $$, which is always a help.
 
Whatever you do, do NOT put 0% down. If you can't afford to put money down, you can't afford the house. People here are saying 20%, but 5% should be the bare minimum. Also, make sure that your FINAL monthly payment is LESS THAN half your monthly income. If you have car payments or anything, factor all of this in because if one of you loses your job or something, you'd better be sure that you can handle it. Banks are not forgiving at all. They will take that house away at the first sign of trouble. Always prepare for the worst.

As everyone else says, be patient and wait. Trust me, a house can be a great investment (as opposed to paying rent) but it can also be one of the worst investments ever if you do it wrong.
 
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