Homebuying advice?

CarlHungus

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Feb 19, 2012
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Ankeny
36% DTI seems high, but I guess it depends on your situation with cars, student loans, etc.

I'm looking for a house right now and set my max at 33% of take home pay.

When I say 36% DTI, I mean all of your debts total. I've housing should not be more than 28% of your net pay, but I don't know if these are too high of estimates or not. I like the idea of 25% of take home on a house; we'll probably try to keep it between 25%-30% of our take home. Lots of good advice so far, thanks fanatics.
 

cloneluke80

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Apr 11, 2006
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West Des Moines, IA
One thing many people grossly underestimate is maintenance/improvements


Ideally depending on the house you would budget 10 to 20k per year for this this would include things like windows, roof, siding, furnace, finishing basements, remodeling bathrooms, etc

People that don't plan these things end up with home equity loans later


If u save it and don't use it u can always blow it on cars or vacations too
 

Dandy

Future CF Mod
Oct 11, 2012
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Western Iowa
I used to work at a bank that only wanted people to use 23% of their pre-tax annual income towards the monthly house payments. And that's just the mortgage. That didn't include taxes, interest or insurance.

Your debt-to-income ratio should never go above 40%. That is everything that shows up on your credit report: credit card minimum payment, mortgage, car payment, student loans. Use your pre-tax income to figure your DTI ratio. Going over 40% can actually hurt your credit score.

Also you'll want (highly recommended) a 20% down payment to avoid paying private mortgage insurance. PMI is a huge waste of money.
 
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ripvdub

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Mar 20, 2006
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Iowa
Try to get an 80-20 or 80-10-10 loan so you dont have to pay PMI like someone said. Try to get it for 15 years if you can swing an extra 100-200+ a month, youll build equity super fast.
Remember there will be stuff youll need/want after you get it, old or brand new. Fence, landscaping etc.
 

Cyclonesince78

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Mar 8, 2012
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Try to get an 80-20 or 80-10-10 loan so you dont have to pay PMI like someone said. Try to get it for 15 years if you can swing an extra 100-200+ a month, youll build equity super fast.
Remember there will be stuff youll need/want after you get it, old or brand new. Fence, landscaping etc.

80-20's haven't been a thing for about 7-8 years. No bank that I know of offers it.
 
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CarlHungus

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Feb 19, 2012
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Ankeny
I'm thinking of having around $8,000 for an emergency fund for stuff like repairs or in the case if one of us lost our job. Do you think that would be enough?
 

Cyclonesince78

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Mar 8, 2012
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I'm thinking of having around $8,000 for an emergency fund for stuff like repairs or in the case if one of us lost our job. Do you think that would be enough?

A lot of financial advisors will tell you to save 6 months worth of mortgage payments, so you're probably close.
 

cowgirl836

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Sep 3, 2009
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I'm thinking of having around $8,000 for an emergency fund for stuff like repairs or in the case if one of us lost our job. Do you think that would be enough?


Would that cover at least six months of living expenses?

The way I've done it, I've just built in an extra whatever hundred into the budget for maintenance/emergency type repairs so that by default there is money in addition to regular savings that isn't getting spent each month. So say our regular expenses are 1000 a month. For purposes of deciding mortgage price and emergency savings needed, I've just said our expenses are 1350 a month. So our emergency fund needs to be able to cover 6+ months of 1350.
 

cowgirl836

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Sep 3, 2009
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I used to work at a bank that only wanted people to use 23% of their pre-tax annual income towards the monthly house payments. And that's just the mortgage. That didn't include taxes, interest or insurance.

Your debt-to-income ratio should never go above 40%. That is everything that shows up on your credit report: credit card minimum payment, mortgage, car payment, student loans. Use your pre-tax income to figure your DTI ratio. Going over 40% can actually hurt your credit score.

Also you'll want (highly recommended) a 20% down payment to avoid paying private mortgage insurance. PMI is a huge waste of money.


that 23% is more than we want to pay for the total PITI. And we don't have car payments, student loans, etc. That seems super shady.
 

Three4Cy

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Jan 19, 2010
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West Des Moines
Don't forget you'll need money for closing costs, people tend to forget this and worry about putting everything they have saved on a down payment. If you are in a sellers market, don't expect them to help out much with closing costs.

You will need earnest money once you decide to buy, so again don't plan on every penny from your house savings fund for the down payment. You will get your earnest money back as a credit toward your closing costs.

If a family member is going to gift you money, ask them to do it asap. The money needs to be seasoned in your account for a minimum of 60 days, but some lenders require longer. If this is going to be the case, ask you lender.

Get pre-approved - then all you need to do is find the house, since you would know what you could afford. It doesn't mean you have to buy that much, it just makes it easier to eliminate houses you can't afford upfront.

Get your paper work in order - make sure you have two consecutive paystubs, 60 days worth of bank statements, asset statements (on assets that is a retirement account, you get credit for 60% of what's in the account since you would be taxed for early withdrawal since you are not 59.5), two years of W-2's, your employers phone number for Human Resources to verify your employment and review your credit reports, is there anything on them you may need to explain? Any documentation you are asked to supply your lender needs to be all pages of the document.

Don't get caught up in paint colors, how someone has their house decorated, etc. Those can all be changed easily.

Have a home inspection, and make your offer subject to the home inspection. This will give you an out if something is found and the seller is not willing to fix it.

When you find the one - look at it multiple times, and different times during the day. This will allow you to gauge what the neighborhood is like in the morning, evening, afternoon, etc. You can see what the traffic is like, does the school bus stop in front of the house, are there lots of kids, etc.
 

cowgirl836

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Sep 3, 2009
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yeah, definitely don't wipe out your savings for the down payment. Money for closing costs, inspection costs, moving costs (if any), any immediate updates/changes, and emergency fund need to stay put.
 

Three4Cy

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Jan 19, 2010
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I'm thinking of having around $8,000 for an emergency fund for stuff like repairs or in the case if one of us lost our job. Do you think that would be enough?[/QUOTE

Your emergency fund and your home improvement funds needs to be separate. When creating your emergency fund, ask yourself can the spouse who is working cover all the other bills on their salary if we only use the emergency fund to pay the mortgage? So, does their salary cover the car payments, utility bills, cell phones, cable, food, fuel, car insurance, car repairs/upkeep, and any other expenses you have each month? If they can't, that $8000 is going to go pretty quick.

You don't want to deplete your emergency fund for home improvements/repairs, because something like new windows, HVAC systems, roof, appliances, etc. will eat up that money pretty fast.

Other piece of advice, understand where your money goes each month. How much are you really spending on going out to eat, going to the bar, clothing, food, fuel, etc. I know lots of people who as long as they have a $1.00 in their bank account when they get paid are happy because they didn't go in the overdrafts. Cutting back on the extras will help you get a true idea of what it costs to live each month.
 
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Cyclonesince78

Well-Known Member
Mar 8, 2012
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Don't forget you'll need money for closing costs, people tend to forget this and worry about putting everything they have saved on a down payment. If you are in a sellers market, don't expect them to help out much with closing costs.

You will need earnest money once you decide to buy, so again don't plan on every penny from your house savings fund for the down payment. You will get your earnest money back as a credit toward your closing costs.

If a family member is going to gift you money, ask them to do it asap. The money needs to be seasoned in your account for a minimum of 60 days, but some lenders require longer. If this is going to be the case, ask you lender.

Get pre-approved - then all you need to do is find the house, since you would know what you could afford. It doesn't mean you have to buy that much, it just makes it easier to eliminate houses you can't afford upfront.

Get your paper work in order - make sure you have two consecutive paystubs, 60 days worth of bank statements, asset statements (on assets that is a retirement account, you get credit for 60% of what's in the account since you would be taxed for early withdrawal since you are not 59.5), two years of W-2's, your employers phone number for Human Resources to verify your employment and review your credit reports, is there anything on them you may need to explain? Any documentation you are asked to supply your lender needs to be all pages of the document.

Don't get caught up in paint colors, how someone has their house decorated, etc. Those can all be changed easily.

Have a home inspection, and make your offer subject to the home inspection. This will give you an out if something is found and the seller is not willing to fix it.

When you find the one - look at it multiple times, and different times during the day. This will allow you to gauge what the neighborhood is like in the morning, evening, afternoon, etc. You can see what the traffic is like, does the school bus stop in front of the house, are there lots of kids, etc.

That's pretty good advice. But if you're getting a gift from a family member, you just get a gift letter to avoid the 60 day seasoning.
 

Three4Cy

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Jan 19, 2010
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That's pretty good advice. But if you're getting a gift from a family member, you just get a gift letter to avoid the 60 day seasoning.

Last lender I worked for wouldn't allow gift letters, we required bank statements from the person giving the gift showing they actually had the money, and required certified funds on all gift monies.
 

Cyclonesince78

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Mar 8, 2012
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Last lender I worked for wouldn't allow gift letters, we required bank statements from the person giving the gift showing they actually had the money, and required certified funds on all gift monies.

Yes you may be required to show asset verification of the gift, but I was just saying a gift letter could avoid having to worry about the 60 day seasoning. According to Fannie guidelines though it is not required to verify the donor's bank statement, however a lot of bank's do require that.
 

Three4Cy

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Jan 19, 2010
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Yes you may be required to show asset verification of the gift, but I was just saying a gift letter could avoid having to worry about the 60 day seasoning. According to Fannie guidelines though it is not required to verify the donor's bank statement, however a lot of bank's do require that.

Here's Fannie's

Gifts must be evidenced by a letter signed by the donor, called a gift letter. The gift letter must:

  • specify the dollar amount of the gift;
  • specify the date the funds were transferred;
  • include the donor’s statement that no repayment is expected; and
  • indicate the donor’s name, address, telephone number, and relationship to the borrower.

Our internal guidelines were stricter than Fannie because we got burnt hard on gift funds. I'm not saying you are incorrect, just stating that lenders have the ability to have stricter guidelines than Fannie, Freddie, or Ginnie requirements. So it never hurts to ask your lender upfront when it comes to gift funds.