When to Purchase a Home

[bluestarcyclone]

20% down and 15 year note I think is a pretty risky proposition for someone just out of school and looking to buy a business. People suggesting that must have had alot of help from parents, or are thinking thru the lense of there current age vs. in there 20's.

Yeah... i think for many it may be better to go the 30, and if you have the resources to pay the amount of the 15, go ahead and do that, but still have the flexibility to drop back to the lesser 30 year payment if unforseen expenses arise.

I've been paying on an accelerated bi-weekly schedule since i moved into my townhome out of college. Over the course of a year pays 1 payment worth of extra principal off the place.

 

[ISUAlum05]

Imo, buy a house (NOT a condo - terrible investment in almost all cases) as soon as you can. My husband borrowed the down payment from his parents to buy his first house when he was 24 (long before I met him). Even with a crappy interest rate, he had a lot of equity by the time we sold it 8 years later, and built our current (awesome) house. We would be so far behind where we are now if he hadn't bought back then. Also, renting sucks.

 

[cycloneworld]

Things I recommend from my personal experience: Budgets are your friend. Realtors and others will sell you on PITI (Principal, Interest, Taxes, Insurance) under something like 35% of your income. I think this is far too high. When we bought, we were at about 25% of take home, now we are around 21%, and that's with throwing a little extra to principal every month. I thought 25 was a good number to give you flexibility. So if your take home is $4k/month, I personally wouldn't get into something more than $1k all-in. You don't want to be "house-poor" and not be able to live or improve your house because PITI is draining you.

This is excellent advice and something to watch for. Same goes for your lender. They will pre-qualify you for some ridiculous number (sometimes up to 45% DTI). When we moved to Oklahoma 2.5 years ago, we bought a house for about 40% of what our lender and realtor said we could afford.

 

[cycloneworld]

A little off topic here, but I've also been doing research into possibly buying a house. I've got myself sold on a 5 (or 7) year ARM mortgage. The initial interest rate is lower than a 30 year fixed and there are limits to how much the rate can increase after the initial 5 year term.

Another way to avoid paying PMI, if you do decide to buy, is to find a bank that will do a piggyback or an 80/20 loan.
You basically have 2 mortgages, one for 80% of the value and 1 for 20%.
I'm not sure many banks still do an actual 80/20, but you could put some money down to do 80/15 or 80/10.

Downside is the 20% loan will carry a higher interest rate, but if the interest is less than the PMI, you're coming out ahead in my opinion.

Personally, I wouldn't go with an ARM right now. Interest rates are only going to rise in the next 5-7 years and there is a chance you'll get stuck with a much higher rate. It seems like a great deal in the beginning but there is potential to pay more (a lot more) on the back end.

While I'm sure there are banks and lenders out there that will piggyback your down payment as a second loan, they are few and far between after 2008.

 

[ripvdub]

Good point, our guy said that was an option to do 80/15, then our 5, but with the extra interest, it was within a couple hundred bucks of eachother over the term of the loan so no real difference. Plus I liked the sound of 1 mortgage over the sound of having a 2nd mortgage.

You're only making 1 payment really, but we threw any extra money we had at the 15/20% and after paying that off your monthly payment is much lower.

 

[KCCLONE712]

20% down and 15 year note I think is a pretty risky proposition for someone just out of school and looking to buy a business. People suggesting that must have had alot of help from parents, or are thinking thru the lense of there current age vs. in there 20's.

Given the assumption that you are "firmly entrenched" I don't think this is risky, yes, more risky than renting. You can get a 15 year mortgage that would be equivalent to what you pay in rent. Now it may not be a 250k - 350k house and it may not be as nice as the apartment you could get. But saving 20,000 dollars for a 100k mortgage in 1.5 years is very attainable without any help. Your life may consist of two jobs and living on a bare bones budget.... but attainable.

 

[JY07]

I wouldn't be too concerned with interest rates going up unless you already own a house and are looking to refinance soon.

Realtors' big selling point now is "buy quick before interest rates go up!", but it shouldn't matter in the grand scheme of things: if interest rates went up 5% tomorrow, house prices would have to drop in accordance in order to sell. People can afford what people can afford: the amount you're willing to pay per month won't change just because interest rates change

 

[KCCLONE712]

Check out these places both for less than a 100k. Yes you will need to make sure you get a quality home inspection and prepare for repairs. But these are the types of homes I am talking about. May not be the quality of home you want to live in now but if you are truly doing something on your own then a person needs to sacrifice. Also, you could probably pay it off to the point where when you do upgrade you may be in a position to keep the house and rent it out and treat it as an asset.

http://www.zillow.com/homes/for_sale/Des-Moines-IA/house_type/789662_zpid/17759_rid/0-100000_price/0-373_mp/globalrelevanceex_sort/41.613228,-93.575234,41.578374,-93.659005_rect/13_zm/0_mmm/1_fr/

http://www.zillow.com/homes/for_sal...5,41.562257,-93.639436_rect/13_zm/0_mmm/1_fr/

 

[cowgirl836]

Yeah... i think for many it may be better to go the 30, and if you have the resources to pay the amount of the 15, go ahead and do that, but still have the flexibility to drop back to the lesser 30 year payment if unforseen expenses arise.

I've been paying on an accelerated bi-weekly schedule since i moved into my townhome out of college. Over the course of a year pays 1 payment worth of extra principal off the place.

this is our plan. Sure, we'd save interest on the 15 year, but we'd rather have a lower required payment on the 30 and then pay ahead. Then if disaster strikes, we can always back down. We rounded our monthly payment up to the next $100 and are doing a once a year bonus principal payment. Neither thing is noticeable to our budget but will knock a total of 4-5 years off the loan.



and as far as having the 20% - I realize not everyone (especially younger) can afford to do that. I lean that way for the OP because he seems on the fence as to whether or not he needs to be in a house right now. If there were other things like a spouse also wanting to settle, kids needing a solid school district - things making it less likely they would move in the short term, then it makes more sense to do something pay PMI or other things that take a few years to wash out. So if he does want to get into a house right now, I think he should try to put himself in as strong a financial position possible as he has some factors making it less likely that this is a long term decision, if that makes sense.

 

[DeereClone]

Buying a house young and living in it is 5+ years is a smart financial decision, if you can afford it. I did a 15 year mortgage, got a great interest rate, and am paying off principal very quickly. I can understand why a young person would do a 30, but I would look at backing off a little on your purchase price and doing a 15 if at all possible.

20% down isn't that big of a deal. I put 20% down when I bought my house, but if you have to pay PMI or two mortgages for a while that isn't a huge deal, as long as you budget for it and plan for it.

Good luck. I am young and bought a house 2 years ago - great decision for us...hopefully it is for you too.

 

[Cyclonin]

You're only making 1 payment really, but we threw any extra money we had at the 15/20% and after paying that off your monthly payment is much lower.

That's a good point.

 

[SCNCY]

Speaking of homes, does anyone know of good mortgage lenders in the Kansas City area?

 

[cycloneworld]

I wouldn't be too concerned with interest rates going up unless you already own a house and are looking to refinance soon.

Realtors' big selling point now is "buy quick before interest rates go up!", but it shouldn't matter in the grand scheme of things: if interest rates went up 5% tomorrow, house prices would have to drop in accordance in order to sell. People can afford what people can afford: the amount you're willing to pay per month won't change just because interest rates change

But prices won't go down THAT much. Using your extreme example, a 5% rate increase on a $250,000 mortgage is an additional $780 per month!

Let's use a more realistic example, say 2% rate increase, that's over $300 per month more in mortgage payments. That's significant. To offset that on the purchase price of a $250,000 house, it would have to drop to $185,000. That ain't happening. In your 5% example, the price would have to fall to $85,000 to make the payments a wash.
Like I mentioned earlier, interest rate is everything in a 30 year mortgage.

 

[JackTrice3]

1) I wouldn't buy any house you can't put 20% down on: PMI's the worst
2) Keep in mind on a 30 year note you'll be paying down very little principal initially, so if you have to sell within a few years, any of that will easily get wiped out (and then some) with broker fees (unless the value miraculously goes up during that short period)

This exactly. There's been many times I've wished we had a house (unburying my car) but until we have 20% to put down it will not happen. Thankfully my better half is a financial guru and 25k is what we're shooting for in savings prior to buying.

 

[KnappShack]

Check out these places both for less than a 100k. Yes you will need to make sure you get a quality home inspection and prepare for repairs. But these are the types of homes I am talking about. May not be the quality of home you want to live in now but if you are truly doing something on your own then a person needs to sacrifice. Also, you could probably pay it off to the point where when you do upgrade you may be in a position to keep the house and rent it out and treat it as an asset.

http://www.zillow.com/homes/for_sale/Des-Moines-IA/house_type/789662_zpid/17759_rid/0-100000_price/0-373_mp/globalrelevanceex_sort/41.613228,-93.575234,41.578374,-93.659005_rect/13_zm/0_mmm/1_fr/

http://www.zillow.com/homes/for_sal...5,41.562257,-93.639436_rect/13_zm/0_mmm/1_fr/

This makes me miss Des Moines. Not a fancy place, but affordable. A person who isn't a CEO can be a home owner in a great town like Des Moines.

 

[Cyclonin]

This exactly. There's been many times I've wished we had a house (unburying my car) but until we have 20% to put down it will not happen. Thankfully my better half is a financial guru and 25k is what we're shooting for in savings prior to buying.

PMI really isn't the worst. Is it ideal? No, but it would be a while before my wife and I could have saved 20% of what our home was purchased at. Does that speak to our money management? Maybe, but we do save money at a healthy rate but also enjoy other things. I am perfectly fine with our financial situation and that includes paying PMI for a few years. It allows us to be in our home when we wanted to buy for $93 extra a month compared to buckling down and saving like crazy for a few years to avoid that small fee (in my eyes)

 

[Bobber]

I have pretty much always owned while my brother has always rented. We both have plenty of money so I don't know if one has been a much better choices than the other. In my case, I live in the Midwest, values are cheap, and I have pretty much lived in one area with a stable job. In his case, he lives in the South, rents are cheap and he has a more fluid job situation. The original poster has a lot going on and I would think a lot could change. I am not sure I would be in a hurry to buy.

 

[NickTheGreat]

One of my biggest regrets was not getting a small house in Ames when I lived there. Wasted so much money in rent for ****** apartments. At least my last few years there. Coming right out of highschool probably wouldnt have worked out well, but as I got older, it would have made more sense.

My dad was just saying a few weeks ago that he should have bought a house in Ames when I started at ISU. Between me and my siblings, we had people living in Ames from 2001 to 2014, with only a year or two gap in there.

Great idea . . . now! :twitcy:

 

[NickTheGreat]

PMI really isn't the worst. Is it ideal? No, but it would be a while before my wife and I could have saved 20% of what our home was purchased at. Does that speak to our money management? Maybe, but we do save money at a healthy rate but also enjoy other things. I am perfectly fine with our financial situation and that includes paying PMI for a few years. It allows us to be in our home when we wanted to buy for $93 extra a month compared to buckling down and saving like crazy for a few years to avoid that small fee (in my eyes)

We didn't put down the 20%, but just paid the PMI off up front. Was still less $$$ and with mortgage rates under 4% it was smarter to leave the extra money elsewhere

 

[CynadoAlley]

Just want to thank everybody for their input. This has been an awesome discussion. I don't intend to be putting any offers in anytime soon, but the discussion is definitely worth having. And at the end of the day, rent here sure as hell beats what I was paying in Ames!