My quest for a new home

[ryu_haneda]

Prologue
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I have no reason to want to wind up in the end with an immense house. I've had a fascination with one-floor houses for quite some time, actually. In any case, I don't want to blow mounds of money for more house than I will ever be able to use, and I don't like the idea of having things that I no longer really use (which is why I might be having a flea market soon in my town to rid myself of some extra stuff). Here goes...

Chapter 1
Figuring it out
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Soooo... my wife and I moved into what we thought was a beautiful apartment building in East Greenville this summer. We made it through a particularly hot few months and came into September. In the course of the time passed, we discovered we made a mistake renting it. (The place is basically in very very bad shape.)

So, my wife and I began to think about new apartments to move into (the place we are at has a combined rent + sewer + water + heat bill that we will simply not be able to afford), and the thought crossed our minds to take the plunge and find a place to own. It was our desire that the apartment we live in be our last apartment, anyway.

I currently pay 650 a month for rent, and pay all the utilities myself. I am going to start with a sub-$100k house for our first home. What absolutely blew me away was how cheap a mortgage is compared to renting (especially for what I'm being charged).

I have my eye so far on a model home that's $58500 brand new (2 bedrooms, 2 baths). I would be renting the land it's on. I think the land rent is 300 a month. The shocking thing of it all is that (minus heat costs) the total land rent + mortgage payment for the NEW home is just dollars above what I am paying now for rent alone. (That's just one of a few homes I could be looking at.)

I am so done with the renting scene.

I also have an appointment lined up with a mortgage advisor this Thursday night. I have to bring documents with me to get a financial picture lined up of what I can afford.

I hope and pray to Almighty God that I can get a house. It would be so nice.

Later!
-ryu_haneda
-Subaru busted, in the shop
-waiting for fixed day

[Huffer]

Mortgage payment should be no more than 25% of your take home. Why? Because if you can "only" afford the payment, then you will not be able to afford taxes and property upkeep.

Renting is significantly cheaper if you do not have enough money to cover property maintenance. A lot of first home buyers don't factor in that.

And don't count on insurance covering you either - a lot of major insurers do not offer WHOLE REPLACEMENT (aka market value) if the house is damaged/destroyed.

Do not end up like some people who buy a house with a mortgage, put nothing down and can only afford a house payment, without managing to save or put aside any money for when life hits you, the car and the house.

Work the numbers over, and make it work.
It's one thing to be poor, it's another thing to be house poor!

[pdawg]

If at all possible go with a 15 yr mortgage. I have 6 years left and I will be as dave says "Totally DEBT FREE". Its a pretty cool feeling. I can actually see light at the end of the tunnel. Something I never saw on my first house with a thirty year mortgage.

What the deal with the rented land. Any chance you can purchase it also.

Land = money.

[ryu_haneda]

Chapter 2
Behind the money
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There may be a few possibilities that I can pursue where the home and the land can be bought as well. I think I'll find out about those when I meet with the mortgage specialist on Thursday.

25% of my take-home is a little over 709 bucks.

The cruncher:

If I opt for a 30-year mortgage on a $58,500 brand-new modular, factoring in a $10,000 down payment (we don't have DP money), the total I would take out (if this were possible with my bank/credit union/loan company/etc) would be $68,500. If my first-time homebuyer status gives me any leverage, I should be able to wrangle a 6% rate (hopefully).

IF that's the case, a 30-year mortgage with the above total and no points will be 410.69 a month. If my land rent is 300 (covering water, sewer, trash, and maybe snow removal), I'm still at 710.69, just a little over my take-home limit. That's with all the other debt I have now.

A 15-year mortgage at that rate is 578.04 a month - that'd be great if I didn't have to pay land rent to anyone, but that also means that I still pay my own water, sewer, and trash, and do my own snow removal. The +300 brings that to 878.04 a month - and THAT's too steep for me.

Maybe an alternate for me would be to start with a 30-year mortgage rate and then bump it up to 15-year mortgage rate when I am ready to take on more payment.

Factor in that we just finished paying off one of our other debts - we're going to be adding in that $50 a month that would have gone to the bill into a debt snowball. It's only one debt paid off - for now.

The only thing that has the potential to positively ruin everything is the heating bill. I don't know if I'm going to wind up with oil or gas heat (if at ALL possible, I'd like electric, but I don't think that's a choice).

Then, the only thing left over is to figure out how to pay insurance... AND TAXES. OUCH. (I think taxes are somewhere between 700 to 1k and up for figures like these.)

[SilentRacer]

Have you thought about a CO-OP or a Condo? That way you own it but usually don't have to pay any utilities or repair fees. Only a maintenence fee.

[sheepdog]

The first place I owned was a one bedroom condo, 744 square feet. I paid $210k plus $100 a month in condo fees.

Be glad you don't live in DC lol.

[ryu_haneda]

Meeting with my mortgage advisor tonight. Also spoke with my realtor this morning to get my head clear about expectations for the meeting.

I still like the idea of having a mobile/modular home. I want to go the "modular" route (I want to have a home that's cemented to the ground, I'd really like to avoid having a mobile home unless it's unavoidable), and I think I'll take a hit and make some sacrifices to have the money for it if necessary.

NEways, I've got documentation ready to go. I'll let you folks know how it turns out...

-ryu_haneda

[Huffer]

Do NOT get a mobile home. You will never see any increase in value (typically). Besides, how many people seek out living in a trailer park?

Consider renting rooms out to people to help increase your monthly payment, thus decreasing the mortgage time? And aim for a 15 year mortgage...nobody wants to be in debt for a house longer than 15 years.

[Perdue]

Yeah...I wouldn't go Mobile Home unless you have do. Even though they are actually making some nice ones now (a friend just bought a double wide with 2x4 interior walls and all...nice place), they seem to still depriciate in value. I myself wouldn't mind having one of the prefabbed homes though.

And Huffer, not everyone that lives in a trailer is in a trailer park.

[ryu_haneda]

Chapter 3
Money: How Real Estate sees my money and how I see it are different
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Ok, so last night I met up with the mortgage specialist. He was a really nice guy and made sure to break down the discussion of the money so that my wife and I understood.

Here's what we looked at:

He started by taking a look at our gross yearly pay and combined it. Then he divided that figure by 12 months to figure out gross monthly income. He figured a maximum allowable debt to income ratio of 45%, so he multiplied gross monthly income by 45% to get that number.

Then, he took that "max allowable debt" money amount, and subtracted an estimated monthly mortgage payment PLUS monthly escrow (insurance and taxes), along with what we typically spend monthly on our car loan and our major CCs (credit cards). When we were done, and we figured out how much we pay a month on other bills, we figured out at the end of each month we would still have at least 600 bucks left over.

He congratulated us on having managed the debt that we had and how we were paying it down. He also told us what a monthly payment would actually buy in terms of house.

He laid out the game plan basically: temporarily quit making "superpayments" (and make reasonable minimum payments + a little extra to pay down principal very slowly) for a period of time, to begin building a cash pocket and setting money aside for the initial cash outlay and closing costs.

He also told us to start figuring out what our budget tells us, so that we can figure out whether or not the mortgage payment is something we can live with.

We do not have enough scratch currently for a sufficiently decent house, but we do know now that we do not want a mobile home. The mortgage advisor would not be able to help us out with that purchase (it's actually a different kind of loan and financing, just like buying a very big car), and we have confirmed that mobile homes do depreciate. They don't suck, though... some of them are very nice, and can be a great way to get through a brief period of time (provided we are ok with the fact that they will depreciate in price, and any money spent on them is basically burned away).

So, for now, we are going to move to another apartment with less rent and more utilities covered so we can begin to set money aside. If things pan out, Lord willing, we should have a good amount of base available in 6 more months if we move into a new place by January. Who knows? We might even have set ourselves up to afford more house by then.

I AM NOT GOING TO FALL FOR THE TRAP OF GETTING JUST ENOUGH HOUSE TO AFFORD. I need to make sure my wife and I can breathe, and if that means we have a starter house to begin with, and not a house we can stay at for 15 years or more, then so be it.

The story continues...

-ryu_haneda
-Subaru EJ25 longblock swap complete
-PICKING THE CAR UP TODAY!!!

[xcntrk75]

There’s plenty of programs, incentives, and assistance available for first time home buyers which enable folks in your position to actually get into a house for very little money down.

For example, a low down-payment and low interest loan, backed by non-profit or federal organizations, can get you into a home for a little more then monthly rent in many cases. All you need to do is understand your credit and have stable employment. You need to educate yourself on the plethora of available assistance either federally (Fannie Mae, Freddie Mac, the Department of Housing and Urban Development, state housing agencies, etc) or local non-profit (Pennsylvania Housing Finance Agency). I just hate to see money being throw away on rent for no apparent reason when those funds could go towards an invest like a single family home.

Good luck…

[Huffer]

$0 down is ridiculous. It's the same as rent to own.

Do what you're planning to do - rent inexpensively, for a couple of years and then put a big down payment, pay off the house in 15 years and all of a sudden you OWN a huge asset.

Give, save, build wealth.

[xcntrk75]

$0 down is ridiculous. It's the same as rent to own.

Huh? Are you referring to the need for principal mortgage insurance (PMI) by applying less then 20% of the loan amount? On a 200k home, that’s 40k grand… Not many first time home buyers have that kind of savings to put towards a home.

Buying a home with little or no down is very easy nowadays, you take the hit on the PMI, and you roll the closing costs back into the loan amount. That leaves just a handful of fees associated with closing which can’t be financed.

Renting is throwing your money away. Paying PMI is nothing more then an insurance premium to guaranty the loan amount in a fluctuating market. Think of it as GAP insurance for your house. Your monthly mortgage payment still goes towards principal where renting is throwing it away. Not to mention in those first years of home ownership you have HUGE tax write-off’s as you itemize all the interest in every mortgage payment at tax time!

Renting is just dumb if you have the means to buy… at least in America and especially in today’s market…

[Huffer]

Renting is just dumb if you have the means to buy… at least in America and especially in today’s market…

Most don't though - and most don't have the discipline to actually maintain a budget to ensure that they don't end up housepoor (which means living in a house you can't afford, without having room to breath).

Similar to car-poor...

It's all about discipline - many people leave school wanting to have the same things their parents had, but without realizing it took their parents 15-30 years to accumulate the boat, house, car and lifestyle.

Buying a house without wisdom is especially stupid, as most don't have any concept of what it takes to maintain a car, let alone a house.

it's all good though, because people will continue to forfeit on their loans, and cheap houses will come up for sale for me to buy. Much like the cars.

[jey]

Apparently now you can also avoid PMI by taking out two loans.

Take a traditional mortgage on 80% of the value of the house.
Take a loan (higher interest rate though) on the remaining 20%.

I didn't think that sort of a thing would work, but my mortgage agent told me people do it all the time. (Not that I did it - it's still better to have the money for the 20% down.)

[xcntrk75]

2nd mortgage for PMI is a pretty common technique that's been around for a while. I forget the strict stipulations to making it beneficial but in most cases you end up paying the same for the 2nd mortgage as with the PMI itself…