First Time Homebuyer

[AKA_PI]

I'm ready to make the leap into homeownership in 2010. I have found the house I want (a foreclosure) and the asking price is $112, 000. The realtor told me that they are doing some major upgrades on the house and that will be the finally price. Construction should be done in 30 days. Here are my questions:

When applying for loan, does my CC debt count against me? I have about $4800 I need to pay off on my CC's. Will the lower my chances of getting the loan?

I have only 4 more car payments to make until my car is paid for. Will that also delay me getting the loan, or should I pay the car off before even going down this road?

I have no money to put down on a home, although my parents wouldn't have a problem gifting me about $2000. Is that enough?

I'm new to all this and my parents are helping me through the process but I also wanted to get some other advice.

Thanks!

[HeatherAtHome]

Nothing set off too many red flags until you said:

I have no money to put down on a home, although my parents wouldn't have a problem gifting me about $2000. Is that enough?

Ummm.... there's no problem with using money gifted to you but $2000 is NO WHERE near enough. Don't you need to make a minimum down payment? We had to put 5% down (min in CA for first time buyers), throw on taxes (remaining portion for that tax year the seller has already paid), taxes on the something else, legal fees, welcome taxes (ours were due a month after moving in). We paid well over $5000 and our house cost just a little over half of the house you're looking at. We bought a really cheap house.

Another thing to look at. You say it's a foreclosure and selling at $112,000. What is the actual value of the house? What is it worth? What are the taxes on it? The insurance? Usually foreclosures are sold below value. You want to make sure you can afford the upkeep on it. Call the electric company, find out the monthly average bill (you can do that in CA). Write up a sample monthly budget with everything possible included (water or gas bill?) and SAVINGS and see if you can afford it.

I know some people find houses, fall in love with them and seem to live happily ever after. I spent 2 years looking online just to get a feel for the market and what's available. (Dreaming mostly, we weren't financially ready) Then we spent 10 months watching, ready to pounce and visiting houses. We fell in love with 3 (and lost them for various reasons) before finding our home. It was incredibly stressful at times and frustrating, but we're really happy with the house we have now. It's so us.

My advice? Use this time to learn as much as you can so that you're *ready*. Don't be too sad if you lose a house. There will always be another. There's no such thing as having too much in savings. Start saving now.

[mirlee]

Heather is right. You definitely need to go in with more than $2,000. You will also need to be able to afford a home inspection. It doesn't matter that it is currently in renovation. You need to make sure that it is up to standards. The last thing you want is to find out that they took some major short cut or that there is something dangerous.

Can you afford the mortgage on your own, the utilities, the insurance, the taxes? If the house is $112,000 you can expect a monthly mortgage of around $1,120. Can you do that?

There are many considerations. We have been planning on moving out of our house. While we have been casually looking to see what is going on in our area, we figure that financially we will be ready to move in two years. We have been weighing all our options and that is when we feel we can safely do it. Of course, I have been watching two homes that I absolutely love come on the market. I would love to jump on them, but the time is not right.

Take your time. When the time is really right, you will know it.

I suggest these:

http://www.hud.gov/buying/comq.cfm

http://www.hscc-mvpc.org/publications/housing/offer.htm

http://michaelbluejay.com/house/basics.html

I almost forgot! What about the schools? If the schools in the area have a bad reputation, that will affect the value of your home. How close is the house to public transportation? Easy walk or a giant schlep? What is the neighborhood like? Does everyone try to keep up their property? Does it look safe? What are other homes in the area selling for?

[ChristyMarie]

And often you have to have the down payment in your account for so many days to show it is yours and not just a gift.

[cappuccinosmom]

Can you afford the mortgage on your own, the utilities, the insurance, the taxes? If the house is $112,000 you can expect a monthly mortgage of around $1,120. Can you do that?

Yep and yep and yep some more.

How thoroughly have you thought this through? Do not buy a house just because a loan officer says you can afford it based on income. Do not get an adjustable rate mortage even though it seems easier to pay at the beginning.
Taxes can be a killer if you're not prepared for them, and missing paying on your taxes is bad news.

If you can afford that $1,120/month for a mortgage, hold off for a year, pay off your debts and save up some money. If you want a decent mortgage, you're going to need a decent downpayment, and you're going to need some money in savings for when taxes come due and things in the house break.

Dh and I are homeowners as well as landlords. We've also bought all our houses through HUD. Having been down that road, I strongly advise you to be *very* careful what you buy, to have *plenty* of money in savings, and not to jump at a house when you're not prepared, even if it seems perfect for you. Even if you lose this house, and have to wait a few years for the next one, you will be so much better off if you use that waiting time to save up money like crazy.

[Denvergirlie]

As others have mentioned, you'll need a lot more than $2K for a downpayment.

You have debt, get rid of that first. Do you have any type of savings? What if the furnace goes out the 2nd week you live in the new house, do you have the resources to get that fixed?

I would get debt free, save at least a 6month emergency fund of your expenses, including the "new" mortage amount within that expenses calculation and then work on a downpayment.

All in all, I would strongly advise on not buying a house until your finances are in order.

I say this as a fellow renter.... we are saving for a downpayment, but it's not going to occur for several years as we want at least 20% down, but in all honesty, would really like to have more like 40% down with a mortage no longer than 15 years.

Best of luck

[tinuviel_k]

If you were to buy that house in my area with a 30 year FHA mortgage, at the current interest rate of 5.35%, with the required down payment of at least 3.5% you would need:

$4000 down payment
$1900 in closing costs
$300-$600 in inspection fees (and if you opt out of the house you don't get it back)

So you'd want to have AT LEAST $7000 just in order to purchase the home.

Also, it is very smart IMO to have a nice savings in place to take care of any big home disasters: a busted hot water heater and flooding, a roof leak, a big tree removal job... I would feel good about having a $10,000 "house emergency fund" in place for serious house disasters.

And then you should consider that when you own a home you will probably be putting quite a bit of money into it on an annual basis. When the washing machine breaks you have to replace it, it the porch supports are rotting it is your job to have it fixed, etc. My inlaws own a nice, smallish home in decent shape. They usually have to put in about $3500 a year, or an average of $300 a month, into repairs, cosmetic fixes, etc.

According to my credit union you'd have a monthly payment of about $800 a month, including property tax, homeowners insurance, and PMI. this might be more or less depending on the tax rates in your area.

If you add the possible repairs estimate to the actual monthly payment you'd need to have $1100 to stay reasonably on top of your house payments and repairs.

I guess what I am saying is that it is a good idea to really look at the numbers and possibilities before jumping right in to home ownership. Owning a home can be wonderful but it comes with its own set of worries, issues, and expenses. Make sure you can meet those expenses, or your dream of owning a home can become a nightmare and a burden very quickly.

[Denvergirlie]

Originally Posted by AKA_PI

When applying for loan, does my CC debt count against me? I have about $4800 I need to pay off on my CC's. Will the lower my chances of getting the loan?

I have only 4 more car payments to make until my car is paid for. Will that also delay me getting the loan, or should I pay the car off before even going down this road?

Sorry, I don't think anyone has answered your questions directly, although we all have pointed out other things to consider as well.

But for your questions...

CC debt & car loan - yes this will count against you. They will average your debt to income level and determine how much you pay now to debt and how much you would pay later with a mortage to debt.
These percentages have traditionally been at a 35% ratio, although we all know that in the recent real estate run up, these "old school" qulaifications for taking on debt was largely ignored.

[AKA_PI]

I don't think anyone answered the question directly so let me address your concerns:

-I have more than enough money to put down more than 5% on a down payment. I didn't tell the realtor this though.

-I live in GA. I don't know where most of you live but the house market here is nothing like other places. you get tons of house with plenty more land to spare.

-I have been shopping for a home for more than 3 years now, this particular house I've been looking at for over a year, and in the neighborhood for more than 3 years. I know my history of the area and then some.

-I can afford a mortgage up to $1300 yet I know how much I am willing to spend so that I am not house poor.

Maybe I didn't address the concern that I have more than enough money saved away to do whatever I need with it but I am smart about what I choose to spend it on. $4800 in credit cards with my salary is nothing.

[Mulvah]

Originally Posted by AKA_PI

I'm ready to make the leap into homeownership in 2010. I have found the house I want (a foreclosure) and the asking price is $112, 000. The realtor told me that they are doing some major upgrades on the house and that will be the finally price. Construction should be done in 30 days. Here are my questions:

When applying for loan, does my CC debt count against me? I have about $4800 I need to pay off on my CC's. Will the lower my chances of getting the loan?

I have only 4 more car payments to make until my car is paid for. Will that also delay me getting the loan, or should I pay the car off before even going down this road?

I have no money to put down on a home, although my parents wouldn't have a problem gifting me about $2000. Is that enough?

I'm new to all this and my parents are helping me through the process but I also wanted to get some other advice.

Thanks!

Originally Posted by AKA_PI

I don't think anyone answered the question directly so let me address your concerns:

-I have more than enough money to put down more than 5% on a down payment. I didn't tell the realtor this though.

-I live in GA. I don't know where most of you live but the house market here is nothing like other places. you get tons of house with plenty more land to spare.

-I have been shopping for a home for more than 3 years now, this particular house I've been looking at for over a year, and in the neighborhood for more than 3 years. I know my history of the area and then some.

-I can afford a mortgage up to $1300 yet I know how much I am willing to spend so that I am not house poor.

Maybe I didn't address the concern that I have more than enough money saved away to do whatever I need with it but I am smart about what I choose to spend it on. $4800 in credit cards with my salary is nothing.

I think the bold is what most people were initially commenting on and rightly so. I'm confused where you didn't have the money this morning, but now you do.

Regardless, if paying off your debt is not an issue, I would highly suggest you do that prior to purchasing a home. Also, you are entitled to a free credit report yearly; I would suggest you try to obtain yours now (as opposed to right before you purchase a home) to see where you stand, to ensure everything is accurate, etc.

I think you got some great advice already about having a decent chunk of money for the down payment, repairs, etc. Good luck.

[BetsyS]

We bought with 0% down in 2005, but I've heard that it's not as common now. Our seller also paid our closing costs.

When we had our house on the market (didn't sell) in 2007/2008, our realtor told us that it was common in our area (ATL) for the seller to pay closing and to expect that.

FWIW, we have had a decrease in income since 2005, and are now at the top of what we can really afford every month (26% of net to mortgage payment). It's not all that fun to be house-poor. It makes each and every repair/upgrade stressful. I'd rather not be in this position, but we are stuck here, so we make the best of it.

[Logan's Mom]

Originally Posted by AKA_PI

I don't think anyone answered the question directly so let me address your concerns:

-I have more than enough money to put down more than 5% on a down payment. I didn't tell the realtor this though.

-I live in GA. I don't know where most of you live but the house market here is nothing like other places. you get tons of house with plenty more land to spare.

-I have been shopping for a home for more than 3 years now, this particular house I've been looking at for over a year, and in the neighborhood for more than 3 years. I know my history of the area and then some.

-I can afford a mortgage up to $1300 yet I know how much I am willing to spend so that I am not house poor.

Maybe I didn't address the concern that I have more than enough money saved away to do whatever I need with it but I am smart about what I choose to spend it on. $4800 in credit cards with my salary is nothing.

Then I say go for it. You will also qualify for the $8k tax credit too.

[HeatherAtHome]

Originally Posted by AKA_PI

I don't think anyone answered the question directly so let me address your concerns:

-I have more than enough money to put down more than 5% on a down payment. I didn't tell the realtor this though.

-I live in GA. I don't know where most of you live but the house market here is nothing like other places. you get tons of house with plenty more land to spare.

-I have been shopping for a home for more than 3 years now, this particular house I've been looking at for over a year, and in the neighborhood for more than 3 years. I know my history of the area and then some.

-I can afford a mortgage up to $1300 yet I know how much I am willing to spend so that I am not house poor.

Maybe I didn't address the concern that I have more than enough money saved away to do whatever I need with it but I am smart about what I choose to spend it on. $4800 in credit cards with my salary is nothing.

Well jeez, just buy the house then. I didn't know you were rolling in money and had been looking at the house for years (pertinent info btw)

And if you *have* so much money, why don't you just pay off your CC debt as you say: "$4800 in credit cards with my salary is nothing". It doesn't sound like you're being "smart" about what you're spending money on if you CHOOSE to carry CC debt just for the fun of it. And sure, pay off your car loan while you're at it, it sounds like you have money to spare!

And wow, all of a sudden your questions are answered! You've solved your own problem!

I'll boil it down for you. You have money? You pay your debt. Still more money? Buy the house already.

I'm sorry if I'm sounding incredibly sarcastic, I just wrote a very serious and heartfelt post earlier trying to be as nice and helpful as possible only to have you come back all PO'd because people thought *based on the information YOU gave* that you didn't have a lot of money. It's happened before around here.

And no, I have not had a very nice Christmas so it's quite possible I'm taking it out on the world.

[kittywitty]

I actually disagree with a lot of the PPs.

We just bought a house through the USDA Rural Development Program with NO downpayment. We did end up paying less than $3k in closing costs (for our $76k mortgage) and a full year of insurance plus the inspection. We borrowed from family and it wasn't a problem.

Now is a great time to buy with the financial incentives. If you can afford the house payment and have money left over to put aside in case of emergencies (like when our furnace died and our roof needs de-molded and fixed despite our inspection ), then I say go for it.

The cc debt will go against you, but the bank will ask for financial records and bank statements that will prove you have it. I would pay down as much of the cc and car that you can.

Congrats, OP! Sounds like a good buy!

[velochic]

1. If you have money, then you need to be debt-free before buying a home.

2. If after paying off EVERYTHING, you don't have 20% down to buy a home, then you can't afford it.

Period. Sorry to be so blunt.

[rhiOrion]

I disagree with the PPs who say you need to have 20% down.

We're house hunting right now and will most likely do an FHA loan with 3.5% down. We could probably afford 5% down if we had to for the conventional loan. But no way in hell could we afford 20% down, and I don't see why we have to! We're keeping the mortgage/taxes/etc around 1k, which we know we can afford (and we're looking at more like 140k houses... so I don't think a 112k house would necessarily be 1200 a month like the PPs said).

An FHA loan probably wouldn't work in your case, because they're notoriously hard to please, and I can't imagine a foreclosure satisfying their requirements. The USDA loan that a PP commented on only works if the house is in a rural area that falls under the USDA loan requirements.

You can have sellers pay closing cost, but not sure with a foreclosure.

So, basically you CAN buy a house with 2k down...but I'm not sure it'll work with the foreclosure?

[BetsyS]

We're one of those that has regrets 4 years into homeowndership. I do think velochic has some valid points.

When we bought our house, we still had student loans (still do). They make it significantly harder to get ahead. We also put nothing down.

For our next house, we will be debt free first, and we will have 20% down. If not, we won't buy it. Just that simple.

[AlwaysByMySide]

I'm going to go with what seems like a less popular opinion and tell you it could be doable. I bought (for under $80K) this past year, seller paid closing, I had an FHA loan and no down payment, and I am paying $250 less a month (including insurance/taxes) than the house had previously rented for, and about $100 less a month (including insurance/taxes) than an apartment that was easily half the size (with no yard or garage) of this house.

I had about $2,000 in credit card bills going into it, and self-employment income that gave us some hurdles, but was eventually okay. All I paid for was the inspection (under $200) and some immediate things that were required for the FHA part of things, that ran me about $1500, give or take.

It is really going to depend on how motivated (and, in some cases, creative) your mortgage broker is. You may also need to bring a co-signer into it to make things easier.

[Hannah32]

Well, I wouldn't buy a house without 20% down, but that's not really a typical strategy. You read a lot about it on Dave Ramsey type blogs and in frugality based forums like this one, but I think most people wind up buying a house with much less down.

The appeal of the no-debt, long term saving lifestyle is growing given the recent economic crisis, but it's by no means embraced by all. I don't think it's surprising that among the type of person who reads this forum, most people are anti-debt and such, but it's not the most popular opinion out there.

My honest opinion is that without a fully funded downpayment, a debt free life and a substantial emergency savings account, buying a house is pure folly. At the very least, pay off that credit card debt. But that's just me and no one has to listen to me.

Hubby and I have significant savings and are debt free, but we living in a high-cost area and don't feel we have the family income to support buying a home. So we're not buying one. That completely shapes my perspective and tells you where I'm coming from.

Finally, because I can't resist, "creative" mortgage brokers helped in creating the worst economic crisis since the Great Depression. Boo hiss to them.

[AKA_PI]

Originally Posted by HeatherAtHome

Well jeez, just buy the house then. I didn't know you were rolling in money and had been looking at the house for years (pertinent info btw)

And if you *have* so much money, why don't you just pay off your CC debt as you say: "$4800 in credit cards with my salary is nothing". It doesn't sound like you're being "smart" about what you're spending money on if you CHOOSE to carry CC debt just for the fun of it. And sure, pay off your car loan while you're at it, it sounds like you have money to spare!

And wow, all of a sudden your questions are answered! You've solved your own problem!

I'll boil it down for you. You have money? You pay your debt. Still more money? Buy the house already.

I'm sorry if I'm sounding incredibly sarcastic, I just wrote a very serious and heartfelt post earlier trying to be as nice and helpful as possible only to have you come back all PO'd because people thought *based on the information YOU gave* that you didn't have a lot of money. It's happened before around here.

And no, I have not had a very nice Christmas so it's quite possible I'm taking it out on the world.

Taking it out on the world or not, you totally misread my tone completely. And personally I'm offended so with that said, I'm done. Either way, I have a realtor and some one else helping.

Thanks to those who offered advice. I'll figure out.