Are we crazy? (Wanting to Buy First Home!)

[jlutgendorf]

Are we crazy? :

We've been renting the same house for just about three years now. Lease is up April 1st.

I want to own my own house. Our landlord lives about 4 hours out of town and is generally just a cranky guy. He's unhappy when the house needs work done on it, but is also unwilling to provide the preventative maintenance.

Currently we're paying $985 a month for a three bedroom/1.5 bathroom with a bonus room (former 1 car garage turned into a "studio" of sorts). I think we can get by with a 2 bedroom/1 bath and some sort of work area to replace our studio space.

We make about 65,000 before taxes, probably around 44,000 after taxes, plus some income from my husbands freelance work (between 100 to 1000 dollars a month, it varies a lot!).

We don't really have any money for a down payment. Maybe $1000-1500 dollars. But I'd much rather save that to help with moving costs.

We're in the process to get pre-approved right now through our credit union, but I'm trying to find some resources for us as first time home buyers.

We'll also have to talk to our crabby landlord and hope that he'll let us renew the lease for a 3 or 6 month period rather than the standard year.

It seems like so much is very tenuous right now and that maybe we should save more money and wait, but I'm so tired of renting!

So, are we crazy? Is this all a horrible idea? I won't consider trying to find a new place to rent. I don't think we could find something much cheaper and with all the animals we have, I don't know that anyone would let us rent from them anyway.

Any advice on things I should be doing that I'm not? I'm so excited and stressed at the same time! I just want my own home, dangit!

~Julia

[Emilie]

We did it with no money down.
Check out
www.usda.gov
They have loan programs for first time home buyers.
We put no money down.

It of course depends where you live what you will be able to afford but owning a home is very exciting.
I would get something where you can continue to build up savings tho.
Emilie

[Attila the Honey]

I am a strong believer in the down payment being an indicator as to whether you are ready to buy. To me, a down payment is not only a huge help when it comes to buying the house, but it's a sign that buying a home has been a goal you've been working towards and you've been able to budget/manage your money to make it happen. Does that make sense?

have you considered finding an apartment with 2 bedrooms and 1 bath and seeing if that really is suitable? It would likely be cheaper than where you are now, so you could save up money for moving expenses and the downpayment. You may only need to try that out for 6 months, which really isn't very long.

Good luck whatever you decide!

[AprilDaisy]

Originally Posted by jlutgendorf

Are we crazy? :

Currently we're paying $985 a month for a three bedroom/1.5 bathroom with a bonus room (former 1 car garage turned into a "studio" of sorts). I think we can get by with a 2 bedroom/1 bath and some sort of work area to replace our studio space.

~Julia

I don't think you have to "get by" with a smaller space. I think you can still have that 3BR. It's simply a matter of finding the right house.

[***Heather***]

Originally Posted by Attila the Honey

I am a strong believer in the down payment being an indicator as to whether you are ready to buy. To me, a down payment is not only a huge help when it comes to buying the house, but it's a sign that buying a home has been a goal you've been working towards and you've been able to budget/manage your money to make it happen. Does that make sense?

Yes, but what if you know that mortgage payments will be way less expensive than rent payments? When do you decide that it's better to go ahead and get the house even if you have a small or non existent down payment? I am going through this now (we're not quite ready for a house yet, so we will start saving for a down payment.) There comes a point were you think, ok, is it better off to buy the house NOW and start paying towards it NOW and stop wasting money on rent... Or keep wasting money on rent so that you can slowly save up a larger down payment.

[Attila the Honey]

Originally Posted by ***Heather***

Yes, but what if you know that mortgage payments will be way less expensive than rent payments? When do you decide that it's better to go ahead and get the house even if you have a small or non existent down payment? I am going through this now (we're not quite ready for a house yet, so we will start saving for a down payment.) There comes a point were you think, ok, is it better off to buy the house NOW and start paying towards it NOW and stop wasting money on rent... Or keep wasting money on rent so that you can slowly save up a larger down payment.

Cheaper with ALL things considered? Home repairs and improvement money, taxes, insurance etc. etc.?

I don't know the details (I am embarrassed to admit that this is my dh's department), but I know the larger the downpayment often the better terms and conditions you can get on a mortgage, yes? Those 'no downpayment needed' mortgages often result in thousands of extra dollars when it's all said and done, don't they?

Again, sorry I don't know more - I just seem to recall reading somewhere (probably a Dave Ramsey book) the huge difference a downpayment can make, as well as the difference between different interest rates and the diff. between and 15 and 30 yr mortgage. In his worst case scenario I recall it was a difference between paying $120K for a home and $190K.

(I will now step aside and let someone more savvy take over. )

[PajamaMama]

Originally Posted by Attila the Honey

I am a strong believer in the down payment being an indicator as to whether you are ready to buy. To me, a down payment is not only a huge help when it comes to buying the house, but it's a sign that buying a home has been a goal you've been working towards and you've been able to budget/manage your money to make it happen. Does that make sense?

have you considered finding an apartment with 2 bedrooms and 1 bath and seeing if that really is suitable? It would likely be cheaper than where you are now, so you could save up money for moving expenses and the downpayment. You may only need to try that out for 6 months, which really isn't very long.

Good luck whatever you decide!

The OP should be able to find a good deal on a mortgage right now whether she has a down payment or not. By the way did you read her siggie? SEVENTEEN guinea pigs, among other animals? I would NOT try to find another place to rent in that situation, esp. someplace SMALLER!!!

OP, one thing that might work for you is a mortgage where you actually get two loans...one for 80%, the other for 20% of the mortgage amount. This will save you from paying PMI. It's a common way for people with no down payment and decent credit to get a 100% loan. If you have not seen a mortgage broker yet, go now. Rates can not get much better.

PS we just spent a couple of days in Atlanta. I'm jealous. We went to the zoo, to the Georgia Aquarium, IKEA (swoon!) and had a fabulous time!

[jlutgendorf]

Thanks for all your thoughts! Yes, with 17 "wheeters" we won't be renting an apartment anytime soon! That and my husband loves to plant and grow whatever he can, so some sort of yard (even a small one) would be nice.

I'm hoping that we can get a mortgage at least $200 less a month than what we're paying in rent. We would even be ok with a "fixer upper" if we could get it even cheaper.

I am trying to remember that I have to factor in taxes, water and mortgage and homeowners insurance. I would feel comfortable if all together those payments plus the mortgage went to around 1000-1100 a month (though it would be great if they could be less!).

Pajama Mama, glad you liked atlanta! I'm not from here (born and grew up in Tucson, AZ) and I'm surprised how much it's grown on me! Are there any negatives to an 80/20 mortgage? I have a friend who has one and doesn't like it, but their mortgage payments alone are abou $1500 a month and I think for her, that 20% mortgage just serves as an extra reminder of how much money they have to pay off.

I do understand about waiting to save up a downpayment, but the housing market is just so good for buyers right now and I want a house! Though if our landlord will only renew our lease for a year, I may have to wait. Fingers crossed that he'll see reason!

~Julia

[Cloth4Colin]

I guess it really depends on where you live and what you are trying to buy. DH and I are looking into buying something right now ( ours would be a manufactured home, however) as we rented for a long time too. We began to feel like we were just throwing $ away every month. Then we had some issues with our apartment and that moved us to start looking at other options.

I definitely think you can do it. Let's just say that we are trying to do it on WAAAAAAY less than that and ended up getting pre-approved for a lot more than we imagined. Just be careful, because you can get approved for more than you truly can afford. There's no way whatsoever that we could afford the amt. we were approved for. We are just trying to find something that is comparable to what we were paying in rent.

As for a DP, we had the same problem - we have $0 to put down. We don't have the easiest time financially, but we felt like we'd rather be putting what we were paying in rent into equity, and if we could do it for the same amt as the rent, then we'd be crazy not to. We're going to be cashing in DH's 401K...it's not the smartest thing to do in that we will be taxed and penalized on it, but for us, it will allow us to get the loan. Also, it's not such a large amount that it would be extremely detrimental to our retirement. Anywho...for us, the benefits outweighed the cons...we'd NEVER, ever be able to "own" anything without going this route...though I must say, it probably isn't the best thing for everyone to do.

I agree with pps in that you might want to check with a mortgage company/bank and see what you can get approved for. The rates right now are pretty good.

Good luck and all the best!!

[jocelyndale]

That's roughly what my husband's salary was when we bought. We had no consumer debt (just DH's school loans).

We did have 5% of our down payment. We opted for an 80/15/5 plan (80% on the 30 year mortgage, 15% loan, 5% down payment--avoided PMI this way). We shopped around for lenders.

We also talked to several realtors before settling on one who clicked well with us. I'm very happy with her and glad we got the advice to interview realtors first!

We also didn't max out our qualifying amount. In other words, I'm pretty sure the bank would've given us a lot more, but we'd have a much larger mortgage payment each month.

Keep in mind that you'll need a rainy day fund for repairs and emergencies. You'll also need to pay for homeowner's insurance, which will be more expensive than renter's insurance. Our city taxes are rolled into our monthly loan payment, so we don't have to worry about that.

Closing will cost more than you realize. We went through a real estate lawyer (realtor's advice) and are very glad we did. You may have to pay for a survey (and ours cost over twice as much thanks to the city having destroyed property line markers during a sidewalk renovation). An inspection is a MUST HAVE.

We didn't opt for a home warranty. I looked at the yearly cost + the deductible and realized that unless the furnace, hot water heater, and oven all erupted at the same time, it wasn't worthwhile. We can generally always find a one-year-same-as-cash deal at Lowe's or Sear's on household appliances, which makes upgrades pretty painless provided you're strict about starting a payment schedule (and we are).

Tax returns always go back into the house right now. Last year, it was plumbing. This year, cabinets.

[AngelBee]

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[brogansmomma]

I don't see why it would be a horrible idea. Why are you wondering that? I don't know what COL is like where you are but up here where I am in Ontario I'll be buying a house with a $42k gross income (not sure off the top of my head what my net is). I just got my T4 the other day from work and so will be taking that in to the bank along with my previous assessments to see what $$ of mortgage I'd get. It's totally do-able. I'm at the point too where I don't see the benefit in renting anymore. And as a single mom with literally next-to-no $$ support from the dad (who has not even met his son!!) I need to take this step to boost my independence.

Totally do-able! You may have to track your expenses for awhile but I'm a believer in if you're happier with your situation everything will work out.

[McFeelings]

Well, your target number for house payment, insurance, taxes and interest is VERY similar to what we pay in small town Texas for a $125,000 combo loan (80%/10%) on our 3 BR 2BA home. I lived in Atlanta for 6 years and left 7 years ago and honestly, I found VERY few homes that would fall into that $125K price range there. I would talk to a real estate agent to see if your target numbers feasible.

Keep in mind if you get a fixer upper, you will need additional money each month for those repairs.

Other expenses you will need to have $$ for before buying a house is the cost of an inspection ($200-$700), cost of moving truck and materials ($100-400), cost of transferring utilities, flood insurance, appliances (refrigerator), etc.

I agree with the previous poster, the process of being able to save a down payment and a few thousand in startup $$ is the best indicator that you are ready to buy a house. I don't necessarily think that you need to wait until you have 20% saved up but I would recommend getting at least a few thousand stowed away first that is separate from your "emergency" funds for car repair/health emergencies, etc.

[KnittingShaker]

Keep in mind that if you do a no money down loan, your credit will most likely have to be excellent.

Also, even if you put no money down, the lender may want to see that you have enough for closing costs plus reserves. You will need to have a paid receipt for a year's homeowner's insurance and may need to have taxes escrowed.

If you have no money to put down and no money for closing costs plus the likely things that come up during the course of a move, I would opt for renting another year and saving.

[jlutgendorf]

Thanks again for everyone's thoughts.

I have been looking at houses and there are several townhomes with yards that are going for 100-125k around us. There are also some forclosures on the market for well bellow 100k, but from what I understand, purchasing a forclosure is a little different? And most of them will need some work/updating.

Yes, closing costs concern me. I've read about people getting the closing costs rolled into their mortgage, is that true, desireable, a rip off, etc?

We do have some cash saved, but I'd really like to keep saving it as our emergency fund. My husband should also be getting some invoices paid soon for freelance work, so that will immediately be saved for house/emergency money.

I will hopefully hear back from our bank today about what we can be preapproved for and take it from there.

KnittingShaker, could you elaborate on having taxes escrowed? I've just encountered that term a few days ago, but I'm not clear on what it means/why someone would have to do that.

Keep posting if you have more insights/advice. Those who have done it or are in the process keep me motivated and those who have some "reality checks" keep me grounded!

~Julia

[Free Thinker]

Honestly I do not think you are ready if you do not have any money saved for a DP. I know that people buy w/o a DP all the time, but I still don't think ti's a good practice. Save your income tax return, then add $100 or more to it every month until you come up w/ a nice downpayment! Buying sounds like a great idea, until you realize how much upkeep a house costs. We have a rent house, adn right now the hot water heater is acting up. In the last week we have:
1 filled propane tank, thought maybe b/c it was low on propane the light was going out $303.97
2. Had repair guy out b/c it sill wouldn't stay lit $35, but he had had to go back 3 times now! That was only for the first visit.
3. Tank is still not working, we decided to just buy a new hot water heater as taht one is old and probably just done working. Not sure how much that is going to cost, but I"m sure it will be a hefty amount!

So, can you imagine having to outlay several hundered dollars on just ONE small repair? Normally it woudn't cost so much, but you never know when the big breakdown is just around the corner! Before buying I would ALWAYS suggest you at least have an emergency fund. Landlords have alot of responsiblities, including taxes, insurance, and the big one... home repairs!

[KnittingShaker]

Having your taxes escrowed means that they are included in your payment every month and then the mortgage company pays them when they come due.

If the taxes (and in some cases the homeowner's insurance) are escrowed the title company or attorney (depending on your state) collects X amount of months to have a 'cushion' for when they come due.

Not all mortage companies escrow taxes and insurance. Some companies allow you to waive escrows for a small fee, others require escrows.

[annethcz]

A couple of thoughts-

First, on the no down payment. I honestly don't think it's as big of a deal as other posters. When we bought our first house, we didn't have a down payment. Or maybe we put down 3%??? In any case, it was a paltry amount. In our situation, we didn't have much time to save for a down payment. We bought our house at the same time we got married. I never rented- I went straight from my parents' house to the house I bought with my new DH. In our case, it worked out just fine. The lack of a down payment was never a problem. In fact, buying a house at that time was the best thing we could've done. The market went up, and we were able to use the equity from that house as a down payment on our 2nd house. I realize that the market is not appreciating now like it did a few years ago... but I still don't think it's necessarily a bad idea to buy without a down payment.

Second, regarding closing costs. Because it is very much a buyer's market right now, there are some good deals to be had out there. We are in the process of buying a new home right now. This will be the 3rd home we've purchased. We recently put an offer on a home- we offered a certain amount of money, and we also asked the sellers to pay our closing costs. The sellers agreed, and will be paying up to 3% of the purchase price to cover the cost of our closing costs and prepaid items (mortgage, homeowner's insurance, property taxes that must be prepaid when we close on the property). So we won't have to pay anything in closing costs. This is something to keep in mind if you have limited funds. Any good real estate agent will be able to write the purchase contract to include closing costs. The only thing you'll need to be careful of, if you're planning to do 100% financing, is making sure that you don't offer more than what the propery is worth or will appraise for.

[PiePie]

my friend the realtor "highly recommends" the following books: homebuying for dummies and mortgages for dummies. she also says that closing costs are "typically" 5-6%.