Searching for Real Estate: questions

[Indy_Guy_77]

Hi folks (again),

(Not soliciting realtor recommendations with this)

My wife and I have begun the search for our first home!

But I have a few questions that I'm just not sure of.

#1) Should the price range we're looking in be inclusive of our downpayment or exclusive? Pretend that we have $15k to put down, and pretend our price range is in the $150k range. Should we bother to look up to $165k and then effectively have a $150k mortgage....or make $150k the ceiling and then have a $135k mortgage? It's amazing the difference in a home that $15k can make...

#2) Should we then thus include this $8k tax rebate into the mix as well...to give us another $8k range to "play" with while we're looking? My gut on this one is "no" because it's only a 1-year deal and the chances of throwing the rebate back into the principle of the loan is about 50/50...

#3) Should we even bother looking at real estate right now due to the economic situation in the country today? It WILL get worse...especially as inflation sets in further. The jump in gas prices this week...due to the devaluation of the dollar... Wife and I have relativel steady jobs (She works for a school corp, I work for a 4-letter government agency); but layoffs in these sectors aren't unheard of. Rare in our particular sectors, but not unheard of. I'd rate the chances of being layed off in the next few years, for either of us, at 10%.

#4) Only debt load we have is $10k on her student loans; should we work on knocking that out 100% BEFORE we take on a mortgage?

Thanks.

-J-

 

[NEWMAN]

Just from my experience if your looking at a $150 k house look at a $130-$140k house. I see alot of people just creep over the budget to get 300 extra square feet. and they have to run a super tight budget to even get by.

The 8k tax break. I wouldn't figure it in. those who got the 5k break had to pay it back.lol I think in 05'

 

[22rssix]

We just bought a house and went through a lot of this as well. My g/f student loans did not matter. Our debt didn’t matter as long as you have good credit they will sell you just about anything.

If you can afford to buy a house, now is the time. We got a good rate and the seller paid all the title, realtor and closing costs. So you have room to negotiate.


I would also look at how much you can spend per month on the house note, utilities, insurance and taxes. We knew how much we could afford on the mortgage so that set our max for the home price. We were told we could of bought a 200k house, but no way we could of made the payments per month.


I would not rely on that tax credit, if you qualify for it, you will not see it until the next year.


Also see if the owner can give you a breakdown of what they pay per year in utilities. We were sailing along then winter hit and our gas bill went to almost 300.00 for a few months.


I would also look at doing an escrow account. We pay one bill that covers the taxes, mortgage and insurance. This will work out better so we don’t get hit with a massive tax bill and not have the extra cash for it

 

[melensdad]

Just my opinion, but look cheaper. When I was earning $40,000 a year I bought a house for $48,500. I then got married, my wife was still in graduate school, lots of debts. 18 months later she was making $35,000. We fixed up the little house (it was a "handyman special") and sold it for $98,700 a few years later. In the mean time we SAVED EVERY PENNY WE COULD SAVE.

We paid CA$H for land in the country, got several acres free and clear. That was while we still owned/lived in the little house.

When we sold the little house we moved into a house 3 times the size, but our down payment, with the land included was 66%. That kept our mortgage manageable!!! Every time either one of us got a raise or a bonus we paid it against our mortgage. The house was FULLY PAID OFF in 8 years. During that process we bought several more acres land around us and now sit on a nice tract of land. The house was recently appraised, without the extra land, at an insanely/shockingly high price.

I can only suggest that if you sacrifice when you are young, you will be much better off financially as you get a little older. I'm very fortunate. I never made a huge salary but I did OK. I retired at age 46. My house was paid for several years before that. I'm 48 and loving life right now. The economy sucks, the job situation sucks, I'm living my dream because I didn't go out on an economic limb when I was younger.

Buy the cheapest house in a good neighborhood. Buy one with potential that is not yet realized. Look for the distressed home that needs to be fixed up a bit and learn how to do simple repairs. The gains you will make are WORTH MORE THAN I CAN EXPLAIN. I know many of my peers who are in homes similar in size/value to mine, with mortgages of $200,000 to $500,000 and are not sleeping well because they don't know if their jobs are secure.

NOW IS THE TIME TO SCRIMP and SAVE and not bury yourself. Listen to people like Dave Ramsey. A frugal today is a sane and secure tomorrow!

Just my opinion. Worth no more than you paid for it.

 

[theweakerbrother]

Real Debt Help - Get out of debt with Dave Ramsey's Total Money Makeover Plan.

I would spent much less on a house that you, friends, or reliable contractors can fix up. It is cheaper to find a house that needs carpet, paint, and a little elbow grease than to jump into a new home or in one that is more house than you can afford.

Auctions are great places to get houses (however, without warranties) and funds must be paid within a few days or 10% down on the day of sale in cash or certified funds.

Don't think you're above purchasing repossessed or HUD housing.

Having a realtor probably doesn't hurt you when looking for a house, as long as you find one that will help you stay in budget, but I'd never use one to sell my house.

Shop around, too. A lot of baby boomers are wanting to get rid of their 3-4 bedroom family raisers and move into nicer but smaller homes.

 

[samrothstein01]

Ok, so this is all based on personal experience and opinion, so take it for what its worth......that being said.......

First thing, I would make sure you have 3-6 months of living expenses (including your new proposed mortgage payment) saved up in a safe (money market type) savings account. This will prevent most major catastrophies related to unplanned events....car break downs, water heater went out, short term job loss, etc from putting you in significant debt or snowballing to bankruptcy or foreclosure.

Second....and to answer your direct questions.

#1. I would look at whichever dollar amount makes you comfortable, and is within reason. I believe that keeping your mortgage payment at roughly 30% of gross income is the general rule of thumb. That being said, it is a buyers market right now and an excellent time to buy a home with low home prices and low interest rates.

You can probably get into a $165k house for $150 right now anyway, so you are getting 10%-20% more home for your money in this market. Look at foreclosures, you can easily get into those right now for much less than market value. Don't be afraid to make an offer lower than asking price on homes either. They will either deny, counter offer, or accept. (But, be prepared to sign if they accept!!) I would bet with some research and patience you could easily get into what should be a $170k home for around $140k or less.

#2 - Don't ever depend on tax rebates or gov't money to help you. If you get it, great, thats a bonus and can be used to help with new furniture (or firearms!!!)....but treat it as a nice extra if it happens to come through. If you depend on it and it ends up not being there, it may put you in an unexpected financial pinch.

#3 - Again, I personally think its a great time to buy. Now, I would hate for you to take my advice and end up in a financial situation that is less than desireable, so please think through all the options and make the decision for yourself. The economic situation is perfect for buying real estate as long as the person buying is in an economic position to do so. (See saving 3-6 months of expenses above). You also mentioned there is relative stability in your and your wifes work....which is nice in times like these. Many people don't have that.

#4 - Only having student debt is amazing and congratulations! That is rare these days. There are two ways to look at this. One, if you like the "debt free" approach, then pay it off first and don't look back. This is a very "Dave Ramsey" approach, which is definately not all bad. You have done something right thus far to not have any other debt, so keep it up. This way you can have clear concious and devote your money to the home and its contents.

On the other hand, depending on how long it takes you to pay off that debt, you could miss out on a great buying opportunity if the RE market decides to rebound, prices begin to increase, and interest rates go up, in which the latter (interest rates) could end up costing you much more than $10k in the long run over a 30 year fixed mortgage. Additionally, student loan debt is not entirely "bad" debt, as it has low interest rates and the interest is tax deductible.

Again, just my . Have numerous and lengthy discussions with your significant other, as it is a huge committment and there is always something to fix!!

Good luck with your decision!!!

 

[theweakerbrother]

Three posts in a row... all from different parts of the state and all three referencing Dave Ramsey.. how cool is that?

 

[9rows]

ditto the ramsey suggestion

i was on the "ramsey plan" before there ever was a "ramsey plan" ... live below your means, stay out of debt, put some back for a rainy day

my college buddies made fun of me when i bought my first house. it was a dumpy little 2 bedroom in the beech grove area. they all bought bigger houses in "better" areas. you know what? buying that dumpy little 2 bedroom in the beech grove area was one of the best things i ever did. it set me up in a financially solid position for the rest of my adult life.

oh yeah, and don't get house fever. take your time, don't get pressured into something by a realtor. if you feel yourself getting in a rush .... forget about houses for a week or so and then go back at it.

good luck with it

 

[colt45er]

Ramsey is the man!

J, before Insurance I did mortgages and I saw a lot of people get in a lot of trouble.

I would say that now is a good time to buy, sure prices may go down, but they can always go up too.

It was recommened that you have reserves, this is key. Many mort companies will require 3 months of reserves, I would recomend a minimum of 3.

I would say if you set a budget for 150, you look at 150 and include your down payment in that. Basically with the scenario you just mentioned. 30 yr fixed is the way to go with an unstable economy, if you buy for 150k and put 15 k down you are putting 10% down, that means better rates than putting 15k down on 165k and only putting 9.4% down. That 10% mark will not only open you to more lenders, but give you a better int rate.

Also keep in mind that most internet type mortgage cacs only figure in principle and interest not the taxes and insurance.

I would say talk to some lenders, see what you can qualify for with a 10% down payment. Take that rate, and plug into some calcs to see what home value you can get with the monthly payment you can afford.

Also keep in mind that most lenders will tell you that you can borrow more than you want. many will let you borrow 50-65% of your Gross income, I would try to stay closer to 30-35% of gross income.

 

[pjcalla]

I bought my first house about three years ago. First off, it is great that you have money to put down on the house. Before looking at a price range, I suggest that you find out how much money you can afford to pay each month. This includes principal and interest, insurance, taxes, utilities, food, savings, retirement, etc. I learned from my parents that it is nice to own a home, but if you get in over your head, you will have to sacrifice the things you enjoy doing (shooting, going out to eat, etc.) and you will regret it. Don't forget to have money to fix things, there is always something that breaks, you want to change, etc. Last summer we had to drop ~$2,000 for a new A/C. Anyways, you get my point.

I would strongly suggest getting pre-approved for a mortgage before shopping around. This will give you an idea of how much house you can afford. I would not buy a house that you can "afford" but rather use that as a guideline. For example, I think we were pre-approved for $250,000 but purchased a home well under that with 20% down.

Escrow accounts are pretty much required. When you are looking at amortizations/payments when figuring out how much you can afford per month, do not forget about the insurance and taxes. My P&I payment is ~$800, but when you add the taxes and insurance it goes over $1,000.

Definitely use a realtor, they have access to all kinds of information that you do not. They also help in the offer/counteroffer game that is a pain. Also, go for a warranty, at seller's expense. Within the year we had our warranty, the heater went out, among other things, which saved us $$$.

When you strike a deal, have it subject to inspection, and GET A HOME INSPECTION. You will be suprised what a good inspector will find. Then the negoiation starts again. It's a long process, but well worth it.

Another point, do not get emotionally attached to a house until you have the keys. You will end up paying too much for it. Remember this is an investment...buy low sell high. I would lock-in a low fixed rate mortgage not the variable that got so many people in trouble.

Sorry for the long post, but I just wanted to share my thoughts. Right now is a great time to buy. Low interest rates, low prices. Shop around the inventory is out there, and people want to sell. Buyers market. Good luck, and have fun.

 

[CulpeperMM]

congratulations and best of luck to you.

my advise, borrow as little as possible.

 

[smokingman]

First I am a real estate broker.
On the question of timing.Now is a great time to buy a property,IF you are looking at the right properties. I would not even look at an owner occupied home in this market.Most bank owned property is selling for 50-70% of the assessed value.Owner occupied the starting price is usually at least 10% above the assessed value.So I would only be looking at foreclosures.I picked up my current home just over a year ago.It was bank owned and assessed at 166k and after negotiations with the bank we paid 100k.It is 2800 square foot,lime stone exterior on a little over half an acre,in a great school district,in a well established neighborhood,and I have 12 trees in the front yard You may have to look hard for these properties but they are out there. We recently sold a house that was appraised at 1.2 mil for 300k.The former owner had bashed most of the dry wall up in the home,but the home just needed new drywall.
Second. Plan to go FHA for your loan. If you lender does not offer them find one who does.Unless you have a credit score above 815 the FHA loan rate will be lower than a conventional with 20% down.
Third do not count on the tax rebate program for anything. There is already talk about it being ended.
You mention the value of the dollar heading south.This is another reason to buy now not later.When the dollar really starts heading down you will lose much of your purchasing power(ie if inflation is 8% then the same house will cost 8% more).
Find a realtor you can trust.One that has experience in dealing with bank owned property. They do not work like conventional home purchases as it is a bidding process. I can not count the number of realtors we have had to deal with that had no idea how the process works.Since you are just buying and not selling I would also recommend a "buyers agent or broker". You do not want say a (random name)Carpenter listing agent who is just going to show you the properties they have as listings.As that agent is interested in selling you a property they have listed so they can make both ends of the commission(buyer and sellers).And they can not possibly have just your interest in mind as they are representing both the buyer and seller(trying to get the seller top dollar,and you a good deal while trying to keep the price high in the interest of there own commission).A good realtor will negotiate for you fiercly and have only your interest in mind(fiduciary responsibility only to you).I sent you a pm as well,if you have any questions feel free to give me a call.

 

[Scutter01]

Another thing to think about: If you go a little bit cheaper, you can use the savings to perform some renovations. New kitchen cabinets, carpet, maybe a deck, and spread the cost of that out as you can afford it, rather than rolling it into yet another monthly payment (in the form of higher mortgage payments).

 

[Indy_Guy_77]

Thanks for the replies so far, folks!

I do appreciate it!

Wife and I definitely don't believe that we're "above" a repo or HUD; nothing at all wrong with that!

And for the folks who are cautioning us not to get in over our heads...advice completely and totally heeded. We know that with "average" mortgage rates, a $150k house + escrow + utilities will be in the same ballpark where we find ourselves now with our rent + utilities. In doing some basic "affordability" calculations online, with our gross combined income, they return a result "you can afford a $240K home". HAH! Riiiiiiiiiiiiight.

We also don't want to live in a shack in a rough neighborhood. This would be a home that we'd be in as we started a family... Something that we wouldn't have to move out of in a couple of years because we were suddenly out of room.

The reaffirmation about setting a hard "ceiling", though, is nice. If we pick $150-155...we need to sick with it. The percentage downpayment is an angle that I hadn't thought of before, either. 10% is looked at better than 9%! Makes sense, just didn't think about it.

Thanks, peoples.

-J-

 

[colt45er]

Also J, with the hard ceiling, if you do look at a house that is 159k or something you can tell them straight up you want it but you only have 150k, don't budge on that, who knows they may drop the price for you, esp if you are preapproved ready to close.

As for a HUD/Repo, thats what my house was, the money I saved went back into the house and we got more space and better features than buying a like new home. and we got to pick where things went.

 

[indytechnerd]

I'll add some Dave Ramsey to the pile, too.

Dave says that your mortgage payment should be 1/4 of your monthly take home on a 15yr FIXED loan. Keep in mind things like property tax escrow, home owners' insurance, etc. that will add to your payment.

One thing I'm not sure I saw mentioned is be prepared to walk away. If you're not totally comfortable with the numbers, bail. No house in the world is worth getting bent over on your mortgage. Good luck to you.

 

[NEWMAN]

just a side not I was qualified for over 350k I bought a 125k house.lol Only wanted a small house with three bedrooms in Broadripple due to smaller yards. So its not only finding a house its finding one to fit in your schedule. YARD work and Maint. on the house is time consumming.lol
Sorry just thought of it.lol

 

[Fletch]

Ditto the advice for Dave Ramsey. Ditto the advice to shop around for a quality realtor -- I lucked out the last couple of times, but this time around I wound up with a realtor who is constantly dropping the ball, and she is driving me insane.

 

[zcam630]

Just my opinion, but look cheaper. When I was earning $40,000 a year I bought a house for $48,500. I then got married, my wife was still in graduate school, lots of debts. 18 months later she was making $35,000. We fixed up the little house (it was a "handyman special") and sold it for $98,700 a few years later. In the mean time we SAVED EVERY PENNY WE COULD SAVE.

We paid CA for land in the country, got several acres free and clear. That was while we still owned/lived in the little house.

When we sold the little house we moved into a house 3 times the size, but our down payment, with the land included was 66%. That kept our mortgage manageable!!! Every time either one of us got a raise or a bonus we paid it against our mortgage. The house was FULLY PAID OFF in 8 years. During that process we bought several more acres land around us and now sit on a nice tract of land. The house was recently appraised, without the extra land, at an insanely/shockingly high price.

I can only suggest that if you sacrifice when you are young, you will be much better off financially as you get a little older. I'm very fortunate. I never made a huge salary but I did OK. I retired at age 46. My house was paid for several years before that. I'm 48 and loving life right now. The economy sucks, the job situation sucks, I'm living my dream because I didn't go out on an economic limb when I was younger.

Buy the cheapest house in a good neighborhood. Buy one with potential that is not yet realized. Look for the distressed home that needs to be fixed up a bit and learn how to do simple repairs. The gains you will make are WORTH MORE THAN I CAN EXPLAIN. I know many of my peers who are in homes similar in size/value to mine, with mortgages of $200,000 to $500,000 and are not sleeping well because they don't know if their jobs are secure.

NOW IS THE TIME TO SCRIMP and SAVE and not bury yourself. Listen to people like Dave Ramsey. A frugal today is a sane and secure tomorrow!

Just my opinion. Worth no more than you paid for it.

for great,great advice. I fairly young and wish I had made choices like he did. IMO a man that owns an acre of land and a shack is far more wealthy than the man who owns a 1 million dollar mansion with a mortgage. The first man OWNS more.

 

[theweakerbrother]

I just had this sent to me via email from Rep. Milo Smith:

Indiana Introduces Incentive for Families Purchasing Vacant Foreclosed Homes​

​

There are tens of thousands of vacant foreclosed homes in Indiana. There are also thousands of families that need residences. Sound like a good match?
Rep. Milo Smith thinks so, too. He’s pleased to announce that Indiana is starting a program to help Hoosiers purchase these homes for use as their primary residence.
Indiana will provide up to $25,000 in assistance to be used for a down payment or a rehabilitation. Up to $15,000 of that will come from our state’s housing and community development authority. Up to $10,000 will come from matching funds from the federal home loan bank.
Indiana appears to be unique because we are the only state to take the statewide approach, where other states are sending dollars directly to certain communities.
There are tons of benefits. Vacant homes won’t become blighted. Local governments will see the benefit of property taxes. Families will have an investment with equity from the start.
The Federal Home Loan Bank has developed a Home Retained Program which helps families keep their homes. They provide assistance and foreclosure counseling to prevent home foreclosure, but they weren’t able to reach as many families as they wanted. The bank is excited about the opportunity to team up with Indiana to reach out to families that need homes.
Families who want state assistance in purchasing a vacant foreclosed home will attend an eight-hour education seminar to educate them on ways to prevent home foreclosure.
When Hoosiers open the door to a new home, they open several windows of opportunity. This is one way the state government can help families become more stable, put down roofs and climb the economic ladder.