First time buyer -- house questions

Hey! So...this is kind of random, but it's in the Lounge, and maybe some people can help me out or give me some tips.

I want to buy a house. I'm 22 years old, living in St. Louis, MO, starting my "big girl" job December 1st. I'm currently in an apartment and can't STAND how I'm throwing money in the fire every month for rent. $612 burnt dollars, to be exact. I'd also just like a hunk o' land.

The problem is the down payment. I'd like to spend no more than $200,000, but a traditional 20% down payment would put me at $40,000. And believe it or not, I don't have that right now.

My lease is up in August, so ideally I'd like to move out between August and December (I could get a 3-month lease if things don't close as I expect). I'm opening a savings account tomorrow to save up for a 3-5% down payment.

I guess my question is should I work towards saving for a low moneydown mortgage? Or should I hang in there and KEEP saving for 20% down? I don't want to land myself in a heap o' trouble because I only put 3% down on a house.

I'm going to talk to a lender next month and get my questions answered as well, but I'd like to hear some of your opinions. Thanks for any help!

li zz le

Hubby and I just got our first house.  We went with an FHA loan.  They only required a 3% down payment.

Do some searches online.  For a first time home buyer, especially, an FHA might be a really good loan for you to go with.

FWIW, I bought my first house a couple of years ago (in Canada, though, so that may make a few things different).

I would say that, no, you don't need to save up for a whole 20% down payment for your first house.  Most lenders understand that people just starting out don't have that kind of savings and offer mortgages with smaller down payments that are still good mortgages.  What you want to be careful of is that the payments themselves are small enough that you can make them comfortably every month - and that they're not likely to jump up on you with minimal notice (i.e. watch out for variable interest plans; they look good when the interest rate is low, but I'm paying a lot less now with my flat-rate mortgage than my friend who started off 0.5% lower than me but has seen his variable rate go up and up and up).  You also want to make sure you have a little money left after making the downpayment in case you need to make repairs/improvements right away.

I believe the number I found in a few sources was that your house shouldn't cost more than three times your annual income if you want to be sure you can afford the payments.  (That number's probably not for those with extremely high or extremely low incomes, but seems to work for those of us in the middle class.) 

Happy house hunting.  It was fun!

Digdig,

When you check with your lender see if your state has any first time homebuyer loans.  Also check with the planning dept. in St. Louis to see if they have any down payment assistance(you need to talk to someone who deals with CDBG & HOME grants from HUD).  Usually these programs are under community development.  Also check to see if they have free homebuyer education classes (usually offered by a non-profit) which entitle you to a better loan and prepare you for homeownership.

Make sure you get a fixed rate, not variable.  Pay off any credit cards and try and get your credit in order.  Good luck!

Perhaps check out the foreclosure markets in your target region.

After securing financing I would low bid all prospects and fully flex buyers market muscle.

it's always best to have as much as possible to put down and in the states right now i don't know what they are going to require.

the one thing i would liek to tell you is to find out about how much you should expect your taxes and insurance to be. generally they are more than most people expect and can really catch you off guard if you're not doing escrow.

good luck!

Oh, what good news!! Thank you for replying so quickly. I appreciate it. I'm sitting here scratching my head feeling like a silly goose for not saving more money (what, when I was 10??). I have some savings in stocks but I really want to save that until I neeeed it.

An FHA loan looks like the best choice, you're right, and I'm definitely going with a fixed-rate mortgage. Man. I'm worried about the interest rate but I'm definitely going fixed.

Thanks for all your help. If anyone has other opinions definitely respond!! :)

All the above advice is good. One other option. Check with delinquent tax dept at the local government level. You may end up with a home for taxes. A tax sale happens twice a year here. Generally it will be a starter and a fixer upper but will net you a profit of tens of thousands of dollars, sell it and get what you want later. This can be a lengthy process sometimes. Even if you get a loan for another home, this is a great way to make a lot of cash.

Hi there.  I worked as a real estate legal secretary for many years.  Firstly, I think it's wonderful that you recognize home ownership as a great investment because, despite the current market, it still is just that.  The important thing, though, is to not become a "slave" to your house meaning that you don't want to be living so close to the edge (money-wise) that even a slight emergency may send you into a tailspin.  Too often, I've seen banks and lenders more than happy to lend 100% of the purchase price to the borrower only to see the home in foreclosure when the mortgage comes due and the rate has increased by as little as 1%.  I always looked at paying rent as throwing money down into a black hole but it is a good way to teach yourself the demands of home ownership and the expense to be incurred. 

For now, I would suggest that you "pretend" that your monthly rent is $1200.00; pay the rent of $612.00 and put the rest into savings.  This will acclimatize you to the true expense of home ownership which includes not only a mortgage payment but taxes, maintenance/repair, insurance, hydro, water, gas, telephone, cable, etc. payments on top of your current expenses of food, clothing, car expenses, etc.   Also, when you are ready to start looking for your new home, look for one with rentable space (maybe a basement apartment) for extra income to help you pay down the mortgage as fast as you can.

One thing I noticed that I thought was sad was that few young people actually believe that they will ever be mortgage-free.  This is nonsense.  With good planning and determination, a mortgage-free home is viable - but you have to live within your means and be prepared to forego many luxuries (for example, vacations) for the first few years. 

Finally, be aware that the purchase price of the home is not the only purchasing expense.  Depending where you live, there will be some form of Land Transfer Tax and numerous other closing costs and legal fees.  Do not sign an agreement of purchase and sale without first consulting your lawyer.  Before you buy, you will want a preliminary title search and possibly a home inspection.  Prior to doing your home search, have yourself pre-approved for your mortgage - this will ensure that you keep within your budget.  When you choose your perfect home, inquire about home insurance before you complete the purchase - perhaps even make it a condition of the purchase that  the sale is conditional upon you being able to secure satisfactory insurance.  This way, you won't get yourself stuck with an uninsurable home or one that is very costly insurance wise.

Good luck on this adventure.  Ask many, many, many questions along the way and, remember:  if the deal sounds too good to be true, it very may well be.

here is the link for St. Louis for first time homebuyers: http://stlouis.missouri.org/housing/homebuygu ide.html.  Also St. Louis is applying for a new HUD grant that is taking vacant and foreclosed homes and reselling them.  Ask the community dev. folks if they think any homes will be coming on the market for first time homebuyers from this program. 

Affordable housing units as those for which households pay no more than 30 percent of their income on housing costs.  this is a good guideline. 

Thank you, thank you for all the great advice. :) This is such a big help and I'm glad I posted! 

Unfortunately, a lot of the foreclosures are in the "hood" over here. I'm really looking at good school districts and I would like a home to start a family. Thankfully my credit rating is pretty awesome right now so that's a big help!

My mom has a 15-year mortgage and I know it is definitely possible to pay off my house one day. My best friend and her family paid off their house years ago. I'd like to do that, too.

Taxes, home insurance, and closing costs are things I really need to learn more about. The last thing I want is to be blindsided!!

Don't treat this house as the house you will always be living in.  You might not be able to afford everything you want just yet.  But if you buy a house, and the market doesn't go down even further, you will have much more money for a better house in a few years.  Think of this house as the down payment on your dream house.

keep in mind that there are a lot of expenses involved in owning that you don't have to worry about when renting.  i've heard that you should expect to spent 40% more than your monthly mortgage payment, with taxes, utilities, repairs, etc.  (in my experience it's not quite that much, but i've never had good furniture, etc., and have never had to do more than cosmetic repairs.) 

just don't assume that you can afford a morgage payment equal to what you're paying in rent now.

Original Post by anneemish:

For now, I would suggest that you "pretend" that your monthly rent is $1200.00; pay the rent of $612.00 and put the rest into savings. 

Great advice, but instead of $1,200, I'd put that at $1,600.  At least.  Especially with only 3-5% down on a $200K house.

Original Post by yachtracer1977:

Original Post by anneemish:

For now, I would suggest that you "pretend" that your monthly rent is $1200.00; pay the rent of $612.00 and put the rest into savings. 

Great advice, but instead of $1,200, I'd put that at $1,600.  At least.  Especially with only 3-5% down on a $200K house.

 I agree.

A way to estimate your total monthly payment (including escrow aka taxes and insurance) is 1% of the total loan

From one homeowner to a prospective homeowner "throwing your money away" on rent is a ridiculous statement. Seriously do a cost benefit analysis instead of repeating what real estate agents tell you. Renting has real advantages over buying with the most notable drawback being that you have to ask your landlord if you can paint the walls.

A house is NOT an investment, though a rental property is.

Personally, in this market I would wait to acquire 20% down. Time is on your side. If your mortgage with 20% down would be exactly the same as the cost to rent the house, then it's probably a good deal, otherwise there's 98.3% chance it's not.

It is definitely a big step going to buying a house, I went straight from college to buying a house last year so understand all the thoughts and concerns going through your head!

I was lucky enough to have a great mortgage guy who really helped me and looked at a lot of different options for me. I ended up getting a 75%-25% loan, so no down payment, and in todays market you can almost guarantee that the seller would pay the closing costs (I didn't pay my closing cost but had to pay a little more for the house than I wanted). That however is all part of the negotiation. Your mortgage person will be able to look at all your different options and do an amortization schedule and see what would be the best for you depending on how long you plan on staying. I told him I wanted to know which option would have the most go towards principal after 5 years, and 75-25 was the best bet for me (instead of 80-20, 90-10, or 100% w/ CPI).

There are definitely a lot of expenses too that you don't expect at first, and my parents always told me to have at least 3 months of income saved in case of emergency. And it is always something unexpected, like a roof leak that will set you back $500+ or a garbage disposal that needs fixed or some such thing.

I would say the biggest thing to look at is how much your monthly payment will be (Mortgage + Taxes + insurance) and how big that is in comparison to your monthly income after tax. These are all things a mortgage guy will be able to estimate for you based on home price and common rates. For me, I add about an extra 400 or so for utilities and HOA fees and such, so that may be a decent number to tack on. And then after normal food and car bills, if you will still be able to save then I would say it is an affordable house. I personally put away an extra 500 dollars a month on top of my investment in the company 403(b).

Anyways, my best advice is to set your limit and don't let anyone budge it, for you are the only one that knows how you live and what you need to live. Also, find a good mortgage person who is willing to work and help you through this, because there are a ton of things that are very confusing that you will need help with.

Best of luck with your purchase!

Original Post by ignayshus:

From one homeowner to a prospective homeowner "throwing your money away" on rent is a ridiculous statement. Seriously do a cost benefit analysis instead of repeating what real estate agents tell you. Renting has real advantages over buying with the most notable drawback being that you have to ask your landlord if you can paint the walls.

A house is NOT an investment, though a rental property is.

Personally, in this market I would wait to acquire 20% down. Time is on your side. If your mortgage with 20% down would be exactly the same as the cost to rent the house, then it's probably a good deal, otherwise there's 98.3% chance it's not.

 Yep...you have to look at the total cost of ownership. It's not just the mortgage...it's taxes, insurance, home owner association fees, maintenance, ect.

I haven't read this entire thread so I apologize if this is duplicate information...  I would strongly suggest you get a pre-approval for a loan now.  My fiance and I just got a pre-approval and the bank guy told us that given the state of economy just about all loans ar enow requiring 10% or more down.  We are lucky because thankfully we;re eligible for the VA loan which, in his words, is the only loan available now that does not require a substantial down payment.  Plus, keep in mind that there can be a lot of closing costs.  If you save 3-5% it is quite likely that that will all be eaten up by those closing costs.  If you actually sit down with a professional they can help you decide if it's realistic or not.  

digdig,

Also, remember to ask about:

Conforming Loan Mortgage Insurance VS FHA Upfront MIP.  This will be another expense that you will incur if your choose not to put 20% down.

There is also another product out there called USDA.  It allows a borrower to finance up to 102% without any mortgage insurance since they guarantee the loan.  If you are in an area that the USDA deems rural you may be eligible for this product.

Your employment history (or educational history-in lieu of employment) is very important.  Your fico score, income, current debt, your proposed debt and any derogatory credit are also very important factors and will impact your  eligibility or approval for a mortgage.

There are many FREE Online First Time Homeowners Programs that are available to you which will provide you with the additional education you will need to make a more informed decision.

Good Luck!