danger dan

Figured this would be a good place to ask some people who may have some real world experience. I'm 24 years old and thinking about purchasing a house in the near future (3 to 6 months)

I will be moving to the durham nc area for a job relocation and am finding rentals to be way too expensive as I have many requirements (yard for my Great Dane, garage for the S and my motorcycle, also my gf does art and wants a studio space) it just seems easier to buy and not deal with all the BS ESPECIALLY having such a large dog.

Here's my situation (I could really care less about disclosing this to anyone, don't see why ppl are so uptight)

24 years old
Registered nurse (BSN) with 1.5 years experience working in the ER
Income: around 55k base (on nights) and depending on Overtime probably taking home 60-65k a year.
Expecting pretty decent raises in the near future and job security should be a non issue.
Live with my GF who is a server/bartender, probably takes home around 30ish a year but it's hard to tell as it's all tips
Obligations: 300 a month on my s2000 (4 years left) insurance is 60 a month. Motorcycle insurance 20 a month. No CC debt, no loans or any other obligations.
After keeping a nice cushion in my savings, I will have around 7k to put down.

My credit score is 750 Fico.

Honestly I like to keep costs low and like having a decent bit of extra income to spend on going out, travel, car parts, decent retirement contribution etc.. My worst nightmare is getting behind on debt. I'd like to keep everything under 1000 a month.

Online calcs say I would get around 200-250k loan just using my base income, that to me seems crazy, I can't see spending over 130-150k on my first house.

Anyone in a similar situation want to shed light, income and how much you spent, do you wish you spent more and tried to grow into the payment as your pay increased or wish you spent less in order to have extra cash on hand.

Also, get loan approval first? Get realtor first? Where is best to apply for mortgage?

Thanks for you help guys. Also I'm sure if your front the northeast or out west these numbers seem low but in the southeast home prices are much cheaper, and income is lower as a result.

snuggles

I'm in the same shoes as you actually. Looking to buy shortly myself. I've come to find you should get a letter of pre-approval first and then a realtor. Also smaller community banks sometimes are more forgiving and easier to negotiate with.

Heyitsgary

It's been a while for me (almost 17 years now), but when I bought, the numbers were similar (for you vs. me, not including GF income) Interest rates were a little higher, which affects the numbers slightly.

I think I got approved for about $165 - 180K or thereabouts. Fico near 800 as well, stable job at the time.

I didn't trust that number, like you don't trust yours. I just put everything I spend into a spreadsheet, EVERYTHING! did it per week, per month, etc...to build a budget and decided if I wanted $X left per month to spend, I would need to only spend $A on a mortgage. (I decided that $130K or so was where I wanted to be).

Start with big things, and then go down. Use an online calculator to help with mortgage payments and PMI.
Add in Car payments and insurance
Homeowners insurance
Utilities (often a shocker for people who rent and then buy), cable/TV subscriptions, phone
Groceries
Dining out/entertainment
Gas for cars (would a change in location impact the amount of gas you use each week?) How often will you visit people where you're moving from?
Gifts
Hobbies
What does breakfast and lunch on the job cost? Even a $1 cup of coffee matters at the beginning. The $3 cup plus a muffin adds up!
Don't forget things like maintenance on your cars, including S2K tires.
Consider the other changes because you own - did you go to a laundromat before, and now do laundry at home? Again, small, but those few dollars a week/month add up.
Bottom line - analyze every dollar you put in and take out of your wallets. Don't say - but I only do it 1 or 2 times a week. Add it up for 1 or 2 times a week.

Compare those numbers to your income (I'd suggest base in case OT pay isn't always available). You'll get a gross % and a net %, plus a actual what do I spend.

Your income taxes will go down because of the tax/interest rolled into your mortgage. That might be $100/month, 200, 300, maybe more in the first few years. The calculators and doing some comparisons on the tax charts can help there too. My recommendation is not to include all of that if any into the calculations. It might be a nice bonus in April. However, you could use some of it in the calculations if it made you feel better.

Something to search for would be a first time home buyers seminar. It should be free or near free, and offered by some/many banks and loan companies. You should go. Probably a few hours for 2 or 3 nights. Should give a real good idea of what's out there now and what order. It shouldn't be a sales pitch for that bank, it should be an informative session. That bank likely offers the services you need, but it shouldn't be an obligation.

You should look into first time buyers rebates and incentives. You should understand how mortgages work and the different types. Fixed 10, 15, 20 or 30, 1/1, 3/1, 5/1, 7/1 or 10/1 ARMS. I just searched and see a 5/5 now. I originally went with a 10/1, which locked in my initial rate for 10 years, and then could move up or down. I refi'd when rates dipped after 7 years or so to a fixed rate and removed the uncertainty. Changed to a 15 at that point, my payment went up $20 bucks or so. I prepaid a little each month, and paid my original 30 years off in 15 years. If you can't get to 20% to remove PMI insurance, get there as fast as you can and then have it removed. In the example you gave, PMI might be as high as 10% extra on your loan.

Lastly- You should not look at the house as an investment. It is shelter, security and an asset. It may appreciate, it may depreciate. The models say blah blah blah.... If you choose to buy, buy within your means. If you want to enjoy some extra dollars to enjoy life, buy below your means. Houses cost money, repairs cost money, upkeep costs money. Taxes go up each year. You have unexpected expenses, your friends get married and you buy a gift. Being 24 and just starting out, you have plenty of unknowns ahead of you. Squeezing every last dollar into a house leaves no wiggle room.

You said that you want to keep everything under $1000/month. What does everything include in your eyes? (btw: your car/motorcycle already take up almost 40% of that 1000 already!!!)

Good Luck!

clawhammer

A few thoughts:

1. If you can't buy a house on your own, don't even think about buying it with your gf. This will be a huge mess if you ever break up. Have the house in your name, and her pay you money each month. Don't call it rent, because then she can make the case that she helped you buy the house, and can try to claim a stake in it later. Have her help out with utilities, groceries, etc.

2. Do you have 3-6 months of your expenses saved up liquid in a savings account? Don't even think about buying a house unless you have this done already. You're just asking for trouble.

3. How much money do you have for a downpayment? You really need to save up a 20% downpayment in addition to your emergency savings. If you don't put 20% down, you'll have to pay PMI (private mortgage insurance) or MIP (mortgage insurance premium) depending on the type of loan you get. If you get an FHA loan, your upfront MIP will be 1.75% of the loan amount, and each year you will need to pay 1.35% of the loan amount in MIP. You literally get 0 value for this money, it is just a tax on those who can't get a proper downpayment together. Under the new FHA rules, MIP can NEVER be removed from your loan, unless you refinance, which usually means having to pay closing costs once again.

4. Income taxes. I want to expand on the post above when it comes to income taxes. I want you to understand how they work. For 2013, the standard deduction is $6100. In order to receive any benefit on your federal income taxes for owning a house, your state income taxes, your mortgage interest and property taxes must be over $6100. On $60k income, your state income tax will be $3,500. I'm estimating your property taxes to be $2,250 a year ($150k property value taxed at 1.5%). Your interest will probably be a little over $5,000 ($120k borrowed, 30-year loan, 4.35% interest). Let's round up your itemized deductions to $11,000, or $4900 above the standard deduction. This means that you have reduced your taxable income by $4900 and if you're in the 25% tax bracket, this means a $1,225 reduction on your federal taxes, not nearly as much as you would think it is

5. There is nothing wrong with renting. In fact it is much better to rent and get your finances straight and save up for a proper downpayment than to buy a house prematurely and end up way over your head. My guess is that you probably don't have the financial stability required to own a house. THERE IS NOTHING WRONG WITH THAT! Just keep saving up, and once you have your proper downpayment ready, THEN buy a house.

danger dan

Thanks for all the info guys. If I go through with the house it will be about. 4 to 6 months down the road. Currently On top of leaving about 3 months of expenses in the bank I have about $7500 saved up for down payment and closing. I'm currently putting away about 1000 a month and living pretty comfortably so by the time I'm ready to buy I expect to have 10-12k saved.

Also, I am not including my GF income into the calculations. I am only going to buy something I can afford on my own if things go south, I'm not naive enough to think that couldn't happen.

Also, when I say keep things under 1000, I mean the total house payment. Mortgage, taxes, insurance, PMI. From using online calculators it seems a 130k house with 5% down will end up costing me 850 a month which seems perfect for me, sure with my gf I can easily afford it as that's what we pay now to rent but I want to be comfortable if things ever change with her (hopefully not as we plan to get engaged within the year haha)

Anyways, I bank with both Wells Fargo and USAA (not a veteran, father is) I'll see about a class they may offer to help learn more. I'm planning on just 30 fixed but if I can find a decent house cheaper than I expect to pay I may do a 15

danger dan

Also I understand your point about PMI and having a 20% down payment. Maybe I'm thinking differently but my opinion is if I wait a couple years to be able to put down 20% interest rates (which now seem to being rising) may be higher, and a single percent increase will negate not paying PMI. Also, I would rather put less down, keep more in savings and be better protected if I were to end up in a hard spot financially than dumping 30k into a down payment.

I'll be looking more into this through, definitely something to think about, I really don't mind renting but like I said, I just cannot find anything out there that fits my requirements

Heyitsgary

Clawhammer-

Yes, that's why I said it might be 100, 200 or more, and that adding it into the calculations were a choice, not a necessity. There are MANY variables in determining the tax implications. In my case, I was at 6% or so, my takes are double what you propose, and the standard deduction was less, so it was considerable more of a tax benefit.

PMI isn't a waste (to the lender at least). It's some kind of hedge against someone buying a house 'too early' by THEIR standards. I'm under the impression if they think you can't come up with a down payment, how could you possibly make a monthly payment. I think it's wrong in many cases.

If you have a choice between FHA and traditional, you could weigh the benefits of both types. Also check into first time and low income programs with the banks. I was fortunate that my county has some well off areas, so the medium income is comparatively high. The bank had the choice of taking a certain % of low income loans or have to pay into a state program. (As I understood it!). I qualified for low income and it was another 1 % off the loan from the bank.

Good news - you're thinking about it, and the options.

riceball777

In my opinion buying a house is always a great idea only if you can afford it. In my option you cannot afford it.
If you only have 7k to but down on a 150-200k house you can't afford it. You really need at least 20%. And after that 20% I would only fell confertable if I had at lest 10-20k left in savings for ohh shit emergency money. If you put less than 20% down and you are forced to buy pmi insurance you cannot afford a house.

A home is an investment. Before anyone should invest there money a few things should be met. You must have no debt and must not be paying anyone intrest with the exception of a mortgage. You have a car loan.

These are all just my opinions.

clawhammer

Use this spreadsheet for calculating your payment: http://www.vertex42.com/Calculators/...alculator.html

Here are the two scenarios:

Scenario 1: You buy a $150k house now. 5%, or $7500 down (not including your closing costs). You borrow $142,500 for 30 years at 4.35% (current interest rate). Here is how your monthly payment looks:
$709 - principal and interest
$188 - taxes
$100 - home owners insurance (my estimate may be a tad bit high)
$159 - PMI
Total monthly payment is $1156
You also have to pay an additional $2500 at closing, which you may or may not be able to roll into your loan. If you roll it into your loan, your principal and interest payments will be $722/month, and your PMI will be $162/month for a total monthly payment of $1172/month.

Scenario 2: You buy the same $150k house with 20%, or $30,000 down (not including your closing costs). You borrow $120,000 for 30 years at 6% (let's say that's how high interest rates will be when you have your downpayment together). Here is how your monthly payment looks:
$719 - principal and interest
$188 - taxes
$100 - home owners insurance
Total monthly payment is $1007, plus you save $2500 at closing

second2none

These guys make valid points. Even if the interest goes up, it is still at all time lows historically. People tell me of interest rates in the 13% range when they were buying homes back in the day.

I would advise you to clear all your other debts first. Live in an apartment until you have 20% percent down and six months worth of an emergency fund.

Lastly, get with a mortgage broker. Usually, your realtor has a few he/she works with. They can really tell you where you stand financially for home purchase.