First Time Home Buyer Advice Request

#26
#26
kiddiedoc said:
Ballpark numbers to ponder, given current rates:

A 15 yr loan will cost approximately 40% more a month on the same amount of mortgage cost. However, 2/3 of your early payments go to PRINCIPLE, whereas in a 30, 2/3 or more goes to INTEREST.

On a normal payment schedule, it would cost about $510,000 to pay off a $300k loan on a 30. $370,000 on a 15.

Given low returns on most conventional investments at the current, it is very logical to consider a shorter mortgage term as a terrific financial decision for most younger people. I.e.: why try to save a little money at a few percentage points of interest while losing 67% of your $1500/mo house payment every month?
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I would look at it more of a diversification of your assets. You get a mortgage because in theory you don’t have the cash, or alternatively there are better ways to deploy capital. Let’s say I have $250k and want to buy a house that costs $250k. If I can get a mortgage for 4% and invest that money in an index fund making 6-8% I am taking the mortgage all day. That money is easily liquidated or diversified. You can’t sell parts of your house. Yes a 15 year builds equity quicker but if there are better investment options I would consider those.
 
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#27
#27
kiddiedoc said:
Ballpark numbers to ponder, given current rates:

A 15 yr loan will cost approximately 40% more a month on the same amount of mortgage cost. However, 2/3 of your early payments go to PRINCIPLE, whereas in a 30, 2/3 or more goes to INTEREST.

On a normal payment schedule, it would cost about $510,000 to pay off a $300k loan on a 30. $370,000 on a 15.

Given low returns on most conventional investments at the current, it is very logical to consider a shorter mortgage term as a terrific financial decision for most younger people. I.e.: why try to save a little money at a few percentage points of interest while losing 67% of your $1500/mo house payment every month?
Click to expand...

I'm not arguing the fact that financing on 15 years vs 30 is the wiser decision. I'm saying that the price of homes has made it nearly impossible to finance a home for 1st time buyers over 15 years.

What percentage of a person's income should go towards a mortgage?
 
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#28
#28
Rasputin_Vol said:
I'm not arguing the fact that financing on 15 years vs 30 is the wiser decision. I'm saying that the price of homes has made it nearly impossible to finance a home for 1st time buyers over 15 years.

What percentage of a person's income should go towards a mortgage?
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Yeah I get that. The problem is that people usually think they need/deserve/can afford more house than they should. Heck, I did it, too.

In answer to your last question: preferably none :) That's my goal within the next 5-6 years.
 
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#29
#29
Rasputin_Vol said:
I'm not arguing the fact that financing on 15 years vs 30 is the wiser decision. I'm saying that the price of homes has made it nearly impossible to finance a home for 1st time buyers over 15 years.

What percentage of a person's income should go towards a mortgage?
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The standard industry recommendation for mortgage payments is that no more than 28 percent of your gross income should go to your monthly payments.
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https://budgeting.thenest.com/percentage-salary-should-mortgage-4072.html
 
#30
#30
You can finance at 30 years and just over pay every month. Anything you over pay goes straight to principle. It gives you flexibility to pay at 15-year rate without being forced to if the money needs to go somewhere else.

Also, do NOT pay PMI. Offer to buy it out at closing if you have to. Lump sum upfront will be cheaper than monthly payments anyways.
 
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#31
#31
PotS said:
You can finance at 30 years and just over pay every month. Anything you over pay goes straight to principle. It gives you flexibility to pay at 15-year rate without being forced to if the money needs to go somewhere else.

Also, do NOT pay PMI. Offer to buy it out at closing if you have to. Lump sum upfront will be cheaper than monthly payments anyways.
Click to expand...

I agree about financing at 30 years and over paying. At closing you can request a 15 year amortization schedule which will show how much more you will need to pay each month/year to pay off your mortgage in 15 years. Also, by financing for 30 years, should you, for whatever reason, need extra money for an unexpected expense you can fall back to your 30 year payment amount.

As stated above, definitely get the house inspected by an ASHI [American Society of Home Inspectors] Certified Home Inspector and be on-hand when the home inspector performs the inspection. And be certain to have the home inspector thoroughly go over the HVAC system.....this is usually the first major breakdown.

I highly, highly recommend thinking about resale. I worked in real estate for several years, and found this statistic to be very, very true/real [as written above]. The average family will buy and sell 2.4 homes [probably higher now] in their life.....the last thing you want to do is buy a house that depreciates in value.

A little more food for thought pertaining to lenders.....there are many lending institutions, but I saw several circumstances where it was much better to borrow from a lender, preferably a bank or credit union, that you have a history with and holds your money [checking, savings, CD, etc]. This lender will be more understanding or flexible [and not start foreclosure immediately] should a "lack of money" situation arise. A fraction of a percentage point is nothing compared to foreclosure.

Have the land/lot surveyed by a State Licensed Real Estate Surveyor. It is amazing how many home owners do not know where their true property lines are located. Most people simply mow where their neighbor quits and automatically thinks this is where the property line is but it very well may not. The survey is as important, maybe more, than the home inspection.

Also, I would recommend getting a Home Warranty.
When I was in the real estate business, American Home Shield was the best home warranty company. I am sure there are many other home warranty companies, so I recommend researching each.

I hope this is of help.
 
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#32
#32
If you have kids or want Kids anytime soon, buy in the best school district you can. We made that mistake when we bought a gorgeous home and then four years later had to move due to schools.

What you are approved for is not what you can afford. Not even close.
 
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#33
#33
With all due respect, putting 20% down on a 15 year loan is bad advice when considering today's interest rates, even when factoring in PMI. Do a 30 year amortization with no more than 10% down and invest the monthly payment difference of a 15 yr and 30 yr loan into low fee index mutual funds (vanguard) and don't touch it for at least 30 years (or until your balance reaches a multiple of 25 to 32 of your annual budgeted expenses). Do the same with the difference of the 20% down payment and a 5 or 10% down payment.

Also:
1) Continue to invest any raises/pay increases/ bonuses/ tax refunds that you receive into the same.

2) Don't go into debt for anything other than your home, even if that currently means that you'll be walking, riding a bike, taking a bus, or driving a $1000 car everywhere you go.

3) And google the terms "early retirement" and "FIRE".

I was given this same advice from an older gentlemen at my first job after I graduated from UT. Even with having degree's in accounting and finance, there was a lot about personal finance that I hadn't put together before I went down the FIRE wormhole.
 
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#34
#34
Grudenhaslanded said:
With all due respect, putting 20% down on a 15 year loan is bad advice when considering today's interest rates, even when factoring in PMI. Do a 30 year amortization with no more than 10% down and invest the monthly payment difference of a 15 yr and 30 yr loan into low fee index mutual funds (vanguard) and don't touch it for at least 30 years (or until your balance reaches a multiple of 25 to 32 of your annual budgeted expenses). Do the same with the difference of the 20% down payment and a 5 or 10% down payment.

Also:
1) Continue to invest any raises/pay increases/ bonuses/ tax refunds that you receive into the same.

2) Don't go into debt for anything other than your home, even if that currently means that you'll be walking, riding a bike, taking a bus, or driving a $1000 car everywhere you go.

3) And google the terms "early retirement" and "FIRE".

I was given this same advice from an older gentlemen at my first job after I graduated from UT. Even with having degree's in accounting and finance, there was a lot about personal finance that I hadn't put together before I went down the FIRE wormhole.
Click to expand...

My friend who is a fairly recent nursing grad was considering buying her first house for months now. She started having trouble with her old car and instead of just repairing/buying a new transmission she went and bought a new car. She still thinks she's going to be able to afford to buy a house in a few months, bless her heart.
 
#36
#36
Coug said:
My friend who is a fairly recent nursing grad was considering buying her first house for months now. She started having trouble with her old car and instead of just repairing/buying a new transmission she went and bought a new car. She still thinks she's going to be able to afford to buy a house in a few months, bless her heart.
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Obviously, the new car was more important.
 
#38
#38
VolLee said:
Currently in our second home. Started with a 30 yr, then after 7 yrs went to a 20, and then after 8 yrs went to a 15 yr at 2.8% fixed. Building equity so much more quickly now. If I had it to do over, I would have bought a home that cost less, but that I could afford a 15 yr payment on. Then equity would have built so much more quickly, and I could have sold about now, and use the equity to buy a much nicer home, and also have more equity.
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This x 1000
Really. If it's your first house buy with a plan to build equity you use to get a better house.
In 10 years you'll look back and either be glad you did, or feel stupid you got in a situation where most of your early payments go right out the window as interest on the principal. You live in the house, but it's like renting from a landlord, you own ...well, not much. Sell the house early and your miniscule "equity" may mostly go to getting it ready to sell.

Buy small. Low end in the subdivision. Over two years, only do renovations and modifications that actually increase the market value to just under upper end of what has recently sold in the subdivision. Sell for a profit, do it again. In 10 years you've improved and made a profit on 5 houses. You can get, and have significant equity in anything you want.
 
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#39
#39
Ain't no way I'm going through that 5 times in 10 years. Moving 3 times in 21 years has sucked enough.
 
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#40
#40
GAVol said:
Ain't no way I'm going through that 5 times in 10 years. Moving 3 times in 21 years has sucked enough.
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The truth right here. Moving SUCKS. I'm moving after being in spot for almost 10 years. The garbage people are gonna hate me these next few weeks.
 
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#46
#46
I would not use a buyer’s agent. They’re rarely helpful. You know better than anyone what you’re looking for in a home. If you pick out the homes you want to see by searching online and use the seller’s agent to see them, you can ultimately ask the seller’s agent to reduce their commission by an amount up to the amount they would’ve had to split with a buyer’s agent.

Find a thorough and reputable home inspector. A lot simply go through the motions. Always make your offer contingent on the results of the home inspection. If you have the patience to fight with the home warranty company, home warranties are worth every penny provided you realize it’s going to be a battle getting them to pay. I got a new dishwasher and two brand new HVAC systems by making claims on a home warranty. However, it did take writing a demand letter on law firm letterhead to get them to pay the claims However, the inconvenience likely saved us about $9k. Although beware, if your inspection cites deficiencies in any of the systems covered by the home warranty, the home warranty will often not cover those items which you were on notice needed repaired.
 
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#48
#48
Buy less house than you are being told you can afford (much less). Understand this is not your forever house and your needs/wants will absolutely change once you've owned a house of your own. It doesn't need to be perfect and every thing that needs to be fixed comes out of your pocket now

The difference in a 15 vs 30 really isn't that big of you stay within your real budget. Also think about where you'll be in 5yrs wrt equity when you're looking to upgrade.
 
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#49
#49
MR_VOL said:
I agree about financing at 30 years and over paying. At closing you can request a 15 year amortization schedule which will show how much more you will need to pay each month/year to pay off your mortgage in 15 years. Also, by financing for 30 years, should you, for whatever reason, need extra money for an unexpected expense you can fall back to your 30 year payment amount.

As stated above, definitely get the house inspected by an ASHI [American Society of Home Inspectors] Certified Home Inspector and be on-hand when the home inspector performs the inspection. And be certain to have the home inspector thoroughly go over the HVAC system.....this is usually the first major breakdown.

I highly, highly recommend thinking about resale. I worked in real estate for several years, and found this statistic to be very, very true/real [as written above]. The average family will buy and sell 2.4 homes [probably higher now] in their life.....the last thing you want to do is buy a house that depreciates in value.

A little more food for thought pertaining to lenders.....there are many lending institutions, but I saw several circumstances where it was much better to borrow from a lender, preferably a bank or credit union, that you have a history with and holds your money [checking, savings, CD, etc]. This lender will be more understanding or flexible [and not start foreclosure immediately] should a "lack of money" situation arise. A fraction of a percentage point is nothing compared to foreclosure.

Have the land/lot surveyed by a State Licensed Real Estate Surveyor. It is amazing how many home owners do not know where their true property lines are located. Most people simply mow where their neighbor quits and automatically thinks this is where the property line is but it very well may not. The survey is as important, maybe more, than the home inspection.

Also, I would recommend getting a Home Warranty.
When I was in the real estate business, American Home Shield was the best home warranty company. I am sure there are many other home warranty companies, so I recommend researching each.

I hope this is of help.
Click to expand...

This is really great advice. I would add to look at school districts if you have or plan to have kids AND you plan on living there a while.

Also, take lots of tours of the neighborhood at random days and times. Where our old house is, at rush hour it's nearly impossible to get out of the subdivision.

Talk to the potential neighbors of the house you like. Great source of info that NO realtor will tell you.

Don't be afraid to offer a price you don't think they will take. Unless the market is on fire in your area. We looked at one house that was priced about 40k more than our budget so we didn't even try. It sold a month later for the exact same price we paid for the one we bought and had nearly twice the square footage, better neighborhood, etc.


One other thing, if you are handy, look at foreclosed houses. The buying process takes a good bit longer sometimes, but you can usually get a lot more house for your money. But they do usually need some work.
 
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