Buying a house -- Advice needed for our budget

[disneysteve]

So you can put nothing down, pay nothing in closing costs and get a $7,500 tax credit. What a deal.

How much are you currently paying for housing?

You anticipate having $4,000 in savings before buying the house. That absolutely isn't enough. However, you will also get that $7,500 tax credit when you buy. Put all of that into savings and your EF is suddenly $11,500 which is a much more reasonable number.

I'm still opposed to 100% financing, but that wasn't your question. Can you afford this house? I think you probably can. You've got a fair amount of excess in your budget that you can easily cut, like $150/month for entertainment and dining out. Cut the budget down, throw extra money at the private student loan and get rid of that ASAP and you'll have a lot more breathing room.

[isiginamo]

I thank you all for your advise... and please bring more... here is a link to the USDA loan I was talking about... may make more sense to you.
www . rurdev . usda . gov /ia/rhsguar.html

[isiginamo]

disneysteve... just so you know the $7500 tax credit is pretty much a loan. We would have to start paying the IRS back $500 a year for the next 15 years starting 2 years after closing.

We are looking at a houses in the $130,000 range.... the $950 mortgage is just a guess with the rates that are out there. We are meeting with a lender tonight to discuss options and what rates we qualify for.

We have extras like cable we can cut, we will have extra money coming in most months... and all "extra money will be going to paying off student loans. That is why I didn't have my 410k tapped out... I wanted to pay down debt.

Right now our rent is 350! so we have paid off credit cards, and paid off a 10,000 car loan in a matter of less than a year. We have gazelle intensity... I just want to make sure we use everything we can now to purchase our first home, as in less then a couples years we will be past the threshhold and be making too much money for many of these programs. That is if they don't get cut with the new people coming into office.

[isiginamo]

I am almost 27, and my wife is 25

[tripods68]

I have to agree too. No 100% financing. Its best to rent for now until you can save 20% towards the down payment coupled that with EF.

[isiginamo]

I agree that would be best, but in my situation... if I did that it would take about a year to year and a half. by that time we will be making more money and won't be able to take advanatage of any grants to help pay closing costs, we wouldn't be able to get the USDA financing... which from what I understand is better rates then conventional and I wouldn't need the expensive PMI insurance... and we have to buy a house before June 30, 2009 to take advantage of the $7500 tax credit. I really do beleive with the idea that you should always have 20% down... but in my situation it seems more logical to take everything we can get and pay down the mortgage with the money we would have been saving... it would take longer...

But you have to also understand... I have house fever! haha. I do understand I may be seeing things "My way" and that is why I am asking advice.

[maat55]

Your plan is risky. I would not do it. You need a good down payment and a good EF. You will have neither. The tax credit as you said is not a credit but a debt. Your basically borrowing from the gov. for your closing.

From what I can see, this USDA financing is about as smart as any other subprime loan. I would concentrate on bettering your position as it is than jump into this house and make it worse.

[disneysteve]

Originally Posted by isiginamo

disneysteve... just so you know the $7500 tax credit is pretty much a loan. We would have to start paying the IRS back $500 a year for the next 15 years starting 2 years after closing.

That changes things. That is NOT a tax credit. That is a loan. So that money isn't yours to use as you please and can't really serve as your EF. It can in the short term since you only need to repay $500/year and you can use the time to build your own EF, but I don't like the whole idea of your EF being borrowed money.

I see your point about buying while you qualify for all this special stuff, but I'm not sure it is the best way to go. I think you need to get the details: cost of house, rate if you buy the conventional way with a downpayment and closing costs, rate if you go through the USDA program, etc., and compare it all side by side. With the USDA, you will have a larger balance (100% financing) but a lower rate. The conventional way, you will have a smaller balance (80% financing) but a higher rate and you'll pay closing costs. You need to figure out which will be cheaper overall in the long run.

[scfr]

For what it's worth, here's my advice:

- Be patient. Missing out on the $7,500 credit isn't the end of the world. Sure, an interest-free loan from Uncle Sam would be nice, but it's still a loan that has to be repaid. Besides, the government may end up extending that credit.

- Immediately start saving for a down payment. Sounds like putting away $1,000 a month should be relatively painless. How? The $455 that your budget shows as being "leftover" at the end of each month even with a house, plus the difference between what you are currently paying now vs. what you would be paying with a house for rent/mortgage, house insurance, and utilities (I would guess that adds up to around $500), plus the $42 per month that you will have to pay back to Uncle Sam (I know you don't have to start paying it back for 2 years, but pretend and budget like you have to start paying it back today. 2 years goes by faster than you think ... just ask the folks who's ARMs have re-adjusted.). If that doesn't add up to $1,000, then tweak your current spending (on the non-essentials such as eating out) a teeny bit until you get that $1,000 per month.

- If you find you are having trouble saving the $1,000 per month, seriously ask yourself how would you actually pay the bills once you do have a house?

- Once you have a MINIMUM of 10% saved for a down payment, then revisit the whole idea and see if it's really feasible. By then, you should have a better handle on how your life will change after the baby comes. 13 months x $1,000 per month (plus some interest) = $13,000-plus. That's 10% down on a $130,000 house, which means you possibly might be ready to start house-hunting at the end of '09. Some on the boards here may say that 10% is not enough for a down payment, but lots of folks buy their starter house with 10% down, and it can work ... but only if you are really sure you can afford the payments and can manage your other priorities at the same time. There's a really big difference between 10% down and 0-down.

Tomorrow is a brand new month (November 1st) ... The perfect time to start a new budget and savings plan! Good luck.

[jIM_Ohio]

Originally Posted by isiginamo

Does someone want to take the liberty to take my budget... show what should be saved... and show what kind of house payment we should go for.

I did this in my previous post- save 20% of gross.

Originally Posted by isiginamo

We don't have 20% down on a house. Right now we qualify for grants to cover closing costs, 100% financing, and we can get the $7500 tax credit for first time homebuyers.

We have $1000 EF set up and will have about $4000 in there by the time we have the baby.

I would slow down and not buy the house now. I would set aside 5% of gross for a house down payment.

What are the loan terms (fixed or variable rate, what is the rate, and for how long (30 or 15 year)?

[ScrimpAndSave]

If you need to do 100% financing...you are not ready for a house.

This is from someone that is making your salary, on my own, with no husband (yet) or kids...and is saving up 20% because I wouldn't have it any other way.

[jIM_Ohio]

scfr had good advice. I will also add that you are under some artificial self imposed deadline to close on the house, and you have not seen the loan terms yet.

If the loan 100% financed 30 year fixed is at 7% for USDA and if you save 10 or 20% and could get same 30 year fixed loan for 5.75%, what is the better deal? Is that worth 2-3 years?

[rizzmo]

Having no down payment is a bad idea. You have a very small EF, if you are out of work due to an illness, being laid off, etcetera. You will be looking at foreclosure or a short sale. Bottom line is you have not earned the right to own a house. These programs are meant for people who, aside from government assistance, would never have the means to own a home. 65k income hardly qualifies one as being economically impoverished, in fact 65k is higher than the median family income in many areas of the country. Let me be clear here, you have the means to save a 20% down payment, and you have the means to save an adequate emergency fund; you choose to tithe 10% of your net, whether you choose to see it as a matter of choice or obligation is semantics. I am not religious and as such do not tithe, however I do give in a variety of ways through out the year; volunteering time, donating money, or even working pro-bono. I understand that if I donate these resources, it will take me longer to reach my personal goals; I have none the less made peace with my decision to give and accept the consequences that comes with it. If you can not be convinced to save 20% down, at least save an adequate emergency fund (6 months) to protect yourself, your family, and to a lesser extent your fellow American tax payers.

[isiginamo]

Ok... so he house that we really liked for $130K just received an accepted offer. So I am back to my senses... and will make a final decision with a level head. I hope anyway! We talked to the lender and this is what it looks like right now,

USDA 100% Financing-
-We Qualify for a $2500 Grant to cover most closing costs
-Fixed interest rate of 6.625% for 30 years
-2% charge for using the USDA loan, and bank can't charge any additional origination fees
-100% Financing

Conventional-
-Still qualify for $2500 grant to cover most closing costs
-Fixed rate of 6.825% for 30 years
-We need to save for down payment of at least 5%


I am leaning more on waiting and taking the conventional route... but it is such a hard decision. What if the absolute PERFECT house comes available while we are saving?

I will pray about it and see what is best. I am convinced we need at least 3 months EF. I don't want to be like the rest of the American's losing their homes.

So I work 8-5 in a medical sales job.

What can I do in my spare time to make some extra cash to make this all go quicker? MY wife is still working some extra hours a week at a vision center that needed her help... so that in itself is about $400 extra a month.

Thanks again for all the advice!

[LivingAlmostLarge]

I really like the idea of setting aside $1000/extra a month. You are paying $350 rent, but I'd set aside the $950 mortgage, taxes, insurance. The $350 will be for maintenance, etc.

Then you can decide if you can hack the 100% financing. It could work if wanted it to. But it might not.

[maat55]

[quote]

Originally Posted by isiginamo

I am leaning more on waiting and taking the conventional route... but it is such a hard decision. What if the absolute PERFECT house comes available while we are saving?

I see two big mistakes in your thinking:

1) You think there is a perfect house and that you have to buy it before you are ready. Wrong, there is no perfect house. When you are ready to buy, you will find the house you want. Don't look until you are ready.

2) You need to finance it the right way. No less than 10% down, have closing costs in place(Beit you pay or the seller) and have at least 3 Months expenses in place. The payment should not be more than 30% of your take home pay. IMO.

You control your finances, not the housing market or mortgage company. It does not surprise me that there are still idiots out there selling 100% financing. Because they exist, does not make them good.

[disneysteve]

Originally Posted by maat55

I see two big mistakes in your thinking:

1) You think there is a perfect house and that you have to buy it before you are ready. Wrong, there is no perfect house.

It does not surprise me that there are still idiots out there selling 100% financing. Because they exist, does not make them good.

I totally agree. There is no such thing as the "perfect" house. There will be houses you really like and there may be that certain one that you totally fall in love with, but none will be perfect. They will each have their pros and cons, some of which you won't discover until you are actually living in it. Buy when you are ready and not a moment before.

I'm also not surprised that there are folks who have learned nothing from the whole housing debacle and are still offering 100% financing. It is overly risky for buyer and financer alike. Stay away.

[jIM_Ohio]

The 6.625% interest rates appear quite high. Have you gone online to shop the rate. Lowering the rate even to 6.25% will save you considerable amounts on mortgage payment.