First Time Home Buyer

parafly · #1 (**permalink**) 07-13-2006, 06:03 AM

I am a recent college graduate and have been renting an apartment since October 2005 with my girlfriend. We are both living comfortably and have paid off all of our credit card debt for the initial furnishing of our apartment. Our apartment is nice and we don't have any major problems with it, but I simply do not like the idea of renting. To me, it's just like leasing a car and throwing our money out the window.

I am confused as to what plan I should take in becoming a home owner. We would probably be looking for homes in the 300K - 350K range. I have read that in order to get the best interest rates and a conventional loan, you need to put down 20%, which would be about 65K in my case. That seems like a huge amount of money to save up and would take a few years.

I have also read about FHA loans, which only require a down payment of 3%. However, this route leads to extra fees such as PMI and higher interest rates. I have excellent credit, so it wouldn't be a problem obtaining an FHA loan, but I am not sure whether I am digging myself into a hole with all those extra fees. I want to be a home owner, but I want to make sure I go about it in the most reasonable and advantageous way possible.

Help?

PrincessPerky · #2 (**permalink**) 07-13-2006, 06:51 AM

Do you really need a house in the 300 range? or is that what you can 'afford'?

if you want to look at a huge amount of money..look at paying back a loan on 300k..ouch. I have enough trouble looking at my loan...

I am of the camp of getting a house and living in it sooner rather than later, but many feel you should rent till you have that 20% (or more) It hink both have their advantages and disadvantages financially, but for me it boils down to the word 'home'

This is my home and I will do all I can to make it a real home, with all the paint, furnishings and ginishing touches I can that are individual and semi perminant..an apartment to me is a place you deal with in the interum..not someplace you customize closets in and paint, and measure for curtains...but that is just me.

sakigt · #3 (**permalink**) 07-13-2006, 06:58 AM

Setting your sights too high can not only discourage you from purchasing in the first place, but push you out of the range limit of a lot of government programs.

What state do you live in?

parafly · #4 (**permalink**) 07-13-2006, 07:03 AM

I live in northern NJ, but I am looking to purchase a home in upstate NY. Prices around here are ridiculous, and 300K in Bergen County could buy you little more than a shack. Also, I feel as though if I purchase a home, it will be for the long term. Anything less than 300K in this area would not be something I want to live in for many years.

slimcustomer · #5 (**permalink**) 07-13-2006, 07:07 AM

Here's a resource I started for those looking for information on below market First Time Buyer Loans. Please feel free to add to it if you find new information from the state you live in - link .

34saving · #6 (**permalink**) 07-13-2006, 08:33 AM

Around here lots of people use piggy back loans to avoid PMI. IE you take out one loan for 80% and another for 10% (and then have a 10% down.) I'd talk to a few different mortgage brokers and compare rates and fees on their "best" programs.

Also check the overall market in your area. Many places are adjusting downward, so you might actually be better off renting for while longer.

Oh, if your area has a boatload of houses on the market (many do), you may want to research creative financing options like an owner carryback. (We recently sold a house on a Contract for Deed and our buyers were able to avoid PMI and closing costs. We also gave them a lower interest rate than the bank. In the meantime, we were able to sell quickly and for top dollar.)

Ima saver · #7 (**permalink**) 07-13-2006, 10:10 AM

I have to agree with trying out a smaller home first in a low price range. House prices here are rediculous too, but you can still get something small for about $200,000.

jodi · #8 (**permalink**) 07-13-2006, 07:29 PM

I live and sell real estate in upstate NY - and $300k will get you a very big, new house around me. $150-200k will be more than enough to get a great house around here (Syracuse area). Not sure where you are looking though - it you are looking within a closer range to NJ/NYC, then I am sure houses will be selling for much higher.
When my brother bought his house, he was able to put 10% down and get a piggyback loan for 10% and his mortgage was for 80%, as a previous poster suggested. This saved him from having to pay PMI, although the piggyback loan was at a higher interest rate. There are a lot of creative options, but I always advise the people I work with not to get the absolute most expensive house they can afford or else they may find themselves "house poor" - in other words, have a gorgeous house without the money to keep it up. Just my two cents...good luck!

parafly · #9 (**permalink**) 07-14-2006, 05:59 AM

Quote:

Originally Posted by jodi_m

I live and sell real estate in upstate NY - and $300k will get you a very big, new house around me. $150-200k will be more than enough to get a great house around here (Syracuse area). Not sure where you are looking though - it you are looking within a closer range to NJ/NYC, then I am sure houses will be selling for much higher.
When my brother bought his house, he was able to put 10% down and get a piggyback loan for 10% and his mortgage was for 80%, as a previous poster suggested. This saved him from having to pay PMI, although the piggyback loan was at a higher interest rate. There are a lot of creative options, but I always advise the people I work with not to get the absolute most expensive house they can afford or else they may find themselves "house poor" - in other words, have a gorgeous house without the money to keep it up. Just my two cents...good luck!

Thanks for the advice. The Syracuse area is too far north and west for us because we need to be closer to the NJ border for our commutes to work. We are looking in the Middletown/Wallkill/Monroe area. The piggy bank loans seem like a good idea, but wouldn't the higher interest rate on the piggy bank loan negate the effect of not having to pay PMI?

I don't think that a 300K home is out of our range or the "most expensive" house we can afford. Our combined salaries are presently 110K and should steadily go up in the future. Also, we already have a decent base of furniture and household applicances.

34saving · #10 (**permalink**) 07-14-2006, 06:59 AM

The higher interest piggyback might negate the PMI price, but lots of times it doesn't. That's why the moral of the story is talk to at least of couple of different mortgage brokers and compare

Also, since you guys probably have a fair chuck of disposable income you might be able to pay off a piggy back very quickly. (Often getting rid of PMI requires at least two years or refinancing and either of those options gets expensive.)

parafly · #11 (**permalink**) 07-14-2006, 07:06 AM

Quote:

Originally Posted by 34saving

The higher interest piggyback might negate the PMI price, but lots of times it doesn't. That's why the moral of the story is talk to at least of couple of different mortgage brokers and compare

Also, since you guys probably have a fair chuck of disposable income you might be able to pay off a piggy back very quickly. (Often getting rid of PMI requires at least two years or refinancing and either of those options gets expensive.)

That's great advice. So the general consensus is to avoid PMI by taking a piggy back loan? How much of a higher interest rate should I expect from the piggy bank loan? We should be able to get the best rates out there because both my girlfriend and I have excellent credit scores, no CC debt, and relatively high incomes.

slimcustomer · #12 (**permalink**) 07-14-2006, 07:18 AM

Will buying a cheaper house across the border in NY really be worth it. Northern Bergen county has some of the best schools in the country. Much the same thing can be said about Morris, Somerset, Hunterdon, and parts of Passaic counties. Even if you don't have kids now and aren't planning on having any, living in a town with good schools has a beneficial effect on real estate values.

sweeps · #13 (**permalink**) 07-14-2006, 07:27 AM

Quote:

Originally Posted by parafly

That's great advice. So the general consensus is to avoid PMI by taking a piggy back loan? How much of a higher interest rate should I expect from the piggy bank loan? We should be able to get the best rates out there because both my girlfriend and I have excellent credit scores, no CC debt, and relatively high incomes.

In my experience the secondary loan runs about 2 percentage points higher. I'm sure this is obvious but put any extra principal payments towards the secondary loan before the primary loan.

parafly · #14 (**permalink**) 07-14-2006, 07:30 AM

Quote:

Originally Posted by slimcustomer

Will buying a cheaper house across the border in NY really be worth it. Northern Bergen county has some of the best schools in the country. Much the same thing can be said about Morris, Somerset, Hunterdon, and parts of Passaic counties. Even if you don't have kids now and aren't planning on having any, living in a town with good schools has a beneficial effect on real estate values.

You bring up a great point, but at the same time we feel like we need to "get away" from it all. We are tired of all the traffic and congestion that goes along with living in an area with the highest population density in the country. The level of education may be slightly lower across the border in NY, but much of the overall factor comes down to the actual intelligence of the child. It's not like we're moving to a rural area in the middle of Arkansas or something like that.

slimcustomer · #15 (**permalink**) 07-14-2006, 07:54 AM

I can sympathize about traffic and congestion. Are you commuting into the city? Much of Western Somerset County, Morris, and Hunterdon County still have a semi rural feel and NJ Transit runs into the city from all three counties. I would compare that to your commute from across the border in NY. With the price of gas today, I'm glad we strectched to buy a more expensive home very close to where work is.

parafly · #16 (**permalink**) 07-14-2006, 08:03 AM

No, we are commuting into the Mahwah, NJ area. I've lived in this area for my entire life, so I fully understand what Somerset, Morris, and Hunterdon Counties have to offer. All options are still on the table for us, so staying in NJ could very well happen. Gas prices are most likely going to continue growing, but a commute from the middle of Morris county for example would be about equal to the commute from Middletown, NY.

flash · #17 (**permalink**) 07-18-2006, 03:39 PM

I spent quite a few years feeling like we were throwing away money by renting. In the end, it depends on the rent, the market, other expenses...

We rented 15 years, then bought a high end place, and made out ahead. We were in a rent-to-own (you rent off the down payment) in S. California, then DH was relocated. When we moved, after only three years, the house value had fallen from $500K to $250K. We would have lost quite a bit if we were locked in. Rent was also half of what we would have paid on mortgage and upkeep.

After you buy, there are start up costs, not just PMI, but turning on utilities, new contracts, home improvements, basic things like...do you have a ladder, or tools, or a lawn mower, or...it can take a huge whack out of your savings.

vsjhoc · #18 (**permalink**) 07-18-2006, 03:52 PM

Quote:

Originally Posted by flash

After you buy, there are start up costs, not just PMI, but turning on utilities, new contracts, home improvements, basic things like...do you have a ladder, or tools, or a lawn mower, or...it can take a huge whack out of your savings.

... not to mention regular expenses like property taxes, home insurance, alarm system, pest control, chimney cleaning ...

Amorphous02 · #19 (**permalink**) 07-19-2006, 05:54 PM

Why does no one consider a small house first: It might be small but its yours. there are so many advantages to being a home owner. But what surprises me is that no one has talked to the banks about REOs and "repos".. that is time well spent. Banks love to get rid of REOs (real estate owned properties, as I hear often. Am I missing something? Right now, given my unemployment (part time WAHM) I can only hope to buy a mobile home! :-(.

neatdesign · #20 (**permalink**) 07-19-2006, 06:56 PM

Quote:

Originally Posted by Amorphous02

Why does no one consider a small house first: It might be small but its yours. there are so many advantages to being a home owner. But what surprises me is that no one has talked to the banks about REOs and "repos".. that is time well spent. Banks love to get rid of REOs (real estate owned properties, as I hear often. Am I missing something? Right now, given my unemployment (part time WAHM) I can only hope to buy a mobile home! :-(.

I agree. I have never owned a home and honestly, even though I'd love to have my own little spot on this planet, I am quite overwhelmed at the thought of it. Renting is just so EASY. So it makes sense to me that, when we can finally afford to buy our own place, we will start out with something somewhat on the small side: A couple of bedrooms, maybe a small office, 1.5 baths, etc. We'll make it our own and use it to learn HOW to be homeowners. How to maintain the property, the lawn, the plumbing, taxes, etc. That will all be new to us, and I'd rather start out with a small, manageable size than move into some monstrosity that we can't keep up with.

Of course, after living in a one-bedroom apartment for five years (two adults and one 100lb dog), anything with more than one bathroom and one bedroom will seem like a luxury suite!

~ Jenney