Mortgage Question for Young Buyer

**sweeps** · 01-04-2008, 01:38 PM

A year ago it would've been very easy to be approved, but admittedly it will be tougher now with stricter lending rules. However, there are probably still mortgage companies that will take you on given an acceptance letter AND a down payment. Do you have at least 10% (20% would be better) to put down?

Something to consider... perhaps you should rent for a year first. This way you could start saving up some money, you will get a better feeling for the city you are moving to, and you will establish some work history at your new employer. I think it is unlikely that the housing market will turn around dramatically in a year's time -- the deals should still be out there.

**autoxer** · 01-04-2008, 01:46 PM

You may be able to get a no-doc mortgage (one where you don't have declare your income), but that type of mortgage will carry a higher rate than a conventional mortgage. Talk to a mortgage broker & see if they will give you a pre-approval.

Whether buying instead of renting is pushing the envelope depends on many other things, like the size of the downpayment and how much you have saved as an emergency fund. Did you factor in the other costs of owning, like utilities, property taxes and repairs?

**MonkeyMama** · 01-04-2008, 02:32 PM

We were in a similar situation and bought our first home in December 1999 (we graduated May 99).

The rules were much stricter back then.

I will say if anything like us, you will get stuck with a higher interest rate and also, they will want you to have a wad of cash (emergency fund).

Our parents "gifted" us $10k that we promptly paid back because they wanted us to have a chunk in the bank for furniture and the like. It was a little weird. We had a decent amount in the bank and weren't going to go out and buy all new furniture. We had rented before. But we were lucky our parents had cash and we appeased them.

But anyway, I have no idea what our FICO was back then. But our rate was over 8% which was not that great in 99. We had credit cards for about 7 years prior which maybe helped a bit. IT seems like our FICO has been upper 700s ever since we have been homeowners though. I wouldn't be surprised if it was lower beforehand. Just don't know. So it is good if you have some kind of credit.

They looked at our pay stubs and verified our salaries with our employers verbally.

Our tax returns showed no more than $20k income combined the year prior but our current income and college degrees seemed to matter much more. It was a fully documented loan.

I am not sure I would rush into anything. But we were in a situation where it was far cheaper to buy than to rent (all costs considered). I Was wondering if you had considered repairs and property taxes as well. Just make sure you know what you are getting into. IT seems in this market it doesn't hurt to wait a bit.

Oh yes, we also put 20% down. I am not sure if they would have talked to us with less than 10% down, back then. Who knows though. They wouldn't approve us for a loan more than 3 times our income. I look at some of the loans made the last few years and it amazes me compared to our first experience.

I think most of all moving into a new city? You would probably want to rent a while and make sure you like it. & you like the job. etc.

But overall it shouldn't be that hard to get a mortgage. I just wouldn't rush into anything.

**MonkeyMama** · 01-04-2008, 02:34 PM

P.S. the initial interest rates didn't matter. We quickly refied out. Which I meant to say, and how our FICO was way up when we refied very quickly after the initial purchase. It is much easier to qualify for a refi. Or maybe it helped having tax returns to back up our income by then. But it is a risk as interest rates fluctuate. We have refied about 3 times since (lower lower lower).

**disneysteve** · 01-04-2008, 05:05 PM

Originally posted by am_vanquish View Post

comparable apartments rent for $1100/mth

while a 30-yr fixed at 6.25% on this property plus HOA fees will be $1300

You need to look beyond those numbers. If you buy a condo, YOU are responsible for utilties, maintenance and repairs. You are responsible for taxes. You are responsible for insurance as an owner, not just as a renter. You will need to insure the structure, not just the contents. HOA fees can and do go up regularly. If any significant repairs or upgrades are needed to the complex, owners get a special assessment that can be hundreds or even thousands of dollars. For example, if they decide to repave the parking lot or put a new roof on the building, everyone has to pay their share. So it isn't as simple as just looking at the fixed monthly payment. You need to be sure you have enough room in your budget to cover the many added expenses that come with ownership.

I would also ask how much you have saved toward a downpayment. I'm old school and believe one should put down 20%.

I would also not recommend buying right away no matter what. Work at the job for 6-12 months. Be sure you like the job and like the area before you commit to buying a home. I started my first job in July 1993 and didn't buy a home until April 1994 when I felt the job was a good fit and somewhere I'd be staying for a while.

**scfr** · 01-04-2008, 09:30 PM

If it's not an area you're familiar with, I agree with the suggestion to rent for a bit while you get to know the area and make sure you want to stay with the job.

Are you sure you want to rent a place that is just as nice as a place you would buy? Why not scale down your rental place to something cheaper so you can sock away money more quickly for a down payment?

Just FYI, a condo conversion may not be the same quality as a from the ground up condo project, so think seriously before buying a conversion.

**project15** · 01-05-2008, 07:20 AM

I say rent for a year before buying in this town. Renting gives you the opportunity to see what areas you'd really like to live in. Don't think of it as throwing your money away...think of it as research.

We've been renting for a year and a half since college and are going to buy this spring. We know which suburbs are ideal for us.

Also, that $1100 comparable rental is probably unnecessary. If it's just you, you can get a studio or 1 bedroom for probably $900 or less and have all utilities except electricity paid for. On that $1300 figure for buying a place of your own, you forgot the taxes you will pay if you buy (add at least $200 in cash per month which you'll only get some of that back in your refund).

**b4freedom** · 01-06-2008, 08:09 PM

Do Nothing! Rent Now and Save more.

Do nothing! Rent now and save more money for a larger deposit. Market is bad and declining. Wait until the end of 2008 or early 2009 and see if it's any better. If you buy a house for 100k and it declines 5% in 2008, you're down $5k. If you save more now, you can afford more later and will be able to pay less for more.

**Tree0164** · 01-07-2008, 01:59 AM

I would rent for a year, live frugally and decide if you like this new area.

Also consider getting a roommate as well.

**snafu** · 01-07-2008, 05:50 AM

While I understand the draw of a $1K - $1.5K rental apt. 1st job, new city etc....it would be in your interest to start out in a home-share or bsmt. room rental until you obtain 'permanent' status at your new job. As a newbie, employers can let you go without notice or explanation. Alternately, you might discover that workplace environment is toxic.

Why not see a mortgage specialist at your current bank to determine whether you would be approved and the highest sum they would give.
BTW, add the expense of mortgage insurance to others already listed.

Given the current economy and 08 outlook, no one is paying 'asking price'...these are negotiable... low ball your offer and increase incrementally as they decrease incrementally.

**InDebtInDC** · 01-07-2008, 09:00 AM

See if you could rent a room for a short period of time and do more research before you buy. That way, you don't get locked into a long term lease and you won't be buying blind.

**jIM_Ohio** · 01-07-2008, 09:33 AM

I say go for the condo. The tax deduction will be larger than you think... based on what I learned when I rented and then got with my condo, the first tax refund for half the year was quite high.

As far as mortgage, my suggestion is this:

1) go adjustable with a 3-1 ARM or 5-1 ARM. The starter rate might be higher, but lower than you would otherwise get 30 year fixed.
2) work on paying down the principal so you own 20%
3) refinance within 12-24 months to a 30 year fixed. By this time you will have
a) 2 large tax refunds
b) income documentation
c) more equity than you do now

avoid PMI if you can.

**disneysteve** · 01-07-2008, 09:41 AM

Originally posted by jIM_Ohio View Post

I say go for the condo.

Jim, I agree with the condo from a financial standpoint. It is the non-financial issues that bother me. OP is taking a new job in a new town. I don't think that's the time to buy a property, regardless of the financials.

Make sure you like the job. Make sure you like the area. Spend time getting to know the town and what areas you would most like to live. I don't think renting in that setting is a bad idea. Rent for a year. If everything is working out well, partway through the year, start shopping for a place to buy. That process takes several months anyway and you need somewhere to live in the meantime.

**jIM_Ohio** · 01-07-2008, 10:00 AM

Originally posted by disneysteve View Post

Jim, I agree with the condo from a financial standpoint. It is the non-financial issues that bother me. OP is taking a new job in a new town. I don't think that's the time to buy a property, regardless of the financials.

Make sure you like the job. Make sure you like the area. Spend time getting to know the town and what areas you would most like to live. I don't think renting in that setting is a bad idea. Rent for a year. If everything is working out well, partway through the year, start shopping for a place to buy. That process takes several months anyway and you need somewhere to live in the meantime.

Steve- good points, but I would still say OP is young, it's OK to be aggressive and take a risk. If OP did a good job evaluating employer and knows the job, then this is a no brainer.

OP might make a mistake here or there, but I would caution of paralysis by analysis. I would not "not" do something because of a question. If the job and condo pan out, financial independance will be close behind.

Mortgage Question for Young Buyer