Things to consider when buying a home

[musicrocks0304]

Hello all,

I am the constant planner/overthinker- sometimes to my detriment, but I like all cards to be on the table before I can make a move. Therefore, I would like to collect the advise of anyone who will help of things to consider when buying a home. I'm looking for things like "how much of me and my wife's joint income should be spent toward mortgage" or "What are other expenses we should expect to incur when buying the house and then month to month (mortgage insurance, home insurance, property taxes etc)

Any help would be appreciated!

[bjl584]

Put 20% down.
The house shouldn't cost more than 2.5 to 3X annual income.
Have a 6 month emergency fund in place before you buy.
Clear up any consumer debt as much as possible before buying.

Stick to those rules of thumb and you won't have any trouble.

[JoeP]

You'll want to get details on how your taxes and insurance are paid. Sometimes this is through escrow, and other times it is not.

Be sure to pace yourself when considering modifications inside and out. It is pretty easy to have some grand scheme in place, and then rush to get it done, leaving you exposed to risk or credit card debt. For example, new carpet, new furniture, wall paint color, replacement windows, bathroom fixtures...you might be halfway into these improvements when the roof suddenly leaks or you discover a major drainage issue.

Somewhat related, learn to do some home improvement yourself. Not only will you save a lot of money, but you can also take pride in your work.

[97guns]

avoid FHA loans

This is from another forum...a mortgage insider:

Recently the US Dept Housing & Urban Development which oversees the FHA loan program, issued guidance requiring lenders to collect Mortgage Insurance Premiums due on FHA loans that are originated on or after June 3, 2013, for the LIFE OF THE LOAN rather than the previous policy of cancelling when your loan balance reached 78% of your home's original value.

Congress passed the Homeowners Protection Act in 1998 which required that private mortgage insurers cancel MI premiums on privately insured Conventional loans when the loan balance is paid down to 78% LTV. Under the previous administration, the FHA voluntarily followed this same policy. However, written into the 1998 law is a provision which excludes any government mortgage insurance program from this requirement. Using the excuse of rising defaults and low reserves, under the current Administration, FHA has not only increased the MI rate to an astounding 1.35% per year of the loan balance but is now also charging this premium for the entire life of the loan.

Similarly, the USDA, which oversees the Rural Development mortgage loan program, also recently began charging monthly MI premiums for the life of loan beginning with mortgages made on or after October of 2012 (although those premiums are a "meager" 0.40% per year).

What does this mean? Well boys and girls it means that .gov is once again not following its own rules. Private Mortgage Insurers were prevented from charging higher premiums for longer periods of time under the guise of "consumer protection" from the "greedy" insurers, which resulted in insufficient reserves in the coffers of the private mortgage insurers. The result? At least 2 of the 5 private mortgage insurers have gone under during the housing crisis these past 5 years, while .gov is left to fill the void and like a vulture is now legally charging egregious premiums for this coverage since they exempted themselves from the laws.

Another interesting side-effect from the FHA change is that the APR calculation (which is the cost of credit including not only the interest rate, but also fees and MI paid during the loan term) is now significantly higher on FHA loans. So much so that even if the lender does not charge any other fees other than the market interest rate and the FHA MI premiums, the loans are considered Higher Priced Mortgages under federal Truth In Lending Guidelines as published by the Federal Reserve Bank. Gotta love that.... .gov is in the business of high cost loans now. So who is discriminating?

BOTTOM LINE?

* If you have an existing FHA loan, DO NOT REFINANCE INTO A NEW FHA LOAN!!! Even if the rate is significantly lower, the MI premiums being charged for the life of the loan will more than offset these savings in most cases--especially considering the tax consequences of deductibility of MI premiums for some folks. I cannot stress this enough...don't fall prey to saving $50/mo now when the savings will only last a few years and will then begin costing you potentially hundreds of dollars per month when your MI would have fallen off your old loan.
* If you are considering purchasing, my advice is to wait until you have strong enough credit and a down payment saved up to buy a home using Conventional financing. However, if you feel you must use an FHA loan to buy a house, I'd work hard to pay the balance down and refinance into a Conventional loans as quickly as possible.

[Jerry91]

Your income will depend upon the mortgage amount that you want to take out. You should check out the online calculators which will help you know how much mortgage you will be able to afford with your present income. Make sure that you have enough savings which will assist you in paying 6-7 months of mortgage payments and also help you manage your other debts. Also, make sure that you have excellent credit scores and less negative items mentioned in your credit report.

[ua_guy]

Put 20% down.
The house shouldn't cost more than 2.5 to 3X annual income.
Have a 6 month emergency fund in place before you buy.
Clear up any consumer debt as much as possible before buying.

Stick to those rules of thumb and you won't have any trouble.

Golden advice, right there.

Also...

Property taxes will vary by state, and property. Any property you are buying should list the annual applicable taxes. Use a mortgage calculator to calculate your total monthly spend (principal, interest, taxes, insurance). Insurance, you can get a rough quote. I think our homeowner's policy is right around 650/year.

Maintenance spend is anybody's guess. Really depends on the condition of the home you are buying. The general rule of thumb is to estimate saving about 1% annually of the home's value for regular maintenance and eventual replacement of items (roof, water heater, furnace, plumbing, general structural upkeep, etc).

Homeowner's dues need to be factored in. If there is a homeowner's association, the annual dues should be listed in the listing for the home. These range wildly.

[Jluke]

Hello all,

I am the constant planner/overthinker- sometimes to my detriment, but I like all cards to be on the table before I can make a move. (mortgage insurance, home insurance, property taxes etc)

Any help would be appreciated!

You have received excellent advice so far.

I would add, if you are planning to pay mortgage insurance, maybe you're not ready to buy a home.

I always suggest downloading an amortization schedule (I use excel) and play around with the mortgage terms (loan term, rate, regular payment, accelerated payments) to see what impact different factors have. Compare the interest paid on a 30-year loan vs a 20-year or a 15-year.

Are you comfortable paying that much in interest?
Do you see how about 90% of your payment is going to interest early in the loan term? it's a financial killer.


If you are in a high cost of living area, then the above probably doesn't apply as it might be impossible to achieve 20% down and a shorter mortgage term.

Good luck!