Mortgage Down Payments

[amastewa93]

I don't see the harm in buying a "starter home".

(FYI, I'm 30, married w/ out kids, you situation may be much different. I'm sure my strategy for wants/needs will shift after I become a dad).

Many people consider my idea of the perfect home to be a starter. My idea of the "perfect" home wouldn't need more than three bedrooms/two bath (or two bedrooms and a den) and a detached garage. I'd enjoy a large kitchen but am willing to buy a cheaper home and renovate the kitchen to my liking (and would actually prefer that in most cases).

I'm 24, engaged but don't plan on having children, so this home will really just be for me, my future husband and pets. I'll likely be looking to buy a home within the next two years or so.

[TexasHusker]

You've used the term "investment" a couple of times. I would encourage you to not view your primary home as an investment. An investment is something you put money into for the intended purpose of making money. You might make money on your home. You might not. You are most likely not going to sell it if the value rises (or falls) because it's your home.

Buy a home because you like it, you can afford it, and it fits your needs. Don't buy a home as an investment.

Steve you and I actually agree on something

A primary residence is a cost center. If you by chance "make money" on your house, you are extremely lucky.

As I mentioned earlier, the best I ever did was buy a home for $78K in 2001 and sell it for $111K in 2005. But I still didn't "make money" per se - I merely got paid back for most of my mortgage payments, taxes, and insurance.

The constant upkeep, repairs, and maintenance, as well as zero income, prevent a primary residence from being anything but an expense.

At best, it's a forced savings account, since you have to continue paying down your loan (thus building equity) or they will come and take away your house!

[disneysteve]

Steve you and I actually agree on something

LOL. I think we agree on a lot of stuff. We may take a different approach to things but that doesn't mean I think you're way is wrong.

[snafu]

I'm really impressed that you already know your home buyer requirements. I wouldn't get hung up on descriptives like 'starter' home or specifically 'detached' garage. I presume you know it is imperative to have an accredited house inspector recommended by someone you trust [not realtor] check items not readily visible [google the checklist list]

You can put yourself in a good bargaining position if you're willing house hunt off season and ignore decor issues like paint colors, flooring, condition of appliances, curb appeal and landscaping. Painting gives the biggest bang for the buck and the new type of vinyl/laminate flooring is definitely a DIY project although hard on the knees. Work out the cost of improvements to be reflected in your offer to buy, based on square footage.

2nd price reduction negotiating factors are for age of roof, furnace, hot water heater, AC and insulation to current code. Finally, commodes, sinks, faucets, major appliances and kitchen remodel you've mentioned.

I suggest adding to your list ...do not buy the most expensive house on the block/cul de sac, or give value of sf to a finished basement. 2nd are location details. Avoid major roadways with significant, noisy traffic but a well rated school, reasonable access to practical facilities like grocery chain, pharmacy, service station, convenience store, bank/ATM machine and gym adds value. I've always called the local police branch to get details of crime statistics [B&E, car prowling] in the specific radius as it affects homeowner insurance costs.

They seem to constantly threaten to increase interest rates and that is the highest cost of home ownership. I'd be tempted to make initial inquiries or at the least regularly check rates online for the lowest rates and fees if you can tolerate being a MM super saver to knock off PMI in a year.

[disneysteve]

ignore decor issues like paint colors, flooring, condition of appliances, curb appeal and landscaping.

Just to be clear, it isn't that you should ignore those issues but rather that you shouldn't eliminate a house from consideration based on those factors. In fact, you can often use them as negotiating points.

When we bought our house, we knew the furnace and AC were at the end of their life and the house needed windows and a roof. Because of that, and a motivated seller, we probably paid 20K less for the house than comparables. The benefit of that is that we got to do those things mostly on our schedule and budget and those costs weren't part of the mortgage.

[amastewa93]

You can put yourself in a good bargaining position if you're willing house hunt off season and ignore decor issues like paint colors, flooring, condition of appliances, curb appeal and landscaping.

I suggest adding to your list ...do not buy the most expensive house on the block/cul de sac, or give value of sf to a finished basement. 2nd are location details. Avoid major roadways with significant, noisy traffic but a well rated school, reasonable access to practical facilities like grocery chain, pharmacy, service station, convenience store, bank/ATM machine and gym adds value. I've always called the local police branch to get details of crime statistics [B&E, car prowling] in the specific radius as it affects homeowner insurance costs.

I'd be tempted to make initial inquiries or at the least regularly check rates online for the lowest rates and fees if you can tolerate being a MM super saver to knock off PMI in a year.

My fiance and I are both totally okay with having to make some renovations (and even doing them over time). We were homeless and lived in a motel room together and have obviously come a long way since then. Even when we moved into our apartment - we bought one pan at a time, the mattress, etc. We're both about doing what we can afford and nothing more.

I'd not thought of location in all of those senses yet. I've lived in the area my entire life so I have a fairly good idea of the areas that sell well but will definitely keep those in mind as well.

I'm hoping to get the mortgage loan through my credit union. They've got a pretty great interest rate and a good program for first-time home buyers as well. However, I'll definitely be checking all of my options before signing anything.

[disneysteve]

I'd not thought of location in all of those senses yet.

Our requirements for location included not being on a busy street, having sidewalks, having a traffic light to get in and out of the development, and having more than one entrance/exit from the development.

[amastewa93]

Our requirements for location included not being on a busy street, having sidewalks

These two are musts for us too. I run A LOT and want to be sure I feel safe doing so in the area.

[disneysteve]

These two are musts for us too. I run A LOT and want to be sure I feel safe doing so in the area.

I run also but never on the sidewalk. Way too many bumps and irregularities there. I'd get hurt for sure.

[amastewa93]

Way too many bumps and irregularities there. I'd get hurt for sure.

Luckily, the sidewalks around here are pretty new and well-paved. I'm more likely to get hurt by the puppy wrapping around my ankles that I'm trying to train to run with me haha.

[disneysteve]

Luckily, the sidewalks around here are pretty new and well-paved.

I'm in an old area so lots of sidewalk that is pushed up due to tree roots. I don't know what the heck they were thinking when they planted all of those big trees a foot away from the sidewalk. What exactly did they think would happen down the line?

[LivingAlmostLarge]

condo 10% dp
townhouse 20% dp
home 20% dp

We barely scraped together 10% DP on condo. We have 25-30% townhouse, and home we had 30-40% dp. but we just stuck to 20% both times because we could afford it comfortably. Actually the townhouse was a little tight in the first few years but worth the stretch.

Now as we get older we have a lot of things we won't give up so even though we had more to put down we just bought less house. A LOT less house than we thought. I'd love a 4th bedroom and/or office. Got neither but I finally got a garage and a yard.

For us when we bought our homes we always bought in the best location we could possibly afford and tolerate the home. Turns out we've made our money back in spades. Unlike TH our homes have been investments. I don't think that's the case now nor in most cases.

But location has preserved us when we bought at the peak in 2005. So we just trust we did it right again.

People get hung up on size, condition, layout. Lots can be fixed. Location can never be fixed. Traffic never improves. Schools can change but in general higher income = better schools (generalizing). So buying in a "Good/desirable" school district with excellent commuting location usually turns out well.

[scfr]

Unlike TH our homes have been investments.

We're the same. We've never purchased our primary residence solely as an investment. But we do consider the investment aspect (eventual resale) of a home when making a purchasing decision. And we're not been afraid to "buy low, sell high" when it comes to our primary residence.

One piece of advice that I will give you, amastewa93, is to remember that you are entering in to a business transaction when you buy a home. As much as possible, keep emotion out of it. Know the market, decide what you are willing and able to pay, and then be ready to walk away from any home you like if the seller won't meet your price. Wait until after you have a signed contract to start telling people or making concrete plans for the house.

[Caligirl8]

I think if you live in an area where 20% makes sense then it is probably better to do that. We live in California and unfortunately condo and home prices are so expensive you will never be able to have 20% down unless you buy a small condo and make money off of it a few year after you sell.

[TexasHusker]

Down payment should be 20%. Just because lenders allow a 3% or 5% down payment doesn't make it a good idea. Lots and lots of people got destroyed in the housing crash because of that.

On the other hand, getting in at 3% can be a financial windfall:

In 1991, we put down $2700 to get into a brand new home of $80,000. Four years later we sold that house for $110,000, for a tidy profit of $30,000.

Had we waited until we had 20%, we would have purchased it 2-3 years later at a much higher price.

Pick your poison. You are taking a risk either way. I'd buy the house now and go on down the road.