Mortgages and Home/Condo Buying (1 Viewer)

[Todd K]

OK, I have been thinking about this a lot lately, and I'm sure there are a lot of people on the HTF who know about this sort of thing.

At some point I'm going to have to stop throwing money into the rent hole and buy somewhere to live.

What I'm wondering is, can I afford to do so?

There have been threads here before on the topic, but none that really address my financial situation (see below).

I live in the city so I'm more likely to buy a one bedroom apartment in a condominium building than anything.

I know nothing about this process so I'm just looking for preliminary input.

First of all, the bad news is that I have virtually no savings. However, I have absolutely no debt whatsoever. No student loans, and the balance on all of my credit cards is zero dollars. I make roughly $42K per year.

What things do they take into account when applying for a mortgage? Are there options available to me to get a loan for a downpayment? I have been paying rent all my adult life, so I know about home ownership as much as a five year old.

Thanks for any input.

 

[Jim Sentry]

There are many programs that will allow you to put zero down.

First step contact a Mortgage Broker and get a copy of your credit report and find out what your credit scores are.

Generally you are allowed a house payment equal to 28-41% of your monthly Gross Income.

 

[Jeff Peake]

They take your credit score, and the ratio of your fixed monthly expenses to your monthly income. Usually a mortgage has to be less than 30%( i think) of you monthly income.

Yes you can get no-down mortgages.

I recently bought my first house. It cost me $0 out of pocket. The seller agreed to pay all closing costs, and I did a zero-down mortgage.

Also, to avoid mortgage insurance, you would need a down-payment, or a 2nd mortgage. A first mortgage that covers more than 80% of the appraised value of the house will require mortgage insurance. It can be rather costly. So its very popular to do a 80/20 mortgage, where you get a 2nd mortgage to cover 20% (what the down payment would have been in the olden-times).

I'm a rookie at all this stuff, but it was very painless to get a mortgage. We closed on the house 3 weeks after we made the first offer on it. It was easier than buying a car!

Jeff

 

[Mort Corey]

In areas where housing prices have escalated in recent years it's often cheaper to rent. You can't depend on property values to increase forever. There are a lot of on line calculators that'll show you the bottom line of what it will REALLY cost you after taxes (both outgoing like property etc and the deduction you can claim on interest payments) In a condo, you'll have association fees on top of insurance and mortgage payments. HOA fees can be substantial and if the association board is lax, there can be substatial assessments should major property repairs become necessary.

IMO, and condo is the worst of both worlds. It's all the headaches of ownership but still living in an apartment and they usually are not as liquid when it comes time to sell. It might be right for you, just not my cup of tea.

Mort

 

[DustinLC]

x3 = $126,000

Use that as your guide to what price range you should be looking at and what the loan amount you are qualify to get.

Of course be warned that just because you're qualify for a certain amount doesn't mean you can afford it.

For most people at your income, a $126K place will serve them fine financially.

 

[SethH]

If I were you I'd be a little hesitant to buy right now. I think there are certain areas of the country that are going to see a housing bust. I personally don't think it will be nationwide, but definitely in certain areas. The area you live in is one of the areas that I think could see a bust in the next couple years.

Of course, I could be wrong and prices will just be higher then, but it's something to consider.

As others have said, there are certainly ways to avoid downpayments, etc. I would, for the time-being, avoid ARM's because it appears that rates will be increasing for awhile.

 

[Francois Caron]

It depends on what you live in. My condo, a century old textile mill converted to lofts fifteen years ago, has doubled in value in only six years. I could buy a house in the country for cash with the money I'd get from selling this place even after I pay off the mortgage.

Three words: location, location, location.

 

[Todd K]

Thank you all for this insight.

The DC housing market now is ridiculous. I have friends who've doubled their money buying and selling within 5 years. And let's say the housing bubble "busts." Does that mean values would increase at a lesser rate or would they actually go down? I can't see how that could possibly happen.

I'm not opposed to buying a house, but a condo would be ideal for me right now. Since as I said, I have little savings, I couldn't afford to keep up a house. I'm living in a condo right now (renting from owner) and it's a decent building. I'm starting to think that my landlady will want to sell this place and I'll either have to move or make her an offer. Right now I'm paying about 30-40% less in rent than what this place could be making and my rent hasn't increased in four years. I'm totally comfortable with this situation, I'm just nervous that she will force me to act soon.

So as to whether renting is cheaper than buying, isn't that just a short term outlook? I mean even if my monthly payment increases, it's going towards ownership rather than stuffing my landlady's pocket, right?

And on the same hand, can you negotiate such that your monthly payment is what you want it to be? That is to say, can they extend the length of the mortgage repayment so my monthy installments aren't as high?

 

[SethH]

This is true, but if you have to go beyond a 30 year mortgage to make it managable, I'd say you're looking at something too expensive and should start out with something less expensive. I know several people who have taken out 40 year mortgages recently, and I think it's pretty absurd, but I guess if they want to still be paying on their house when they're retired it's really none of my business.

 

[Todd K]

Well, are you allowed to pay it back early? Say if I did buy a Condo, I certainly wouldn't want to live in one for the rest of my life. I'd either sell or sublet it.

So if I planned to sell before the 40 years is up, would that be OK? (Assuming the sale price is higher than the mortgage.)

 

[Jason Hughes]

Single bedroom condos are a bitch to sell. The complex I live in has 80 units, half 2 bedroom and and 1 bedroom. There are about 7 or so single bedrooms for sale - nobody can get a bite. And this is a fairly attractive area and the condo complex is kept up very nicely.

The two bedrooms don't stay on the market for long...

 

[Scott Merryfield]

Property values can and do drop in certain areas that have experienced a real estate boom, followed by a major economic downturn. California and Texas are two areas that quickly come to mind. It's not that common of an occurence, but it can happen.

 

[MarkHastings]

Most people only put 5% down. Depending on what you mean by 'virtually', 5% of $100,000 is $5,000. Even if you don't have all of that, it shouldn't be too much to save up that amount.

I'm not trying to be mean here, but I was talking to my uncle about stuff like this and we agreed that if you can't afford 5% down, then that's a good indication that you may not be able to handle a mortgage.

 

[Drew Bethel]

Try to get approved and lock in on a rate ASAP...rates are moving upward!

 

[RichP]

Can you make her an offer? Why not try that? You're already there, she won't have to deal with realtor commissions and such, and you don't have to move. That may be your best solution, why not give it a shot?

 

[Todd K]

I will try to haggle with her if it does come down to it. (though part of the reason I'm nervous is because she's a little kooky and not so good with the english). I really have nothing to lose in that regard.

 

[Todd K]

Also, can you co-sign a mortgage with someone else?

For example, I was still in school when I rented this place, so my father co-signed the lease. Is such a thing possible with a mortgage or is that frowned upon?

 

[Jeff Peake]

you can get someone to co-sign.

if you credit score is too low, adding someone else on the loan application with a higher credit score will help (they will average the 2 scores).

Its always a bad idea to cosign someone else's loan, so even if its your dad you may only want to ask him if you really need it.

you should just go down to a mortgage place and see what you qualify for. It takes only a few minutes to get a pre-qualification done, and it makes looking for a house alot easier as you know exactly what you can spend.

 

[Jim Sentry]

If the cosigner is not going to be occupying the property you will be forced into a slightly higher rate.

If your area is experiencing rapidly appreciating home prices I would go with the mortgage insurance rather than an 80/20.

Lenders are required to drop MI when the mortgage reaches 78% of the Appraised value (except for FHA loans). Most do it when the ratio is 80%.

So, in 2-3 years your payment could decrease.

 

[Todd K]

Should I also get a credit report done? Right now I have a balance of $140 on one card that I plan to pay off on Monday. Should I observe any waiting period before I get the credit checked after paying that off, or is it good to have a tiny amount of balance? Arrrgh, I just wish someone would give me lots of money without asking so many questions. I'm good for it!! Really, I am.