T Nation

First Time Homeowner?


#1

I havent seen a thread like this so I thought I would start one up since I'm looking to get my first home (condo).

If anybody wants to chime in with experience, pitfalls, things to look out for, load this thread up. Some things like type of mortgage you have, what your down payment was, what your tax returns have averaged, how much your property was etc.....

If there are any mortgage brokers here feel free to chime in also!


#2

Well being that I just bought my first home just under a year ago I think I may have some useful tips. I bought a 3 bedroom ranch, with 80 acres of land. My fiancee is big into horses, horse training etc so the land gives her a ton of room.

Tip #1: Get a Realtor. I negotiated the purchase of my first home. Being that I am good with finance & business it went very well. I got a good deal and I was able to negotiate for certain things I wanted. However, the time constraint and paperwork can be a killer. My tip, let them do it.

I went with a 5-year ARM at 4.7%. I used LendingTree to get the best rate. My pmt is only $1,300 a month will insurance and property taxes built-into the payment. Of course now, locking in on a 30yr isn't bad either with rates. If you think you're going to be in the home for more than 5yrs I would lock in a 30yr now before rates climb.

Make sure you have a good down-payment. If you don't have 20% equity in the home you may have to pay for mortgage insurance. That can really jack up the payment. If you have a good down payment good. I had other properties that I sold so I was able to put down a lot towards the new home so I saved myself a lot of money in mortgage insurance.

If you go through LendingTree, make sure you are wary of the closing costs. They can be anywhere from 3-7% of the purchase price. Try to find a mortage broker on the low-end. Mine was 4% or around 10k on $200,000.

Also, don't forget to factor in other things in your monthly payment like utilities, heating, groceries and other things you didn't necessarily have to worry about when renting, not to mention insurance, maintenance etc.

Don't borrow too much. Shoot for something that will take up 30-45% of your monthly income for a payment. Getting above 45% can make it tough on a homeowner.

Good luck, it's an experience but it's not too bad. Just some things from my own experience. I hope it helps. If you have more ?? let me know.


#3

I keep trying to look into buying, and every time I do, I get disappointed because the amount I can afford is not enough to buy jack shit (even with awesome credit)! And since I don't have much money to put down (I'd be a first-time home buyer with little to no money down), it makes it even harder.

How in the world do most people manage to even save 20% if you are already renting and also have other loans (car, school) and bills (utilities, food, insurance, etc.)??? It blows my mind. I'm currently trying to pay off my credit card and minimizing other bills, but it still doesn't leave much to buy the type of house/condo I want since the prices have skyrocketed. And it would take YEARS to save up for 20%.

I may end up just renting again because buying seems impossible. :frowning:


#4

Nate

I would suggest to you not to wait until you get 20% downpayment. While that is a great goal, I would venture to say most 1st time buyers are not there. Many programs for 1st time buyers come in around 3-5% down and some at zero. Yes you'll pay the PMI, but you're in.

And THAT is where you get all future downpayments from. The equity in the old house. This will allow you to move on and up--should you choose--in a few years.

At the rates now, if you plan to stay 5+ years, take out the 30 yr mortgage. You can always overpay in times of prosper, yet it keeps yuour payments down when times are lean. Again, if you plan on staying, overpay as much as possible on your house.

It's agreat investment over time, you get the tax breaks--not always as great as talked about--but it's yours and so is the equity.


#5

be sure to get a GOOD home inspection.
We skipped it on our first home and it really cost us.


#6

What Sasquatch said. One way to accelerate your 5% becoming 20% is to doll up properties, selling them asap, and repeat cycle.

By the way, the only first time buyer with 20% downpayment I know saved it up by living with his parehts ... even though he has an average or above average salary. For the rest of the folks, it`s 5%.


#7

1) Get a home warranty, and make sure it covers the roof. These are pretty cheap (around $500/year), and cover most of your major appliances, AC, heat, etc.

2) Get a good home inspection.

3) Do all the work on the house before you move in, because it's a pain in the ass otherwise.

Nate: Many people I know end up borrowing the down payment from friends or family. This is especially true in the current housing market, where many more people want to buy than can genuinely afford to buy in, and you're penalized for waiting to get into the market.


#8

Does anyone have any insight into the single family home versus townhouse decision? I'm a single guy, just turned 30. I imagine my situation will be likely changing significantly in the next 5 years or so. I'm thinking that a townhouse is the way to go.


#9

Nate,

Read "Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money--That the Poor and Middle Class Do Not!". If you want an e-copy, PM me. I haven't read it yet, but one of my good friends told me to jump on it right away. She told me that she and her husband have completely changed the way they manage their finances after reading this book.

Also, don't worry about the 20%. Just bite the bullet and get an FHA loan. If you're in a decent market and have a good mortgage broker, you can refinance in just a few years and do an 80/20 loan (20% being a HELOC). At that time, try to position yourself to do a 15yr. mortgage rather than a 30yr.. Most people do the 30 because that's all they think they can afford. Howevever, if you can pay just a little more, the 15 yr. is so much better for getting some serious equity in your house.

Ah hell, I gotta reboot, but I'll revisit this topic. I have a Real Estate license in KS, so I know a little (not a lot).

~ J


#10

The market is way to overblown, wait a year until the prices come a little lower otherwise you'll get stuck with a house that's not worth what you paid for it, I was fortunate to buy before market went up, I bought my house for 132k, the value is now 370k, good luck...


#11

I've heard (haven't substatiated) that there is no evidence that the guy that wrote rich dad, poor dad was wealthy before writing that book, although he certainly is now. Not that he's wrong about anything (I haven't read it), but just a heads up. The real secret to getting rich is pretending you have a secret to getting rich, and making other people pay you to hear it.


#12

Or, you wait a year and... prices have gone up further! If you're planning to stick in a house for 5-10 years, you aren't likely to lose money on the deal. If you're looking to speculate, then caveat emptor.


#13

I'll bet the people who heeded this advice 5 years ago are kicking themselves.

Do you honestly believe home prices are coming down any time soon? They may not overinflate as we've seen in the past few years, but as the economy comes into better times, home prices will at least gain at the national level.


#14

Jackzep

My 'book' says to always take the 30 and overpay. The slight difference in rate is more than compensated for in the capital overpay. This then allows for situations--especially for people in the first time buying range, where finances are a little strained.

Just interested in your thoughts.

The way it was laid out for me when I first purchased was

you pay $10 every month over and above for the first year.
$20 every month for the second
$30 for the third....and so on
This of course assumes that you'll have more disposable income as you age.
This process will pay off a 30 yr in 17-----with again, the cushion for lean times


#15

Unless you plan on being single your whole life, go with a real house vs. a townhouse.

A house with a yard is more work, but they seem to be worth more money in the long run. I know too many people that lost money on townhouses.

It is hard to lose money on a real house, unless you spend a ton of money remodeling it.


#16

You'll need to start reading the first chapter just to see where the author is coming from. He didn't start out rich. His Dad was a school teacher.


#17

Agreed. Go with a house if you can.


#18

Excellent topic!

I too have been wondering about the whole 20% down problem. It seems ridiculous that someone could save this much (especially supporting the wife and kids at home, paying student & car loans, + other debt service).


#19

Nate,

Trying to save 20% of the downpayment in this market with inflated housing prices is going to be a frustrating goal to attain. Shoot for the 3 to 5% range.

And learn from one of my early mistakes. Avoid Private Mortgate Insurance. It comes out to 1% or so of your purchase price if I remember correctly. It can add a couple of hundred dollars per month to your mortgage payment.

A lender will tack on PMI if you put down less than 20% of the purchase price. To avoid this, get a 2nd loan from another lender that will cover the 20% of the down payment and you can avoid PMI.

I also agree with the advice of shooting for a 15 year loan if possible. I would rather have a smaller place that I could afford with a 15 year loan because you are going to build equity a heck of a lot quicker and save potentially hundreds of thousands of dollars of interest payments by going with a 15 year loan vs. a 30 year loan.

The only way I would recommend an ARM is if this a starter home that you're not going to be in for more than 5 years. Then a 5/30 ARM is probably your best bet.

Once your in the home you plan on staying in for 7 or more years, my advice on the 15 year loan is solid. Too many people play the game of flipping up houses multiple times over their lives and they end up with a big house but are still paying their mortgages into their 50's, 60's, and 70's.


#20

While this may work, there are other methods to accomplish the same thing. The most common suggestion, and what many mortgage companies are pursuing, is to pay one extra payment per year. The way to accomplish this is to pay your mortgage bi-weekly instead of monthly.

To give you an example of 15 vs. 30 year, I had a decision to make when I refinanced my house a few years ago. To go to a 15 year mortgage, I was going to have to shell out about $300 more per month, but when compounding the interest of 30 years, I would've paid over $100,000 in interest on the 30 year vs. the 15 yr., so you either take the $300 hit now or lose 100k over the long haul. What would you rather do? Now, I took a gamble. I figured that I would sign the 15 year and figure out how to come up with an extra $300 per month later. Don't ask me how, but we managed (even after my wife quit her corporate job to be a S.A.M. Stay At-Home Mom). She was making over 50k/year, so it was a major hit. Making those decisions has forced me to grow my business to compensate. I work best under very intense pressure (usually pressure that I put on myself).

Now, one BIG difference is the housing market. I live in the KC area (on the Kansas side), where I can but a 1,500 sq. ft. house for under $200K. The same house in California might cost you $600K and your salary might be the same as mine. In that case, I'd recommend an ARM loan. I don't know much about ARM's, but I think in markets where the housing is that valuable, ARM's are very common. Not so in the MidWest.