Author Topic: Buying my first home  (Read 960 times)

hhehe45

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Buying my first home
« on: April 11, 2019, 06:11:07 PM »
I am looking at buying a home in the northwest Arkansas area. Am currently paying about $900 a month in rent and am commuting 45 minutes to work. I'm looking to cut my commute down and just settle down somewhere without my money going down the drain.  Have just started scratching the surface of it all and am learning. But I'm really confused about a lot of things and am getting some mixed messages. I could use some input here. I don't know what info is really needed so I will just lay everything out.

-I think I am pretty much done with shopping around lenders. I've been pre approved for $200,000. This is the number I gave them and the price range I'm trying to stay within. Shopped around for the best interest rate and lowest I could find is 4%. I thought this was pretty good. Was quoted up to 4.8% at other banks.

-I had them quote me using a 10% down payment. My initial thinking was that I would make a 20% down payment but I've been advised against doing that? Still not sure why. They told me if I made a 20% down payment I wouldn't have to pay PMI. That sounds like a better option to me but lots of people tell me it's no big deal to carry PMI. I just don't see a benefit to it, however..

-My salary is $67,500 annually. I do make commission but it is varied, anywhere from $12-$20k a year. I've been at my current job for only 6 months (but look to stay for a long while). Based on this, does my purchase price need to be lower?

-I have an approximate $52,000 in savings.

-My credit score is in the 800s.

-I'm single, no kids.

-I initially wanted a small home but was told to look for 3-4 bedrooms and at least 2 baths so that I could sell it down the road. That's not really what I want because it also means having to furnish a bigger space but that makes sense to me, especially in this area.

-This may be far down the road but have been told that this is a sellers market. Most likely I will go into a bidding war. I could use some advice on that.

-My realtor told me he makes 3% commission unless the seller refuses to pay. He says this doesn't happen often but if that's the case I would have to pay the 3%. I assume this is standard but I have no idea?

-As far as the homes I'm looking into, the top of my list is a fast selling subdivision with ready to build homes. They're within my price point, the location can't be beat, and I could pick and help design the home. Builds are taking 6 months and require a deposit of $1000. I was told new builds would mean I'd pay premium but the price is well within my range. I'm not interested in having to fix something every time I turn around so new builds really appeal to me. I'm also convinced these homes will be easy to sell when the time comes.

Again, not sure if anything else is needed, I can add onto this. I'm just trying to navigate how to do this in the best way so looking for anything that stands out to anyone.

RWD

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Re: Buying my first home
« Reply #1 on: April 11, 2019, 06:30:05 PM »
Renting is not money going down the drain
https://affordanything.com/is-renting-better-than-buying-should-i-rent-or-buy/
https://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/

4% interest rate sounds good. 30 year loan, right?

Get quotes with the 20% down payment as well. Make sure you completely understand PMI if you go with it (how much it is, how long it lasts, how to get rid of it). There is certainly opportunity cost to consider, but might not be worth paying PMI. We personally opted for 20% down.

Sub-$200k should be fine for your salary.

Looks like you have enough for a 20% down payment and some cash to spare for closing costs and such.

If you want a small home shop for small homes. Don't buy more house than you need. More house means more taxes, maintenance, utilities, etc.

I don't have any experience with bidding wars. Sorry, can't help there.

3% commission for seller's realtor and 3% for buyer's realtor is common. It's pretty common for the seller to pay both. You can sometimes negotiate this.

I like newer homes as well. If waiting for a build is not a problem for you then it's certainly worth considering.

One thing I didn't see you mention is how long you might expect to stay in your new home. Because of closing costs and commissions it's usually only worth (from a financial perspective) buying if you're going to own the home for 5+ years (10+ preferable). Have you played with the rent vs buy calculator?
https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

Montecarlo

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Re: Buying my first home
« Reply #2 on: April 11, 2019, 08:56:24 PM »
You havenít mentioned why you want to buy a house vs continuing to rent.  Iím sure there are rental opportunities close to your work.

Financial reasons?  Freedom to remodel to your pleasure?  Donít want to deal with landlords and the possibility youíll have to move?

If itís financial reasons, look at the house like any other investment.
It pays dividends (checks you are not writing for rent)
It has depreciation (the structure, appliances, roof)
It has capital gains opportunity/capital loss risk (the land)
It has recurring expenses (interest, property taxes)

Sometimes it makes sense compared to other investment opportunities, sometimes it doesnít.

hhehe45

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Re: Buying my first home
« Reply #3 on: April 11, 2019, 09:20:44 PM »
Definitely things to think about. Thanks for all the info.

I'm mostly tired of the rent being raised each year, noisy neighbors, people having access to my home, no freedom to do what I want with my space.

I honestly don't know how long I'd plan to stay in a home. As long as it works for me is the best answer. I wouldn't see myself moving for a while but you never know.

ilsy

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Re: Buying my first home
« Reply #4 on: April 11, 2019, 10:18:57 PM »
Definitely things to think about. Thanks for all the info.

I'm mostly tired of the rent being raised each year, noisy neighbors, people having access to my home, no freedom to do what I want with my space.

I honestly don't know how long I'd plan to stay in a home. As long as it works for me is the best answer. I wouldn't see myself moving for a while but you never know.
Not good reasons to buy a place imho.

Your taxes are going to raise and your insurance is going to raise every year, part of the reason the rent goes up every year, they need to compensate for their increased payments.

I don't think you can control your neighbors even if you buy a place. New builds usually appeal to younger people, so noise might follow.

In your house you'll have services coming over to fix a leaking faucet or toilet, so you might need to give access to them, or take a day off to let them in.

I'm not sure why you don't have a freedom to do whatever you want in your rental.

Since you want a new built, by the time you are going to sell, a lot of things are going to be old and will require replacement to keep the resell value high. Will you be able to replace all of the items at the same time?

You sound like a renter, homeownership is not for everyone.

ilsy

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Re: Buying my first home
« Reply #5 on: April 11, 2019, 10:33:23 PM »
I am looking at buying a home in the northwest Arkansas area. Am currently paying about $900 a month in rent and am commuting 45 minutes to work. I'm looking to cut my commute down and just settle down somewhere without my money going down the drain.  Have just started scratching the surface of it all and am learning. But I'm really confused about a lot of things and am getting some mixed messages. I could use some input here. I don't know what info is really needed so I will just lay everything out.

-I had them quote me using a 10% down payment. My initial thinking was that I would make a 20% down payment but I've been advised against doing that? Still not sure why. They told me if I made a 20% down payment I wouldn't have to pay PMI. That sounds like a better option to me but lots of people tell me it's no big deal to carry PMI. I just don't see a benefit to it, however..

-My salary is $67,500 annually. I do make commission but it is varied, anywhere from $12-$20k a year. I've been at my current job for only 6 months (but look to stay for a long while). Based on this, does my purchase price need to be lower?

-I have an approximate $52,000 in savings.

-My credit score is in the 800s.

-I'm single, no kids.

-I initially wanted a small home but was told to look for 3-4 bedrooms and at least 2 baths so that I could sell it down the road. That's not really what I want because it also means having to furnish a bigger space but that makes sense to me, especially in this area.

-As far as the homes I'm looking into, the top of my list is a fast selling subdivision with ready to build homes. They're within my price point, the location can't be beat, and I could pick and help design the home. Builds are taking 6 months and require a deposit of $1000. I was told new builds would mean I'd pay premium but the price is well within my range. I'm not interested in having to fix something every time I turn around so new builds really appeal to me. I'm also convinced these homes will be easy to sell when the time comes.

Again, not sure if anything else is needed, I can add onto this. I'm just trying to navigate how to do this in the best way so looking for anything that stands out to anyone.
Most people are not mastachians. I was also advised to not get a 10 year loan, but instead go with the 30 year one and pay extra every month (that was from my x's family members - not mastachians). In my opinion it was the stupidest idea, so I didn't follow it, of course. Plus I  had 33% down and my mortgage rate was 2.83%. I still think that was the best idea ever, to have a 10 year loan and 33% down. Allowed me to refinance my house and pay 40k in equity back to my x, while my D/l ratio was very high because of my income being very low.
Bottom line, go with your own reasoning.

hhehe45

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Re: Buying my first home
« Reply #6 on: April 12, 2019, 10:54:13 AM »
Yeah I had anticipated having to pay 20% down just from what Iíd heard. But everyone has told me that for first time buyers 10 or even 5% is common. Doesnít make much sense to me especially if I have the 20% down payment to pay.

RWD

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Re: Buying my first home
« Reply #7 on: April 12, 2019, 11:29:40 AM »
Most people put down less than 20% because they didn't save that much. I know a couple that make six figures combined and were complaining about how insurmountable 20% was (they ended up doing an 80/10/10, I think). "Common" doesn't mean best, of course. The average American spends over a thousand dollars on coffee every year.

hhehe45

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Re: Buying my first home
« Reply #8 on: April 12, 2019, 01:01:42 PM »
That was my thinking. If you donít have it then I guess you canít put that much down. But if you do have it then why not? When  I was told I wouldnít have to pay PMI if I put 20% down I thought well that makes more sense to me.

JLee

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Re: Buying my first home
« Reply #9 on: April 12, 2019, 01:13:55 PM »
That was my thinking. If you donít have it then I guess you canít put that much down. But if you do have it then why not? When  I was told I wouldnít have to pay PMI if I put 20% down I thought well that makes more sense to me.

The numbers are a bit different, but here's why I am putting 5% down.

$440k house, 5% down ($22k), 30yr 3.811%
$87/mo PMI

If I put 20% down, my rate would be slightly higher (weird but apparently my area qualifies for a state home buying program that helps with rates for lower down payments) and I would not have PMI, but I would have to put $88k down (an additional $66k).  $66k at 7% (average stock market return) would generate nearly $5k/yr (and growing), vs the $1k/yr in PMI I would pay.    As property values tend to creep upwards, I will likely be out of PMI well before the scheduled payoff period regardless. Mortgage interest is deductible (my marginal income tax rate is over 30%) and it's a generally held view that it's worthwhile to invest before paying a mortgage down, so the higher principle balance I will have at 5% down isn't a huge concern.
 
To contrast that, my last house had approx $65/mo in PMI for a $133k mortgage on a $140k house (5% down).  I did not have 20% down at the time, but if I had that would've been a very different calculation. What I did then is wait for the house value to go up a bit and revalue my house, then made a lump sum payment to reach the threshold to eliminate PMI.

tldr you have to calculate whether or not the additional down is worthwhile vs the cost of PMI and any other factors that may exist.
« Last Edit: April 12, 2019, 01:16:20 PM by JLee »

Montecarlo

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Re: Buying my first home
« Reply #10 on: April 12, 2019, 05:09:56 PM »
Just be aware that PMI is a fixed cost, and the payment to get under .8 LTV goes down, which means at some point PMI/(current balance-0.8*home value) will eventually far exceed 7% and it will make sense to shift extra cash flow to the house, if not (depending on your tax situation) liquidate assets.

JLee

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Re: Buying my first home
« Reply #11 on: April 12, 2019, 07:24:13 PM »
Just be aware that PMI is a fixed cost, and the payment to get under .8 LTV goes down, which means at some point PMI/(current balance-0.8*home value) will eventually far exceed 7% and it will make sense to shift extra cash flow to the house, if not (depending on your tax situation) liquidate assets.

Yep. That is what I did with my first house - after a broker's price opinion raised my value significantly, (cheaper than an appraisal, just required 75% LTV instead of 80% LTV) I cut them a ~$1700 check and ended PMI after about 3 years.

SweatingInAZ

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Re: Buying my first home
« Reply #12 on: April 12, 2019, 07:28:06 PM »
-I'm single, no kids.

One thing that can change housing preference in a hurry is if you get hitched. If there's a chance that you might be married with kids on the way in the next 5 years, I would just rent some place closer to work.

-I initially wanted a small home but was told to look for 3-4 bedrooms and at least 2 baths so that I could sell it down the road. That's not really what I want because it also means having to furnish a bigger space but that makes sense to me, especially in this area.

If a small home is really that much harder to sell, you should get a great discount now! Get the size that you want! I cannot stand that advice that people give about making it easier to sell down the road. Perhaps a typical 3/2 would appreciate more in a housing boom, but your stocks typically grow too! I would much rather have that equity easily accessible in the stock market than tied up in a big empty house.

Consider buying a condo if the prices are right. Cheaper payments, though a higher condo/HOA fee.

JLee

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Re: Buying my first home
« Reply #13 on: April 12, 2019, 07:34:37 PM »
-I'm single, no kids.

One thing that can change housing preference in a hurry is if you get hitched. If there's a chance that you might be married with kids on the way in the next 5 years, I would just rent some place closer to work.

-I initially wanted a small home but was told to look for 3-4 bedrooms and at least 2 baths so that I could sell it down the road. That's not really what I want because it also means having to furnish a bigger space but that makes sense to me, especially in this area.

If a small home is really that much harder to sell, you should get a great discount now! Get the size that you want! I cannot stand that advice that people give about making it easier to sell down the road. Perhaps a typical 3/2 would appreciate more in a housing boom, but your stocks typically grow too! I would much rather have that equity easily accessible in the stock market than tied up in a big empty house.

Consider buying a condo if the prices are right. Cheaper payments, though a higher condo/HOA fee.

I absolutely agree -- buy the house for you, not for the next owners!

Moneywise

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Re: Buying my first home
« Reply #14 on: April 12, 2019, 09:54:47 PM »
I'm a handyman. Most of my business comes from "new builds". Before buying "new" take a walk around other new builds and check out how they are being built. Most times even million dollar homes, they use cheapest materials, fixtures, etc. New will most times cost you more. I would never buy a new house unless I supervised the build. As far as bidding wars, most times they are made up, no such thing. Just a way for the seller and realtors to make money. If you are all of the sudden in a bidding war, just walk out. Also you don't need a realtor. That 3% commission is a lot of money for literally nothing. A realtor has no place in today's market. Go on trulia, zillow and find your own house. Contact the seller directly and tell them you want to buy their house and you don't have a realtor. That 3% savings can go towards a discount towards the asking price. You can use the seller's realtor just to fill out the paperwork and make sure he marks 0% commission in the paperwork.
« Last Edit: April 16, 2019, 08:58:07 PM by Moneywise »

ilsy

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Re: Buying my first home
« Reply #15 on: April 13, 2019, 06:27:37 AM »
I'm a handyman. Most of my business comes from "new builds". Before buying "new" take a walk around other new builds and check out how they are being built. Most times even million dollar homes, they use cheapest materials, fixtures, etc. New will most times cost you more. I would never buy a new house unless I supervised the build. As fast as bidding wars, most times they are made up, no such thing. Just a way for the seller and realtors to make money. If you are all of the sudden in a bidding war, just walk out. Also you don't need a realtor. That 3% commission is a lot of money for literally nothing. A realtor has no place in today's market. Go on trulia, zillow and find your own house. Contact the seller directly and tell them you want to buy their house and you don't have a realtor. That 3% savings can go towards a discount towards the asking price. You can use the seller's realtor just to fill out the paperwork and make sure he marks 0% commission in the paperwork.
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