Author Topic: Just bought my first house- great decision, right?  (Read 8256 times)

cash2001

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Just bought my first house- great decision, right?
« on: April 21, 2016, 09:42:20 PM »
Aloha everyone-

This is the first time I have posted since moving to Hawaii over a year ago.  My partner and I (both age 30) are in escrow for our first home through a FHA loan- we are borrowing 280,000 at 3.25% interest over 30 years (hope to pay it off sooner, of course).  We bought the house at 287,000 in an appreciating real estate market (I work in marketing for the islands most well known real estate company) with 3.5% down from our savings.  We hope to refinance in about 3 months with a 40,000 lump sum towards the principal (which we will be paying back in monthly installments interest free to my partners parents) to get rid of the $199 PMI and lower the monthly payment.  The house is one mile from both of our full time jobs and our best friend who we trust 100% will be renting the master bedroom.  The estimate for mortgage/PMI/insurance/etc is $1690 a month.  The master bedroom will be rented out for $750 a month plus utilities (yes, electric is high in Hawaii but we are careful to use only what we need). We currently rent at $1,000 +utilities monthly in the same general neighborhood. 3.25% is the best interest rate I have seen since I've moved here so I did the right thing right?  Also we plan on living here for at least ten years and our jobs are secure.  Unfortunately most of the emergency fund is gone but we are fully insured and in good health. Also have $16,000 in a roth IRA and contribute at least 200 a month to it.  Thanks for your thoughts!

Johnny Aloha

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Re: Just bought my first house- great decision, right?
« Reply #1 on: April 22, 2016, 01:06:13 AM »
Aloha!

To be honest, only time will tell if it was a good decision.  I also own in Hawaii (in a different area though) so I understand the market pretty well.  Where did you buy - at that price point you are in less desirable areas of Oahu ... so I assume you bought on Big Island?

I agree it is an appreciating market, but be very cautious ... how did that area perform in 2008-2011?  Know your risks and be comfortable with them.

neo von retorch

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Re: Just bought my first house- great decision, right?
« Reply #2 on: April 22, 2016, 05:13:38 AM »
If your long-term plan is to build up invested assets, once you've got the PMI kicked, your best bet would be to make no additional extra payments on your super low interest mortgage. Plow all that money into your nest egg.

thd7t

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Re: Just bought my first house- great decision, right?
« Reply #3 on: April 22, 2016, 06:28:20 AM »
Because you have an FHA loan, you may have to refinance to eliminate MIP. Hopefully, you can get a similar rate at that point, because $200/mo is a lot of additional money to pay on that loan.

RWD

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Re: Just bought my first house- great decision, right?
« Reply #4 on: April 22, 2016, 09:04:47 AM »
We hope to refinance in about 3 months
Why didn't you wait another three months to buy the house in the first place and save yourself a few thousand on a second set of closing costs?

frugaliknowit

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Re: Just bought my first house- great decision, right?
« Reply #5 on: April 22, 2016, 09:32:21 AM »
To be honest, not enough information.  It would be helpful to know the percentage of income this house is costing you and your partner.  If it's 40%, my answer would be one way, if it's 20%, different. 

If your house appraises for $287K when you refinance it, I don't see how $40K gets you out of PMI...

$287K * 80%  =  $229,600  (80% loan to value)

Current balance $280K - $40K (loan from parents) = $240K (new balance)

$229,600 - $240K = -10,400

I believe you would actually need $50,400 to refinance without PMI, unless your appraisal is higher than $287K.

How much earnest money did you put up?

boarder42

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Re: Just bought my first house- great decision, right?
« Reply #6 on: April 22, 2016, 10:50:10 AM »
you dont have to REFI to get out of PMI.  also you may want to do the math in three month on whatever rate you can get.  b/c it wont be 3.25% that rate is almost unheard of.  thats essentially at inflation.  if i were in your shoes i'd aggressively attack that PMI but keep that rate ... REFI rates are typically higher than regular rates.  plus there is a cost to REFI. 

researcher1

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Re: Just bought my first house- great decision, right?
« Reply #7 on: April 22, 2016, 11:02:03 AM »
From the information you've provided, this sounds like a VERY bad idea.

Quote
We bought the house at 287,000 ... with 3.5% down from our savings. 
In my opinion, if someone can only afford to put down 3% on a house, they shouldn't be buying one.

Quote
Unfortunately most of the emergency fund is gone...
Abort, abort, abort!  What happens if one of you loses a job, has a medical issue, car breaks down, house needs a new roof, ect. 
If you don't have an emergency fund, you have no business buying a $300,000 house.

Quote
We hope to refinance in about 3 months with a 40,000 lump sum towards the principal (which we will be paying back in monthly installments interest free to my partners parents)
So you are going to have two sets of closing costs within a 3 month time span?  How much is that going to cost you?
As someone else pointed out, it doesn't look like the $40,000 would get you enough equity to eliminate PMI.
Lastly, do you really want a $40K personal loan hanging over your head for the next several years, especially with no emergency fund cushion?

Quote
The estimate for mortgage/PMI/insurance/etc is $1690 a month...We currently rent at $1,000 +utilities monthly in the same general neighborhood.
Are your taxes factored in to that estimate?  How about regular household maintenance/repairs?  I'd add 10% for that.  Even if you don't have a major repair (roof, plumbing, ect) for a few years, every house requires ongoing maintenance (lawn work, landscaping, painting, ect) and all of the tools needed for these tasks.

I would advise you to bail on this deal ASAP.  Buy a place after you've saved 20% IN ADDITION TO an adequate emergency fund.

RWD

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Re: Just bought my first house- great decision, right?
« Reply #8 on: April 22, 2016, 11:07:02 AM »
you dont have to REFI to get out of PMI.  also you may want to do the math in three month on whatever rate you can get.  b/c it wont be 3.25% that rate is almost unheard of.  thats essentially at inflation.  if i were in your shoes i'd aggressively attack that PMI but keep that rate ... REFI rates are typically higher than regular rates.  plus there is a cost to REFI.

I believe with the FHA changes from June 3, 2013 you may have to refinance to get rid of PMI, depending on the original loan terms. If I'm reading correctly with a 30-year mortgage and less than 10% down you can only remove PMI by refinancing (or paying off the loan entirely, of course).
http://www.fha.com/fha_requirements_mortgage_insurance

Even with the old rules I think the loan would have to be at least 5 years old before PMI could be dropped without refinancing.

boarder42

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Re: Just bought my first house- great decision, right?
« Reply #9 on: April 22, 2016, 11:25:44 AM »
you dont have to REFI to get out of PMI.  also you may want to do the math in three month on whatever rate you can get.  b/c it wont be 3.25% that rate is almost unheard of.  thats essentially at inflation.  if i were in your shoes i'd aggressively attack that PMI but keep that rate ... REFI rates are typically higher than regular rates.  plus there is a cost to REFI.

I believe with the FHA changes from June 3, 2013 you may have to refinance to get rid of PMI, depending on the original loan terms. If I'm reading correctly with a 30-year mortgage and less than 10% down you can only remove PMI by refinancing (or paying off the loan entirely, of course).
http://www.fha.com/fha_requirements_mortgage_insurance

Even with the old rules I think the loan would have to be at least 5 years old before PMI could be dropped without refinancing.

oh FHA that makes sense.  still may not be worth it in the long run to refinance depending on what rates do ... they dont stay at 3.25% forever and i doubt they are there right now the 10 year note has been on a terror the last few weeks.

Easye418

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Re: Just bought my first house- great decision, right?
« Reply #10 on: April 22, 2016, 11:57:47 AM »
On the finances, I agree with @researcher1. 

So let me say, I am all FOR buying and owning a home......

HOWEVER, I would never sign up for it for multiple reasons.... renting your master bedroom,living with someone, no privacy, no freedom,etc.

I think this is a bad decision.  Mainly for the financial part though.
« Last Edit: April 22, 2016, 12:05:59 PM by Easye418 »

researcher1

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Re: Just bought my first house- great decision, right?
« Reply #11 on: April 22, 2016, 02:25:45 PM »
HOWEVER, I would never sign up for it for multiple reasons.... renting your master bedroom,living with someone, no privacy, no freedom,etc.

This is a very good point I think you should consider.  You are taking a lot of risk and responsibility in buying this house...
- Borrowing $280K that won't be repaid for 30 years
- Completely draining your emergency fund
- Spending thousands of dollars in closing costs now and when you refinance in 3 months
- 100% responsible for all taxes, insurance, maintenance, repairs, tools, landscaping, ect.

For all of this, you must share your house and don't even get the master bedroom!?!  WTF! 

Your "best friend" is getting one hell of a deal...
- He/she pays $750 to live like a king in the master bedroom, while you are out $940 and relegated to the spare bedroom.
- Plus you are 100% responsible when the refrigerator breaks and needs replaced, house needs painted, ect.
- Meanwhile, the best friend has put up ZERO money or risk, while you have literally mortgaged your life savings to live in the guest bedroom.

boarder42

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Re: Just bought my first house- great decision, right?
« Reply #12 on: April 22, 2016, 02:32:21 PM »
yeah why isnt your best friend paying you 1000 plus utilities thats what you're paying right.  at 750 they should be in the spare bedroom at the very least. 

cash2001

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Re: Just bought my first house- great decision, right?
« Reply #13 on: April 22, 2016, 02:40:40 PM »
There isn't a huge size difference from the master bedroom and other bedroom.  There is a 3rd bedroom which I will be using as an office.  Plus, remember this is Hawaii and the yard is beautiful.  I'm not a TV watcher, I spend most of my time outdoors.  I know I could rent to a grad student and charge a little bit more but the peace of mind I have by renting to a close friend (who also owns property) makes up for it.

cash2001

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Re: Just bought my first house- great decision, right?
« Reply #14 on: April 22, 2016, 03:27:34 PM »
The reason I did not want to wait 3 months is because this house was perfect (bike distance to work, less than a mile for both of our jobs, one mile to the beach in friggen Hawaii!) and the comparable properties were no where near as nice.
To clarify- the seller is paying costs, I did not completely drain my emergency fund and would be able to borrow from family interest free in the case of an emergency.  The way the house and yard is configured offers me plenty of privacy.  I will be living in paradise with two people I love and trust and spend most of my free time at the yoga studio or outdoors not sitting in my house, that's enough freedom for me.  Not trying to sound snarky...just saying how I feel.
The $1690 a month includes all taxes, insurance, PMI, MIP and is 27% of our combined monthly income. $1690-$750 from renting bedroom=$940.
We are aware that there will be refi costs again once we have the additional $40k (we can borrow $50k also interest free if need be) but as long as interest rates are almost as low in a few months, putting that large amount towards the principal will be worth it in the long run.
Roof was just replaced and we enjoy doing yard work/gardening (aka will not be outsourcing).
THANK YOU to everyone, this will all be a learning experience for sure, I appreciate your feedback.

geopter

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Re: Just bought my first house- great decision, right?
« Reply #15 on: April 22, 2016, 06:02:19 PM »
Without commenting on the total cost of the house and/or lack of emergency fund, I'd like to put in a positive comment on the roommate. Renting out part of your house is a great way to jump-start paying down the mortgage. Being able to rent it out to a friend is even better.

Fishinshawn

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Re: Just bought my first house- great decision, right?
« Reply #16 on: April 22, 2016, 06:20:53 PM »
I'd be too scared to buy a house without at least a 10K emergency fund and the finances to replenish that within a few months if you needed to use it.  I thought after 2008 they stopped letting people put so little down on houses? My personal goal was 20% down, but now to even get the payment down to a level that allows to continue saving it will have to be even higher or I will have to buy 30% less house.

former player

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Re: Just bought my first house- great decision, right?
« Reply #17 on: April 22, 2016, 07:07:53 PM »
OP and spouse are young, no dependents noted, OP has a stable job, they have support from family who have money, they are presumably looking at this as a lifetime house, their new housing costs will be less than their current rent.

It's a gamble, but it looks like a reasonably well thought out one.  In a high cost of living area it's the sort of gamble that many people take in order to buy property, and for most of them it works out.  The key to success is to get through the first few years with a maintained or increasing income, careful budgeting and good health.  Appropriate insurance (property, health, life and possibly disability) is essential.

Fishinshawn

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Re: Just bought my first house- great decision, right?
« Reply #18 on: April 22, 2016, 09:53:50 PM »
OP can you make the payment without your friend renting? You are gambling a lot on a friendship, if that sours, which living together can do, I hope that you can make that payment. Also how will you handle home repairs or emergencies?

obstinate

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Re: Just bought my first house- great decision, right?
« Reply #19 on: April 22, 2016, 11:26:21 PM »
There is no such thing as a market that will appreciate. There's only markets that have appreciated and may continue to appreciate. You should never buy a house on the basis that you expect it to appreciate. That is called gambling.

Metric Mouse

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Re: Just bought my first house- great decision, right?
« Reply #20 on: April 23, 2016, 06:12:23 AM »
There is no such thing as a market that will appreciate. There's only markets that have appreciated and may continue to appreciate. You should never buy a house on the basis that you expect it to appreciate. That is called gambling.

Also see: Investing.

Jim2001

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Re: Just bought my first house- great decision, right?
« Reply #21 on: April 23, 2016, 08:20:46 PM »
cash2001,

  Congratulations on the big leap!  I bought my first house at age 29 with a down payment I borrowed from my favorite uncle (i.e. zero down) and had absolutely no emergency fund.  And it was at the peak of the last bubble in late 1989.

It worked out. 

There were times I rented out a room to make ends meet.  There were times I worked three jobs.  But, I was never late on a payment to my uncle or the bank.  I had the house for 16 years and sold it in early 2006 for much more than double what I paid for it.

At only 27% of your income, it sounds affordable.  The roommate is a nice cushion.  You're planning on staying for 10 years or more and are in a great location!

Enjoy the house and work to build that emergency fund back up.  I'd be very cautious of doing the refinance, because the 3.25% is incredibly cheap money, even with the PMI.



Metric Mouse

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Re: Just bought my first house- great decision, right?
« Reply #22 on: April 24, 2016, 04:44:32 AM »
S&P 500, Jan. 1989 - Dec. 2006 : +1140 (397.89%)

Jon Bon

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Re: Just bought my first house- great decision, right?
« Reply #23 on: April 24, 2016, 06:13:27 AM »
Nice work!

Dont worry too much about it. Sure you are taking a risk but we all did when we all bought our first home. You also don't have a ton of skin in the game if things go bad.

Having a renting friend is a nice income bump.

Pay no attention to the wtf comments. You bought an asset using leverage and for all intensive purposes it will appreciate faster then the 3.25% that you borrowed at.

boarder42

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Re: Just bought my first house- great decision, right?
« Reply #24 on: April 24, 2016, 06:18:31 PM »
S&P 500, Jan. 1989 - Dec. 2006 : +1140 (397.89%)

Need a favorite button here. A house isn't an investment. I own a house but you can think of it as an investment.  Just inflation alone from 1989 - 2006 was 62%. So you beat that. Congratulations. Just please stop using "I doubled my money over this time on a house". Put real math to it.

Jim2001

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Re: Just bought my first house- great decision, right?
« Reply #25 on: April 24, 2016, 07:35:00 PM »
Just please stop using "I doubled my money over this time on a house". Put real math to it.

Yes, I repaid the $12.5K I borrowed for the down so let's say that's the basis instead of the $0.00 I actually started with.  I also made the monthly payments for ten years and in exchange I had a place to live, but I don't know the principal reduction numbers or interest during that period.  Then I moved and rented it to someone else.  The rent more than covered the monthly payments, so for at least those six years, it qualified as an investment.  Somewhere along the way, I did a big cash out refi (~$100K) and invested that money, but let's ignore that since it would likely offset the principal reduction.  So, the simple "real math" equation is that I put $12,500 down and 16 years later when I sold it, there was over $250,000 cash in my bank account after all expenses were paid. That's a factor of 20 in 16 years.

The OP was looking for feedback on likely their biggest purchase ever.  Because it didn't fit some folk's preconceived formulas, they suggested they wouldn't have done the deal.  No problem.  We each have different risk tolerances and they can change over time.  Based on those risk tolerances and resources, we each make our own choices.  The OP made his.  I made mine and it worked out for me.  That's all I was trying to share.