Author Topic: Buying my first home  (Read 2253 times)

centdukesfan

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Buying my first home
« on: March 20, 2017, 06:41:20 AM »
Hello mustachians!

Thanks so much for taking a minute to run through some numbers with me - i trust this community way more than any real estate agent or financial planner. Sorry if this is a bit long, but this is a community of problem solvers, so your help is appreciated!

Here is my sitch. I am 30, live in the DC area and am about to get married in June. All very exciting, but since both of us currently have roommates we have to find a place to live. As many here know, real estate in DC is quite expensive, so we are weighing the age old rent or buy question. I have a very steady job in the federal government making about 100k and she has a great job at a non profit making 75k. I come to the relationship with about 130k worth of liquid investments (with an additional 90k in my 401k), while she will be bringing about 40k of cash. We are on our way to FI I hope!

In browsing for a place to live, I have found a really cool property that is zoned commercial/residential (going to view it today with the listing agent) The property is currently configured for 2 businesses, the bottom floor is currently leased to an organic hair salon for $1123 through 2018 and the top floor is empty office spaces. The property is listed for 523k and I think would take about 15-20k and some DIY elbow grease to make the upstairs suitable for residential living. The listing has been available for about 120 days.

My mortgage broker ran some numbers for me -
With FHA
Purchase Price $523,000.00
Down Payment $18,305
Total Loan Amount $513,527 ( $8,832.00 Up front Mortgage Insurance Premium included, Charged by FHA)

Monthly Payment-Principal and Interest- $2,341.95-$2,448.70 (Interest rate of a 3.625%-3.99%  (This may change depending on the Market)
Home Owners Insurance Estimate $61.02
Tax  Estimate $457.63
Mortgage Insurance $354.62
Total Monthly Payment $3,215.22-$3,320.98

Traditional Loan
Purchase Price $523,000.00
Down Payment $78,450 (15%)
Total Loan Amount $444,550
Monthly Payment-Principal and Interest- $2,119.79-$2,219.58 (Interest rate of a 3.99%-4.375%  (This may change depending on the Market)
Home Owners Insurance Estimate $61.02
Tax  Estimate $457.63
PMI $55.57
Total Monthly Payment $2,694.01-$2,793.80


Rent for a similar place would range, but probably be around 2000 - 2500 a month. I also have the option of borrowing against my 401k (thrift savings plan is what the govt calls it). I can borrow up to 50k tax free and only pay 2% interest and repay it over a 15 year period, about half the interest of the traditional loan, but with no tax benefit.

OK so what should i do! Should I buy the house, use the FHA, not use the FHA, put 20% down, 15% down. Also, my real estate agent is only certified in DC so im going to meet the listing agent today without one, which may be a mistake as well. Or maybe I can just avoid paying the fee on that side and come out a bit cheaper in the end. Any negotiation techniques are appreciated.



AMandM

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Re: Buying my first home
« Reply #1 on: March 20, 2017, 06:35:30 PM »
I take it, from what you said about your agent, that this property is not in DC.  So my first thought is this: if you are looking throughout the DMV, you need a buyer's agent licensed in all three jurisdictions.

Second, there are a bunch of question I think you need to ask.

1- The numbers for homeowner's insurance and property tax seem way, way too low.  I pay more for insurance, and almost as much in tax, on a property worth half yours. Are these the current numbers, and are they based on an old, grandfathered assessment?

2- What condition is the property in?  What does it cost in utilities and maintenance? What are the foreseeable capital costs over the next 1/5/10/20 years?

3- What are the carrying costs for the commercial part of the building? Is there a separate insurance policy?  How solid are the tenant's prospects?  What's the typical time between tenants for commercial space in that area (not zero, since the upstairs is currently empty!)?

4- What would you do with the $60k difference in downpayment?  What would you do with the  $500 difference in monthly payment?

5-  Is the location a place you want to live for at least several years?

6-Perhaps most important: do you want to be a commercial landlord? Do you have the time and knowledge, or are you willing to pay someone else to do it?  (You provide very little information about that part of the building, so it's not possible to evaluate whether it makes sense as an investment. That suggests you're not thinking very hard about that side of the deal, though I could well be mistaken.)

thedayisbrave

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Re: Buying my first home
« Reply #2 on: March 21, 2017, 06:04:55 AM »
Ok, so not all real estate agents are the devil.  Since you went to see it with the listing agent I presume you don't have a buyer's agent.  GET ONE.  The listing agent doesn't work for you -- they work for the seller.  Thus anything you tell him/her can be repeated to the seller and it's all kosher (including financial details).

Get a buyer's agent who will represent your interests in the transaction.  It literally doesn't cost you anything, since the listing agent will be splitting the commission with the buyer's agent.   

centdukesfan

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Re: Buying my first home
« Reply #3 on: March 21, 2017, 12:42:33 PM »
Thanks so much for the input. My brother in law is licensed in va (where the home is - its in north Alexandria, just outside of delray) and he is adept in both commercial and residential real estate - so great news there.

to answer some of the questions
1- The numbers for homeowner's insurance and property tax seem way, way too low.  I pay more for insurance, and almost as much in tax, on a property worth half yours. Are these the current numbers, and are they based on an old, grandfathered assessment? These numbers are based on what my mortgage broker gave me - so im deferring to him


2- What condition is the property in?  What does it cost in utilities and maintenance? What are the foreseeable capital costs over the next 1/5/10/20 years? Unsure of the utility costs - getting the terms of the rental agreement with the downstairs business, but im pretty confident the utilities are shared. The HVAC is relatively new. Great news about most expenditures ill have to make on the home - they should be tax deductible due to the lease.

3- What are the carrying costs for the commercial part of the building? Is there a separate insurance policy?  How solid are the tenant's prospects?  What's the typical time between tenants for commercial space in that area (not zero, since the upstairs is currently empty!)? Great question on the insurance policy - ill have to look into that. The tenant prospects seem great. In fact, the downstairs tenant wanted to buy the home but didnt have the cash for it. As of now, she would like to re up past when the lease ends in december 2018

4- What would you do with the $60k difference in down payment?  What would you do with the  $500 difference in monthly payment? Both id rather invest in VTI or VSAX. I'm a fellow mustachian and try my best to walk the walk.

5-  Is the location a place you want to live for at least several years? I think so, not 100% sure, but we both have really good jobs. DC real estate is pretty resilient, and i work for a pretty large organization in the federal government where really good people work that are always seeking convenient housing.

6-Perhaps most important: do you want to be a commercial landlord? Do you have the time and knowledge, or are you willing to pay someone else to do it?  (You provide very little information about that part of the building, so it's not possible to evaluate whether it makes sense as an investment. That suggests you're not thinking very hard about that side of the deal, though I could well be mistaken.) The idea doesn't bother me, particularly if it allows me to live where I would like to for a reasonable price. I also wouldn't say im the most adept at a partial home renovation, but i'd like to learn both! I think theyd be really valuable skills.

Cwadda

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Re: Buying my first home
« Reply #4 on: March 21, 2017, 03:47:36 PM »
Check in with your lender to see if mixed use properties are eligible for FHA financing. Iirc, you need a certain percentage dedicated to living space, while the rest can be commercial.

centdukesfan

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Re: Buying my first home
« Reply #5 on: March 22, 2017, 11:27:10 AM »
im actually really against the FHA at this point - its way too expensive in the short and log term.

However, the TSP (401k) loan is the thing im considering most. So that 50k has to be paid back in 15 years with the interest of the the lowest yielding fund (about 2%) which I also get to keep. I miss out on the potential interest free yield on the 401k, but I also end up financing less on the home.

Cwadda

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Re: Buying my first home
« Reply #6 on: March 22, 2017, 11:54:03 AM »
im actually really against the FHA at this point - its way too expensive in the short and log term.

However, the TSP (401k) loan is the thing im considering most. So that 50k has to be paid back in 15 years with the interest of the the lowest yielding fund (about 2%) which I also get to keep. I miss out on the potential interest free yield on the 401k, but I also end up financing less on the home.

I agree - it might not be the best opportunity to use FHA financing. It is quite expensive without a plan to refinance.

AMandM

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Re: Buying my first home
« Reply #7 on: March 23, 2017, 07:05:50 PM »
Did you get to see it?  Did your BIL come along?   How does it look up close?

I'd double-check the numbers, of course, but since you're up for the reno work, this sounds like a great opportunity!

P.S. The listing agent may try to keep part of his buyer's agent share for doing the showing--this happened to us. Our agent said he'd deal with it, but we ended up not buying the house.

centdukesfan

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Re: Buying my first home
« Reply #8 on: April 04, 2017, 12:08:21 PM »
OK so we signed on the house! Negotiated the price to 500. However, we aren't home free yet. Looks like because the property is zoned commercial and residential with an inherited lease, most lenders won't touch this type of property. Quicken has denied it based on it not conforming to fannie mae regulations. I hate bureaucracy.

So wells fargo seems to be really confident they can finance this home. Great. However, they need to do the appraisal. I don't think I could be clearer about the state of the current property and its future as residential, but it seems as though they still want to finance it.

I have this fear the appraiser is going to come back with an incomplete appraisal due to not having a kitchen or full bath upstairs. Any advice? I hear if you put an oven in the upstairs it will suffice for a kitchen. There is already a fridge upstairs so thats good i suppose.  I also dont want to pay for an appraisal that I cant use if i end up having to go with a commercial loan.

any advice is appreciated!