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Started By
Message
Advice on whether to buy a house.
Posted on 3/22/18 at 12:10 am
Posted on 3/22/18 at 12:10 am
So right now I’m renting. Live close to work/bars/anything fun and it’s a pretty nice place. I’m happy here but the rent is higher than my liking and Id prefer the right house over this apartment.
I’ve talked to a few friends that I’ve known for a long time and they were interested in renting rooms from me if I did buy a house. They have good jobs and they could easily afford the rent I would charge and they would be paying less than they would elsewhere. Their rent would essentially wipe out my mortgage payments. So win win win for all of us.
They’ve already tentatively agreed to the price range too.
My lease is running up in 3 months. So I’m trying to figure out exactly how this would play out before I do anything. The only part I’m really worried about is the down payment. Im not that far removed from college so don’t have a ton saved up so I’ve been trying to figure out a way to not stretch myself too thin with the down payment.
So I guess my main question is what is the minimum down payment you have to make? 5%? What can I expect closing costs to be?
My thinking was also to pay more than is due on my mortgage until I get PMI off since I essentially wouldn’t be paying any of my mortgage anyways. I could do this and build savings back up at a pretty good rate.
I’ve talked to a few friends that I’ve known for a long time and they were interested in renting rooms from me if I did buy a house. They have good jobs and they could easily afford the rent I would charge and they would be paying less than they would elsewhere. Their rent would essentially wipe out my mortgage payments. So win win win for all of us.
They’ve already tentatively agreed to the price range too.
My lease is running up in 3 months. So I’m trying to figure out exactly how this would play out before I do anything. The only part I’m really worried about is the down payment. Im not that far removed from college so don’t have a ton saved up so I’ve been trying to figure out a way to not stretch myself too thin with the down payment.
So I guess my main question is what is the minimum down payment you have to make? 5%? What can I expect closing costs to be?
My thinking was also to pay more than is due on my mortgage until I get PMI off since I essentially wouldn’t be paying any of my mortgage anyways. I could do this and build savings back up at a pretty good rate.
This post was edited on 3/22/18 at 12:15 am
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Posted on 3/22/18 at 4:36 am to Weagle25
Consider this
Buy a triplex , rent out two for enough to cover your note,
You live rent free, you have tax write offs, you are building residual income and you maintain your privacy.
Do this for a few years before you get into the house business
Buy a triplex , rent out two for enough to cover your note,
You live rent free, you have tax write offs, you are building residual income and you maintain your privacy.
Do this for a few years before you get into the house business
Posted on 3/22/18 at 6:39 am to Weagle25
I was in a very similar situation as you. One thing I learned was you almost can’t have enough cash. With closing costs, moving, general house repair it may need, furniture, round way up when it comes to having enough cash getting into your first house
My advice would be to wait a little and save as much cash as you can. Maybe find a cheaper place to live for a while. It is a sacrifice but it will pay off later. May not be a popular opinion but that’s what I’d do
My advice would be to wait a little and save as much cash as you can. Maybe find a cheaper place to live for a while. It is a sacrifice but it will pay off later. May not be a popular opinion but that’s what I’d do
Posted on 3/22/18 at 6:45 am to 756
I’m not really getting into the house business though. I’m buying a house for myself while making extra income. I would still have tax write offs this way. Just not as much.
Also I’m young so don’t really need the privacy.
Also I’m young so don’t really need the privacy.
Posted on 3/22/18 at 6:47 am to LSUstudent2006
Yeah that’s what I’m afraid of. I just keep looking at the situation I would have after moving in and it would be so nice. I would own a nicer house than I should at my age and be pocketing a bunch of money while I’m at it.
Posted on 3/22/18 at 6:48 am to Weagle25
You're nit ready. Also if you wouldnt be in it by the time your lease is up. I'd wait one more year, anything start looking 6 months or so in advance of your lease expiring.
Posted on 3/22/18 at 7:13 am to Weagle25
quote:
a few friends interested
This may go well for you for a couple months, maybe a year or two but your friends aren't going to be there too long before they go out on their own or something changes. In other words, I wouldn't put all those eggs in the basket.
Posted on 3/22/18 at 7:35 am to Weagle25
Consider this
What would happen if you didn't have any renters? What would your net income per month be? What will be your reserve money after a 5% down payment? You don't want to buy a house if you have to rely on rent money.
I don't think you're far off from this, but don't commit too much of your take home pay and become house broke. Also, typically when you buy a house, you can get the seller to pay for closing costs. That's where you negotiate as a buyer so you don't have to put as much down and even pay at a slightly higher note to avoid another 5-6k down up front.
Are you planning on living there for a while? Is the area you are looking projecting well moving forward? Buying typically shouldn't be a short term idea.
What would happen if you didn't have any renters? What would your net income per month be? What will be your reserve money after a 5% down payment? You don't want to buy a house if you have to rely on rent money.
I don't think you're far off from this, but don't commit too much of your take home pay and become house broke. Also, typically when you buy a house, you can get the seller to pay for closing costs. That's where you negotiate as a buyer so you don't have to put as much down and even pay at a slightly higher note to avoid another 5-6k down up front.
Are you planning on living there for a while? Is the area you are looking projecting well moving forward? Buying typically shouldn't be a short term idea.
Posted on 3/22/18 at 8:01 am to Weagle25
The thought of being my friends' landlord makes me anxious.
Posted on 3/22/18 at 8:06 am to Weagle25
I did literally exactly what you are contemplating and it could not have worked out better. Bought a house at 25 and didn’t have much money. Put down the minimum 5% on a conventional loan (avoid an FHA loan if you can). Had 2 buddies as roommates for about 2 years which basically wiped out my mortgage payment. It was gravy.
I asked sellers to cover closing costs (this was 5 years ago in more of a buyer’s market and they covered all but $2k). Also, ask them to leave fridge, washer and dryer.
The only mistake I made was not realizing at first the benefit of reaching 22% equity to remove PMI. I thought I was being smart opening a taxable brokerage account with my savings, but I realized later that paying extra on the mortgage to remove PMI was easily the better financial decision.
Also, keep in mind costs to furnish your house. Furniture, appliances, grill, plates, pots, pans, lawn care equipment, etc. all add up. I needed about $5k. Take advantage of interest free financing on furniture but don’t overextend yourself, just do it so you don’t blow all your cash.
I asked sellers to cover closing costs (this was 5 years ago in more of a buyer’s market and they covered all but $2k). Also, ask them to leave fridge, washer and dryer.
The only mistake I made was not realizing at first the benefit of reaching 22% equity to remove PMI. I thought I was being smart opening a taxable brokerage account with my savings, but I realized later that paying extra on the mortgage to remove PMI was easily the better financial decision.
Also, keep in mind costs to furnish your house. Furniture, appliances, grill, plates, pots, pans, lawn care equipment, etc. all add up. I needed about $5k. Take advantage of interest free financing on furniture but don’t overextend yourself, just do it so you don’t blow all your cash.
Posted on 3/22/18 at 8:14 am to Weagle25
I wouldn't buy a house without 20% down to avoid PMI.
Posted on 3/22/18 at 8:22 am to Weagle25
How long do you plan to be in the area where you are? Owning a house adds a level of complexity to just getting another job.
3.5% down for FHA, 5% for conventional are the minimums I think. Some lenders have lender paid pmi programs where you trade a slightly higher interest rate for upfront lender paid pmi. You'll have to do the math once you get to that point if its available to see if it makes sense for you.
I wouldn't spend more than 25% of take home pay for your TOTAL mortgage expense-Principle, interest, taxes, insurance, PMI.
3.5% down for FHA, 5% for conventional are the minimums I think. Some lenders have lender paid pmi programs where you trade a slightly higher interest rate for upfront lender paid pmi. You'll have to do the math once you get to that point if its available to see if it makes sense for you.
I wouldn't spend more than 25% of take home pay for your TOTAL mortgage expense-Principle, interest, taxes, insurance, PMI.
Posted on 3/22/18 at 8:42 am to AUjim
quote:
I wouldn't buy a house without 20% down to avoid PMI.
Good advice, but unrealistic for a first time home buyer most of the time unless they want to rent until they are 30.
quote:
I wouldn't spend more than 25% of take home pay for your TOTAL mortgage expense-Principle, interest, taxes, insurance, PMI.
I think gross income is a better number to base a % off of. Take home pay can vary drastically depending on what you choose to save for retirement.
Posted on 3/22/18 at 9:40 am to Weagle25
I'll be contrary to some on this board and say it doesn't sound like a terrible idea. You already have furnishings to fill an apartment, which means you have what you need to live in the house for a while until you can afford to furnish it like you want. Also, roommates will likely each have some items to furnish house.
I'd put down at least 5% to get conventional mortgage. FHA is a money pit these days.
I always lived with friends until I got married and had no issues. You just need to know who you're dealing with - I wouldn't live with anyone whose personality clashed with mine. Also, if you don't think you'll stay in the house for 4-5 years, it may not be worth it. You can always rent a big house and split rent 3-4 ways for cheaper rent (I did this in college).
Also, I wouldn't buy a house you couldn't afford if you didn't have roommates just in case. Ignore what the online calculators tell you. I wouldn't go over 25% of gross income if it were me (lower the better). After you buy the house, sock away some of the rent your roommates are paying you for repairs/necessary upgrades - this will happen and you're responsible.
I'd put down at least 5% to get conventional mortgage. FHA is a money pit these days.
I always lived with friends until I got married and had no issues. You just need to know who you're dealing with - I wouldn't live with anyone whose personality clashed with mine. Also, if you don't think you'll stay in the house for 4-5 years, it may not be worth it. You can always rent a big house and split rent 3-4 ways for cheaper rent (I did this in college).
Also, I wouldn't buy a house you couldn't afford if you didn't have roommates just in case. Ignore what the online calculators tell you. I wouldn't go over 25% of gross income if it were me (lower the better). After you buy the house, sock away some of the rent your roommates are paying you for repairs/necessary upgrades - this will happen and you're responsible.
Posted on 3/22/18 at 9:44 am to PhiTiger1764
quote:
I think gross income is a better number to base a % off of. Take home pay can vary drastically depending on what you choose to save for retirement.
That would suggest that net income is the better denominator, no? If you can't hit your allocation for a home as a percent of net income, it means you would need to limit your retirement contributions to be able to afford it. Which means you can't afford it.
Posted on 3/22/18 at 9:47 am to Brageous
quote:
What would happen if you didn't have any renters?
It would be slightly above what I'm paying in rent now. And I'm pretty comfortable with the amount I'm saving every month
quote:
What will be your reserve money after a 5% down payment?
Not much. That's the only part making me so hesitant.
quote:
Also, typically when you buy a house, you can get the seller to pay for closing costs. That's where you negotiate as a buyer so you don't have to put as much down and even pay at a slightly higher note to avoid another 5-6k down up front.
Did not think of that.
quote:
Are you planning on living there for a while? Is the area you are looking projecting well moving forward? Buying typically shouldn't be a short term idea.
Yes I was born and raised here and I'm very happy with the job I'm at and have good job security. The general area is definitely projecting well but I'm not sure about one particular neighborhood that has my favorite house right now.
Posted on 3/22/18 at 9:51 am to lsujro
Thanks for the advice guys. Gave me some stuff to think about. 
Also, just realized I can do a month to month lease to buy myself sometime once my current lease is up.
Also, just realized I can do a month to month lease to buy myself sometime once my current lease is up.
This post was edited on 3/22/18 at 9:59 am
Posted on 3/22/18 at 9:57 am to Weagle25
If you can get the seller to cover closing costs and put 5% down, I think you should be fine. You sound like you'll be there a long time and you can put extra towards your principal from your rent money early on to kill that terrible front end interest and get closer to ending PMI. Good luck.
Posted on 3/22/18 at 10:48 am to Weagle25
I'd seriously looking into a 2 mortgage setup to avoid PMI these days. Something like a 75/25. Payoff the 25% mortgage first.
Posted on 3/22/18 at 11:36 am to ATLdawg25
quote:
That would suggest that net income is the better denominator, no? If you can't hit your allocation for a home as a percent of net income, it means you would need to limit your retirement contributions to be able to afford it. Which means you can't afford it.
So a guy who makes $70k and maxes a 401k can’t afford as much house as a guy who makes $60k and doesn’t contribute to a 401k?
I think 25% is a ridiculously conservative number for net if you are even modestly contributing to retirement.
ETA: my point is that if you are being diligent about saving pre tax, I don’t think spending 30%-35% of take home on a house note is that unreasonable
This post was edited on 3/22/18 at 11:50 am
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