First Time Home Owner Questions

Quote from jmkalfut : Hello All, Long time SlickDeals surfer for deals, but coming to you folks for some help on something completely new to me... home buying. Let me give you a scoop on what I am thinking. I am currently renting @ $1450 month and looking at dumping the rent and purchasing a home. My plan is to live in this home for the next 5 to 10 years and hopefully build some equality and sell it. There is a home near by my area in metro Detroit that is $277,900. Gross income is approximately $96,000 / yr and a credit score of approx. 785. Spoke with Chase, Quicken Loans and a smaller local lender. All have pre-qualified me for basically as much as I want, but I want to keep it under $300,000. They're recommending I use a FHA loan fixed for 30 yr @ ~3.25% or so (depends on lender) with about $10,000 down (leave me about 10k liquid and 6k in other assets). This also includes 1% as points (not sure what this is) and a mortgage payment of about $2100 with taxes, insurance and mortgage insurance. However, when I break it down it looks like about $1200 is going toward principal and interest, but at least within the first 5 years or so i am paying $700 towards interest and $300 to the principal. Now obviously that isn't a great idea, but is that just how this works or I should look at 15 yr fixed, ARM, etc? Also looking for tips for home buyer credits, tax breaks, etc. Thanks!

Check out www.aimloan.com, www.amerisave.com, www.provident.com.

I personally find them to have better rates than most. Their 30 yr FHA with your value is only $4k down.

I don't know much about FHA but have historically found far better rates elsewhere on-line than through Chase, Quicken Loans, etc.

If you can swing a 15 yr it's a great way to not get eaten alive with the interest portion up front but that depends on how much you feel comfortable committing to.

your paying too much median sales price to $70,000

if you want to sell you need to be in a good school distrct


i would not get a Adjustable Rate Mortgage,rates are low now but they will go up after the electon
in a few years they will be 7 percent


http://www.freep.com/article/2012...-sales-dip

What's the most you could comfortably pay upfront?

Back of the napkin calculation says you will spend $20,000 more to live in the house over the next 5 years, than you would if you just stayed in your rental. I took into account rent increases, but also having to put money into the house.

You better be damn sure it not only goes up in value that much, but a lot more than that for you to re-coup all the associated costs that are involved with buying/selling property. I'd say that making the assumption that the value will go up a lot in the next 5-10years, in Detroit, is sketchy.

All interest based loans are front loaded with payments mostly to the interest on the life of the loan. The advantage in your case would be the tax deduction you'd get from paying interest, given your income, could potentially be around $5k a year. This would greatly help offset the cost increase mentioned above, but keep in mind, you pay the highest interest in those first 5 years, and it decreases over time, so your tax deduction reduces, and thus provides less benefit. I think you'll still come out ahead over the 10 year mark.

Frankly if it were me, I'd be looking at a home in the low 200's, ideally in a neighborhood where prices have leveled off, then do a 15yr ARM. You have more risk with the ARM, but going with a less expensive home, you are less cost sensitive when rates go up later.

Another option would be to keep renting for another year or two, save like crazy to get the 20% down.

While FHA does provide for up to 96.50% financing, the Up Front Mortgage Insurance and monthly MI premiums are relatively high compared to conventional financing.

As a broker I am biased, but would suggest speaking with a good MI mortgage broker who can show you all your options (i.e. Conventional 95%, Conventional 90%, FHA 96.50%, FHA 95% (as the MI is different between the LTV's).
-Adam

DO NOT do the FHA loan. There is no reason you can't save up an additional 1.5% for the down payment and go conventional (which is sounds like you already have). The rate will be a little higher, but your payment will be lower. The rate is attractive, but it's pointless to do it with your income and credit. It's going to be a lot more expensive loan.

PS, Stay away from Quicken. Also, Chase is taking forever to close loans.

Quote from Boomancini : DO NOT do the FHA loan. There is no reason you can't save up an additional 1.5% for the down payment and go conventional (which is sounds like you already have). The rate will be a little higher, but your payment will be lower. The rate is attractive, but it's pointless to do it with your income and credit. It's going to be a lot more expensive loan. PS, Stay away from Quicken. Also, Chase is taking forever to close loans.

This is great advice.

Quote from travathian : Back of the napkin calculation says you will spend $20,000 more to live in the house over the next 5 years, than you would if you just stayed in your rental. I took into account rent increases, but also having to put money into the house. You better be damn sure it not only goes up in value that much, but a lot more than that for you to re-coup all the associated costs that are involved with buying/selling property. I'd say that making the assumption that the value will go up a lot in the next 5-10years, in Detroit, is sketchy. All interest based loans are front loaded with payments mostly to the interest on the life of the loan. The advantage in your case would be the tax deduction you'd get from paying interest, given your income, could potentially be around $5k a year. This would greatly help offset the cost increase mentioned above, but keep in mind, you pay the highest interest in those first 5 years, and it decreases over time, so your tax deduction reduces, and thus provides less benefit. I think you'll still come out ahead over the 10 year mark. Frankly if it were me, I'd be looking at a home in the low 200's, ideally in a neighborhood where prices have leveled off, then do a 15yr ARM. You have more risk with the ARM, but going with a less expensive home, you are less cost sensitive when rates go up later. Another option would be to keep renting for another year or two, save like crazy to get the 20% down.

Pretty much took every word out of my mouth.

You're pulling in close to $100k per year and only putting $10,000 down? Something is off.

I don't know the Detroit market and cannot say it's bottomed, but my gut tells me we're no where one. If I were you, I'd look for an even cheaper place to rent, slash expenses and save some mad cash for the day when you can practically write a check for a home (ok, not really, but it will feel like it).

And to say "rates won't go any lower" is nonsense. The 10-yr just look out it's all-time low and, by the looks of it, is on it's way to becoming the 2 year. They're engineering the largest bond bubble in the history of mankind and it can still be puffed up more [think: 30-yr near 2%!]

What specific city is the house in?

http://www.detroitnews.com/articl...NTPAGE%7Cp

you said you don't know what a point is. 1 point = 1% you're paying the lender to give you the rate you're getting. you can pay 0 points, and have a slightly higher interest rate. make sure the 1% you're paying is worth your money. run the numbers. I personally never paid any points when closing, because I wanted more cash in hand for all the crap i needed to do to the house once i moved in.

Also, if you're young and single and have lived with roomates before and don't mind it, it can also help to have roomates paying off your mortgage for you. If you're going to buy a house, getting a room-mate could be the best thing financially... at least that was my experience.

Quote from cavan : your paying too much median sales price to $70,000 if you want to sell you need to be in a good school distrct i would not get a Adjustable Rate Mortgage,rates are low now but they will go up after the electon in a few years they will be 7 percent http://www.freep.com/article/2012...-sales-dip

School district is very good in this neighborhood.

Quote from zarfus : What's the most you could comfortably pay upfront?

About 15k. Unfortunately, I dont have 56k for 20% down.

Quote from Boomancini : DO NOT do the FHA loan. There is no reason you can't save up an additional 1.5% for the down payment and go conventional (which is sounds like you already have). The rate will be a little higher, but your payment will be lower. The rate is attractive, but it's pointless to do it with your income and credit. It's going to be a lot more expensive loan. PS, Stay away from Quicken. Also, Chase is taking forever to close loans.

The 1.5% more isn't an issue- this is just what the mortgage folks have been telling me was "OK".

Quote from tiedyed1 : While FHA does provide for up to 96.50% financing, the Up Front Mortgage Insurance and monthly MI premiums are relatively high compared to conventional financing. As a broker I am biased, but would suggest speaking with a good MI mortgage broker who can show you all your options (i.e. Conventional 95%, Conventional 90%, FHA 96.50%, FHA 95% (as the MI is different between the LTV's). -Adam

I guess that is the problem... everyone seems to be pushing for the FHA and not really giving me other options... but thats why I am here

Quote from Jeffbx : What specific city is the house in?

Clinton Township, right near the Partridge Creek Mall (if you're familiar with the area)