Buying a House (Page 2)

Just checked to be sure. 

Last year they changed PMI so if you get an FHA loan you have to keep PMI for the life of the loan and the price went up.

So like I said, my loan from 2010 has an $85 per month PMI but it goes away in 5 years. My loan was based on $40 per $100k borrowed. The new rate is $95 or so per $100k borrowed per month. And for the life of the loan. So the FHA is not near as good of a deal as it used to be. 

Decent info I found.

http://www.anytimeestimate.com/FHA/fha-funding-fee-mortgage-insurance.htm

The money you put into PMI is gone forever, guaranteed, and you gain NO ADVANTAGE from PMI.  It's money you're paying to protect the lender.  

If you're going to have equity in the house, then presumably you can open a HELOC if you really, really need cash.  Otherwise, save the money that you would have been putting into PMI as an emergency fund.   Every month you do this, the chance you need a HELOC decreases, and the chance you can use your "emergency fund" increases.  Plus, you can be earning at least a little bit of interest on your savings. 

In today's lending market, you definitely DO get a better rate for putting 20% down, AND for having good credit.   It's a double(or triple!)-whammy if you're not putting 20% down. 

Never EVER pay sticker price!  I would also recommend getting something close to work as well.  I made the mistake of getting what my wife wanted and now I have over an hour drive to work everyday....(that's just one way)....sigh

Is it just me or do banks really run this world?  I mean I already know the honest answer to that...(it's YES of course).  PMI is such a joke.  We are almost done paying it on our loan but good god. 

It leaves a bad feeling in my rear end so to speak...

To me, that depends on how much money is left in the bank after you do that. If you put 100% of your cash into your 20% down and have zero left for emergencies or living life... are you really better off? These are the types of situations where people think they are doing the right thing, then life happens, and suddenly they've maxed out 3 credit cards because they didn't have any cash. 

Maybe one isn't any better than the other when you calculate it all up? But I think from a stress level perspective, having cash on-hand to deal with life is a heckuva lot better than relying on high interest credit cards and then struggling to pay them off. 

Thisx100

$5,000 will get you about $20/month off your mortgage. Putting $5,000 on a credit card because you need a plumber, electrician, HVAC repair etc. will cost you hundreds. And if you find yourself in a better financial position later, you can refinance.  If you find yourself broke next year, you are SOOL.

Of course anything could happen... but you won't need to spend $5000/year every year.     Last year we had to buy a new furnace.  Yeah, that is NOT a fun way to spend money but it was the only major house expense that wasn't really planned (so, not including maintenance items that come with a house like snow shovels, a gallon of paint, etc).  The $3000 we spent on the furnace is $250/month.  If your expenses are SO tight that amount would send you into a credit tailspin, you probably shouldn't buy a house to begin with (or be interested in triathlon ). 

Ideally you would save the money saved on PMI, better interest rates, etc, and put that into your emergency fund from day one.  It will build up quickly.  

This reminds me of another tip:  If you don't have a lot of cash, make sure to only buy a house with appliances (kitchen stuff, furnace, everything) that is not likely going to need replacement for x (5?) years.    You may have to make a more utilitarian investment to start with until you replenish your cash after the expense of actually buying the house.

Also, if you decide to go for a more expensive loan (by not putting down more up front, or perhaps taking a 30 year when you can afford 20) you can always work on the principle by paying more each month.  

Another side to this is that around here, housing prices are going up quickly enough that you can't keep pace saving to have 20% down. Meanwhile, you are literally flushing money down the toilet every time you write your rent check. Buying a house, you are essentially writing yourself a check for the money that ends up going towards your principal.

Also, tax benefits are wonderful.

Can be a bit difficult to save enough for 20% down when you are paying rent. Based on the rent I was paying vs. my current house payment it would have taken me 6.8 years to save the 20% down. Which would have cost me $73,400 in rent over that time. Hard to throw that much money away on someone else's mtg.

Anyway, I was lucky, I bought in 2010, got the $8k tax credit, and my house has gained $80k+ in value since I bought it 4 years ago, and is looking like it will keep climbing. Hard to pass up when you can get a house for less than half of what it originally went for. Prices aren't near as good right now.

Thanks

Amen on the stressful part, I think I'm going to start losing hair at 24. 

That's why I suggested a HELOC instead of Credit cards.  In most cases, interest on the HELOC is tax deductible, which can also help. 

In both examples(yours and mine) , you're "financing" your emergency.    If you put 20% down on a $100,000 and have a $5,000 emergency in the first 5 years, you're going to finance part of the emergency.   You can use a credit card or a HELOC, or borrow from friends, or take out a personal loan.  The amount you have to finance depends on how many months you've been saving.  If you're disciplined enough to "kite" the balances, you can usually manage a 0% loan for at least a year on credit cards.  (that's clearly not for everyone... but credit cards are a FANTASTIC deal for disciplined users) 

If you keep the money and pay PMI (for an FHA loan, in the worst case) You are "financing" that emergency, even if it never happens, for the next 360 months, at $95/month.  You're paying $34,200 for the option to keep your $20,000 in cash.... for an emergency that may never come.  (that's in the neighborhood of 1.5% "loan" on your down payment, basically)   

If you're savvy enough to find a liquid location for the money that will consistently return more than $95/month... you can have the best of both worlds, I guess. 

I whole-heartedly agree with you that each person needs to judge their own stress level about the money.   BUT, people should "do the math" and set their stress level accordingly.   If holding that $20k helps someone sleep better at night, that's great!   But they should figure out the real cost, so that it's not a false security. 

THIS........the sellers of my current home started playing games 11th hour and I did walk away.  The realtors had a come to jesus talk with them and they backed down. They decided paying a mortgage on a vacant place for another 6 months or more was a bad idea.

I'm gonna second this.  Excellent advice. 

This is, in most areas of the country, a buyer's market.   Interest rates are amazing.  If you can remember that you are shopping for both a house and a mortgage and you have reasonably good credit, this should be an excellent time for you to buy, especially as we head into spring.

A few additional things to consider that I haven't seen mentioned here:

If you have a good lawyer, consider looking at FSBO.  Even though you're the buyer (the seller usually pays the relator fees in a house transaction), you could get a better deal if you go FSBO.  A lawyer will probably be willing to work on a flat rate for a real estate transaction which would include drawing up your offer, counter offers, and work with a seller's lawyer on negotiations and paperwork.  $350-500 for each the seller and buyer vs. seller paying 6% in realtor fees.  They might be willing to sell for less if there's no realtor involved.

Most people hate negotiating.  If you're not emotionally invested, you can lowball your offer, especially because you're handy.  Look at comps (like houses in the same area that have sold in the last year) and calculate what they sold for on a per sq. ft basis; that gives you a ball park of what you can offer and what you can afford to put in and still recoup without adding sq footage.

I would consider a 5/1 ARM in your situation.  ARMs will have lower rates most likely than a 15 or 30 year fixed, and you're a young dude.  You can always sell or refi.  I would also strongly suggest looking for a local bank that keeps small (anything that isn't a jumbo--less than $417K) in-house.  They will offer lower rates, especially on ARMs, than if they have to sell a fixed rate mortgage on the secondary market.  Our bank offers an in-house 5/1 at 3.35% right now.  Not bad.

Good luck! :)