Thinking of buying a house

BlueFox

Ducati Guy wrote: »

Everybody wants the best house they can "afford" so most everyone gets a 30 yr loan.

This is the worse possible advice ever!

Yes and no. I agree paying off a house as soon as possible is better. Forget the nonsense advice of not paying off your house, and investing the money instead. While in some MBAs wet dream that might make sense, in the real world not having to make a monthly payment is much better.

The benefit of a 30 year mortgage is the payments are lower. The drawback is your total cost is higher with all the additional interest payments. However, there is nothing stopping someone from doubling up the payments and paying if off sooner. Then if something happens, and you are strapped for cash, the lower 30 year payment is better than the higher 15 year payment.

I had a 30 year mortgage and payed it off after 11 years. Believe me, it is great not writing that huge check every month. Now I can buy a power cable instead.

nooshinjohn

We are in 30 year now, but will be doing a refi when the income makes sense. We are currently sending 300 bucks a month over our nut to buy down the principal. I think it is better to get the lowest payment possible to reduce the risk of not being able to afford it later if an emergency pops up.

txcoastal1

I'm with John, I prefer to buy down the principle. I don't recommend that to all as it takes discipline and disposable income.

Disposable income comes from not making purchases that will max out your income even when the crap hits the fan.

Also at the same time like I mentioned before if need be lower your budget but get into a house just to get out of the renters pool.

Put equity in your pocket and not others asap.

tonyb

BlueFox wrote: »

The benefit of a 30 year mortgage is the payments are lower. The drawback is your total cost is higher with all the additional interest payments. However, there is nothing stopping someone from doubling up the payments and paying if off sooner. Then if something happens, and you are strapped for cash, the lower 30 year payment is better than the higher 15 year payment.

I had a 30 year mortgage and payed it off after 11 years. Believe me, it is great not writing that huge check every month. Now I can buy a power cable instead.

Yep, a 30 yr. mortgage can be done in 15 by simply making an extra payment or 2 a year towards principle. The advantage is it's up to you as your financial situation changes. If your locked in at the higher 15 yr payment and your finances takes a turn for the worse, what then ?

The name of the game is disposable income, you have to keep some for the ups and downs, the curveballs life throws at you.

GospelTruth

There has been lot's of good advice here from multiple individuals. I have to say when I bought my first house, I went in blind and it cost me in some areas. At the point I bought the second home, I was making good money as an independent consultant. Because I was the owner of my own company (Corp S Type) the banks didn't like the fact that I wasn't working for someone else. I even had 30% down on a place and they still balked (The condo I was buying was 1/2 of what I could have afforded by their own estimates). Their thought was that if I worked for another company I would have a more stable income and was less risk. I showed them my income over the past two years as well as current contracts that went out another two. Still they didn't like it, so I had to pay a full 1% higher interest rate to secure the loan. This was before the housing crash. You may expect to pay a higher rate as well if you are applying under your own income.

After the housing bubble, I ended up getting married and found a job out in Nevada that was more suitable to our lifestyle. To move, I had to sell my condo - which I could do even though it had lost value because I hadn't bought something out of my budget. I could afford to move and take a new job. I had buddies who wanted to move out of Michigan and couldn't because their bigger houses had dropped so much they couldn't afford the losses without going into bankruptcy.

We did end up buying out in Reno, NV and got a foreclosure that we could have never afforded at the height of the housing boom. That was the good thing. But we still bought a house that I knew we could afford if we ever had kids and my wife wanted to work raising kids. We are now able to do that because of the choices we made when home shopping.

So with that story, here's my advice. Not all may apply to your situation:
<ul>
<li>If you can, buy a house that you can afford on one income. Make a budget, do the math. Put down all your expenses and add them up so you know how much you will need a month. Figuring that stuff in your head usually doesn't work - at least not for me. Seeing it on paper is a lot more revealing. </li>
<li>With the above said, with any house you are about to buy, get a years worth of records for the electrical and gas bills. You will want to see how much it costs to air condition in the summer and heat in the winter (I don't know how cold it really gets in Southern Cal in the winter though). You'd be surprised how much some houses cost to air con in the summer if the house is poorly insulated or has compressor units that need to be replaced. My first house was an old Victorian. It cost almost $400+ a month in the winter to heat and that was just the gas bill. It pays to figure out what you can expect to pay in utilities.</li>
<li>Put aside money for any updates to a house. I can't remember exactly, but somewhere I thought I read that a home owner should expect to pay 1-2% of the home value in upkeep a year. That's for roof replacement, windows, water heater, heater, air con, faulty facets, leaky toilets, you name it. You don't think it will add up, but it does.</li>
<li>Expect the bank to want a lot of income records from you if you own your own business. They will want to see not only your 1040, but also the business records as well. I had to provide a lot of information to the banks when we got our last house and half of it was my own business related information. </li>
<li>Buy a house with a yard you are comfortable maintaining. If you like to get to the beach on the weekends, don't buy a house that needs a lot of mowing, or pruning in the yard. You don't want to be married to the yard work unless that is something you and your wife enjoy.</li>
<li>Don't buy a house as an "investment". You never know what the market will do. This doesn't mean don't buy a fixer upper. Just don't buy something assuming it will always go up in value.</li>
<li>Don't let any one talk you into something your gut says to walk away from. Some realtors and banks feed on your dreams, not necessarily what you are able to do.</li>
<li>If you can, save like mad to put down 20% so you can avoid paying PMI.</li>
</ul>
Even with all that said, I know there are people who still lost their houses and jobs during the economic downturn. The above advice isn't going to ensure that nothing happens to your or your family. You can't guarantee anything, but you can be smart in your approach to reduce any risk in buying a house. I hope it all works out for you!

nguyendot

On our third house. First house is at an insane rate, but we had no down payment back in 2006 when prime rates were 6%+. We were poor but needed a place to stay and I hated the idea of throwing money away on an apartment.

Now we have that as a rental that helps support our income, and the last house we found "the worst house in the best neighborhood" as someone mentioned earlier. Luckily the entire community was new so "worst" meant "smallest". We do know how to fix homes after living in our first house, a 1962 ranch style. Anyways my advice is similar:

15 yr loans are great if you are absolutely certain you can afford it - but no one knows if they'll be employed tomorrow. We did 30 and honestly the effective APR goes down if you pay faster. I always worry if one of us loses a job what we'll do. We purchased in such a way that if anyone loses their job we should be OK for at least 5 years. I think it was much easier for us to purchase because of location. You guys/gals out in California have it rough for what you get for your money.

Here in Oklahoma it's not so exciting, but you can get brand new all brick homes starting at 120k for 1100sq ft. Move up 30k and you get about 1500 sq ft and possibly granite, tile, etc. Move up to 200k and you actually have a very nice 1800-2000sq ft home. $/sqft here varies from 60 to 140 depending on area, but that's cheap on either end compared to you guys.

Don't spend more than 30% of your combined income, that's just my personal opinion.
Put your toys on the back burner - you will always have time later.
I sold about 80% of my collection to put a down payment on the last house. We lost about 500sq ft of storage for my gear so it had to go anyways. The cash flow allowed me to buy a nicer home, which in the end is more important when you're about to have a child.
Get rid of car payments. I'm thinking long and hard about selling my BMW and just buying a beater that is safe enough for my daughter's child seat. We have a new SUV already so I can always wait til later, like the audio toys. $600/month will go a long way in a mortgage as opposed to a car.
Pay down whatever highest interest stuff you have. I didn't see that you had any, but a lot of people do. Credit cards, student loans, etc. My wife has crazy student loans, one with 10.5% variable APR and they couldn't tell me when the last payment was. I think I calculated it would be over $50k to pay off her $10k loan in the end. I wrote them a check last week with "F@#$ You" in the comment and paid it off. Sure it ate into pretty much any fun money for the next few months, but hey it's better than paying the man interest for the foreseeable future.

One thing I did not do: take any money away from enjoying my family. When we had my daughter I splurged on whatever. I didn't have nice things growing up like her and I want to spoil her until she can realize she's being spoiled. You can try to save money everywhere, but you can't ever get time with your family or the enjoyment back. Splurge...within means.

audiocr381ve

This is what I'm working with ......

http://www.10news.com/news/report-salary-needed-to-own-home-in-san-diego-nears-100k

audiocr381ve

GospelTruth wrote: »

There has been lot's of good advice here from multiple individuals. I have to say when I bought my first house, I went in blind and it cost me in some areas. At the point I bought the second home, I was making good money as an independent consultant. Because I was the owner of my own company (Corp S Type) the banks didn't like the fact that I wasn't working for someone else. I even had 30% down on a place and they still balked (The condo I was buying was 1/2 of what I could have afforded by their own estimates). Their thought was that if I worked for another company I would have a more stable income and was less risk. I showed them my income over the past two years as well as current contracts that went out another two. Still they didn't like it, so I had to pay a full 1% higher interest rate to secure the loan. This was before the housing crash. You may expect to pay a higher rate as well if you are applying under your own income.

After the housing bubble, I ended up getting married and found a job out in Nevada that was more suitable to our lifestyle. To move, I had to sell my condo - which I could do even though it had lost value because I hadn't bought something out of my budget. I could afford to move and take a new job. I had buddies who wanted to move out of Michigan and couldn't because their bigger houses had dropped so much they couldn't afford the losses without going into bankruptcy.

We did end up buying out in Reno, NV and got a foreclosure that we could have never afforded at the height of the housing boom. That was the good thing. But we still bought a house that I knew we could afford if we ever had kids and my wife wanted to work raising kids. We are now able to do that because of the choices we made when home shopping.

So with that story, here's my advice. Not all may apply to your situation:
<ul>
<li>If you can, buy a house that you can afford on one income. Make a budget, do the math. Put down all your expenses and add them up so you know how much you will need a month. Figuring that stuff in your head usually doesn't work - at least not for me. Seeing it on paper is a lot more revealing. </li>
<li>With the above said, with any house you are about to buy, get a years worth of records for the electrical and gas bills. You will want to see how much it costs to air condition in the summer and heat in the winter (I don't know how cold it really gets in Southern Cal in the winter though). You'd be surprised how much some houses cost to air con in the summer if the house is poorly insulated or has compressor units that need to be replaced. My first house was an old Victorian. It cost almost $400+ a month in the winter to heat and that was just the gas bill. It pays to figure out what you can expect to pay in utilities.</li>
<li>Put aside money for any updates to a house. I can't remember exactly, but somewhere I thought I read that a home owner should expect to pay 1-2% of the home value in upkeep a year. That's for roof replacement, windows, water heater, heater, air con, faulty facets, leaky toilets, you name it. You don't think it will add up, but it does.</li>
<li>Expect the bank to want a lot of income records from you if you own your own business. They will want to see not only your 1040, but also the business records as well. I had to provide a lot of information to the banks when we got our last house and half of it was my own business related information. </li>
<li>Buy a house with a yard you are comfortable maintaining. If you like to get to the beach on the weekends, don't buy a house that needs a lot of mowing, or pruning in the yard. You don't want to be married to the yard work unless that is something you and your wife enjoy.</li>
<li>Don't buy a house as an "investment". You never know what the market will do. This doesn't mean don't buy a fixer upper. Just don't buy something assuming it will always go up in value.</li>
<li>Don't let any one talk you into something your gut says to walk away from. Some realtors and banks feed on your dreams, not necessarily what you are able to do.</li>
<li>If you can, save like mad to put down 20% so you can avoid paying PMI.</li>
</ul>
Even with all that said, I know there are people who still lost their houses and jobs during the economic downturn. The above advice isn't going to ensure that nothing happens to your or your family. You can't guarantee anything, but you can be smart in your approach to reduce any risk in buying a house. I hope it all works out for you!

Awesome advice & thanks for sharing your story! You all don't know how much your advice/concerns have been helping me think all of this through.

At this point, we're going into saving mode. We're gonna do this right and buy something we can afford on one income that needs a little work, save to have a nice down payment, and have 4-6 months of expenses saved as a cushion. I see us buying late 2015, and I'm sure that'll give us enough time to map this out.