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Old 03-28-2013, 09:06 AM
 
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Just curious if most try to avoid paying PMI or just roll it into their payments. I have told my oldest to avoid PMI even if it means waiting a year longer to own. I think it will be a buyers market at least another year. Also do most of you first time homeowners do 28% or the old 33% of income to look at pricing of homes? I know their realtor that they have been talking to says for example if you make $100,000 combined then you can look at homes over $250,000. That seems high to me. Any realtors out there care to comment?
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Old 03-28-2013, 10:36 AM
 
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I wouldn't worry too much about the PMI itself. I will tell you that a lack of equity can cause problems if the house needs to be sold. One can get a mortgage with as little as 5% down, but that means that the buyer is immediately "under water" because they would have to pay 6% commissions if they have to sell.

If one can wait and have 20% down, then I would recommend it. However, it's very hard to save 20% of 250k, thats $50,000 (plus another 5k in closing costs).

As far as what you can afford, I would look at an actual budget. I assume $500 for food, $250 for electricity, $150 for can insurance, $200 per car for gas, etc. (including retirement, always put away money into retirement). Overestimate each of these so that you have some wiggle room. Then make sure that you have at least $1,000-$1,500 left after all bills and mortage payments. Buy a house based on what you make today. A first time homebuyer may overextend themselves assuming that they will get raises in the future. The problem with this is that they are playing catch-up. If they buy a house based on today's income, then they are comfortable today and things should only get better as they go forward.

Assume that all repairs will cost 200% of the expected amount.
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Old 03-28-2013, 11:40 AM
 
Location: The Triad (NC)
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Quote:
Originally Posted by goodgal View Post
...for example if you make $100,000 combined then you can look at homes UP TO $250,000.
UP TO... not to start there.

If you have substantial down payment money and will still have plenty of cash on hand as well as in
retirement funds (401K's and IRA's etc) and few if any other structured debt (car loans? student
loans? credit cards?) then you might be able to justify looking at UP TO $300,000.

But if that $100,000 combined income can reasonably be expected to be lower over the next few
years (like when they start having children and will want to be home more?) then shop based on
that lower amount of income.

hth
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Old 03-28-2013, 01:58 PM
 
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We opted to pay the PMI up front.
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Old 03-28-2013, 02:42 PM
 
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PMI is usually fairly small, so don't use it as the only thing to prevent you from buying a great house at a great price or something. If you can avoid it great though.

We bought at the market low in our area with 10% down so we had to have PMI but within 3 years our PMI is gone because we have been making nearly double payments the last 2 years.
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Old 03-28-2013, 03:40 PM
 
Location: The Triad (NC)
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Quote:
Originally Posted by jamiecta View Post
PMI is usually fairly small...
Care to quantify what "fairly small" means to you?

Another 14% on top of Principle and Interest isn't small to me.
PMI Calculator
($221-5% x 30years @3%) produced a monthly of $885 for PI + $126 for PMI.
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Old 03-28-2013, 04:35 PM
 
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Quote:
Originally Posted by MrRational View Post
Care to quantify what "fairly small" means to you?

Another 14% on top of Principle and Interest isn't small to me.
PMI Calculator
($221-5% x 30years @3%) produced a monthly of $885 for PI + $126 for PMI.
Keep in mind PMI does not stay the entire life of the loan.
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Old 03-28-2013, 06:23 PM
 
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Quote:
Originally Posted by MrRational View Post
Care to quantify what "fairly small" means to you?

Another 14% on top of Principle and Interest isn't small to me.
PMI Calculator
($221-5% x 30years @3%) produced a monthly of $885 for PI + $126 for PMI.
Our PMI is $89/month on a house that was bought around $190k at the time. We also write our PMI off on our federal taxes thus lowering the burden even more.

Extra mortgage payments in year 2 and 3 got us to 20% and the PMI is now off. If your PMI is being paid for 30 years you took bad terms on a loan.

What I was saying is that, it isn't necessarily always worth waiting another few years for someone to save from say 10% to 20% toward the down-payment, especially depending on the market. I always planned to wait until I had 20% set aside dedicated to a down-payment, but when the market bottomed in our area in 2010, we went ahead and bought with 10% towards our down-payment. The house is up about 7% from that time using neighborhood comps. If we would have waited until this year to buy the house, sure we would have avoided the 3 years of PMI (~$3000) but spent $7000 more on the same house today or not have been able to buy the same house within my budget (which I had set at close to half the value we were approved to borrow) You also start building equity 2-3 years later.

So, what I'm saying is that, yes if you can avoid PMI it is definitely nearly always better to do it (some could argue opportunity cost of the market vs the crazy low rates these days for sure. I have friends who put down as little as 5% because they are making double digits in the market the past few years and they are coming out ahead vs PMI and mortgage interest), but typically PMI is fairly small compared to the overall cost and if you are good at planning your finances and buy within your means you'll probably pay it off in a few years anyway. So, it shouldn't be a main deciding factor when buying a house in my personal opinion. There are lots of other, more important factors to worry about.

I will note I am 28 and this is our first house, but I did a ton of research before buying it 3 years ago and feel comfortable with our decision to just put 10% down at the time and jump on the low prices.
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Old 03-28-2013, 07:48 PM
 
Location: NC High Country
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Quote:
Originally Posted by jamiecta View Post
Our PMI is $89/month on a house that was bought around $190k at the time. We also write our PMI off on our federal taxes thus lowering the burden even more.

Extra mortgage payments in year 2 and 3 got us to 20% and the PMI is now off.
I will note I am 28 and this is our first house, but I did a ton of research before buying it 3 years ago and feel comfortable with our decision to just put 10% down at the time and jump on the low prices.
Your scenario makes perfect sense for you, but I don't know how many others in your age bracket are disciplined enough to make double (or extra) payments for an extended period of time. Good for you!
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Old 03-28-2013, 07:59 PM
 
Location: The Triad (NC)
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Quote:
Originally Posted by jamiecta View Post
Our PMI is $89/month..
vs how much for P&I?

(that objective quantify thing again)
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