Should I buy a house??? (insurance, loan, interest rate, escrow)
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Hello, I am 21 years old, active duty military, and need some advice on whether I should buy a house or not.
Here's my plan. I leave active duty July 2015, and will go to college using the GI bill. I'll try to get a mortgage loan 6-12 months before I get out. That way, I can use my military paycheck as my verified income. When I get out, I will receive BAH at $900/month, 36 months total on the GI bill. Assuming a 30 year mortgage for a $150,000 house at 5% interest, monthly payment will be $805/month.
Now, for initial costs, I currently have ~$30,000 saved up. By the time I get out, I will have at least $60,000, probably more. For a 20% down payment on $150,000, that's $30,000. I'll round up to $40,000 for other initial costs, and to be on the safe side. $10,000 will be used between semesters for mortgage payments for the 12 months I will not be receiving BAH.
That leaves me with ~$100/month with $10,000 in the bank for living expenses. It's probably not enough, but I haven't even factored in a part time job or that I hope to find at least a 2 or 3 bedroom house, so that I can rent out a room or two at $400/month, which is reasonable for the area.
Once I'm all done with school, I'll look for a job, and continue to rent out the house to students.
I would like to hear your opinions on if my plan is a good one or not, or if I am missing any major expenses I should be factoring in. Should I buy a house? Or should I forget about all of this and just rent while in college? I don't like the thought of living in a place someone else owns. Although I can get over it if buying a house is completely unreasonable.
Depending on where you go to college it may not be easy to locate a low priced home that would be easy to rent to other students so that could be a major stumbling block.
The rest of your plan is mostly OK, especially if you , like most who've been in the military, have solid work habits / time management skills / non-nonese attitude.
I genereally discourage younger people from buying real estate unless it is in an area of higher demand, and then the problem is more affordability than anything else. With your GI bill money and savings you are in much better shape than the average kid.
You almost certainly do not need to use 20% with a VA loan and since they assumable that is an EXCELLENT program -- basically should you need / want to sell the low rate loan will make you place VERY attractive should interest rates move up.
Leverage will allow you to keep more of your savings in the bank (or some other safe liquid investment...) and LOTS of unexpected expenses come up when you are a new homeowner / new landlord / college student. Use minimal downpayment to give yourself breathing room!
Renting is not the worst use of your money BUT if you can find a place to buy that will allow you to build equity that is a better plan than only having a drawer full of rent reciepts. If you choose a major that will allow you to show future employers your ability to manage property / finances on top of your military experince you can really set yourself apart from the otherwise unimpressive collection of new grads.
I should have pointed out that I would only buy a house if, and only if it was at an affordable price and near the college. (I've been looking around and have seen a few, although obviously they probably won't be on the market 2 years from now)
I have looked into the VA loan, and have found that it won't work in my situation. The home is required to be my primary residence, and since I plan to buy out of state, I can't apply while I'm on active duty. Also can't apply after I'm out, because I'll have no verified income. So I'll have to get a regular mortgage loan from a bank or credit union (I'll shop around when the time comes).
As for using my active duty pay as my income, then getting out, that wouldn't be considered fraud or anything would it? I mean I'm only doing that as a means of qualifying for a mortgage. I see nothing wrong with it as long as I pay all my monthly payments on time. It's no different from any other person just losing their job. Right?
I admit I was high-balling it a bit on the down payment. I'd rather hypothetically spend too much money, than to actually do it in real life.
I never thought about how owning property and managing finances could be appealing to a potential employer, especially at a young age. Thank you for bringing that to my attention.
So, still a good idea considering no VA loan? The thing I'm more worried about is a finding a part time job and renters.
I currently have ~$30,000 saved up... will have at least $60,000, probably more.
2 or 3 bedroom house, so that I can rent out a room or two
...and continue to rent out the house to students.
I would like to hear your opinions on if my plan...
Think minimum down.
Think conserve and invest your CASH elsewise.
Think BOQ... (UNI staff and grad students; NEVER undergrads)
Think tenant income for X years = total purchase.
Think deductible operating expenses.
Think deductible repair expenses.
Just rent. Interest is front loaded, so you wont be paying down your mortgage anytime soon. Just sock the money away, finish college, get a "real" job, then think about buying. If the market goes down in your area, and you need to sell when you finish school to accept and out of town job, you just lost all that cash.
If you do this right, as with the outline Mr. Rational pointed out, you could own a home with roommates paying all or most of your mortgage. Living somewhere for free (or close to it) ain't bad.
I have another question though. Would lender qualify me for a mortgage knowing that I will leave active duty, and only having the money I described in my first post? $60,000 saved up $900/ month? Would you?
I have also looked into no income verification mortgages. Would this be a good idea?
I should have pointed out that I would only buy a house if, and only if it was at an affordable price and near the college. (I've been looking around and have seen a few, although obviously they probably won't be on the market 2 years from now)
I have looked into the VA loan, and have found that it won't work in my situation. The home is required to be my primary residence, and since I plan to buy out of state, I can't apply while I'm on active duty. Also can't apply after I'm out, because I'll have no verified income. So I'll have to get a regular mortgage loan from a bank or credit union (I'll shop around when the time comes).
As for using my active duty pay as my income, then getting out, that wouldn't be considered fraud or anything would it? I mean I'm only doing that as a means of qualifying for a mortgage. I see nothing wrong with it as long as I pay all my monthly payments on time. It's no different from any other person just losing their job. Right?
I admit I was high-balling it a bit on the down payment. I'd rather hypothetically spend too much money, than to actually do it in real life.
I never thought about how owning property and managing finances could be appealing to a potential employer, especially at a young age. Thank you for bringing that to my attention.
So, still a good idea considering no VA loan? The thing I'm more worried about is a finding a part time job and renters.
Respectfully,
Charcoal91
The VA loan will work in your circumstance, and I highly recommend reconsidering this program. The VA funding fee on purchases is 3.4% of loan amount, which you said would be $150,000. If you do the math, your VA funding fee amounts to a measly $5100. However, there are 3 other closing costs typically associated with a mortgage, which includes the title fees, recording fees and bank origination charges. I actually work for a military bank designed to service loans exclusively for current and former military men and women, which is worth mentioning because my bank offers a product designed to waive the other 3 aforementioned closing costs associated with your VA loan.
As for your interest rate, you are in for a pleasant surprise. Today, rates are trending between 3.25%-3.375%, which makes your P&I payment (principal and interest payment) only $675.01/month on a 30 year fixed loan. If you can provide your zip code, I can let you know what the total house payment would be with taxes and insurance included.
As for your plans to eventually leave the military, you are not required to disclose this information, and no bank will go out of its way to request this information, since your mortgage is only determined by your current circumstances and past credit history. Anything that might happen in the future is arbitrary and irrelevant.
Sadly, much of the information found on valoans.com is either inaccurate or incomplete. I am in constant contact with the Denver VA, and actually just wrapped up three closings in Colorado this month (Parker and Aurora). Here is a brief and easy powerpoint designed by the Denver VA, which should help put to bed any occupancy/eligibility concerns you might have: http://www.benefits.va.gov/rodenver/...occupancy1.pps
In a nutshell, the VA allows a major exception to the occupancy rule for active duty members, essentially allowing you to purchase a VA loan with the requirement that you will occupy the home as your primary residence no later than 12 months after closing. However, luckily for you, this requirement can be eliminated just six months after closing your loan if you opt to take advantage of your VA IRRL refinance benefit, which effectively relieves you of any occupancy requirements. The VA IRRL even makes it possible for you to rent the home out to tenants if you preferred to do so.
I sent you my employment information via PM.
Based on the zip code you provided, your estimated escrow balance amounts to $141 and some change each month, with $38.78 reserved for insurance and $103.40 dedicated to taxes. Your total estimated monthly payment is anticipated to be $817.19, although this figure relies on several assumptions (e.g. good credit history, fair DTI (debt to income ratio), etc). Worst case scenario, your payment wouldn't be more than $1,000/month, and this is an extremely conservative estimate.
Let me know if I can be of any further help to you, soldier. All my help and advice is offered to you as a reflection of my appreciation for your service to our country--big salute to you, buddy.
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