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Old 04-19-2015, 06:47 PM
 
29 posts, read 23,667 times
Reputation: 19

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I have been researching whether or not I can buy my first home, and what's the mortgage I can afford? I have talked to friends and agents (which feels a bit like preaching to the choir, and I get the feeling that talking to a loan officer would also be the same), and most of the advice was to go for it, however I am hesitant based on my research. I will put the details, and was looking to get some evaluations/analysis on what is doable. Thanks in advance for your input.

Research: Cash required to buy a home: Down Payment + Closing costs + moving + any repairs that may come up after moving into the purchased home + emergency expenses. However, this number gets pretty high when you live in a high cost metro.

If I put it into one of the online calculators such as on zillow, realtor etc which go with the 28/36 rule, based on combined gross income of low one hundreds, no debt,good credit score and history; I could go for a monthly mortgage payment (PITI + PMI) in the high two thousands per month. On the down side, I am located in the expensive DC metro area where homes with good rated schools are in the 400-500k range, and could only do 5% down payment, unless I did something like a loan against 401k to build it up to 20% and avoid PMI. There's also some money from tax benefits of owing a home, that I need to check into for how much it will factor into for offsetting some of the cost (e.g. if annual property tax is 4k, but by owning a home you get an additional 3k of tax benefit, then it offsets the cost by 2k - does this make sense?). Given all of that data, what would be the affordable mortgage payment for a typical family of four with kids in ES?


I have currently been in a full time job for over 5 years and changing could result in a bit of an income bump. Would job change from regular/full-time to freelance/1099 affect ability to get mortgage? Would I be better off changing jobs, getting increased income and saving up for more down payment first, or buying a home first rather than changing jobs to take advantage of the current interest rates? The home prices in the area have gone up about 20% in the last 4-5 years, so I do feel like delaying further may not be a good idea. On the other hand, the home prices seem to go in cycles, so maybe there will be a down cycle in another few years?

Lots of first time buyer questions, so TIA again for your valued input!
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Old 04-19-2015, 08:12 PM
 
12,404 posts, read 9,244,216 times
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Are you a single parent? I notice you have kids but say "I" rather than "we".

I think the standard 28/36 rule is too tight for single parents, given being at a higher risk of financial stress. If it were me, I'd shoot for a max of 70-75% of what they will approve you for, preferably less.
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Old 04-19-2015, 08:24 PM
 
12,973 posts, read 12,180,809 times
Reputation: 5399
Quote:
Originally Posted by pragmatic12 View Post
I have been researching whether or not I can buy my first home, and what's the mortgage I can afford? I have talked to friends and agents (which feels a bit like preaching to the choir, and I get the feeling that talking to a loan officer would also be the same), and most of the advice was to go for it, however I am hesitant based on my research. I will put the details, and was looking to get some evaluations/analysis on what is doable. Thanks in advance for your input.

Research: Cash required to buy a home: Down Payment + Closing costs + moving + any repairs that may come up after moving into the purchased home + emergency expenses. However, this number gets pretty high when you live in a high cost metro.

If I put it into one of the online calculators such as on zillow, realtor etc which go with the 28/36 rule, based on combined gross income of low one hundreds, no debt,good credit score and history; I could go for a monthly mortgage payment (PITI + PMI) in the high two thousands per month. On the down side, I am located in the expensive DC metro area where homes with good rated schools are in the 400-500k range, and could only do 5% down payment, unless I did something like a loan against 401k to build it up to 20% and avoid PMI. There's also some money from tax benefits of owing a home, that I need to check into for how much it will factor into for offsetting some of the cost (e.g. if annual property tax is 4k, but by owning a home you get an additional 3k of tax benefit, then it offsets the cost by 2k - does this make sense?). Given all of that data, what would be the affordable mortgage payment for a typical family of four with kids in ES?


I have currently been in a full time job for over 5 years and changing could result in a bit of an income bump. Would job change from regular/full-time to freelance/1099 affect ability to get mortgage? Would I be better off changing jobs, getting increased income and saving up for more down payment first, or buying a home first rather than changing jobs to take advantage of the current interest rates? The home prices in the area have gone up about 20% in the last 4-5 years, so I do feel like delaying further may not be a good idea. On the other hand, the home prices seem to go in cycles, so maybe there will be a down cycle in another few years?

Lots of first time buyer questions, so TIA again for your valued input!
Just do a cold hearted calculation of what you can afford. And then buy something a little less expensive. Go for low interest and if cash poor work the PMI hard. What we all do is use PMI on the first house and then bitcch for years about how dumb it was.

Do not change your employment mode. What ever it is live with it. The way the system works is any change is negative. If you think you can make out changing do it just after you buy. (I have watched deals collapse over people changes cars in the month before a close. Don't do it. )
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Old 04-19-2015, 08:26 PM
 
4,485 posts, read 7,970,426 times
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Quote:
Originally Posted by pragmatic12 View Post
Would job change from regular/full-time to freelance/1099 affect ability to get mortgage?
If you do 1099 work you will likely need 2 years of income tax returns so yes, this would negatively affect your ability to get a mortgage.
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Old 04-19-2015, 09:03 PM
 
29 posts, read 23,667 times
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@ncole1 - Yes, it's "We" but currently I am researching into this while she looks after the homemaker side of things :-). So I just wrote it as "typical family of four".
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Old 04-20-2015, 01:03 AM
 
16,555 posts, read 17,668,919 times
Reputation: 23724
Quote:
Originally Posted by pragmatic12 View Post
I have been researching whether or not I can buy my first home, and what's the mortgage I can afford? I have talked to friends and agents (which feels a bit like preaching to the choir, and I get the feeling that talking to a loan officer would also be the same), and most of the advice was to go for it, however I am hesitant based on my research. I will put the details, and was looking to get some evaluations/analysis on what is doable. Thanks in advance for your input.

Research: Cash required to buy a home: Down Payment + Closing costs + moving + any repairs that may come up after moving into the purchased home + emergency expenses. However, this number gets pretty high when you live in a high cost metro.

If I put it into one of the online calculators such as on zillow, realtor etc which go with the 28/36 rule, based on combined gross income of low one hundreds, no debt,good credit score and history; I could go for a monthly mortgage payment (PITI + PMI) in the high two thousands per month. On the down side, I am located in the expensive DC metro area where homes with good rated schools are in the 400-500k range, and could only do 5% down payment, unless I did something like a loan against 401k to build it up to 20% and avoid PMI. There's also some money from tax benefits of owing a home, that I need to check into for how much it will factor into for offsetting some of the cost (e.g. if annual property tax is 4k, but by owning a home you get an additional 3k of tax benefit, then it offsets the cost by 2k - does this make sense?). Given all of that data, what would be the affordable mortgage payment for a typical family of four with kids in ES?


I have currently been in a full time job for over 5 years and changing could result in a bit of an income bump. Would job change from regular/full-time to freelance/1099 affect ability to get mortgage? Would I be better off changing jobs, getting increased income and saving up for more down payment first, or buying a home first rather than changing jobs to take advantage of the current interest rates? The home prices in the area have gone up about 20% in the last 4-5 years, so I do feel like delaying further may not be a good idea. On the other hand, the home prices seem to go in cycles, so maybe there will be a down cycle in another few years?

Lots of first time buyer questions, so TIA again for your valued input!
Buying a house isn't cheap. You're seeing that which imo is a good thing. 20% down means you got some skin in the game. On a 500,000 dollar house you're putting 100k in it.

I would not do it if it decimates your financial house. Imo if you have to do creative financing/borrowing to get a down you shouldn't do it. I would do everything possible to avoid PMI. Even if you get a 5% down loan eventually get to 20% equity you would have to refi. How long will it take to get to 15% equity from 5% to get to that 20%, how long would it take for the refi fees to pay off the savings from the PMI and how long will you be living there to recapture those costs.

I seriously wouldn't go over 30% maybe 35% if you wanna stretch a bit of your total income. If you plan on freelancing/1099 basically self employed you will need to show 2 years of taxes. I would just keep saving to get to 20% to avoid PMI.
Whatever you do don't buy into the YOU'LL be priced out forever. Real estate is cyclical. Good luck.
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Old 04-20-2015, 01:24 AM
 
Location: Southern California
4,350 posts, read 4,956,415 times
Reputation: 2129
1) Going from W2 to 1099 will hurt your ability to borrow in the near term, especially with your low down payment. Then if you "Write off" too much stuff, you'll save on income taxes but can borrow less.
2) After 5 years of working you have $20,000 for a down payment or $4000 a year. If your new housing expense increases $400 a month, you will not be able to put money towards savings without an adjustment to life style.
3) Maybe you have a huge 401k and avoided keeping cash on hand just so you don't spend it, we don't know the whole story
4) I think prices have adjusted upwards due to the low interest rates, so don't use that as a justification.
5) Sometimes the taxes benefit is over estimated, but the less you make, the less beneficial it is.

Last edited by thelopez2; 04-20-2015 at 01:39 AM..
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Old 04-20-2015, 11:08 AM
 
29 posts, read 23,667 times
Reputation: 19
What about just changing W2 jobs so that new one is also W2, does that affect loan terms or amounts as well?
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Old 04-20-2015, 12:02 PM
 
12,973 posts, read 12,180,809 times
Reputation: 5399
Quote:
Originally Posted by pragmatic12 View Post
What about just changing W2 jobs so that new one is also W2, does that affect loan terms or amounts as well?
Has little impact if you change jobs in the same industry. Might give you a bit of trouble until you have a few months on the new job but generally not a problem.
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Old 04-20-2015, 12:06 PM
 
12,404 posts, read 9,244,216 times
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Quote:
Originally Posted by lvoc View Post
Has little impact if you change jobs in the same industry. Might give you a bit of trouble until you have a few months on the new job but generally not a problem.
How do mortgage lenders define "the same industry"?
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