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If you have 5K to put down on a 25K house (20%), does your credit score matter? What if you have no or limited credit history, little or no debt commitments?
The above link is a good example. This is a small town in Indiana with a population of about 5,000. The housing market, though, I'm not sure about. There are houses that regularly pop up in that town for around $20,000-$35,000.
I also want to note that my income would be around $20,000. If I showed I was capable of saving $5,000 on that income, would that mean anything to a lender?
You probably want to go to a credit union or a small community bank, where they will keep the loan in house, rather than resell it.
But, the fees become a problem for the banks, when they are large in proportion to the loan. They may lose money on the deal.
Like Chet says, you might have trouble getting a mortgage that small.
Try Lending Club, Prosper, or a PLOC. A purchase loan of $20k will be very hard to come by. You may need to take a few years to build up your cash and your credit at the same time. If you can save up another $7k then you'll only have to borrow $13k, which is not out of the question on unsecured credit lines.
Or improve your income and pay cash.
A bigger issue, of course, is that you need a good emergency fund too, for things like medical, job loss, or roof or HVAC repairs or replacement.
You have to be aware that you will have closing costs of several thousand dollars besides the down payment.
If homes are in that price range in that area, you should be able to find a bank that will loan you the rest of the money. Try a first time buyers free class.
The above link is a good example. This is a small town in Indiana with a population of about 5,000. The housing market, though, I'm not sure about. There are houses that regularly pop up in that town for around $20,000-$35,000.
I also want to note that my income would be around $20,000. If I showed I was capable of saving $5,000 on that income, would that mean anything to a lender?
If you only make $20k a year, the purchase of that house is only the first battle - you're going to have a tough time affording the taxes, insurance, utilities, maintenance and repairs.
The house is that cheap because it's almost 120 years old and looks like it needs work, definitely significant cosmetic work and the roof looks like it's not in good shape. It might also need major things like a new furnace, wiring, plumbing, sewer and foundation work as well - with a house that cheap and that old it needing major expensive repairs in the near future is highly likely. For the price of that house, it's likely being sold as is so it's doubtful the sellers will repair or replace anything. The price has also been dropped recently, the house has been on the market for over 8 months and its list price is significantly lower than the average price of other homes in this zip code and still hasn't sold, all of which tells me there's probably something significantly wrong with the house - or there's something significantly wrong with the neighborhood, probably both.
Also, houses that old are often very energy inefficient and have very high utility costs for the square footage, and changing your heating and cooling options are often limited because it would cost many thousands to switch to a more efficient method or not even possible to switch because of the age of the house. Not to mention the repairs and maintenance are going to be more expensive and a lot more frequent on a house that old.
I could see you spending $25k on renovations and repairs just in the first few years to make the house livable.
Last edited by patches403; 01-20-2016 at 11:47 AM..
First of all congrats on saving $5000 on a very limited income. You accomplished something that many people do not, even though their income may be quite a bit more than yours.
I think the house looks lovely for the price. You've been given good advice but I would like to add a few things that others haven't mentioned.
-Contrary to what many people think, just because a house is inexpensive and old, it doesn't mean you will be living next door to a meth lab or someone selling crack out of their living rooms. If you look at information provided by City Data on Alexandria, it's a relatively small town of about 5000 people. The population has been steady for several years and not many people are moving in or moving out. The crime rate is well below the normal average, in fact it's about half the crime rate of the U.S. average which is great. I don't know if you live in this town already but if you don't you may want to spend some time there and just check out the neighborhoods on weekends and night time and see what it's like. You can also go to the police department and ask them about specific problems certain neighborhoods might have.
-An old house like this has been around for a long time and may or may not need some major work done. I would definitely have a good inspection done, especially for the plumbing and electrical and roof. Overall, it probably has great bones and was most likely built very well but a good inspection will tell you what's really going on just in case. Don't assume like many people do because of it's age that it's falling apart and not inhabitable.
-The average home in Alexandria is valued at about $67,000 so $25,000 for an old house that needs some work is not ridiculous or absurd. I noticed there are several other old houses in this town that sell for between $20,000 and $30,000. This house is right there in the same price range. Nothing wrong with that. If it was a $25,000 house in a town where the average home price was $200,000 then I'd be very weary. How it stands now, for this town, $25,000 sounds like a fair price to me.
-The house definitely needs some TLC like paint and at least some minor repairs but again, there's nothing wrong with that. Not everyone can afford a move in ready home. An old house like this one needs someone that doesn't mind rolling up their sleeves and applying some good old fashioned elbow grease. What one person may think is a house that they would never move into, can be another persons dream home. With your limited income, you can do things a little at a time as you can afford. It doesn't need to look like a new house with new floors, windows, kitchen and bathroom fixtures. It has to be in a condition that you can be happy with and again, make improvements as you can afford them. The important thing is that you have a roof over your head and live in a decent town and neighborhood.
-Renting IMO is over rated. Sure you don't come across the maintenance costs, but for many people rent goes up every year and if you are in an apartment, you have very limited privacy and many annoyances. At the end of the day, you've been paying rent every month sometimes for years and still own nothing. You gain no equity and have no tax right off.
-Regarding the HVAC or heating and air, you need to find out what's happening with that. People have lived without AC since the beginning of time and up until the 1950s almost no one had an air conditioned house. Somehow, they managed to survive. You can always get a window unit if you need it for days that may get excessively hot. As far as heating, you may be pleasantly surprised with what you find out. Maybe the current heating system works fine and you won't need to do anything for a while. You can always look into putting in a pellet stove or wood burning stove for much less than replacing an entire heating system when you can afford to do so. Such a stove can easily heat this entire house.
-As far as being able to purchase this house with a limited income as you have, I would talk to the realtor and see what financing might be available to you. A local realtor will know because they would have sold other homes in the same area for about the same price as this house. I doubt many others have paid fully in cash. There may be a local bank or credit union that does loans for these small inexpensive houses right there in town. You don't know unless you ask and become familiar on how this is usually done right there locally.
-Taxes and utilities can still be very affordable and the property taxes you pay are deductible as will be any mortgage interest. Find out what the current taxes are for this home. I bet they are very low because of the value of the house. Electric and gas will depend of course on you and how much you use them. They don't need to be beyond what you can afford.
Some people see an old home like this and think of nothing but the problems. Others will see great potential and a gem in the rough and don't mind in the least living in a home that needs work. In the end, you need to balance what you can afford and how you want to live. This home or another one may be quite affordable to you and give you a lovely little place to live with a yard you can call your own. You won't know until you try.
I wish you all the best and good luck.
It is very unlikely the mortgage deduction is remotely relevant with such a cheap house and low income resulting in interest, prop tax, and state tax deductions coming far below the standard deduction. In fact, if you are spending enough to justify itemizing, you are probably going to have a tough time keeping lights on and putting food on the table with that income.
The problem with tax deductions is that you actually have to spend the money to get the deduction!
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