Home ownership as a graduate student? (Philadelphia, Penn: lease, car insurance, mortgage)

[Yvanung]

Suppose for a moment that I would attend UPenn as a PhD student, and that, by orientation day, I own a car licensed and insured in Quebec (I wonder whether a foreign car insurance on a foreign-licensed car is valid in the US). At this point, here are the known elements in my budget:

Revenues: $2,400-$2,450/month (taxable)

Expenditures:

Food: $150-200/month
Phone+Internet: $100/month
Car: $200-300/month

Year 1-2? (before I take out the mortgage):

Rent: $600-800/month (assume 1 roommate; may be quite different with 0 or more than 1)
Utilities: $100-200/month
Books: $1,000 for the year

Year 3+ (once the mortgage is taken out; will need $7-10k in cash for a down payment and perhaps a few small-time repairs; will target at most $30k as far as housing prices are concerned)

Mortgage: $350-400/month
Property taxes: $100-150/month
Utilities: $200-300/month
Insurance: $100-150/month

I just want to make sure my budget is realistic, if there are some elements that are way off or that I missed (like, say, taxes). I intend to do any of the following post-graduation with the house:

- Rent out the house
- Use it as a secondary residence
- Have my parents use it for retirement

Oh, of course, if I still have amounts outstanding on my mortgage by the end of year 5 and that I still haven't graduated by then, I may get into trouble when my student visa would be up for renewal.

[2e1m5a]

Originally Posted by Yvanung

Year 3+ (once the mortgage is taken out; will need $7-10k in cash for a down payment and perhaps a few small-time repairs; will target at most $30k as far as housing prices are concerned)

Mortgage: $350-400/month
Property taxes: $100-150/month
Utilities: $200-300/month
Insurance: $100-150/month

Are you saying you wish to spend up to 30k for a house? You will have difficulty obtaining a mortgage for less than $50k. You could target homes for $50k-$150k but your mortgage will be closer to $500-600 per Month. Your other monthly costs seem realistic; You could also rent out spare bedrooms in your house to cut costs.

[Yvanung]

Originally Posted by 2e1m5a

Are you saying you wish to spend up to 30k for a house? You will have difficulty obtaining a mortgage for less than $50k. You could target homes for $50k-$150k but your mortgage will be closer to $500-600 per Month. Your other monthly costs seem realistic; You could also rent out spare bedrooms in your house to cut costs.

The main problem with targeting higher-priced houses is the down payment. I'm well aware that, for unconventional mortgages, such as the one I'd likely have to take out, I'd need upwards of 20% in down payment. Plus the welcome taxes, origination fees, and other monies I need to pony up when I buy a house on a mortgage.

But why would I have difficulty obtaining a mortgage for less than $50k, even if I otherwise got a viable plan?

$2,100/month after taxes... not sure about tax refunds, but I can save $5-7k yearly (maybe $8-9k but that's if I had a lease with rent split 3-4 ways and with utilities included in the rent) at most in years 1-2. The more I have to wait until I have the down payment done, the less use I will have for the house afterward.

[2e1m5a]

Originally Posted by Yvanung

The main problem with targeting higher-priced houses is the down payment. I'm well aware that, for unconventional mortgages, such as the one I'd likely have to take out, I'd need upwards of 20% in down payment. Plus the welcome taxes, origination fees, and other monies I need to pony up when I buy a house on a mortgage.

But why would I have difficulty obtaining a mortgage for less than $50k, even if I otherwise got a viable plan?

$2,100/month after taxes... not sure about tax refunds, but I can save $5-7k yearly (maybe $8-9k but that's if I had a lease with rent split 3-4 ways and with utilities included in the rent) at most in years 1-2. The more I have to wait until I have the down payment done, the less use I will have for the house afterward.

Banks don't like mortgages that are less than $50k because they don't really make any money on interest.

Believe me, this is something I am against. I find it absurd that a person can get a $30,000 loan for a car with ease but not for a home-thus the country we live in.

I'm not saying it will be impossible-after I graduated College I was able to obtain a conventional FHA mortgage for $55k, but try to shop around-focus on smaller banks and credit unions and a personal loan may be an option as well. You can expect to put at least 20% down and it probably will be doable. Also, homes in this price range-especially ones that don't need much work-are actually a very competitive market-investors paying with cash are the norm.

[maf763]

Originally Posted by Yvanung

The main problem with targeting higher-priced houses is the down payment. I'm well aware that, for unconventional mortgages, such as the one I'd likely have to take out, I'd need upwards of 20% in down payment. Plus the welcome taxes, origination fees, and other monies I need to pony up when I buy a house on a mortgage.

But why would I have difficulty obtaining a mortgage for less than $50k, even if I otherwise got a viable plan?

$2,100/month after taxes... not sure about tax refunds, but I can save $5-7k yearly (maybe $8-9k but that's if I had a lease with rent split 3-4 ways and with utilities included in the rent) at most in years 1-2. The more I have to wait until I have the down payment done, the less use I will have for the house afterward.

Given this, I'm not sure your plan makes the best sense. A house for $30K is either going to need a ton of work ($$) or be in a horrible neighborhood with lousy investment return potential. Getting your down payment together on your income will likely take a couple of years even if everything breaks right and you spend little to no discretionary money. If you don't plan on sticking around after your degree, then owning the house becomes an albatross.

[Mimidae]

Yes, your budget seemed well researched until this: "will need $7-10k in cash for a down payment and perhaps a few small-time repairs; will target at most $30k as far as housing prices are concerned"

Are there houses available for that little? Yes. Are they generally in condition to be lived in or anywhere you would want yourself or your parents to live? No. These houses tend to take tens of thousands of dollars - we're talking $40,000 or more - to even make inhabitable. You'll see the word "complete shell" at that price range - that means the house is little more than the bare bones structure and needs new everything, from the ground up. That doesn't mean "new bathroom vanity", but "new subfloor and plumbing for the room that's bathroom-sized". That doesn't mean "new coat of paint" but "new walls". Or are nowhere you'd want to own a home, even to rent out (are you familiar with American drug warfare?). Expect to look closer to the $100,000 range for a house that you can actually live in or rent out after only a few "small-time repairs". Can't afford that? Join the millions of Americans who can't afford to buy a livable home. If it were as easy as plunking down the cost of a used car as a down-payment on a house, everyone would do it.

You need to do a lot more research into the American housing market. And the person who told you you'll have a hard time finding a mortgage for a 'small' amount is correct - under a certain amount, major banks don't even want to deal with you. Some people get small loans from credit unions - small, more personal neighborhood banks - but those are usually tied to employment, and you might not be able to get an account with a credit union, being a Canadian grad student. He/she was also correct about the fact that in the price range you're looking at, you'll be competing with investors who can afford to pay for the whole thing in cash (and then have not a few dollars reserved for repairs but, as I said, tens of thousands). Sellers usually prefer those buyers because there's less paperwork, less waiting.

Another question I think you have to ask yourself is - are you sure you'll want to keep residing in Philadelphia after your schooling is finished? I love Philadelphia, but it's not to everyone's taste. Buying a house is a major commitment. Sure you can sell after only a couple of years if you change your mind, but you'll likely lose money doing that. Come to the city, continue researching the housing market and the process of buying (and also repairing and renting out) a house, and maybe you'll find a way to do it. Good luck with your grad degree!

[Yvanung]

Now, for the rent: I wonder what are common revenue thresholds (e.g. demanding that a prospective tenant's yearly revenues are equal or greater than, say, 50x the monthly rent) when it comes to Philly landlords...