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Hi folks,
Just curious... we recently got approved for a loan, and it's tempting to check out places that are at the top of our price range as it would allow us to buy a small SFR instead of a condo.
Besides the SFR being more expensive, and while we may have to buy a new roof every so often on an SFR, a 300 per month HOA fee on a condo (that will eventually increase over the years) could buy us a new roof every 10 years!
So those of you who took the bigger bite, (not talking about going crazy with adjustables and interest only stuff like in the bubble) do you regret it, or did it work out?
My opinion is take whatever number you qualify for, reduce it by 50%, then subtract $10000 for good measure. That is the price you can easily afford. There is no reason to get swamped in mortgage debt to buy into a more expensive neighborhood.
I completely disagree with davecj. There is no cheaper way for a regular guy/ gal to borrow long term money than a mortgage. Living in a nice area is the number one way to increase your access to good schools, better nieghbors and ultimately a higher standard of living through access to better jobs and other social connections. Underspending in the current environment could be absolutely the "wrong move" that will hurt the resale potential, safety and ultimate life choices of first time buyers.
There is absolutely nothing wrong with borrowing as much as a lender will allow you so long as really do manage your existing and future debts. If you have car loans it makes a whole lot of sense to pay them off before you buy furniture. If you have student loans it makes a whole lot of sense to pay them off before you get a new TV.
If the "max range" means that you have a very minimal downpayment you gotta realize that any downturn in price will wipe out your equity. Probably better to shot for 20% down and ace a cushion / no PMI.
If your current income is likely to remain flat or decline while spouse leaves workforce to have kids (or stays in workforce but substantial portion of income goes toward childcare....) I would think long and hard about how much you can really scrimp to cover a house payment at the max end of your range. OTOH if you have been renting a "luxury" type rental and won't really see outlays for max mortgage increase, have good prospects for salary growth, have a realistic handle on what sorts of maintenance / remodeling will be necessary for a home to retain / increase in value and generally have frugal habits there is nothing to fear from going for max loan amount. Lenders DO NOT WANT to lend you anymore money than statistics show you are capable of handling. The LAST thing any lender wants in this environment is for any borrower to default -- the lenders have more REOs than they can deal with!
If you do decide to shop at you max range I would STRONGLY recommend putting every cent of that "max" toward the least nice house in the best neighborhood. Such a strategy will likely result in having access to better schools and quieter community. Even if you don't have kids the desirable schools tend to help stabilize / increase real estate prices. By going for a less impressive home in a nicer area you will also tend to have property taxes on the lower end. Money you spend to improve / maintain a lesser home in a nicer neighborhood tends to come back to you when you sell instead of result of being "over improvements" that impossible to recoup on a fancy home in a less desirable area...
Finally even if you do not decide to "max out" when you do make a decision the effort spent shopping for the max you can afford in the nicest areas will help to sharpen your eye for a bargain much more than "shopping beneath your target" which tends to wear on you and often results in making an offer on simply the "least horrible" house instead of what really represents the best overall value. When you shop above your target and you come across a motivated seller willing to take a little less than others a shopper that understands the value of great neighborhoods, good layout, appropriately sized home will be in a better position overall than someone merely shopping "on the cheap".
So those of you who took the bigger bite...
do you regret it, or did it work out?
"Look for the worst house, in the best neighborhood, that you can afford."
Unless you do something just plain dumb to damage it or make it worse...
it will be very hard to do anything that won't improve it's value...
relative to it's immediate market.
Meanwhile, your still affordable mortgage payment, gets you all the
other amenities of that nicer area (like schools and school district).
My opinion is take whatever number you qualify for, reduce it by 50%, then subtract $10000 for good measure. That is the price you can easily afford. There is no reason to get swamped in mortgage debt to buy into a more expensive neighborhood.
Let's see... what can we buy for 100K in South Orange County? Hmmmm..
Well, it's just the two of us and we don't need anything fancy and there is a little 1 bedroom 700 sf condo with an association of over 300 bucks a month at the price range you recommend, however it would put us right in the middle of a barrio neighborhood where we live...not that there's anything wrong with that.
"If the "max range" means that you have a very minimal downpayment you gotta realize that any downturn in price will wipe out your equity. Probably better to shot for 20% down and ace a cushion / no PMI."
Could come up with 20% in a reasonable time going davecj's recommendation...
Lender has approved us for an FHA loan up to 400K, however, we told her we want to wait a little longer so we can have a 10% down. The PMI on FHA is crazy! On a 300K loan for instance it's about 275 per month for 5 YEARS!!! (Still trying to get clarity on the deductability of it, how long etc.) The PMI on the same loan with a 10% down would be about 90 per month, and it goes away in 1 year regardless I was told by the lender.
Trying to come up with 20% would certainly be ideal, but would take a long time and it's a gamble how low the rates would stay this low after 2013. (When we'd be free of another year's lease in our cheap falling down apartment while we save)
And yup, we're definately living frugal... got the cars paid off last year, enjoying Netflix and eating lots of beans!
BTW, it's my husband that has the respectable full time job in IT. I shlep hash part time in a local diner! (Make good money though for a part time job and I've been there for a long time!) Told hubby to leave me for a younger professional type with a bigger salary, but alas, he wont.
Locally high priced markets are really tough for some folks to understand...
In parts of the City of Chicago I can literally drive 5 minutes and go from real estate that you cannot touch for under $700K to blocks of rundown places that you would not want to own even for $20K.
This is a classic "binary distribution" with only nice expensive homes separated from dangerously derilict homes and nothing really in between.
In such cases you will probably NEED to shop at the top of the range you are approved for and even then NOT be getting some luxury digs.
One of the biggest downsides of the meltdown of real estate prices and the wipe out of flippers is that "neighborhoods on the brink" have largely slipped far back into the "too risky to considerr" category and the nicer neighborhoods seem to be all the more attractive to "smart money" shoppers.
If, as many people believe, the current economic problems will be long lasting, it does not make sense to NOT move into the nicest area you can afford EVEN IF that means spending all the money a lender will advance to you and getting a less than stellar looking place.
I know that similar conditions exist in many areas where employment in well paying fields allows some people the ability to buy a nice home close to work but the fall off is pretty rapid.
Quote:
Originally Posted by Podo944
Let's see... what can we buy for 100K in South Orange County? Hmmmm..
Well, it's just the two of us and we don't need anything fancy and there is a little 1 bedroom 700 sf condo with an association of over 300 bucks a month at the price range you recommend, however it would put us right in the middle of a barrio neighborhood where we live...not that there's anything wrong with that.
There are TONS of other expenses that will come up along the way. If you're maxed out by your mortgage every month you're not going to have enough left over for the incendentials or entertainment.
Let's see... what can we buy for 100K in South Orange County? Hmmmm..
Well, it's just the two of us and we don't need anything fancy and there is a little 1 bedroom 700 sf condo with an association of over 300 bucks a month at the price range you recommend, however it would put us right in the middle of a barrio neighborhood where we live...not that there's anything wrong with that.
Truth be told, we actually considered it!!!!!!
If I were you in your situation... that is IMO...
there is hell no way for me to buy into a condo & having to pay 300 every month to HOA with that bit of a sq ft.
I'd live very happily in an RV first.
For just the down payment of $20K of that $100K, buy in lump sum an RV in great working condition (saving monthly payments of rent/mortgage) and MOVE to any good neighborhood you want.
Then... any amounts you would have saved from not having to pay that rent/mortgage or HOA fee.. that $300 per month... I would invest in stocks / 401K. And when invested properly... that'd could be a future 100% cash bought home you don't owe anything to.
Let's see... what can we buy for 100K in South Orange County? Hmmmm...
Thirty five years ago I rented in Costa Mesa.
The prices then were just as insane as now...
when compared to anywhere else in the world.
I passed on the opportunity to buy... and came east.
Quote:
...there is a little 1 bedroom 700 sf condo...
...however it would put us right in the middle of a barrio neighborhood where we live...
As a rental? Sure!
But never buy a condo.
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Locally high priced markets are really tough for some folks to understand...
