I'm an idiot. Thought that a 3.5% down payment was all I needed. (Uncertain: how much, house)

[lphung129]

Originally Posted by TurtleCreek80

Don't confuse a house with a home. Give your kids a stable HOME by being an involved and loving parent - which I'm sure you are! They need that more than a house with a mortgage.

Please consider prioritizing retirement savings over buying a home. Unless you have an absolutely outstanding pension plan, I think you are underestimating the amount of money you'll need in retirement...not to live "in style", just to live.

Your kids will appreciate you not being a financial burden on them in your retirement years.

Cannot echo this sentiment enough!!! I am ever so grateful to have had both my parents work tirelessly pay for my education, etc -- however God bless them, they did not plan very well for their own retirement. Social security, savings, pensions, it's has not enough! add into the mix, medical maladies that are bound to happen. you've got a recipe for disaster. it's been quite a burden to help out financially with them when you are trying to start out in life with your own young family. My husband and I have made it a priority to put away as much as possible to our own retirement plans so we don't burden our own sons later.

[Annikan]

Don't buy now.

Interest rates aren't going to skyrocket-the fed has announced quarterly rate hikes in small increments. And those rate hikes are only indirectly tied to home mortgage interest rates--yes, mortgage rates have already risen and will continue to rise, but slowly, and the lower interest rate you may qualify a year from now with better credit and a larger down payment will probably offset the slightly higher interest rate.

Also, with the higher interest rates, don't count on refinancing later after you have more than 20% equity. After paying the closing costs (yes, you pay again when you refi), it may not even work out in your favor to refinance and get rid of the PMI.

Take a year or two and save, save, save. You should really strive to put 20% down on a house. Maybe look into town homes. Or just continue renting for now and start saving more for retirement as PPs have suggested. Owning a home is less important than retirement savings, especially if the costs of owning a home outweigh the costs of renting.

I just went through this. I had a house I rented in Dallas, and we'd moved out of state. My husband dumped some cash into the house after we got married to get it to 50% paid off, but when we calculated the closing costs (after calling several banks), we would have to own the place another 10 years before we broke even (the PMI was low--maybe $30 a month). Not worth it when we didn't know how long we'd continue being landlords. We ran the numbers on a few scenarios--taking out a home equity loan to pay off the remainder (no closing costs) and repaying that loan quickly rather than the mortgage, just putting all of our money into the house to pay it off. None of it ended up being a good decision for us financially, so we sold it.

Having a bigger down payment changes the monthly payment dramatically--it really frees up your monthly budget. When we put in more money, our payment went from 1490/month to $780/month. Huge difference.

Just wait. Don't rush into a huge decision like this.

[turf3]

As I always say, the laws of finance are like the laws of physics, you can't really break them - although lots of fast talking salesmen try to tell you that you can.

The hard truth is that for most people, unless you can put 20% down and have a house payment less than 1/3 of your gross income, you can't really afford that house. "Really afford" to me means that should anything less than total catastrophe come, you can weather it. It doesn't mean that after house payments, other utilities and required costs, plus debt service, you can't save any money. It means that after the inelastic demands of your life are met, you can save say 10%, at a minimum, of your income.

Lots of people make their lives work and don't follow these rules. But a lot of them also find themselves in deep voodoo and financial disaster from relatively small problems, too. Your choice, but understand that the less financial margin you give yourself, the higher the risk. Do you feel lucky?

[LLCNYC]

Originally Posted by turf3

as i always say, the laws of finance are like the laws of physics, you can't really break them - although lots of fast talking salesmen try to tell you that you can.

The hard truth is that for most people, unless you can put 20% down and have a house payment less than 1/3 of your gross income, you can't really afford that house. "really afford" to me means that should anything less than total catastrophe come, you can weather it. It doesn't mean that after house payments, other utilities and required costs, plus debt service, you can't save any money. It means that after the inelastic demands of your life are met, you can save say 10%, at a minimum, of your income.

Lots of people make their lives work and don't follow these rules. But a lot of them also find themselves in deep voodoo and financial disaster from relatively small problems, too. Your choice, but understand that the less financial margin you give yourself, the higher the risk. Do you feel lucky?

+1000

[Sunbather]

Originally Posted by turf3

As I always say, the laws of finance are like the laws of physics, you can't really break them - although lots of fast talking salesmen try to tell you that you can.

The hard truth is that for most people, unless you can put 20% down and have a house payment less than 1/3 of your gross income, you can't really afford that house. "Really afford" to me means that should anything less than total catastrophe come, you can weather it. It doesn't mean that after house payments, other utilities and required costs, plus debt service, you can't save any money. It means that after the inelastic demands of your life are met, you can save say 10%, at a minimum, of your income.

Lots of people make their lives work and don't follow these rules. But a lot of them also find themselves in deep voodoo and financial disaster from relatively small problems, too. Your choice, but understand that the less financial margin you give yourself, the higher the risk. Do you feel lucky?

100% Agree. In my personal opinion, it doesn't seem like the OP should be buying given the circumstances.

[numbersguy100]

Not trying to pile on here, but hoping that if you hear it from enough people, you will know that this is truly not aimed at dashing your dreams of owning a home.
However, just to show you why you shouldn't deviate from that 80% max LTV, I did not end up using my 20% down payment. At the time, the federal govt had a program where you could buy a house with no down payment and no PMI if it was in a zip code where a majority of residents were minority (which may still be true for my zip code in N Oak Cliff, but it definitely was at the time). I checked with several brokers and because of the generosity of the program there was literally no way to get a cheaper mortgage by using that down payment. The payments even at 100% LTV were very affordable on my income alone (and my wife worked) so I thought what the hell, why not. Well, then the recession happened, and interest rates dropped in a hurry. However, the types of mortgages allowing 100% LTV also went away, and the way comps were going, I would probably have had to bring more than that original 20% down payment to the table to take advantage of the lower rates. Additionally, by that time, my wife and I were getting closer to having kids, and the recession made me want a bigger savings account in case something happened at my job. So I spent like 3 years in a (much) higher cost mortgage than I otherwise would have needed to if I had just done things right from the start.
My point is that if things feel overwhelming at this stage in the home buying game, they are likely to get worse. Unfortunately, life will likely serve you some setback or another, and having stretched to buy a home will feel infinitely worse than the positives that home ownership can bring.

[nsumner]

Originally Posted by TurtleCreek80

Don't confuse a house with a home. Give your kids a stable HOME by being an involved and loving parent - which I'm sure you are! They need that more than a house with a mortgage.

Please consider prioritizing retirement savings over buying a home. Unless you have an absolutely outstanding pension plan, I think you are underestimating the amount of money you'll need in retirement...not to live "in style", just to live.

Your kids will appreciate you not being a financial burden on them in your retirement years.

I wish I could rep your post more than once . Spot on, on every point. Very good advice.

Naima

[dhakaia]

even with 3.5% down on a $220k house... you'll end up needing close to $15k, when factoring in closing costs, prepaids, inspection, appraisal etc. One of the few ways you can get some help with this is, if you buy in an area where the city/state offers DP assistance (usually for first time buyers). Also, in case the house in question appraises for more than the sale price, then you and the seller can agree to raise it up... where the difference comes back to you during closing. You can also ask the seller to cover some of the closing costs.

The problem is, most of these ideas can work in a normal to 'luke-warm' housing market. NOT likely in the current 'hot' areas like Plano, Frisco, McKinney etc., especially in that sub $300 bracket. You are looking at 'super duper multiple cash offers' type scenarios. UNLESS there are some 'problems' with the house...

My wife and I bought a $215k house in central Plano last August, where we went with FHA. The two big 'problems' with the house were the fact that it backs up to a major street, and the previous owners were heavy smokers! We still had to move quickly and put a contract within two days of it hitting the market... as there were already other offers rolling in. House actually appraised for $223k. And after a three month long renovation (fresh paint, new flooring, kitchen, bathrooms, removing walls etc.), house looks the way we want, the smoke smell is a thing of the past, and we never did have an issue with the major street being in the back.

This of course is after 1+ year of looking, bidding, losing out, adjusting expectations/ budget... rinsing & repeating

[MobiusStrip]

Sigh...I don't know how much longer I can bear to stay here (in the middle of nowhere close to Wichita Falls). And yet moving and renting...odds are they'd end up in yet another school. Who moved and rents and thinks they may actually find a great home to buy that fits their needs where their kids go to the same elementary school? This is hopeless.

[turf3]

Welcome to the bubble, where people with limited budgets are priced out of housing.

I don't have advice for you on how to beat the situation - we have faced the same situation moving from TX to MA in '06. Then when prices crashed in 07-10 we had a variety of individual issues that kept us from buying a house; and then the bubble reinflated. We are now starting a plan that will end up with us coming back to DFW and using the (old, small) house I own there free-and-clear, at least till sanity comes back into the market.

At this point the only thing you can do, it seems, is to bear down and save every dime you can till you find yourself in a position to buy without taking excessive risk.