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Old 05-20-2009, 09:43 AM
 
4 posts, read 6,829 times
Reputation: 12

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Here is my scenario:

Married, 24 years old
First Time Homebuyer
Combined $95,000 annual Salary
We'll make about $150,000 this year due to incrased pay from being deployed
Have about $25,000 in cash reserves and will have about $50,000 when my deployment is over

No credit card debt
No car loans
$33,000 in student loans (pay ~$250 each month in payments)
Currently pay $1030 rent in the DC Metro area
Our credit scores average 760

We're looking at about a $250,000 house but we're unsure if we should put 10% down or 20% down. I don't want to have to deal with PMI, but don't want to completely deplete my cash reserves. How much should I have in reserves when I buy the house? I don't think I'll have a problem getting a conventional loan, but does an FHA loan have a lot higher interest rate? Is a $250,000 the right price point or can I afford a $300,000 house?
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Old 05-20-2009, 10:04 AM
 
23 posts, read 147,316 times
Reputation: 24
Are on active duty in the military? If so, you might qualify for a VA loan, which would eliminate PMI regardless of the downpayment amount.
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Old 05-20-2009, 10:11 AM
 
28,461 posts, read 75,343,350 times
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Veteran or active duty military? Rank? Thanks for your service, it is appreciated!

DC Metro remains one of the most expensive areas for single family detached housing. I agree that decimating cash reserves is NOT smart, but unless you have a line an fixer-upper in an otherwise desirable area I just don't think there are many good choices at even $300K.

I would strongly recommend against a townhouse or condo, as the mobility of the DC workforce is very high and complexes with too many rentals scare the pants off lenders...

For a 24 year old you have TREMENDOUS cash saved up -- keep that up and soon you will be in a MUCH better position to buy...
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Old 05-20-2009, 11:13 AM
 
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I'm not active duty just a government civilian, I'll be returning home in a few weeks ((thankfully because it's starting to reach over 100 degrees fahrenheit)) so my ability to substantially increase those cash reserves will come to an end...we'll still make more money than we spend, but not like right now in which I'm bringing home about 3 times more in my paycheck.

And yes it's a little bit frustrating to find good housing in the DC metro area, but my wife and I are constantly checking online and we are finding houses we can work with in the Springfield and to a lesser extent Alexandria area.

And with regards to the VA loan is that only for military? I have to admit I haven't really thought much about a VA loan, is there any chance a civilian working for DOD might be qualified for the loan?
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Old 05-20-2009, 12:32 PM
 
28,461 posts, read 75,343,350 times
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I do believe civilian employees of DOD are NOT eligible for VA loan. My wife works for a Federal agency and there are no real "programs" to assist her with real estate (lord knows I would've loved 'em).

I do understand the huge pay boast that you received for your time in what is still a very challenging area, you earned it.

My honest opinion is that you have a great start on building the cash needed to get a house in the DC Metro area, but I would be in no hurry to jump into a purchase. A promotion / grade increase or two would really put you in much better position and my gut is that prices and interest rates are not going to make any dramatic shifts in a time frame that would significantly matter. Unless your family situation is such that renting is very unappealing I think it would be wise to continue shopping, but in a casual manner, looking primarily for unexpected bargains, rather than putting on the full court press to get something bought soon...
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Old 05-21-2009, 04:52 PM
 
Location: Plano, Texas
1,675 posts, read 6,621,764 times
Reputation: 693
I somewhat disagree with Chet about not buying now. You could wait to buy but here are a few drawbacks to that approach.

1. home prices are at or near a bottom. What if you wait and than the house you could get today for (i am just pulling the price out of thin air) $200,000 is $205,000 next year. You just lost $5000 plus the money you threw away renting at lets say in DC, $2000 per month for 12 months which is $24000. Now, of course the price could hold steady which in that case you only lost the rent money and price could go down, but considering rent, price would have to drop $24,000 for you to be even. But what if prices move higher to $210,000?

2. Mortgage rates are at historic lows. Yes, in a year rates could very well be at this same level, maybe even lower. However, when rolling the dice keep in mind that there is much more room above for rates to move higher than there is for rates to move lower. To go back to other example, lets say you buy and finance $200,000 for 30 years. Today you could get 4.875% but what if rates move .25 higher in the next year, that will cost you an additional $500 per year in interest, if they move .50 higher, you pay an extra $1000 per year in interest.

I would suggest that you get with a realtor and find a new home. Be picky as we are in a buyers market. But get moving now before home prices turn and mortgage rates turn. Remember, you do not know that you are at the bottom of the market until it has past.
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Old 05-21-2009, 08:50 PM
 
28,461 posts, read 75,343,350 times
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VB:

Prices in DC Metro are the sticking point from my perspective -- even other areas that have not been hard hit I would be less worried about (like Dallas), but my relatives in DC area tell that they have fears that their region is more warped than ever -- between the 'routine' switch over that comes with elections, the unusual "homeland security" related MASSIVE spending, the military build-up and the financial melt down there is real "house of cards" in the region that could leave A LOT of people facing something every bit as unpleasant as the worst of FL or NV...

If the OP was staring down 30 or something I would feel a little different too -- having known my share of folks under 25, the "needs" they have tend to shift MUCH more than someone even 5 years older...

I am generally as strong an advocate of buying as this board has, but if the LOCAL market is NOT (yet) in line with what may be a bottom in other locations then I am going to voice my concerns...

Finally, as I former landlord, I gotta tell you that looking at rent without considering the tax, maintenance and interest costs of the alternative purchase is just not a completely honest picture. Toss in the FACT that homes in the "lower price tier" often take quite a bit of out of pocket costs to get in the way one might like, and the value of renting is not such a waste...
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Old 05-21-2009, 09:58 PM
 
Location: Sacramento
2,568 posts, read 6,196,416 times
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Are you planning on having kids soon? If so is your wife planning on staying home or working full time? If she is, the price of the home you can afford is a lot less.
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Old 05-22-2009, 10:18 AM
 
4 posts, read 6,829 times
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Thanks for all the comments...I can see where chet is coming from seeing that my wife and I are only 24 years old, but I've learned other people's lessons in that I don't want to buy a house I truly can't afford.

Saying that, like Victor, I think this is the perfect time for my wife and I to buy for these reasons: mortgages are at historical lows, we'll get an $8000 tax refund if we buy a house this year, and housing has dropped in the DC area. Granted, housing could drop more, but there's no guarantee congress will pass another law for an $8000 tax credit nor is there a guarantee that mortgage rates will stay this low. Finally, I don't think housing in the DC area will drop much further. Our government will not be going out of business and therefore the federal workers tend to have a very stable job. Neither is there a chance of my job getting outsourced. I know I have about a 99.9% job security in my field. Although not guaranteed, the way my agency works I will likely be making ~$75,000 in a year and a half as opposed to my current income of $50,000.

I am also paying $1030 in rent each month, and this recently went up despite the falling housing prices. With a $200,000 mortgage over 30 years, my payments would be about the same. Although I will have to pay utilities and pay for any repairs that might occur, at least I would start gaining equity from my mortgage payments. And my wife and I would have a lot more room and a backyard.

In addition, we've been putting all our extra cash into saving for a house. I would like to get a house so I can have fixed expenses so I can increase the funding for our retirements. I think this is the best time to invest in the stock market and I want to increase my retirement funding to 10-15%

I would like any comments on this stuff, because I am still young and I would like all your opinions on my current strategy.
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Old 05-22-2009, 10:22 AM
 
Location: Summerville, SC
1,149 posts, read 3,925,632 times
Reputation: 1121
Quote:
Originally Posted by pdriese View Post
Thanks for all the comments...I can see where chet is coming from seeing that my wife and I are only 24 years old, but I've learned other people's lessons in that I don't want to buy a house I truly can't afford.

Saying that, like Victor, I think this is the perfect time for my wife and I to buy for these reasons: mortgages are at historical lows, we'll get an $8000 tax refund if we buy a house this year, and housing has dropped in the DC area. Granted, housing could drop more, but there's no guarantee congress will pass another law for an $8000 tax credit nor is there a guarantee that mortgage rates will stay this low. Finally, I don't think housing in the DC area will drop much further. Our government will not be going out of business and therefore the federal workers tend to have a very stable job. Neither is there a chance of my job getting outsourced. I know I have about a 99.9% job security in my field. Although not guaranteed, the way my agency works I will likely be making ~$75,000 in a year and a half as opposed to my current income of $50,000.

I am also paying $1030 in rent each month, and this recently went up despite the falling housing prices. With a $200,000 mortgage over 30 years, my payments would be about the same. Although I will have to pay utilities and pay for any repairs that might occur, at least I would start gaining equity from my mortgage payments. And my wife and I would have a lot more room and a backyard.

In addition, we've been putting all our extra cash into saving for a house. I would like to get a house so I can have fixed expenses so I can increase the funding for our retirements. I think this is the best time to invest in the stock market and I want to increase my retirement funding to 10-15%

I would like any comments on this stuff, because I am still young and I would like all your opinions on my current strategy.
Everything you mentioned sounds good to me. My husband and I followed a similar strategy. One thing I would recommend for "peace of mind" is seeing how much loan you can afford based on ONE salary, and work from there. We've been planning this for a while, and as a result since I am out of work, our mortgage and bills are still quite easy to manage. My salary will be completely banked away (except for my SL payments, sigh) when I do get a job.
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