Profile picture for user16443899

Are we in the market for buying?

My girlfriend and I are sick of paying $1100 per month for rent. We currently live near Minneapolis and plan on staying around this area. I make around $55k per year and have about $250 in monthly installment debt and about 25k in total debt. My problem is my credit score of 580.

My girlfriend is the opposite...She brings home about $30k, but has a 750 credit score. She also has about $500 in monthly installment debt. We have been together for over 4 years and plan on getting engaged very soon.

We are looking at this home on Zillow: 12626 Freeway Dr W. Hugo, MN.

Should we be looking into buying at this point? It seems like taking out a home loan would lower our monthly rent/mortgage payment to help us clear our other debts. Also, this home was valued at $260k in Dec 2006 and is on the market for just $115k. If the market value bounces back in the next 5-10 years and we end up gaining equity, doesn't this lower the "risk factor" of buying?

As you can tell, this would be our first home-buying experience..

Thanks!
  • November 25 2012 - Saint Paul
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Answers (10)

Rental markets have been showing a huge increase in recent years and mortgage rates have fallen to the lowest level in 40 years, makes potential buyers  think owning a house is the best way to go in 2013.  If can qualify for a mortgage loan, of course, you are better off buying.

Best of Luck,
Maria Cipollone
  • January 23 2013
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Right now is definitively the time to buy. Interest rates being at rock bottom allow homeowners to save a ton in the long run. Like one of the replies stated, you can expect to see a 5-8% increase in median sales price in 2013. 

Here in the Twin Cities, there are a lot less properties on the market and homes are not sitting on the market very long. If possible, see what your girlfriend can get preapproved for by herself. FHA rates are low and require a fairly small percentage for down payment. At your current credit score, it would take 12-15 months to get you back to minimum FHA qualifications of 605. Most lenders look at the last 12 months of payment history, two years of W2's and revolving debt. So take the next year to pay down your debt and stay current on absolutely everything. It is very important to show positive payment history. I am not a credit professional I have just worked with people in your shoes.

Good luck!
  • December 22 2012
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Profile picture for Jared Holman
Right now is THE time to buy!  No doubt about it.  Won't be another time like this for a long, long time.
  • November 30 2012
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I'm not sure whether you are the prospective buyers, but this home went into pending status on Thursday November 29th.
  • November 30 2012
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Now is a good time to buy if you can.  Interest rates are low and overall affordability is very good.

The Minnesota Housing Finance Agency and Minnesota Home Ownership Center  are both excellent resources for first time home buyers who wish to do their "due dilligence" as part of purchasing their first home.

You mentioned the price of the home on Freeway Dr back in 2006.  Please remember that was a very unique time in history and the circumstances that surrounded that market are extremely unlikely to occur again.  While no one has a crystal ball, I would expect home prices to increase gradually and not dramatically as they did back in the 1997 through 2007 timeframe.

When purchasing your first home, find somewhere you want to live, where you can feel comfortable and secure and don't focus so much on what the sale price will be sometime in the distant future - because no one knows.  Like you said, you are tired of renting and you have to live somewhere.


Use this link to explore some neighborhoods, shop around for a good loan officer, reserach the area where you think you'd like to live, educate yourself, save up for your downpayment and closing costs, do some work on your credit, and you should be fine.
  • November 30 2012
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If you can qualify, and your monthly payment is lower than your current rent...I would say:  what are you waiting for?  My sister lived in Minnesota for many years, and I am thinking about investing some monies there with some of her friends...so as an investor, the numbers look really good near Minneapolis...buy while you still can, if you can.

Best wishes from So-Cal and good luck
  • November 27 2012
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Real Estate is a cyclical business, there are very few bad times to buy, and very few great times to buy. Anytime a buyer, especially a first time buyer, can purchase real estate at the begining of an upswing in the cycle with low interest rates and high rental demand is an awesome time to buy.

We are now at that point in the cycle where all three of the elements are in place, the begining of a new growth cycle, low interest rates and high rental demand. Remember real estate is a long term intestment, ten years from now you will be looked at as one of the savy investors who bought at the right time.

On last point, there is a reason why the largest growth of buyers in the past year is the investor buyer population, we're talking everything from first time investors to Wall Street Hedge Funds. Follow the money and the smart investors are in the market now.

Good luck, enjoy your new home!
  • November 27 2012
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To answer the main question you proposed in the header it is an absolute yes for buying right now in Minnesota. I have been saying for the past year on this platform, and many others, that the housing market bottomed out in fall of 2011. We officially are in a seller's market now (came in for October and I don't predict it will change for the foreseeable future) and will end 2012 with prices up most likely 5-8%. We are a big metro, so not every city is rebounding the same. The median home value is for the twin cities, and then I have the ability to go into individual cities for a clearer picture if need be. Real estate will ALWAYS be micro. I do however work the north metro and live in Vadnais Heights, so I know my areas more than Minneapolis or the South metro. Hugo, Centerville, Circle Pines, or Lino Lakes are all really good areas right now to buy in. 

As to your specific question I will first say this: 95% of people who purchase homes would get negative reviews from their financial planner. I don't know if I have ever even seen a first time home buyer do just 30% gross income. It is not my place to insert my OPINION on whether you are financially fit or not....don't we all individually have different values when it comes to finances? I am a Realtor and my job does not get based on opinions. If you qualify for a loan then the decision is up to you whether you are prepared for the financial obligation. I will summarize my answers for you below:

1) To reiterate I can only discuss the market of real estate and empower you with the knowledge to make an informed decision. Some are free to voice their opinions but that is not how I work. You must decide if you are prepared for the financial obligation. No one can tell you this ( I believe), because they are not going to be on the loan hehehe!

2) Taking a home loan at that price point would drastically reduce your monthly payment ( I am assuming you like me and most renters are paying utilities already). It will be pretty close to $900/month. This will not last for long, but in many areas it is still cheaper to buy than rent. 

3) I would say that past home values can not PREDICT future value, however it MUST BE factored in what THE CURRENT home value is. Boy that was a little confusing....basically it should be factored in that you are buying towards the bottom in a recovery market. To simply ignore the fact that housing lost 40% of its value in some ares of the metro, and as a fist time buyer you are purchasing "low" would be weird to me. 

So I would actually agree with you and say correctly that expected growth and equity absolutely lowers your risk of purchasing, because if you experience a hardship and can not afford monthly payments you can liquidate by selling a home. 

4) And really for first time buyers I have found that discussing the monthly payment is much easier to understand. That is the biggest change buying now versus 6 years ago. I have seen buyers get 3.25% recently which is nuts, and the mortgage payment is so drastically different than 2006 when the only inventory out there was closer to 200k.

In those terms I highly doubt you will ever be able to purchase a home with such a low mortgage again. THAT is what I consider to be the biggest risk factor, because making the monthly payments are what keeps you from foreclosure. If you can find something cheaper than rent that is huge. It is very rare when this scenario happens in real estate.

Home values are increasing as we speak, so even though interest rates should stay low through 2014 the price for home ownership is increasing. We have something I monitor called "home affordability index". It pertains quite specifically to first time buyers. Since I seem to be writing a novel right now I will not go into that at the moment.

5) You have 85k in income. As a rule of thumb you can double that number to 170k and that is what you roughly will qualify for. I used that because I know what you roughly can afford with the rent payment you are making. A 170k house is about $1,100/month. 3x gross income for anyone who cares usually takes into account a 20% down scenario or zero debt. If you use only 1 income the GF could only buy a $60,000 home....not really ideal I think you will agree.  

6) It is not that hard to raise your credit score to the 640 threshold if done correctly. I can help along with my loan officer or works with first time buyers. This is my specialty. There is no reason why you can't buy early 2013. Most buyers just don't know how to raise the score, and a lot of time gets wasted. I will tell you though it is industry standard to have 3 lines of credit in good standing for a 12 month period. That could potentially be a hiccup, but bottom line the only way to know is get in contact with a loan officer. 


Well boy I tend to ramble at times and hopefully this answers your question haha! If you do have some more questions just contact me directly from Zillow (you can hit my icon). I would suggest us getting started soon since you will need some time building up those credit scores. 

Especially for a first time buyer it is important to get educated. As a Realtor, and my loan officer, we will help you ever step of the way.

Thanks!

~CHRIS
  • November 27 2012
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Profile picture for Tom at the Lake
Have you been working with a lender you can trust? They can quickly tell you if you are eligible for the loan you need for this property.
  • November 25 2012
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Profile picture for wetdawgs
With your current credit scores, you may need to qualify on your girl friend's income/debt alone.    The affordability calculator here should give you a starting point to know what she can qualify for.    What the house was worth in 2006 is not relevant to the risk etc. 

Zillow has a section called "buyer's road map" with links to a number of their guides to walk you through the process.  I'd recommend working through  the steps, improving your credit score, building up a down payment and then (and only then) start looking for homes.

  • November 25 2012
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