Profile picture for jadedea

Can I Afford To Buy A House Or Continue To Rent???

Hi i am in a situation where renting is becoming more costly than owning a home. problem is, my spouse and i are both prior military, i have a 60k job and he is unemployed at this time. on top of that we have debt and have no savings. still the area we live in, renting is more costly than owning. so we decided it would be in our best interest to put money towards a mortgage instead of someone elses pockets. with that type of salary what kind of house can i afford?? we decided we will use the va loan $0 down (because we have no savings). My credit score is a little above average and my debt to income ratio was less than 50%. How much "house" could we afford including property taxes and any other stuff that comes with owning a home??? on a side note, we are renting a house and pay for all utilities so we are already budgeted for utilities....unless theres something else we dont know.
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June 16 2010 - Washington
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Profile picture for wetdawgs
If you click on the tab called "mortgage" (at the top of the page), you'll find some calculators to determine how much house you can afford.

What part of house ownership are you forgetting?  Maintenance.  A general rule of thumb is 2 to 4% of the current market value of the house per year for maintenance (there will be lower years, and higher years).   This does not include things such as lawn mowers, snow blowers and other tools that many homeowners need for daily living in the home.     As your current savings is $0, it appears you don't have much flex in your budget.

I would suggest accumulating a maintenance fund as well as a six month emergency expense fund before purchasing so you have some resilience should something happen.

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June 16 2010
Even if you don't have a lot of savings, you still might get a mortgage. FHA loan offers 3.5% down payment and your credit score doesn't have to be perfect. If you can get a mortgage, do it. You can always rent out your house if you would have to move.
Stop paying someone else's mortgage.
Yes, there is a maintenance involved, but it you do some projects around the house it will be very rewarding because you are doing it for yourself and your family.
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June 16 2010
Profile picture for jadedea

thank you for the replies. I was looking at houses that would have a mortgage rate of 1500 or less. my current rent is 1800. if i could get a house with a mortgage of 1500 i could pocket that 300 each month and place into savings for maintenance, rainy daysor ridding my debt. i have no way of saving right now, one paycheck goes to rent, the other goes to bills and groceries.

i was thinking of getting a fixer upper but i keep reading va loans may not be eligible on the listing. would it be wise to buy a house for its lot size and then plan to later on in the years upgrade the house as long as its not over done? i.e. turn a ranch to a two story, or add more square footage?

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June 17 2010
I would suggest talking with a couple local lenders. It's no obligation. They are happy to help, and it's usually a quick phone call or email. (Contact me for referrals for locals my clients have used.) They can give you quick educated answers, and they can help you with planning for the short and long term.
Careful with the fixer uppers. Yes, you have to make sure the particular property qualifies for your particular type of loan. (There are SO MANY types of loans.) You mention some really big projects. Big plans require big $. What is the plan to fund renovation/construction? I only ask because I've often seen people with great plans nix them later because of the hassle or lack of funds.
It doesn't hurt to get pre-approved for a mortgage and then have a Buyer's Agent show you homes in your price range. That will give you the specific info you need to make a decision that is best for you.
I'm happy to help. Good luck!
Angel Fletcher
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June 17 2010
Profile picture for jadedea
well i want to dive into the home buying process but the hubbie wants to make "small inquiries" here and there so that we dont waste any of your time. :)

Unfortunately my fixer-upper ideas stem from tv. Save money for a small project. Do some DIY on things that i cant make worse (like painting lol) and then have a appraisal? Supposedly that can raise the value of the home and allow me to get a loan for renovation. I must sound like a train wreck with these ideas. But thats what I thought I could do. I could use a financial/first time home buyer counselor on this one.

Oh i also heard that the va loan is the only loan that offers the no money down. are there more? can i get a loan for say a 10% money down equilivant and then use the money for that loan to apply for another loan? That just sounds like a lot of trouble.

Thanks again for the replies.
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June 17 2010
Hi Jadedea

You should buy instead of keep renting. As you already figure out that when you buy, you have extra saving for other maintenance expenses. You should use the VA loan that you qualify for, don't bother the FHA because you must have at least 3.5% down payment for this program. Talk to a mortgage consultant to make sure what you can really borrow, then searching for house in that range. I hope it helpds!

Quynh
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June 17 2010
Profile picture for jadedea

In my situation which type of a loan should i shoot for? 15, 30, ARM, Fixed???!?!?!?

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June 18 2010
It depends on how long you plan on keeping the property for and what kind of risk-taker you are.  I would bag the 15 yr. for now since your husband isn't working.  The payment would be much higher than a 30 yr. term.  Once he starts working again you can always do a VA streamline refinance into a 15 yr.

As for the ARM's, VA ARM's are much better than others since they have a periodic cap of 1% (rate can't adjust by more than 1% each year) but they are still risky.  If you think you'll own the home for more than 5 years I would probably bag this one, too.

That leaves a 30 yr.  Super low rates right now and safe, safe, safe.  Since this is your 1st home I would have to put my vote behind this option.
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June 18 2010
Profile picture for SoCal_Engr
You mentioned a 50% DTI. How did you figure this, because that is high. When I was looking at houses, I used targets of 33% front-end (mortgage only) and 41% back-end (mortgage plus other monthly debt service).

You also don't identify what type of rental you have. When you say "renting is more costly than owning", does that mean that it would be cheaper to own your current house than to rent it? Doing some rough math, that means you should be able to buy the house for less than $300K, ideally much closer to $200K. Your $1.5K payment will have to cover P/I, mortgage insurance, property taxes and homeowner's insurance.

In your current situation, especially with your husband not working and a high DTI (not knowing how it was calculated), I'd recommend you sit tight for a while. If the rental is really more expensive than owning, consider a different rental. And whatever you do, don't let some real estate agent sell you on an ARM as a way to leverage into more house (assuming you're not happy with what you can get for $200K'ish).
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June 18 2010
Profile picture for jadedea
socal, when i first moved here in dc we were looking for property to rent. we came across this sfh that had a rent to own option. they did a credit check and a buunch of other checks and that had determined my debt to income ratio. i dont know what you mean by front-end and back-end.

im currently renting a sfh 3bed, 1.5 bath. the rentals in this area are high priced. ive found more property for sale with a possible mortage of 1000 or less and are no more than 30 min away from downtown, whereas i have to go out as far as 1-2hrs away to find rental property near that price. plus we have pets and that greatly limits what we have available to us. this house is around 2k square feet, and we dont have any room. we have custom made furniture from overseas that we are not selling and we looked into the idea of getting a small 1 or 2 bed apartment and putting the rest of our furniture in storage but the quotes are in 1700 or higher a month and we have furniture that comfortably furnish a house of 2k-2.5k square feet depending on the layout.
so either way it seems like buying is the best option, plus i dont like the house im renting. :)
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June 18 2010
How did things end up for you? Did you decide to continue renting or have you started your search for your own home? Home buying is really affordable as of late, especially with rates at all time lows and attractive loan products. Feel free to ask me for any assistance, I work with a great lender who can help you weigh out all of your options. Wish you all the best!


Daniel Johnson

Licensed in DC & MD
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August 31 2010
Profile picture for rprater76
hi. I don't know how much help you need but we were helped by a company that works with Keller Williams, from any repair we needed all the way to buying our home. go to: [link removed by moderator] Hope this helps you. Good Luck
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August 31 2010
pay your debts down, he needs a job... and you need to be solid .... best thing about renting ... you can get up and go... no so with a home... good luck
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August 31 2010
 
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