Interested in buying my first house

[Shane McKenna]

Hey my name is Shane. I know there is no set right time to buy a house, but how do you know it's the right decision? What I mean by that is for a while now, I've wanted to get out on my own. But it isn’t to a point where I can’t stand where I am at now. (Living with my parents) I just want to get my own house, and have a place I can call my own. I think I can handle the responsibility, and I think it'd be great at this time. I have some money saved away, and I am pretty sure I could make it work. I just don’t want it NOT to work that's all. I am kind of scared of failing. I know I have a lot of friends, and close family members that could give me a hand if I really need it. But I never have financed anything in my life. With a car, I saved money till I had all of it, and I went and paid with $20,000 cash. My bike I bought a year ago with cash. Anything I've owned, I didn’t really owe much on for long. The only reason I am like that is because I was taught anything can change tomorrow. What I get out of that is either a. I may not want to be paying for the same car I'd pay $500 a month for one year, (3 years from now) or b. I may not be making the money I am making 2 years from now... All that is true, and that's why I am kind of scared to finance. Can I get some advice on home buying? This will be my first home, and I am 20 years old. I'll put down $15,000, I'll have about $5,000 in the bank for emergency, and I am looking to pay around $750 a month for a mortgage. ($150,000 house) I know I'll have taxes, utilities, food, and repairs on top of that. But I think I can afford it. I just don't want to get in over my head. I may have a friend move in with me, and help with the rent and utilities. I just don’t want this to be a flop. Is there any advice you can give me going into it. I really appreciate the advice. I'm sure I'll have another 50 questions in the next few days. This isn’t something I am going to do tomorrow. I've wanted to do it for a while, but I think within the next 12 months my dreams will become a reality.
Thanks ahead of time, Shane McKenna

[Rschmitt]

Shane, whenever you take a big step forward in life there is a fear of the unkown that comes with it. This fear is very useful because a smart person will use it to ask "what is it I'm afraid of " and "what can happen to make that fear occur." This leads to thinking about different scenarios, investigation, and learning. It sounds like you're intelligent enough to add numbers and project a budget to see if you can put together a program that you will feel comfortable with. A home is the one investment that you get the most use out of so it has a "psychic" benefit over and above the monetary of knowing you own your own space. Remember, real estate ownership has been the greatest path to financial success in this country.

Good luck!

[Shane McKenna]

Thanks for the reply. I am very excited to get started on this. I just am new to financing. Like I said, I am used to paying cash. With that in mind, even if I have $15,000 to put down, and a steady job, how are they going to finance $135,000 to a 20 year old? I have a credit card, but I don’t use it much, and I don’t accumulate any interest on it. I just use it for big things, over $200 and I pay it off when the statement comes. I have a best buy and an eye vision credit card. I just don’t think I have enough credit. My dad says the $15,000 down will help a lot. Can I get more info on getting financed? I don’t even know where to start. Thanks, Shane McKenna

[rmurray]

There are many places to start a loan...but first you should learn a little about mortgages...the terms..how they work..the best non-commercial web site for mortgage info is run by a university professor in the field...the site is easy to follow and has lots of info...

Have fun....smile..

http://www.mtgprofessor.com/

[Shane McKenna]

Thank you very much for the link. I am checking it out now.
thanks again, Shane

[Shane McKenna]

I checked out the site. It is a very nice site. I bookmarked it. A lot of great info.
The more information I get, the less I feel I am ready to get a house. There is a lot to think about when getting a house. A lot more than just using one of those payment calculators and figuring out what your monthly payment is going to be... There is closing cost, pmi, arms, points, different interest rates, and different charges for refinancing, different rules in different states. It’s great to get all this info now, I have to start somewhere. But it can be overwhelming.
The first step is qualifying, and then doing the loan application. If that goes through, and you've found the house you'll have closing costs. You can either pay those out of pocket, or roll them into the loan.
Everyone is saying finance as much as possible. I thought it was best to put as much money down, and pay cash for what I can. (Pay for the closing costs out of pocket and be done with them) But if you put them into the mortgage, the tax is a write off. But if I pay cash for them up front, there is no interest at all. I don’t see why people want to put everything into the mortgage. I want to get my payments down somehow. I thought the only way of doing that was putting the $15,000 down. My loan ratio is 90/10, that is better than 93-96%. I know it’s great to have money on hand and have it be available. But I’d rather wait a few more months and have more money in the bank, and put down the 10% so my payments are where they need to be. I’ll have a little money in the bank. I won’t be wiping my account out dry. Plus even after the mortgage and the monthly bills, I’ll be either setting some money aside or overpaying. I should be fine there.
I have been at my current job for almost 3 years now. I have only used 1 credit card a few times. I haven’t been late on any payments. But I never financed a car or had any kind of a loan. What kind of rate will they give me if I don’t have enough credit? Is there any kind of advantage I’ll have being a 1st time home buyer?
Thanks again, Shane

[rmurray]

It is great to see a young person wanting to learn...seems overwhelming at first...but remember the lessons you learn now will be with you for your whole life..

Big ticket finance...home, auto and business...will be the largest expenses in your life...Unfortunately our education system spends NO time on important personal finance issues...probably too busy with sex and drug education..oh well..

As far as how much to put down...you are right..do not zap your account..but the more the better..

If you can do away with PMI..that takes 20% down..this is good..There are some interesting approaches to this..popular now is a 8-10-10 loan..80% first (no PMI) 10% second mortgage (higher rate than 1st but lower than the PMI would have been) 10% cash..

Forget the IRS tax deductions...The standard deduction for most filers has just gone up to near $8000...For interest to help your tax obligation it would have to be over $8000 per year..then you would save about 20% of the interest ABOVE $8K..Not likely to come into play for you..

There is a place in this world for rent...It can be a great way to build the credit you need for a prime mortgage and help you learn ALL the costs of home making..such as electric,,gas,,,garbage..water..sewer..insurance..cable..internet access..phone..the list goes on and on..If you can rent a place and still save..you are truly ready for a home..

Stop back here often..ask...ask..ask..

[Shane McKenna]

Thanks for the reply. I think I understand how to get around PMI. 10% down, 80% 1st and the 90% 2nd. The first 80% mortgage if I went with a 5 year arm could be as low as 4.5% and the 2nd mortgage could be around 7%. I can also get a loan on the 2nd (7% one) and pay interest only on that one right? Then my payments would be down to around $ $700 a month and I'd be avoiding PMI.
What I am still a little unclear on is the tax benefit I'll get at the end of the year for owning a home. I know your interest and some repairs to the house are a tax deduction. But how does that help me. Does that mean either I'll get some money back at the end of they ear, or I can claim a different amount and get some money put back on my check? That would help a lot if I saw $300 put back onto my pay check a month. I'm just afraid that's too good to be true.
Thanks, Shane

[Rschmitt]

In a lower tax bracket and smaller interest payments there will probably not be much tax savings. The real benefit is if you can build equity in the home by buying right and improving the property if possible. Of course I live in CA so its a little easier to expect appreciation on just about any home. I suggest going to www.bobbrinker.com and finding out what local radio station he is on so you can listen. Lot's of great information for any income or investment level of monetary amounts or sophistication. Call in to his talk show and he'll give you lots of advice that speaks directly to your situation. Another website that speaks to credit scores and reporting is www.equifax.com where you can order your credit scores online for about $12 and actually order a report that analyzes your score and tells you how to improve it. As far as qualifying for a loan, most lenders will be glad to talk to you, collect some basic info and let you know what you can qualify for. It never hurts to ask and you might learn something.

[rmurray]

The other post here is pretty correct about the IRS "savings" some mention..It would be best to ask a tax expert about this...but the loan you mention would have about $6000 deductable interest the first year but you already qualify for the standard deductable...maintenence is NOT tax deductable..local real estate taxes are...

There is NO way you would save $300/mo...Much more likely less than $300/yr..