Dumb fear of buying a house...

[Mommy Of A Little Angel]

Okay, I need some sense talked into me! DH are finally living in a place where houses are affordable and we should be looking to buy something. We have been renting because we had about three weeks to move here and I was 7 months pregnant. Now, DD is born and I have no more excuses.

The thing is, every time I think about buying a house, I come up with all sorts of stupid excuses. Oh, the realtor won't take us seriously because we are young. The realtor will think we can't afford anything. We won't be able to qualify for enough money. We have too much debt (student loans - gotta love them!). We don't have enough saved. (This one is a real concern. We don't have 10-20% to put down on a house thanks to paying off student loans.) Now, my uncle is a mortgage broker and he would do ours for us without fees, but I don't want him to think we are poor. DH has a good job, but I am still all worried about this stuff. I think I am just stalling. So, for those who have bought houses, tell me I am crazy! Tell me how you did it!

Seriously, I am so glad to have somewhere to ask these stupid questions. I think my IRL friends would just think I was nuts...

[megs4413]

DH and I were 22 when we bought this house! we had a lot of the same concerns...and i just felt like we weren't "ready". but when it came down to it, we found a great house and were able to afford it so it was time to take the plunge. BOY am i glad we did it! i love it! we didn't have any savings to speak of and were still able to get into this house. we got a first time homebuyers loan....maybe there's a program like that where you live as well? they paid our down payment and it's grant money so we don't have to pay it back. we have to stay in the house 3 years to avoid paying it back if we make a profit. we can't use the house for business (can't be claimed on taxes basically) but other than that it's just free money! it's a buyer's market right now! go shopping! if you find something you like, look into it!

and about the realtors not taking you seriously...we had some of that trouble. if they weren't interested in working with us, we didn't worry about workign with them. bottom line. if i called and had someone act disinterested in showing us a listing, i just moved on. DH ended up lining up financing while we were looking so we would have more "clout" when we went to a realtor. we didn't end up using that financing, but it did help them take us more seriously.

good luck!

[Mommy Of A Little Angel]

Thanks so much for your reply. It's nice to see someone who has actually done it! Can you tell me more about the first time homebuyer loan? I like the grant money idea. Anything you can tell me would help out a lot! Thanks!

[megs4413]

you know it's a program from our state, but i bet there's one from your state as well. maybe look on your state's .gov website to find out what the housing department is called and see if they have some info there. i bet they do! the grant money is new after the first of the year here and when that year's grant money has all run out, you're outta luck for a FH loan until next year. so this is a good time of year to be looking for programs like that!

HTH!

[Mommy Of A Little Angel]

Thanks so much I will check it out!

[ShanaMama]

We also looking to buy now, & I kinda know what you mean. I think it's something you have to be emotionally ready for. We actually have a house we want, & it would be smaller & yuckier than our beautiful apt, but it will be *ours*! I think it's fun to do some work on our own over the years that we anticipate living there.
As far as your concerns, I have actually found that realtors do take us seriously, because we're a young family that wants a home to grow in. I'm 23 & DH is 27, but I think some of it is how you feel & how you present yourselves.
As far a financing, as Megs said there are lots of programs for first time home buyers. We're looking at one that does 100% financing, so no down payment at all. I'll definitely look for grants. FTHB also get a better interest rate.
What I'm hearing from friends that already own is that it is a stretch, no matter how hard it is. The first year is supposed to be the hardest. DH & I are also having a bit of a hard time with this, but I keep telling myself that the norm is you go broke when you buy a house. But you build equity, which we don't have now.
It is definitely a buyer's market, & I think you'll have no problem getting financing. Start looking- you can take it as slowly as you'd like. When you find the right house, I think you'll know it, all hesitation aside. Good luck!

[o_mom]

Start with the financial end. A good realtor can set you up with a mortgage broker to get an idea of what you will qualify for. You aren't committed to them, so if you want to use your Uncle later you can if he can get you a better rate. 10-20% is nice and saves you PMI, but most don't expect you to have that much - especially as a first time buyer.

You might be surprised what you qualify for and how the payments compare to your rent. In our case, the mortgage payments were about 1/3 more than our rent, but with the tax savings we came out about even so it really didn't cost more to buy than rent. Just let the realtor know what your future plans are. If you are looking for a house that you will sell in 3-5 years so you can move up ask them what neighborhoods will allow you to do that easily and why.

[bostonsmama]

We've owned our home for coming on six years, so that would have made DH 26 when we bought it (he's now 32). It was the best investment we ever made! I can't imagine throwing money away on rent that doesn't bring you an instant asset (for which you can later sell, borrow against for loans in case of emergency, for home improvements, car loans, college tuition for your kid(s)). The only instance where renting makes sense is in declining or hyper-inflated markets where obviously you wouldn't want to afford a $700,000 mortgage without adequate pay (at least $12,000/month in salary if you stick to the recommendation that your mortgage payment not be more than 1/3 of your monthly income).

There are great first-time buyer loans (VHA, VHDA?), and there are also loans called 80/20s where you can aquire traditional financing for the 80%, but also finance the remaining 20% with a separate loan. My only advice is to be careful about family offering you discounts. My step dad is a mortgage broker as well, and his company still had to profit from my loan brokering, and in general independent lending institutions can't compete with as good a rate as others can (like credit unions, certain banks, etc). We also did a buy-down on our interest rate which was not discounted. Also, my mother is a realtor, so she helped us buy our home without technically taking a comission, but the deal still required payment of the full 6%, of which her company got 3% (the other 3% went to the selling/listing agent)...and of the 3% her company got, she got half, which she still had to claim on her taxes, but refunded to me in a check. So, all that to say that you should still shop around for the best rate, especially if you're young and have little or not as good credit rating.

Anyways, NOW is the time to buy, so says my mom, a realtor. Buyers are starting to realize that prices have reached an acceptable low, even in stagnant markets, and January has produced the first increase in a long time in home sales. I would say that by April the good deals to be had are going to be gone.

And if you needed any confirmation that buying a home is a wonderful thing, I could gush forever about mine. You can paint it, decorate it, for the most part do whatever you want to it (as long as you don't buy in a community w/ an HOA), make noise in it, have a backyard to play in with the kid(s)/pet(s), etc. Homes are ALWAYS a wonderful long-term investment. Even in this stagnant market, home values have still risen, just not to the point of absurdity--but they're still rising. We'd love to leave our home as an asset to our children one day, which is why after living here for 3 years with a 30-year loan, we refinanced to a 15yr loan, which at the rate we're paying it off will now be only 10 more years (or less). If we ever move, we have the option of NOT selling it and renting it out to make a profit, so again it's an instant asset that you can both borrow against and keep for real profits or sell for appreciated profits.

The only downside to owning a home is all the costs that are associated with it, and really it has more to do with the fact that you own it, so you're responsible for whatever breaks or you break (unlike in an appt...if the dishwasher craps out, you're shelling out $300, in an appt, the rental agency replaces it for you). Also, there are some hidden fees to ownership, such as private mortgage insurance (PMI) that you pay until you've payed down to 80%. And if you're financing, it's mandatory to have homeowner's insurance, which is automatically added to your monthly mortgage payment. And unlike rentals, where there are only a few bills (phone/tv, electricity & *maybe* water), for homes you have to pay city and state property taxes, trash collector bills, sewer bill, sanitation/wastewater bill, water bill, gas bill, electricity bill, telephone/internet/tv bill. It adds up. Also, it is estimated that the average family spends about $9,000 when they first move into a home. That's about on par to what we spent getting blinds, upgrading carpet & flooring, paint for the walls, cabinet hardware, new lighting fixtures & ceiling fans, the sink disposal system that broke a week after we moved in, and of course more furniture since we didn't have a lot of stuff: beds, dressers, new couch & chair, electronics, computer table, dining room table, etc. Now, that's nothing one HAS to spend, but be aware that if you're the type of person who would want all those things, you'll need to have some more money put aside so you don't go deeper into the bad debt (ala credit cards).

One more tip (as if this wasn't long enough), in between now and the time you buy a house:
*Do NOT make any major purchases on your credit card
*Do NOT go out and buy a new car or allow a company to approve you for purchasing a car (this makes you a HIGH risk to any lending agency)
*Do NOT quit your/his job
*Do NOT get your credit checked at 4 different places....credit checks, while a soft hit, lower your credit score a few points for every time you do it!!!
*Find a realtor you trust in a reputable agency (Prudential, ERA, William E Wood, ReMax, GSH, Rose & Womble) who will gladly find you a house within your price range. I would find out who is the top listing/sales agent within any office and avoid that person since many times they are seeking the highest volume and might be less inclined to show you cheaper houses if all s/he works with are $$$ properties. Or, just as the receptionist who is great at working with people without a lot of resources. I'm very leery of smaller agnecies....seriously! There is so much less recourse if anything goes wrong.

Have fun and let us know how it goes!!

L

[sdoyle]

I know how you're feeling. I bought my first house when I was single at 25. It was a fixer upper in a good area and I was TERRIFIED! I've got to say though- that was one of the best decisions I have made in my life. Since then I have bought and lived in 3 additional houses in 6 years. I'm a real estate addict.

Some BTDT advice from someone who was definately NOT taken seriously at first:

1) Get preapproved with anyone you want. You don't HAVE to use them, they just give you a letter. In fact, your uncle could probably do it.

2) My first loan was a 103% loan. I put nothing down and it appreciated enough in the first year for them to cancel PMI. Basically I paid PMI 1 year but when it appraised 20% higher they stopped charging it. So, PMI is not the end of the world. It can go away ask the mortgage broker about this.

3) Location, location, location. This is the key to resale at a profit (or rental property if you don't want to get rid of your 1st house like me :)) Really research locations that are expanding and popular. Houses can be improved upon, locations can't!

4) Realtors are not necessarily required to get started. Start kicking tires at open houses. The best house I purchased was a FSBO from a great family who had just lost their grandma. They worked with me and actually accepted my offer over another higher offer because the man wanted to rip down the house. The house was so well cared for. I have had 2 houses that belonged to older ladies and honestly, they are the ugliest (wallpaper from the 60's) but the BEST cared for homes I have seen. I think older people just take care of things better than our generation does.

5) It's definately a buyer's market and like PP said the tax write off will probably make up the difference in your payment.

Finally---- YOU CAN DO THIS! Just do your research so you know what you are doing and what you are looking at and get in there. Sorry this is so long. Real estate just gets me so excited ;)! PM me if I can help you in any way.

Stacy

[SnuggleBuggles]

We were also young and didn't have 10-20% saved up. I believe we put 3-5% down and we lived in an area where that meant we did not have to pay PMI (a good thing to avoid!). It really wasn't that bad to buy a house and we made sure not to overspend. The mortgage payment was equal or slightly less than rent. Closing costs were much more affordable than I expected them to be. It wouldn't take much to look at houses and have some good faith estimates made so you really know what you would need to have available financially.

You could also wait and just take this time to make sure your credit is strong and get some debt paid off, especially if you don't live in a up and coming city (you can feel better that home prices aren't going to go up ridiculously in the next few years).

Then again, owning a home builds equity which you don't get renting. If mortgage payments and rent are pretty close the choice is pretty easy imo.

It is nice to own a home though. :) But, it is even better, imo, to do it when you are ready. Don't worry about doing it just because it seems like the right time to do it.

Oh, and I wouldn't worry about your uncle thinking you are poor. Every young family needs to start somewhere and I bet he will understand that. Same with the realtor. Just be honest with them and don't let them up sell you. Depending on where you live they may quote that you can afford a home that costs 3Xs your salaries. If we had paid that much we would have had little left over for just about anything. Know your comfort zone and just stay within that range. Again, a good realtor should respect your limitations...and they should know that if they are good to you now that you will be back again when it is time to sell/ buy again.

Beth

[karolyp]

Larissa has given you some GREAT advice (as always ;) )! But I would also encourage you to please be careful choosing your broker and loan. There are so many different loan options out there now (interest only, ARMs, 15 year, 30 year and even 40 year!), and you really need to know the whole scoop as to what you're getting yourself into before signing on the dotted line. And not to mention that the mortgage paperwork is daunting in itself! Case in point, option ARM loans (i.e. the pick a payment loans). These loans are good because they offer the customer flexibility and initially lower payment options (either pay a min payment, interest only, 15 year, or 30 year payment). The downside is that these loans create negative amortization meaning your loan balance will increase instead of decrease because you are paying less than the amount of interest due. Eventually, this will cause your mortgage to readjust and possibly cause your payment to double or even triple! And there are many shady brokers out there that will entice you with the low payment, make you think you really can afford a house you can't, and not tell you the whole story about your loan readjusting. Therefore I would only consider this loan option if (and only if) you plan on being in the house a short period of time to build up equity and cash out. Although then, if you do plan on moving before your 2 year ownership mark, there's a possibility that you might owe the IRS tax on the profit you make. The other things you have to consider are home insurance cost, school zones (do you have school age children?), location, new or used, and property taxes. While I agree that this is totally a buyers market and an awesome time to buy - property taxes have stopped a lot of people from buying because the new property will get appraised at the higher price once is sells thus equalling higher property taxes and a higher payment.

Nevertheless, I totally encourage you to buy if you are in a finacial position to do so. DH and I (and against my wishes bc I was scared too lol) bought our first house when I was either 19 or 20. It was $50K and a total fixer upper. But we made a nice profit when we sold it and that equity helped us get into the next house, which then eventually helped us get into the house we are in today! We bought and sold 4 times within the last 8 years, each time cashing out and using the $ to buy something bigger and nicer. And I can honestly say that buying that first house was one of the best finacial decisions I have ever made in my life!

Anyhow, this post has gone on long enough and I really hope that it helps and I made sense lol! Good luck to you and your DH as you embark on the journey of homeownership! But I promise that you won't regret it!

[ChunkyNicksChunkyMom]

The single biggest financial mistake I ever made was not buying a house sooner. I think I was 32 when i bought my first house. I still shudder when I think of all that rent money down the tubes. It is good to be cautious but if you are committed to your area for 5 years or more I see no reason not to go for it.
Susan

#1 Nick 11-18-04
#2 Kate 04-26-06

[Moneypenny]

DH and I were 22 when we bought our house. We had the same fears, so we got a book, which I think was called "Buying Your First Home" or something equally dull and descriptive and it was very helpful. It clearly explained the different types of loans, realtors, properties, etc and walked you through the whole process. I think we were mostly scared because it was something we didn't know how to do, just like the first time you have to go by yourself to get your car fixed or something. There's an inherent apprehension in doing something you're not totally familiar with. Anyway, we found the book made us feel much more knowledgable and comfortable, and I'm so glad we did it.
Susan
mama to my cutie pie, Avery
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[maddyzmommy]

You're not dumb at all. You have some very valid concerns. I highly recommend you check out Dave Ramsey's website and listen to his radio show if you get the opportunity. He has lots of advice on this topic and you definitely won't get yourself into trouble if you listen to him. I highly, highly recommend buying BELOW your means for your first house. My husband and I have done that for both our houses and just fixed them up really nice inside. He's an attorney and you should SEE some of the homes our friends have purchased! We know one couple who built their gorgeous place for 1.4 million and now don't run the AC or heat (zoned) in 75% of their house because the electric/gas payments equal their old mortgage payments (on a 600k home) if they do. Also, they have several rooms that are absolutely empty. Their place looks like a giant museum lobby. Ludicrous! We bought in a beautiful neighborhood and we love our house and we don't mind (too much) if it isn't a mansion. We run our heat and have money for furniture and general life. Don't get sucked in to the idea that "everybody" is housepoor. It's not true. You can own a home that's within your means and not suffer for it. We rented the first couple years after my husband signed on with a big firm and definitely got strange looks from our friends but it's so important not to go into debt over this stuff. I hated the idea that we were flushing our rent money each month but we took that time to make sure we had great credit and that we could afford the kind of home we wanted. What matters is that you can sleep at night. www.daveramsey.com

[Mommy Of A Little Angel]

Thank you so much! You are awesome. All your advice is awesome. Thank you for taking the time to write it all down for me. I am going to print it out to show DH this evening!

[Mommy Of A Little Angel]

I checked into it and we don't qualify for the program in our state, but they did have a lot of other helpful information and resources. Thanks for steering me in the right direction!

[Mommy Of A Little Angel]

I never thought about appreciation cancelling the PMI. I know it isn't likely to appreciate that much in one year in this area, but it's an aspect that I never thought of. For some reason I thought we'd be stuck with PMI for a long time, but knowing that you can get out of it is great. Thanks so much for the encouragement. I really need it!

[Mommy Of A Little Angel]

Thanks everyone for the great advice and encouragement. I really needed it all! The BTDT advice is great. I definately will take all your suggestions into consideration. Thanks so much - you all really made me feel better about this and really feel like we can do it!