Not m/c related but I trust the unbiased opinions of gstwin members very much. So here goes... I graduated from college over a year ago and am currently working as a product rep for a paint company making an average salary for a first job. I'm single and have little to no debt. I renting right now and am tired of throwing money out the window so why not get a house? After hearing about how bad the credit/housing situation currently is I figured I was screwed.

Turns out I am eligible for a couple loans. One of the best sounding is a fixed 30 yr FHA. I'd plan on staying in a place for at least 5 years. I'm not thinking of anything too fancy just a starter home, something with a warm dry place to work on the GSF. What do you guys think good idea? Any similar scenarios or things to think about?

-Ash

If you can buy one really undervalued, go for it.  With an FHA loan, the seller must satisfy several requirements.  With a repo or stressed sale, this may not be possible.  You may have to get a conventional loan, but rates are pretty good right now if you can get the loan.

My son bought a bank-owned property last year in the Dallas area.  No warranty (although he did get an inspection before buying).  He's put several thousand into it since that time and now has an unbelievable starter house.  No way would he have been able to get a house like this in any other market.

Very True! Deals are out there you just gotta find them. With the way the economy is, banks have TONS of forclosed properties for little or no money down. As far as getting a loan, don't unless you can do a 15. If you calculate it out, you pay tens of thousands, if not more, on the additional interest over the extra 15 years. Better to do a 15 or save until you can. I totally understand where your comming from, why pay someone else if you could be paying your own mortgage...

My advice, DEFINITELY go with 30 year fixed.  Stay the hell away from variable rates and other gimmic mortgages.  You are on the right track with the 5-year, plan, though.  It'll take you that long to build up the equity necessary to cover your closing costs and such in the event you have to sell.
Check with your realtor and see if your area qualifies for the Federal urban development loan program.  A lot of counties also have a special program for first-time buyers; my county gave me $6,000 (it depends on your income; I made enough that they gave me the lowest amount) towards down payment and closing.
The most important thing; BUY WHAT YOU CAN AFFORD, NO MORE!!!  That's what got us into this whole foreclosure mess in the first place, was people buying more house than they could afford.  Be responsible and you'll be fine.  As for how much that is, the general rule is to take your gross annual income, triple it, and then add 10%-15%, and that's what you can afford.  The other rule of thumb is to spend no more than 40% of your monthly net pay on housing.

The wife and i just bought a house the end of nov.  Prices are great right now on houses.  Our house will be paid off in about 5 yrs.

My advice is - dont. Not now, not for the next 5-6 years.
2015 is going to see a melt down because of retiring baby boomers. If you're in any of the areas that are melting down now, but is a retiree haven(fl, az), you should be OK buying in 5-6 years. If you're where retirees are outflowing like NY, forget it, it will continue to get cheaper for years.
You're in your early 20's the market will entirely play into your hands.
Cool.
Buddha.

t'other thing is to simply do a full analysis of total costs before you dive in.

If you have the self-discipline to simply save money, without having to "be forced to put money into a house" in order not to fritter it away, you can do well if rental rates are not absurdly high. If you don't already have 20% of the price of a house in your area that you'd like to buy, save up until you have at least that much (and no debt) before you take the plunge. Makes a big difference in your loan terms, etc.

You pay rent now - money out the window, along with whatever utilities you pay. Renters insurance as well, hopefully - it's cheap.

You buy a house. You pay interest on a loan - money out the window. You pay taxes on the house - money out the window. You have to pay for any/all repairs to the house - money nearly out the window. You pay all utilities, even the ones you as a renter may not think of (water/sewer is the most common "included in rent") - money out the window. Insurance - someone breaks a leg on your sidewalk, you get to pay - be covered - money out the window to prevent more money from going out the window. Some small piddly part of your total outflow actually goes into equity on the house - if the market does not plunge further, you might eventually get that back.

Now you go to sell your house and get that equity back, you think. Subtract 6% for the real estate agent, a few hundred for the lawyer, perhaps some other fees - if the market does not actually go up 10%, it's hard to even break even on a house, particularly given that they do need regular maintenance.

Meanwhile, if you can pay rent and still put money in the bank, even if you go to a really boring investment like a Certificate of Deposit at an FDIC insured bank, you can MAKE 3% on your money, instead of having your money tied up in a thing that costs you money every year, and makes none. If you are willing to take a little more risk, you can perhaps make more money on your money - but that's up to you. When you want to do something with it (even buy a house, or make the down payment at least) it's easy to get to, and costs nothing to get.

"What about the mortgage interest deduction?", you ask - well, analyze that sucker, too. Most people don't. It's a deduction, not a credit. Unless you are paying a pile in mortgage interest (money out the window, remember) it saves you nothing .vs. the standard deduction, and the most it saves you even then is whatever your federal tax rate is - not all that much for regular schmucks making regular bucks and buying regular houses. A reasonable loan on a house within your budget won't exceed your standard deduction, much of the time...

It may make sense for you to buy a house, though I'm guessing it probably does not right this minute, since you describe "little to no debt" rather than "$25K on hand for a down payment." But take some time and do the math and see if it really does. If it doesn't at present, you'll at least have a better idea about where else your money would be going, and that might change your mind about the extent to which "throwing it away on rent" is crazy, or "crazy like a fox", in your present situation.

25k in hard for down payment? hole crap that would have paid my house off bought a new bike and still had 12k left over.

Quote from: DoD#i on March 19, 2009, 09:32:11 AM
"What about the mortgage interest deduction?", you ask - well, analyze that sucker, too. Most people don't. It's a deduction, not a credit. Unless you are paying a pile in mortgage interest (money out the window, remember) it saves you nothing .vs. the standard deduction, and the most it saves you even then is whatever your federal tax rate is - not all that much for regular schmucks making regular bucks and buying regular houses. A reasonable loan on a house within your budget won't exceed your standard deduction, much of the time...

So true, I am better off with standard deduction, It was a shade better for a couple years but now its standard which is better.
Cool.
Buddha.

Also having a lot of equity is just about the worst position you can be in.

If you have 90% equity and cant make the payments any more guess what, the bank knows they can make a killing on your house, and they will foreclose as quickly as they can.
If you're underwater they are SOL.
Cool.
Buddha.

the day we signed on are house we had 16k positive equity in are house....lol

Quote from: ke7syv on March 18, 2009, 11:43:06 PM
Very True! Deals are out there you just gotta find them. With the way the economy is, banks have TONS of forclosed properties for little or no money down. As far as getting a loan, don't unless you can do a 15. If you calculate it out, you pay tens of thousands, if not more, on the additional interest over the extra 15 years. Better to do a 15 or save until you can. I totally understand where your comming from, why pay someone else if you could be paying your own mortgage...

I would recommend a 30 year, but pay extra on the principal each month.  My logic behind this is that if you make the 15 year payments on a 30 year mortgage, you'll have the house paid off in, what maybe 17 years?  The benefit is that you have a lower minimum payment.  So if you have extra expenses one month due to un-foreseeable events, you won't be strapped for cash.

I definitely agree that you do spend a TON of money on interest on a 30 year though.  If you do get a 30, at the very least try to pay extra principal in the first year.  The % of interest you pay vs. principal (while making the min. payment) in the first year is ridiculous.

Its WAY better for your credit to cary a loan to term... meaning, its bad to pay off a 30 year loan in 15 years. You are better off getting the 15 to begin w/.

I would not take out more than 15 years unless you think its your final home / retirement home. Buy something rentable and after your 5 years when you want to move on... Rent it out!

my wife and i bought our first home lest september, we were thinking the same thing about how we hated throwing money away for rent when we could put it towards an investment. its a good time to buy but still hard to get approved for loans (at least when we were house shopping) mortgage companies kept changing guidelines on mortgage approvals and it made it more complicated and frustrating for us to get a mortgage. i think that stuff happened to us for a reason because if we had ended up with a couple of homes we almost got it probably would have been a little out of our budget but we ended up getting a real nice place, brand new, and something we could afford most-importantly, and yeah we got a great deal.

try checking out some townhomes, theres a lot (in this area anyway) that are popping up everywhere. you save on energy bills, some have good deals with their HOA and you can find some with low HOA payments that include a lot of utilities including warranties and such on the home (usually exterior and structural). we were looking at houses at first and ended up in a townhome and we're loving it. whatever best fits your lifestyle.

scottpA_GS: i don't understand what you said about it being bad to pay off a loan before the end of the term, how does that work? i awlays thought it looked good if you payed off a loan early? and why couldn't he sell it in five years if he wanted? just because you have a 30 year mortgage doesnt mean you HAVE to live there for 30 years (although some first-time home buyers programs i know have limits like that, you have to live there for 10 or 15 years or something).

All very good advice thanks you guys. I agree its important to weight the costs of ownership vs monthly rent. I was surprised by how easy it was to get approved for a loan. The real estate market in S.E. Louisiana is much different then the rest of the country right now. We are not very much affected by the recession in fact our economy is growing. (katrina) I've seen some houses in great shape for relatively inexpensive basically a monthly note nearly 200 less then my rent and if I got a roommate, then wow I could almost turn a profit(sort of).

I don't have nearly 20% to put down but even still it seems like such a good deal. Plus the thought of finally being able to make my custom garage w/ an a/c unit, custom work area/bench, computer/wifi, m/c lift, full assortment of tools, a comfy old sofa, mini fridge with beer, a small TV and stereo. Yes, I have plans...

-Ash

actually it doesnt matter on your credit score once your score is so high it cant go any higher 820 i think it is  paying off your morgage early wont hurt you unless your morgage company has a no early payoff stated.  i have heard of them doing that so they dont lose out on all the interest they would make.  our morgage does not and we took out a 10 or 15 yr but we will most likely still pay it off early I would actually like to have it paid off within the next 5 yrs and its totally doable.

Quote from: scottpA_GS on March 19, 2009, 08:09:36 PM
Its WAY better for your credit to cary a loan to term... meaning, its bad to pay off a 30 year loan in 15 years. You are better off getting the 15 to begin w/.

Why is that?

Quote from: VSG on March 19, 2009, 01:21:30 PM

Quote from: ke7syv on March 18, 2009, 11:43:06 PM
Very True! Deals are out there you just gotta find them. With the way the economy is, banks have TONS of forclosed properties for little or no money down. As far as getting a loan, don't unless you can do a 15. If you calculate it out, you pay tens of thousands, if not more, on the additional interest over the extra 15 years. Better to do a 15 or save until you can. I totally understand where your comming from, why pay someone else if you could be paying your own mortgage...

I would recommend a 30 year, but pay extra on the principal each month.  My logic behind this is that if you make the 15 year payments on a 30 year mortgage, you'll have the house paid off in, what maybe 17 years?  The benefit is that you have a lower minimum payment.  So if you have extra expenses one month due to un-foreseeable events, you won't be strapped for cash.

I definitely agree that you do spend a TON of money on interest on a 30 year though.  If you do get a 30, at the very least try to pay extra principal in the first year.  The % of interest you pay vs. principal (while making the min. payment) in the first year is ridiculous.

In a 15 yr loan interest is closer to 1/2 percentage below the 30. If 15 is 5, 30 usually is 5.5 or even slightly higher.
The Payment difference between the 2 in my house came to ~100 bucks. I got the 15, and most of the time I paid 10% more.
I anticipate a 6-7 year deal before its ours.
Thanks to the RE crash, we have less than 40K of realisable equity and more is vanishing every day. However rent on my house - heck, my neighbors house is 1/2 the size of mine and only ~100 bucks lower rent than my payments. Only saving grace, renting it will have cost us the same $$$. It was new, and repairs, manitenance has been next to 0.
Cool.
Buddha.

Don't buy right now.  We haven't seen the bottom yet 6-12 months is my call.

The precise timing is your call, now, six months, two years?
What is cetain is that govt debt will increase over next few years and this will lead to inflation eventually as opposed to the present deflation and arguably the whole cycle starts again. In an inflation situation your savings will depreciate, investments like property and stocks will keep pace with or sometimes wildly outstrip inflation. The wild increase in house prices then can lead to another crash. We have to hope and trust that there will be a long period of sustained moderate growth first and history does point to this happening.
If you don't buy a house sometime in the next few years you will wish you had. The market may not yet have reached the bottom, far better fiscal brains than mine are not sure but over the long term now is a good time to buy. Another way to look at it is that a house is somewhere to live not just an investment and we all need a cave don't we.