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Home Buying Conversation

Discussion in 'Members' Lounge' started by get_nick, Oct 22, 2014.

  1. get_nick

    get_nick These snozzberries taste like snozzberries... VIP

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    So I'm looking at all the options for buying my first home. The main reason I want to buy is so that I can have my own space finally. I've gotten to the point that I want to be able to do whatever the fuck I want with my own stuff. I'm also tired of renting. My complex has had a rash of thefts, break-ins, and overall living conditions have shit the bed.

    I have VA (veterans affairs) loan options which allow for 0% down, 0 PMI, and limits to closing costs. So a few questions. A few caveats. I don't plan on living in the home more than 5 years. I'll either sell and move or rent it out. Mostly because I don't plan on working in the same place. I can afford more than I'm willing to pay but I want to remain "within my means" of spending. I'm not an idiot and don't want to finance at 60% of my income.

    1) I'm considering a 5/1 or 7/1 ARM. Has anybody done one of these?
    2) If i go the 30 year fixed route, what is considered a "good" rate?
    3) Do you guys have and tips or best practices?
     
  2. B16

    B16 Super Moderator VIP

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    1.) No experience here. However I think it would only really be a good option if:
    a.) You plan on keeping the home and are confident rates will either drop or remain the same after 5 or 7 years.
    b.) You plan on selling after the 5 or 7 years and are confident the home value will increase.
    2.) I have a 30 year fixed at 3.25%
    3.) My suggestion:
    a.) If you plan on selling the house after 5 years; pay off as much as possible on the principle so you avoid potentially being upside down when you want to sell. If you have gained equity then you have the benefit of using it as a place to hold money.
    b.) If you plan on renting it out later; I would not worry as much about the principle to stay cash flow positive. You'll likely want lower payments when renting out to keep the cash flowing.

    There is a lot of paper work involved, just be prepared. No house is perfect, expect work to be done but be sure you're very clear on the work that may need to be done. Home inspections are a bit of a joke really, do you have any friends who are contractors to come look at the place?
     
  3. get_nick

    get_nick These snozzberries taste like snozzberries... VIP

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    I don't have any friends that are contractors, but I'm pretty good with repairs and home improvements. I don't plan on buying anything older than 10 years old, so I don't expect anything drastic needing to be repaired.

    I don't think rates will/can drop much more. My goal is to lock something in for a few years while I figure out the next step in my career. I don't want to put much into it so that I can pay down my higher rate student loans (MBA).

    A couple extra points. I pay $1700/month for rent/parking/utilities. This is split between me and my girlfriend. She wont be on the home loan, but she'll pay me rent.
     
  4. reckedracing

    reckedracing TTIWWOP VIP

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    Check out the VA loan restrictions, they may have rules on how long you need to use it as a primary residence, and whether you can legally rent it out down the road, etc.
    I would avoid the ARM loan. I don't think rates are going to going any lower in the near future, so that almost seems like a lose/lose unless you do a refi and then you have no VA help on the closing costs. You also have no idea where your life will be in 5 years. You might be married with 2 kids and no prospect of selling/moving.
    Without knowing your RE market its really hard to say whether a 5 year hold is a likely scenario. If you market has already burst the bubble and is at an all time low then this might work, but you have to hope the market will bounce in the next 5 years. Generally you aren't going to expect much of a return on a house in 5 years, factoring in mortgage interest and the rest of the expenses. The good news is that you will get a capital gains tax exclusion(250K for single) if you use the home as a primary residence for 2 out of the last 5 years, but you probably won't have much gain, and once you use the exclusion you cannot use it again for another 5 years.
    I know you said the GF will be paying rent, but be sure to get a place you can afford on your own. You never know how that's going to work out in 2-5 years.
     
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  5. get_nick

    get_nick These snozzberries taste like snozzberries... VIP

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    I currently live in Seattle. I'm only going to buy based on what I can afford. I've always lived within my means and never overspent on anything. Kids aren't in the picture. We've had that talk and we both agreed that we aren't going to have kids.

    The bubble here hasn't popped and we aren't near our lows. Low was back in 2011 and has been climbing ever since. The annual difference of 1% between the ARM and 30 year fixed is pretty substantial. If I could close the gap down to about .3% between the two options, I would go with the 30 year. I have excellent credit, great income, and really high income:debt. I just need some input from people who have bought a house and that i can bounce ideas off of.
     
  6. reckedracing

    reckedracing TTIWWOP VIP

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    run out an amortization schedule on the ARM and the fixed rate and then get back to me on how much that 1% actually saves you over the term of the loan.
    ARM's are historically a poor option and in 5-7 years you will find out why.
    30 year fixed are about as low as they ever were, you're probably looking in the 3-4% rate right now.
    your monthly payment will skyrocket if the rates go up, keep that in mind when you are calculating what you can and cannot easily afford.
    and in 5-7 years when that ARM triggers, you probably aren't going to be able to jump into a 3-4% fixed rate. just keep that in mind.

    i bought in 2009 and have a fixed 4.25%. rates went lower but its not worth it for me to refi at this point.
     
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  7. Briansol

    Briansol Admins Admin VIP

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    ARM's are vehicles to gamble with. IMO, the rate savings of .5-1% over a fixed rate isn't really worth the potential downfall if you get stuck in the house (can't sell it) or rates skyrocket and you want to stay. Some re-calc sooner or more often than others (every month or every year) With fannie mae's existence still all up in the air, it's quite the 'who knows' market right now in terms of future lending abilities. Plus, you get to write off the mortgage interest on your taxes making the amount paid actually hit you less. over the course of a half percent or so, it's pennies for a lot of risk. rates ARE going up. it's a fact. Fed easing is ending, Yellen is doing her thing, etc etc. 3;s and 4's won't be here in 7 years. You can re-fi a fixed mortgage every 2 years.

    high 3% may be possible through your VA and with enough down and a couple points bought. I'm in at 4.1% on a re-fi and didn't buy any points or any of that. It would have cost me a lot of cash up front to save .2%. rates dropped a little bit after i did it, but considering i came from 7 3/8%, i wasn't complaining :) I figure if rates stay low through next year, i'll try to re-fi again, though i doubt i will be able to. I'm upside down so HARP is what allowed me to refi in the first place so that's a 1 time deal until i get some equity (read: the economy recovers and houses are worth more).


    As a seller, you will pay 6% realtor fees on your selling price, 3 to each. you need to account for that in trying to turn a profit in a short time. I sold my condo after less than 2 years of living in it for $18,000 more than i bought it for. I walked away with about 2k in "profit" at closing. and since i spent that much on my decorator person, it was a complete wash. lol

    keeping a house as a rental property usually requires a re-fi, as there are different mortgage terms for non owner-occupied dwellings. the first of which is min 30% equity or cash down. your VA loan probably has different stipulations as well.

    and then you have 2 lawns to mow.... need a truck to tote the mower around.... or pay a lawn care place $200 a month to mow, eating your profit to where owning the house actually costs you money out of pocket every month. That late night call to fix the leaking faucet.....

    And that's IF it has tenants.
    And that assumes they don't destroy it (they will)
    and when it comes time to buy a new place, you have a huge debt to income ratio from the old property that will disqualify you from a lot of things.

    don't forget property taxes and insurance. those two line items are 40% of my monthly payment alone.


    TLDR: no, i wouldn't touch an ARM.
     
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  8. get_nick

    get_nick These snozzberries taste like snozzberries... VIP

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    All good advice. I wish it was still possible to live in a 30 foot travel trailer and still get laid. lol I'm envious of the guys with $600/month rent and mortgage payments.
     
  9. corvetteguy78

    corvetteguy78 Well-Known Member VIP

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    I guess my question is why would want to buy a house if you only plan on living there 5 years? Sounds like a big risk to me. So much stuff can go wrong. You won't have any equity if you try to sell and there is no guarantee the value will go up.

    With that said, i wouldn't do an ARM cause you may end up staying there for reasons unknown

    Also, are you sure you qualify for 100% Financing and $0 down payment? That's not automatic for a VA loan. Did you get pre-approved for that?

    Owning a home has it's ups and downs:

    Misc Costs to consider other then the insurance/taxes/mortgage payment/utilities even if you only live there 5 years:

    Do you plan on having a nice yard? Mowers, Weedwacker, Blower, wheel burrow, rakes, shovels, yearly lawn care service like Scotts or Truegreen, mulch, watering the grass(increased water bill)
    Are you going to have a deck? yearly deck paint, deck furniture, power washer(cause you will get mold)
    Appliance maintenance: furnace cleaning, A/C, hot water heat, filters etc..
    Will there be a wood fire place:? Will you use it? : Cords of wood/Chimney cleanings

    Just some things to consider.
     
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  10. get_nick

    get_nick These snozzberries taste like snozzberries... VIP

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    I plan on buying because it's CURRENTLY a better investment than renting. Unless the home prices drop drastically, which i understand is possible, i SHOULD be ok being able to sell. Property values are still climbing and there should be options for sale. Either way, I plan on selling it or renting it out, both are acceptable.

    I have enough savings to put money down if I choose to. I've had my credit report pulled in the last 3 months at the credit union I am going to be using and everything is in good order there. I plan on having a yard, small, but still green stuff. I'm good on maintenance, i've done all of that stuff before. No wood fires. It's hard to find a wood fireplace in the homes I'm looking for. Probably wont have a deck since the lots wont be that big. But these are all good tips.
     
  11. DarkHand

    DarkHand Senior Member VIP

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    As I was reading I was coming up with basically this exact post but corvette beat me to it. All of :this:

    So say you find something where the taxes, mortgage and bills come out to the same $1700 a month you pay now. Can you still afford that if the girlfriend leaves/loses her job/etc?
     
  12. corvetteguy78

    corvetteguy78 Well-Known Member VIP

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    Well then sir, you should join the home owners club...just be prepared for the mortgage process, it's a fucking hassle. Don't make any odd deposits or withdraws in your accounts. be prepared to send your bank statements multiple times and explain what each transaction is. Be prepared to explain anything on your credit report.
     
  13. Briansol

    Briansol Admins Admin VIP

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    Don't buy a house as an investment. especially for the short term.

    Buy it as a place to live.

    another other viewpoint will fuck you in the end.
     
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  14. get_nick

    get_nick These snozzberries taste like snozzberries... VIP

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    Oh yeah, I lived in this place before my girlfriend moved in. It used to be exactly 1/2 way between work and grad school, so i paid for efficiency. Now it's just a shitty place to live. We discussed how much "we" can afford and how much we want to pay. Even though we both make great money, it just gives us a chance to save more while we split the bills. I wouldn't do it, but even she said she wouldn't co-sign on a loan without being engaged or married first.
     
  15. invisibledemon

    invisibledemon Bored Moderator VIP

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    When people say buy a house as an investment, i get annoyed.
    i will never look at houses as investment. its not. its a home, owning it is for security reasons. I dont have to worry about being evicted bc the owner wants to sell or lease to his buddy.
    when it comes time to sell, if i make money then awesome. but, if i sell it for what i bought it for x number of years ago, still awesome. that means i lived almost rent free for x years. if i take a bit of a loss, then averaged out, chances are i still come out better than renting.
    its cost effective, not investing.

    that being said, i could make a good chunk of money if i sold my house right now. but, i bought a very cheap foreclosure. instant equity.
     
  16. chadcharb

    chadcharb Well-Known Member VIP

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    what area are you looking in nick?
     
  17. Jeef

    Jeef NO MA'AM Moderator VIP

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    Like everyone said avoid the arm. I got a 4% rate in June.
    10 years ago I bought a condo thinking I would sell it like 3-4 years later for a profit. 8.5 years later I sold it for 4 grand less then I paid for it then had to pay a commission on top of that. I did remodel the place so there was some more money lost. The only way I saved some money was money I got to deduct on my taxes, and the fact that I got a nicer place than I would have been able to rent for the same money.

    Also look into how much you are going to save each month buying over renting on paper then factor in all the other crap that comes with owning a house.
    All the things that were missed during inspections. My inspector missed the fact that a lot of my wiring is bad and I have overloaded circuits.
    Handy or not all your spare time will be working on the house.

    The great things are not having neighbors below or on top of you, being able to do whatever you want when you want, and you can make the place your own. These reasons alone are what I love best about owning a house.
     
  18. get_nick

    get_nick These snozzberries taste like snozzberries... VIP

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    Bothell, Mountlake Terrace, and Kenmore area. Just outside of King County. I work in Bothell and really need to get out of the city.

    I'll have an inspector, but most of the stuff I'm looking at is new construction. Something within the last 5 years, but a lot is brand new. I just need room to park my cars, have a bbq, and not worry about shit bag neighbors and the crime that goes on in rentals.
     
  19. chadcharb

    chadcharb Well-Known Member VIP

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    wise to stay out of king county. I have a 8,000sq ft lot and my property taxes were $3400 last year
     
  20. Briansol

    Briansol Admins Admin VIP

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    in my experience, paying for an inspection is a complete waste of money. paid $500 to have it done on my condo... told me it was mint.
    shit broke all the time anyway.

    didn't bother with it when i bought my house. if its gonna break, im gonna have to fix it anyway. test the major stuff like furnace/etc and stick your head in the attic and check the foundation and stuff.... that's all they do. the house also already had a radon sys in it, so that test was useless too. i'd rec getting that done at least.
    if its an OLDER house, i would be more inclined to get it checked out.
    there's no warranty that they find it all.
    expect shit to be broken and account for 20 grand of fail in your offer price.
     
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