Home Buying Help Thread

[theJ]

@holt_bruce81 the math works.  The question is whether you can stomach 5% principle on a 30 year loan.  Do the math, and you might throw up a little realizing how much you'll be paying in interest.

I'm a big advocate for getting at least 20% down, and preferably more, because those interest payments are going to rock your net worth.

So, a few questions:

1. Do you like the place you're renting?
2. Is there a rush to move?
3. What happens if you wait a year or two buy?
   1. 2 years, 1.2k/mo, that's 45k saved
4. Not sure where you live, but around my neck of the woods, a 300k house (15k, 5% down, i did the math and made an assumption) should come with no renovations needed.  Are you sure you need a reno budget? 
5. If you really want to build equity and buy sooner rather than later, what about buying a cheaper starter home and flipping it a bit with your reno budget?  You could live there for 5 years, sell it, and move up in house.  That keeps you more in the black in terms of principle vs. interest.

Ultimately, like i said, it comes down to whether you can stomach paying that much in interest.  I can't, and didn't.  I started with a starter home, moved up after 7 years, and have 50% equity in a very nice home now.  All on a salary not too much different than yours, and also paying day care the whole time (just stopped paying it last month, woooo!).

[bigbadbuff]

22 minutes ago, theJ said:

@holt_bruce81 the math works.  The question is whether you can stomach 5% principle on a 30 year loan.  Do the math, and you might throw up a little realizing how much you'll be paying in interest.

I'm a big advocate for getting at least 20% down, and preferably more, because those interest payments are going to rock your net worth.

So, a few questions:

1. Do you like the place you're renting?
2. Is there a rush to move?
3. What happens if you wait a year or two buy?
   1. 2 years, 1.2k/mo, that's 45k saved
4. Not sure where you live, but around my neck of the woods, a 300k house (15k, 5% down, i did the math and made an assumption) should come with no renovations needed.  Are you sure you need a reno budget? 
5. If you really want to build equity and buy sooner rather than later, what about buying a cheaper starter home and flipping it a bit with your reno budget?  You could live there for 5 years, sell it, and move up in house.  That keeps you more in the black in terms of principle vs. interest.

Ultimately, like i said, it comes down to whether you can stomach paying that much in interest.  I can't, and didn't.  I started with a starter home, moved up after 7 years, and have 50% equity in a very nice home now.  All on a salary not too much different than yours, and also paying day care the whole time (just stopped paying it last month, woooo!).

How much is PMI typicaly per month?

[holt_bruce81]

1 hour ago, theJ said:

@holt_bruce81 the math works.  The question is whether you can stomach 5% principle on a 30 year loan.  Do the math, and you might throw up a little realizing how much you'll be paying in interest.

I'm a big advocate for getting at least 20% down, and preferably more, because those interest payments are going to rock your net worth.

So, a few questions:

1. Do you like the place you're renting?
2. Is there a rush to move?
3. What happens if you wait a year or two buy?
   1. 2 years, 1.2k/mo, that's 45k saved
4. Not sure where you live, but around my neck of the woods, a 300k house (15k, 5% down, i did the math and made an assumption) should come with no renovations needed.  Are you sure you need a reno budget? 
5. If you really want to build equity and buy sooner rather than later, what about buying a cheaper starter home and flipping it a bit with your reno budget?  You could live there for 5 years, sell it, and move up in house.  That keeps you more in the black in terms of principle vs. interest.

Ultimately, like i said, it comes down to whether you can stomach paying that much in interest.  I can't, and didn't.  I started with a starter home, moved up after 7 years, and have 50% equity in a very nice home now.  All on a salary not too much different than yours, and also paying day care the whole time (just stopped paying it last month, woooo!).

Thanks for the response @theJ

1. We don't really love the place we're renting. It's not a really good neighborhood and the schools around are well below average. 

2. Not really a major rush to move. I would like to move into a neighborhood where my kids can run around and I would be comfortable. I also want to get them in a good school district, but if my oldest has to start school and go 1-2 years in a weak school district, I don't think it would be the end of the world. 

And honestly our rental is pretty dang small. So having guests over can be a challenge, because there isn't a lot of room to really hangout. And while I know this isn't or shouldn't be a factor when deciding on purchasing a home, part of me wants that bigger place to entertain. Like our current living room consist of a coffee table and a love seat. 1 love seat. That's it. We couldn't fit our couch in it, so it's downstairs collecting dust right now. 

[theJ]

2 hours ago, holt_bruce81 said:

And honestly our rental is pretty dang small. So having guests over can be a challenge, because there isn't a lot of room to really hangout. And while I know this isn't or shouldn't be a factor when deciding on purchasing a home, part of me wants that bigger place to entertain. Like our current living room consist of a coffee table and a love seat. 1 love seat. That's it. We couldn't fit our couch in it, so it's downstairs collecting dust right now. 

It's a decent enough reason.  That's why most people move up in house, and nothing to be ashamed of.

So again it'll come down to the math.  I don't know what your budget is telling you beside what you posted.  It looks ok to me, it'll just come down what you're willing to sacrifice in your future budget.  

[LeotheLion]

9 hours ago, bigbadbuff said:

How much is PMI typicaly per month?

I think it depends entirely how much you put down. We put 15% down and paid $30/month until we got 20% equity. 

[Forge]

10 hours ago, bigbadbuff said:

How much is PMI typicaly per month?

Depends on several factors and variables. Give me specifics, I'll give you a number. 

Though I typically recommend paying the pmi up front if you're comfortable with the loan. for a few years

[Forge]

40 minutes ago, LeotheLion said:

I think it depends entirely how much you put down. We put 15% down and paid $30/month until we got 20% equity. 

It's way more involved, though ltv and coverage amounts are factors. State location. Credit score. Loan program. Front and back end ratios. Zip code. Lender. Property type. Etc etc

[theJ]

18 hours ago, bigbadbuff said:

How much is PMI typicaly per month?

I had a big long answer that i apparently never submitted, and is now gone.  

Here's a calculator you can play around with though.  Like @Forge said, it depends on a lot of factors.

https://www.hsh.com/calc-pmi.html

[MWil23]

As @theJ and @Forge said, PMI is sort of weird. I just built a house in Ohio and moved in, put 11% down on a Construction Loan, financed at 15 years at 2.625%, and will be paying $47 a month in PMI for roughly 21 months, as we will hit that 20% threshold then. It was worth it holding onto the extra $29K in cash (leftover from the sale of our last home) to pay the extra $987 total on PMI.

[theJ]

1 hour ago, MWil23 said:

As @theJ and @Forge said, PMI is sort of weird. I just built a house in Ohio and moved in, put 11% down on a Construction Loan, financed at 15 years at 2.625%, and will be paying $47 a month in PMI for roughly 21 months, as we will hit that 20% threshold then. It was worth it holding onto the extra $29K in cash (leftover from the sale of our last home) to pay the extra $987 total on PMI.

It's noteworthy that this is probably closer to the low end of the spectrum.  On the high end, you could be paying a few hundred/mo in PMI.  Just really depends.

[holt_bruce81]

Is it wise to pay more than your monthly payment? I have a few people I have talked to about buying a house and most of them have said they pay $2-$300 dollars extra a month on their house payment. I take it this is pretty common?

[LeotheLion]

27 minutes ago, holt_bruce81 said:

Is it wise to pay more than your monthly payment? I have a few people I have talked to about buying a house and most of them have said they pay $2-$300 dollars extra a month on their house payment. I take it this is pretty common?

That's really a personal finance question. I debated doing this since we have a 30 year mortgage but to me I'd rather invest in the market/max retirement accounts than try and pay off my home faster. That way I'm getting a better return and if I ever need the money it is more liquid (roth IRA).

There's certainly merit to trying to pay off your home quicker than the length of the mortgage. Just comes down to risk tolerance. But I think it is fairly common. I know several people with 30 year mortgages that are trying to make additional payments.

Edited May 12, 2020 by LeotheLion

[theJ]

3 hours ago, LeotheLion said:

3 hours ago, holt_bruce81 said:

Is it wise to pay more than your monthly payment? I have a few people I have talked to about buying a house and most of them have said they pay $2-$300 dollars extra a month on their house payment. I take it this is pretty common?

That's really a personal finance question. I debated doing this since we have a 30 year mortgage but to me I'd rather invest in the market/max retirement accounts than try and pay off my home faster. That way I'm getting a better return and if I ever need the money it is more liquid (roth IRA).

There's certainly merit to trying to pay off your home quicker than the length of the mortgage. Just comes down to risk tolerance. But I think it is fairly common. I know several people with 30 year mortgages that are trying to make additional payments.

It's risk, but also cash flow.  Leaning toward investing grows net worth, but ties up your cash for 30 years.  Long term you might have more cash flow, but it's a slower growth curve on getting your present value cash up.

I'm paying off my house early.  Should have it done in the next 4 years or so.  The goal then being that i can use that cash flow to really focus in other things, one of them being investments.  But also stuff like upgrading cars, putting an addition on my garage, etc.  With additional cash flow, i can do those things quickly without loans.  There's power in that.

[LeotheLion]

1 minute ago, theJ said:

It's risk, but also cash flow.  Leaning toward investing grows net worth, but ties up your cash for 30 years.  Long term you might have more cash flow, but it's a slower growth curve on getting your present value cash up.

I'm paying off my house early.  Should have it done in the next 4 years or so.  The goal then being that i can use that cash flow to really focus in other things, one of them being investments.  But also stuff like upgrading cars, putting an addition on my garage, etc.  With additional cash flow, i can do those things quickly without loans.  There's power in that.

Yeah, I don't think there is a wrong answer. If you have extra cash in your monthly budget there is a lot worse ways you can spend it than extra principal payments or investing. My mortgage is only 20% of my post-tax earnings so I don't really care if it is a 30 year process of paying it off. It's already easily affordable and not hindering my ability to meet other financial goals. Maxing out retirement accounts, 529s, and putting $ into index funds are a lot higher on my priority list. Houses in our area grow at 4-5% so we are already building equity through appreciation.

[N4L]

12 hours ago, holt_bruce81 said:

Is it wise to pay more than your monthly payment? I have a few people I have talked to about buying a house and most of them have said they pay $2-$300 dollars extra a month on their house payment. I take it this is pretty common?

The way the math works is that initially, the interest portion of your monthly payment is very high. Every month you make a payment, the % of that payment allocated towards the interest goes down. 

So, by paying more than your monthly payment, 100% of the extra money goes towards principal. 

This makes your outstanding loan balance drop, which in turn makes the amount of interest owed on that outstanding loan balance drop, which makes more of your next payment get allocated towards principal rather than interest. 

So essentially, this will help you pay down your loan much faster but it doesn't give you tons of flexibility. Your loan balance is lower but you still have to make the same minimum payment next month 

I have recommended interest only loans to people in the past. The math works out so if you pay the same exact amount on an interest only loan as you would on a regular, 30 year amortization, your payment schedule etc is exactly the same. So, by doing interest only, you have very flexible payments. You can pay a few hundred more every month and pay the principal down much faster while also having the option to pay much less if need be, because the interest portion of the loan will drop much faster, and by the end your monthly required payments will be very small