Hey MemberSince99, Let's Do a Home-Buying Thread

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JoDa
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Hey MemberSince99, Let's Do a Home-Buying Thread

Postby JoDa » Sat Feb 22, 2014 1:09 am

Have you looked into pre-approval? Seen anything you like on the market?

Thought of this since I swore I wouldn't dip a toe until at least summer, and then found myself editing and initialing a new offer for hours tonight. Damn those Zillow alerts for cheapies. At least my Realtor is chill enough to do this over dinner and beer, amirite? Now I get to explain that I have 5 inquiries on my report because why not. Also, I'd be moving into this one for a while since it needs some work and, while *I* can live in a construction zone for a few weeks (sleep on the couch while they fix the bedroom, live in the bedroom while they fix the rest, live on take out or the kindness of friends for a week while the kitchen is unusable, shower in the locker room at work for two days while the bathroom gets some love), I couldn't expect the same of a tenant, and I can have my place fixed up (little spackle, little paint, little cleaning) to rental standards and on the market in 2 days flat. Given that, I might as well establish my 2-out-of-5 years to avoid capital gains taxes up front, I guess.
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whit
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Postby whit » Sat Feb 22, 2014 12:30 pm

that might be better if it's broken down instead of run on paragraph..not that I haven't been guilty of it past..

inquires if done within a timeframe can be lumped together on your credit report so that it doesn't negatively impact your right to shop around for the lowest rate

preapprovals are great, like how people will pay for the house in cash to get their offer accepted amongst the other ones..because it will let the seller know that things will be smoother with you, but if everyone/majority gets preapprovals then..

I think more importantly should be discussed is

saving enough to place a good amount down, 20% or above to avoid PMI

do your research of where you want to buy, location is not only important for the house and benefits (close to good schools, etc) but also plays into the loan itself..lenders tend to like county where the house pricing is stable

know that closing costs as well as appraisals will cost $$-$$$ so please have additional chunk stored away for that if you can't have the loan absorb most of cost (because you can't borrow that big)

think carefully about whether you'd want to do an arm first and lock down later or given the still low rates, do a quick fifteen or stretch thirty

MemberSince99
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Postby MemberSince99 » Sat Feb 22, 2014 5:03 pm

Good topic JoDa.


No I haven't gotten pre-approval yet, for the reason that I am in a lease through October, and the pulls (they pull all three) are only good for 4 months so if you haven't done anything in 4 months, they pull again. I was told June timeframe is more realistic given my lease situation. I've already verbally given the apartment notice I will be buying a home, and they said they can't do anything until I give them that in writing and that my plans may change, but I explained regardless of them possibly changing, I can't renew here as I'll be locked into another full year, so if worse comes to worse I'll just have to move my stuff into storage and go to one of those pay by the week places until I find a place.
So renewing here simply is not under any circumstances an option I can accept. But honestly I don't see it as a problem - I have seen NUMEROUS homes here I would be happy with and the prices are unbelievably low right now (due to the horrific Depression economy Wisconsin is in it's pretty bad) - you can get a NICE older home here for 115k or 120k. No kidding. Of course the weather here is hell but if you like artic conditions, then you'll feel right at home. The taxes are also pretty high here (and you get damn little for them but that's another topic) but property is CHEAP and it appears to be a buyer's market if you can buy, again I'd guess due to the brutal economy. In this state we never saw any "recovery" the media keeps telling us we are in. So I really don't see an issue.


If you plan to keep it, you damn well better do a fixed rate. Because you know rates will jump eventually and your payment will double and you may not be able to refinance then - just ask the millions of people who speculated in real estate and lost, don't take my word for it. If you are doing like JoDa an ARM may make sense but for most of it, it's nuts to even think about that.

whit
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Postby whit » Sat Feb 22, 2014 5:15 pm

actually there are quite a few people with arms but most of them are in seven figures for the loan and it hasn't jumped much in the past ten years

I think they're smart enough to know what they're doing

MemberSince99
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Postby MemberSince99 » Sat Feb 22, 2014 8:53 pm

If you go for an ARM, you'd better be. For them it works. For me, I'd be a lunatic to even consider it. You could not PAY me to go with an ARM. If I was rich it could be totally different.

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Postby MemberSince99 » Sun Feb 23, 2014 8:02 am

On the subject of home-buying, I got to thinking. You know how the city will decide it's time to redo the streets or put in sidewalks, etc and so they levy a tax on the homeowners in the neighborhood to pay for it. What protection do we have that they aren't just giving it to whatever scumbag company pays off the right people and screws the living hell out of the tax payers and there is honesty and transparency in the process of shaking us down for $$$? It's not too hard for me to imagine the "good ole boys" buying the right to really stick it to the taxpayers who get to pay for the corruption but have no say otherwise in things. Is there any mechanism in place to try to prevent that, or is it really as bad as I'm thinking it probably is knowing how things are done in this country?

JoDa
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Postby JoDa » Sun Feb 23, 2014 12:17 pm

First let me say that I'm getting into seasoned pro territory on this. This would be my 3rd property and 4th mortgage.

In this environment and this city, and *my* circumstances, an ARM actually makes a lot of sense. Both of my current properties have them. You just have to understand the specifics of the loan terms and your market. For example, I had lived in my primary residence for 4 years already when I refinanced into a 5/1/2 arm. The loan rate maxes out just a little above what I was paying before, so the most my mortgage could EVER be above my original 30-year fixed is ~$100/month. Since the chances of me NOT selling within the next 5 years are pretty low, it also made more sense to take the up front savings. And even if I rented it, I could be profitable in 5+ years even at the higher payment. Same math different circumstances for my rental...it was SO cheap that interest means almost nothing. My annual *profit* is more than the annual interest, and will be unless and until the rate maxed out (and then it would be about even with the annual profit, assuming NO rent increases, which is a very bad assumption in a city where rents rise, sometimes dramatically, every year).

This latest property is in near-flip territory. It's a cheapie that needs a little work in a VERY hot neighborhood. With the work and up to 5 years to soak in price appreciation, it could turn a handsome profit. And, even if something didn't work out, again, the max rates I'd see would keep the total payment in sane territory. I define "sane territory" as no more than 60% of rent on a comparable property. Studios in that neighborhood can go for as much as $1800, so I'm not very worried. Remember, if everything goes to pot, I'm going to be living in one of these, so I don't need to turn a large profit on ALL of them, just an aggregate profit. Right now I can pay both my mortgages and then some on the rent from my one rental property. I'm not *employed* as a landlord...I have a stable job that pays okay. According to lending standards, I could technically support all three mortgages on just my income. Not that I'd want to do that, but, by the numbers, I could.

I do tend to agree that if you're buying a house to stay in, fixed is the way to go with today's rates. You won't see better 5-7-10 years down the line.

Member, here's the time frame to go from a rental to an owned property:
day 1 - offer
day 2-5 - under contract
days 3-40 - get your inspections done, finalize financing, iron out any contingencies that get called
days 45-60 - close
day 75 or 90 - make your first mortgage payment

That's right, you get one "free" month. I'd try to close at the end of September if I were you. So, if you're looking 4 months out, consider getting that pre-approval in very late May or very early June. Remember, the earlier in the month you close, the more pre-paid interest you fork over at signing. If you have the cash, NBD. If not, think about planning your closing carefully.

Finally, DC never charges a specific neighborhood for improvements. It's all from general funds, except for the once-in-a-blue-moon major outlay, which usually gets paid for with sales or business tax bumps for businesses in that neighborhood (hitting everyone who enjoys it rather than only the people who live there). We do have fairly high income taxes, but very low property taxes (on my primary property, less than $900/year, and increases are capped at 10%/year) and average sales tax (6%, 10% on alcohol and prepared food, NOTHING on services). I can forgive the high-ish income taxes because we have a lot of infrastructure to support and we get some nice freebies that I'd never seen before. For example, all the pools and rec centers here are free for city residents. Growing up in the burbs, we always had to pay to use the pools and sometimes the rec centers if they put in a nice one. But here, you can swim, play tennis, shoot hoops, or use a workout room for free if you live here. Sports fields have extra fees, but that seems normal, even if ours are a bit on the high side. Plus we can't charge a commuter tax (you pay income tax to the jurisdiction you live in, even if you work in the city), so the income taxes have to support commuter infrastructure without any money in the pot from the commuters except what they pay in sales taxes.
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JoDa
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Postby JoDa » Sun Feb 23, 2014 4:58 pm

Oh, and some people who actually *live* here don't pay income taxes here. We "allow" (if by "allow" you read "are coerced by Congress") "temporary" residents to pay income tax to their "home" state. This mostly comes into play with Congressional staff. If you're a staffer for, say, the representative from the great state of Kansas, chances are you pay income taxes to Kansas. No consideration for you using our Metro and driving on our roads and relying on our police and etc. How 'bout them apples. You don't even have to own property or maintain anything resembling residence in your "home state."
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JoDa
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Postby JoDa » Sun Feb 23, 2014 5:28 pm

Poo...one more...

For ARMs, lenders have been made honest. They must tell you UP FRONT what your maximum payment could EVER be, and when it could be that. You almost never see "indeterminate" ARMs anymore. There's almost always a maximum interest rate, usually 5 points above what you sign on for. There are also usually annual rate increase limits. For my rental, my interest rate cannot go up more than 2 points per year each year after the 5th year, to a maximum of a 6 point increase. My primary home could go up 5 points in year 6, but if it doesn't, it can't go up more than 2 points each year in years 7 and beyond, and no more than 5 points overall. In each case, the rate is prime + a *fixed* margin. Perhaps for sub-prime buyers, there are dishonest lenders still selling mortgages that could go through the roof without warning, but for prime buyers, you can find out up front what an ARM will ultimately cost you and when. For both of mine, it works out to less than a 50% increase in total payment from VERY LOW original payments, and then only if they max out on the rate.

Still, as I said, if you're staying, go fixed. The shorter the loan term and larger the down payment you can swing the better. If you can get them in your market and swing a *little* more than the minimum payment, 20 year mortgages often offer substantial interest savings with only slightly larger monthly payments. 15 year mortgages can be too much for many people to swing, but 20 year mortgages are worth *asking* about.
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MemberSince99
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Postby MemberSince99 » Sun Feb 23, 2014 9:07 pm

Oh I agree there are situations where an ARM makes sense. It just doesn't for me as it's my long term live in plan. But if I was speculating and determined that I could afford the risk, then I'd consider it. I'm not meaning to say it never makes sense, just that it doesn't in my case. But I think we all pretty much came to that conclusion anyway!


I'm curious though JoDa - as a landlord do you ever have issues with tenants not paying or worse trashing the place?



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