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down payment questions
hi everyone! new here and husband and i are in a predicament. our lease is up at the end of nov. on our apt. i just recently graduated in june and started working full time middle of july. we decided i would be the one to buy the house because my husband's credit is not good at all (we are working on it and have set up payment plans with his lendor to get his credit back on track). I have been approved for $154,000 already by my bank but now I am confused. I don't know which loan to choose. Being back to a two income family recently we have had to build our savings back up. We only have $2,200 in our savings right now. Should we sign another lease? We are so sick of living in this apartment! Another option which we really do not want to do is move in with my parents for a few months and save even more? I am just afraid that if we move in with my parents, an at max 2 month stay would turn in to longer due to closing dates and such once we do make an offer. Sorry if this lengthy, I just feel like my bank did not give me very much advice, and I am lost! Thanks in advance!
Kendra : )
Re: down payment questions
I would rent some more and save up money...houses are money pits (they are great, don't get me wrong, just waaaay more expensive than apartments). $2,200 isn't really that much money and financially, it doesn't look like you're ready to own a home.
Let's say you put that $2k to a down payment - then you have zero left over for emergencies like the car breaking or having to pay a medical bill, etc.
Also, I think the housing market will continue to be in a downturn, which is great for you because it means when you are ready to buy a home, they will be even cheaper than they are now.
Don't rush. Use this time to build DH's credit, save, and research the towns and neighborhoods you want to look in when you're ready to buy a home.
Also, for the future, what the bank tells you you are approved for and what you can acctually afford may be two very different numbers. The bank only looks at income and any loans reported on your credit report. This doesn't include any bills or utilities you have or other costs you pay for. Only student loans, credit cards, car loans, and home loans would be on your credit (or any utility or medical bill that charged off and went to collections). So, it's up to you and your DH to figure out how much house you can AFFORD.
The percentage is typically 30% of your gross or before tax income. For example, if you earn $100K annually before taxes, 30% is $30,000. Take $30,000 and divide that by 12 months in the year - your housing payment should be no greater than $2,500 per month. You can do the math with your own income. Be sure to use the before tax figures.
I also recommend you buy and read Home Buying for Dummies.
If you go FHA you'd need 3.5 percent. On $154,000 that comes out to $5390, just for the downpayment. Then you'd have to negotiate closing costs and there are all sorts of other fees, like the inspection 300-500 bucks, appraisal fee 500 bucks, application fee, another 400 bucks. It adds up quickly. If you don't have a ton of money in savings as an "Oh shiit" fund, then you'll need a first year warranty, which will cost you about $500. Plus they want you to put up a years worth of home owner's insurance $1000. Do the math, you need several thousand dollars to do this. Like $8,000 probably close to $10,000.
If I were you, I'd probably see if you can extend your lease month to month. Put yourselves on a strict savings plan and see if you can stick to it. I recommend trying to save the equivalent to what your mortgage would be plus utilities a month. You don't want to buy a house and go into debt shock. It is a lot more money when you figure in taxes, PMI, Insurance, Utilties. Give yourself a set time frame and reevaluate when you get to that point.
I know it is dissapointing to hear, but it doesn't sound like you are ready just yet. Keep in mind that with some hard work, a year could make the complete difference for you! Good Luck
Keep renting and work on building savings and paying off DH's debt.
In addition to downpayment you need closing costs, moving costs, start up costs, decorating/furniture/appliances, repair/renovations, yard items and tools. AND still have a good emergency fund in place. Unfortunately it does not sound like you are ready yet for home ownership. Many lenders will want 2 years of employment history.
YOU determine what you can afford - not the lender . Do NOT spend more than 25-28% of your TAKEHOME pay for housing (mortgage+PMI+insurance+taxes+utilites and HOA) more than that will make most people house poor. LEnders will still allow more than is financially comfortable ( which is part of what caused the housing collapse).
Wait until you are financially ready - then buy.