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homebuying vs renting and downpayments
This has sort of been discussed already in some previous posts but I was just wondering everyone's opinions on saving up for a 20% down payment + closing costs + making sure you have an e-fund in place before going forward with buying a house versus having less of a down payment and accepting PMI + higher interest rates. I'm having a really hard time deciding what to do. I have enough for about a 10% dp right now plus e-fund $. I HATE interest rates and pay my CC bills in full every month and paid down my student loan debt quickly just to avoid as much interest as possible.
I really want to save for 20% but at the same time, all of our $ is going down the drain to pay for rent. At least if we bought a home, it wouldn't be money thrown away, you know? But wherever I look for advice online, all of the professionals say you should really just wait until you can get the 20% down. I'm just having a hard time understanding why when a renter's money is being thrown away every month as it is. Can someone break it down for me or tell me how you came to your decision? I feel like it will be at least another year before I can afford the 20% and I'm not sure I want to wait that long.
Re: homebuying vs renting and downpayments
You should look into what other types of mortgages are available in your state. I just bought a house and I was able to get a loan through my state that let me put down just 3% with no PMI and an interest rate of 4.125%. Because of high rents in my area, my mortgage payment (including insurance and taxes) will be substantially lower than what I was paying in rent. With renting, I would never have been able to save up enough for 20% down. Ironically, now that I have bought a house I will be able to save up more of an emergency fund.
Another thing to consider is that as of this spring, FHA loans now require PMI for the duration of the loan if you don't put down 20% (it no longer goes away when your equity reaches a certain amount). The FHA program is failing but the government still wants to make these loans available for people, so they are using the PMI as a way to make the people who get the loans make it possible for others to get the loans too. Fair? No. A desperate attempt to stretch a failing program? Yes. What it means for you is that if you don't put down 20%, you will end up paying tens of thousands more over the life of the loan, which eliminates any benefit of getting the loan in the first place.
If you don't qualify for any other type of loan, it makes sense for you to wait the extra year to get the 20% down and avoid the PMI. To speed things along, maybe you can temporarily move to a lower-rent apartment, somehow earn extra money on the side, or get someone to contribute to your down payment as a gift. From what I have read, interest rates are going to stay low for a while. There is a shortage of houses right now causing prices to be artificially inflated, but in a year there will be more supply of houses causing prices to stabilize. If you wait a year, you will most likely have a much easier time finding a house (more choices and more reasonable prices). It also gives you more time to look and find something really great. Sometimes you can find really good deals during the off-season too if you have your 20% by next fall/winter.
I think that 10% is fine as long as you have an emergency fund. Others here will disagree with me. If I had waited until I had 20% then the house I bought last year would be out of my price range now. I bought it for 115k and it is worth around 150-160k now. It's really all about if you feel comfortable and prepared for any emergencies that you home may have once you are in it. You need to also remember you will need money for closing, the 1st years insurance and taxes, and moving. This can add up fast. Good luck on your decision!
I agree with Georgia! The housing market is very low right now and so are interest rates.
I was in the same boat as you - pondering if we should buy or not. I bought my home with 10% down. My monthly payments are not much more than I was paying in rent (which like you said is money thrown down the drain). I live in a HCOL area where rent is very high. So for me this was a good decision. I can't say that it would be for everyone though. In my area if you were to buy a house with 20% down you would need to have about 70,000 cash to pay closing, insurance, lawyer fees, etc. Most people do not have this. You would be surprised how you can do something when you are truly determined! Best of luck to you!
I keep reading this on the board but I'm a little confused by it. I wouldn't be getting an FHA loan I don't think. It would be a loan through my bank. I thought FHA loans were just for those wanting to put 3.5% dp. Since I would be putting at least 10%, I think I would qualify for a conventional bank loan. Since it's under 20%, I'd still have to pay PMI but since it's not thru FHA I don't think it would be for the life of the loan...right?
You need to check with your potential lender. There are different loans that stipulate different things. Even if it's a conventional loan, the lender has every right to say that the PMI can go towards the life of the loan, or until you reach 20%. Most do not do this, but you just have to ask a couple questions with a lender to see what you are qualified for and what the terms of the loan would be.
We like a PP mentioned were able to put 11% down without any PMI and 4.125% interest. Shop around!
Renting is NOT throwing your money away - you are purchasing shelter with no obligations for repairs, etc.
There are a ton of expenses beyond the mortgage payment when you purchase a home. You need to be financially prepared.
Buying before being ready is what gets alot of people into trouble.
With FHA loans, beginning in June, all 30 year loans will have (MMI for the entire 30 years) - that is a TON of extra money you will pay over that time period.
Take on a second PT job to build your downpayment, sell stuff you no longer need, downscale your current lifestyle if you want to buy sooner than a year.
FHA is really just another loan type with a different underwriter. My first loan was an FHA loan that I initiated through Wachovia Bank which they then turned around and sold to Chase about six months later.
As for the PMI. While it might be required for the life of the loan, nothing says you can't refinance the loan to get rid of the PMI if you can bring enough money to the table. I refinanced my original FHA 30 yr mortgage to a 20 yr conventional mortgage about 2.5 years into the loan. When I did that, the value of my house went up so far (housing bubble) that I now had the 20% equity. As a result, they refunded all my PMI payments to me which I applied to the loan balance.
Not sure if the rules have changed since then on the refunds, but at the time I was told if you achieved 20% equity in the home before 7 years they would refund the payments to you. I'm sure something like a refinance is probably required to do it as well.
If you go with a conventional loan with less than 20% down, you do bot qualify for the best interest rates.
Have you checked your FICO score?
Have you eliminated all other consumer debt to lower your DTI (debt to Income) ratio.