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Buying first home on low income

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Coldness
Contributor

Buying first home on low income

I'm sorry if I am too wordy here. I'm hoping you fine folks at MyFico can offer me some advice - mainly, to go for it or to continue renting. I honestly don't know what to do. 

 

The soon-fiance (she doesn't know that yet, but we've been together 3 years - fingers crossed!) and I are considering getting our first home instead of renting when our lease comes up in May. 

 

My mom was a realestate agent for a decade when I was younger and really wants me to try this. 

 

Only I am working, though - the future-fiance is a full time student and stay-at-home-mom-in-the-making. I'm 100% okay with that and would actually prefer it. 

 

Okay, the numbers: 

 

I'm pulling in a $30k salary from a position that has a lot of room for growth. I have other minor income from hobbies, but this is all I want to consider for repayment / budgetting. 

 

I currently have $3k or so in credit card debt. This is a few purchases on 0% promos that I probably should've thought about twice, but it will all be paid off before May. 

 

I owe $8.5k on my car still, with $205/mo payments @ 4% interest. I won't be able to pay this off sooner if I go through with a home purchase. 

 

I am sad to admit that I only have $1.5 - 2k in savings currently, I took a considerable amount out when I switched jobs earlier this year. I hope to build it back up significantly by putting away my entire tax return and as much as possible from each check, but I won't be able to do a 20% down payment for sure. 

 

My credit score was 766 according to Amex a few months ago. Right now it's probably a tad lower due to my balances, but regardless I am not worried about it much. I have no bad marks on my credit. 

 

I currently pay about $550 for rent + renter's insurance. I am looking at some very nice 3-4 bedroom ~1500 - 2000 sq ft homes in our area between $50k - 90k. Taxes in my area are generally going to only be 1-2k a year.

 

 

Utilities / other bills usually run us around $250-300 (internet, cell phones, electric, etc) 

 

I really want to make my overall housing payment $450 or less to be able to save up as much as possible for emergencies. 

 

So, here I am - any advice would be greatly appreciated. We really want to do this, but I've always been very smart with my finances and don't want to jump in to something I'm not prepared for. 

Message 1 of 21
20 REPLIES 20
indecison
Regular Contributor

Re: Buying first home on low income

I am no expert but I do not see anything from your post that would be a deal breaker. The good thing is you seem to be realistic with what you can afford judging by the prices of house you are looking at. Biggest hurdle is making sure you have the money for down payment. With an FHA loan you only need 3.5% but have a few extra thousand for closing costs as well. I would think you are in good shape!

Message 2 of 21
asp123
Valued Member

Re: Buying first home on low income

I agree...I don't think you will have any problems.  You will certainly qualify for more house if the debts are paid off because that will decrease your debt to income ratio that mortgage lenders will calculate.  I did not buy my car until a few months after I purchased my home.  As stated, make sure you don't get more than you can afford and still have some fun on the side!!!


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Message 3 of 21
webhopper
Moderator Emeritus

Re: Buying first home on low income


@Coldness wrote:

I'm sorry if I am too wordy here. I'm hoping you fine folks at MyFico can offer me some advice - mainly, to go for it or to continue renting. I honestly don't know what to do. 

 

The soon-fiance (she doesn't know that yet, but we've been together 3 years - fingers crossed!) and I are considering getting our first home instead of renting when our lease comes up in May. 

 

My mom was a realestate agent for a decade when I was younger and really wants me to try this. 

 

Only I am working, though - the future-fiance is a full time student and stay-at-home-mom-in-the-making. I'm 100% okay with that and would actually prefer it. 

 

Okay, the numbers: 

 

I'm pulling in a $30k salary from a position that has a lot of room for growth. I have other minor income from hobbies, but this is all I want to consider for repayment / budgetting. 

 

I currently have $3k or so in credit card debt. This is a few purchases on 0% promos that I probably should've thought about twice, but it will all be paid off before May. 

 

@I owe $8.5k on my car still, with $205/mo payments @ 4% interest. I won't be able to pay this off sooner if I go through with a home purchase. 

 

I am sad to admit that I only have $1.5 - 2k in savings currently, I took a considerable amount out when I switched jobs earlier this year. I hope to build it back up significantly by putting away my entire tax return and as much as possible from each check, but I won't be able to do a 20% down payment for sure. 

 

My credit score was 766 according to Amex a few months ago. Right now it's probably a tad lower due to my balances, but regardless I am not worried about it much. I have no bad marks on my credit. 

 

I currently pay about $550 for rent + renter's insurance. I am looking at some very nice 3-4 bedroom ~1500 - 2000 sq ft homes in our area between $50k - 90k. Taxes in my area are generally going to only be 1-2k a year.

 

 

Utilities / other bills usually run us around $250-300 (internet, cell phones, electric, etc) 

 

I really want to make my overall housing payment $450 or less to be able to save up as much as possible for emergencies. 

 

So, here I am - any advice would be greatly appreciated. We really want to do this, but I've always been very smart with my finances and don't want to jump in to something I'm not prepared for. 


I agree with others...  there are no deal breakers in here other than the obvious fact that your income is low at the moment.

You should probably look at options through USDA Rural Development as well, since your income qualifies.  You may also look at down payment assistance programs.  One forum member here, LondonMassey was able to buy a house for 55k for her and her children and had down payment paid by a non-profit agency.

 

If you qualify for a deal like that, it would be awesome Smiley Happy

 

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Message 4 of 21
Coldness
Contributor

Re: Buying first home on low income

Thanks!

 

I really want this to end up CHEAPER then renting on a month to month basis once the down payment and closing costs are dealt with. I want to be able to put away an extra 100-200 a month more then I do now in case something breaks that a renter normally doesn't have to worry about, IE water heaters, A/C, whatever.

 

I don't know how all of the math works out exactly (maybe someone here does?), but I think if I stick to 75k or less even with the taxes and everything I should be able to do it for under 500/mo. I know I can buy 100k+ and still come out ahead in the long term, but for right now while I still have a starting income in my field I want to only think of it on a monthly payment basis.

 

Housing in the areas I'm considering hasn't bounced back yet. These $50-90k homes sold for $150k+ just 5-10 years ago. I really think I could re-finance down to 10 years once my income goes up and really build one heck of an equity. But, it's a tad scary. My family would help out if a true emergency came up, but I'm on my own for the most part. I can break my current apartment lease early for $500 and move out the next day. That's a sobering feeling compared to such a long term loan. 

Message 5 of 21
GregB
Valued Contributor

Re: Buying first home on low income

I think you are way low on long term maintenance. You might be able to maintain a NEW house of that size for $100 per month for the first decade but aren't you talking about houses that are already 10+ years old?

 

I'm also concerned that the coming election may not result in a big change of governement. With no change, I'm afraid we will see this current mini-recovery evaporate and expect prices to drop. The lenders in my area that have to loan money with actual home value to back it up are assuming a decent chance of seeing 20% drop next year.

Message 6 of 21
jnkp2001
Regular Contributor

Re: Buying first home on low income

 

@GregB wrote:

I think you are way low on long term maintenance. You might be able to maintain a NEW house of that size for $100 per month for the first decade but aren't you talking about houses that are already 10+ years old?

 

I'm also concerned that the coming election may not result in a big change of governement. With no change, I'm afraid we will see this current mini-recovery evaporate and expect prices to drop. The lenders in my area that have to loan money with actual home value to back it up are assuming a decent chance of seeing 20% drop next year.


If you want this to be political.  I disagree whole heartily.  House prices and new home building are rebounding.  Investors are snapping houses up and there is a lot of competition for built houses now, bidding wars can be a nightmare.  The problem will be if you wait too long you will be forced out of the market completely.  Especially if you have low income.  There could be a small hiccup, but it will be short lived and a bigger rebound.  it is taking us a long time to get out of this recession, and there will always be a hiccup now and then.  Just the nature of the beast.  recessions are like gas prices ..comes on real fast but takes a long time to get better. No matter who is elected.

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Message 7 of 21
Elcid89
Contributor

Re: Buying first home on low income


@jnkp2001 wrote:

 

@GregB wrote:

I think you are way low on long term maintenance. You might be able to maintain a NEW house of that size for $100 per month for the first decade but aren't you talking about houses that are already 10+ years old?

 

I'm also concerned that the coming election may not result in a big change of governement. With no change, I'm afraid we will see this current mini-recovery evaporate and expect prices to drop. The lenders in my area that have to loan money with actual home value to back it up are assuming a decent chance of seeing 20% drop next year.


If you want this to be political.  I disagree whole heartily.  House prices and new home building are rebounding.  Investors are snapping houses up and there is a lot of competition for built houses now, bidding wars can be a nightmare.  The problem will be if you wait too long you will be forced out of the market completely.  Especially if you have low income.  There could be a small hiccup, but it will be short lived and a bigger rebound.  it is taking us a long time to get out of this recession, and there will always be a hiccup now and then.  Just the nature of the beast.  recessions are like gas prices ..comes on real fast but takes a long time to get better. No matter who is elected.


I'll have to agree. We're seeing tangible appreciation here in Maryland.

 

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Message 8 of 21
Anonymous
Not applicable

Re: Buying first home on low income

 I just wanted to give you an example of what you might  pay at around $50,000. I purchased a house for $45,000 earlier this year. The loan amount was for $43,859. My payment for a 15 year FHA loan is $403. I pay around $308 for principal and interest. The remainder goes towards insurance, taxes, and MIP. This is about $200 less than the going rent in my area.

Message 9 of 21
beb86
Valued Contributor

Re: Buying first home on low income

you look fine for an FHA and maybe if you live in a rual area a USDA since you would have the income for it.....and the will typically use secure and unsecure debt min payments to calc DTI. 

Message 10 of 21
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