New House in a Few Years - Thoughts?

[Middleswarth]

My goal is to purchase a home in 3 to 4 years. I will be 47 in 4 years and my plan is to get a 20 year mortgage that will align nicely with my retirement. This will be my first ever home purchase (I know, that is sad).

I’m looking for opinions or advice on how I can achieve this goal.

Goal: Purchase house in 3-4 years
Plan: Improve FICO score and Save for down payment

1. Current Credit
Current Score is 660 (TU)
Current Issues:

2 CO - both will be off report by April 2014 (or sooner if PFD successful)
I anticipate my score will be well over 700 in a year or 2

2. Income
Current salary is $72,000 plus bonus (should be over $80k).
Employed by company for 15 years - no reason to expect any change (other than 4-5% raise each year).

3. Debt
Auto Loan - $400 per month - I do not anticipate this changing as I will no doubt get another car after this one is paid later this year.
CCs - 2 cards used to pay bills - $600 per month
Bills paid via CC include cell phone, internet, tv, and gasoline

4. Assets
Current 401k balance is $50,000.
Savings is $2000

5. Location
Cumberland, York, or Dauphin County, Pennsylvania

6. Property
Single family home - permanent residence

7. Value
Not determined yet. Suggestions based on income welcome.

I am aggressively saving to my 401K in an attempt to make up for lack of savings early in my career. I am not opposed to using some of this for my down payment however. Since it would be paid back and I have a pension, I won’t be relying as heavily on it as others would.

I plan to get get a secured CC from USAA by opening a $5000 CD. I may repeat this again in the spring. These are 2 year CDs and can possibly be used towards the down payment. By the time these are up my credit should be plenty good enough to get unsecured cards with $5k or higher limits.

Thoughts? Does this plan seem realistic?

[germaine47]

Listen Young Man,  I am 48 years old and I closed on my first home on May 4,2012.  It doesnt matter when you purchase your home as long as it is what is good for you.  I am a late bloomer and did a lot of whacky things with my credit.  You have made a plan of action  and you have began your journey to homeowner ship.  See if you can PFD those CO if they are recent within the year.  You may be closer than you think, why wait 4 years?

[Anonymous]

Firstly, I'm just a pup here (33ish), so take everything I say as coming from a whipper-snapper

Clark Howard cited a report that, historically, on average, homes appreciate at roughly the same rate as inflation, with a healthy dose of YMMV based on location, timing of purchase/sale, etc. I don't know if that study accounted for loan interest, insurance, taxes, or fees.

The long and short of it is, a house is basically an additional savings vehicle with more risk/reward than say, an equivalent CD, but arguably less than a stock fund. Perhaps somewhere in the aggressive bond fund range? Regardless, I would consider it as additional savings, and having a plan to have it paid off on your retirement date is supremely wise. The only suggestion I have is to weight the benefits of buying now (ridiculously low rates, good market) and saving up enough to put 20% down in 2-4 years to avoid PMI.

I was trying to explain to my wife how low the interest rates are today... I compared the early 80's to now, and the same house literally costs less than half. Half!

[Middleswarth]

@germaine47 - Congrats on the new house and thanks for the response.  The reasons I'm waiting instead of jumping in now is my bank account is pretty slim.  With only $2k in the bank I'm at risk of big time trouble if I were to be laid off.  While I don't see that as being likely, I'm not taking a chance. Part of my plan is to build my savings up a bit.  I will get extra money in June and again next March that I plan to use for the CDs. 

BTW - How long is your mortgage?  I need to do this soon so I can have it paid when I retire.  Plus, I'm guessing the lender wouldn't want to go past retirement age anyway.

@cassembler - Get off of my lawn!!!  Dang kids.  

My guess is the rates will stay low for a few more years. Unfortunately I wouldn't qualify for these rates just yet.  At the very least it would be another 12-18 months.  

[pipeguy]

Real estate tends to cycle from easy money to only the rich should apply for loans. When I bought my first house in 1978 it was fairly easy - fill out the forms, income verification, etc and approval. When I bought my second home in 1986 it was such a nightmare that I swore I'd never do it again and my income was much better, I had a good down payment, little debt, etc. On the second home it was so bad that our settlement date was delayed twice and one day before the third settlement date the bank inspected the property (brand new build house) and said we couldn't settle because there was no grass seed and straw on the lawn (bare dirt, still needed to be regraded again). I got the builder to toss some straw on the dirt and some grass seed on the driveway and walk to look like it had been seeded, good enough to go to settlement.

10 years ago we refinanced the house at a much lower interest rate and that is when anyone with a pulse could qualify - very very easy process. I also bought a condo at the beach (actually two different ones) which went through very quickly with little worry, the second one was brand new construction, $80k, mortgage $50k which required very little "pain" because of the the down payment.

Right now bank regulations and lending standards are difficult which means strong DTI requirements, larger down payments and near perfect credit is needed but I suspect that will cycle back to the middle again in the future. Since you are talking 4 years from now, you have enough time to plan your credit standing, your down payment, your DTI, your available cash assets, etc.

From the sounds of it, you are well on your way, but keep in mind that there are many ways to get around bank regulations, such as rent to own options, seller financing, foreclosures, short sales, etc. Large down payments will correct many sins because you have instant equity in the property which gives the bank room to liquidate if need be (in their lending mind). Large down payments are NOT the best strategy as far as using money (leverage) for the best long term investment, but if you look at a home as a place to live and not as a bank account, instant equity is not a bad thing especially with the current depressed "market adjusted" real estate values.