@Anonymous wrote:Let me provide you with a little background.
I am 22 and my fiance is 21, our yearly income is roughly 52K, I work full time and she works part time. I have been with my employer for 1.8 years and she has been with hers for over 2.
With currently live with her parents in a nice area and recently found out a house has gone up for sale on the next block. We are very close with her parents so want to live as close to them as possible so this situation is literally perfect for us! We planned on saving our money for at least another 6 months-1 year but this is making us rethink that.
My realtor happens to be my future father in law and he spoke to the owners who are expecting to list between $175K-$185K. This was roughly what we were planning to buy our first house for.
I really wanted to make at least a 20% downpayment on the house which would be $35K-$37K but we only have $33K in savings right now so I know this would not be possible if we did do this. I would probably only be able to put down $25K (to leave room for closing costs etc) and just have to pay mortgage insurance.
Also, we do not plan on living in the house when it is purchased, there are some family issues which require my fiance to care for her mother right now so we would have to rent it out for the first year or so until we could move out. We also think this is a good idea as they would be helping us pay off the mortgage the first year and hopefully have a small amount of profit each month too.
My questions are:
If I made an offer next week and the buyer was to accept, how long would you think I would have to save every penny before having to hand over any cash? Because we could realistically save another 2-3K monthly to put towards the house and this could be enough to meet the 20% mark (I really want to avoid paying mortgage insurance if I can).
Also I know there are going to be roughly $8K in closing costs, are there any options were I could take out a loan for this in order to meet the 20% downpayment amount or even apply the closing costs to some credit cards for a few months then pay them down? I have $0 in debt of any sort so this would be the first time I have ever carried a balance but I would be willing to do it for a short time. I also might put in an offer and ask the seller to pay the closing costs too but I don't expect them to accept that.
Do you think we would qualify for a loan this big based on income etc? I have read that you should not pay any more than 28% of your income to housing and we would be paying roughly 24% so we are under what is considered bad.
I never wanted this process to be rushed as we expected to start house searching when we had at least $40K-$45K saved up but this is a special situation, thank you for your help.
A few things here, and this is only from my own experience:
1 - 8k for closing costs on a 185k house seems steep to me. A lot of times it is usually like 3-4% of the purchase price which would be around 5-7k, so there is a few thousand in there you might be overcompensating for. My Good Faith Estimate on my new house, which is 300k is between 9-10k.
2 - Depending on your market, you can ask the seller to contribute to closing costs. The seller that sold me my first home was a flipper and fully paid closing, so while it doesn't always happen, it's fairly common. Doesn't hurt to ask or tailor your offer around it. Paying a little more for the cost of the house in return for closing cost contributions is another way to help depending on if the house will appraise properly. IE, if you are confident the house will appraise, if you purchase the house at 175k with no contingency, your down payment is 35k and closing costs are 5-7k for 42k total out of pocket. If you offer the seller 185k with him contributing 3% for closing costs, your down payment is 37k and closing costs are essentially zero. Seller pays 5-7k, but gets 10k for the higher price netting an extra 3k, so long as the house appraises, everyone wins.
3 - Typical mortgage backed deals are a 30 day close from time of contract to closing day. Of course delays happen and this can fluctuate, but it is the general guideline. So anticipate 30 days to save what you need once you sign the contract.
4 - Appraisal and Inspection costs - these are typically factored into the closing costs for your good faith estimate, at least mine were. Since I paid out of pocket for these items (just about $1000 for both) before closing, I ended up overpaying close by about $1200 and I got a check cut for that amount. Not saying it always happens, but something to think about.
5 - Get preapproved and a good faith estimate from your Loan Officer, the GFE will give you a much better idea of what money goes where and you can see how deals are tailored.
6 - DON'T forget about your prepaids! Typically, at close, you are required to deposit a preset amount into your escrow account to have lead time on your escrow to pay for your taxes and homeowners insurance. Sometimes overlooked and folks get surprised by it.
Good luck!
@StartingOver10 wrote:
Usually the interest rate and down payment requirements for an investment property are higher than for a primary residence. Ask your loan officer to compare the two. One thing you don't want to do is get a loan for a primary and then fail to move in. That would be mortgage fraud.
Well your post did point me in the right direction, I have done some research on this and did find that the rates were a little higher but I personally think it could be worth it.
Even if I was to break close to even it would buy us some time and also help us pay for the house for at least 1 of the 30 years we will have the loan.
Next steps are to get preapproved, and then start making some offers 
