Financing in West Hartford>Question Details

Plislam, Renter in West Hartford, CT

We gross $12k a month, but only have $15k saved for a down payment. Should we buy now or later?

Asked by Plislam, West Hartford, CT Thu Jul 5, 2012

We want to buy a $400k house, but are struggling to decide whether this makes financial sense or not.

Pros to buying now:
Our credit is excellent
We have no consumer debt
Interest rates are low, as are house prices in the area we want to buy

Cons:
We've only got $20k saved for a down payment ( It would probably take us another 2 years to save 20% down)
Having been students for most of our 20s and 30s, we have student debt -- minimum monthly payment is $500, but we're being aggressive and making double payments.

Other factors:
We are living in this area for at least five years, but beyond that, we are uncertain of where our jobs will take us.
Our gross income is $12k/month.
We are in our mid 30s, have one baby, and hope to have at least one more child in the near future.

What would you do? Wait to save up 20% before buying? Pay PMI and/or higher interest rates on a mortgage and buy now? Don't buy at all until we know where we're going to live long term? Something else?

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Answers

10
Cassandra Ritone’s answer
Hello,

Looks like you got a lot of advice on this issue. Out of curiosity, what was your final decision?

Cassandra
0 votes Thank Flag Link Wed Aug 1, 2012
Sounds like a tough decision you will have to make.

On the surface, it appears that you should be able to afford it.

How long have you worked at your current employer? You mention that you were in school until 30's but you also are in your 30's.

FHA pros: *low down payment- 3.5% of purchase price
*seller can contribute to closing cost up to 6% of purchase price
*low interest rate.
*will be more forgiving on job history.

cons: *monthly mortgage insurance that will be more costly for you.

Conventional options.
pros: * You can put as little as 3%,down of purchase price
* MI options: you can include them with your monthly payment
*you can have a lender paid mi (higher %rate to you)
*Buy out insurance with a single premium.
* Split premium- buy a portion out and pay lower portion monthly
*low interest rate
*seller can pay up to 3% closing costs

cons: *low down payment will increase mortgage insurance premiums


Would you consider purchasing a lower priced home in the same area if the payments would match the existing rent payment that you are making? That would make the transition a lot smoother in the wallet and not create a payment shock. You would continue to maintain your lifestyle, be aggressive on the student loan payments and will also still manage to accumulate some savings.

I hope this helps.
0 votes Thank Flag Link Fri Jul 6, 2012
FHA and the down payment is 3.5%, have the seller pay all of the closing cost and pre-paids.

Jim Simms
NMLS # 6395
JSimms@cmcloans.com
Financing Kentucky One Home at a Time
0 votes Thank Flag Link Fri Jul 6, 2012
Hi,

Just a few suggestions. Call a lender to find out what programs are available to you. Not all lenders offer everything so you will want to call a few. You may be pleasantly surprised by what you could be paying monthly, even with PMI.

Also, what are you paying in rent? I think part of your answer depends on what your rent is.

If you're renting in West Hartford, you're likely paying $1200 for a 2 bedroom apartment at a bare minimum. 2 bedrooms in better areas rent for $1500. Single family homes rent for $1800 and up.

If it's low enough to save money, then you may want to do that until you have a greater cushion. But if it's high, close to what your mortgage payment would be, then why pay rent? Then comes the grey area...if you're paying a low amount rent and living in a school district that is not of your choosing or an area that is not ultimately where you want to live, paying a larger mortgage may be worth it to you.
0 votes Thank Flag Link Fri Jul 6, 2012
I agree with Mike Sullivan, The interest rate is the bigger piece of the puzzle here. Look at any basic mortgage calculator, and add a point to todays interest rates, to see how much it changes your payment. Also, being that it looks like most of the Hartford area is just past the bottom, values are likely to be in the upswing. Don't expect the windfalls of the past here, but at least you will be getting back something on your investment instead of losing it.
The tax benefit is great as well, but putting your money somewhere besides rent, as long as you are in it for the 5 years or so you mentioned.
Lastly, look for a location that held it's value well through the downturn, then you know it is a stable place to put your money for the future....
0 votes Thank Flag Link Fri Jul 6, 2012
Hi, thanks for asking, if owning your own house is in your plan I would suggest to at least start to look at what is available, the inventory is high and the interest is at the lowest, now is definately the time to buy. Give me a call at 860-836-3064 or e-mail me at acolasacco@weichert.com and we'll discuss it more.Thank you.
0 votes Thank Flag Link Fri Jul 6, 2012
I would suggest speaking to a financial advisor or accountant on the ramifications of the choices you mentioned, but personally, I think that renting is throwing money out the window.
Even if you did have to sell in a couple of years, you would probably get your money back. Renting...when you leave, you get nothing.
If you need help with that house, let me know. Good luck...Amanda 860-916-2744
0 votes Thank Flag Link Fri Jul 6, 2012
In the question you said you have $15K, but in the body you said $20K, so not sure which is correct....But, that said, with that monthly income and that amount of savings, it pains me to say you may be buying outside your ability.....if you buy a $400,000 home with a 3.5% down payment, that's $14,000. And on top of that, you have inspections, appraisals, insurance premium, escrow advance for tax and insurance, and the additional closing costs.

It would be a shame to buy a $400,000 home and ask for closing cost assistance to help you buy it. I'm a firm believer in home ownership, but don't buy a home and leave 17 cents in the bank.

I think the pros outweighs the cons and I advise you to pursue a home purchase now......but at a lower price point. I'm sure you can find an acceptable home in the $250K-$325K range. Please don't be upset - you did ask opinions. Good Luck!


Darrell D. Drouillard
Home Team of America
16719 Huebner Rd., Bldg 4
San Antonio, Texas 78248
210-373-6160
210-881-6760 (Fax)

http://www.dddrealtor.com

'Serving all Your Real Estate Needs'
0 votes Thank Flag Link Thu Jul 5, 2012
Buying a house at $400, would probably cost you no more than $1500 principal and
interest and most is interest that would be deductible on your taxes. and also
taxes are a deduction too.

I would talk to a bank or mortgage officer to see what you qualify for and
see what monthly payment is doable for you without stress, etc.

If you are paying rent and like that payment, find something about that
price range, then when you feel more comfortable, move to a bigger or
more expensive price...you will still have the deductions and paying
the same as rent and saving money as well.

There is one bank that with 3% down, there is no p.m.i.
private mortgage insurance...so that might help too.

If you need to talk to a mortgage officer or want to talk further
about the issues you have, call me at 860-647-8000.
0 votes Thank Flag Link Thu Jul 5, 2012
Interest rates are at all time lows....property values at all time lows....and you can afford to buy...

A couple of thoughts, you might purchase a less expensive home...there are a lot of nice ones out there below $400,000....The alternative is rent, which provides no positives for you. You might try playing with a rent vs buy calculator (http://www.realtor.com/home-finance/financial-calculators/re…) to help with your decision.

For me personally, I prefer to own my own home...aside from the be tax benefits, I like building equity in a property that's mine, and I can do with what I please.

Hope this helps! Good luck with your search...don't let PMI be the deciting factor
0 votes Thank Flag Link Thu Jul 5, 2012
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