Home Buying in Chicago>Question Details

Confusedhome…, Home Buyer in Chicago, IL

Are we ready to buy a home?

Asked by Confusedhomebuyer, Chicago, IL Mon Dec 28, 2009

Together my fiance and I make $5500 a month and have $30,000 saved each ($60,000 total). With all of the extra expenses that come along with buying a house (Taxes, utilities ect) is that enough money?

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18
Dan Chase’s answer
When you are married you will be ready. Until then you have a problem. If you break up you would have problems dealing with a jointly owned property. I know, you do not plan on that happening, but it could happen. You need to start playing the what if game. What if we break up, What if one of us loses a job, what if taxes go up (they will) what if insurance goes up (it will) what if you need to replace a transmission in your car what if the furnace dies and has to be replaced. What if (all kinds of things)

The above is not to scare you. It is to prepare you. If you have gone through some possible bad scenarios if they happen you will be prepared. You thought ahead and saved enough money in your savings account to pay for those possible financial contingencies. You did not make your budget so tight you can accommodate some price increases. When planning for the future it is best to prepare for the worst while hoping for the best. That way you will always be prepared.

generally speaking the maximum mortgage you can safely get is income x 3.

$66k x 3 = $198k. You can use some, much, or all of your savings to add to that amount.

Is it enough money, that depends. How do your expenses look now? How much do you have left over each month? When you look honestly at your budget how much can you safely put towards a roof payment each month? A rented, or a mortgaged roof is still a roof. Do not think that because a bank will loan you $1,000 a month that your budget will increase magically to go past your real answer of $850 a month. If you push your finances to tightly they could break and you could lose everything. One bad month, one unexpected expense could hurt you. That amount per month should be fine if you are not in financial trouble now, and buy within your real means.

I would ask the sellers for their bills (electric, water, taxes, etc.) that will give you a baseline. You may pay more or less. It is a good ballpark figure to work with. You can ask realtors that for several different properties you might be interested in. Include the cost of heating and a/c if applicable. Heating bills could be over $2,000 a year for some houses.

Understand financing. No, I do not mean to say how much you can finance, but the real cost of financing short term. Did you know that if you buy a house for $100k at 5% with a 30 year mortgage after 7 years you have only paid off $12k of the original cost? After 5 years it is only about $8,350. Most of the first several years of a mortgage go towards interest, not the principle that you borrowed. If you sold the house you would likely pay 6% realtor commission fee. That is $6k per $100k of house.

If you could get a 15 year mortgage you would have much faster payoff, and not an extremely larger payment. You can also look at oddball year mortgages. You might find a 22 (or 17 or 26) year mortgage is your best option. The longer the term of loan the higher the interest will be. If you pay extra each month you can pay down the principle amount and that will help you.

A few things to consider. Is now a good time to buy? You have low interest rates, they will go up. You have a free $8k it will go away. (the biggest plusses)
We have foreclosures coming. That will increase inventory, that will decrease prices.
We have high unemployment. Those people can not get a mortgage. Many of them will create more foreclosures.
Interest rates will rise. When they do house prices will drop. Would you rather have the same monthly payment covering interest and principle with a higher payment for the interest because it is higher, or a lower amount for the loan because house prices have dropped? If you resell later a lower purchase price should help you more.

Please look, ask questions about your local area, do more research then make your housing decision in your financial best interests.

3 Mortgages Get Worse For Each 1 that Improves
http://www.trulia.com/blog/lukemullins/2009/12/3_mortgages_g…
Resets Projected to Cause Mortgage Crisis in 2010
http://www.dsnews.com/articles/index/loan-resets-projected-t…
Housing Predictor: 10 Million Foreclosures Through 2012 (some only say 7 million)
http://www.realtytrac.com/ContentManagement/RealtyTracLibrar…

(LOOK BELOW) what you will see in the link below is scary. Chicago is not horrible, but it is not good.
Q3 2009 U.S. Foreclosure Heat Map
http://www.foreclosurepulse.com/blogs/mainblog/archive/2009/…


one last thing, I posted a blog on here. It covers the things I would look at, look for, and ask about when purchasing any property. It may give you a heads up on some potential property issues.
http://www.trulia.com/blog/dan_chase/2009/11/questions_i_wou…
3 votes Thank Flag Link Mon Dec 28, 2009
No, you're not, but it's not because of your story.

Families earning $66,000 a year with almost a year's savings in the bank are in pretty good shape and, combined with good credit and low debt, financially well-suited to buy a home.

But! Doubters should always wait until they're certain, and if they can never be certain enough, well, then, in my world, they shouldn't buy.

Web forums are excellent for some things, but when it comes to making life decisions, consider them to be a more time-consuming magic 8 ball. Oh - and don't let the fiance choose the living room colors.
2 votes Thank Flag Link Mon Dec 28, 2009
Excellent analysis by Dan. And a very insightful comment by Mack.

And while I don't fault the mortgage brokers and lenders here for providing their perspectives, there's a big difference between what you can QUALIFY for and what you comfortable can afford. The lessons from a few years ago are showing us how big that gap really can be.

Also, good advice from Dan about waiting until you're married. Really.

And don't be panicked into buying because of the possible expiration of the home buyer tax credit. Yes, it'll probably expire. But it's nice icing on the cake; it shouldn't be the determining factor regarding whether you buy. Similarly, interest rates probably will go up a bit. But not enough, again, to be the determining factor as to whether you buy now or in a year or so.

So, to address your question: The money you have is enough to buy a home. But that doesn't mean you're ready to buy.

Hope that helps.
1 vote Thank Flag Link Mon Dec 28, 2009
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
Contact
I would have to answer your question with a question...or two. Where do you plan to buy? Cost varies based on location. What do you intend to buy? Condo, townhome, single family home? What size do you intend to buy? Two bedrooms or more? Lot size? Garage? New construction or existing?

You have enough down payment and income to buy something but will it be what you want. You should either check the market online or contact a Realtor® to help you determine whether you are ready for your dream home.

Also, as Al mentioned other factors such as debt and credit scores are added in the equation. If after speaking with a Realtor® you feel you can move forward, be pre-approved by a lender. Your Realtor® should be able to refer you to a reliable lender.

Don't forget about the tax credit which expires April 30, 2010. That is a nice bonus if you feel you are able to buy now.

Best regards,

Sandra Matson
Accredited Buyers Representative
Accredited Distressed Property Representative

Baird & Warner
Direct: 312.981.2315
Sandra@ChicagoMetroLiving.com
1 vote Thank Flag Link Mon Dec 28, 2009
Confusedhome:

I have no idea, nor would anyone, without taking an application to determine what your situtation is now, and what your goals are for home ownership. Your question is similar to going to the doctor saying "I don't feel good, am I going to die?" You need to give us more information to be able to help you.

If you are interested in talking with a lender, we would be happy to help you.

Kurt Clements, CRMS
Senior Vice President
GSF Mortgage Corp
3933 75th Street
Aurora, IL 60504

Office: 630.806.7016
Clel: 630.430.1091

kclements@gsf-mortgage.com
http://www.auroramortgage.org
1 vote Thank Flag Link Mon Dec 28, 2009
When I posted a reply below I was simply trying to answer the question you had asked.

I would like to approach another thing here. Both of you have done well. You have a decent job, good savings, and are doing all the right things. I would like to commend you for thinking to ask the question you did. That shows you are trying to cover all the bases you need when you buy a house.

A lot of people just rush in to buy a house. They do not consider other expenses beyond the mortgage. Once you come back from your honeymoon I believe you will be very ready to buy a house. You have some concerns, you have some doubts. But if you can get through your doubts and concerns to get married getting past them to buy a house will be even easier. I see you as being very cautious. That will serve you well. As long as you go past asking questions to receiving decent answers and then making good decisions I believe you will be successful. Not just in buying a house, but in all aspects in life.


One last thing. This may be of interest to you.
A national real estate forecast for 2010. Look at your area. Then do more research. Forecasts have been wrong before.
http://www.housingpredictor.com/better.html
http://www.housingpredictor.com/illinois.html (Your state of Illinois)
The upward momentum in home sales will be extended with the expansion and extension of the home buyers' tax credit into spring time. The impact of the government back stimulus program has given the Chicago market a move in the right direction. But in Chicagoland home prices are still falling and they will be on that path until the market finds footing to stabilize. Chicago home prices are forecast to deflate an average of 10.2% in 2010

I wish you well in your search to buy a home. I am sure you will find one when you are ready to buy.
0 votes Thank Flag Link Thu Dec 31, 2009
Aw, shucks.

Any idiot can tell you "Buy!" or, "Don't Buy!" - not to mention any names or anything.

Don's right, don't overvalue (or under-value) the $8000 "prize."

Dan's right, sort of. Marriage is actually the easy way out - you can get married, and not discuss what will happen if "something happens," because the law has taken care of that for you.

But they call it "real" estate because it involves what the legal system calls, "real" property. Unlike your art and jewelry collection, land and the houses that sit on them are "real." And owning them brings real problems.

We know (ahem) that YOU'LL never split up. Although there are several threads on Trulia concerning, "What happens now that s/he's gone?" But: what happens if you die or become incapacitated? Does the fiance get control over your half of the property, or do your parents?

A partnership agreement is a minimum and a must, even if you've worked out who gets the covers late at night.
0 votes Thank Flag Link Mon Dec 28, 2009
Hello Potential Home Buyer:

Don't be confused. It's really the right time to buy. Prices are at their lowest. You have tax credits by the government. You can negotiate an already low priced market. What you need is a realtor who will give you their best advice, negotiating skills and ways that you can make a sound investment, married or unmarried.

If you wish to contact us, you will get 2 for 1 because I have a teammate who along with myself will assist you in making a sound investment, not just a sale. We want our clients to be successful homeowners because when they are successful, we get referrals and that's very important to us and for the people who we work for!!!

Now, what we will do is inform you of the following:

1. We have a written 13 point plan that demonstrates how we will assist you in successful homebuying.
2. We work with buyers and sellers. We have listings throughout Chicago and have access to other listings throughout Chicago and its suburbs. We have worked with multiple buyers of various properties who purchased and were not related. There are not many pitfalls with this as long as both parties mutually agree upon the terms. These terms can easily be defined with the use of a good real estate attorney.
3. We negotiate for buyers and provide special "rebates" for buyers who work with us and close transactions!!! Let us tell you how this works!!

If you are serious in purchasing and want to know all the considerations you mentioned (taxes/utilities/various bills etc.) to see if you are eligible to purchase, we will need to sit down with you along with our loan officers. Lenders nowadays will not risk issuing loans to those who do not meet their financial criteria. Nor will my team work with buyers who are not qualified, because this is time wasted for everyone concerned. Buyers cannot buy homes they are not qualified for. Those days are over, period!!

Concluding: News reports have indicated that various U.S. Senators responsible for promoting the tax credit have indicated zero future support after the June 30th, 2010 deadline. They do not want home sales dependent on a tax credit. So my advice is to sit down with us this week or the 1st week in January and allow us to work with you and your fiance so we can see how we can be of service to you both. Hope to hear from you!!!

Harold Arnold/ Marcella Cohen
Realtors
American Invsco Realty
Members of the Cohen-Arnold A/I Realty Team
Direct- 312.523.8174
111 E. Chestnut Suite A
Chicago, Illinois 60611
http://ChicagoCityHomeSales.com
0 votes Thank Flag Link Mon Dec 28, 2009
Dear Confused Home Buyer;

Sounds good so far you both are working and making money. It shows you are able to save your money too this is Great. Now you need to call a reputable lender and get a preapproved for a loan.

Don't go for you dream home with your 1st purchase. Be realistic and make sure you have all the facts before you buy. Your monthly payment with your TAXES and INSURANCE should not go over 31% of your monthly income. Back end ratio should not go over 45%. Time to buy has never been better. You will receive a TAX CREDIT of 8,000 but you must go under contract by April 30 and close by endof JUNE.
Prices have never been better it is a buyers market and interest rates are VERY low.
Go for it. Time to buy is NOW!
Find a good REALTOR who will guide you every step of the way.

Good luck! Ifeta Faye Redzovic ABR Chicago, Il
0 votes Thank Flag Link Mon Dec 28, 2009
Now is as good a time ever with low home prices, low rates and an $8000 gift from the government. The next step is to find out what you and your fiance would potentially qualify for based on your credit and combine income & collective assets mentioned in your question.

Please email or call me today if you're interested in a no cost first-time-home-buyer consultation. Also, feel free to use our site for daily updates on the mortgage market and home loan rates.

Kind regards,
Andrew

aluett@luettmortgagegroup.com
773-456-9662
0 votes Thank Flag Link Mon Dec 28, 2009
Dear Confused,

I think you'll be pleasantly surprised by how affordable payments would be on that $200,000 home, and I'm sure a good buyer's agent would be able to show you plenty of homes in that range in that area.

There's a HUGE difference between paying rent and paying a mortgage, because so much of that mortgage is tax deductable.

How much? GIve me a call and I'll tell you exactly.


Matt Bukovy
Sr. Mortgage Consultant
Wintrust Mortgage
3317 W. Irving Park Rd.
Chicago, IL 60618
Cell 773-416-7107
Phone 773-654-2498
eFax 773-409-5558
0 votes Thank Flag Link Mon Dec 28, 2009
We would plan to buy in Northwest In (Dyer, Schererville, St. John). We would like to a buy a single family home 2 bed 2 bath and for it to be $200,000 or less.
0 votes Thank Flag Link Mon Dec 28, 2009
I say go for it. We have until april for a $8000 goverment tax credit. And the rates are low now. Call my mortgage man today Steve @ 847-359-1700. This is the best time to buy a home!
0 votes Thank Flag Link Mon Dec 28, 2009
Using the "affordability calculator" at the attached web reference will help.

It references "front ratio" and "back ratio." You don't want your back ratio to exceed 45% and less is better. While you might be able to qualify for more than a 31% front ratio, you may want to try to stay at or under that figure as well. A front ratio is the percentage of your gross income spent on your mortgage (principal, interest, taxes and insurance) and the back ratio is the proposed mortgage added to all of your other debts expressed as a percentage of your total gross income.

While you may not have provided enough information for us to specifically answer your question, there are tools on the web that can help you feel more confident in getting going.
0 votes Thank Flag Link Mon Dec 28, 2009
I think the best way to find out is to get pre-qualified by an experienced reputable mortgage loan officer. This can be done over the phone in about 15 to 20 minutes and then you will know for sure where you stand. They will go over all the specific details with you.
0 votes Thank Flag Link Mon Dec 28, 2009
Cash is king, and its a buyers market! You're in an ideal position -- at least financially -- to make a move. With quality agent representation, and a thoughtfully executed search for the right property, you're well on your way to the benefits of home ownership. But there are other factors to consider, such as employment and other potentially life-altering events, before you make the commitment. If you have questions or concerns, and would like an honest opinion, don't hesitate to ask. Good luck!
0 votes Thank Flag Link Mon Dec 28, 2009
Possibly! It depends on what you want and where you want it. You also ned to speak with a lender or 2 to see if your other financial criteria qualify....like credit score etc. My web site has a few references. If you tell me what you want and where, I can give you a better answer.

philip
0 votes Thank Flag Link Mon Dec 28, 2009
Confused, it would really depend on how much you plan on spending on a home, how much taxes are and how much other debt (such as credit cards, car loans, etc.) you might have.

It definitely sounds like you are well on your way. Kudos to you for your ability to put away money.
0 votes Thank Flag Link Mon Dec 28, 2009
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