Christina, Home Buyer in Norfolk, VA

How much can I afford?

Asked by Christina, Norfolk, VA Tue Aug 19, 2008

I am 41. Will be a first time home buyer. I have $45K saved. Retirement accounts - IRA, Roth, Brokerage accts, 401K. No credit card debt, no debts at all. In 28% income tax bracket. I want to use $10K in my IRA to put down towards downpayment as I understand there is no penalty. Also curious about $7,500 housing credit that was just passed. I applied for mortgage approval 8 months ago, FICO was 810. I'm looking at a $350,000 condo in Norfolk, VA. Is this too much or could I qualify with little down so I don't deplete all my cash?

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Why would you take money out of retirement savings to put into a house? A house is going to decline in value given the current market. Retirement savings are protected in bankruptcy I *think*. The housing credit I think has to be paid back. I'd be willing to bet a $350K condo in Norfolk is going to be worth $90 - $150K ... I mean, it's all the downsides of an apartment, with no land ownership, and a condo board that can raise the HOA fees at any time to cover losses when half the units go into foreclosure. Seriously, my suggestion would be to rent in the area and see if you like it. Continue to drive those savings. Look at the credit suisse ARM reset chart, and professor Shiller's graph (google both). Shiller's graph makes it clear where things are headed. The salespeople need your money to afford their euro car rental (lease). The builders and banks need your money for their lifestyles of excess. Be wary of them all!
2 votes Thank Flag Link Fri Aug 22, 2008
A rule of thumb. You can afford 3 x your gross income. For example, if you make 50K per year, then you can afford 150K house( which is 3 x 50K).

4 x your gross income is pushing it, and you may not have money left over for other fun stuff in life.

You need to make about 115K / year to comfortably afford this 350K condo. I would wait to buy, prices are declining.
0 votes Thank Flag Link Sun Aug 24, 2008
Chris, interesting you mention that. 3 times your gross income. The average income in our region in say, Virginia Beach is around $60K. BUt the median home price is? $300K? $400K? And the other cities are often worse. I think Norfolk's median household income is $30K-40K. Just goes to show how disconnected prices are from salaries. Now that the easy financing fraud is ending the buyer pool will shrivel up. I think the people who have nothing to put down are more apt to make stupid overpriced purchases since they didn't actually work for any of the money they are spending.
0 votes Thank Flag Link Sat Aug 23, 2008
Hello Christina
Sounds like you know how much you can qualify for and that should be what you can afford. So I will answer the other questions. That $7,500 incentive is an interest free loan that will be paid back. $10K down is not too much in todays market, Also there is the issue of closing costs and prepaids and lets not forget condo association fees. I recommend you check at least 3 local lenders to verify you are getting the best rate and terms, Not just the interest rate but the real cost of the loan. Good Luck. Benny
0 votes Thank Flag Link Thu Aug 21, 2008
Hi Christina, I think the most important place to start is to determine what monthly payment you would feel comfortable with and does this figure include homeowner assessments and taxes or just the mortgage. Knowing this figure and how much you wish to put down (in most cases on a condo you will need at least 5% and probably 10%) will then determine your price range. From what you describe, your profile is solid and there should be no issues from an approval standpoint but again we want to make sure your payment goals are met. Figure a mortgage payment on 10% down to be approx. $2K and then add your assessments and taxes to determine an approximate total payment and see if you are comfortable with this figure. The $7,500 credit would be directly applied to either your 2008 or 2009 tax return provided you close prior to July 1, 2009 and then would be repayable in $500 increments for 15 years beginning with tax year 2010 which you would file in 2011. Please advise if you would like any additional info to help with your research.
0 votes Thank Flag Link Tue Aug 19, 2008
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