Thanks for both of your answers, I really appreciate the advice on this site.
Jim, You mentioned youre a loan officer. Would it be possible to set up a time in a few months to go over some of the variables you mentioned below. I understand that this site should only be used as a quick reference guide so I dont want to bog it down with all my details. I also noticed that you are based in Roseville. I am also in Roseville so that might make things a little easier. Send me an email if your interested @ email@example.com
Due to lending laws we can only generalize in a public forum such as this, and we do not want to have you divulge too many of your personal details to the World Wide Web.
I mentioned some of the fees that would be added to a homebuyers monthly housing cost calculation. These include, homeowners insurance ( always ) property tax (always) earthquake and or flood insurance (sometimes) Mello-Roos bond payments ( sometimes ) HOA fees ( sometimes ). Mortgage Insurance Premiums ( sometimes )
Notice all the ( sometimes ) -- I took econ in college too.
The (sometimes) monthly costs will depend on which house you buy and the PMI (sometimes) depends on you loan program.
Your closing costs are not directly added to your monthly payment, but you intuited that closing costs do have an effect. Obviously if you pay CC in cash, you will have less for down payment;
If you finance the CC, then your payment is larger. If you ask the seller to pay the CC, then it is likely that you are paying more for the property than if the seller were not paying your closing costs.
How much are the closing costs? There are so many variables here as well. The variables include:
1. Who is paying for which costs ?
2. What time of month and time of year are you closing escrow.
3. What type of home are you buying? Condo? Detached house?
4. What loan are you getting? Paying an origination fee for best rate? Or paying a slightly higher rate to avoid the up-front costs?
Erin, Dot and I donâ€™t mean to be coy with you, but the variables are so, well, varied, that a generalized one size fits all answer does not fit anyone. Iâ€™ll try anyway. Closing costs charged directly to the buyer may run anywhere from a few hundred dollars to several thousand dollars.
If it is only a few hundred dollars, you can be sure that the costs will be paid by the buyer in some other way such as through the future interest paid on the loan or a higher price for the house.
- Jim Walker, 1AR Financial and 1st American Realty
The monthly payment includes the interest and principal on an amortized loan; it also includes the property taxes, Mello-Roos tax, and the homeowners insurance. If buying a condo, you would include the HOA fee. These costs leave only about $1000 available monthly to service the debt portion of the monthly payment. That size payment is adequate to service a $178,000 30 year fixed rate amortized loan at 5.5% APR
As it happens, there are some starter homes and condominiums in that price range in Elk Grove, California. - Mostly as a result of bank foreclosure activity.
There are many reasons why you probably qualify for a higher loan, than this conservative scenario.
1. You might qualify for 1st time homebuyer assistance, A Cal HFA bond loan, MCC, or other government agency or private agency assistance.
2. As a recent grad with a promising career, an expectation of higher earnings in future years, you may be able to take advantage of a structured loan such as a 5-25 (fixed for five years, then adjusts after five years). This type of loan is awful for poor people whose incomes don't increase much, but the program does make sense for a 20 something grad who expects his salary to rise significantly in the next five years.
The APR rate on a 5-25 has been running around 5% - that increases your purchasing power by at least $10,000.
3. If you don't have a large car payment and student loan debt. You may be able to carry a payment larger than the $1200 that you said was your target. If you have no other debt, your buying power might be as high $228,000 to $242,000 depending on loan program, and interest rate that you qualify for.
4. Disclaimer: These are generalized estimates based on limited facts derived from your question above. Your situation may be different. A full evaluation and good faith estimate would require an application and a credit report.
-Jim Walker 1AR Financial, and 1st American Realty
I say there is always hope! You need to work with a good Realtor and loan person. I can recommend a great loan officer in So Cal...she can work with you. If you need a referral for a Realtor let me know.
All the best,
The Chance Team
Keller Williams Realty Studio City
I have seen a couple of John's other posts. He is a self described housing bear. - I have no objection to that. I was a bear three years ago at the height of the bubble, when some house prices here were 50 to 75% higher than they are now. Being a bear two and three years ago was smart. Calling for a 50% to 75% drop on top of the crash already experienced is wishful thinking.
I can show you dozens of homes that are listed in the $200,000 +/- range that were sold for 50 to 75% more than that at the peak of the bubble. -
I was an early bear, an on time bear, but I am not a lifetime cave bear, when conditions start to change, when the bottom of the housing market is near, smart bears can come out of our caves and bask in the springtime warmth of the sun.
That was a good article. As I stated earlier, Im an economist so i understand market forces and other key indicators for housing prices. I agree that the housing market is not nearly done correcting, however for my personal circumstances I believe purchasing a home in the range of 6-12months. thanks for the article
Unfortunately, it is difficult to give you definitive answers without knowing everything about all of the variables in your situation. I specialize in the real estate side, and I am not a loan officer...you really should find a loan officer that you like who can run through these scenarios with you.
It is outstanding that you are doing this much research in advance! Sounds like you are ready to take it to the next level and contact a professional loan officer...
Why not wait for a year or two or three and pay 50 to 75 percent less for a bigger home?
Check out this article:
The price is around 185k. so a loan over 30 years would roughly be around my 1100 or price range. However, I am worried that there are so many fees that will come up that It will push the actual monthly amount outside my budget range. So long question short, do i need to adjust the price of house Im looking for to stay within my monthly budget due to fees and payments of the buying process?
FYI - the 2 yr employment rule is an industry standard, not just tied to first time home buyers programs whatsoever. I work almost exclusively with realtors who send me many first timers. Contact me offline if you'd like to learn more about how you might stack up relative to what lenders are looking for.
hopefully this helps, Jeff
Very cool that you are an economist...
Can you throw me some info? I'm curious how it works out...I'm eager to buy too, but I can't seem to find prices that make it work for me. How are you doing your calculations? Or are you trying to get a foreclosure?
Thanks for the info!