First time home purchase.

[Ethan Blevins]

Hi all, I am 22 years old, graduating college this December. I am planning on being in my area (Central Illinois) for about another year and a half.

I love the idea of house-hacking (I will definitely be doing one). If I could get any insight I would greatly appreciate it. I currently rent for $450 per month with two roommates also paying the same. So, I know rent by the room is allowed in my area as this is a college town. As far as cash reserves after the purchase of the home, I am not quite sure what a good target number should be. The first home I purchase I do not plan on selling after I were to leave this area as renting to college students would be my exit strategy from the home. My problem arises in that I do not have a lot of cash saved up. Only a few thousand dollars. 

I could most likely put some money down in a FHA loan and get a mortgage, however I worry that depleting my savings would put me at a high risk of not having cash for needed repairs should something serious need replaced. Does anyone know of a good target number to hit in reserves? Say you put $3500 down on a home for ~$120k how can I estimate the cash I need to keep in reserves for repairs? Does this soley depend on the state of the property or has someone developed a system to estimate what additional cash they would need per value of home?

There are many questions throughout my post here, so I appreciate any responses at all. I have been listening to the Bigger Pockets money podcast and Bigger Pockets real estate podcast for the past year and a half, and I am ITCHING to buy my first home and start my real estate journey. 

Thank you for taking the time to read my post! I have notifications on so I will do my best to respond to any and all responses!

Best,

Ethan

[Ronald Allen Barney]

Couple of reality checks. First, the term "Percent down payment" is misleading on the part of mortgage lenders. It's really the reverse percentage of the so-called "down payment" as a Loan to Value (LTV) percentage. The "Value" in LTV is APPRAISED value, not the asking price or sale price. In a hot market where buyers bid war prices to above asking, so many buyers have been shot down by the banks telling them the property appraised at significantly less than asking, got told a cash amount they needed to make up the difference, and they couldn't afford that cash requirement. Sellers get pissed off because all that time was wasted, and obviously buyers were pissed off because they got misled about "down payment" percentage.

Second reality check.  Account for minimum $10k in closing costs.  It sounds like a lot but you wouldn't believe the fees that get piled on at closing.

Third reality check.  "House Hacking" is now such a fad that those MFH with one open unit fly off the market even faster than the shiny object dream homes for owner-occupiers these days.  It's like finding a unicorn on the head of a needle buried in a haystack.

Targeting the specific question about cash reserve:  ask the seller about deferred maintenance, the age of the roof, and the age of the mechanicals.  Look for sagging beams or signs of a sinking foundation.  If it looks pretty clean as far as the big pieces go you can build up your major maintenance cash reserve later.  If there are issues that you know you'll have to address early on, give the seller a lowball based on those issues.  If some eager other buyer snatches a property with issues like that, they just "won" a time bomb.  Walk on.