What's the timeline on purchasing / planning to purchase?

Question

Hey all,

Looking for some input at this stage. I currently have no debt, $67k income, 6k saved, 800 credit, first time homebuyer in Texas, and I would live 100% exclusively in that home without renting to anyone else, thus living alone. I am single. I am not in any pressing need to move and am comfortable in my current apartment, with a lease running through June 2018. I can reliably save about 1.5 a month, 1.75 if I stretch. There are new homes being built for $250-$300 in the area I'd like to live. Older homes (built 1990-2005) with similar layouts are 200-250.

My friends have recommended I put 5% down just to get in, and then attempt to aggressively pay down the mortgage to hit 20% equity and get rid of that nasty PMI. 5% for 200-300 would be 10-15k. That means by Fall-Winter I could have 5% ready.

Some of my questions would be:

1) How much would I need for CC and inspections in addition to the 5%?

2) Is putting 5% down wise or unwise?

3) Would I qualify for a loan that big with a single income that isn't amazing?

4) Given that the difference between a newer home (with all the bells and whistles that come with it) and an older home is 25-75, should I save for another 6 ish months and just aim for the new home?

5) Should I be reaching out to realtors now? If not, when? I want to have one lined up early enough in the process, but not so early that I get texts / emails every week to check out homes when I'm not ready just yet.

6) What kind of programs or options for assistance as a first time homebuyer in TX are available and should I be starting them now (well in advance of any time limit deadlines that could crop up if I wait)?

7) Any other glaring issues I'm missing or not aware of?

Thanks!

Jim Cummings · Answer

@Jeff Robson.

Reference: Your questions.

Some general “Rules of Thumb” from 25+ Years as a Residential Agent & Broker. All of these are generally applicable to Texas.

• 1. How much would I need for CC and inspections in addition to the 5%?

RESPONSE: Anticipate you’ll need about 3.5% - 4% over and above your Down Payment if using a Conventional 5% Loan.

• 2. Is putting 5% down wise or unwise?

RESPONSE: Can be either Wise or Unwise – depending you’re your personal objectives! If your objective is to get into the home with as little money out-of-pocket as possible – WISE! You might also consider an FHA Loan requires only about 3.5% Down Payment and an overall Out-Of-Pocket of about 7.00% of Sales Price. FHA does have a Never-Ending MIP component to the loan.

If you are looking for a certain Monthly Payment – You’ll probably need to put more money down.

• 3. Would I qualify for a loan that big with a single income that isn't amazing?

RESPONSE: Most Lenders qualify on the basis of somewhere around 33% - 36% of your GROSS Monthly Income can be used for your house Payment. Assuming $67K Gross Annual Income / 12 = $5583 Per Month X 33% = $1842 PITI. $5583 Per Month X 36% = $2009 PITI.

How much House does that buy you? Without knowing the Tax Rates for the area of Interest, I would use $500 / Month for Taxes, and about $125 / Month for Insurance, and another $100 for MI, leaving you about $1275 for P & I (Principle & Interest). A $1275 P&I at 4.75% Interest Rate for 30 Years, Pays for roughly $244,418 Loan.

• 4. Given that the difference between a newer home (with all the bells and whistles that come with it) and an older home is 25-75, should I save for another 6 ish months and just aim for the new home?

RESPONSE: Heavily dependent upon your personal preferences as to what neighborhoods you prefer. Generally speaking newer homes will require less maintenance. My personal preference is what I call “Newsed”. Think buying last year’s model automobile and getting $10K off the sticker Price. In my opinion, the ideal is to be the second owner (2-5 years old). All the window coverings are in, the yard is sodded & possibly landscaped, there is probably a sprinkler system & fence – all thing you may have to pay for separately with a new home.

Realistically, I suggest seeing all available, (New, Resales, Foreclosures, etc.) then you have a logical basis for making an educated decision of which home best suits your needs and lifestyle.

• 5. Should I be reaching out to realtors now? If not, when? I want to have one lined up early enough in the process, but not so early that I get texts / emails every week to check out homes when I'm not ready just yet.

RESPONSE: I’d suggest about 90 - 120 Days out from your desired move in date. That gives you 30 - 60 days for “shopping” and another 30 - 45 days for Closing.

• 6. What kind of programs or options for assistance as a first-time homebuyer in TX are available and should I be starting them now (well in advance of any time limit deadlines that could crop up if I wait)?

RESPONSE: If you are set on buying a new home – you will most likely end up using the Builder’s Lender. The Builder can’t require you to use their lender, but the pitch is somewhat along the lines of “If you use our Lender and Close at our Title Company, then we’ll pay X% of your Closing Costs. If you don’t use those services then we will NOT pay X% of your Closing Costs.

If you are considering other than New Homes, I’d suggest you contact a Lender and get Pre-Approved (not Pre-Qualified). Lender can study your file for any aberrations, and work to get them corrected before you contract on a property.

Any other glaring issues I'm missing or not aware of?

Contact me off list for any other specific questions you might have and the name of a Dallas area REALTOR® that will take excellent care of you when you are ready - without "Bugging" you daily.

Tyler Hodgson · Answer

@Jeff Robson welcome! You've came to a great place for input. I'm also from Irving! I grew up and went to Irving school. Some comments below:

1) How much would I need for CC and inspections in addition to the 5%?

$3,000-5,000 should cover closing costs and prepaid items (taxes, insurance, escrows, inspections) at that sales price

2) Is putting 5% down wise or unwise?

I like it. I would actually even recommend 3% down on a conventional loan, especially with your stellar credit score. Also, paying down to get 20% equity usually is not as desirable as using that cash to invest elsewhere (think opportunity cost).

3) Would I qualify for a loan that big with a single income that isn't amazing?

Absolutely. You're income seems solid, and you claim no debts. You should be able to qualify for a decent sized loan/home. Get pre-qualified with a lender sooner rather than later to see where you truly stand.

4) Given that the difference between a newer home (with all the bells and whistles that come with it) and an older home is 25-75, should I save for another 6 ish months and just aim for the new home?

My first home purchase was a brand new townhome. I enjoyed having everything new and under warranties. Less maintenance and headaches. I'm not a super handyman, so this was preferable to me. This just comes down to personal preference and what is on the market in the areas you chose to live in.

5) Should I be reaching out to realtors now? If not, when? I want to have one lined up early enough in the process, but not so early that I get texts / emails every week to check out homes when I'm not ready just yet.

I always recommend connecting with realtors and lenders early one to start getting pre-qualified and setting up a home search. @Kenneth McKeown is well-known here on BP, and works with lots of investors in the DFW area for purchasing investment properties and primary residences.

6) What kind of programs or options for assistance as a first time homebuyer in TX are available and should I be starting them now (well in advance of any time limit deadlines that could crop up if I wait)?

3% down conventional. HomeReady and HomePossible programs from Fannie and Freddie. Be cautious of anything that says its a first time home buyer program or down payment assistance. Sometimes they jack up the fees or interest rates to cover a grant, and sometimes this is a silent 2nd lien (a second loan on the house).

7) Any other glaring issues I'm missing or not aware of?

Sounds like you're on the right track. You could look at finding a 2-4 unit to get some rental tenants, but the market is super competitive for 2-4 units right now. Otherwise I would recommend finding some roommates to help pay your mortgage. Just make sure you pick good roommates!