First time home buyer, 10k, little credit

[Mike Paquette]

I’m 18, haven’t been able to build up a lot of credit, I have over 10k I could put towards a house right now. But with little to no credit, I’m curious if there’s a way I could get involved with RE yet or if I should wait til I have more capital and better credit in a few months

[Randall Alan]

@Mike Paquette

Congrats on your interest in real estate at your age.  If I knew what I know now at your age I would probably have 1000 doors by now!  lol.  Instead I started at age 45 and I have 37... but hey, I'm on my way!

I would start off by checking at what age you can contract to buy a house in Indiana... whether it is 18 or 21?  If it is 21, you could always get a family member to help you make the deal happen.  So that is step 1.

Step 2 is that you need about 20-25% down if you are buying an investment property (financed).  I would say you would be short of that goal in today's market.  But, with that said, house hacking (where you buy a house that you are going to live in, and then rent part of the house (think duplex) to another person is close to achievable probably with close to where you are at.  You usually need about 3-5% down to buy a house you are going to live in.  You may still not be there, but you aren't too far off probably.  The easiest way to answer some of these questions is to reach out to a mortgage broker (not a bank) and just ask them if they have 2 minutes to answer some quick questions.  

1. Age to contract. 

2. Programs they offer with least amount down on a house.

3. First time buyer's programs?

4. How much down to buy a $100,000 house?  

5. Can you finance in closing costs? 

It should give you a good basis to know where you stand.

So let's say it's 21 to contract, and you're short on funds.  Maybe see if a parent or relative would go in on it with you.  You put up your 10,000, and maybe they throw some money in too and partner with you.  It may even have to be in their name up front, but do a written contract with them as to what your terms to work together are.  With family you could make a deal that at 21 they deed your portion to you through a quit claim deed.  I wouldn't do that if they weren't family... but usually you can trust your family, right? (hopefully).

Now the down sides.  Houses are really expensive right now, but are coming down as the Fed raises their interest rates.  This has the knock-on effect of expensive mortgages on properties (which is the whole idea the Fed is trying to accomplish... make homes expensive to force sellers to lower their prices to control inflation).

With interest rates high, it is hard to find a property that is worth buying these days for cash-flow purposes.  Not saying it can't be done, but the higher interest rates mean hundreds of extra dollars in financing costs each month.  So if you said, What's the best thing to do... it's probably to keep your eye out for a property that works, but know if you wait out the high rates (which might be a year or two) you will be able to use your money much more effectively when rates are back in the 4-5% range, instead of the 6-7% range.  I'm not seeing much on the market these days that will generate any positive cash flow currently... so I'm doing exactly what I told you... watching, and waiting.  I get lots of notices of people lowering their home prices... so the market is starting to adjust... but it probably has quite a ways to go... so until then, it's watch and wait.

All the best!

Randy