Buying my first home

[bennychico11]

So I'm looking into buying my first house. I've rented since I graduated high school and moved out but since I've been out of college now with a steady job of four years I figure it's about time. My current lease is up here at the end of July and I lucked out with getting the home that was the house I grew up in. My dad still owns the house and until recently my aunt was living in it and renting from him. My dad remarried and now lives with his new family so the house is just going to be sitting empty. I told him I might be interested in buying the house from him but until we finalize everything I'll just rent from him for now (whew...don't have to worry about finding a new place to live!)

Unfortunately I don't think I can afford market value on the house (<150K most likely) because my student loans are killing me. He refinanced awhile back and I'm sure he has a high interest rate, but I know he has less than 100,000 left on the mortgage. My thought was what if he sold me the house at the price of what he has left on the mortgage (so he gets that paid off for now), I get a low interest rate loan, fix up the house (because it desperately needs to be brought into the 21st century) and then when I sell it give him a chunk of the final value.

Doing a little research online I've got some concerns about that. First, with him giving the house to me far less than market value is there any tax concerns? I was hoping that the tax man doesn't care but would that be considered a "gift"? I know my giving him money after selling the house would most likely be considered that.

Second, are banks doing 100% loans right now after this whole mortgage freak out?? I don't know how much of a down payment or closing costs I'd be able to scrape together.

Third, what do we need to be aware of when transferring a family home to another family member without going through a realtor?

Any other insight? This all seems rather overwhelming but I wanted to just get an idea of some things to look out for before I go to a lender.

Thanks all!

 

[HSKRNOKC]

You need to speak to Eric the red.

 

[AR Husker Fan]

You're probably not going to like what I have to say, but...

First, you're main concern needs to be reducing your debt substantially (I'm not saying that you have too much, but in a sense, it appears you do - the reference to the student loans "killing" you). Ask yourself this -what happens if you lose your income for even a few months? Can you handle both the student loans and a mortgage?

Second, while you may be able to find a bank or mortgage company that will do a "100%" loan, bear in mind that most institutions will shy away from any such loan for a good reason - it's a good indicator that the person seeking the loan doesn't have the kind of income or liquidity to be financing a deal of that size. At the least, find out what your credit score is - that will go a long way to answering whether an institution will swing that kind of loan.

Third, you stated that the house needs some fixing up. How much? And how much can you realistically do yourself? Assuming you can swing the loan, will go broke trying to fix it up - or for that matter, just keep it up? At the very least, have an independent apprasial of the house, and have someone come and look at it and give you an idea what it will take to fix it up.

Fourth, what about ancillary costs? Insurance, taxes, and the like. Do you have a good idea what they'll cost you? Can you afford that, along with the loan and the cost of repairs?

What about unexpected debts? I'm thinking mostly of illnesses, suddenly having to buy a new car, that sort of thing. Do you have sufficient resources to handle that while handling all the other costs?

I honestly don't know whether a sale for less than market value would constitute any kind of a gift. If so, I suspect that the tax burden would fall to your father rather than to you. But the easy way to check is to call the IRS. Their help line will actually give you those answers, believe it or not. Your tax dollars are paying for it, so use it and find out all you can.

I tend to be somewhat of a fiscal conservative in these kinds of things. My wife and I didn't buy our first house until we had saved about $40,000.00. We were each in our early 30s, and saved our asses off to get there - we didn't take vacations, rarely went out, etc. But it was worth it. We had an excellent credit rating, very little debt, got a good rate on the loan, and had sufficient money after all the fees to do some fixing up, which the home required. We lived in it for almost 15 years before buying our first really new home.

I know paying rent is a pain - it's tough watching that money go out with no feeling that you're actually purchasing any equity, and there are so many reasons to hate renting, but my experience is that it's the unanticipated costs that kill you.

If you honestly and realistically estimate those, and you feel you can handle it, then do it. Otherwise, save, save, save, and buy in a few more years. Odds are the market won't be recovering that quickly, and there will still be some real steals out there.

 

[bennychico11]

Thanks for your reply. And you're right....it wasn't what I wanted to hear But of course, that was what I was worrying about and why I figured it was going to be a lot more complicated than just making a simple phone call and having money in the bank the next day. You've definitely given me a lot to think about.

First, you're main concern needs to be reducing your debt substantially (I'm not saying that you have too much, but in a sense, it appears you do - the reference to the student loans "killing" you). Ask yourself this -what happens if you lose your income for even a few months? Can you handle both the student loans and a mortgage?

My debt isn't terrible. In fact my only real debt is my student loans. The only credit card debt I have is 300 bucks and that's because I just had work done on my car last month. That'll be paid off here shortly. I just ended up going to rather expensive school for college and am paying for it now. I easily make the payments each month though. The truth is, like you said, I just need to save save save and stop spending so much money on frugal things (I have an affinity for expensive beer!!). I just couldn't realistically, for the time being, spend $1000+ on a house payment....with other bills and all on top of that. It'd be a struggle.

If I lost my job for a few months...I'd definitely be in a bind. Of course, even if I were renting a house I'd still be in a bind because most rental homes are 800+ a month. Every time I get a raise or one of my bills is reduced, something new pops up that I have to pay money to.

Second, while you may be able to find a bank or mortgage company that will do a "100%" loan, bear in mind that most institutions will shy away from any such loan for a good reason - it's a good indicator that the person seeking the loan doesn't have the kind of income or liquidity to be financing a deal of that size. At the least, find out what your credit score is - that will go a long way to answering whether an institution will swing that kind of loan.

that's what I was thinking. Again this is all new to me, but it's just hard for me to see how any single person can be expected to buy a home on their own unless they have absolutely no debt or make at least 50k. If I didn't have the student loans I'd be fine.

Third, you stated that the house needs some fixing up. How much? And how much can you realistically do yourself? Assuming you can swing the loan, will go broke trying to fix it up - or for that matter, just keep it up? At the very least, have an independent apprasial of the house, and have someone come and look at it and give you an idea what it will take to fix it up.

The house is structurally (at least I'm assuming) sound. It's just a bit dated (bathroom has ugly tile, many of the rooms need new paint colors, we're in the middle of redoing the deck, etc.). It's in a nice area of Kansas City so that alone ups it's value. My dad just knows that if he was going to try and sell it now a Realtor would tell him it needs a makeover. He had it appraised about 6 years ago and said it really hasn't changed in value because he hasn't put much into it since.

I don't mind slowly redoing the place myself over the next few years. Taking one major project on each year and doing minor things when I can. And of course my dad would still help me out because not only would he still have a stake in the house for when I sell it, but he also knows more about home improvements than I do. But you're right, I do need to get an estimate on what some of the improvement costs might be.

Fourth, what about ancillary costs? Insurance, taxes, and the like. Do you have a good idea what they'll cost you? Can you afford that, along with the loan and the cost of repairs?

that's one thing I'm not even sure of. mainly because I don't even know what those will run me...but it's something I need to look into, you're right.

----

I know paying rent is a pain - it's tough watching that money go out with no feeling that you're actually purchasing any equity, and there are so many reasons to hate renting, but my experience is that it's the unanticipated costs that kill you.

renting does suck. Even before this house opened up for me I was just worrying about all the deposits and such that I was going to have to pay. I easily saw 2K leaving my pocket in the first month alone. I just figured I might as well put my money towards something I owned rather than to a landlord named Frank. And especially now while the interest rates are so low. My girlfriend bought a townhouse right before the mortgage problems for about 95K and she says she's paying about 750 a month on her mortgage. That's what got me thinking that if I was able to get a low interest rate I'd be able to at least get a loan for 100K and afford the monthly payments on that.

Also, I might be getting a roommate after I move into the house, so that should help in any payments I make (rent or mortgage) so that some of the money goes into fixing the place up instead.

Thanks again though. I welcome everyone's thoughts on this. It's got me thinking

 

[strigori]

That is one thing with the rent vs mortgage payments. I have seen rent rates for apartments that are substantially higher than many house payments.

Before buying a house, getting it inspected is a really good idea, and not just by a home inspector. They dont even come close to catching everything. Having an electrician check the wiring fuse/breakers is a must in my opinion.

 

[sarge87]

That is one thing with the rent vs mortgage payments. I have seen rent rates for apartments that are substantially higher than many house payments.

Before buying a house, getting it inspected is a really good idea, and not just by a home inspector. They dont even come close to catching everything. Having an electrician check the wiring fuse/breakers is a must in my opinion.

Strigori is right about getting it inspected by an electrician. Most homeowners insurance on new buys require full inspections to be done.

 

[HUSKER 37]

Hey Benny...

Maybe we should both start making homemade "Micro Beers"

I've been putting it off while working against my "Keg Abs" and drinking sun tea instead, but I'm getting a hankerin for beer/ale again.

I'm trying to decide whether or not to sell my house.

It's doubled in value since we bought it 8 years ago but the value has dropped the last few months.

My (now) Ex-Wife wants to either sell it and split the equity or I need to refinance it and pay her her half of the equity. (Her rent is about the same as my mortgage payments)

Saw this on msn.com today that might be interesting to you.. Why you can't afford a home.

The "hidden" tax benefits of home ownership have been nice, but there seems to be differences that I'm slowly learning that seem a little different than when my parents owned their home.

Like back when I was in Highschool in '78-'79, interest rates were around 20%..My parents bought our house in the mid 50"s? at 6.5% so they were fighting the overpowering urge to pay off the loan (When it would have been better to take that extra payment they'd been putting toward the principal whenever they could and investing it (like I was doing with my highschool job earnings for close to a 20% return).

Today..With interest rates relatively low, I'm starting to suspect that I won't want to pay off the loan..Every time I refinance for a lower rate, the loan starts over (30 year fixed rate)..The only reason we have any equity in it is because of appreciation (Which might not happen again for the next few decades).

I've been talking with Lending Tree in Ca. and one of the things the guy I've been working with said he's got a 5yr "interest only" loan on his house for now and will try to lock in later for a 30yr fixed rate in the near future.

I guess the thing they're trying to focus on now days is getting your monthly payment as low as possible and ignore the total payment over the life of the loan(s).

Good luck!

 

[bennychico11]

Hey Benny...

Maybe we should both start making homemade "Micro Beers"

I've been putting it off while working against my "Keg Abs" and drinking sun tea instead, but I'm getting a hankerin for beer/ale again.

can we sell it and make a crap load of money with it? :-D

I've been putting off getting into brewing too. Although I guess with a hundred bucks I could get 48 bottles with the first batch...so technically I'd be saving money!!

I guess the thing they're trying to focus on now days is getting your monthly payment as low as possible and ignore the total payment over the life of the loan(s).

except when you take a peek at how much you will have paid back to the bank when the loan has been paid off!! I will have paid the bank more than double by the time my student loans are paid in full....it sucks to try and swallow that.

thanks for the new thoughts everyone.

Someone over at a real estate law forum suggested I look into an Equity Share transaction. Which would make by dad the investor and me the occupier...where I pay for the mortgage payments with no money down and he helps invest in fixing the house up (which he was going to do already). I just think we need to talk to a real estate attorney before talking with a mortgage lender.

 

[strigori]

That is one thing with the rent vs mortgage payments. I have seen rent rates for apartments that are substantially higher than many house payments.

Before buying a house, getting it inspected is a really good idea, and not just by a home inspector. They dont even come close to catching everything. Having an electrician check the wiring fuse/breakers is a must in my opinion.

Strigori is right about getting it inspected by an electrician. Most homeowners insurance on new buys require full inspections to be done.

they require a 'home inspection' from a home inspector. A number of people I know have been less than happy with things missed by these guys. They seem more focused on cracks in walls and floors than the electrical. I would get a home inspection, but have an electrician out also. When my mom bought her current house, the home inspector didnt have any issue with the fuse box, but when an electrician came out and looked at it, his first words were "Whoa, thats not good". There were 25 amp fuses in 15 amp spots, and the way some things were piggy backed was bad too.

 

[HUSKER 37]

...I guess the thing they're trying to focus on now days is getting your monthly payment as low as possible and ignore the total payment over the life of the loan(s).

except when you take a peek at how much you will have paid back to the bank when the loan has been paid off!! I will have paid the bank more than double by the time my student loans are paid in full....it sucks to try and swallow that.

Paradigm..That's the magic word I was trying to come up with in my previous response.

I don't know if it was from my upbringing or what, but it's been very difficult to shake that ancient interest concept.

I got my 1st loan at 16 but hated owing money and paying the extra interest so much, that I payed off my 1st car loan in three months.

I guess my 1st encounter with paradigms was my Jr. Year in High school..I had a Geography? teacher that started talking about Economics..He sold Insurance during the Summer and spent most of a week telling us the evils of Insurance companies and how poor an investment Whole Life Insurance was.

In Whole Life Ins., you eventually end up getting the opportunity to borrow your own money..Resulting in less than 1% return...But if you bought the much cheaper Term life Ins. you could put the extra money in a savings acct (and actually earn interest) and can take the money out (Without ever having to pay it back).

If you invest that extra money, you'd come out that much farther ahead.

My older brother still pays cash for automobiles..Just so he doesn't have to pay all that interest.

And it's so tempting to pay off my 30 year loan in 20 years like my Bro, just because I hate the thought of paying double or triple the price tag on my house.

But if you can find a good investment (or broker) and are disciplined enough to take that out of your checking act 1st (I've been auto transferring $100/month from my Checking to my savings for several years ($100/week when I was single and 1st set up the accts))..

Although, I'd be much more better off if I invested it in something with a better return than my savings acct or Cds.

Anyway..If you can find an investment with a return of equal or better than the interest on your home loan, you're much better off..(Diversifying)..

It may cost you an extra $250k over the course of 30 years, but that same money you would've paid extra to pay off your mortgage sooner might have earned you 450k...PLUS..Maybe more important.. could be a LIQUID asset that you could use in an emergency...It's a lot harder to get money to pay off a kidnapper if it's all tied up in your house.

 

[Apathy]

I just bought my house like 10 days ago and OMG prepare to sign your freakin life away and I hope you know how to sign your middle name too. It took me forever to sign the papers using my whole name, middle name included, it was weird signing my middle name in cursive. My first payment will be Aug 1st