What would you do? (Real Estate Question)

[JSD]

I'm getting very frustrated...

Because of the down market my goal was to buy a house before the end of 2009. I have a high credit score, $10 thousand for a down-payment and was looking for a house in the $270-$300 range (fixer-upper/10 year home).

My dilemma: My wife got laid off and has no credit at the moment (I'm on it) and as a sole proprietor I can't get pre-approved for a loan of that magnitude. I make under $45 a year and have a condo that I'm renting out along with a car payment. I'm now living in my parents    2 bedroom in-law (rent free) which was supposed to be temporary! I feel stagnant and was wondering if anyone had any good suggestions.

Also, I have friends that make good money but have crappy credit. Would partnering up with someone with crappy credit help my cause? Afterall, it's the income verification I need.

[the_Bird]

Wow, that's tough.  Hard to find (for good reason, honestly) banks that'll take a 3% down payment these days. 

Without wanting to sound judgemental, how are you going to make your payments?  Let's assume you CAN find someone to extend you a loan; figure a $275k loan (midpoint of your range less the down payment).  Average 30-year fixed mortgage rates are 5.17%.  That's a monthly payment of $1,504, or annual payments of $18,048; doesn't leave you a lot of money to live on with your wife unemployed (not even considering property taxes, homeowners insurance, the other direct costs of owning a house).

Even ARM rates aren't that much cheaper these days, at least nationally (and then you expose yourself to getting hosed in when rates adjust).

It sucks, it really does, but it's hard to see how the numbers make a lot of sense.  That's a lot of $$ to put into a house relative to how much money you're bringing in.  Four years ago, no doubt that you would have been able to find SOMEONE to put you into a mortgage, but frankly it's these kinds of situation (people buying more house than they could really afford) that ultimately underlies a lot of the economic issues we're still dealing with. 

[yall hate]

Wow, that's tough.  Hard to find (for good reason, honestly) banks that'll take a 3% down payment these days. 

Without wanting to sound judgemental, how are you going to make your payments?  Let's assume you CAN find someone to extend you a loan; figure a $275k loan (midpoint of your range less the down payment).  Average 30-year fixed mortgage rates are 5.17%.  That's a monthly payment of $1,504, or annual payments of $18,048; doesn't leave you a lot of money to live on with your wife unemployed (not even considering property taxes, homeowners insurance, the other direct costs of owning a house).

Even ARM rates aren't that much cheaper these days, at least nationally (and then you expose yourself to getting hosed in when rates adjust).

It sucks, it really does, but it's hard to see how the numbers make a lot of sense.  That's a lot of $$ to put into a house relative to how much money you're bringing in.  Four years ago, no doubt that you would have been able to find SOMEONE to put you into a mortgage, but frankly it's these kinds of situation (people buying more house than they could really afford) that ultimately underlies a lot of the economic issues we're still dealing with. 

Well thuoght out response that echoed what I was about to write.  TP.

I am curiuos to see Jsaad's response, because looking at the numbers, I cant see how it would work.  It just seems like he would be stretching himself to thin.

I understand the desire to capitalizeon the 'down' market, but putting yourself in a potentially horrible situation seems like too large of a gamble, and one of the reasons we are in the mess we are in right now.

[JSD]

Wow, that's tough.  Hard to find (for good reason, honestly) banks that'll take a 3% down payment these days. 

Without wanting to sound judgemental, how are you going to make your payments?  Let's assume you CAN find someone to extend you a loan; figure a $275k loan (midpoint of your range less the down payment).  Average 30-year fixed mortgage rates are 5.17%.  That's a monthly payment of $1,504, or annual payments of $18,048; doesn't leave you a lot of money to live on with your wife unemployed (not even considering property taxes, homeowners insurance, the other direct costs of owning a house).

Even ARM rates aren't that much cheaper these days, at least nationally (and then you expose yourself to getting hosed in when rates adjust).

It sucks, it really does, but it's hard to see how the numbers make a lot of sense.  That's a lot of $$ to put into a house relative to how much money you're bringing in.  Four years ago, no doubt that you would have been able to find SOMEONE to put you into a mortgage, but frankly it's these kinds of situation (people buying more house than they could really afford) that ultimately underlies a lot of the economic issues we're still dealing with. 

My wife has an (un-claimable) income, and we anticipate her working again soon making relative money to what she did before. With two incomes we typically take home around $4 G's a month which makes things tight but doable and worth it considering the state of the market. Also, as I become more tenured I will be making more money.

[Edgar]

Wow, that's tough.  Hard to find (for good reason, honestly) banks that'll take a 3% down payment these days. 

Without wanting to sound judgemental, how are you going to make your payments?  Let's assume you CAN find someone to extend you a loan; figure a $275k loan (midpoint of your range less the down payment).  Average 30-year fixed mortgage rates are 5.17%.  That's a monthly payment of $1,504, or annual payments of $18,048; doesn't leave you a lot of money to live on with your wife unemployed (not even considering property taxes, homeowners insurance, the other direct costs of owning a house).

Even ARM rates aren't that much cheaper these days, at least nationally (and then you expose yourself to getting hosed in when rates adjust).

It sucks, it really does, but it's hard to see how the numbers make a lot of sense.  That's a lot of $$ to put into a house relative to how much money you're bringing in.  Four years ago, no doubt that you would have been able to find SOMEONE to put you into a mortgage, but frankly it's these kinds of situation (people buying more house than they could really afford) that ultimately underlies a lot of the economic issues we're still dealing with. 

absolutely
I was thinking maybe JSaad u were talking about one source income
And maybe you can have other incomes that helps u pay for it
Have u condsider your wife future incomes.

I suggest u going tonot one but 2 or 3 banks and have your max credit
calculated. do u havve that data

[JSD]

Also, we were looking into duplexes, 2 unit homes and single family homes with in-laws to help supplement the mortgage.

[the_Bird]

Again, a few years ago the answer would have been "Alt-A" for your wife's mortgage (not even going to ask what her "unclaimable" income is related to ).  Alt-A loans were for people in your kind of situation who HAD income, but couldn't really document it.  Since these were so horribly, horribly abused (in the parlance, Alt-A = "Liar Loans") I don't think ANYONE is writing them anymore.

It's unfortunate, it's the worse possible time for guys in your situation to be able to convince a loan officer to extend credit.

[Edgar]

maybe a friend can help you signing a contract for the ammount of money your wife do
and then you carry with tax costs.

[Reggie's Ghost]

If you're assuming your wife will get a new job soon, why not wait?  What difference will a few months make?  Plus, it'll insure that you wont end up paying  a mortgage on only your income should she have difficulty finding something new that suits her (added bonus: she wont feel pressured to take something she isn't thrilled about).

When considering financial commitments that project beyond a year, best to get your ducks in a row first.  Just one man's opinion...

[nickagneta]

Typical rule of thumb is you can afford a mortgage that is equal to 1 week's take home pay. If what you are saying is true, Jsaad, you can probably afford a mortgage of about $120-$140 thousand on a one family house. And that's with your wife working.

Here's the reality of the situation that you really aren't going to want to hear, you can't afford a one family home in the range you are looking and will probably be selling it, probably at a loss, and/or declaring bankruptcy within 3-4 years, easy. You will need closer to $30,000 down payment. You will need your wife to get and hold a job for at least a year. You will need her to build up credit. You will need to have zero, and I mean zero, other outstanding debt if your salary doesn't increase significantly.

Sorry, but you are young and have a long way to go before house ownership might be a reality. I would look at multi-family homes to begin with once you have more money saved and your wife is working. That way you will have the income of the other apartment(s) to offset your mortgage payment and be able to write off half of everything you are purchasing for the house because you are upgrading a commercial property(per se).

Sucks I know but I was in a similar circumstance when I was your age. I ended up relocating to Rhode Island at the age of 30 where I purchased a one family home for $120,000 that if it was in a similar suburban setting in Massachusetts would have cost 3 times the amount at the time. I will say I hated Rhode Island but it did allow me to build some great business relationships, gave me a push towards my eventual business opening and I made a bunch of money when I sold that house just before the housing crash 5 years ago which allowed me to move back to Massachusetts doing very well.

[Rondo2287]

Jsaad, did I misread or did you say that you are renting out a condo?  would that be additional income?

[ChampKind]

Typical rule of thumb is you can afford a mortgage that is equal to 1 week's take home pay. If what you are saying is true, Jsaad, you can probably afford a mortgage of about $120-$140 thousand on a one family house. And that's with your wife working.

Here's the reality of the situation that you really aren't going to want to hear, you can't afford a one family home in the range you are looking and will probably be selling it, probably at a loss, and/or declaring bankruptcy within 3-4 years, easy. You will need closer to $30,000 down payment. You will need your wife to get and hold a job for at least a year. You will need her to build up credit. You will need to have zero, and I mean zero, other outstanding debt if your salary doesn't increase significantly.

Sorry, but you are young and have a long way to go before house ownership might be a reality. I would look at multi-family homes to begin with once you have more money saved and your wife is working. That way you will have the income of the other apartment(s) to offset your mortgage payment and be able to write off half of everything you are purchasing for the house because you are upgrading a commercial property(per se).

Sucks I know but I was in a similar circumstance when I was your age. I ended up relocating to Rhode Island at the age of 30 where I purchased a one family home for $120,000 that if it was in a similar suburban setting in Massachusetts would have cost 3 times the amount at the time. I will say I hated Rhode Island but it did allow me to build some great business relationships, gave me a push towards my eventual business opening and I made a bunch of money when I sold that house just before the housing crash 5 years ago which allowed me to move back to Massachusetts doing very well.

Unfortunately, I've got to agree with Nick here.  A house over $200k is out of your range right now, but, on the plus side, if you're looking at a 10 year commitment, that $150k house house could be a great starter unit while you get things together for a nicer one.  Start smaller and build up the income from your rental property right now - and enjoy rent free living as a small concession from living with your parents (sorry man, I can't imagine how much it sucks to be a newlywed couple staying with mom and dad). 

[the_Bird]

What markets are you looking at?  I know in some areas, $250k *is* a starter home, there just aren't any viable properties available in the $150k area. 

[ChampKind]

What markets are you looking at?  I know in some areas, $250k *is* a starter home, there just aren't any viable properties available in the $150k area. 

Good point.  I'm out of touch with the NE market.  Lived in Pittsburgh, Nashville, and Indianapolis since then.  I can get a brand new, 4 bedroom, 3 bathroom house out here for $150k, so my correlation of costs is probably off.  The midwest can be mind boggling sometimes. 

[oldmanspeaks]

I think a number of things you should be thinking about. At the top of the list is the whether you expect to be in the area for the longterm and the overall economic health of the Boston area in the very long term. When the steel industry fell in the Pittsburgh area in the late 70s, it was over 10 YEARS before the price of homes went up at all(I know because I was trying to sell a house for that long). Right now there are homes on Nantucket that are selling for less than 25% of what they would have been worth a few years ago. There is a reason for that.

All areas of the country don't react the same and all the nonsense about the overall economy is just that-nonsense. For instance, in Pennsylvania, there are areas that will be booming because of the Oil Shale gas industry. Oil production in the country has peaked but the with the new technology horizonal drilling, there is a giant industry forming overnight. What new industry is happening in Boston? It is that industry that will drive a big uptick in home prices.

Buying in the big city is always scary. You can hit it big or get crushed. Or it can be stagnant for 10 years and you can't unload the home at any price. I have seen both happen. The thing that you have to remember is that you will most likely be selling your house because of job changing due to unemployment because of industry falling off. Now I live in the country, where prices seldom go up or down much. (I have one of the nicer 4 BR 2 1/2BA homes in the area and it would be worth big money near Boston but here in the mountains of PA, it is worth less than $150K). I can neither lose nor make significant money with my home.   

There are a ton of people waiting to sell their home in your area(I have a lot of friends there). I don't see the market going up for a while.
So the question comes back to-"how secure is your job over the next 15 years"?