Or if it is, get a price reduction. Then open a haunted house museum and sell tickets. Profit!
Thanks for all the great advice so far. Been reading this website as well How to Buy a House -- A guide for first-time home buyers
I tell ya, I’d be much happier renting if I could just find a landlord who wouldn’t screw us at the drop of a hat. Since those seem so few and far between (do people really ditch out on their rent so often that everyone must be treated like a criminal) I almost feel like I’m being a chump by not buying.
Worst case, we find something to rent for the next year, but I still intend to use all the advise in this thread and start house hunting now. I’ve got about $1,400/month income I don’t really spend that I can sock away each month to have a heck of a down payment ready in a year if it comes to that.
Aw, St. Johns is a pretty area; I remember driving through during the mint festival. There weren’t a lot of results, but realtytrac.com showed 3 bank-owned properties.
-
Don’t forget to add in property taxes and insurance into your budget. A simple internet search (I google my county’s auditor) should show you what the owners are currently paying in taxes. You can also usually call utility companies and ask what that address is currently paying in water, gas & electric, etc.
-
Do your own budget to determine what you are comfortable paying each month. Don’t listen to the banks. The banks don’t consider that a person might want to eat when they tell you how much they’ll lend you, though maybe things have changed since the housing crisis.
-
If you don’t have them already, you’ll need basic yard tools such as a lawn mower, snow shovels, etc. And a bbq grill. (It’s written somewhere.) These things go on sale at the end of summer, so get ready to look for bargains.
-
If possible, allow yourself a week or two to get into the house and paint and steam clean carpets prior to moving in.
-
Start saving boxes now. It’s not too early to start boxing up stuff you won’t need for awhile.
-
Try to come up with 20% down so you can avoid paying PMI.
Sure. I’m not going to speculate on the practice of every repairman in the world. I will just note that I have guys that repair residences who work for me and only one of them has a smartphone of any kind, and all of them run side businesses in which they do small contracting jobs for homeowners and I can tell you none of them accept anything other than cash or check.
It wasn’t until about 5 years ago that my mechanic would take credit cards, and mechanics have been using the old school carbon copy credit card machines since the 70s so it wasn’t like it was unknown technology in that industry.
I’m not arguing that some contractors aren’t tech savvy, but using iPhone apps to process credit cards is not something I have seen a contractor do personally. With 300 million+ people and several hundred thousand or more who do this kind of work YMMV. I’ve still been in several situation in life in which having no immediately liquid funds would have fucked me. Just last year I bought tickets to a sold out event for $600 from a scalper, and he definitely wasn’t taking anything other than cold hard cash.
Could I have used eBay, StubHub, or various other things? Sure. But not when I was in a town unexpectedly on business and had an opportunity to see get “best in the house” tickets for a sold out sporting event, StubHub or eBay would not have been able to solve my problem in that situation. Anyway that is an aside but I definitely think it wise to have some cash on hand for home repair.
Try to stay away from condos and townhomes if you can. While I’ve lived in a condo that worked well, there can be incredible politics and unforseen levies.
Right now it’s your GF and a dog, but if there might be kids, make sure the school district is good. Actually, try to make of sure of this anyway, because your buyers when you sell will likely care deeply about this.
15 yr mortgages rock!
Know who your potential neighbors are!
It has been a long time since I bought my first home, but you won’t regret it.
You’ll do best if you ignore the ‘fancy’ loans - interest only, adjustable rate and so on. Just go for a straight 30 year fixed. No surprises with those.
You will find that banks will want a serious down payment - 20 percent, 10 if you are lucky. So you’ll need all your savings, and probably then some.
You can use a site like this to estimate payments. The good news is that it may be less than your rent, but don’t forget about expenses for upkeep, taxes insurance and so on.
The bigger the down payment, the better. You can do a calculation to figure out how much you pay in interest over the life of a mortgage, and it is crazy - I can’t remember how much it is, but something like the total cost of the house over again.
Do start house-hunting now - you can’t get too much information before making such a large purchase. And start building your tool kit and gardening supplies. 
Oh, about townhouses and condos - they can be a good purchase, but they usually don’t hold their value like a house - their prices fluctuate more readily than houses. Plus, I agree that they can be hotbeds of politics - you can get a condo board that runs the whole thing great, or a condo board that varies from anal retentive Nazis that tell you how to open your curtains to do-nothings that don’t do a thing to keep things nice for everyone. And you’re sharing walls with people - not sharing any walls with other people is ALWAYS better.
You can still get a home loan with 3-5% down if you go through the FHA. Not everyone will be eligible for this (if you are ineligible most likely saving 20% down is not going to be a problem for you, or at least it should not.) However this adds to the cost of financing because you will have to get PMI on any mortgage with a less than 20% down payment. Depending on the terms of the mortgage once you have 20% equity built up in the home you can usually get out of the PMI, sometimes without having to refinance but sometimes it would take refinancing to get out of it.
I would generally say that if you’re in a very stable field of employment (and you’re the only one truly equipped to judge that) putting 3-5% down isn’t bad if that is all you have saved and you have compelling reasons not to wait 2-3 years.
If you’re someone who really likes renting (and it seems from your comments that you are) then a condo will offer many of those benefits but also removes the land lord part of the equation. Now, the thing about a condo is some people are 100% against them because of two reasons: condo association and condo fees. A bad condo association can make your life absolute, living hell. Condo fees make the economics of condo buying less beneficial than buying a free standing house.
What many number crunchers have found is that if you buy a condo and want to later sell it, if you calculate the total monthly condo fee you have paid every month you owned the unit + the interest payments on the condo it is very unlikely that when you sell the condo you will turn a net profit. Meaning whatever you “pocket” from the sale after say, 10 years of ownership is likely to not be a number > than what you paid in interest and condo fees over 10 years. Whereas with a house, after 10 years of ownership the amount you personally pocket in the sale is likely to be > than what you have paid in interest over the 10 years of ownership and since you were not paying condo fees you come out ahead.
Condo fees usually are in the $100-450 range. Now, what are you getting out of that fee. With lower fees it usually means the fee will cover labor of repairs and it will cover outright to replace anything inside the unit that the association owns. In many condos the association will actually own your furnace, hot water tank, and air conditioning unit. What this means is, if they break, you pay nothing to have them replaced (you’re paying for it through your monthly fee.) Condo fees also typically include basic homeowner’s insurance for any damage to the unit itself, but it will not typically include liability insurance (i.e. if someone slips on your floor and busts their head) or insurance of your personal possessions. So you will have to get insurance for those things (it will be cheaper than full homeowner’s.)
Some condo fees cover other things, and usually the more they cover the higher the fee. Things I have seen covered include:
[ul]
[li]water / sewage[/li][li]garbage collection[/li][li]monthly electricity bill[/li][li]natural gas bill[/li][li]property tax[/li][/ul]
There are also co-operative associations which are a bit like a condo but legally and financially they are different. With a co-op you do not own any real estate, what you buy is a share in a co-operative association. Each share in the association typically entitles you to lease one specific unit of the co-op. This explains the difference.
I only mention it because if you are someone that enjoys most aspects of renting aside from dealing with a land lord, a condo or a co-op may fit your lifestyle better than owning a house. There are economic downsides to them, but you’re essentially “buying” service with the extras you pay on a condo or co-op. So it is up to you the buyer to evaluate whether those services are reasonably priced.
For me personally, I plan to semi-retire at age 62. At that point I plan to sell my house and buy a condo. I plan to travel a lot more in retirement, and spend more time at my hunting/fishing cabin and to me, I don’t want to have to worry so much about my primary residence anymore. I have no spouse or children, and I am really looking forward to being “untethered” so to speak. Since I’m involved in the local real estate industry I already have a very good idea which building I’ll be living in and it also offers some long term benefits (i.e. elevators and etc so that when I am 85 years old and decrepit I do not have to worry about stairs) that will be nice as I pass off into the sunset.
If at all possible, go 3 bedroom over 2. 3 bedroom homes are easier to sell and that bedroom is more handy than you’ll imagine.
Don’t plan on building too much equity in today’s market, at least where I live. I think my home has gone down in value for the last 4 or so years. It’s still the best investment you can make because you can, if nothing else, live in it.
A house isn’t the best investment you could make, actually. Sometimes they can totally ruin your life. Owning a house is the best financial solution to the “I need a place to live and I’d like to perhaps get a return some day on the monthly payments I’m making” problem. But it isn’t the best place to put money as an investment vehicle.
Quick case in point:
In the 1970s McDowell County, WV wasn’t exactly an economic hot spot, but its metallurgical coal that was fueling U.S. Steel kept it from complete collapse. In the early 1980s U.S. Steel closed a major facility in McDowell county and average personal income in the county decreased by 66 % in a single year. Additionally, county average home values decreased by 80%.
This meant a huge portion of people in the county were probably in dire need of employment because they had just lost their jobs, and forced to take a massive loss on the sale of their home to be able to escape the county they were living in and which had virtually no jobs. Many of them would end up still being forced to make a mortgage payment on a home sometimes hundreds of miles removed from where they had moved, so many of these people went from middle class homeowner’s to people forced to live in lower income housing in other areas of the country.
This is a dramatic example in which a single employer had a massive impact on a county which had an economy based on a single natural resource. It’s meant to illustrate the “worst case” scenario. A home is a risky investment, far more so than REITs, various index funds, bonds, CDs, etc and with no guaranteed rate of return. It is the opposite of diversified.
If you work for a company and you put 100% of your retirement savings into a stock plan offered by that same company (and the plan is 100% company stock), that is an example of someone who is tying themselves absolutely to the fortunes of their employer. If the employer goes under, your nest egg is wiped out and you lose your job.
A home isn’t quite as scary, but it does tie you financially to a specific region. Most regions don’t go through what happened to McDowell County, WV, but many regions have hit economic downturns and suffered year to year decreases in property values. That tends to coincide with people losing their jobs and needing to consider moving to another city to enjoy gainful employment. If you are a homeowner in that situation you will often have to decide between selling your house at a loss (and making up the difference owed on your original mortgage through personal funds) in order to leave the region and get a job, or stay in the region and live off unemployment indefinitely in the hopes that you can get a job locally before your unemployment runs out.
Now, the reality of the situation is most of the time if you’ve lived in your house for more than 5 years you’re at least going to break even. Breaking even isn’t terrible, it’s no worse than having paid rent for 5 years and it may be better if your mortgage payment was cheaper than what average rents are in the region, so even if you do not realize an investment gain you still realized cost savings over 5 years.
True. Though I think they’ve gotten less extravagant in approving loans, there is the very real possibility that they’d approve you for something more than you can really feel comfortable with.
The guidelines these days, I think, are no more than 25% of your gross income toward the mortgage. So that would give you 10,000 a year in payments, or about 860 a month. That includes taxes and insurance, which the bank will want you to escrow. And I do encourage doing that - while most banks get an interest-free loan out you for the escrow account, at least you know you have the money put aside.
You mention “girlfriend”. Are you going to rely on her income to qualify for the house? If so, that opens a whole can of financial worms - you have to include her on the mortgage and on the deed to the house, and you don’t have the same level of legal protections as a married couple, should (heaven forbid) anthing happen to break you two up.
While it’s not impossible to get a loan with less than 20% down, it’s harder than it used to be. If there’s any way you can scrape up a bit more cash, do it.
Be careful in the next few months - don’t run up any credit card bills, sign any new car loans, etc. You don’t want to risk dinging your credit score or making yourself look less credit-worthy.
Check your free credit reports from all 3 agencies. It might even be worth it to spend the few dollars to get your actual score; MYFICO.com has a way of signing up for one of those monitoring services, then cancelling within 2 weeks (or something like that) so it winds up costing you nothing. I’d encourage you to do that.
Your closing costs will include things like prepaying a certain amount of the homeowners’ insurance and taxes. There are also other fees like inspection fees, one-time taxes paid on transfer of property, etc. - those are typically rolled into the bottom line you pay at closing.
And of course you’ll almost certainly run into stuff you need for the new place - furniture, tools, lawnmowers etc.
It’s not a bad time to buy, if your job seems stable. Rates are still very low. Go for a fixed-rate mortgage; if you can’t afford the payment without doing that, you can’t afford the house. Rates will increase and your payment on a variable loan will go up, sometimes quite a lot.
Oh - and at least the first few years of owning, you’ll have a nice tax benefit. While at 40K a year your income taxes probably aren’t that high, the mortgage payment is basically all deductible at first (aside from the insurance component; the principal portion is quite low so basically the rest is real estate taxes and interest, both deductible). If you’re at a 15% tax bracket and your interest + taxes are 500 a month or 6,000 a year, that’s 900 dollars less in taxes.
And whatever you do, do not close until you’ve gotten an inspection, walked through with the inspector and are STILL satisfied you know everything that’s wrong with the place.
I’d also advise overlooking superficial fix ups in favor of what I call mission-critical fix ups. Example: The living room has paneling, or the bathroom has harvest gold wallpaper from 1974: that is a superficial fix up that won’t cost you that much time and money to deal with yourself. On the other hand, a leaky basement, or a roof with shingles peeling off, or an HVAC system that’s 20 years old and on its last legs: those are mission-critical and can be extremely expensive to deal with yourself. If you’re going to agree to sign off and close anyway, then get an agreement in writing that the seller will knock off 20K or whatever the cost of the fix will be from the price.
The girlfriend does bring up an interesting point - would you be buying together, or would the house be bought by you and paid for by you, and you alone? You’ll probably want to address that before anyone signs anything.
**Dogzilla, ** are you saying that you prefer a larger renovation to just a superficial one in the house you buy? That’s a perspective I’m not used to hearing. 
We just closed on a townhouse yesterday. Our process was simplified in that we bought in a brand new development. This meant we dealt directly with the builders and didn’t need a real estate agent. They also had their own loan company, so we didn’t have to go bank hunting (though we could if we wanted to). We didn’t have to compete against other bidders. Lastly, since this was a brand new development we bought before the house was built. This meant we could have it built almost entirely to our specifications. So if there are any housing developments going up in your area you should check them out.
Perhaps I didn’t word that very coherently.
Don’t let the paint color in the kitchen cause you to walk away from a house. Focus on badgers living in the attic as your dealbreaker.
If you get an inspection and it’s still not a dealbreaker for you, then what I posted might actually make sense.
I really need to lay off the booze at the office. 
*In my case, I had a list of criteria if I had to fix it/change it, then I walked away without making an offer. Had to have a fenced-in backyard, had to be upgraded to central AC, had to have gas heat, and it had to have washer/dryer hookups inside the house. In my part of the world, some of the homes have the w/d hookups out on the porch, or still have oil baseboard heating from the 1940s, or window units for AC. Carpeting, paint color, even the flooring type was not a big deal to me. I ripped out carpet, painted the whole house and had hardwood installed in two rooms and tile in the kitchen.
Ah, gotcha. Our first house was a fixer-upper, too, and looked terrible when we did our first walk-through, but as we looked at it, we realized that it needed new fixtures and orange shag rug taken out and holes in the walls fixed, but the bones were solid, the electrical and plumbing were solid, and we were both handy enough to handle the stuff it did need. We spent about six years fixing it up with an eye to selling it (all repairs done on the cheap and in neutral colours, etc.), and then made a very nice profit when we did sell it.
We got it for a real deal because it didn’t show well, and we sold it for market value because now it did show well, and most people buy a house based on what it looks like.
And hey, if you gotta drink at work, you gotta drink at work.
As mentioned in the OP, he’s looking at houses in the midwest, in the $50-60k range. You can buy a lot of house for that little these days around here. A $70k mortgage in my neighborhood results in about a $600/month payment, including mortgage, taxes and escrow for 1800 sqft of house on ~8500 sqft lot. Most renters pay all utilities except water, so that’d be the only increase. (We also don’t have HOA in this neighborhood.)
Captain_C - my advice is:
Don’t fall in love with the first house you see.
You can paint any wall you don’t like.
You can remove any shrubs you don’t like.
Visit any house that creeps up your list at night, even just a drive-by.
Go by when it’s raining to see if there’s any gutter/drainage issues an inspection would miss.
That reminds me of a horror story I once heard about. A couple was buying a house, was pre-approved, and everything was all set. Before closing, they went out and bought new furniture for the house on their credit cards. The extra credit card debt they owed then caused the financing to fall through, and they were no longer able to buy the house.
Don’t charge anything until AFTER closing.
Once the financing is approved, don’t do anything at all that could potentially muck it up.