NTTCALR - home-buying/financial opinions requested

RedPhoenix625 · July 2012

So DH are planning on starting the process of buying a house (we currently rent). We won't have the recommended 20% down, but are planning on taking advantage of some of the first-time homebuyer's perks and just put as much as down as we are able when we are ready to make an offer on something. With the market the way it is now, we feel like we can't wait any longer.

DH recently inherited a little bit of money - not enough to get us near 20%, but enough to be worthwhile to add to our down payment. We do carry some debt, however, (school loans and some on a credit card), and are wondering if it would be better for us to pay on our debt, or to put it towards the down payment.

Thoughts? Thanks!

pinktrojanbride120107 · July 2012

Just from my experience, when we bought our house we saved aggressively to get that 20%. We still had student loans, but no other debt. If you know you can handle the monthly mortgage with the debt currently have, it's probably best to put it toward your down payment.

ravenclaw1 · July 2012

RedPhoenix625:
We do carry some debt, however, (school loans and some on a credit card), and are wondering if it would be better for us to pay on our debt, or to put it towards the down payment.

Thoughts? Thanks!

interest rates are so low right now - we bought a house in December and got a traditional 30 year fixed rate for less than 3% and didn't put down 20%

student loans aren't considered "bad debt" but credit card debt runs you so much money in interest. If it were me, I'd pay off the credit card, then put the rest toward a downpayment on the house.

have fun! househunting is crazy.

RedPhoenix625 · July 2012

pinktrojanbride120107:
Just from my experience, when we bought our house we saved aggressively to get that 20%. We still had student loans, but no other debt. If you know you can handle the monthly mortgage with the debt currently have, it's probably best to put it toward your down payment.

Thanks for your insight. Would you mind elaborating on why you think that would be preferable? The reason I ask is because the rate on our debt is more than the rate on our mortgage would be, and I feel like it would be wiser to get rid of the higher-interest balance and borrow more in the mortgage at a lower rate. Also, with our CC debt paid off, wouldn't we get a better rate on the mortgage? Granted, I have zero mortgage experience, so I could be completely misguided.

BootsOrHearts · July 2012

10% down is plenty and should get you the best rates. If you can, get your credit cards down to 30% or less (meaning, you're using 30% or less of your available credit so if you have 10K total available, don't have more than 3K on the card) that will also help you get the best rates. Don't worry about student loans, no-one really looks at those as long as you've been paying on time. If you haven't already though, consider consolidating your student loans and getting them on a fixed %, I fixed mine at 1% and it saves a ton of money.

Good luck with it!!!!

RedPhoenix625 · July 2012

Thank you all for your input! The state of the market right now, and the mortgage rates, are exactly why we feel like we need to this now. We had been putting it off to try and get our debt down and down payment up, but I think whatever we would save in doing those things would be moot if we wait until the housing prices shoot back up. They are insane here right now. Besides, we are paying more in rent than we would pay on a mortgage, which kills me.

I think we will probably end up paying the CC debt to get the most bang for our buck. Thanks again! You guys are awesome!

DebateThis · July 2012

It would depend, from a straight numbers perspective, on your income and how much CC/other debt you have if you should pay off the cc prior to the home purchase. (Debt-to-income ratio - you can find calculators online).

I am of the opinion, though, that you shouldn't ever carry a balance on a CC if you can avoid it. Like PP's have said - 10% is more than enough for a home DP if your credit is good. Paying off the CC (but leaving the card open) will make your credit look even better, and then you aren't buying the biggest purchase of your life with other outstanding debt.

RedPhoenix625 · July 2012

Bethelgal42:
RedPhoenix625:
Thank you all for your input! The state of the market right now, and the mortgage rates, are exactly why we feel like we need to this now. We had been putting it off to try and get our debt down and down payment up, but I think whatever we would save in doing those things would be moot if we wait until the housing prices shoot back up. They are insane here right now. Besides, we are paying more in rent than we would pay on a mortgage, which kills me.

I think we will probably end up paying the CC debt to get the most bang for our buck. Thanks again! You guys are awesome!
You might be paying more in rent per month than a monthly mortgage payment, but when you add lawn care, maintenance, taxes, insurance, and other unforseen events like the furnance going out or cutting down a tree in the front yard ($1500) as required by your insurance company, then renting is usually cheaper than buying no matter what the interest rate is.

Thanks. We realize there are lots of other expenses and responsibilities for homeowners that renters do not have.

4legsRbest · July 2012

RedPhoenix625:
Bethelgal42:
RedPhoenix625:
Thank you all for your input! The state of the market right now, and the mortgage rates, are exactly why we feel like we need to this now. We had been putting it off to try and get our debt down and down payment up, but I think whatever we would save in doing those things would be moot if we wait until the housing prices shoot back up. They are insane here right now. Besides, we are paying more in rent than we would pay on a mortgage, which kills me.

I think we will probably end up paying the CC debt to get the most bang for our buck. Thanks again! You guys are awesome!
You might be paying more in rent per month than a monthly mortgage payment, but when you add lawn care, maintenance, taxes, insurance, and other unforseen events like the furnance going out or cutting down a tree in the front yard ($1500) as required by your insurance company, then renting is usually cheaper than buying no matter what the interest rate is.

Thanks. We realize there are lots of other expenses and responsibilities for homeowners that renters do not have.

siggy

:::butting in

What that 20% down gets you is out of paying mortgage insurance. DH and I have purchased 2 homes together and that is a must for us. Your mortgage will be higher until you reach that 20% mark. Depending on the lender and your loan amount, mortgage insurance can be expensive they and If you have limited equity in your home and no other assets this can be very high because your lender is having to insure you. So technically you will be paying a bill you don't really need to be paying if you can come up with the cash. That is why I vote for getting as close to the 20% as you can without question. Your mortgage will be less once you hit 20/80 and you will get a better rate (generally) because they see you as less of a liability. Lastly, even if you paid off all your debts today, it takes months for your credit report to catch up so you won't be gaining anything from a credit rating perspective unless you wait 6-12 months to apply for a mortgage. Have your lender quote it both ways (10 and 20%) and you will see exaclty what your mortgage insurance will run you.

butting out:::

ufsandra85 · July 2012

we have bought 2 homes with nothing down using the VA loan. I bought a house putting 20% down. i say pay off your debt. we just bought a house with nothing down our mortgage is 1410 after everything is said and done, that includes insurance and taxes. after everything our rate is 3.75%. the house had renters right before us and they rented it for 2000 a month. Buy a house now before the prices go up. since we are in the military we dont know anyone who puts money down on their house. why when there is such a low interest rate right now. you can always put extra money into your house but house interest is a lot less than a lot of other interest rates

ufsandra85 · July 2012

also make sure you get a home warranty in case anything breaks you dont have to pay much. we had that written in our contract

millejj1 · July 2012

I'd get rid of the credit card debt and make sure that you have a sound emergency fund in place before you buy a house. The last thing you want to do is wipe out your savings to get a down payment and then have an emergency happen.

As far as the 20%, if you can make it great, because then you won't have to cover mortgage insurance like pp said, but I can't give you a lot of input because DH and I go through the VA for mortgage loans which doesn't require anything down.

pinktrojanbride120107 · July 2012

RedPhoenix625:
pinktrojanbride120107:
Just from my experience, when we bought our house we saved aggressively to get that 20%. We still had student loans, but no other debt. If you know you can handle the monthly mortgage with the debt currently have, it's probably best to put it toward your down payment.
Thanks for your insight. Would you mind elaborating on why you think that would be preferable? The reason I ask is because the rate on our debt is more than the rate on our mortgage would be, and I feel like it would be wiser to get rid of the higher-interest balance and borrow more in the mortgage at a lower rate. Also, with our CC debt paid off, wouldn't we get a better rate on the mortgage? Granted, I have zero mortgage experience, so I could be completely misguided.

I guess from a pure numbers sense it would make sense to pay off first, and I guess it depends a lot on your market and timing, but in our case it was a competitive market and we wouldn't have been able to get the house we wanted without at least 20% down. it helped us becomes more competitive buyers in an often cash-buyer market.

LLPtobe · July 2012

Just adding my 2 cents - DH and I bought our first home in Oct 2011 so these insights are based on our experience so far. As for the 20% down payment, if you can afford it, great, but for us there was no way even on an affordable house that we were comfortable with that. We had enough money to do it, but after that huge chunk of change is gone you need to make sure you have something left over in case something happens after you move in (within the first year or two) like you have to replace a hot water heater (as we did) or furnace or do other necessary repairs/maintenance on the home. We found a beautiful home that had been foreclosed on and was approved for a Fannie Mae HomePath mortgage. This only requires 3.5% down and NO PMI (private mortgage insurance, which can add a couple hundred dollars a month to your payment). In addition they covered almost all of our closing costs. It still cost us something out of pocket, but in the end it was WAY less than 20% and we still have the majority of our savings should something come up.

If I were you I would focus on paying down your debt and sock away as much as you can on the side. Also, there are MANY (too many, sadly) foreclosed on homes on the market right now. Keep your eye out because there are some great deals to be had, even in higher cost of living areas like where I live. Look for listings that say HomePath renovation mortgage financing approved. They require less % down and also allow you to add more $$ to the mortgage for renovations if necessary/desired. Because of this we were able to get basically our dream home which was something we thought we could not afford, at least not at this point in our lives. Good luck and happy house hunting!!

pkaren · July 2012

I know in Canada, student loans are not considered "bad debt", they really only look at consumer debt and stuff like that. I would save the money to put towards your down payment. GL!!

kread8 · July 2012

ravenclaw1:

RedPhoenix625:
We do carry some debt, however, (school loans and some on a credit card), and are wondering if it would be better for us to pay on our debt, or to put it towards the down payment.

Thoughts? Thanks!

interest rates are so low right now - we bought a house in December and got a traditional 30 year fixed rate for less than 3% and didn't put down 20%

student loans aren't considered "bad debt" but credit card debt runs you so much money in interest. If it were me, I'd pay off the credit card, then put the rest toward a downpayment on the house.

have fun! househunting is crazy.

I agree with this ^^^ I would pay off your credit card debt first and foremost. Credit cards generally have a MUCH higher interest rate and also by paying them off you'll likely improve your credit scores A LOT. I'm not sure what rate you're paying on your student loans, but ours are very, very low so we do pay a little extra on them every year just for peace of mind, but we would rather pay off our mortgage first since it's a higher rate. Also, with student loans you get a nice tax deduction (unless you are phased out due to a higher income).

We put down 10% when we purchased our home, so we have to pay PMI - which is a pain. But we pay at least one extra mortgage payment a year toward principal (you wouldn't believe how many years it knocks off our loan...). We are really trying to pay it down as much as possible so we don't have to pay PMI anymore.

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NTTCALR - home-buying/financial opinions requested

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