Am I ready to buy a house?
October 29, 2007 7:54 PM   Subscribe

Am I ready to buy a house? Disgusting details inside.

Me, in a nutshell. 27, male, unmarried, no kids, live in girlfriend. Making right at a whopping $30k a year. Debt-right at $14k in student loans, and about $9k on a car, that's it. I have about $2k in cash savings, accrued mostly in the last 6 months. I have never bought a home before and will most likely qualify for first time homebuyers incentives if the house meets the criteria. Monthly debt $250 car payment, $130 insurance, $50 cell phone, student loans in forbearance. No credit cards or other accounts.

Houses in my immediate town are pretty well out of the question. I'd be looking at $100k to open a door. I'll be looking outside the city limits, where, for example, $65k will get me a house and 13 acres.

Catches: Student loans are JUST out of default. I'm being told it will take up to 3 months for them to fall of my credit report. With them on there, the score is a whopping 520-550. Right now I live in a house owned by my mother, she will be selling it in the spring.

According to the interwebs and fannie mae, I should be able to afford up to a $92,000 house. I don't *want* to. I won't even consider anything over $65k. I have not yet been preapproved.

So, questions: Am I ready to buy a house?
Would I be better to buy a cheap one ($30k-ish) and fix it up with the possibility of reselling? I manage a hardware store---I can get anything I need quite cheap and usually do it myself.

Tell me what to do MeFi! Oh, and getting married is not going to happen any time soon, so don't even suggest that.
posted by TomMelee to Work & Money (38 answers total) 9 users marked this as a favorite
 
If you buy a serious fixer-upper - - and are interested in taking up home repairs as an obsessive hobby - - and if you can keep enough financial cushion to dig yourself out of whatever unpredictable hole the house might throw at you - - then...sure, why not? You'll learn a lot, and you might have a lot of fun.

If you have seriously time-sucking hobbies (like WoW) that you aren't prepared to dispense with...then maybe wait a little while and buy a place which can get along with less intensive care from you.
posted by rpaxton at 8:01 PM on October 29, 2007


Tell me what to do MeFi!
This is a large purchase which you need to feel comfortable doing - meaning you need to make the decision.

You do sound like a person who has made a smart plan to affordable home ownership.
posted by thomcatspike at 8:03 PM on October 29, 2007


Your interest rate will be astronomical. You are financially unstable, and it doesn't sound like you have enough savings to support yourself for any reasonable length of time if you were to lose your job or have some sort of emergency. Buying a house would wipe out your cash reserves, and that's not a good thing. You never want to have all of your money tied up in real estate or other non-liquid investments. Pay off your debt, raise your credit score, save up a down payment, and then buy. Until then, be a renter.
posted by decathecting at 8:05 PM on October 29, 2007


Wait until you can afford a down payment. You don't want a piggyback mortgage. If you are careful with your money, you can probably have one saved up in a year, if you've saved 2K in just a few months.
posted by Eringatang at 8:05 PM on October 29, 2007


Oh, and where's your 401K contribution? At your age, it's important to get that started!
posted by Eringatang at 8:07 PM on October 29, 2007


Talk to the mortgage people at your bank. They can run your numbers and see if you qualify for pre-approval. It sounds doable to me given how incredibly cheap your house will be.
posted by orange swan at 8:08 PM on October 29, 2007


I think you're going to be better off having a more substantial amount of money to put down on the house - 20% or so. I'd wait and save - your debt is fairly high in comparison to your income.

Wish I'd been able to shop for homes in the sub-100K range though... 300K is just a starting point here.
posted by blaneyphoto at 8:10 PM on October 29, 2007


I don't know if this helps much but I am also considering my first home purchase. I'm looking at a pretty sweet little townhouse in a redeveloped area. There is no way that I could ever afford anything in this area except for the fact that it is an affordable housing townhouse that is part of a land trust. The land trust thing is kind of weird so it might not be what you are looking for.
So, I don't know where you live (you can actually buy a house in the country with land for $30K?) but if you want to live in town you might want to look at affordable housing options. The program that I am looking at requires me to take a short four hour first-time homebuyers class which I am looking forward to.
posted by fieldtrip at 8:11 PM on October 29, 2007


www.dinkytown.net has several financial calculators including mortgage calculators where you can plug in variables and get a fairly precise idea of what you can afford. Off the top of my head, your car payment is what is going to kill you. How many more payments do you have? If you could get rid of that, you could afford $60,000 more house. I know you don't want more house, but from a lenders point of view, you become a better risk.

www.naca.com is a non-profit housing advocacy group and they will work with you until your credit is acceptable. They make their own fixed rate mortgages and they got their money to lend from taking on Fleet Bank and winning a predatory lending suit against them several years ago. Now they use that settlement to help people break in as home owners. Your credit score is abysmal, and my concern for you would be that you would get stuck with a predatory loan. You don't have much of a down payment saved up and those 0 down programs have dried up considerably with the foreclosure meltdown going on now. Even if you got 0 % down, you have to factor in closing costs. Shop around and compare offers. Good luck!
posted by 45moore45 at 8:11 PM on October 29, 2007 [1 favorite]


Pay off your debt, raise your credit score, save up a down payment, and then buy. Until then, be a renter.

Yup, that's it, right there.
posted by ThePinkSuperhero at 8:18 PM on October 29, 2007 [2 favorites]


I don't see the numbers working. Your net worth is well into the negative, your tax situation isn't good (it'd be much better if you were married, as you seem to be aware), and your student loans won't be in forbearance forever. Right now your credit is marginal; if you buy a house and default on it your credit will become very poor and you may never get a second chance.

Also, this is probably the worst time in history to be buying a commute, which you'd certainly be doing if you bought a house outside city limits Have you considered what the increase in mileage on your car is going to do to your gasoline bill, never mind your car insurance and your car repair costs?

Finally and most important, if your credit rating is really 520 you'll be offered a really lousy interest rate for the privilege of owning a house. All the benefit of the transaction will flow into the pocket of your mortgage company. Then there's property taxes, fire and flood insurance (more expensive in the boonies), utilities, and "unexpected" things that always happen when you a buy a house because the previous owners don't put a $10000 roof on a house they're planning to sell to you next year. A fixer-upper is worse, and unless you're a contractor and know how to fix things to code, all you do with your amateur repairs is make your house unsalable and expose yourself to liability claims if you do manage to sell it.

(Whatever you do, don't buy a 13 acre parcel unless you have some plan to monetize the land. That makes no sense.)
posted by ikkyu2 at 8:19 PM on October 29, 2007 [1 favorite]


Is there a particular good reason why you want to get a house now? If not, then you should first save enough money to cover 6-9 months of your expenses for emergencies first. During this time, also try to get your credit score up, pay down debt, and save some more. When you saved up enough money for down payment, then you should start to think if buying a house makes sense for you or not. I heard 20% is a good percentage or else banks charge you extra.
posted by vocpanda at 8:27 PM on October 29, 2007


Oh, and I completely agree with Eringatang: you should be saving for retirement. 401(k) if your company matches your contributions; Roth IRA otherwise. 10-15% of your income should go to retirement. If you can't afford your full student loan payments, debt payments, full retirement contributions, and all the expenses of owning a home [mortgage(s) (you'll probably need two since you have no down payment. If you take out one for the full price of the house, you'll pay PMI.), homeownwers' insurance, property taxes, funds for repairs and replacing appliances when they break, and all the other incidentals that come up over time], you can't afford a home.
posted by decathecting at 8:38 PM on October 29, 2007


I was a loan officer for a mortgage broker for a few years, I saw good credit and bad credit applicants. Things have unquestionably changed since I was in the business, however, if you had come to me when I was working, I would have told you that there was no way I was going to write this loan for you. Both because no bank would have taken it and because it just looks like a bad idea.

You may be able to find a way to pull this off, but you'll be sitting somewhere north of 9% with closing costs that will eat your $2K. If someone offers you that loan, you should run away.
posted by 517 at 8:41 PM on October 29, 2007


no

sounds like you haven't even learned about what it's like to pay rent, let alone a house payment

what is your score before the default? with the default you're way subprime and w/o you may still be, and it'd be tough to get a loan at this point, i think. even if you did you'd be way way way way ripped off interest wise

why don't you just focus on paying your bills for awhile!
posted by Salvatorparadise at 8:49 PM on October 29, 2007


"So, questions: Am I ready to buy a house?"

Quite frankly? If you're asking this question, then no, you're not.
posted by CrayDrygu at 8:51 PM on October 29, 2007


Enthusiastic 2nd of rpaxton, underlining "serious" and "obsessive."
posted by kmennie at 9:03 PM on October 29, 2007


I'm sorry to derail, but where exactly can one buy 13 acres and a house for 65k? Serious question.
posted by thehmsbeagle at 9:06 PM on October 29, 2007


You can't afford to buy a house until you have at minimum enough cash savings for a 10% down paymebnt, plus several thousand dollars in closing costs, and with a buffer of several thousand dollars left over to cover you in case something really bad happens.

Also, think about location and how much you would have to drive to buy a far-out house. Oil is at $93 a barrel, which means that living somewhere that requires a lot more driving could have a bigger impact on your transportation costs than you realize. It's tough to take on a mortgage, unexpected home maintenance costs, and higher transportation costs all at once.

You are probably at least a year out, you should build up your savings. The good news: home prices are not rising rapidly
posted by croutonsupafreak at 11:33 PM on October 29, 2007


The good news: home prices are not rising rapidly

This is an understatement of gargantuan proportions. We (well, you, if you're in America) are in the first inning of what may be the biggest housing bust in history. Although the last 12 months have seen the bubble burst and prices decline in most markets, for what it's worth, I'm in agreement with those who, based on historical trends, do not see a bottom until 2010/11.

Save your money even if you are 'ready'. The house you want to buy will be half the price in 3 years. Read some of the excellent, long threads on Metafilter proper dealing with the mortgage crisis for much more information.
posted by stavrosthewonderchicken at 12:18 AM on October 30, 2007


financials aside, some comments on me that might relate to you:
- dont get a fixer, it costs so much money, and time is better spent at parties and having fun
- dont buy if it will seriously impede your natural life in terms of cash flow
- dont make your decision based on the sentiment of the market, unless it is really really high
- unless it is something you really want to do, dont
- only buy a place you want to live in, a place that suits you

looking at it, dont buy
posted by edtut at 1:11 AM on October 30, 2007


No. God no. You barely have any savings. Your credit score is abysmal. Your student loans were in default--meaning you couldn't handle them--and now you're ready to take on a mortgage?

You need more savings--look for a three-to-six-month cushion on top of the savings for the down payment. You need a retirement plan. You need a better credit score. Buying a house will not only get you shit interest rate but wipe out your savings, meaning you are basically screwed if any emergencies happen (lose your job, medical bills, refrigerator in your house breaks . . .). This is a dumb idea. Rent.
posted by schroedinger at 5:22 AM on October 30, 2007


Thanks much for all the comments. Allow me to clarify some:

I work in the affordable housing industry...that combined with the knowledge that I work for a well known branch of an NPO should tell you who I work for. Many of our board members are from lending banks, I don't think this can hurt me.

In our state, every closing includes costs for a state-run first time homebuyers program, which depending on how much you make and what you're buying, will give you up to $10k specifically for closing costs and down payment. I do qualify for this program, whatever I do, unless I try to buy an absolute piece of shit.

I have paid rent, paid it for a long time. My mum bought this house as an investment property, so I live here with renters and play landlord. She intends to sell it in the spring at what will be about $50,000 profit on a 5 year investment. Fairly sure that as a present she would help with anything I asked---but I haven't borrowed money since I was 17, don't plan to start now.

We don't have a 401(k), we have a 403(b) with no matching, we are an NPO. This is why I've saved up 2k in about 6 months---getting rid of all debt + looking at retirement options.

My income will be rising soon via my main job, don't know how much though. Probably 25% within 3 years. I also have a side project which is currently earning ~$200 a month, but will soon be closer to $500, and only going up from there. This project gives me free fuel---heating and locomotive, so gas mileage is not a factor.

Our city is approximately 5 years behind the rest of the US. Our housing bubble is NO WHERE NEAR bursting. Seriously, not even close. Renting in my town is going to cost me a minimum of $700 a month plus utilities, I kid you not, and that's if I live in a multimegaplex.

My known credit score is from about 4 months ago, it can only be better since then. Considering buying transunion's credit monitoring thinger so I can check it more often. I'm assuming that fixing my student loans (They were showing up as 12 different loans at a sum total of $29,900 defaulted, now going to show up as 1, sum total of $14,000) will help my credit dramatically, since it's basically empty besides that.

Keep the suggestions coming!

Oh, and hmsbeagle---just west of the mountains in beautiful West Virginia :) Already looked at a 29 acre parcel with a house on it for $115 with my parents about a year ago. :)
posted by TomMelee at 5:33 AM on October 30, 2007


You can't afford to buy a house until you have at minimum enough cash savings for a 10% down paymebnt, plus several thousand dollars in closing costs, and with a buffer of several thousand dollars left over to cover you in case something really bad happens.

I did it with less than that, and it turned out fine. But my overall debt load was lower than the OP's, and my income was higher. And I agree that doing it that way, with no cash reserve and so on, is not really the best approach. It worked for me, and has worked for a lot of people, but isn't something to advocate for or suggest.

That said, a lot of "first time homebuyer" programs can be really good -- a friend used one that subsidized her interest rate, paid her closing costs, and gave her other benefits as well. So if you have access to something like that, then you are in a really different position than someone who is getting a high-interest sub-prime loan.

Lastly, you may find that fixer-uppers are not an option, because many lenders will not loan you the money to buy a house that is in poor shape, and they will want you to have enough cash reserves to be able to prove you can afford to do the work. Finding an seller who will carry the loan has worked for friends of mine, but I don't know what kind of terms they got. A lot of the subsidized programs, and FHA loans as well, require that the house be in decent shape (partly to avoid the issue of poorer people being shoved into buying deteriorating and decrepit housing) -- a house that meets those standards won't qualify as a fixer-upper.

So it sounds to me like you aren't really ready, but that said, if you found the perfect deal (cheap fixer-upper, with a friendly lender, etc) then it might not be a terrible idea. But if it means taking on a high-interest loan, or having to stretch your budget further than it can be stretched, stick with renting.
posted by Forktine at 5:44 AM on October 30, 2007


Quick answer- no.

Slow answer - I'm with Stavros that we haven't seen the bottom yet. Still, looking only costs time, and depending how picky you are, it can take at least a year to find the right one. Start now, idly, for fun, to see what a dollar will fetch where you're looking. And even in town where you say nothing is possible- you never know what is possible until you look.

It's the time/money balance. You have time on your side. Let it work for you. Money- maybe not so much, but time will help with that one as well. In another two three years, you could be in a golden spot to pull the trigger, and the target could be a whole lot better than you imagine.
posted by IndigoJones at 6:15 AM on October 30, 2007


Do the numbers. Get pre-qualified and find out what interest rate you'd be paying. Look at some houses - not at the ads- the houses themselves. How much will moving cost you in commuting, heat, etc? Do you have the skills and tools to fix up a house? Can you realistically get a roommate to help pay costs? If the numbers really work, and your cost of ownership for a place you want to own is really less than the cost of renting a place, then start looking. The fear of the market falling has made many sellers quite flexible. You should be in no hurry, and be ready to get a fabulous bargain, if one should come your way.
posted by theora55 at 6:18 AM on October 30, 2007


If you don't already have a ton of tools, you'll have to either go in debt to get some, or eat into your savings.

Personally, I'd wait. Once you have a house, you're less mobile than if you're in an apartment or somewhere else without a specter of more debt hanging over you.
posted by drezdn at 7:25 AM on October 30, 2007


You can't afford to buy a house until you have at minimum enough cash savings for a 10% down paymebnt, plus several thousand dollars in closing costs, and with a buffer of several thousand dollars left over to cover you in case something really bad happens.

This is not true. As TomMelee points out, there are certain state sponsored first time home buyer programs that offer 100% financing at a low fixed rate interest rate and that pays all closing costs. This, of course, depends on the credit score of the person applying for the loan and their overall income level but you do not need 10 or 20% down payment for a house depending on your financial situation.

Besides that, the credit score is just too low to justify buying a house. You are going to get a 9 or 10% interest rate (or higher) and it's going to take some time before you will be able to refinance to a lower rate once your credit improves. Wait until your credit improves (in a year or two) and then buy a house. The 65k houses are still going to be available and because of your followup, you'll also beable to generate savings, kill off more of your debt, and be in a better overall financial picture.

Rent is annoying but it's probably your best bet right now. Since your income is going up, you're in a good position to better your financial situtation.
posted by Stynxno at 7:54 AM on October 30, 2007


Where do you live, this magical land of houses that can cost 30 to 65k? (Where I live [toronto], 30k buys you a parking spot to go with your 500 square foot condo.)

And no, you aren't ready to buy a house. Emotionally you're ready, financially you aren't. Wait till your other debts are under control, until your credit score is improved, income goes up, and until you have a downpayment saved up.

You know how the american economy is suffering from that whole subprime mortgage fiasco? That happened because lenders gave mortgages to people who couldn't pay them off. Do you really want to join those ranks?
posted by Kololo at 8:11 AM on October 30, 2007


Also, assuming your responsible with it, you should look into getting a credit card. Having a credit card that you pay off on time each month will improve your credit score.
posted by Kololo at 8:14 AM on October 30, 2007


Do not buy a house based on an expectation that your income will rise, because it might not. You might get fired, or have to take a salary cut, or become disabled. You should have at least 3, preferably 6 months worth of expenses saved in liquid assets (e.g., a savings account) to cover such an emergency, and you should be living on less than you make and saving the extra, not buying more stuff with the expectation that you'll be able to afford it more comfortably when your salary rises. The more you talk about your situation, the more clear it becomes that you should not buy a house.

I know you want to buy a house now. I know that renting sucks. I'm your age, and I pay more than you do in rent. But you do not want to end up in a situation where you can't make your mortgage payments. Pay off your student loans, pay off your car loan (and don't borrow thousands of dollars to pay for depreciating assets again), and then save up enough money to do this right. Wait until you can get an interest rate that won't put you in the poorhouse. That will take more than a couple of months because of your bad borrowing history, but it will save you tens of thousands of dollars over the next few decades.
posted by decathecting at 8:32 AM on October 30, 2007


Check out Get Rich Slowly.
posted by charlesv at 9:02 AM on October 30, 2007


Why not buy the house from your mom and use it as rental income?
posted by elle.jeezy at 11:01 AM on October 30, 2007


Do NOT buy a house yet.

Stavro and TPS have it right about the housing market, etc., and frankly I don't even like the idea of "running the numbers" at some bank--much better to figure out for yourself what you can afford. Here's why: they will tell you the very top level of what you can afford right now, and if anything happens (losing your job, car gets wrecked and you are still paying for it, insurance goes up, promotions and raises are frozen at work, your girlfriend gets pregnant, etc), you will be out of luck.

Of course, you *must* get a fixed-rate mortgage if you do buy.

slight derail
Frequently, once you have decided what you can afford, found the house you want, paid the down payment and closed on the house thinking everything is set, a year or so later the bank sends this nice little letter to let you know that your escrow isn't enough because they grossly underestimated what the taxes would be and, oh, by the way, now your payment is as much as double what we all agreed at closing (happened to us, once on our 30 yr and then AGAIN on our bi-weekly 15 year refinance but we had savings set aside and now we own our house so bite me, bankers!).
/derail

Don't buy a fixer-upper unless you are extremely handy, have loads of time to spare and can front the costs for the repairs in the first place.

In other words, this is a HUGE decision. If you have any doubts at all, Wait!
posted by misha at 11:24 AM on October 30, 2007


I'm also a little curious as to why you believe defaulted loans are going to disappear off your credit report in 3 months. As far as I understand the process, it takes seven years.

Now that you've refi'd, the new loan will probably show up pretty soon, but the old defaulted ones won't drop off, as I understand it; they'll remain there with a balance of $0, a note that they're "closed," and all the (shameful) details of their payment history.

If I'm wrong about that, maybe someone can explain it to me.
posted by ikkyu2 at 4:06 PM on October 30, 2007


I'm also a little curious as to why you believe defaulted loans are going to disappear off your credit report in 3 months. As far as I understand the process, it takes seven years.

Student loans are very strange things. It seems like some lenders will let them go into default but remove the default notice even if you just defer your loans.
posted by drezdn at 5:55 PM on October 30, 2007


Thanks everyone, lots of good advice in this thread. I haven't marked any best answers, just because there were lots. Some things I'd like to point out:
-where I'm from isn't like the rest of the country. Yes, I CAN get a perfectly fine house for $60k.
-where I am, as I said before, has stupid high rental rates, mostly thanks to students. Renting is going to cost me $700 a month, effectively negating my ability to save anything for down payment.
-to those who were critical about my student loans defaulting, it wasn't my fault. The Americorps failed to send on my forbearance papers, and I got defaulted. The reason they will disappear as defaulted is part of the settlement with the Department of Education. I paid, heavily, on them for 10 months, and as part of the rehabilitation, they're taking away all negative credit scoring and fees and showing them as accounts in good standing. They only update quarterly though, so it will take a while for that to show up.
-Why would someone advise me against a 13 acre parcel and a fine house? Since when is land acquisition a bad idea?
-I'm going to take everyone's advice by doing a combination of things. I'm going to talk to the bank, I'm going to keep my options open, and I'm not going to commit to anything. I have been saving about 12% of all my earnings for the last several months, and I'm not a total idiot. Thanks everyone--and if you have any more advice or criticism, feel free to post it here or shoot me an email, it's in the profile.
posted by TomMelee at 9:42 AM on October 31, 2007


Why would someone advise me against a 13 acre parcel and a fine house? Since when is land acquisition a bad idea?

When you don't have the money for maintenance and upkeep. Maintaining a 13 acre parcel is not cheap, and to do it right you need various kinds of insurance. Unsurprisingly, that costs more than the insurance on a smaller parcel. You can skip insurance but from my perspective that makes you reckless, not savvy; it's a good way to get all 13 acres taken away from you in a liability judgment.

Since you don't say where you are, it's not possible to say what your major risks would be - fire from uncleared underbrush; flood from the nearby river; drunk college students breaking their legs while cow tipping; someone accidentally driving off the road to avoid a boulder that had rolled on it from your property, then impaling their head on your fence stake in the ensuing crash; someone using your property for a pot grow or meth lab; creating a public nuisance and annoying your neighbors with the lack of upkeep - these are some possibilities but I'm sure I could think of others.
posted by ikkyu2 at 12:55 PM on November 1, 2007


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