Buying a house in this economy? (Full Version)

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PrincessDonna -> Buying a house in this economy? (3/19/2008 11:58:22 AM)

If you are living, or can imagine you were living, on a low income (say under $35,000 for a family of 6), would it be wise to buy a house in this uncertain economy or would it be wiser to continue to rent (around $600 month)?




GroupW -> RE: Buying a house in this economy? (3/19/2008 12:30:44 PM)

quote:

ORIGINAL: PrincessDonna

If you are living, or can imagine you were living, on a low income (say under $35,000 for a family of 6), would it be wise to buy a house in this uncertain economy or would it be wiser to continue to rent (around $600 month)?




I'd need some additional information such as the cost & location of the house, how much downpayment could be made, whether or not you would be a prime or non-prime borrower, how much other debt/expenses are there that absorb that $35k. Also how much do taxes and insurance run in your neck of the woods.

Generally though, a family of 6 on $35k sounds pretty tough to own a home. Take the $600 and subtract about $100 for tax/insurance - leaves a straight mortgage payment of $500. That leaves a possible borrowing ability of about $85k before closing costs. That's assuming you have enough cash reserves to cover all the other stuff that is involved in owning a home - lawnmower, rakes, hoses, tools, curtains, appliances, utilities, ....

I tell people to allow for $5k in incidentals.

BT



peace77 -> RE: Buying a house in this economy? (3/19/2008 12:33:44 PM)

It depends.

Is your income fairly certain or are there a lot of layoffs and reductions in your profession?

Is is possible to buy for less than your rent?

Does your state, county or city offer first time home-buyer programs?
With a grant or forgivable interest free loan program, it may be possible to buy.

Do you have an emergency fund?

Are you able make repairs or do renovations yourself?
If so, it may be possible to buy a fixer-upper.

Do you have savings for a down payment and closing costs?

Many properties are selling at reduced prices now so it is certainly worth looking into.

My husband and I are looking right now.


Peace,
Anne



RichLP -> RE: Buying a house in this economy? (3/19/2008 12:35:19 PM)

quote:

ORIGINAL: PrincessDonna
If you are living, or can imagine you were living, on a low income (say under $35,000 for a family of 6), would it be wise to buy a house in this uncertain economy or would it be wiser to continue to rent (around $600 month)?


My first response is to say to continue renting. You will have other expenses (there are always other, unforeseen expenses) when buying a home. I'm a rookie homeowner but I learned this lesson fast.

Now, unless your family has a substantial cash cushion from which to use in the financing AND which'd last you for several months AFTER the foreseen and unforeseen expenses, then it may be worth it. Do the math and be brutally honest.



APZR -> RE: Buying a house in this economy? (3/19/2008 1:02:37 PM)

I agree with GroupW. With the market being down, it's definitely a buyers market. But, you need to really crunch the numbers and make sure you can cover the ongoing cost of owning. Since you are already renting, you are familiar with what utilities cost. But in owning you will have maintenance and taxes. With the taxes, since you are low income, make sure you go to the courthouse or assessors office and apply for all the tax credits for which you qualify. Certain low income tax credits in my area can take a $300 tax bill down to $95. Get several quotes for a loan. There are many, many loan programs out there, and it's not a one size fit all business. Interview several real estate agents, and find one who had the best experience and you feel the most comfortable working with... you will be working with them for the next 6 months and need to make sure your personalties do not clash.



3cappuccinosmom -> RE: Buying a house in this economy? (3/19/2008 1:04:49 PM)

Depends on the house and your savings.

If you can get a forclosure or a really low priced house, and can pay the downpayment and not have to do much to get it move-in ready, I'd buy.

Dh makes somewhere around that income, and we are looking at a house that's about $35K and needs only painting and carpet cleaning. I am not happy to be looking at a mortgage payment again (after being totally debt free) but in his opinion, it's not a bad move, and I can't argue with him. A thirty year fixed loan will be very low and easily managed.



mrtigger -> RE: Buying a house in this economy? (3/19/2008 1:38:40 PM)

quote:

ORIGINAL: PrincessDonna

If you are living, or can imagine you were living, on a low income (say under $35,000 for a family of 6), would it be wise to buy a house in this uncertain economy or would it be wiser to continue to rent (around $600 month)?




Short answer is continue to rent.

Long answer is it depends. What is real estate doing in your area? Is real estate prices declining? Is a house payment near the same as rent? How long are you planning to stay? How stable is your job(s)?

If your job is stable and you can own for not much more than rent, and you don't plan on moving within 10 years or so, buying is probably worthwhile.

Given the incertainty of the current economic situation though, I'd think long and hard before buying on a 35K income.



Miss Giggles -> RE: Buying a house in this economy? (3/19/2008 1:39:42 PM)

I agree its a buyers market so just make sure you can cover the expenses and have some rainy day funds.



relady -> RE: Buying a house in this economy? (3/19/2008 10:51:17 PM)

quote:

If you are living, or can imagine you were living, on a low income (say under $35,000 for a family of 6), would it be wise to buy a house in this uncertain economy or would it be wiser to continue to rent (around $600 month)?
I would imagine that with the current state of affairs (in the lending community) that you would find it very difficult to get preapproved for a home loan on your family income UNLESS you have a fairly large downpayment. Depending on a variety of factors...the most you would probably be able to qualify to borrow would be around $100K, maybe a little more depending. Can you buy a decent place to live on that amount where you live? Your payment with taxes & insurance, depending on interest rate would probably run somewhere from $800-$1000 a month (borrowing $100K). On a loan of about $75K at just over 6% interest, with insurance & taxes you're looking at a payment somewhere in the $720+ range. Are you now completely confused?



PrincessDonna -> RE: Buying a house in this economy? (3/20/2008 10:24:39 AM)

I've been reading, but have a nasty, nasty upper respiratory ick going on, so I'll answer more questions when my brain returns.



GroupW -> RE: Buying a house in this economy? (3/20/2008 10:42:39 AM)

Not fun. Take your time. FYI - in past threads, I've found that the people who've posted on this kind of issue have offered trustworthy advice. Usually I'd tell you take everything with a grain of salt. So far here, I find that everyone has a good head on their shoulders.

I've been a banker, analyst, & involved in mortgages one way or another for 25 years and have seen a lot of bad advice.



peace77 -> RE: Buying a house in this economy? (3/20/2008 10:44:13 AM)

quote:

I would imagine that with the current state of affairs (in the lending community) that you would find it very difficult to get preapproved for a home loan on your family income UNLESS you have a fairly large downpayment.


This is NOT true. DH and I are pre-approved to buy with a 5% downpayment.

quote:

the most you would probably be able to qualify to borrow would be around $100K, maybe a little more depending


This is also NOT true. In fact, we were told that we would be charged a higher interest rate for borrowing LESS than $250,000.

The changes that I have seen are: 0% down mortgages are no longer available.
3% down mortgages are difficult to get.

However, grants and no interest loans to help with down payment and closing costs are still available for first time homebuyers.

ACORN is available is most cities and can help with applying for grants and getting a lower interest rate loan.


Peace,
Anne



GroupW -> RE: Buying a house in this economy? (3/20/2008 4:38:08 PM)

Peace-
I believe Relady was referring to on the downpayment was the likely qualifying loan amount vs the likely cost of the house. With the median home price in most urban areas approaching or exceeding $200k, she's probably accurate.

As far as the qualifying amount goes, if you look at a qualifying front end ratio for a conventional loan and assuming a minimum $750 home payment, someone on a $35k income isn't going to qualify for much over $100k.

I think the two of you might be talking about different issues.



eric731 -> RE: Buying a house in this economy? (3/20/2008 5:16:54 PM)

Don't forget if you get in a place that requires Home Owners Association Dues than you won't have to worry about lawn mowers, roofs, or painting the house.

But that becomes a monthly bill you will need to budget.

Mortgage, Escrow, and HOA dues can add up.
But in return you get equity, ownership, mortgage interest deductions for taxes, and no leaves to rake.

-Eric



relady -> RE: Buying a house in this economy? (3/20/2008 6:58:04 PM)

quote:

DH and I are pre-approved to buy with a 5% downpayment


quote:

This is also NOT true. In fact, we were told that we would be charged a higher interest rate for borrowing LESS than $250,000.
I am sure that is true. But that doesn't make what I said UNTRUE. What i said is also true.

For a 95% loan you may be right. Also, if your credit score very close to or is above 700 you won't have the issue for preapproval that many do. New Freddie Mac & Fannie May guidlines have just been issued and they are no longer underwriting / insuring ANY 100% programs and in order to get 97% on a conventional mortgage without paying extra interest one must have a 700 credit score. The AMOUNT you borrow is not the only thing that determines interest rate. We just received a new schedule for interest the points are being charged for higher scores than before and at a much higher rate.

A 5% downpayment is a big downpayment to a lot of first time buyers. Sorry, if I wasn't clear on what I was referring to.

quote:

However, grants and no interest loans to help with down payment and closing costs are still available for first time homebuyers.
Programs are still available but some have income limits, at least they do here in Missouri. The private ones require the seller to contribute -- which is ok.

As a Realtor here in St. Louis, right now my problem is not the amount of buyers -- I have plenty of people wanting to buy but not many being able to get preapproved. I've lost 3 buyers in as many weeks because they cannot get a loan.

However, you are correct in that if the OP has a downpayment, and good credit, she may be able to get a loan. It's just a matter of how much can she borrow on the household income. Hopefully that's her situation.



Harvie -> RE: Buying a house in this economy? (3/20/2008 7:17:15 PM)

Be sure and do your homework and check out the real estate prices and forecasts for your area. It may be worth your while to stay put and keep saving if housing prices are expected to drop even further (as they are in my area.) The more money you save for incidentals, appliances, etc ... the better. (I'm assuming you're already saving for moving expenses, closing costs, down payment, utility deposits, etc.)

And I would definitely check out any homebuyer's assistance programs in your area/city/state.



relady -> RE: Buying a house in this economy? (3/20/2008 9:12:21 PM)

Ditto to what Harvie says. :)



peace77 -> RE: Buying a house in this economy? (3/20/2008 10:58:06 PM)

quote:

a fairly large downpayment


I thought you were referring to a 20% or greater down payment.

Link for 1st time Homebuyer Grants

Link to Program 2

Program 3

There are probably more. Some programs are limited to a county, city or even a specific part of a city.


Peace,
Anne



Row1 -> RE: Buying a house in this economy? (3/21/2008 9:40:03 AM)

quote:

But in return you get equity, ownership, mortgage interest deductions for taxes, and no leaves to rake.


-good advice from Eric - but my guess is that you will not get much tax benefit, if any at all, because your family is probably close to paying no federal income tax. Just adding this tiny bit of info in case this factors into the math.



relady -> RE: Buying a house in this economy? (3/21/2008 10:00:37 AM)

Some of the home buyer programs I am acquainted with:

Nehemiah

Genesis

Ameridream

These are all non-profit organizations that approve certain lenders to offer their programs. For these, the seller must agree to participate, but I would think in this market that wouldn't be an issue with most sellers. HUD tried really hard, in court, to get these programs disqualified. THEY LOST! So the programs are still available. I would encourage all first time buyers to seriously question your lender about what programs they have to assist with downpayments & closing costs. Or...ask your real estate agent to recommend a lender that works with one or more of these programs.

Anne, thanks for the links. Just one thing.....I would never, never ever recommend HSBC as a lender. They are, to put it succinctly...predatory. And one of the very worst. Having had more personal experience with them than I care to remember, I could never recommend them as a lender. However, their on line savings account is awesome!



GroupW -> RE: Buying a house in this economy? (3/21/2008 10:09:28 AM)

Curious - when you talk about HSBC are you talking about the old Household Mortgage side of the house or the regular mortgage banking business? (Or both).

BT



relady -> RE: Buying a house in this economy? (3/21/2008 10:17:01 AM)

quote:

Curious - when you talk about HSBC are you talking about the old Household Mortgage side of the house or the regular mortgage banking business? (Or both).
I wouldn't recommend either one for a mortgage. Although I think they have dumped their subprime loan business, I still wouldn't trust them. Can you tell, my experience with HSBC Mortgage Services has been less than stellar? I would just steer clear. They are just nasty people and don't need my money or that of my clients. Being in real estate, I see a lot and what I've seen from this company in terms of home loans is just an absolute lack of integrity and a distinct tendancy to prey. They have a very bad rep in real estate circles.



GroupW -> RE: Buying a house in this economy? (3/21/2008 10:22:37 AM)

I can't remember if they've dumped their subprime business. I don't think so, although I don't know what those folks are doing - there's not much subprime going on period. I think HSBCMS is the old Household group. That would explain a lot.

Thanks.

Edit: Yup. HSBC closed their Decision One unit in September 07. I have a list of the 100 or so mortgage companies that have been sold, gone bankrupt or have been restructured since 1/1/06. I can send that over if you're interested.



relady -> RE: Buying a house in this economy? (3/21/2008 10:21:42 PM)

quote:

Edit: Yup. HSBC closed their Decision One unit in September 07. I have a list of the 100 or so mortgage companies that have been sold, gone bankrupt or have been restructured since 1/1/06. I can send that over if you're interested.
I thought they had. You're right, there is not much subprime going on right now. Some still, probably. I do have a lender that I know that works in that area, but he's definitely legit. eI would not mind seeing a new list. I haven't seen one since the first fallouts last fall. I do know of a few that I've had dealings with as a REaltor where I said good riddance, LOL.



U376977 -> RE: Buying a house in this economy? (3/24/2008 7:01:08 PM)

Groupw and relady. goole mortgage implode o meter. I was on the site today and there are 241 companies who have either folded or contracted operations since this all started. For example, BofA is still here, but they pulled out of wholesale.

PrincessDonna,
Please re read what GroupW wrote in his first reply---it was right on. It does not sound like you can afford a home now. Calculate all of your proposed housing expense, Principal & interest, taxes and insurance. Don't forget HOA dues if applicable. Divide by your income. You will get a "front end" ratio. Industry says about 28%--but a much better ratio is 25%. Then take your total debt and divide by income. If it is >45% it will be hard to get a loan. Or if the gap between your housing ratio and total ratio is greater than 15% it will be hard to get a loan.



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