Kiaser
Senior Member
Cash: $ 43.05
Posts: 209
Joined: 12 Apr 2006
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I have rougly 1 - 1.5 years to get ready to buy my first home. I wanna spend the time correctly to get everything in order but I also need pointers on what exactly needs to be in order. Here's my current status or plans:
I'm having retirement plans setup right now. Most likely a Roth IRA will be setup, as well as an employer established fund (since I own the business I'm employeed through). I'll be contributing the max and paying any "catch-up" I'm eligible for. However, a year or so from now I'm not sure if I'd want to pull out contributions to help pay for a first home purchase (especially on 401k's or other double tax/penalty situations), but at least there would be the option to do so.
My FICO score is high 750 and is improving. I have no negatives on my credit, every account shows timely payments, and my credit has been established for a long time. I have three major credit cards that I've had for a long time, and the limits are good but not too high (under $16 total limit). I don't plan on opening any more accounts or adding any more inquiries before I plan to get a mortgage. The only debt I have is a car loan, which will be paid in full in less than a year (no student loan, credit cards always paid off each month, etc). As of that time I will have absolutely no debt-to-income ratio.
A year from now I estimate having $30-$50 saved. I want to lock in the best interest rate. I live far below my means and a year from now after the car is paid off I will be accumulating nearly $2500 a month extra (that's after taxes, bills, and other odds and ends per month). That being said, I'm thinking of going the 20% down and having a short-term mortgage (15 years). My business partner got a mortgage a few years back when we were classified as a LLP instead of a corporation, and had no downpayment. He says the paperwork was attrocious, as having PMI adds lots of paperwork and since he was considered "self employeed" at the time he had tons of hoops to jump through (proof of income, etc). I'd like to avoid his headache, and I'm not considered self employeed anymore (the corporation has been established for 4 years) so all I gotta do is void PMI.
Also, I plan on renting out rooms in my new house (which I hope to have 4 bedrooms minimal). Finding renters in my area is a piece of cake, and I'm 25 years old and unmarried so having roommates is not a cramp in my lifestyle (I have them right now anyway). Hopefully I'll nearly have the entire mortgage payments covered by roommates each month (I won't rely on this is I could pay for it soley on my own, but hey it's free money).
I have a very very good real estate agent (my mother who did this for a living and now does it as a retirement hobby), so who knows what other ways I'll be able to save (a really good foreclosure that doesn't have problems, no agent costs, etc).
My questions are:
Is the old 20% down rule still a very good general rule to follow? Is it just to avoid PMI basically?
This won't be my primary residence forever so what should I plan (financially) to get the most equity out of this house at the cheapest cost so I can use it to jump start other investments later in life (more property, mutual funds, etc)?
Looking at my current financial status and my plans (to rent out rooms, and use house as equity later), would a short term mortgage be in my best interest? Same question about a downpayment?
Is there anything else you guys can recommend (lower my interest rates, minimize headaches trying to obtain a mortgage, prepare for the mortgage better, etc)?
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Fri Apr 14, 2006 5:08 pm |
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Kiaser
Senior Member
Cash: $ 43.05
Posts: 209
Joined: 12 Apr 2006
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quote:
Originally posted by coaster
Sounds like a good plan to me. You're way ahead of most people. Good credit. 20%+ down to avoid the PMI, 15-year fixed to build equity fast. Perhaps you can do one of the bi-weekly payment thingies, too.
Renting out rooms will probably affect your cost of insurance; I don't know if that's a factor or not.
You want to think about what percent of your net worth you want to be in real estate and adjust your equity build accordingly. You'll have enough discretionary cash flow to build the financial assets part of your net worth, so if you want more real estate, then you can make extra payments on the home equity. Or not if you want a higher percentage in financial assets.
Good points there. I'll keep the insurance cost in mind...
Some people may think it's a poor decision, but I'm heavily leaning towards real estate net worth. Perhaps it's because the area I'm in (Dallas and outlying cities) and seeing within my lifetime (25) how much property value has consistently raised in practically all areas here. The north Texas area seems to build outward instead of building up. But despite that, even a lowly averaged real estate return can provide me with enough equity for future investments. And, hell, my rent payments right now might as well be going towards something that will gain me equity. In the end if the property value dropped 90% over what I've paid towards it (including principle, interest, insurance, taxes, and upkeep), I'm still better off than putting that towards rent.
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Fri Apr 14, 2006 6:59 pm |
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Andrew
Admin
Cash: $ 467.10
Posts: 1717
Joined: 02 Nov 2003
Location: Texas
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You probably are doing this already, but save your paystubs and banking records, you may need last 3 months worth.
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Sat Apr 15, 2006 5:11 pm |
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Kiaser
Senior Member
Cash: $ 43.05
Posts: 209
Joined: 12 Apr 2006
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quote:
Originally posted by coaster
And tax returns (but everybody saves those anyway, right?) 
Off topic but and all but jeez coaster you are just a gigantic pool of knowledge... I've been reading through hundreds of posts and you are everywhere. I'd hate to meet up with your financials in a dark alley, they would steal my lunch money every day!
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Sun Apr 16, 2006 3:55 am |
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