SecondCor521
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
DS25 is finishing his undergraduate degree this December and is in the final stages of receiving a job offer to start a full time job three days after finals end. He is currently living with me and we get along fine. He wants to buy a house. He is very very frugal and likes to be smart with his money. I think he'll have decent job stability.
Two paths forward were considered. First, move into an apartment and save up a down payment. Second, stay here at home and save up a down payment. As long as everyone is getting along, we agree that the second path forward is overall the preferable one.
He doesn't know his income details yet, but he did some benchmarking and has a decent idea. After accounting for taxes and expenses, he knows how much he can add to his down payment pile per year.
Roughly and mostly conservatively, he could get to an emergency fund plus a 20% down figure after about two years of living at home. 18 months is, I think, a more plausible number. (If he rented an apartment, it would be more like 5 years, FWIW.)
The real estate market here has really started to take off. My simple logic suggests the idea that if he puts 10% down instead of 20% down and has to pay an additional 1% PMI on the mortgage rate, if house prices are going up by 5%-10% or more (which they are at the moment), that seems like a smart trade. Of course the payment needs to be affordable. And of course the risk of being underwater if prices drop could be an issue, which I would point out to him.
This is really an open request for ideas and thoughts about the financial aspects of a new college grad buying their first home. Questions I have:
1. Is 80/10/10 financing more or less advantageous than PMI? I lean towards 80/10/10, but am curious to hear others' thoughts.
2. I'm aware of the PMI breakpoint at 20% down. Are there breakpoints below that to be aware of? Like is 5% down significantly better than 4.5% down? Is there anything special that happens at 10% down?
3. Which of the first time homebuyer programs / credits / loan options worth looking at, if any? At this point I would recommend 20% down with a conventional fixed rate 30 year mortgage, or an 80/10/10 deal. FHA seems like it might be an option?
4. He'll probably have a 401(k) with a 3% to 5% match. I'd be inclined to encourage him to do that at least to the match, even though it will slow down the house down payment accumulation a little. I know DR wouldn't approve, but I'm an independent thinker. Your thoughts?
5. Overall, entry level houses are a stretch. He can certainly watch realtor.com for new listings, but most of those have already been redone and upgraded with nicer level finishes than he wants or needs. It might be smart for him to try to find a house pre-market. Are there any other tips and tricks for him as an ordinary first time buyer to find a less expensive option - maybe a older decent home with good bones that he can be satisfied with and then maybe fix up over time?
Thanks in advance for the input. I'm sure I've left out some of the picture - I often do - but will generally be happy to clarify / answer questions as long as they don't get into my son's privacy too much.
Two paths forward were considered. First, move into an apartment and save up a down payment. Second, stay here at home and save up a down payment. As long as everyone is getting along, we agree that the second path forward is overall the preferable one.
He doesn't know his income details yet, but he did some benchmarking and has a decent idea. After accounting for taxes and expenses, he knows how much he can add to his down payment pile per year.
Roughly and mostly conservatively, he could get to an emergency fund plus a 20% down figure after about two years of living at home. 18 months is, I think, a more plausible number. (If he rented an apartment, it would be more like 5 years, FWIW.)
The real estate market here has really started to take off. My simple logic suggests the idea that if he puts 10% down instead of 20% down and has to pay an additional 1% PMI on the mortgage rate, if house prices are going up by 5%-10% or more (which they are at the moment), that seems like a smart trade. Of course the payment needs to be affordable. And of course the risk of being underwater if prices drop could be an issue, which I would point out to him.
This is really an open request for ideas and thoughts about the financial aspects of a new college grad buying their first home. Questions I have:
1. Is 80/10/10 financing more or less advantageous than PMI? I lean towards 80/10/10, but am curious to hear others' thoughts.
2. I'm aware of the PMI breakpoint at 20% down. Are there breakpoints below that to be aware of? Like is 5% down significantly better than 4.5% down? Is there anything special that happens at 10% down?
3. Which of the first time homebuyer programs / credits / loan options worth looking at, if any? At this point I would recommend 20% down with a conventional fixed rate 30 year mortgage, or an 80/10/10 deal. FHA seems like it might be an option?
4. He'll probably have a 401(k) with a 3% to 5% match. I'd be inclined to encourage him to do that at least to the match, even though it will slow down the house down payment accumulation a little. I know DR wouldn't approve, but I'm an independent thinker. Your thoughts?
5. Overall, entry level houses are a stretch. He can certainly watch realtor.com for new listings, but most of those have already been redone and upgraded with nicer level finishes than he wants or needs. It might be smart for him to try to find a house pre-market. Are there any other tips and tricks for him as an ordinary first time buyer to find a less expensive option - maybe a older decent home with good bones that he can be satisfied with and then maybe fix up over time?
Thanks in advance for the input. I'm sure I've left out some of the picture - I often do - but will generally be happy to clarify / answer questions as long as they don't get into my son's privacy too much.