Looking at purchasing my first home in the next 3-6 months. Obviously a LOT will play into this, but for simplicity: What percentage of your home value does your gross income make up? How many years on your mortgage? Trying to gauge just how thin everyone stretches themselves budget wise. How much net money do you plan to have left over per month after all essential bills for all the "fun" spending such as clothes, travel, hunting, bar tabs, etc... Housing in Alaska is expensive in general, but VERY expensive if you want a nice house (nice by my standards from Kentucky, which apparently is the cheapest housing market on the planet). I already know I'll stretch the years out on the mortgage to be able and pay down student loans faster seeing as my student loans are a full 2 percentage points higher than the current mortgage rate. Right now I'm looking at 3.5-5% down (which I already have stashed away), no PMI, fixed 15-30 year mortgages ranging from upper 3s to low 4s as far as the rate goes. Rent is absurd ($1700 for a 2-3 bedroom apartment), so waiting to buy is out of the question for me.
I think the standard rule is 20%, but that can change with other criteria, mainly other debt and how long you plan to stay in the house. When we first bought our house, it was in the 30% range, which made us house poor for about 2 years, but we knew that we would be staying in the house long term. It is a 4 bdr, 3 bath house, so we could stay in it our entire lives if we wanted. We also didn't have any other debt. Now 5 years and several raises/promotions later, its at about 18% of our gross monthly income. I include taxes and insurance on that as well. We have a 30 year mortgage at 3.25%.
We are currently renting, but evaluating the market to buy. When we moved to IL I didn't know if this would be a long term thing so we sold our place in NY and rented here to play it safe. Would have bought by now but the market spiked pretty good over the last 8 months, so I was waiting that out a bit before we jumped in. Anyhow, I wouldn't get into a payment that was more than 20% of our net income (what actually hits the bank account). Just too many other things that can happen in life for me to feel comfortable spending more. My last mortgage was closer to 15% and we were on a 15 year loan around 3.5%.
My guess is that you will be forced into PMI with that small of a down payment. Likely no choice on the matter.
What's up with no PMI? Make sure your house doesn't own you I don't know how handy you are but my first 2 houses were fix'er uppers and I made a ton of money with sweat equity. Don't fall in love with a house that's how they get you.
Here you basically have to have 20% or more equity to get past PMI. Think my term states loan to value is used. So if the market drops as I pay it off, the longer I keep it. Will take me 2 more years to be able to drop it. I'm at 24% of income escrowed. Ppan to have it paid off or sold in 5 years. If I go the sell route that will be within the next year possibly two and IL will be but a shadow of my past.
Like Forest Gump said, "I ain't a smart man", however I will give you this advice. Whatever you think you can afford mortgage wise, reduce that by 10%. You will thank me later. Best of luck man.
It's easier to live with less than it is to own more than you can afford. If you're living in AK then everything cost more to upgrade. Got to keep that in mind. Sometimes buying what works and you can afford is better in a expensive economy than a cheeper fixer upper..
Unless I'm being blatantly lied to, I've been told otherwise by a few different lenders and know of a few friends who have already purchased (granted in Alabama not Alaska) with 0-5% down and no PMI. I'm not sure if it's a special offer for graduates of a certain field, or if they are hurting for business or what... but that option is certainly out there. I'll lump 20% down if needed to avoid PMI but as it stands now it seems I won't have to. 20% of net monthly income would have me living in an absolute **** hole up here unless I find a diamond in the rough or put it on 30 years. I guess I could do that, it's just the thought of a 30 year loan depresses the hell out of me.
You're in the medical field, right? I know my buddy just got a 0% down, no PMI loan because his wife just graduated medical school. Welcome to the real world
If no kids and with student loans I'd consider buying a cheap short term house honestly. Get it paid off and student loans than in 5 to 10 years that home is your new rental or down payment basically towards a long term one.
If in a different market I would definitely do that. Here, 250k buys you a decent condo or a really old dump of a house. When initially looking at moving back to Kentucky, I was looking in the 90-125k range for what I consider a nice house. I couldn't afford to hold on to that up here as a side rental even if I wanted to in 5-10 years. I'll likely end up buying a 3 bed 2 bath townhouse in the mid 200s and look to move in 5 years or so. Easiest way to ensure a quick flip from what I've seen of the market here. The only thing tempting me to stretch the budget further is how much houses in the right neighborhoods appreciate. A friend bought a house, lived there 4 years, and sold it for 150k more here. Definitely not the norm, but if that was remotely possible I'd bump the budget and be house poor haha.
30 years could be a good place to start, lower payment gives you a little more wiggle room should something happen, and if not gives you extra to pay off those student loans you mentioned. Once you knock them off you can either refinance or just dump more on the mortgage to finish it off sooner also.
If you're only staying in that market for 60 months or so, I would rent. Most people will spend $17,500 + to get rid of a home in the mid 200's. I don't think the $1,700 a month rent looks bad in that market.
Only paying 5-20% down on a 30 yr mortgage and staying 5 years will result in a very nominal increase in equity from payments. get a financial calculator app and it will tell you what amount will go towards the principal. Again, it will be very little. You my as well be renting, cause all you are doing in a 30yr note is basically servicing the interest in the first 5-10 years. Granted, if the market appreciates considerably, you can stand to profit, but keep in mind you have closing costs both when purchasing and though to a lesser extent , also when you sell. Factor that in along with a 6% sales commission for the realtor when you sell, maintenance costs, and it will take a pretty substantial value increase in 5 years to truly profit much....and markets do go down at times , even in Alaska. $1700 does not seem unreasonable for what you described it rented. I would rent for a year even if I had the money to purchase 100%, just to make sure I knew exactly where and what I wanted....just my opinion....good luck in whatever you decide.
I just bought a house, closed 2 Friday's ago. We put 20% down with a 20 year fixed loan at 3.6 %. We wanted to have our home payed off by the time we were 52 for me and 50 for her with retirement around the corner. Not later then 55. Are payments are high but worth it. On a 30 yr loan you pay on the interest for 10-15 years. It's a no brainer. I would get a second job just to be able to make the extra money to reduce my mortgage by 10 years. Sent from my iPhone using Tapatalk
The other reason I want to buy now instead of later is my relocation package covers all closing costs associated with buying a home if I buy before 5/31/2016. I will be up here at a bare minimum 5 years, most likely 10-20+ unless something drastic changes. Thanks for the ballpark figures guys. I'm still not sure where I'll land just yet as far as percentage of gross income (looking at places ranging from 175k up to 300k so a lot could change depending on price and term of the mortgage). I'd love to stay closer to the 200-225k range and put it on a 20 year note, just have to make sure I can realistically afford that plan.
