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Early Retirement Extreme Forums » Housing Questions

1. 

   Fred Tracy
   

   Journeyman
   Joined: Jan '12
   Posts: 101

   Hey all, I just got off the phone with a local bank. I'm trying to get a mortgage for a ~65k dollar house here in Oklahoma. I've got enough for a good downpayment, can obviously make the payments quite easily, etc,. but there's one problem - I've only been at my current job for six months.

   Nevermind the fact that I could get a minimum wage job if I were fired and still easily make the payments.. hah. Unfortunately, the bank told me it would be hard to get a loan without those 2 years of steady work.

   I'm wondering, are there any other options for me? If I wait two years, I may as well buy a house outright with cash or just rent (not a bad idea..) but I'd much prefer to secure a loan now and buy a house.

   So, any way I can tip the odds in my favor with only 6 months of steady employment?

   Thanks!

   Posted 1 year ago #
2. 

   palmera
   

   Journeyman
   Joined: Aug '11
   Posts: 270

   can anyone co-sign for you?

   Posted 1 year ago #
3. 

   jennypenny
   

   Expert
   Joined: Jul '11
   Posts: 1,338

   They used to do no doc loans when you put 50% down. Do they still do those? At least then you'd only have to save up 50%.

   Posted 1 year ago #
4. 

   Fred Tracy
   

   Journeyman
   Joined: Jan '12
   Posts: 101

   My parents would probably pretty willingly cosign for me. I will bring that up with the banker.

   Hmm no doc loans.. well, it would probably take me 2 years to save up 50% anyhow haha but that may make it a little faster.. I will look into it.

   Thanks guys. :)

   Any more tips?

   Posted 1 year ago #
5. 

   dragoncar
   

   Expert
   Joined: Oct '10
   Posts: 1,287

   Sorry, I don't have any tips. As for your parents, that's great. Just make sure they fully accept the risk that they will be on the hook for the full loan amount. If something were to happen to you, the bank would not hesitate to go after them for the payments.

   Posted 1 year ago #
6. 

   DutchGirl
   

   Master
   Joined: Sep '11
   Posts: 480

   @dragoncar: "If something were to happen to you"

   Maybe Fred Tracy could help with this by getting life insurance for the next say five to ten years (while he's paying the mortgage), and also getting disability insurance during the same period of time?

   Do you think that this would help? I assume Fred is in the US and things are a bit different there. I think if it does make the risks less for Fred's parents, that this would be nice.

   Posted 1 year ago #
7. 

   mikeBOS
   

   Master
   Joined: Nov '10
   Posts: 554

   @dutchgirl So smart! They could also just sell the house and pay off the mortgage provided it wasn't too far underwater. So it's not that big of a risk for them. Though dragoncar is right that they need to be prepared to take it on.

   Another consideration is the effect on their credit. Hopefully they're not planning on financing a vacation home for themselves or a big new RV or something.

   Posted 1 year ago #
8. 

   jennypenny
   

   Expert
   Joined: Jul '11
   Posts: 1,338

   Would his parents be responsible for any liability issues then as well? Like if someone fell and sued?

   Posted 1 year ago #
9. 

   JohnnyH
   

   Expert
   Joined: Jul '10
   Posts: 1,363

   I'd take this as yet another reason to save and buy with cash... Buying with cash will likely save you 2-3k in fees on the front end... Once you own the property you can refinance once the title seasons (6-12mo).

   Whereabouts in OK?

   Posted 1 year ago #
10. 

    Fred Tracy
    

    Journeyman
    Joined: Jan '12
    Posts: 101

    It's going to be in central oklahoma, there are actually some cheaper houses here (40k) but not close enough to my work to bike it. I'll ask my parents if they'd cosign for me today. I didn't know this was an option with mortgages, lol.

    I don't think the relatively small payments on this house would hurt them all that much, even if I did die or something crazy. They aren't rich but are well off enough that it wouldn't be catastrophic.

    I'm also talking to some other banks to see if they'd offer me something good.

    Hmm, I do like the idea of saving up the entire price and buying outright, but since I'm probably selling the house anyway in 6 years when I'm FI, I may as well rent as I'd only have the house for a few years. Technically I could rent out the house, But I don't really want to mess with all that.

    Posted 1 year ago #
11. 

    Riggerjack
    

    Journeyman
    Joined: Jul '11
    Posts: 157

    Go to a mortgage broker. They have access to more lenders and different programs than any given bank. Not saying brokers are better than bankers, but they are generally more fordable. Good luck.

    Posted 1 year ago #
12. 

    Riggerjack
    

    Journeyman
    Joined: Jul '11
    Posts: 157

    Go to a mortgage broker. They have access to more lenders and different programs than any given bank. Not saying brokers are better than bankers, but they are generally more fordable. Good luck.

    Posted 1 year ago #
13. 

    Fred Tracy
    

    Journeyman
    Joined: Jan '12
    Posts: 101

    As it turns out, my parents didn't want to co-sign for me, lol.

    I spoke to another bank and it looks like I may be able to get it on my own anyhow.

    I'll see about mortgage brokers if this one doesn't work out. Thanks Riggerjack.

    Posted 1 year ago #
14. 

    celliott
    

    Apprentice
    Joined: May '11
    Posts: 63

    If you're only planning on owning the house for 5-6 year and subsequently selling, then you're wasting your money buying.

    I speak from the standpoint of one who has bought 10 houses (sold 3 of them) in SW Oklahoma over the past 10 years. The sunk transaction costs (financing, realtor fees, etc,) on both ends (buying & selling) within that short time frame will make it virtually impossible to recoup your costs much less profit. Unless you are getting this house WELL below market, it's a money losing transaction for you.

    I would save the cash, possibly invest it in higher yielding dividend stocks and wait for the house you really want in FL.

    Posted 1 year ago #
15. 

    enalynom2
    

    Novice
    Joined: Feb '12
    Posts: 2

    In my experience a mortgage broker won't bother with a mortgage that small. I refinanced a similar amount about a year ago and had to go directly to the banks because of the small loan amount.

    Have you tried a credit union?

    Like celliott, I would probably just rent if I was only planning on living there for 5-6 years.

    Posted 1 year ago #
16. 

    Fred Tracy
    

    Journeyman
    Joined: Jan '12
    Posts: 101

    Thanks for the advice guys.

    I've been using this rent vs buy calculator: http://www.nytimes.com/interactive/business/buy-rent-calculator.html

    Assuming a rent cost of $419, a housing cost of $66000, and a interest rate of 4%, buying is "better" than renting after 5 years.

    Which means they are both pretty much the same, on average, at the 5-6 year mark. So it becomes a question of whether I want to live for 5-6 years in a house, or an apartment. All things being equal, I'd take the house. That's my line of thinking.. does that make sense?

    I appreciate the advice celliot, especially with your expertise. Do you think I'd be that much better off renting? Keep in mind that I'm going to be probably renting out a room for a significant part of the mortgage. I'm only hoping to break even with renting, aka ~420 dollars a month on average spent on my house after I sell it. Is that reasonable to do within this timeframe?

    I haven't tried a credit union just yet enaly.. if this current loan doesn't work out, I'll go to one and see what I can find.

    keep it coming guys! :)

    Posted 1 year ago #
17. 

    George the original one
    

    Expert
    Joined: Jul '10
    Posts: 1,938

    You're assuming that it is as easy to sell a house as it is to buy it. Or that it is as easy to find a renter for your house when you move out.

    So consider how much "better" a purchase is if you're not able to sell or find a renter for 6 months while the house sits empty.

    If you REALLY want to live in a house rather than an apartment, find a roomate to pay an additional $420/mo and you'll have more house.

    Posted 1 year ago #
18. 

    Fred Tracy
    

    Journeyman
    Joined: Jan '12
    Posts: 101

    Thanks for the reality check George. I haven't even considered the difficulties in selling. That certainly makes the situation less perfect than I imagine..

    I wouldn't mind doing the roomate thing, but I'd be more apt to split a small house, so 420/2 = 210/month price, which would be pretty nice.

    Renting is starting to sound nicer, especially since it's pretty cheap here. I had thought that buying a house was financially superior, but I'm starting to think the opposite.

    There's always the option to stay in the house longer, but I have too many dreams of building my own eco-house somewhere with lax building codes..

    much food for thought. Perhaps renting in the mean time is the obvious choice. Having a 9 month lease to think these things over seems intelligent.

    Posted 1 year ago #
19. 

    celliott
    

    Apprentice
    Joined: May '11
    Posts: 63

    Fred,

    I have to say I admire your seeking out advice and your careful analysis while trying to keep your emotions in check. Keep that spirit and you'll do well in your endeavors going forward.

    I really do feel strongly that in your case renting is still far superior to buying (esp. given your time frame). The other shock that many don't account for when buying a house is the maintenance and repairs that inevitably arise. With all my rental houses I set aside 10% of the rent proceeds for repairs and maintenance every month. For a $600.00 mo. rental, that's $720.00 a yr. I ultimately use every penny of that.

    While renting, you avoid the headaches that come from being the one responsible for repairs, mowing the yard, etc.

    So, while 5 years is the intersecting line where buying begins to pay off, that on a purely dollar for dollar basis. If you haven't done it yet, look at the amortization on your 30 year FRM (fixed rate mortgage). It's pretty depressing for the first several years. To make financial sense, buying is for the long term. >5 years.

    Try socking away the difference (savings) between buying and renting in a dividend paying stock like Linn Energy (Stock ticker: LINE), paying 7.2% dividends (technically "distributions" in their case as their an MLP). That will fill some of the emotional needs to see your money grow some equity. They'll grow their dividends by at least 5%. Check them out. After 5 years, you'll likely have a much nicer down payment for your FL house.

    Keep up the good work, Fred.

    Posted 1 year ago #
20. 

    SirChadwick
    

    Novice
    Joined: Mar '12
    Posts: 2

    Something else I don't see mentioned as much in the rent vs. buy discussion are the other costs of owning that are more psychologically based. When I have owned there was a tendency to put something in the rooms, go a little extra on the maintenance or small projects (I should put a towel rack there etc.) and overall end up spending more, even if it's marginal and miniscule (but quickly aggregate). The pressure to buy things increases, which can be resisted, but it's a pressure that doesn't exist in the 1bdrm shared rental scenario I am in now.
    I also think there is a false equivalency of rent vs buy calculators because one will often rent a different type of place than buy. In other words, if I were to buy, I am going to spring for something a little (or a lot) nicer to improve the likelihood of selling later and just knowing more time will be spent there. I'm really then comparing a $250K bought house to the $150K rented condo.

    Posted 1 year ago #
21. 

    dragoncar
    

    Expert
    Joined: Oct '10
    Posts: 1,287

    For the calculators, you do have to use absolute equivalents. And include every single expenditure.

    I noticed Fred seems to be comparing a condo to a house, but is it impossible to rent a house in your area?

    Posted 1 year ago #
22. 

    Fred Tracy
    

    Journeyman
    Joined: Jan '12
    Posts: 101

    Thanks Celliot, that means a lot.

    Hmm.. I have only a basic understanding of amoritization, but it means that you only pay interest (or mostly interest) for the first few years, right? That seems like a scam.. crazy! It also seems like it would indeed make a good case for holding off on the home.

    I just can't believe something like that is legal. Seems rather silly to me.

    Sir Chadwick, you also raise a good point. If I rent, I'll get the cheapest thing possible, which is 419/month in my town. Of course, the houses I'm looking at are pretty cheap, but I could go a lot cheaper if I really wanted to!

    Dragon - I can rent a house here, but it would be a lot more expensive than an apartment. I'm really only interested in the housing scenario if I can own it, fix it up, and the whole shebang.

    Perhaps I really will postpone the buying process then. It's exciting in a whole different way to be able to rent, because I can do that now.. as in, like, tomorrow. And if I rented with a friend I'd have extremely low housing costs.

    Lol, dragon.. I was slightly confused when you said I was comparing condos to houses, because I don't think we have condos here? Or maybe they are just called something else.

    I'm curious, does anyone know if the rent vs buy calculator I listed above (the NY times one) takes into account amortization? If it doesn't, I can see a short-term buy like mine being severely handicapped!

    Posted 1 year ago #
23. 

    dragoncar
    

    Expert
    Joined: Oct '10
    Posts: 1,287

    Sorry, when I said condo I meant apartment. The terms kind of melded in my brain, but they have slightly different connotations.

    If renting a house would be even more expensive than an apartment, and the apartment breaks even at 5-6 years, then the rent vs. buy equation on a house should break even even sooner. Plug in the numbers for renting the exact same house (or as close as you can get) for the real analysis.

    The NY Times rent vs. buy calculator has some "advanced" button where you can plug in all kinds of different values. Actually, I find it almost mandatory to do so, because their stock market assumptions seem way too aggressive (i.e. I don't think you can count on a 7% return over the next 5 years with a high likelihood of success... maybe over the next 30-40 years).

    Posted 1 year ago #
24. 

    Fred Tracy
    

    Journeyman
    Joined: Jan '12
    Posts: 101

    Well, that's true. If I were to compare renting / buying the same exact house, buying would win easily. I suppose the only problem is I can't find the equivalent of the crappy apartment I want to rent, haha. If I could find something that small in a house, I'd definitely buy it!

    Oddly enough I did find a house for rent that was only 100$ more expensive than the apartment, but it was TINY and by some train tracks, so...

    Perhaps I'll rent after all. Only time will tell.

    Posted 1 year ago #

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