What kind of house can I afford and down payment should I be looking to save?

Question

Hi!

I'm looking to buy a condo in Minneapolis at the beginning of 2008 (about 9 months). Right now, I'm a senior in college, fortunately with no debt, and will start a job in June that pays 46,000 a yr.

I'll be living w/ my folks for a while to save money until 08, so most of my income should go directly to savings. My current status is:

About $15,000 in equity holdings (mostly index fund ETF's)
$3000 in savings.
I also plan on earning about 15,000 (after tax) from now until I would like to purchase the condo.

My questions are:
1) How expensive of a condo should I be looking to buy and how much should I be looking to save for the down payment?

2) Since the planned purchase isn't for another 9 mo., what should I do with the money I do have (and will get from my job in the coming months). Should I invest it in ETF's until 08 or keep it risk-free. Right now, my savings are in an Emigrant Direct savings acct earning about 5%.

Any advice would help! Thanks

Answer 1

When buying property , the general recommendation is that the housing cost should be no more than 25% of your income .
Normally that would be the principal, interest , taxes and insurance but with a condo , you also need to factor in the HOA dues.

When buying the house , have 20% down or else you will also have to pay PMI - private mortgage insurance and that can be pricey .
Neither the PMI nor the HOA are tax deductible with the feds, just the loan % and property taxes.

As you look to using your $$$ in less than a year , do not put it in any stocks or volitile investments as you will NOT have time to ride out any downswings that may occur . 5 % for a savings you need shortly is pretty OK .

Housing prices and mortgage rates are in a state of flux but a $200K unit with $40K down , would be in the ballpark . Start watching prices in the summer so you can see the trends.
Get the zip codes of neighborhoods you like and use that for your search tool .

Good Luck , oh & check this page for calculators

http://www.fool.com/homecenter/homecenter.htm

Answer 2

1st of all when a lender bases your income they go by monthly before tax 2nd you will need to have a good solid rental history showing 12 to 24 months canceled checks where you paid your rent also will need 2 or 3 good tradelines. Typically you can get 100% financing which means you would only have to pay closing costs out of pocket and if you needed a downpayment you could do a lease purchase option where you rent the house or property for a year and then after that year you can take the lease purchase agreement to a bank or broker and refinance it like you would any home you have owned with no downpayment and can include the closing costs inside the loan I hope this helps also with the money you are saving you should put it in a checking account because the funds would need to be seasoned for atleast 6 months
in responce to what kate siad about the PMI. IF your Credit score is 620 plus that would be a factor but also there are lenders that will do Lender Paid PMI which will result in a higher interest rate but infact would be a cheaper route to go the reason I mentioned the 620 and above is the fact that's conforming and below 620 is called subprime which most subprime lenders dont charge PMI

Answer 3

Economists with a very high rating between projections and eventual reality have been saying prices will hit rock bottom in the first quarter of 2009.

If that's true, you should wait til then to buy. At that point, it will be amazing how much house you can buy and how little down you may need to do so.

What ETFs have been consistently paying better than 5%? If you are aware of any, I guess their a good bet. I am not.

Answer 4

Contact your loan officer at your bank regarding what you want to purchase. They can do a profile and let you know what you can and cant afford and all the extra expenses that goes with purchasing property. As far as what to do with money that you already have-I am sure they have someone at the bank that can give you advice.