Houses Are Always Too Expensive
If you'd like to subscribe to Ask Uncle Bill, a quick click on the link below allows you to do so. You can choose how to receive it, the reader of your choice (such as, into your Google main page), whatever you prefer.
Oh, and it's free. I like that.
http://feeds.feedburner.com/askunclebilltypepadcom
Our 29 year old reader with a good job in IT and perfect credit also had a question about home buying.
Dear Uncle Bill,
I'm thinking about buying a house. Should I use my emergency money to fund my house purchase or should I save up a completely seperate set of funds for the house downpayment? Do banks still expect 20% down? Home values have gone through the roof over the last 6 years.
Signed,
Desperate Housebuyer
Dear Desperate,
As far as using emergency money for a home purchase my answer is a definitive maybe. I would put in place a parallel plan. You have an emergency fund already and that is great. Start saving money and earmark it for the downpayment. But start looking now if you are really serious or just want to learn about the market and IF you find a bargain; use your emergency fund, your credit cards, hold up a gas station and buy the bargain. You are probably moaning, "Hey stupid, there are no bargains." And my answer is there are always bargains but you have to learn how to find them and recognize one when you find it.
"Easy for you to say, old man." Not really as the good old days weren't all that good. Think unemployment at 10%, short term interest rates at 12%, mortgage rates at 10%, inflation at 8% and heading for 15%, and a huge Middle East crisis totally out of control. And I bought a house. A house that was falling down with my dad whispering in my ear "You're not really thinking about buying this, are you?" The whole sordid story is in Category 9-Buying A House for 30% Off.
I won't rehash the experience here but a bargain is defined as a house you can get for 20% to 30% or more off list price. 20% minimum. You may not want to go to the work of finding a bargain which is ok as you have the time and opportunity to look and learn the market while your downpayment account gets funded.
As far as the 20% downpayment, the short answer is no. My realtor says banks and brokers are lending to anything that is breathing and that scares me, a lot. Check out what the banks want but if you have 20% for the down, you are golden--no PMI and the best interest rate. Anything between 10% and 20% is good but 20% is great. This assumes you want to own the house someday. If you want to flip in six months, then go low downpayment but watch the fees. You say you may move around a lot so your profit, assuming there is one, will be chewed up by fees so study any deal carefully.
For more information on saving for the first house there was an excellent article this week in the Wall Street Journal Sunday edition (available in many local papers) called "How To Save For Your First Home" by Kelly Spors. The seven steps are:
1) Aim for 20% down.
2) Keep it seperate. (Don't agree totally here.)
3) Consider your time horizon.
4) Get extra help.
5) Clean up your finances.
6) Weigh mortgage tradeoffs.
7) Hands off retirement savings.
Also, check out the March issue of Money magazine for a very scary article about fees and shady ethics in the real estate market. Read this one carefully.
Finally, brokers. Don't use them. Go straight to the lending institution and get prequalified or at least find out what you have to do to get qualified. I should know--my deal to sell one of my houses just fell through because the 'broker' who said the buyer was prequalifiied suddenly stopped returning any phone calls.
And again, please read Category 9 about finding bargains--it really can be a lot of fun and lucrative. Good luck and good hunting.
I came across a wonderful site about 2 weeks ago called ripoffreport.com
It has a lot of horror stories on there of people's experiences in dealing with even nationwide mortage companies. It was a real eyeopener for me.
Posted by: SkyeBlue | March 03, 2006 at 05:31 AM