Buying a new house. For a single parent.

[unhealthyre]

Ok, right now my dad and I are living in a 1 story house. It was a lot of money, so my dad's father had helped pay the rent. The thing is, we're gonna have to move out of our house and move into another one. Our only choice is 2 story houses. Reason is, because that's all they have here. My dad's father isn't helping payin for it no more, because he's going through a divorce and it's costing him ALOT.

My dad didn't go to college. Mostly because I was born ( yeah i feel bad ), and he makes a good ammount of money for a single parent, but not enough! He makes about 6 - 700 a week. How are we supposed to rent or buy a house with that weekly salary? Seriously, especially since all houses over here are 150 - 250,000 $

How do you afford a 2 story house on that salary? Seriously, I don't know what my dad's gonna do about this...

Oh and is it better to rent or buy?

[Iceman26]

Have you done a search on condo's or townhouses? They might be cheaper if you can find them.

If money is a problem I would consider renting versus buying, that way you aren't forced to pay for all the upkeep on the house.

[Siriana]

Why it has to ba a house (sorry I'm from europe)..whats wrong living in apartment?

[annie24]

welcome to enotalone. well, we can't really answer your questions without knowing more about your dad's situation, and I don't think you have all that info. As for renting vs. buying, it depends on how long you will be living in the area, how much money you have for a down payment, and how much rent would be vs. mortgage. And, like ice man said, if you own, then you have to pay for repairs yourself, as opposed to renting, the landlord does it. If you will be staying for a while in that area, it can make more sense to buy, because a home is one of the best investments you will ever make.

Can he afford it? I don't know. There are all sorts of mortgages and programs out there - they have programs for first time buyers, there are programs for low income people. It just depends how he is planning on financing the purchase, and in which neighborhood he is looking in.

[southerngirl]

Okay Im going to jump out there and say dont worry about it!

He is going to do his very best to take care of you same as he always has. One way or the other, its going to work out alright! Have faith in him. He sounds like a great father.

[FortunateOne]

Here's something I posted a while back.

Buying multi unit or single unit housing is the greatest way to start investing in real estate. The following agencies offer great programs for the beginning investor. I'm going to teach a basic residential loans 101 to ENA'ers so they can wisely approach a property purchase with confidence.

Here in the US there are many basic investors that infuse liquidity into the mortgage markets. There are many forms of structured financing through the securities markets for non-institutional lenders (sub-prime, B-paper, non-conforming, hard money), but for now I'm focusing on the most common and best priced investors. The most popular are Fannie Mae, Freddie Mac and FHA/HUD. Here's their sites:

[Only registered and activated users can see links. ]

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These first two investors were created by the US Government as quasi-government agencies to free up cash from lender in order to reinvest into communities and they each have their basic underwriting guidelines that must be met by it's private lending vendors. The third is run by the Department of Housing and Urban Development and focuses more on insuring financing for lenders of low income/down payment first time buyers programs.

These agencies maintain there own set of rules to qualify borrowers. These rules break down to four simple principles: credit, income, collateral and assets. In order to meet the bare bone minimum requirements one must at least have three of these four for a bank to approve your loan.


Four Principles of Lending:

Credit, as Charley has stated, is a very important since it shows the lender what financial personality type you have been for the last seven year. Lenders at the very least want to see an effort to pay off accounts in a timely manner and see how over burdened with debt you've become. This is a predictor of thing to come.

Income is very well analyzed since it show cash-flow on a monthly basis. The lender wants to see if your wise about your choice, type, history and reputation in the field of work. This principle does tell a lot about a person's personality. Imagine if they see your bank statement show a recurring monthly charge for coffee of $350 and your barely making your car insurance payments.

Collateral is the subject property and/or any other real estate owned else where. Here the lender wants to see how much of a financially vested interest you bring to the deal. This is where loans are made or broke and the reason why the "sub-prime" market exists. The lender wants to be sure you don't walk away at the first sign of trouble. Why? Because you lose your hard earned down payment.

Assets goes to the lenders idea of wealth management. They want to see how wise you've been at investing. Not only for knowing how to save, but more important, knowing how to invest. 401K's are considered an asset and a certain percent of household possessions and cars, but the lender really wants to see liquid cash investments. It shows security in case of a personal life emergency.

Here's a basic view of how a lender thinks and as long as three of these principles are in excellent shape there should be no problem qualifying for a loan. In the past I've used certain qualities about the borrower as a compensating factor; 35 years with same employer (stability), potential probate inheritance (asset), medical proof for delinquent account (unforeseen obligations), and many, many more.

Just remember that it takes a professional loan officer to know the in's and out's of the lender, heck, a real loan officer knows the underwriting guidelines better than the underwriter himself in order to plead your case. There are so many loan officers out there that are just cheesy sales people, specially in the sub-prime industry. Become a knowledgeable consumer and take charge of your financial future.


Fannie Mae/Freddie Mac:

Fanie Mae and Freddie Mac are what we call in my industry "A-paper" or "prime" or "conforming loan" market investors. They set the guidelines to both institutional and traditional banks and are the benchmark for the best possible interest rate one can ever hope to get. The business section of any newspaper keeps a daily interest rate tally or index as to what the current going rate and points are being charged to consumers.

They use a computer based approval system know as LP or DU underwriting. These underwriting guidelines are the strictest and are the loans people with a credit (FICO) greater than 680, max income ratio (DTI) of 36%, max collateral ratio (LTV) of 90% and three month seasoned assets of at least three months savings always get the best rates. When the loan is equal or greater than 80% of the property value (LTV) the lender will assess a mortgage insurance charge to your monthly payment. Why? the insurance pays their loss in an event of foreclosure.

To purchase a property with these programs I'd suggest to do so if you have the minimum down payment of 10% of the purchase price plus the closing costs. I've seen newlyweds and young folk buy with a lot of help from relatives. It's the most affordable way to do so since you're getting the best rates, fees and sellers. Sellers hate to deal with no cash buyers since it runs a higher risk of a turn down by the lenders and wasted more than a month removing their property from the market while in escrow. So, if you've got the cash this is the best way to go.


FHA/HUD:

The Federal Housing Administration through the Department of Housing and Urban Development offers an entry level loan program for first time buyers. This agency is not a lender, but a governing underwriter of these loans. They guarantee the lender that the borrower will meet their financial obligation with out monetary loss to the lender.

They do this with mortgage insurance premium down payments of 1.25% of the loan amount and 0.35% recurring monthly payment in the house payment. It gets pretty pricey when considering that their base rate is on average one percent higher than A-paper loans, but they are the only program that will finance 97% of the property's value. Some states, like California, will kick in the remaining 3% and when submitted under the VA program they will even pay the closing costs.

Their underwriting guidelines are more flexible than Fannie Mae or Freddie Mac. The lowest credit score I've seen done is a 550 (FICO), max income ratio (DTI) of 45%, a max collateral (LTV) of 103%, and seasoned assets of only one month. Remember there are compensating factors and that only a minimum of three of these principles need to in great shape in order to qualify.

Now there are maximum loan limits and it's based on the region. Check their web site for your local FHA loan limits. They do this so the rich first time buyer doesn't buy a two million dollar home with government assistance. Now for those that think you can buy a great deal of homes to rent, think again, they're enforcement branch is your local FBI office and they do go to these homes and verify if you live there for the first two years of ownership. When? Go ask them, but, please, don't try it.

Analyzing An Investment:

The way I approach any investment is to gather the true yearly gross income (GI), subtract the yearly debt service (DS), take the remaining balance and divide it by the local city's capitalization rate (CR) to give me the real intrinsic value (IV) of the investment; (GI - DS) / CR = IV formula. Then I compare it to the market value approach to discern just how authentic the seller is with his true intent of sale.

To get the yearly gross income it's best to get third party verification of rental rates. The best way is to contact your local county or city housing assistance programs, Section 8 here in Cali, and find out what their payment are to the landlord for subsidized housing. Take that amount and multiply it by the unit number and by 12 months to come up with gross yearly revenue. There may be additional income on mixed use properties or if the four unit property has a laundry facility.

The debt services can be attained by contacting the local utilities, county tax assessor, gardening services, maintenance companies, insurance carriers and any other yearly recurring expense that's required to effectively manage the property. Don't forget to include a vacancy factor since on average most tenants live in a unit for about a year. For this contact a local "commercial real estate" appraiser and ask for the area's vacancy factor.

Capitalization rate in real estate, not finance, is a factor defined by the local area's commercial real estate professionals based on the average rate of return from local comparable properties excluding the financing. This is great to determine the how profitable certain areas can be, so ask for what areas have the highest Cap Rates to narrow your search.

Once all the factor give you the real intrinsic value you have a base to negotiate an offer to the prospective seller. Plus, this technique helps in assessing the irrational market highs and lows, plus the psychology of the seller. In this current market environment I figure it takes about nine bad deals before you find the wise one to purchase. This is where most new investor get discouraged and walk away. Tenacity and ambition are important traits to follow through with so many rhetoric filled deals.


Loan Fees:

A point is a fee equal to one percent of the loan amount. When qualifying for these program it is typical for the lender to increase the base rate (par pricing) in order to charge more points as a hidden commission (rebate). Many years ago banks petitioned congress to pass a law where "mortgage brokers" by law disclose the hidden commission, but not the banks themselves. Talk about a double standard. So when negotiating a deal make sure you get what's called "par pricing" since it's the break even point for the lender. Sometimes I use the rebate pricing to pay for fees.

As for what we call junk fees, it is what it is, junk. Therefore these fees can be incorporated into the points, so pay all the lender, escrow, pro-rated property tax, insurance, title, notary, attorney and pre-paid interest with points rather than junk fees. Why? Points can be deducted from your annual taxes since they're considered an interest fee. Heck, I've done deals where I've paid six points in order to cover the fees and commission.

Now I think it's fine for a lender to charge two points for any loan below $100K, 1.5 points up to $250K, 1 point up to $500K and half a point up to $2 million. Hey, a business is in it for profit. Oh, don't forget to get credit for the rent rolls, deposits and any other transferable accounts from the previous owner.


Buying Your First Property:

If you're ready to take the landlord plunge please be sure to follow Charley's credit advice before you start. Once your credit ducks are in order and you are a first time buyer I'd suggest you buy a four unit owner occupied property with the FHA program to start and get an adjustable rate mortgage if you have the discipline to send in more than the minimum required payment.

Why rental property?
The projected cash flow that will increase your projected monthly income, the fact that someone else is paying down the balance on your loan, the tax benefits of all expenses and depreciation, and the appreciation of the property over time. That's four ways to win. how can you go wrong?

Why four units instead of three or two?
Well, your vacancy factor or risk is spread out with three different tenants and comes in handy as a stress reduction when one unit is vacant while the others are occupied.

Why FHA program?
Imagine the leverage of financing 97% of an investment. I don't know of any other investment where a person can borrow this much against it.

Why an adjustable rate instead of fixed?
With discipline this is a very useful tool. An adjustable rate is always lower than a fixed rate and can be managed by sending 25% more than the reqired minimum payment. The extra cash pays down the loan that much faster and after some years it sets you up to use the equity to purchase more properties.

Why do it?
This is how I started and managed to stay one step ahead of the game. Most people want financial independence and wonder how to get started. Well, here it is. It's not a secret and you're not reinventing anything that's new. It is what it is and it takes time, yet on a personal level it enhances your confidence in yourself.


In Conclusion:

Well people, here's how to start and hopefully you have the courage to begin your journey into landlord-ship. Just treat your tenants fair and keep it real. Don't buy anything when in doubt or on emotions. This part of real estate is only a tenth of my knowledge.

Foreclosure investing, note factoring, short sales, hard money lending, financing notes, flipping properties, developing construction, subdividing properties and probate auctions are many other ways to make money, but require a wealth of experience and knowledge to succeed in those avenues, so don't let the infomercials fool you and one must learn to crawl before you walk and then run. Just be patient and the younger you start the better, yet you're never to old to start since it's a fun hobby.

Take care and any questions you are welcome to PM me. Good luck.

PS: I nees to know the OP's loacation to see if there are down payment assistance programs that are offered by the local municipalities and/or agencies.