money and buying a house

[xonicolemarie]

say u were going to buy a $300,000 house..how would u go about doing it as in payment wise?

Get a loan?

How much do you have to pay upfront?

And then what percent yearly, or monthly or whatever

 

 

 

i know im young but i only have two years of post secondary education and then i have to look for a stable career and then when im 24 have to move out, so i thought, why not figure this out at an earlier age(yes im a planner)

[Mythical_Suicide]

It depends on who you buy the house from, the interest rates, your income, how long you finance it for, etc, etc. You need to speak to a relator to get a better idea. BTW, things and prices can change drastically in the next few years so keep in mind what you get now as far as information probably won't be the same as what you will see in a few years.

[xonicolemarie]

oo ic..i thought there was a specific percent of the cost that everyone has to pay ..didnt know there were different rates

[dreamwarrior]

say u were going to buy a $300,000 house..how would u go about doing it as in payment wise?

Get a loan?

How much do you have to pay upfront?

And then what percent yearly, or monthly or whatever

 

 

 

i know im young but i only have two years of post secondary education and then i have to look for a stable career and then when im 24 have to move out, so i thought, why not figure this out at an earlier age(yes im a planner)

 

Yey...I am glad to hear your interested in buying a place...me too....right now I am learning the ropes and have a few friends in real-estate and will be speaking with them often about this very very soon. I want to move out before early fall so we have something in common...It's great to plan ahead...I have so much to learn and very excited about it. As I get the information for myself I will inform you too.

 

ps do it while the market is down best time, but make sure your job is stable...bravo cheers to you.

 

take care and good luck to you.

[Mythical_Suicide]

No, there are many factors that play into how much you end up paying for a house.

 

It depends on the area/location, type of house, size, etc.. as well as all the other things I mentioned.

 

 

Like for example, the house my fiance and I are looking at is a 2150sq ft home on .54acres of land and with only 8.5% down and a 5.3% interest rate so we are looking at nearly $900 a month payments for most of our lives (360 months..) in the end paying around $176,000 (Not bad for the house)... However the same house in another area or city can cost more or less depending on how the housing prices are doing.

[qqqq]

say u were going to buy a $300,000 house..how would u go about doing it as in payment wise?

Get a loan?

How much do you have to pay upfront?

And then what percent yearly, or monthly or whatever

 

 

There a lot of things it depends on. Im going through the process now! If you borrow money - you can either go to a home loan place or with your bank. It depends on how much you make for how much you can borrow. For the banks they will only lend you a certain about of money that you can pay back. With home loan places - people who work there, are probably more on commission, so, thats what they want, they may not be worried if you cant afford it. Some may be different.

 

Usually you pay a deposit on the land and house. Could only be a few thousand. Then when you get approved for the loan that money comes through and you start paying it back.

 

It depends on the interest rates to what you pay and how much you borrow. Right now Here anyways, interest rates a low, so its good to lock your self in to a contract for like 5 years, they may go a tad lower but the are more than likely to go up. If its now at 5% you pay 5% interest for the next 5 years. If you dont lock it in, you may pay 5% now but next year it could be 8% and you'd be paying that.

 

One thing i have found - a way they try to catch you out is in the contract they put about the finance. if you go through a bank - which i find is better make sure you put something like 'subject to "bank name" finance" This way, if you leave it with out that, they can make you (the people for the contract for the house/land) go to any other way to make sure you can pay that money - then your pretty much screwed! lol.

 

hope this helps

[itsallgrand]

Start saving now! lol.

 

There is a lot to learn, a lot of variables, and a lot to consider. But the most important thing?

 

That you can actually afford the home you are purchasing. There is a whole world of people out there who have "bought" into homes that they simply could not afford to pay for, maintain, nor keep over the long haul.

 

You don't want that to be you. It's better to wait if you must and go in strong, than simply get in there because someone says you can. And if it's one thing I've learned - there is ALWAYS someone out there who will say you can, that you can afford it, that you should do it, that they will give you the money (loan, mortgage, whatever) to make it happen.

 

It is up to you to determine what you can afford. And all else hangs on that! Your whole future really.

[FortunateOne]

say u were going to buy a $300,000 house..how would u go about doing it as in payment wise?

Get a loan?

How much do you have to pay upfront?

And then what percent yearly, or monthly or whatever

 

 

 

i know im young but i only have two years of post secondary education and then i have to look for a stable career and then when im 24 have to move out, so i thought, why not figure this out at an earlier age(yes im a planner)

 

 

Hey xonicolemarie,

 

Here's how it's done with your neighbors to the South. There is a lot of similarity in banking and this info can be very helpful up north. Make sure you contact Canada's version of home finance assistance or education. BTW, I'm a banker/investor and I completely understand the real estate industry.

 

 

Four Principles of Lending:

 

Credit is a very important since it shows the lender what financial personality type you have been for the last seven year; specially, the last two years. 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 collapsed. 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), proof for delinquent account (unforeseen obligations), large down-payments (20% or greater) 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 commission only based industry. Become a knowledgeable consumer and take charge of your financial future.

 

 

Fannie Mae/Freddie Mac: (Our biggest U.S. mortgage investors guidelines)

 

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 bestway to go.

 

 

FHA/HUD: (Our U.S. government loan assistance program's guidelines)

 

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 pricy 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. thereforee 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 home owner or landlord plunge please be sure to follow sound credit management 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, here's how to start and hopefully you have the courage to begin your journey into home ownership. Just treat your tenants and self fair and keep it real. Don't buy anything when in doubt or on emotions.