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I want to buy, have no cc debt,high credit score, priced out
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BigRock



Joined: 07 Feb 2007
Posts: 11

PostPosted: Wed Feb 07, 2007 3:53 am GMT    Post subject: I want to buy, have no cc debt,high credit score, priced out Reply with quote

I'm a 30 y/o, single male living in the Boston area. I want to buy a condo, and I would be a first time home buyer. I make 60k a year, and don't have many expenses except for car insurance ($150 a month), rent ($500 a month), and student loans ($150 a month). I don't have any credit card debt.

I only want to spend about 30% of my after tax income on a condo, which would be a $1000 a month mortgage payment.

Most condos seem to start around $300,000 for a 2 bedroom.

Anything cheaper it seems I have to enter into a "Housing Lottery" but I make too much to even be considered because it is for 'low income' households.

After looking for a couple years at real estate, of course I would like to buy, but not at the current prices.

What is a person like me supposed to do?
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AgentGrn



Joined: 28 Sep 2006
Posts: 82

PostPosted: Wed Feb 07, 2007 11:40 am GMT    Post subject: Reply with quote

You and I are in a similar boat, and my advice is to sock away as much cash as you can. Once this housing collapse is over, you'll need a 20% down payment from somewhere.
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JCK
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PostPosted: Wed Feb 07, 2007 3:42 pm GMT    Post subject: Reply with quote

Most condos seem to start around $300,000 for a 2 bedroom.

Anything cheaper it seems I have to enter into a "Housing Lottery" but I make too much to even be considered because it is for 'low income' households.

After looking for a couple years at real estate, of course I would like to buy, but not at the current prices.

What is a person like me supposed to do?[/quote]

I guess I'm unsure why you'd want to buy a place at $1000/mo, if you're renting at $500/mo. You rent sounds absurdly cheap, even if you have roommates. You only should consider buying if it makes sense financially, and it's difficult for me to see how buying does in your case.

I'd keep renting, if I were you, or if you're unhappy with your current living arrangement, find a nicer apartment.
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samchady
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PostPosted: Wed Feb 07, 2007 4:12 pm GMT    Post subject: why buy? Reply with quote

Do you rent a 2 bedroom for $500/month? If you don't, then its not fair to compare the increased price of ownership of a 2 bed.

Depending on where you want to live, you can get 1 bedrooms for less than $300K. I have seen some in Natick or Framingham that approach $200K. Or Western Somerville has some cheap 1 bedrooms. If you want to live on the T then you are going to pay of course.

I am in the same boat as you. I have very cheap rent, and buying is not smart financially, but I yearn to own, customize, and have some permanence (for example, not having to sign a lease, or have your place walked through by a Realtor every time the owner thinks of selling). So I am waiting, saving up a larger down payment, and watching the market.
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PostPosted: Wed Feb 07, 2007 4:47 pm GMT    Post subject: Re: why buy? Reply with quote

samchady wrote:
Do you rent a 2 bedroom for $500/month? If you don't, then its not fair to compare the increased price of ownership of a 2 bed.


Of course the comparison is not fair, but it's the one both you and the OP are being forced to make. So the fairness of the comparison tells you nothing important.

It sounds like both you and the original poster are effectively being "screwed" by paying less than market rate rent. You can't justify leaving your current place to pay more rent, nor can you justify the cost of purchasing a place at this time for the conveniences you've outlined.

I'm in the same situation with my car right now. I drive a 16 year-old Acura Integra. My father-in-law does most of the routine repairs on it, insurance costs $650/year, so I only pay the cost of parts, gas, and insurance, which is nothing compared to the cost of a new car. I'd love to have new car, but I'm "screwed" because it's a total waste of money to go out and buy a new(er) one. The new car would be more comfortable, quieter, etc., but the cost differential simply isn't worth it for the amount I drive.

It's not fair to compare a brand new car to my 16 year old one, but that's the situation I'm in.
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JCK
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PostPosted: Wed Feb 07, 2007 4:48 pm GMT    Post subject: Reply with quote

The previous post is mine, BTW.
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kdog



Joined: 03 Jan 2007
Posts: 7

PostPosted: Wed Feb 07, 2007 5:18 pm GMT    Post subject: Re: I want to buy, have no cc debt,high credit score, priced Reply with quote

BigRock wrote:
I'm a 30 y/o, single male living in the Boston area. I want to buy a condo, and I would be a first time home buyer. I make 60k a year, and don't have many expenses except for car insurance ($150 a month), rent ($500 a month), and student loans ($150 a month). I don't have any credit card debt.

I only want to spend about 30% of my after tax income on a condo, which would be a $1000 a month mortgage payment.

Most condos seem to start around $300,000 for a 2 bedroom.

Anything cheaper it seems I have to enter into a "Housing Lottery" but I make too much to even be considered because it is for 'low income' households.

After looking for a couple years at real estate, of course I would like to buy, but not at the current prices.

What is a person like me supposed to do?



Seems like a very common scenario these days - I think there are likely quite a number of folks like you.

My own situation is somewhat similar - 30-something, married, planning to start a family very soon, and currently renting half a duplex in the city near the train for $1600 / month. It's renovated, two-floors, about 1500 sq ft. The only things we'd want beyond this are bit more privacy and the ability to cusomize and upgrade. Becuase we're both professionals working in the city, we're really not willing to move beyond 128.

My wife and I have been looking for the last year and a half or so - seen tons of properties - but the reality is that the cost of buying into this market is way out of line with the cost of renting. Our current strategy is to stay put with low living expenses and save, save, save to build as large a down payment as possible while watching the market for signs of stabilization (I expect 2008 at the earliest). Once you have a down payment that reduces your mortgage expenses to a point comparable to renting the equivalent property, it makes a lot of sense to buy. But don't be fooled by the small down payment loans that sucked everyone into the market over the last few years.

Sorry the news isn't brighter... use your hard-earned money to have some fun in the meantime. Florida's pretty warm this time of year Wink
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BigRock



Joined: 07 Feb 2007
Posts: 11

PostPosted: Thu Feb 08, 2007 3:38 am GMT    Post subject: Reply with quote

Thanks for all the replies,


Agentgrn, I am trying to save as much as I can. I'll just have to keep on doing that.


JCK, I am actually in a 4 bedroom, 2 bath for $2000 a month. My share of the rent being $500. Eventually I want a place of my own, but the living situation is good for now.


samchady, I(we) rent a 4 bedroom/2 bath for $2000 a month, so I could swing a place for $1000 with 2 bedrooms on my own.


kdog, I know enough so that I'll never get an ARM, I know I want a fixed rate mortgage. I really do like the Boston area, and I like my job, but i'm not tied to Boston so if a really good job offer came along in another major city, I would consider moving.
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JCK
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PostPosted: Thu Feb 08, 2007 1:19 pm GMT    Post subject: Reply with quote

BigRock wrote:
Thanks for all the replies,


Agentgrn, I am trying to save as much as I can. I'll just have to keep on doing that.


JCK, I am actually in a 4 bedroom, 2 bath for $2000 a month. My share of the rent being $500. Eventually I want a place of my own, but the living situation is good for now.


samchady, I(we) rent a 4 bedroom/2 bath for $2000 a month, so I could swing a place for $1000 with 2 bedrooms on my own.


kdog, I know enough so that I'll never get an ARM, I know I want a fixed rate mortgage. I really do like the Boston area, and I like my job, but i'm not tied to Boston so if a really good job offer came along in another major city, I would consider moving.


You're going to take a big cashflow hit moving into a place of your own, even if the market drops a lot. You'd take a hit moving into a two bedroom rental, which I imagine in most areas will be at least $1000/mo.

Also don't forget to include any association/condo fees in your monthly calculations or real estate taxes, neither of which are insubstantial.

Save your money for the time being, regardless of what happens with the market you'll be in good shape.
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Thu Feb 08, 2007 2:32 pm GMT    Post subject: Reply with quote

This dialogue points to the fact that it kind of takes two earners to get into something decent.

Almost all of the comments I would agree with. I might expand on one of them regarding gaming out the other costs i.e. condo fees, real estate taxes. Do the whole game plan. I found through my experience if you spend all of your focus on the house price, all the other stuff comes fast at you after you get the deal on the property i.e. have 4 mortgage companies set up so you can get a good deal on your loan, get all your closing costs outlined and find out what a HUD Statement is- beat down all of these costs... Add up things like if you need a refridgerator (spelled wrong I know), get a deal on movers, lawyers for the closing etc. You can really bring down your closing costs if you do a few full contact scrimmages. After that, do a budget for now and in the new scenario. Factor in the real estate taxes, the tax credit on the interest and real estate taxes, figure out what your tax bracket is, all your costs, what your emergency fund might be, how much float you'll have if you lose your job. Then, study your opportunity costs i.e. if you have x-thousand dollars extra now you can put it to work for you by investing it. Talk to a friend in finance to help you find a fianancial vehicle that is more liquid and won't penalize you for grabbing your dough for the down payment... I think people that don't game this all out get firehosed once they make a deal on a house and because they are dizzy, they make bad business decisions... Best of luck.
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samchady
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PostPosted: Fri Feb 09, 2007 1:30 pm GMT    Post subject: nice summary Reply with quote

John P, I like all your advice on how to close and work the final costs. You should put that in another thread and expand upon it (I am not saying it does not belong in this thread, my point is that its so good its worth a whole discussion).

Can you expound on how to beat down the costs, and do a "contract scrimmage"? I want to hear more.

My way was to do a comparison shop, get the prices, and then call them all to tell them what their competitors could give me, and most of them were not smart enough to understand my points.
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Fri Feb 09, 2007 4:05 pm GMT    Post subject: closing costs Reply with quote

Closing costs:

Regarding mortgages- mortgage companies are usually banking types like Wells Fargo or mortgage brokers that deal with a number of banks. Although there is usually a prevailing rate the fluctuation surrounding this number has to do with which particular bank's portfolio needs to be balanced out with mortgages. You have retail and wholesale. Mortgage brokers usually get wholesale rates from these big banks. The big banks usually sell their notes with their own retail brokers. Each day or so the banks send "sheets" over to the mortgage brokers offering rates. Again, these offers change every day or so and depending on who is offering good deals on morgages that particular cycle gets to offer the best deal. When you put an offer in you usually need to have a preapproval letter for the amount. It makes your offer more legitimate. Once you sign the Purchase and Sale, after the home inspection and final negotiations the mortgage company gives you a "Good Faith Estimate". I'm not sure what the rules are on this but sometimes it is like pulling teeth to get brokers to put this together and they want to get a feel of what you're getting from other brokers. This is where you market hard and tell them that you'd like to give them the business but you're going with the most competitive... They will sharpen their pencil if they know you are on top of things. The breakdown on this Good Faith estimate shows lawyer fees, loan origination fees etc. If you compare two companies Good Faith estimates you'll see that it can be a shell game with moving costs to different accounts. Ask them if they have lawyers to comply with the prices outlined and tell them that you are going to hold them to these figures or plug in a lawyer that you know is cheaper and assign them to the mortgage broker. Keep in mind, if it is a straight deal, a volume type lawyer is ok, but if there is any complexity at all, don't choose a fast food lawyer. I also gave the brokers some planning guidelines. Simply put, I told them I was the golfer that played conservative right up the fairway and would "lay-up" instead of trying to kill the ball over a pond...

Also, check the 10 year yield on

http://money.cnn.com/markets/bondcenter/index.html

This gives you a feeler for the pulse of where the mortgage rates are going. I found www.bankrate.com was a day late and about .2 or so off (because they were advertised rates) i.e. if they said 6.375 it was more like 6.5 or so. If you want to be a nerd like me, you can look at the interest rate historical graph over the house price graph to get a sense of where the critical moments were.

Once you understand that the 10 year bond yield is directly connected to the mortgage rates, you then question what's pulling on the other end that is causing the demand. Then you learn about the trade deficit, China, the War in Iraq and that's when the dialogue gets outside of the "housing" boundaries.....
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Fri Feb 09, 2007 4:23 pm GMT    Post subject: another thing Reply with quote

Closing Costs part 2:

Oh, another thing (Columbo) - you younger ones might not catch the reference...

When you get to the closing, usually the lawyer sets up an account for the fund transfers. They prepare this HUD statement. This statement tells the lawyer who gets paid by the buyer at the time of the closing. The HUD statement has many of the items that were on the Good Faith Estimate. You will find that one or two people may have inflated their fees beyond the Good Faith Estimate or your negotiated number. Ask for the HUD statement in advance to look it over and match your numbers against it. We found a few discrepancies and called people on it and got them to back off their positions. Stay razor sharp all the way to the end, get these forms in advance and study them, that is what I mean by a scrimmage. A full contact scrimmage is getting this team of professionals assembled and having redundancy, have at least 4 mortgage companies set up and ready to have Good Faith Estimates ready to spit out when it is time to pull the trigger. At the end, you will be absolutely slammed with moving your crap, saying goodbye to your neighbors, the flood of memories when you sift through and box up all the crap you should really be throwing out... The closing is a very crazy time so map it out in your mind and be prepared...
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davelew



Joined: 28 Feb 2007
Posts: 2

PostPosted: Wed Feb 28, 2007 1:59 am GMT    Post subject: how much does a house really cost? Reply with quote

I second the suggestion that you should fully game out the costs associated with a condo. I am in the process of buying a condo, after deciding that condo ownership was slightly cheaper than renting.

There are a lot of negatives that hit you quickly when you buy:

1. inspection fees,
2. lawyer's fees,
3. closing costs,
4. movers

These are mostly pretty minor, adding a percent or two to the cost of a place. More significant are the negatives that are ongoing:

1. the cost of maintenance,
2. property taxes
3. condo fees
4. anything like landscaping that might not be included in the condo fee
5. the "time cost of money" on your down payment (the fact that your down payment might be earning 15% interest in the stock market)

Then there are three very big advantages:

1. mortgage interest tax deduction
2. appreciation of property (even if just keeps pace with inflation, the fact that most condos are so leveraged makes this helpful)
3. locked-in payments (most people would be willing to pay extra in rent today for an assurance that their rent will NEVER increase; this is the point of a fixed-rate mortgage)

In my case, I've worked through the numbers with some simplifying assumptions. Although I'll be paying $580 more a month in mortgage/tax/condo fees than I currently pay in rent, I've calculated that I'll save almost $80,000 over the next ten years. The biggest advantage is in the federal tax deduction, but the fact that my rent would go up in nominal terms while my mortgage payments will stay the same is also significant. Appreciation of the condo could also be important, but I don't expect much appreciation in this market.
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parsec
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PostPosted: Wed Feb 28, 2007 6:52 pm GMT    Post subject: Reply with quote

davelew: another major item you need to consider in your calculations is whether you currently itemize on your federal tax return or take the standard deduction. for 2006, the standard deduction is $5150 for singles and $10,300 for married couples. if you currently take the standard deduction and wouldn't have any other itemized deductions other than your mortgage interest, then you would also have to take into account the standard deduction forgone which can tack on another $400 or so per month.
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