I’m not sure if this is common, uncommon, or just completely dumb to try and do. But feedback and input would be greatly appreciated.
I make about $38,000/year after insurance, taxes, 401k, etc. This is my take home pay.
I have about $21,000 in my savings and checking combined. My credit card is always paid down and has a $7,000 limit.
I spoke with a mortgage lender rep a few months ago to see if I could start the process to get pre qualified for a home loan. After the conversation, I felt very defeated because there were a lot more closing fees, inspection fees, insurance, etc. that I did not know went into buying a home.
If I have to find a place to rent for another year or two, that will be $1,000+ a month, and will leave me with only $500-600 that I can put away into savings for a house down-payment. Starting next year – after student debt relief kicks in – I will still have an outstanding balance and be paying around $300/month on those to aggressively pay it down (and increase my payments each year as I make more money).
I just feel impatient because many people have pointed out to me that their mortgage payments are much less than it costs to rent every month. Should I be more patient and wait for a big promotion to pull the trigger on a house hunt?
Also I suppose a possible pro to paying that much in rent would be not having to pay to fix things around the house if it breaks. But I think it would be awesome to own a house and start owning some equity that will pay myself back later on.
Thoughts? Opinions? Tips?
To clarify/tl;dr: is it a smart or dumb move to take out a loan or rack up credit card debt to afford a down-payment and closing fees, in addition/separate to taking on a mortgage loan?
Taking out other loans when getting a home loan isn’t a good idea.
Honestly for us, buying is more than renting so that isn’t the same everywhere. Especially with 7% mortgage rates right now.
You most definitely should not take out a loan for a down payment. That’s just not smart. Look to state first time home buyer programs and/or save money for your own downpayment. Remember you don’t need 20% down.
People are still allowed to do that? I thought they get rid of it after 2008 disaster.
Many lenders make you attest that down payment funds aren’t borrowed. Additionally, the loan will affect your DTI. Whether that knocks you over the top, who knows without more info.
Also, if you need to borrow a down payment, you can’t afford to buy, period. The only thing more dumb that borrowing for a down payment is doing it via credit card. That’s a horrendous idea.
Save up way more money before you tackle housing ownership. With home ownership, you got potentially high ass property tax bills and unexpected expenses coming at you from everywhere. No hurry….
Interest rates on mortgages are really high right now. Inflation is high. We are in a really bad economic state right now, and will probably continue into foreseeable future. You do not want to take a loan out to pay for a down payment, that is going to show up when your mortgage lender reviews your finances. You’re going to have all kinds of expenses you aren’t prepared for (property taxes, insurance, your sink is leaking).
Keep saving money as you can and make it through this recession and start to consider buying when interest rated are better.
Other people are pointing out why a loan for a down payment might be reckless, and that’s all true… But:
The much more important point is that -ANY- loan you take will have a shorter payment schedule, and likely a higher interest rate than the same amount added to your mortgage. So for every $500 you “borrow” before you get mortgage, it’ll probably knock thousands off the amount that a bank will be willing to loan you.
If you’re in a position where you have very high income, currently low debt but very very low liquid assets, and you are buying a relatively inexpensive house relative to your income, you might be ok with this to get you a small down payment that you need without having much of an effect on your DTI. But those requirements are almost certainly not met.
In other words, trying to game this system by borrowing a down payment will almost certainly end up backfiring.
Just like you were surprised at the closing costs, you will be surprised at all the costs of owning a house. Plumbing, electrical, roof upkeep, repair and replacement. Yard. Garbage, electricity, water. Property taxes.
You are not in a financial position to buy a home right now.
You need way more in savings than you have, and no, a personal loan to afford a down payment is a bad idea, should be setting off alarm bells that you can’t afford it.
Also have you been reading the news? With the Fed raising interest rates, mortgage payments are increasing. And while home prices will eventually fall due to people being priced out by the increased IRs, they haven’t fallen yet. So double whammy of high home prices and ever rising monthly payments.
Increasing IRs impact the whole economy. So your home affordability aside, there’s likely a recession of some form coming soon.
Absolutely not. Bad idea. What is your gross income? Where do you live? At only $38/year take home, you’re not in the position to buy a house.
Please familiarize yourself with the amortization schedule for the loan. So that you understand how much equity you’ll actually build. For the first part of the mortgage it is not that much.
It doesn’t matter if others ppls mortgage is less than rent. What matters if YOUR mortgage/insurance/property tax payment will be less than rent.
You must must MUST run the numbers to fully understand the whole picture.
Don’t be discouraged. But recognize it may take some focused learning to get on top of how all this work. You can do it! Just be diligent.
Getting a loan and racking up cc debt will probably prevent you from getting a loan. Bc the bank won’t lend to you.
Also you shouldn’t buy if you don’t have a large emergency fund. Many ppl have $10-$20k worth of maintenance costs on their house that can’t wait in the first few years. Things just happen.
I will teach you to be rich is a great book to learn abt finances and how even w only $500/month extra you can build wealth through passive investing in index funds
That’s not how it works. The lender will see it as a loan and factor it into your DTI ratio, meaning you wouldn’t qualify for as much.
You should focus on increasing income tbh. $40k isn’t going to be enough to buy in most places.
You don’t build equity in a home right away. For the first 5-10 years your money is mostly going towards interests, taxes, insurance, and maintenance. You’ll actually build equity faster if you have a significant down payment.
Keep renting. Make increasing your income your number one priority.
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