Criteria to meet before home purchase

ProfMoneyWise

ProfMoneyWise

Member
Criteria to meet to ensure the dream home does not turn into a nightmare:

Be debt free.

Emergency fund of three to six months living expenses (including a house payment) minimum. This is not a line of credit or home equity. This is cold hard cash put away somewhere safe and never to be touched unless it is truly an emergency.

Downpayment in the amount (usually at least 20%) to avoid paying PMI.

Loan no longer than 15 years, fixed rate.

Total Principal, Interest, Tax and Insurance (PITI) does not exceed 25% of your take home pay. Be on the safe side and know the HOA fee (if any) and factor that in as well. Yes, you may have to put down even more on the home to get it to this number. If you can't afford that, you can't afford this home.

1% to 3% of homes value in a separate account for home maintenance and upkeep at all times. Things need painting, things break, Lowes trips, etc . . . these are needed, plan for them.

Do not take on debt to furnish this home.

Follow the above steps and the home stays a dream not a nightmare.
And if they say "but if you wait the housing prices will skyrocket" that will be good news to all of us who have homes that have lost value. The empty "oh my God's" from the guy doing the selling fall on deaf ears for those of us doing the holding.

And if they say, "but if you don't buy now you will lose the tax credit" you ignore them because a few dollars in credit are not going to dig you out of a hole you put yourself in by buying something you cannot afford to pay for, maintain, and be prepared to weather things that happen. Because these things will happen.

In addition, buy it to live in it. Do not go down the "it is an investment" road. If someday you make money on it that is a plus but you got to like (and be able to easily afford) where you live. Lot's of investments on the foreclosure list. Do not add to the list.

In response to prices being cut on items but still out of reach for purchase I say even Lear Jets are on sale in Wichita but even at 1/2 off the price it does not mean I can afford one.
 
ProfMoneyWise

ProfMoneyWise

Member
And by the way, if you cannot meet these criteria it is ok to rent. There is no shame in renting. The "you are throwing money away by renting" does not hold water when compared to "you cannot afford what you bought."

Do not get pressured. Do not get convinced. You and the person in your mirror know "your" reality and it is "your" reality that matters not the opinion or sales pitch of another.

Buy when you are ready, not a minute before.
 
BadGirl

BadGirl

I am so very blessed
Not being facetious, but how many people do you know of, or have experience with, that truly meets all of your listed requirements/criteria?

Sadly, I know of no one that meets ALL of them, myself included. :frown:
 
ProfMoneyWise

ProfMoneyWise

Member
BadGirl said:
Not being facetious, but how many people do you know of, or have experience with, that truly meets all of your listed requirements/criteria?

Sadly, I know of no one that meets ALL of them, myself included. :frown:
Click to expand...

More than you think but not near enough BadGirl. To many enter into loan arrangements they cannot afford. To many are lured by incentives and/or credits and enter into home purchases for all the wrong reasons. To parse the criteria I show above lets explore the alternative:

Be Debt Free:

Alternative - Be in debt. One can live with no debt and it is absolutely liberating once you achieve this position.

Emergency fund of three to six months living expenses (including a house payment) minimum.

Alternative - Car repairs, loss of job, medical expense, etc. How you going to pay for these when/if/as they happen if you do not have the money set aside?

Downpayment in the amount (usually at least 20%) to avoid paying PMI -

Alternative - High priced insurance policy that is to the benefit of your mortgage company, you just pay the premium. And if you default and the insurance company pays this does not mean that amount is forgiven by the mortgage company. They are still coming after you legally for the amount.

Loan no longer than 15 years, fixed rate -

Alternative - A line from the sitcom "The Office." Michael buys a condo and Dwight remarks, "A thirty year loan at his age. He did not buy a condo, he bought a coffin." A 15 year loan puts paying the home off on the horizon. What? Paying the home off? Yes, actually owning outright where you live but I'll save that for another day.

Total Principal, Interest, Tax and Insurance (PITI) does not exceed 25% of your take home pay. Be on the safe side and know the HOA fee (if any) and factor that in as well. Yes, you may have to put down even more on the home to get it to this number. If you can't afford that, you can't afford this home. Alternative - House poor. Making ends meet but not able to do anything else. The house is not as much fun anymore. Trust me, it happens.

1% to 3% of homes value in a separate account for home maintenance and upkeep at all times. Things need painting, things break, Lowes trips, etc . . . these are needed, plan for them.

Alternative - Ask any homeowner, or yourself from your experience. Things are going to break, things are going to need maintenance. Use money, not credit to pay for them.
 
Larry Gude

Larry Gude

Strung Out
Just let your imagination wander as to what the housing market would be like if you had to have cash to buy a home.

Now, before you react, think it through. Think through all the implications of buying a home, car, whatever, when you can actually afford it as opposed to the various schemes we use to make us think we can afford something.

Have fun with that!

:evil:

:buddies:
 
P

punjabigyrl

Active Member
Larry, Profmoneywise is not suggesting to buy a house cash. He's just saying to think long and hard about your cash flow in versus your cash flow out. And if you can really "afford" the house that is, payments, upkeep etc. that goes with being a home owner.
 
nomoney

nomoney

....
ProfMoneyWise said:
Criteria to meet to ensure the dream home does not turn into a nightmare:

Be debt free. - Check

Emergency fund of three to six months living expenses (including a house payment) minimum. This is not a line of credit or home equity. This is cold hard cash put away somewhere safe and never to be touched unless it is truly an emergency. -Have two months -

Downpayment in the amount (usually at least 20%) to avoid paying PMI. - didn't do the down payment utilized the va no down payment;

Loan no longer than 15 years, fixed rate. -did 30 year

Total Principal, Interest, Tax and Insurance (PITI) does not exceed 25% of your take home pay. Be on the safe side and know the HOA fee (if any) and factor that in as well. Yes, you may have to put down even more on the home to get it to this number. If you can't afford that, you can't afford this home. -Check, actually its 29%, oops

1% to 3% of homes value in a separate account for home maintenance and upkeep at all times. Things need painting, things break, Lowes trips, etc . . . these are needed, plan for them. -don't have this, am I wrong to think that the chances of not having an income and having a major break down are slim to none and can I use my 3-6 mo emergency fund for this?

Do not take on debt to furnish this home. -check

.
Click to expand...

Considering all the above, am I screwed? Closing on a house tomorrow :lol:
 
Larry Gude

Larry Gude

Strung Out
punjabigyrl said:
Larry, Profmoneywise is not suggesting to buy a house cash. He's just saying to think long and hard about your cash flow in versus your cash flow out. And if you can really "afford" the house that is, payments, upkeep etc. that goes with being a home owner.
Click to expand...

I'm not suggesting he is suggesting that. I am following up on his sound advice in order to take the conversation even further and expand the debate to address or, more accurately, reassess some of our fundamental assumptions about our economy. :buddies:
 
ProfMoneyWise

ProfMoneyWise

Member
nomoney said:
Considering all the above, am I screwed? Closing on a house tomorrow :lol:
Click to expand...

Doing great! A little tweaking as follows:

Emergency Fund: Your call on ramping it up closer to six months. If you are a single income I say go to six. If dual, and both seemingly solid, how about four? More is better and if you never need to use the money the cool thing is . . . it is still there and still yours.

Loan Term: Pay extra on this to pay it down sooner. Since you are debt free (and will stay that way) and your home is only 29% of your take home pay there has to be money left over. After you fund the items in your monthly spend plan I would make sure I was investing in the retirement accounts, setting money aside for the kids education, and after that every thing else goes to the principal of the home.

1% - 3% Fund: This can start now and this is not the Emergency Fund. This is "things need gas, things need paint, things need planting" fund. Emergencies are loss of income, furnace quit, pipes broke, transmission fell out of car." If a new home you can lean towards the 1% figure. If an older home go to the 3% figure. If it is a $200K home and you set this fund at the 2% level you can budget it in to fund it monthly ($333 per month). I recommend keeping a couple of months in cash in a safe place at home in your firesafe. This way you are not "swiping" the debit card at Lowes.

You are doing great and way ahead of the world I can assure you. For a quick read, and in your case a "feel good because you are doing it" read I recommend The Total Money Makeover by Dave Ramsey. Common sense, nothing fancy, and you will find you agree.

Congratulations, you are winning.
 
ProfMoneyWise

ProfMoneyWise

Member
VA No Down Payment: How much is your PMI policy or is there one? I hate PMI. Reason is two fold. You have no equity in your home for one. Ok, I'll get over that because you are going to pay more principal every month to build it up.

The main reason I hate PMI is this is a policy taken out "because of you" not "on you" by the mortgage company. They take it out but you pay the premium. In a lot of cases they are the insurance company so the premium is way to high for what you are getting. So every month you are paying good money for something that is not to your benefit.

Let's say a pour sould gets foreclosed on. The insurance policy pays off to the mortgage company. But the amount paid does not pay part of the remaining mortgage. for that amount, plus the rest, salt goes into the wound and they go after the homeowner.

I hope you can find the money after you close to pay down the principal to the 20% level and get rid of PMI.

Can you tell I hate PMI????
 
awpitt

awpitt

Main Streeter
ProfMoneyWise said:
VA No Down Payment: How much is your PMI policy or is there one? I hate PMI. Reason is two fold. You have no equity in your home for one. Ok, I'll get over that because you are going to pay more principal every month to build it up.

The main reason I hate PMI is this is a policy taken out "because of you" not "on you" by the mortgage company. They take it out but you pay the premium. In a lot of cases they are the insurance company so the premium is way to high for what you are getting. So every month you are paying good money for something that is not to your benefit.

Let's say a pour sould gets foreclosed on. The insurance policy pays off to the mortgage company. But the amount paid does not pay part of the remaining mortgage. for that amount, plus the rest, salt goes into the wound and they go after the homeowner.

I hope you can find the money after you close to pay down the principal to the 20% level and get rid of PMI.

Can you tell I hate PMI????
Click to expand...

VA loans don't have PMI.
 
somdrenter

somdrenter

Sorry, I'm not Patch...
ProfMoneyWise said:
Criteria to meet to ensure the dream home does not turn into a nightmare:

Be debt free.

Emergency fund of three to six months living expenses (including a house payment) minimum. This is not a line of credit or home equity. This is cold hard cash put away somewhere safe and never to be touched unless it is truly an emergency.

Downpayment in the amount (usually at least 20%) to avoid paying PMI.

Loan no longer than 15 years, fixed rate.

Total Principal, Interest, Tax and Insurance (PITI) does not exceed 25% of your take home pay. Be on the safe side and know the HOA fee (if any) and factor that in as well. Yes, you may have to put down even more on the home to get it to this number. If you can't afford that, you can't afford this home.

1% to 3% of homes value in a separate account for home maintenance and upkeep at all times. Things need painting, things break, Lowes trips, etc . . . these are needed, plan for them.

Do not take on debt to furnish this home.

Follow the above steps and the home stays a dream not a nightmare.
And if they say "but if you wait the housing prices will skyrocket" that will be good news to all of us who have homes that have lost value. The empty "oh my God's" from the guy doing the selling fall on deaf ears for those of us doing the holding.

And if they say, "but if you don't buy now you will lose the tax credit" you ignore them because a few dollars in credit are not going to dig you out of a hole you put yourself in by buying something you cannot afford to pay for, maintain, and be prepared to weather things that happen. Because these things will happen.

In addition, buy it to live in it. Do not go down the "it is an investment" road. If someday you make money on it that is a plus but you got to like (and be able to easily afford) where you live. Lot's of investments on the foreclosure list. Do not add to the list.

In response to prices being cut on items but still out of reach for purchase I say even Lear Jets are on sale in Wichita but even at 1/2 off the price it does not mean I can afford one.
Click to expand...
Interesting. While what you have described may have some ethical/moral qualities, given the market of the last few years, and future implications of such, it may not make the most financial sense. Take this scenario:

Purchase the largest home you can not afford and cash out any and all equity, stop making mortgage payments and start the foreclosure process. Currently, this process can take 6 months to a year. Assuming Fannie or Freddie hold the note, they could be inclined to lease/rent the property back to you for up to one year at current market rent. After one year, purchase the property back from Freddie/Fannie at a 20-30% discount.

So goes the moral hazard of the story.
 
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