I have 18 months left in the service and I'm seriously thinking about buying a home and would appreciate some advice or tales of experience here. I can't wrap my head around renting for a few years and throwing all that money away, to be honest, and a goal of mine has always been to own my own home. I'm looking at living in SE Pennsylvania, ideally in Philadelphia and working and going to school on my GI Bill. I've looked and keep running across fixer-uppers or outdated homes for the price of a new car. I'd like to get a loan for 50k for a ten or 15 year period (even with a low credit score, the monthly payments are around $650, which is manageable even with a part time job). 35k would go toward purchase of the house, with 10-15k set aside for repairs, new roof, flooring, kitchen or bathroom, new water heater, etc. As long as the place is liveable and the repairs mostly cosmetic, I wouldn't mind living floorless or wall-less for a while and doing some work myself. I understand HGTV makes it look much easier than real life, haha. Also, my motivation here is not to "flip" a house or make some ridiculous profit in a short time, but to create a home. Is this feasible? What problems do you see in the plan? Have you done anything like this? Thanks! Thanks! This would be my first time around with real estate - so I expect there are a LOT of things I don't know. Please keep the great input flowing - I'm learning. :) Ideally, I'll be saving for a down payment and emergency fund over the next 18 months. tag-on Question: Is a home loan given for the value of the house, or for a set amount? Could you theoretically borrow 80k and put 60k toward renovations on a 20k house?
Renting & Real Estate - 3 Answers
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1
You are forgetting couple BIG things when you computed the loan payments. Surely, for $50K loan for 15 years at 10% (you said bad credit) would equal to $537 a month. On top of it, there will be a private mortgage insurance, escrow for home owner's insurance + tax, and you'd easily be paying $900 a month. What would happen if you need new roof, new plumbing, or A/C? Each of them will cost you $5K to $10K. Can you handle that? Worst case scenario... what happens if there are serious structural problems? If the house is worth $35K, you can get a loan for $35K. Especially not-so-great credit, the bank will loan you over the value of the house. Also, you'd find, $10K will go VERY quickly....
2
If you get your loan for a 30 year period it will be more affordable. Don't forget that most people have insurance and taxes going into an escrow account so they don't have to pay it out of their pocket each year and that makes your mortgage an extra $150-$200 a month (depending on your taxes) You can always make larger payments on your loan if you can afford it. If you're not looking to live right in the city, you could get a nice house for $50K. Also, the VA will guarantee your loan to the mortgage company. So your credit doesn't need to be as good as a civilian's would. It helps to have 20% of the cost of the home for a down payment but you may be able to get out of that. I got my house with no money down, but I'm not sure if it was because of the VA guarantee or because that's just the way the market was five years ago. It wouldn't hurt you to talk to a mortgage agent just to get your facts in line, since the rules and regulations seem to change a lot and vary from place to place. I wouldn't worry about repair costs so much like the other guy was saying. Just make sure you have the home inspected before you buy it and don't buy something that needs a new roof or furnace. OR you can get the mortgage company to give you a larger loan to take care of those things before you move in. Also, credit card companies practically throw credit cards at you when you're a home owner, if you don't go nuts and max them out you'll have that extra credit lying around for emergencies. I use mine for small purchases and then pay them off right away. My limits went from being $500-$1000 five years ago to $10,000 now just from using them responsibly. - - - When I got my home loan I got it for a few thousand over the value of the house, but like I said that was a few years ago and the economy was different. I think the VA may have even covered my closing costs as well.
3
All very good advice so far...I'm not familiar with DIY renovating, but I am in the real estate industry. If you choose to set up an escrow account for taxes and insurance your monthly payment will go up, if you do not, your monthly payment will be lower but you will still be responsible for paying your homeowners insurance and taxes at the end of the year, It just will not be included in your mortgage payment. If you are good at saving up, then you can opt out of the Escrow Account and open a savings account, but just be prepared for that tax bill come the end of the year! (personal opinion... Escrow Account is the way to go) Also keep in mind that Home Owners' Association (if there is one) fees are not included in your mortgage pymt. so that will be an extra annual fee that goes with owning a home. I'm not familiar with PA but In TX the VA hires an appraiser to do the appraisal of the home, this could effect the amount you can borrow under a VA loan, definitely consult a loan officer. Good Luck.
