Im 20, and my friend and I are moving out sometime early this year. I have an uncle that kind of introduced me to real estate, but its always something I wanted to do. Any how, the monthly payment for renting somewhere seems to be higher than buying a house and paying a mortgage. So it got me thinking, why wouldnt we just buy a foreclosed house. The one we were looking at is 39,900, decent area too. Live there for a year or 2 and then sell it for a nice amount of money as the area is roughly a 100,000 area. The house also dosent seem to need any major fixes. So im wondering, would purchasing a house right now be a good idea, and what would be some rough numbers were looking to pay. Basically any help is appreciated. Together, we would go into it with about 9000, would that be enough?
Hi,
It sounds like you may be well on your way to home ownership!
You have plenty of cash for a down payment and closing cost’s on a $39.9k home.
You can apply for a FHA 3% down owner occupied loan and put $1200 roughly into down payment and less than $1,000 into closing cost’s.
Make sure you work at improving the property over the next couple of years by putting some time and money out of your paychecks into the property. Since you have to have a place to stay and it’s pay rent or pay a mortgage this is a good choice.
I take it you have decent credit, two years tax returns and a stable job you have been at more than 1 year? You and your friend can get the loan together provided you both understand your responsibilities to the property and each other and are in agreement to what you do as an exit strategy after 2 years.
Owner occupied loan requires you to stay in the property for roughly 2 years before selling or renting as there is a huge tax advantage for owner occupied properties where owner can prove they occupied it over 2 years.
Your looking at a PI payment of maybe $285 a month on $38.7k as a mortgage loan!
Good luck,
GR
GR is spot on in regards to building that equity and the investment.
SLIGHT tweak in the figures, FHA used to be3%, now is 3.5%.
You and your friend would each have to qualify individually for the loan.
Another option to look at, due to the loan amount, is just go to a small local bank.
They can be easier to deal with on smaller notes sometimes.
Good luck!
The part I would think twice about it going in with a friend on a venture.
Get prepared to get closer with the friend or the opposite.
If it were me I’d buy it myself and pay the friend to help re-hab it, and let them stay there for well below market rent.
That being said, I say go for it, your plan will work, just think the exit strategy through.
What happens if one wants to sell and the other doesn’t.
Paying rent sucks, if you can buy do-it, especially right now.
Also don’t rule out trying to find a 2-4 unit place, live in one unit with your friend and rent out the others.
I wish I started at 20. You got a 5 year head start on me.
Use your youth to your advantage. People are sometimes more willing to lend a hand to the youth/students in the form of advice/mentorship, just pay respect to the grey hairs.
Mike
I was going to say what Mike said, about the friend thing. There is much more truth in what Mike is saying than you may realize. Don’t think that because you all are “friends” that this will be fun and exciting like a road trip. I would put the odds very high that it hurts your friendship down the road. I’d say go it alone, course, it’s too late for that probably isn’t it. If you tell your friend you want to buy it yourself, your friend thinks you are selfish and greedy. Hmmm…before you look for financing, have a serious talk with your friend and go so far as discussing scenarios down the road if your friend gets engaged or whatever. Houses come and go…but friends…well…they come and go too don’t they? Seriously though, you al need to go through the scenarios if things go wrong, or if one of you needs to move etc.
Dr. Phil
Well first off, Ive had he same job for the past 3 years, but since the last 2 ive been in and out of the hospital for cancer treatment(im fine now) the w-2s are showing like 6000 a year. ANd i have no credit but i know how important it is for this field so i applied for one and was actually qualified for a 200 dollar limit. It should be here sometime next week. I understand the friend issue as well. Hes been my friend since middle school and im trying to get him to understand how profitable and simple this can be it his kind od back and forth. Hes biggest question is always “Well if its that simple, why dosent everybody do it?” As far as fixing it up and paying rent i know he’d be good for it and i would do my own thing after the house was sold. The only reason i was looking for him to be my partner though is because i didnt think i could pay by myself…but Gold River is saying i could put 1200 down and the 1000 into closing costs??? Is this possible? And then only 285 a month? If thats the case hes just going to be out of luck. Id probably end up making him pay rent to live there as its a 3 bedroom and we’ve been planning on moving out for about 6 months not, i couldnt just ditch him like that. I know this is long but i have so many questions, so please stick with me.
Your closing costs should be pretty cheap on a 40k property. Our lawyer charges $400 per property for title search and closing. Recording fees should be less than $100. Title insurance may be a couple hundred dollars. Remember, you’ll get the property taxes for the year pro-rated to you as a credit at closing. This is because you’ll have to pay the full amount when they’re due for the year. Any loan fees will be your responsibility. Our bank is usually between $150-300 for these small loans. Ask your bank if they can do a drive by appraisal and help base the value off comps to save a few bucks. The home inspection could cost a few hundred if you decide to have one…we don’t get inspections. I do that myself.
Based on the W-2 info, I’d really suggest going to a small bank on this one. When I say small bank, I mean a local credit union or non-nationan wide bank. FHA is ever tightening up guidelines, and you want this to be as simple as possible. If the room is there, you could look to roll the closing costs or a portion into the loan.
As far as reestablishing yourself after what you’ve been thru, I’d suggest getting 2 small secured cards, and keep them below 50% of their limit to start rebuilding credit.