Mortgage Advice?

Everything else
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Lengthy Background
I have been offered a job in a town about 2 hours from where I live now. It’s not great timing—about 2 weeks before school starts. It’s also not great pay. But I think the working conditions might be worth the cut. I was budgeting to see if I can take it.

It might come down to a place to live. I’m in a town of 22-23000 right now. The rental market is loosening up, but it’s still a landlord’s market. I’m paying $1100 in rent for an awesome house.

The town I’m considering is around 8-9000 people. As you might imagine there are fewer options there. I’m going to be contacting realtors looking for rentals—I lucked into the house I have now—but I’m wondering if buying might be in my future.

I’ve never even considered buying before but looking at potential mortgage payments make it look like a reasonable alternative to renting. Obviously there’s the cost of upkeep that I don’t have renting. And I am _not remotely _ handy which is another downside, but maybe it’d be an opportunity to improve myself.

If I were to buy, what are good mortgage options? I don’t even know where to look other than the ads that show up on Zillow. Am I better off looking locally or at bigger places? I should add that the move is close but would take me to another state (Montana from North Dakota) so if I went local would I look at institutions in my new state?

Sorry for my ignorance. I’ve googled but it’s just further fogged my mind which is busy also trying to figure out if I should take the job or not. :)

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I went with quicken loans mortgage and I was quite happy with them. They have since been bought out by another company, so I can’t say if their service is better or worse. As for buying a house, clearly buy one you want to live in. I personally would not buy a house near the limit of what I can afford. I would want some breathing room and I certainly would want enough to budget more than the minimum payment amount. Paying extra can really save you a lot in the long run.

Also it is good that you realise that maintenance is an extra cost. I was not thinking about that when I bought my house. It is a definite expense to be considered. There are also property taxes, and HOA fees (most likely).

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HOA is a very local thing. In MN for instance they’re rare outside of condos.

Put 20 percent down if you can. Otherwise you’re subject to an additional charge every month for “private mortgage insurance” which is just more welfare for banks. Avoid if possible.

Find a local realtor and a local mortgage agent who have been in business for as long as you can find. The ones who stick with it do so because they are successful, and success is built on clients and referrals.

Definitely budget something like 15-20 percent of your mortgage payment for maintenance and random house related bullshit. Do you own a lawnmower? Garden tools? Drain snake? Dehumidifier? Stuff adds up.

All that said, I hope to never rent again. But go in with your eyes open for sure.

Edit : oh and also find a first time home buyer class if you can. It’s a Saturday or two of sometimes tedious stuff, but so worth it if you don’t have that knowledge base.

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What Adam_B said. I recommend looking for a local credit union if you qualify; we’ve found that they are often much nicer, much more open, and more customer-friendly than standard banks, but of course YMMV. Even if you don’t join, many credit unions have great websites with a lot of very good and pretty much straight-up/honest information about mortgages and the arcana of buying a house.

We’re in the middle of refinancing for a lower interest rate and cash from equity to pay off some stuff. If you can keep a house for a decent period of time, it becomes a very nice financial asset. But as noted above, there are a load of not so obvious costs. In addition to the usual upkeep, maintenance, and services (utilities, garbage, whatever), repairs and emergencies are now your problem too.

Also, be vigilant when looking at mortgages. Often, the literature you get only quotes you the actual mortgage (principle and interest) payment per month. To that you have to add insurance and taxes, usually paid from an escrow account,.to get your actual monthly outlay. If you see a mortgage payment that seems too good to be true, it is; they aren’t adding in the escrow. And even with a fixed rate, your actual monthly payment can go up or down depending on local tax changes. You’ll get a nice letter in the mail from the mortgage holder saying you have an escrow shortfall and they’re upping your monthly payment (sometimes by several hundred bucks) unless you can dump several thou into escrow. Whee!

On the plus side, you can have pets, within local zoning rules do what you want to the place, and build equity in an appreciating asset.

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Agree on the credit union thing if available, I’ve always had better luck with them (I’m on my 4th house now).

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I say go to where you get the lowest rate. If your credit is good they will compete for your business.

In terms of rent vs buy, home ownership isn’t all that great financially in small town America, because prices won’t rise much over time. Based on a 5% return, a $1,100 monthly rent should reflect in a house cost of around $264K. If comparable houses are more expensive than $264K to buy, it’s probably cheaper to rent. If the house costs less than that, it makes sense to buy.

Multiply rent x 12 and divide by 0.05. In Toronto a $1M house only rents for $2,200 a month - a low 2.6% return on investment (lower after insurance, maintenance). So it’s a housing bubble.

That said, people buy anyway, even though it’s not worth it financially, because we’re somewhat financially stupid, try to keep up with the Jones’, and are suckers for signs that say ‘Welcome Home’. On a more positive note, you get access to the Jones’ neighborhood which might be better than the rental neighborhood, and you get a bit more pride in ownership.

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I agree with a lot of what you say. I’ve never really considered buying before. Honestly if there were rental options, I probably would rent. I still may at least short term. If the Bakken takes off again, though, I’ll find myself priced out of the rental market and the buying market too. That’s in the back of my head. I completely agree about prices in general, though. I’m going to contact some realtors today to see if rental options exist beyond the three on Zillow and the same three on CL. :)

I’ve heard before good things about credit unions for mortgages. I am in a bit of a hard place with that since I’d be switching jobs and states. The CU in the town I’m considering allows me to be a member as a state employee, but that doesn’t help me yet. I need to be pre-qualified to see if I could get a house if I wanted one. My credit score is in the upper end of the good range but I have student loans that don’t affect it but do affect mortgage eligibility.

Anyway, thanks for all of the advice and keep it coming. :)

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My wife and I got our mortgage through Better Mortgage, an online company, and both the rate and closing costs were better than anything we found locally.

I second the recommendations above about budgeting for repairs, not just on a monthly basis but at the start, too. We put down a smaller down payment than we could afford, and ended up needing the spare cash for some sewer work.

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Real estate prices, rental and purchase, vary incredibly. Where I live, a small town in northern Vermont outside of the major city, Burlington, my mortgage is less than rent on a similar or even smaller place, The rental market is super tight, and it’s a landlord’s market here. There are more relatively affordable houses for sale, if you’re willing to live somewhere not right in town, than there are affordable rental properties.

Buying is not the best option for everyone, in every situation. Some things to consider though include pets, because many landlords don’t allow them or put limits on them; reliability of the landlord, because sooner or later you’ll wind up renting something that the owner will sell out from under you; and control, in the sense that although you do pay for all the stuff you have to do for a house, you can control to some extent the when and how. How important these things are to you varies with each circumstance of course.

The biggest obstacle to buying is the down payment. If you’re a first-time home buyer, there are FHA and other things that can help, I think, but in general you have to scrape up a significant chunk of change to avoid the hassles of having no equity to start. And for some folks, if you have that money, it might do better in other investments. Our house more than doubled in value over the past 20 years, but it’s entirely variable.

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This. I, luckily, had a friend from High School who is a local realtor, and he was super great at helping us find a place, and had some mortgage people to connect to. They competed with us, and we got the lowest closing cost. We went with a local credit union that gave us 1k credit for opening a checking/savings account with them.

We got a first time homebuyer loan, (Fannie Mae - HomeReady) and with the help of my folks we had 5% down for our 250k house in town. With our income, our pre-approval was for up to 280k, so 250k was within budget, it is still a lot more than renting cost, we had a 2 bedroom rental for 1250$ and mortgage is 1760 a month. But that includes escrow for property tax and PMI, which because of my credit and the terms of the Homeready loan is only 70$.

Unfortunately it just isn’t feasible to save up for 20% down on a house anymore for us millenials. I only recently got a job that paid well enough for me to afford a home. Living in a medium-large size city, my rent and student loans were eating up a good portion of my income, and rents have risen rapidly here. Because the housing market in town is so great, 3+% increase a year, just saving up is losing money. I have some investments, but not nearly enough for the 60k required for 20%.

But, the Home-ready loan allows you to overpay without penalty, and as long as you get to 20% down, they take off the PMI. So, it seemed like a good option to get in the market (home value has increased 6k since April, when we bought, according to Zillow) as the housing Market here is super hot right now. I figured holding off even another year would mean paying another 5-10k for the same size house in 2019, plus we just got married, and wanted a puppy, and planning to start a family.

But, if you plan to live there for more than 5 years, you might as well buy. A good chunk of your money goes towards owning the house, so you aren’t “throwing away” the money like with rent. If you can get 20% down, it is a no-brainer to buy if the housing market in the place you are moving is at least stable. If the smallish town you are moving to is shrinking, you might want to rent.

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Regarding fixing your price: if you’re going to be working with realtors, make sure you get an idea of what your hard ceiling in what you’re willing to pay is, both in terms of total price of the house and monthly mortgage payment. Because in my experience, realtors will always push you to go a little higher. They’ll say, look I can show you a lot of houses at the $250K range, but there are many more options at $275, or something like that.

It’s also my experience that banks will be willing to lend you far more than you may be comfortable actually spending on a home. So do your homework, it will pay off for you.

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So much this, and it applies to pretty much all borrowing scenarios.

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Yeah, I was really surprised a few years ago at the amount my realtor and bank both wanted me to spend on a house.

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Yeah, I’ve gone through the home buying process twice and both times I was taken aback at how hard the realtors and banks will push you to max out the available price range. Since they’ll have access to your salary as part of the lending process, they’ll even say stuff like “you can totally afford to go as high as x per month.” And that may technically true, but nobody can tell you what you’re comfortable with spending but you.

I’m generally a pretty easygoing sort, ok with deferring to who I consider to be the experts in their field. But I had to put the brakes on several times because it’s easy for things to just get away from you in all this if you let it.

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The Realtor is working off a percentage, so bigger price = bigger commission. But any sale beats no sale every time. So yeah, just make it clear what the limits are. And if they consistently ignore that, find a different one.

@Charlatan’s advice in the next post makes a lot of sense, especially since there are suggestions the housing market is cooling off.

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Getting a new job AND moving AND buying a house seems like a bunch of stressful things all piled on top of each other. It might be mentally healthier to simply take the new job and rent so you can focus on the job related stress first!

If you rent, then you’ll have a year (or whatever) to look around. You can take your time and look at houses in your new town. You’ll have time to figure out which neighborhoods you like and which you don’t, and see what appeals to you.

Plus, you’ll have some time to save up a down payment. Though you can buy with less, you should aim for 20%. If that sounds like a lot, that’s because it is. You can certainly buy with less down, but you have to account for payments like PMI (private mortgage insurance) for a conventional loan.

You might worry that rates will be higher a year from now, and they might be. But just because rates might go up is no reason to rush into a gigantic financial decision that will affect you for years.

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You are right. I was worried about finding a place to rent, honestly. A realtor put me in touch with a guy who has an apartment complex that is mostly rented to teachers, like me. It’s affordable, and it’s probably the option I will take if I choose to take the job.

Mortgage wise, I did some digging online for pre-qualification stuff. As I feared, I got through the process swimmingly with Quicken until I was told that unless I had a co-signer, my student loans were a no go. I kind of thought that would be the case. I have materials in at one other place and another one–local-ish–contacted me. I explained my loans situation to both of them, and they seemed to think that was fine.

I should stay here making more money and pay down those loans. But I really want to get out. Still, renting there for a year will help me make sure I really like it and maybe put down roots to work with a local institution there.

My mind is racing, and it doesn’t help that I didn’t sleep last night. :)
__

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One other thing to add in case copeknight changes plans or someone else comes along. This is something I’ve experienced the pain of and had friends struggle with as well.

Be sure to ask about the average utility bills. Ask what temperature they have the furnace in winter and air conditioning in summer. Obviously this is climate specific but it can make a huge difference in terms of costs. You may be in a new electric company’s zone moving two towns over and their rates are higher for example.

Related: pool pumps use an absurd amount of electricity.

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My wife and I are going through the process right now. I would strongly advice you to check out this website.
https://www.nerdwallet.com/blog/mortgages/first-time-home-buyer/

As a first time buyer, many states provide benefit and grants to first time buyers that might be helpful.

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As a rule of thumb, everything costs more than you think it will.