Real Estate N00b
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Edwood

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Well, I'm seriously considering buying a home. A 2 bed/1bath condo at the least. My fiance and I are very sick of not having a stable place to live.

Hoping to keep the price around $200K.

OK, get ready to laugh.
.
.
.
.
.
I live in Los Angeles.

The whole mortage calculation thing is confusing as hell.

I ran a very very very optimistic calculation on an online mortgage calculator:

Principal= $200,000
Interest Rate= 5.00%
Amortization Period= 30 years
Starting month= Aug
Starting year= 2004
Monthly Pre-payment= $0
Annual Pre-payment= $ 0.00

TOTAL MONTHLY PAYMENT: $ 1073.64

Wow, it's been awhile since I had an economics class, but What? I'm going to be

Basic Naive Math:
$200,000 Loan
5% of $200,000 = $10,000
$210,000 divided by 360 months (30years) = $583.33
Total Monthly = $583.33

Bank Bend You Over Math:
$200,000 Loan
5% of $200,000 = $assloads of$$$compounded over 30years
Average monthly interest = $360.11
Total Monthly = $1073.64

Wow. Compounding interest is fun stuff eh?

Ouch.

I haven't even factored in property tax, insurance, possible maintainance (will DIY as much as I can), home owners assoc. bills, and various other utility bills.

Yikes.

My head it hurts......

Any advice?

Other than selling all my stuff to you guys, you vultures.


-Ed
 
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The_Mac

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move OUT of L.A.

There's plenty of cheap real estate out there, just not in the major metropolitain areas, so if you can afford to move, do so.

My father was looking at a summer home in manatouage. 1 level, 3 bedroom, 1.5 baths, living room, kitchen, etc... $30,000 CANADIAN. That's less than a LOT of people pay for a car.

There are plenty of cheap homes out there, so if you can work from home, I'd move.

The only other real option would be to save up as much as you can for a downpayment, a big one. Live cheap in a junk apartment for a couple years and bank everything you can, then put down $50 or $70k on the new house. That'll let you have still big monthly payments, but the mortgage will be paid off a LOT sooner.
 
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Genetic

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Quote:

Originally Posted by Edwood
Well, I'm seriously considering buying a home. A 2 bed/1bath condo at the least. My fiance and I are very sick of not having a stable place to live.
-Ed



Hi Ed,

If stability is the main factor, go ahead. But unless you're a Norm Abraham in desguise, don't think of your house as an investment. You are simply willing to pay a higher price to be «at home».
BTW with no subtantial «cash down» interest rates could become a major player in your future.

Amicalement
 
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ampgalore

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200k is not a lot for an apartment in LA.

My advise would, LEAVE HEADFI WHILE YOUR WALLET IS STILL HALF FULL!


You will never save up the needed money as long as yo are a member here!
 
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Watchdog

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Your calculation only assumes 1 year of interest, while the bank's calculation quite rightly charges you for 30 years of interest.

Of course the principal balance falls each month as you make a payment, but you're missing 29 years of interest, albeit on amounts less than $200k.
 
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Edwood

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Looks like with a fixed interest loan, over time, the monthly payments get slightly smaller over time, as the balance gets smaller over time.

But the rises in property tax alone will more than offset any savings here.

I have no illusions. I am not buying a place as an investment. (this is going to be a huge liability) I just want to keep my current monthly budget, but remove the stress of having to deal with landlords from hell. Also building some equity towards "upgrading" to a "real" home in the future.

Yes getting into a huge debt of mortgage will put a cramp on my head-fi madness. But I got off to a pretty good start, yes?

Oh, and moving is not the answer. I could easily afford a nice house in the midwest.

-Ed
 
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RYCeT

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Edwood, use this Mortgage calculator
It will tell you how much principal and interest you paid per month, and it also able to tell you if you add some money on your monthly payment. With the market right now, expect to pay more than the listing price. I've been looking for a house for 2 months here in Philly, One scenario, house listed for 85k, I put an offer for 90k, sold for 97k. It is stressful, if you can, wait for winter, it will be less bidding war than it is on summer.
 
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bootman

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Quote:

Originally Posted by Watchdog
Your calculation only assumes 1 year of interest, while the bank's calculation quite rightly charges you for 30 years of interest.

Of course the principal balance falls each month as you make a payment, but you're missing 29 years of interest, albeit on amounts less than $200k.



Exactly.
Add about another $800 a month for escrow.
(to pay for taxes, insurance etc.)
Both sides of the coast pay through the nose in property taxes.


I consider myself lucky that I pay only $5K a year.
 
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Lostlamb

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Quote:

Originally Posted by Edwood
But the rises in property tax alone will more than offset any savings here.
-Ed



property tax won't change too much, it is generally 1-1.5% of the cost of your home. So, that can be factored into your mortage as well. I have a couple of friends who factored in their property tax along with their mortage. It saves them the headache of having to save up at the end of the year to pay for their property tax.

Ask your local City Hall (which ever city you plan on living) about the property tax rate, again it's been 1-1.5% here in the BayArea. I suspect it'll be the same for you in LALA land.
 
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JMT

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A few thoughts to ponder:
  1. With a 30 year fixed rate mortgage, your monthly payments will be going to interest with a only slight reduction to principle. The good news is that your interest paid will be tax deductable.
  2. If you do not plan on living in the house/condo for more than 5-7 years, consider going with a 5/1 or 7/1 ARM (adjustable rate mortgage). With a 5/1 or 7/1 ARM, your interest rate is fixed for 5 or 7 years and becomes adjustable annually each year after that. Typically the starting rate on a 5 or 7/1 ARM can be a couple of points below a 30 year fixed allowing you to have lower monthly payments.
  3. In addition to taxes and homeowner's insurance, there is Private Mortgage Insurance (PMI) to consider. PMI is required by the lender if your down payment is less than 20% and your loan to value exceeds 80%. PMI can be rather expensive.
  4. If you can possibly afford to purchase your own home/condo....do it. There is no better use of your money.
 
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Edwood

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Quote:

Originally Posted by JMT
A few thoughts to ponder:
  1. With a 30 year fixed rate mortgage, your monthly payments will be going to interest with a only slight reduction to principle. The good news is that your interest paid will be tax deductable.
  2. If you do not plan on living in the house/condo for more than 5-7 years, consider going with a 5/1 or 7/1 ARM (adjustable rate mortgage). With a 5/1 or 7/1 ARM, your interest rate is fixed for 5 or 7 years and becomes adjustable annually each year after that. Typically the starting rate on a 5 or 7/1 ARM can be a couple of points below a 30 year fixed allowing you to have lower monthly payments.
  3. In addition to taxes and homeowner's insurance, there is Private Mortgage Insurance (PMI) to consider. PMI is required by the lender if your down payment is less than 20% and your loan to value exceeds 80%. PMI can be rather expensive.
  4. If you can possibly afford to purchase your own home/condo....do it. There is no better use of your money.



I saw that, I had no idea what 5/1 7/1 ARM meant, thanks JMT.
The 5/1 or 7/1 ARM looks tempting. I definitely do not plan on living in a first home for more than 5-7 years. I plan on ungrading.


Man the insurance nonsense is a killer.

Prop 13 makes property taxes almost laughable, except for the fact that everything else is jacked way up.

I can only afford to put about $25K down, though.


Did I mention I'm trying to keep the the budget at around $1200/month? Ugh. this is getting depressing.

Not knowing about having to move every year (it has been that way so far for that past 6 years.
) is just so stressful.

Best way to spend my money? What, it's not on headphone gear?

-Ed
 
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JMT

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A few more things to think about:
  1. When shopping lenders, look at both the interest rate (which is the rate your monthly payment will be calculated on) as well as the Annual Percentage Rate (APR). All lenders are required to quote both. The APR is the true cost of the loan, which will include any upfront fees you will pay (quoted on an annualized basis). These fees typically will consist of the Origination fee, Application fee, and Points. Points are a fee equal to 1% of your loan amount that is used to buy down the interest rate.
  2. If you plan to put down $25,000 on a $200,000 home, you probably will have to deal with PMI as your loan to value will exceed 80%. But, depending on how long you stay in your home and what the market does, you can request an appraisal at some point to determine if the value of your home relative to your loan amount has made the 80% LTV mark. If it has, you can request the lender cancel the PMI.
  3. Typically conforming loans are sold on the secondary market. Ask your prospective lender about who will service your loan once it is sold. It may not sound like a big deal, but if you ever have a problem that needs to be resolved, it is a nightmare if the servicing of your loan is being performed by an outsourced service agent. Most major lenders will continue to maintain the servicing of the loan even after it has been sold.
  4. As someone stated before, I also would advise having your property taxes and homeowner's insurance premiums placed into an impound account and included in your overall monthly payments. It makes it so much easier in the budgeting process. And less stress when your tax and insurance payments are due.
  5. If you are planning on purchasing a condo, townhouse, or a single family dwelling in a PUD (Planned Unit Development), be sure you are very aware of the Homeowner's Association Fees. These fees have to be included when the lender is calculating your front end (housing to income) and back end (overall debt to income) ratios.
Just my thoughts.
 
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Edwood

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Man, it is looking very unlikely that I will be able to afford even a small condo after all the "extra costs" are added on.
My $1200/month budget is looking pretty shabby. Especially if I try to stay in the South Bay area. (Torrance, Redondo Beach, Hermosa Beach, Manhattan Beach, Palos Verdes)

And to add to that, it seems that interest rates will be raised before I can get locked into a loan.

Is it a good idea to get a loan before getting a place?

-Ed
 
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JMT

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Quote:

Originally Posted by Edwood
Man, it is looking very unlikely that I will be able to afford even a small condo after all the "extra costs" are added on.
My $1200/month budget is looking pretty shabby. Especially if I try to stay in the South Bay area. (Torrance, Redondo Beach, Hermosa Beach, Manhattan Beach, Palos Verdes)

And to add to that, it seems that interest rates will be raised before I can get locked into a loan.

Is it a good idea to get a loan before getting a place?

-Ed



Absolutely, most lenders will offer what is called a "buyer ready" letter. Essentially they pre-qualify you based on your credit score alone. They don't run any detailed debt to incomes, and of course the property would still need to qualify (appraisal, pest inspection, etc.), but purely from a credit standpoint a seller would know that you have a lender. In a seller's market, a buyer ready letter can add weight if they have multiple offers.

The best thing to do would be to start the process with both a lender and a realtor. The lender will be able to tell you specifically what price range you should look at, and the realtor will be able to take the information and look at areas that you should look at.

It is not an easy process for sure, but ultimately well worth the effort.
 
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Edwood

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Sounds like a good idea.
My fiance and I have zero debt. No student loans, credit cards are paid off every month with no continuing balance, and no car loans.

Is searching online for lenders a good idea, or old fashioned calling the banks up better?

Any recommendations?

Funny thing. A friend at work is looking for a place too. He's running into the same issues. He mentioned something about an "interest only" loan, where you don't pay down the principle? Wouldn't that make it impossible to actually own the property eventually? Although, a 30 year loan for a small condo is pretty silly too. Either way, I'm assuming we'd sell in less than 10 years maximum.

-Ed
 
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