First Time Home Buyer

[Anonymous]

so many questions.

Background:

- 3 kids, all in upper grades at ES.
- HHI ~ 100k in 2013. Will go upto ~ 110k in 2014.
- DH is working at his company from the past 5 years - hot FEDEX delivery guy - and I started working last year in April - SW engineer.
- ~ 45k in student loan - paying back close to $300 monthly.
- ~ 10k in credit card debt - paying back ~ $600 monthly. Credit worthiness went down a couple of years ago but we have settled most of our accounts and making on time payments for the rest. Biggest reason for too much debt was DH being laid off multiple times and I was going to school as a FT student with little kids in my toe.
- been renting apartments from the past 12 years. We are completely burned out and are ready to buy a place that we can call our own.
- don't go on vacations because frankly speaking we never had the money to do that.
- Nothing in savings, but we dream big.

We are looking for new establishments since we are planning to be locked in for a long period of time. We want something that won't look too old when we will try to sell it in the next 15 years (this might sound stupid, but whatever – tell me it’s stupid and I will listen). We have a place in mind that's in Chantilly, Loudon County. I work in DC and DH in Herndon. Last week we went to the builders, they ran our info and said that we got pre-approved for a 410k loan at 4.0%. Monthly payment will be ~ 2.5 to 3k depending on whether we are doing USDA or FHA(sp?) loan. This will cover everything: mortgage, interest, all sorts of insurance, HOA fees. They also suggested taking loan out against our 401k to make 3.5% downpayment. This, according to them, will bring down our payment. i.e. ~ 2.5k.

DH is SO in for it. I just can’t really decide. We are completely naïve when it comes to home buying and dealing with sharks – builders, lenders, realtors . We have made stupid money mistakes in the past and our luck just does not seem to be in our favor most of the time. Turning to you guys for some expert suggestions:

- Is it wise for us to buy a $400k house/condo?
- Does the monthly payment sound reasonable/doable? Our take home pay is around 6.5k monthly after all the deductions.
- Taking the loan out on 401k? I am just so clueless.
- Do we get any benefits being the first time home buyers?
- Schools? How bad are Loudon county schools?
- Are there other places where we can get our mortgage pre-approved/approved rather than just relying on the lender that works with builders? Although builder said that they will pay the closing cost if we use their lender. I was just wondering if that was just a bait or a nice sincere offer.
- Any other suggestions/points to be noted?

TIA.

[Anonymous]

Do NOT take a loan out against your 401k! That is disgraceful that the builders suggested such an irresponsible idea. What kind of cash do you have on hand? If you can't afford a house without taking a loan on your retirement assets, then you can't afford a house.

[Anonymous]

Why do you need to buy a new home? You can avoid a lot of this if you just buy something that's not new. And you will probably get a lot more house for your money.

[Anonymous]

Oh, and if you have NOTHING in savings, then there's no way you should be even thinking about buying a house - new or old.

[Anonymous]

Anonymous wrote:Why do you need to buy a new home? You can avoid a lot of this if you just buy something that's not new. And you will probably get a lot more house for your money.

So it looks ~!cool!~

[Anonymous]

1) loudoun schools are generally pretty good
2) no savings? Really need to rethink this. Why have you not been able to save. Homeownership expensive with maintenance and repair. New home should limit that, but how long is warranty? How established is builder and who underwrites the warranty?
3) chantilly to DC commute sounds rough with kids. Do you have nanny or family nearby b/c aftercare may not be sufficient?
4) don't trust anyone. No one is looking out for your interests; they just want to close the deal but you have to live with it.

Honestly think you are overextending. Maybe thought about townhouse in burke? I think they run 350k and you can commute by VRE and are much closer?

[Anonymous]

Anonymous wrote:

Anonymous wrote:Why do you need to buy a new home? You can avoid a lot of this if you just buy something that's not new. And you will probably get a lot more house for your money.

So it looks ~!cool!~

Awww, thank you.

To answer the other PP. We can't seem to find a resonable place under 350k in the areas we are looking at. And if there is a resonable old house, we found that the price difference between a new house and an old one is not that huge, plus the rennovation cost on the old house and all the hidden expenses. But I might be thinking wrong, you think?

[gent.in.nwdc]

You guys would be prime candidates for a loan from NACA, which is a nonprofit housing group that directly makes loans to middle and low middle class buyers. No closing costs, no PMI, and a low rate. They're especially good at helping families such as yourselves into a home. However, the underwriting process is extensive and difficult. Lots of paperwork, training & personal finance sessions, and lots of follow up on your part. If you can contribute 1 or 2% of the home cost ($8K), you can buy down points on the interest rate with NACA (sub 3% fixed rate).

Don't borrow against your retirement. That's foolish. I would skip buying a new home and get an older home at a discount.

[Anonymous]

If you have a roth IRA, you could use some of the money for a down payment (although I know there are restrictions like you can only take out principle etc). Never borrow from a 401k though.

If you can't come up with a down payment and have credit card debt, then you should not be buying a house. Figure out how to cut your expenses and save for a house.

400k seems high for a 100k salary unless you bring a nice sized down payment to the table.

[Anonymous]

With three kids and close to $1k in existing monthly debt payments, you cannot afford that mortgage. Don't borrow against your retirement.

You also have no reserves to deal with issues of homeownership.

I'm sorry, but you should continue to rent and save.

[Anonymous]

What about a new town house. New homes have less issues for about ten years.

[Anonymous]

Why buy? And why buy new?

Don't borrow from your 401(k).

[Anonymous]

I think you as a software engineer can make more with raises, I am not sure about fedex. Point being is that you can count on your income to rise and use your DH's sold benefits.

[Anonymous]

I know you probably hate to hear this, but it doesn't sound like you are financially ready to buy. There is nothing wrong with renting, I promise.

1. Don't borrow First, there are negative tax implications. When you pay back a 401K loan you do it with post tax dollars, despite the fact that you paid into the 401K with pre tax dollars. Then when you take the money out during retirement you have to pay taxes all over again. Second, you obviously lose out on investment money, Third, risk of termination. What happens if you lose your job? The entire loan is due w/in 60 days. Since you have nothing in savings this would be impossible.

2. Buying with no savings is irresponsible. Houses are expenses. We are first time home buyers. Our first money into the house we had a plumbing issue (couple hundred dollars) and a car repair $800. Then we had to buy lawn equipment since we never had a lawn before $200 lawn mower + rakes, brooms, pruning stuff, weed killer. With an HOA you are likely going to be under more pressure to have your yard looking nice.

3. Honestly, I think that PITI is too large for you income. We make double what you do and pay $2500. Granted we have a kid in daycare, but I wouldn't personally feel comfortable wiht a higher payment. Are you going to be able to contribute enough to your retirment with that high of a PITI? If you borrowed from your 401K for the house you probably need to be adding MORE than normal into your 401K to make up for the loss investment income from the loan. Is this going to let you put money into savings?

4. A Higher down payment will reduce your risk of default. People that put down less than 5% have a 16% chance of default. Why? Because if one can't be fiscally responsible enough to save up for a larger down payment or aren't financially stable enough to have the ability to do so then they are not financially stable or fisically responsible enough to buy a house.