I Want to Buy a House - Now

Has anyone heard of Redfin? I read about it over at LA Land. They allow you to do a very simple, straightforward search of all the houses for sale in a particular area. What do I love about them? They don't hide the ball! The site is informative and easy to understand. They have listings for the area I'm interested in, but unfortunately they don't provide service for it (hopefully they'll expand out there soon!). So I think I'll have to go through the realtor.

To give you a little perspective, where I live, 1 bedrooms go for no less than $399,000. This area has 3 and 4 bedroom homes for $200,000 and below (they're selling for the price they sold for in the early '90s)!! I'm shocked. I know it's not the greatest area, but I'm sure there are pockets of "good" somewhere in there. I would love for the prices to go down even further, but I've heard that we're almost reaching bottom as far as home prices are concerned in SoCal.

My bf and I talked about it very briefly last night. Basically my idea was - buy a house, let my relative live in it and pay us rent (her new job is within 2-5 miles of the majority of the available houses). Then she could have a nice place to live, and if she wanted to move, we could always get another renter, or sell the house and (at least) get our money back.

Of course, there are problems. Big problems. I have no money for a down payment. My bf does, but I would feel so uncomfortable asking or letting him pay the whole amount (it wouldn't feel like "ours" even I gave him half the down payment somewhere down the line). I could get a full time job ASAP, and could probably get 10k together in half a year. Are the home prices still going to be this low in 6 months? The second problem is my credit. It sucks right now. The payments to my credit cards are helping, but I have 2 late payments that (I assume) are dragging it WAY down. I can make it a priority to call the companies and try to negotiate with them to remove the marks. But how high does my score need to be to get approved for a mortgage loan with a good interest rate? I know it's much harder to qualify now than it used to be. My bf has a good credit score, in the mid 700s. But I read that if there's a borrower and co-borrower, they'll look at whomever's score is lowest?

So there's a lot to think about. I should really not be thinking about it until after I finish my final paper of the semester and get my finals out of the way. But that takes me all the way to mid-December. My relative is looking for a place to rent now. I guess we could let her stay for a couple more months, until my credit score is improved and I have money saved up for a down payment? I'm not sure. Is this a stupid idea? My bf is making good money (almost at 6 figures) and has zero debt, and if I went back to full-time work, I could be making a little over half of that (but I have tons of debt). Can we make this work?

8 comments:

Moving on up! said...

I would wait until I had more money saved up (what if the house you bought needs plumbing fixed, a roof, or simply new paint). Also you don't want to have too many debts either. You might get a better loan. Good luck! I love looking at places to live too!

Sunflowers said...

You're right; I didn't think about that. Maybe the paint/superficial things we could put off, but the big things - plumbing, electrical problems - (that I'm so used to a landlord taking care of!) would have to be fixed...

Maybe I need to first secure the full-time job before I even consider this! And talk to my parents. They might be willing to help out (since the house would be lived in by our relative).

DogAteMyFinances said...

It sounds like you are in a position where the A/C breaking or your relative not being able to pay you would break you. You have to be able to cash flow, even with no rent.

Do you really want to ever be a position where you have to evict a family member? Talk about drama.

Miss M said...

Homeownership is not all it's cracked up to be! Moving on up mentioned the big downside, maintenance. Any home always needs maintenance and it's expensive, count on several grand a year.

Another thing, you won't get as good of mortgage rates on an income property. Lenders feel people who live in the home are less likely to walk away, will take better care of the property etc... Landlording is a whole nother rung up the home owner ladder, I wouldn't jump straight in with it.

I really wish we'd stayed with renting, other than being $100k underwater, the whole thing has been stressful. I spent two years in a legal battle with the sellers and a company they hired to do work during escrow. I won but only collected part of it, they're all claiming they can't pay and I'd have to go back to court to force them.

Sunflowers said...

I guess bottom line is -- I'm desperate to get her out of my apartment. I also feel a great deal of pity for her (and some embarrassment for me) and want her to live in a nice place. She'll likely be paying the same rent as the mortgage, so wouldn't it be better to put the money towards her family's ownership of the house?

But it's true -- if she wasn't able to pay the rent, I wouldn't be able to pay my share of the mortgage. My bf could take over, but that would be entirely unfair to him.

So, before I even consider this, we would have to have down payment (20%?), and at least a couple thousand saved up for potential repairs. And be able to cover a $1300/mo mortgage if the rent wasn't paid. That comes out to $58,600 to buy the house and ensure we can maintain/pay for it for a year, and $18,600 every year thereafter?

@miss m: How would the lenders know it was an income property? I would have to check a box disclosing whether I planned to live in the house?

I clearly need to do my research. :\

Miss M said...

Yeah hon, your are supposed to disclose if you intend to live in the home. That being said, there was a lot of mortgage fraud during the bubble where investors would say it was a primary home when it wasn't. I'm not sure they actually check.

Ramit Sethi said...

Hey there,

This is Ramit from iwillteachyoutoberich.com. I can't find a way to get in touch with you, but I wonder if you could email me at ramit@ramitsethi.com. I have a question for you about this post.

Thanks!

-Ramit

Kemkem said...

Home ownership is not all it's cracked up to be. I am stuck with a deadbeat renter in my LA house, and l'm in the process of trying to evict him, but in the meantime, l have to come up with the mortgage, along with my current mortgage, as well as the lawyer's fees. Even if it's family renting, it gets very expensive really quickly. Think 10 times..lol! it's worth it in the end, but nerve wrecking.

Copyright © 2008 - The Debt Chronicles - is proudly powered by Blogger
Smashing Magazine - Design Disease - Blog and Web - Dilectio Blogger Template