Credit advice - Home buying

YULitle

YULitle

Hall of Fame
My wife and I are looking to purchase a home, possibly. We may not end up staying in this area though... We are really interested in a house, and it's super affordable. We could get a 15-year mortgage and pay more than double the monthly payments (we are doing just that right now to rent, but obviously without the investment.) Our only concern is having to move in 3 years. We're sure we'll be here that long, but not sure about any longer. Hypothetically, what would selling the house three years after we bought it do to our credit, if anything?

Note: I'm not looking for advice from people who don't know. I'm also not looking for advice about whether or not to buy for any other reason I've mentioned above. If you feel you must ignore my wishes, understand that I will ignore your posts.

Thanks
 
YULitle said:
My wife and I are looking to purchase a home, possibly. We may not end up staying in this area though... We are really interested in a house, and it's super affordable. We could get a 15-year mortgage and pay more than double the monthly payments (we are doing just that right now to rent, but obviously without the investment.) Our only concern is having to move in 3 years. We're sure we'll be here that long, but not sure about any longer. Hypothetically, what would selling the house three years after we bought it do to our credit, if anything?

Note: I'm not looking for advice from people who don't know. I'm also not looking for advice about whether or not to buy for any other reason I've mentioned above. If you feel you must ignore my wishes, understand that I will ignore your posts.

Thanks
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IMO buying a home that you are likely to sell in 3 years kind of puts you in the speculator category. As we all know many have made or lost quite a bit of money playing that game. My read of the current national system is that there is tremendous uncertainty where the housing market will be in the short term (and I would call 3 yrs, short term), so you guys would be taking a risk.

However, there are special cases where it could be a good idea, regardless of where the market goes: if you are in a special location that is immune to the current crisis, you have to reinvest profit from another home sale or take a tax penalty, you have another unusual tax situation where buying a home will be very beneficial etc.

Barring that sort of thing, my personality is not one that deals well with large potential losses so I would shy away from taking that kind of risk.

As to credit, if you make your payments on time and it sounds like you will, it should be a positive or a wash.
 
Yeah the only problem with your 3 year window is that the house may depreciate or simply not appreciate enough to offset the real estate costs associating with selling. I bought a house a year ago and my house is worth $20K less than it was when I bought it (according to a zillow.com estimate). I estimate I would have to spend $35K out of my pocket just to sell my house in order to pay off the loan, which is money that I don't have. So in other words I can't sell my house and if I had to leave I'd probably be better off just not paying the mortgage and letting them forclose.
 
Yulite as long as you are ontime and remain current in your mortgage i.e do not go down 30days or more, your credit will not suffer it could actually improve considering a mortgage is a highly regarded tradeline. As far as not knowing if you are going to stay or go in 3 years well that should not sway you in your decision unless you can't really afford the home top begin with. Also take into account that the home you are looking into might be in a declining market which means you would be taking a gamble. Owning a home you can afford and getting past the intial payment shock can be a good thing. Good luck to you and if you do decide to go into your own home congrats.
 
from what i read-it takes 5 years before you start collecting equity in the home for it to be worth it, but if you are paying twice the amount in rent now then i would definitely go for it. in 3 years the housing market will rebound and you can sell it for more.
 
according to my dad, heavy real estate investor in america, right now is a great time to buy a home. may even get better in next couple of months.
 
This is just my advice (as a current homeowner) - wait a while and see how much more the market falls before buying into it.
 
If anything, selling your house (along with the mortgage) would better your credit rating. In general, less debt=better credit. That is why banks ask that your debt be no more than 30% of your income if you get a mortage in the first place.
 
Caveat: this is how the system works in the UK, there may be differences in the US.

Credit is affected by your address, your income, the number of credit applications processed, and your ability to meet payments to credit providers, amongst other indicators. Therefore the sale of one house, the purchase of another and subsequent application for a mortgage may affect your credit rating. However, depending on all factors your credit rating may be better after these transactions, or it may be worse. Perversely, for example, if you apply for many credit cards and don't use them a future credit card provider may see you as "bad business" because they won't make any money out of you!

It would be a very good idea to have a frank discussion with someone in the business, and not just someone who is desperate to sell you a mortgage.
 
YU,

I'm in the same position also. Although I dont plan on purchasing a home for another year year and a half.

Purely credit wise, buying a house and making the payments andselling the house in three years will in no way at all have a negative affect on your credit. The only way it could affect you in any way is if you have to move and want to buy at your new location, but you have not sold the other house yet. At that point you would more than likely have a debt to income ratio that is too high for a lender to justify a second mortage.

As for the real estate market, I dont about OK or wherever else you may be, so I dont want to comment on that one.

Good luck with your desicion
 
Pimp you make some good points. The address thing is a bit off here in the US. When searching for a Mortgage for a new home you want to limit the amount of credit inquerys. The 3 credit buroughs allow you to shop for a mortage but after 3 to 4 attempts you should stop. That is a good rule of thumb. After 3 or 4 attempts you should have a good enough idea of what type of mortgage you are going to be able to get after that you are just getting after that your credit starts to get hit. Store only credit cards are the worst type of credit to have since they have no value outside of that store. also you do not want to go cancel any credit cards that you have had for awhile and are in good standings in. Old tradelines are what fuels your credit rating.
 
Yulite, bottom line the average amount of time a person stays in there home is 5-7 years. I would not sweat the 3 year plan. Know your 3 credit scores and remember that out of the 3 credit scores you will be approved off of the middle of the 3 scores. Also be aware of the interest rate you are quoted. With a purchase it is subject to change due to the fact that the rate will not be locked in because you are a bit off from actually closing. That being said i would only get maybe 2 quotes and than see if you can afford a home. Make your next call when you have decided and go to contract for that is the rate that will be in play no the one 2- 6 months out.
 
YULitle said:
My wife and I are looking to purchase a home, possibly. We may not end up staying in this area though... We are really interested in a house, and it's super affordable. We could get a 15-year mortgage and pay more than double the monthly payments (we are doing just that right now to rent, but obviously without the investment.) Our only concern is having to move in 3 years. We're sure we'll be here that long, but not sure about any longer. Hypothetically, what would selling the house three years after we bought it do to our credit, if anything?

Note: I'm not looking for advice from people who don't know. I'm also not looking for advice about whether or not to buy for any other reason I've mentioned above. If you feel you must ignore my wishes, understand that I will ignore your posts.

Thanks
Click to expand...

I think it is a GREAT time to buy a house! Especially if you are currently renting and don't need to sell the home you are in. I'm assuming you have adequate income and a clean credit history.

Here are some good reasons:

Housing prices are considerably lower than they have been in years. I see relatively low downside risk. Prices fell precipitously in April. You want to buy near the bottom. Yes we are in the middle of a bubble, and a credit crisis, but the long term fundamentals are good. The US population is rising, and people need to live somewhere. I think the long term trend will be towards smaller houses , closer to urban areas, but the fact remains, the housing market will recover. The age of the McMansions out in far out suburbs is about toast!

If you get a 15 year mortgage and can pay down some principle each month, you will have a decent amount of equity in the home after only 3 years. Be careful on your purchase. You just need to make sure that you don;'t overpay. Look at the comps and check the trends over how fast the median price has been falling in your area. Make your offer accordingly.

Interest rates will probably go up. The Federal Reserve needs a stronger dollar to to help get energy prices down. Since all of the commodities prices are based on US dollars, the weak dollar has a lot to do with our high energy prices. The only way there is to get rates up.

Higher rates could be mitigated on the mortgage side by some kind of congressional move to aid homebuyers. They want to get things moving again to stem the foreclosure problem. I understand they are talking about tax credits to help things get moving.


JMO, Good luck on your home search.

PS: Even if you sell in three years and there is ZERO appreciation, you are still better off than renting. You get to keep the equity you earned over the three years, and you get to deduct your motgage interest from your taxes which is at it highest in the first three years of the note.

All you do when you rent is give the owner the equity.
 
Serve em Up said:
PS: Even if you sell in three years and there is ZERO appreciation, you are still better off than renting. You get to keep the equity you earned over the three years, and you get to deduct your motgage interest from your taxes which is at it highest in the first three years of the note.

All you do when you rent is give the owner the equity.
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i have to agree with Serve. wife and i just purchased a house 3 weeks ago and we consider ourselves lucky. a few years back our house would've sold for $75K - $100K more than what we paid. my sister is in real estate and she says amazingly in our area (DC Metro) housing prices may still go down a bit more. we have lots of friends who bought a few years ago and they are upside down - house is worth less than what they bought for.

assuming your credit is good enough to get a loan AND you can make mortgage payments - buying is better than renting. even if you decide to sell in 3 years because like Serve mentioned you get to deduct the mortgage interest from your taxes. come tax season next year i expect to be getting back a very big chunk of money.

i guess the only caveat i can think of is - make sure you aren't buying a house that will be tough to sell. for example in my area i wouldn't buy a condo right now because it could be very tough to sell later on.

good luck to ya!
 
Thanks for all of the great advice guys! I hope enough people check back to see this follow up question.

What kind of up-front costs can I expect? Our credit is pretty good and we could probably put 5-10% down.
 
I would say in this market it would practically be slim to none. Alot of sellers are payin closing costs so you will probably be in good shape there. My friend who is a mortgagebroker keeps tellin me this is a great time to purchase a home, and I see no evidence to rebute that fact.

I Wish I could help you out more
 
YULitle said:
Thanks for all of the great advice guys! I hope enough people check back to see this follow up question.

What kind of up-front costs can I expect? Our credit is pretty good and we could probably put 5-10% down.
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When I bought a year ago, I had perfect credit, and was a first-time buyer, but couldn't afford a down payment. You basically have to get a second loan (80/20) or mortgage insurance (pmi) if you put less than 20% down. I paid $8,500 in up-front closing costs. I don't know where people find no closing cost deals but that wasn't available to me. It was still a seller's market in my area, so maybe things have changed since then. I didn't get a good deal by any means as far as interest rate or money savings, but we really liked the house. While you can probably get more out of the seller now, I'm sure lenders are tightening up so it might be harder to get good financing.
 
raiden031 said:
When I bought a year ago, I had perfect credit, and was a first-time buyer, but couldn't afford a down payment. You basically have to get a second loan (80/20) or mortgage insurance (pmi) if you put less than 20% down. I paid $8,500 in up-front closing costs. I don't know where people find no closing cost deals but that wasn't available to me. It was still a seller's market in my area, so maybe things have changed since then. I didn't get a good deal by any means as far as interest rate or money savings, but we really liked the house. While you can probably get more out of the seller now, I'm sure lenders are tightening up so it might be harder to get good financing.
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Another option if you don't have the 20%, is an 80-10-10. You put 10% down, and you get two loans. This eliminates PMI. The 2nd 10% is at a higher rate, but typically 15year vs. 30year. Be careful as sometimes they amortize it over 30 years, and you have a 15 year balloon payment. You just have to make larger payments to counter this. Closing costs will vary. Typically you pay 1% origination fee for the loan, plus a bunch of other fees. A mortgage company will give you a "good faith" estimate, so you will know what you are getting into with regards to fees.

With regards to your 3 year window, I don't have much advise. It's certainly short term. With the housing "market", you should worry less about the national perspective and more about the local. For example, I worry much less about things here in Houston than I would in the Bay Area.

Good luck!
 
Credit has tightened up so 5-10 down may be a lot harder now. I think the housing market has a lot more downside, particularly where average incomes don't support average housing prices and where trends dictate lower housing prices due to higher fuel costs.
 
Yeah, the price of the house is super low. I may be able to get it for 35k. Still negotiating. I'm not worried about getting a loan, even at $0 down. Our credit is spotless and we have a small debt/income ratio. Just trying to get an idea as to the closing costs, if any. There are a few places that say no closing costs this and that, like Countrywide, but I'm going to try with my bank first.
 
YULitle said:
Yeah, the price of the house is super low. I may be able to get it for 35k. Still negotiating. I'm not worried about getting a loan, even at $0 down. Our credit is spotless and we have a small debt/income ratio. Just trying to get an idea as to the closing costs, if any. There are a few places that say no closing costs this and that, like Countrywide, but I'm going to try with my bank first.
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A lot of it is negotiable too. Lower closing costs sometimes mean a bump in rate, etc. However, for 35K, you can almost ignore traditional mortgage advice, though. You have tons of options.
 
^^^^

I was thinking the same thing I live in moderately rural area of Alabama and I paid three times that for my house.
 
tfm1973 said:
that made me chuckle and cry at the same time. :cry: :lol:

average single family homes in DC metro are $422K. :cry:
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Yeah, this is a small house, which we really like. It's 900 sq. ft. with a big back yard. It's in the "downtown" area, which means walking distance to everything. It's pretty close to a high school too.

We've joked about taking a car loan out on this place and paying it off in five years, but they don't do that. Do they?
 
YULitle said:
Yeah, the price of the house is super low. I may be able to get it for 35k. Still negotiating. I'm not worried about getting a loan, even at $0 down. Our credit is spotless and we have a small debt/income ratio. Just trying to get an idea as to the closing costs, if any. There are a few places that say no closing costs this and that, like Countrywide, but I'm going to try with my bank first.
Click to expand...

Bank of America does 1st time home buyer loans for no closing cost. Not sure how competitive the rate is but it's something to look into. You can also negotiate closing cost with the seller. Also, you can get pre-approve for a loan and once you have the final price, the mortgage company will give you a quote with closing etc. included.
 
Yu: you're getting some interesting insights here.

Now IS a good time to buy a house. Your real problem is assessing the situation --- your LOCAL situation and the place you would like to move to --- on whether it would be easy to get rid of your house three years hence.

For a good assessment, don't talk to real estate agents. They want to make a sale. Don't talk to the local bank; they may also have more of a sales motivation. Go to your credit union. The CU mortgage lender will be a bit less motivated, and since most CU's do a ton of mortgages, he'll have good grounding in your local situation.
 
Other Things to Think About

In the past fifteen years I have purchased five homes and sold four. Most often these moves were because of employment changes. I have also refinanced each house quite a few times. Except for the first home I have never paid any money in closing fees. This is especially important if you have no intention to stay in the house more then five years. So many people will actually pay points to get a lower interest rate loan! It makes no sense to do this.

In my case we actually have the bank/credit union pay us enough points to cover all of the fees. That being said our loans have been between $150k and $225k, so getting a point or so has been enough to cover the fees. We do get a slightly higher interest rate when we ask the bank to pay us points. This way if the interest rates drop, I just refinance, which I have done many times without paying anything nor increasing the amount of my loan! By doing this with our current house which we purchased in late 1999, we took out a loan for $225k with a rate of 8%, after rates dropped we refinanced three times, each time at no cost, and now have a rate of 5.625%.

There are a lot of other things that Home Owners need to think about besides the mortgage. There is Property Taxes, and Insurance. Will the HVAC and Heater potentially need to be replaced, what about the roof? Will the house need to be painted, inside or out? What about the appliances and flooring? Are you handy, can you do some home maintenance yourself? Theses things can add up and reduce and/or eliminate any savings if you are only going to be in a house for a short time.

Call if you want to discuss this further. You know how to reach me. :)
 
Jeez, $35k for a house? I would talk about location, location, location but for that money you can't go very wrong. I'm coming to America!
 
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