Buying my first house - need some advice

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joshmv

joshmv

Reformed Berry Slinger
Oct 21, 2007
875
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Kansas
So I've finally decided to buy my first house, and I've got it all lined up, I just need a little financial advice. The owner isn't moving out until July so right now we've only signed the contracts and put money into escrow. We won't actually close until closer to time.

I've got enough money to buy the house outright, and still have plenty left over to feel safe so that was my plan all along, but now I'm wondering if getting a mortgage could actually be the smarter choice?

It looks like I could pretty easily get a 15 year mortgage under 5% around here so that's the first part of the equation. Then figure in that the money I would have used could be in an online savings account right now earning about 2%. So that brings it down to an effective rate of around 3% right?

Now it also looks like they are going to start dumping a bunch of money into the economy if what I've heard is correct which will cause a good deal of inflation, if not hyperinflation. At this point doesn't the mortgage even itself out to about 0% or am I wrong in that thinking?

Other things to consider. Not too long ago high interest savings accounts were anywhere from 4-6%, I know it will be a while but at some point you'd hope that rates will go back up.

On the legal side of things, is it true that if I were sued and had to claim bankruptcy I could still keep my house. If so, does that make any argument for paying for it all now or does it matter?

Also I'm not sure about the costs and fee's associated with getting a mortgage and how much hassle it really is.

Sorry for all the questions, and I know some of my assumptions are probably wrong but this keeps rattling around in my head so I figured I'd let some more experienced minds take a shot at it.
 


Mortgages are quite a mindfuck. Just make sure there are no other hidden fees involved.
Get a mortgage only and ONLY IF you know what you're going to do with the money. If you can invest the money somewhere else and earn $ off it higher than what you're paying the bank, that would be great. Just don't go broke, coz you'd be losing out on your lovely house ;-)
 
Hey,

If you can afford to buy your house outright, you can afford to get a good CPA/Tax Attorney.

With a mortgage, you'd have the mortgage interest tax deduction, for one. However, EVERY person's financial situation is different, so do yourself a favor and get some good professional tax/financial/legal advice from a person in your state. Ask around with your local business friends for a good referral.

Congratulations! And good luck on the house purchase!


N~
 
If you have enough $ in the bank to actually buy the house, get a mortgage and make sure the lender gives you a seriously sweet interest rate. You are a dream customer with that kind of liquidity, and the financial risk for the lender is greatly diminished.
Also, nordie's advice above is sound.
 
Wait it out and you'll be able to get it at a better price, right now there are tons of homes that should be foreclosed on but because of the foreclosure moratoriums they're just kind of sitting out there and off the market. Even when they restructure the loans, half of them fail within 6 months of being entered into the program so there is still plenty of downside for housing.
 
I'm in a somewhat similar situation, but just sort of floating along waiting for prices to come down a little more & for the situation to sort itself out.

The way I look at it, debt can be a powerful too as far as leverage goes. Someone with $500,000 in assets and $500,000 in debt, is in a far better position then someone just shouldering a bunch of debt.

With a mortgage you get....
- Mortgage Interest Tax Deduction (for now at least)
- Inflation of at least 1-2%, perhaps even much higher 3-4%, or even higher?

With that cash....
- Ability to invest that money elsewhere.
- Worst case 2-3% in some CDS or a high yield MMA
- Money now is worth more then money later.

While your CPA would know what's best you could always compromise and consider putting more then 20% down....as much as 40% perhaps on a 15-year or something.

Maybe get an early pay clause with no penalties if you think your financial situation is changing?

GL with the house.
 
The mortgage tax credit is one of the true welfare for the rich schemes. You would probably be best off claiming the deduction, which would offset your interest payments.

As for being sued, are you incorporated? The claimants could only sue the corporation and not you personally. Your house would be protected.

I think the Realtor (if there is one) could handle some of the paperwork. I just filed a property deed myself, but had to pay a paralegal $300 to prepare the paperwork, and then it was $145 for the filing fees at the county clerk's office. Expect to pay to $1,000 if using an attorney for this purpose.

Also, before closing there has to be a title search to be sure that the previous owner owns the house legally before the new title can be issued.

What area are you buying into?
 
joshmv said:
On the legal side of things, is it true that if I were sued and had to claim bankruptcy I could still keep my house. If so, does that make any argument for paying for it all now or does it matter?
Click to expand...

If your worried about liability you can always purchase the home with cash using a revocable trust or an llc being held by a revocable trust for extra protection. Consult an attorney, Cpa, or financial advisor.

disclaimer: I am not an attorney;)
 
BlueYonder said:
The mortgage tax credit is one of the true welfare for the rich schemes. You would probably be best off claiming the deduction, which would offset your interest payments.

As for being sued, are you incorporated? The claimants could only sue the corporation and not you personally. Your house would be protected.

What area are you buying into?
Click to expand...

First of all, thanks for all the tips guys, I knew you'd have some good ones.

I am incorporated with an S-Corp so I'm somewhat protected, but it's possible they could break through that protection once they see that it's clearly just me doing everything. I do have a CFO that control's 5% of the company so that makes it look a little bit more legitimate.

I'm buying into the Manhattan, Kansas area. I could have tried to wait for prices to come back down a little more, but this area is very insulated from most of that stuff. We have Kansas State University, a big military base nearby, and a huge government lab getting built, but the town itself has little area to build so prices and demand have stayed high. If I didn't have so much family here I would have moved to one of the depressed area's of the country with better weather :)

I'd be happy to post up pics if anybody is interested.

Thanks again,
 
In general:
1) Mortgages are cheap money. Use one, assuming you are responsible and will invest the "savings."
2) Buying a home to use as your primary residence actually can serve as asset protection in itself. It depends on your state, though. Usually a certain amount of the equity in your home is exempt from judgment. In a few states, that amount is unlimited.
 
joshmv said:
First of all, thanks for all the tips guys, I knew you'd have some good ones.

I am incorporated with an S-Corp so I'm somewhat protected, but it's possible they could break through that protection once they see that it's clearly just me doing everything. I do have a CFO that control's 5% of the company so that makes it look a little bit more legitimate.

I'm buying into the Manhattan, Kansas area. I could have tried to wait for prices to come back down a little more, but this area is very insulated from most of that stuff. We have Kansas State University, a big military base nearby, and a huge government lab getting built, but the town itself has little area to build so prices and demand have stayed high. If I didn't have so much family here I would have moved to one of the depressed area's of the country with better weather :)

I'd be happy to post up pics if anybody is interested.

Thanks again,
Click to expand...

I have zero advice for the house but I like pics :D
 
There is certainly nothing wrong with paying off a house outright but with rates at all time lows for 15yr at 4.5% and 30yr loans under 5% it makes more sense to save all your cash and not put it all in one basket. Use it to fund other projects and invest in other areas.

Getting a mortgage is actually a pretty easy process. Don't let that deter you from getting one.

As far as mortgage interest rate deductions, this may not even help you depending on your situation. The standard tax deduction saves me more than if I use the mortgage interest rate deduction (married couples can deduct $11,400 and single persons $5,700 a year)

I know real estate agents love to drive this into people's heads but it may or may not affect you.

Have you gone over all the comps and are certain the home is priced right?
 
pocketrockets said:
As far as mortgage interest rate deductions, this may not even help you depending on your situation. The standard tax deduction saves me more than if I use the mortgage interest rate deduction (married couples can deduct $11,400 and single persons $5,700 a year)

I know real estate agents love to drive this into people's heads but it may or may not affect you.

Have you gone over all the comps and are certain the home is priced right?
Click to expand...

Good point on the mortgage interest rate deduction, you and a couple others have pointed out that it might not help me that much so that's definitely something I should look into.

Before I found this house, I looked through probably 15-20 others all over town with a real estate agent, and then found this one for sale by owner. I did quite a bit of research on the house, looked at other houses in the area, and had a home inspection done. So far I've still been happy with the sale price and haven't experienced any buyers remorse (thank god).

Since this is a college town, I've lived in what most consider the "college slums" with friends the last 5-6 years (I'm 24) so this will be a pretty big change for me. Right now I'm still living with 4 other dudes so I'm ready to get the hell out of here! btw, Wickedfire is the only reason I'm able to afford this place now so thanks Jon :)

Here's some pictures of the outside, if you want to see any more of the inside I put them up in a photobucket album here: Image hosting, free photo sharing & video sharing at Photobucket

1.jpg


7.jpg
 
In all seriousness:
ballin.gif

That's a badass house, especially at the age of 24. Congrats
 
Did you get a pre approval to see how much of a mortgage they would give you in any case? ... Some places like to see 2-3 years of steady income, and are sometimes weary of entrepreneurs, even if you made lots $$ last year or so . Something bout consistency... but then you could always plop down a bigger down payment like someone mentioned earlier.

Nice house! Looks like 2 different houses front/back.
 
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