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I'm considering buying a house next summer and am trying to get a sense of how much money I need to have on hand to do so.

Income: $185K, but only will have been at that job/salary for ~10 months by next June.

Student Loans: $200K; but payment shows at $0 due to IBR and won't be recalculated until next June. No other debt. But also, no other assets to speak of. I finished grad school two years ago, but did the equivalent of a fellowship for the last two years and am just now beginning to make "real" money.

I'm looking at houses in the $350-375K range, but let's say $400K just to be safe. I assume I want at least 5% ($20K down) to get "prime" terms (even though I'll have to pay PMI, right? What about cash reserves on top of a down payment?

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Who said I was single? Saving $5-6K/month is about the best I can do.

ltcm (Sep. 25, 2012 @ 5:42p) |

I'd also vote for a low closing cost variable rate or even a 15 year rate if you qualified. - To get the lowest rate/ cl... (more)

sttuu (Sep. 25, 2012 @ 10:11p) |

I'm a member at both PFCU and NFCU so I'll definitely look into their products, depending on how much I can get together... (more)

ltcm (Sep. 26, 2012 @ 9:58a) |

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80k or 20% (maybe) and 2 years work history @ current income level.

hirenrp said:   80k or 20% (maybe) and 2 years work history @ current income level.

Seems excessive, no? If you need 20% why does PMI still exist?

100% finance if you can swing it, miss some payments and maybe you'll get bailed out. Don't put too much stuff in there and have Uhaul on speed dial.

ltcm said:   hirenrp said:   80k or 20% (maybe) and 2 years work history @ current income level.

Seems excessive, no? If you need 20% why does PMI still exist?


PMI is something that you pay for, yet you get absolutely no value out of. Just save up the 20%.

I hope you aren't buying a house because "it's the best time to buy evarrrr" because even if that is true have you calculated your effective interest rate with PMI in the equation? No matter your reasoning I think PMI is a waste and in nearly every circumstance you are better off either waiting until you have 20% to put down or lowering your purchase point so you can put 20% down.

dukerau said:   I hope you aren't buying a house because "it's the best time to buy evarrrr" because even if that is true have you calculated your effective interest rate with PMI in the equation? No matter your reasoning I think PMI is a waste and in nearly every circumstance you are better off either waiting until you have 20% to put down or lowering your purchase point so you can put 20% down.

I specifically left out a lot of details about "why," etc... because I'm only interested in the finance piece of it. Assuming I love PMI and want to pay it, can I get advertised rates with good credit and 5% down -- that's really all I'm asking.

ltcm said:   I assume I want at least 5% ($20K down) to get "prime" terms (even though I'll have to pay PMI, right? What about cash reserves on top of a down payment?

ltcm said:   hirenrp said:   80k or 20% (maybe) and 2 years work history @ current income level.

Seems excessive, no? If you need 20% why does PMI still exist?
PMI is not a "prime" term. 5% also probably won't qualify you for the best rate, which would likely require 20-30%. So you'll probably be paying a higher rate plus PMI, which just raises your effective rate even more.

nasheedb said:   ltcm said:   hirenrp said:   80k or 20% (maybe) and 2 years work history @ current income level.

Seems excessive, no? If you need 20% why does PMI still exist?


PMI is something that you pay for, yet you get absolutely no value out of. Just save up the 20%.
I've seen some short sales where the total loss to the lender is covered by the PMI company, who after approving the short sale, will not pursue the borrower in any way, and does not report any forgiven debt. Mortgage reports closed, no settlement (possibly paid by insurance), no 1099-C.

ltcm said:   dukerau said:   I hope you aren't buying a house because "it's the best time to buy evarrrr" because even if that is true have you calculated your effective interest rate with PMI in the equation? No matter your reasoning I think PMI is a waste and in nearly every circumstance you are better off either waiting until you have 20% to put down or lowering your purchase point so you can put 20% down.

I specifically left out a lot of details about "why," etc... because I'm only interested in the finance piece of it. Assuming I love PMI and want to pay it, can I get advertised rates with good credit and 5% down -- that's really all I'm asking.
Most likely not.

From your OP, it seems like you could probably get away with less than 2 years employment. You really should save up at least 20% down, but whether 5% or 20%, you'll probably need 2-6 months of reserves. You should talk to a local bank/CU, broker, or big bank to get a better idea. I also just noticed that you have currently been employed for about one month.

Just for fun, FWF would tear into a thread that looked like this:

ltcm said:   I'm considering buying a house next summer and am trying to get a sense of how much money I need to have on hand to do so.

Income: $37K, but only will have been at that job/salary for ~10 months by next June.

Student Loans: $40K; but payment shows at $0 due to IBR and won't be recalculated until next June. No other debt. But also, no other assets to speak of. I finished grad school two years ago, but did the equivalent of a fellowship for the last two years and am just now beginning to make "real" money.

I'm looking at houses in the $70-75K range, but let's say $80K just to be safe. I assume I want at least 5% ($4K down) to get "prime" terms (even though I'll have to pay PMI, right? What about cash reserves on top of a down payment?

BingBlangBlaow said:   From your OP, it seems like you could probably get away with less than 2 years employment. You really should save up at least 20% down, but whether 5% or 20%, you'll probably need 2-6 months of reserves. You should talk to a local bank/CU, broker, or big bank to get a better idea. I also just noticed that you have currently been employed for about one month.

Just for fun, FWF would tear into a thread that looked like this:

ltcm said:   I'm considering buying a house next summer and am trying to get a sense of how much money I need to have on hand to do so.

Income: $37K, but only will have been at that job/salary for ~10 months by next June.

Student Loans: $40K; but payment shows at $0 due to IBR and won't be recalculated until next June. No other debt. But also, no other assets to speak of. I finished grad school two years ago, but did the equivalent of a fellowship for the last two years and am just now beginning to make "real" money.

I'm looking at houses in the $70-75K range, but let's say $80K just to be safe. I assume I want at least 5% ($4K down) to get "prime" terms (even though I'll have to pay PMI, right? What about cash reserves on top of a down payment?


Yes, I've been at this job for just over a month, but it's not like I haven't been working at all for the past two years. My W-2 income for 2012 will be ~$150K. I have not, and have no plans to, ramp up my spending to match my new income, so I anticipate being able to put at least $5K/month into savings until I get into a house and then I'm going to start putting $5K/month at my student loans.

edit

ltcm said:   dukerau said:   I hope you aren't buying a house because "it's the best time to buy evarrrr" because even if that is true have you calculated your effective interest rate with PMI in the equation? No matter your reasoning I think PMI is a waste and in nearly every circumstance you are better off either waiting until you have 20% to put down or lowering your purchase point so you can put 20% down.

I specifically left out a lot of details about "why," etc... because I'm only interested in the finance piece of it. Assuming I love PMI and want to pay it, can I get advertised rates with good credit and 5% down -- that's really all I'm asking.


Yes, my brother-in-law just put 5% down on a house with 3.375% fixed 30 year mortgage.

Kooonsty said:   ltcm said:   dukerau said:   I hope you aren't buying a house because "it's the best time to buy evarrrr" because even if that is true have you calculated your effective interest rate with PMI in the equation? No matter your reasoning I think PMI is a waste and in nearly every circumstance you are better off either waiting until you have 20% to put down or lowering your purchase point so you can put 20% down.

I specifically left out a lot of details about "why," etc... because I'm only interested in the finance piece of it. Assuming I love PMI and want to pay it, can I get advertised rates with good credit and 5% down -- that's really all I'm asking.


Yes, my brother and law just put 5% down on a house with 3.375% fixed 30 year mortgage.


Thanks for the data point.

ltcm said:   Income: $185K, but only will have been at that job/salary for ~10 months by next June. The 10 months won't be an issue, because all lenders will give you full credit for law school and judicial clerkship.

geo123 said:   ltcm said:   Income: $185K, but only will have been at that job/salary for ~10 months by next June. The 10 months won't be an issue, because all lenders will give you full credit for law school and judicial clerkship.

That's good to know, thanks.

ltcm said:   I'm looking at houses in the $350-375K range, but let's say $400K just to be safe. I assume I want at least 5% ($20K down) to get "prime" terms (even though I'll have to pay PMI, right? What about cash reserves on top of a down payment?Most lenders will want to see about 6-months worth of PITI (principal, interest, taxes and insurance) in reserves.

Since you are with a large firm, you may want to check with your firm to see if any of its bank clients offer special portfolio lending programs to its attorneys, which is fairly common. You may also want to look into "attorney/lawyer mortgages," which are also portfolio products offered by a number of lenders. The primary advantage of these programs usually has to do with greatly reduced downpayment requirements (some still do 100% LTV financing), relaxed underwriting and no PMI. You generally won't find any of these programs advantageous if you have 20% down, but with 5% down they can sometimes be much more attractive than the programs offered to the general public.

geo123 said:   ltcm said:   I'm looking at houses in the $350-375K range, but let's say $400K just to be safe. I assume I want at least 5% ($20K down) to get "prime" terms (even though I'll have to pay PMI, right? What about cash reserves on top of a down payment?Most lenders will want to see about 6-months worth of PITI (principal, interest, taxes and insurance) in reserves.

Since you are with a large firm, you may want to check with your firm to see if any of its bank clients offer special portfolio lending programs to its attorneys, which is fairly common. You may also want to look into "attorney/lawyer mortgages," which are also portfolio products offered by a number of lenders. The primary advantage of these programs usually has to do with greatly reduced downpayment requirements (some still do 100% LTV financing), relaxed underwriting and no PMI. You generally won't find any of these programs advantageous if you have 20% down, but with 5% down they can sometimes be much more attractive than the programs offered to the general public.


Interesting, I was not aware of that. I poked around on our intranet and saw some stuff about mortgage deals for partners, but not associates. I'll inquire a bit further on that front.

Do you have a particular lender you would recommend for investigating the lawyer mortgage route (outside of something internal to the firm)?

With your income you must be located in either the Northeast or CA, WA. With that said 400k is a pretty shitty house in those markets OR very far from the metro area. Have you looked into FHA approved developments? You can get away with 3.5% down but, will need a decent FICO and will pay PMI. Are your student loans showing on your credit report?

money2011 said:   With your income you must be located in either the Northeast or CA, WA. With that said 400k is a pretty shitty house in those markets OR very far from the metro area. Have you looked into FHA approved developments? You can get away with 3.5% down but, will need a decent FICO and will pay PMI. Are your student loans showing on your credit report?

I'm not in those markets and $400K will buy a pretty decent house around here (albeit with a longish commute, but I like the area where I live and have been doing the commute for two years and don't mind). I'm trying to avoid the FHA stuff because from what I understand you can never get rid of the FHA PMI without refinancing, but regular PMI can be eliminated once you the LTV is under 80%. But I could be wrong about that, mortgages are not something I know much about (obviously).

Generally, you can get the best rate when you have 2 years of documented income that will qualify you for the loan and 20% down.

If you are confident that your $185k yearly income is sustainable going forward, and you have the self control in putting away excess savings, then I think you can start shopping for that $400k house now. You don't know what the rates and lending standards are going to be next summer for someone who is not in the "prime" category. You also don't know where housing prices will go by next summer. What you do know is that in 2 years, with your income level and discipline in savings, you will move yourself into the prime category.

The fed is committed to keep rates low through middle of 2015. If I were you, I would just start shopping for the house now and get an adjustable rate mortgage. Then plan on refi-ing in 2014, after you have an established 2 year work history at $185k income, and 20% down. You will have lots of options available to you then - you may refi into a new 30 year fixed, the economy may be roaring back and you may move up to a bigger house, etc.

This is all dependent on you having the confidence that the high income is sustainable going forward, and you have the discipline to put away savings toward a future downpayment (or additional cash in the eventual refi).

ltcm said:   money2011 said:   With your income you must be located in either the Northeast or CA, WA. With that said 400k is a pretty shitty house in those markets OR very far from the metro area. Have you looked into FHA approved developments? You can get away with 3.5% down but, will need a decent FICO and will pay PMI. Are your student loans showing on your credit report?

I'm not in those markets and $400K will buy a pretty decent house around here (albeit with a longish commute, but I like the area where I live and have been doing the commute for two years and don't mind). I'm trying to avoid the FHA stuff because from what I understand you can never get rid of the FHA PMI without refinancing, but regular PMI can be eliminated once you the LTV is under 80%. But I could be wrong about that, mortgages are not something I know much about (obviously).


i'll second your opinion of staying away from FHA ( 1- harder to get rid of mortgage insurance 2- up front mortgage insurance payment and 3- higher mortgage insurance rates). with a conventional loan, it's easier to get rid of PMI when you have enough equity and the rate is also lower. i am in the process of purchasing a home with 15% down, and the PMI rate is only 0.25% (loan amount * 0.0025 / 12) and am still getting the best possible mortgage rate. for reference, even when i was thinking about 10%, i was still quoted the lowest advertised rates.

also for reference, the PMI rates for conventional loans are tiered at 5, 10, and 15%. anything in between those %'s will be the same (putting 12% down still still pay the same PMI rate as putting 10% down). so if possible, put 10 or even 15% down

money2011 said:   With your income you must be located in either the Northeast or CA, WA. With that said 400k is a pretty shitty house in those markets OR very far from the metro area. Have you looked into FHA approved developments? You can get away with 3.5% down but, will need a decent FICO and will pay PMI. Are your student loans showing on your credit report?

I'm pretty sure at least some people make over $185k in every single state of the union.

Galun000 said:   Generally, you can get the best rate when you have 2 years of documented income that will qualify you for the loan and 20% down.

If you are confident that your $185k yearly income is sustainable going forward, and you have the self control in putting away excess savings, then I think you can start shopping for that $400k house now. You don't know what the rates and lending standards are going to be next summer for someone who is not in the "prime" category. You also don't know where housing prices will go by next summer. What you do know is that in 2 years, with your income level and discipline in savings, you will move yourself into the prime category.

The fed is committed to keep rates low through middle of 2015. If I were you, I would just start shopping for the house now and get an adjustable rate mortgage. Then plan on refi-ing in 2014, after you have an established 2 year work history at $185k income, and 20% down. You will have lots of options available to you then - you may refi into a new 30 year fixed, the economy may be roaring back and you may move up to a bigger house, etc.

This is all dependent on you having the confidence that the high income is sustainable going forward, and you have the discipline to put away savings toward a future downpayment (or additional cash in the eventual refi).


I'm not sure I want to take on the risk with a variable loan, but it's something to think about. Thanks.

tenken said:   ltcm said:   money2011 said:   With your income you must be located in either the Northeast or CA, WA. With that said 400k is a pretty shitty house in those markets OR very far from the metro area. Have you looked into FHA approved developments? You can get away with 3.5% down but, will need a decent FICO and will pay PMI. Are your student loans showing on your credit report?

I'm not in those markets and $400K will buy a pretty decent house around here (albeit with a longish commute, but I like the area where I live and have been doing the commute for two years and don't mind). I'm trying to avoid the FHA stuff because from what I understand you can never get rid of the FHA PMI without refinancing, but regular PMI can be eliminated once you the LTV is under 80%. But I could be wrong about that, mortgages are not something I know much about (obviously).


i'll second your opinion of staying away from FHA ( 1- harder to get rid of mortgage insurance 2- up front mortgage insurance payment and 3- higher mortgage insurance rates). with a conventional loan, it's easier to get rid of PMI when you have enough equity and the rate is also lower. i am in the process of purchasing a home with 15% down, and the PMI rate is only 0.25% (loan amount * 0.0025 / 12) and am still getting the best possible mortgage rate. for reference, even when i was thinking about 10%, i was still quoted the lowest advertised rates.

also for reference, the PMI rates for conventional loans are tiered at 5, 10, and 15%. anything in between those %'s will be the same (putting 12% down still still pay the same PMI rate as putting 10% down). so if possible, put 10 or even 15% down


I did not realize that about the "buckets" of PMI, thanks for that. I might be able to get 10% by next summer, just depends on the loan amount.

ltcm said:   Galun000 said:   Generally, you can get the best rate when you have 2 years of documented income that will qualify you for the loan and 20% down.

If you are confident that your $185k yearly income is sustainable going forward, and you have the self control in putting away excess savings, then I think you can start shopping for that $400k house now. You don't know what the rates and lending standards are going to be next summer for someone who is not in the "prime" category. You also don't know where housing prices will go by next summer. What you do know is that in 2 years, with your income level and discipline in savings, you will move yourself into the prime category.

The fed is committed to keep rates low through middle of 2015. If I were you, I would just start shopping for the house now and get an adjustable rate mortgage. Then plan on refi-ing in 2014, after you have an established 2 year work history at $185k income, and 20% down. You will have lots of options available to you then - you may refi into a new 30 year fixed, the economy may be roaring back and you may move up to a bigger house, etc.

This is all dependent on you having the confidence that the high income is sustainable going forward, and you have the discipline to put away savings toward a future downpayment (or additional cash in the eventual refi).


I'm not sure I want to take on the risk with a variable loan, but it's something to think about. Thanks.


Then get a 30 year fixed. My point is that you will likely refi at a better rate in 2014 when you have 2 years of documented income, so don't worry about the rate you get now. Do the best you can under your current circumstances, but go for it now if the right house comes along.

Galun000 said:   My point is that you will likely refi at a better rate in 2014 when you have 2 years of documented income, so don't worry about the rate you get now.ltcm is an associate with a large firm. As I mentioned above, every single lender out there will count law school and his judicial clerkship as work experience, so the 2 year period will not be a problem for him at all. Every single lender out there does the same thing for physicians and, I presume, other professionals with graduate degrees.

For these reasons your advice, while otherwise fine, is inapplicable to ltcm.

Billions and billions of dollars.

But really you should add detail to the title however even then there are a multitude of factors that come into play like:
Job History
Income
Savings/retirement/investment
Credit History
Age
Expenses
........

25K bonus to a first-year--ORLY?

FreddyPharkas said:   25K bonus to a first-year--ORLY?

I'm not a first year; clerked for two years, will be a 3rd year ($185K level) in 2013. I'm not even including any bonus money I might make (since bonuses have been relatively small the last few years I'm just planning to put whatever I might get on my student loans).

geo123 said:   Galun000 said:   My point is that you will likely refi at a better rate in 2014 when you have 2 years of documented income, so don't worry about the rate you get now.ltcm is an associate with a large firm. As I mentioned above, every single lender out there will count law school and his judicial clerkship as work experience, so the 2 year period will not be a problem for him at all. Every single lender out there does the same thing for physicians and, I presume, other professionals with graduate degrees.

For these reasons your advice, while otherwise fine, is inapplicable to ltcm.


I am assuming that he needs 2 years of documented income at ~$185k to get the aboslute best rate he can get.

He stated that he will get $150k this year in 2012. I assume it was no where close to that in 2011, and he will get $185k in 2013.

Thus my comment to refi in 2014.

ltcm said:   FreddyPharkas said:   25K bonus to a first-year--ORLY?

I'm not a first year; clerked for two years, will be a 3rd year ($185K level) in 2013. I'm not even including any bonus money I might make (since bonuses have been relatively small the last few years I'm just planning to put whatever I might get on my student loans).


I work in the financial services industry where bonus is a large component of my comp (multiples of my base salary).

In my experience, the lender discounted the bonus by 30%, then averaged over 2 years.

My wife also receives a bonus, but that's around 20% of her base salary.

In her case, the lender averaged the bonus over 2 years, but counted 100% of it as income.

Galun000 said:   I am assuming that he needs 2 years of documented income at ~$185k to get the aboslute best rate he can get.Once again, no. Please re-read my explanations above. He is a lawyer and has a judicial clerkship under his belt. As such, every single lender out there will give him full credit for law school and clerkship, such that he will be treated as if he has been working in the same line of work for the past 5 years (3 years of lawschool plus a 2 year clerkship).

He stated that he will get $150k this year in 2012. I assume it was no where close to that in 2011, and he will get $185k in 2013.Respectfully, your comments are well intentioned but you are way, way off with your advice here because you are missing the issues and/or are unfamiliar with the process.

For compensation purposes, ltcm's firm is giving him full credit for the time that he spent clerking for a federal judge, which is the way that it's almost always done. So, with first year associate salaries being $160K, he is coming on board as a 3rd year associate with a $185K salary. Because he started with his firm mid-year, his 2012 compensation will be in the $150K range, although his salary is $185K/year. Again, none of this will affect how every single lender out there will be looking at his income.

With $185K income you should easily be able to save $80K for down payment in two years. In my opinion that's the right thing to do.

geo123 said:   Galun000 said:   I am assuming that he needs 2 years of documented income at ~$185k to get the aboslute best rate he can get.Once again, no. Please re-read my explanations above. He is a lawyer and has a judicial clerkship under his belt. As such, every single lender out there will give him full credit for law school and clerkship, such that he will be treated as if he has been working in the same line of work for the past 5 years (3 years of lawschool plus a 2 year clerkship).

He stated that he will get $150k this year in 2012. I assume it was no where close to that in 2011, and he will get $185k in 2013.Respectfully, your comments are well intentioned but you are way, way off with your advice here because you are missing the issues and/or are unfamiliar with the process.

For compensation purposes, ltcm's firm is giving him full credit for the time that he spent clerking for a federal judge, which is the way that it's almost always done. So, with first year associate salaries being $160K, he is coming on board as a 3rd year associate with a $185K salary. Because he started with his firm mid-year, his 2012 compensation will be in the $150K range, although his salary is $185K/year. Again, none of this will affect how every single lender out there will be looking at his income.


I will admit that I am indeed unfamilar with lawyer specific loan programs. However, I am familar with doctor loans and I assume the two situations are pretty similar - someone who is on a stable career path with very little default risk, but have large initial debt and little to no downpayment, and coming off year(s) of low income relative to their ultimate earnings power. There are indeed many programs catered to these professionals. However, these programs comes as a cost, usually in the form of higher rates relative to a conventional mortgage, and are often laddened with fees.

Please re-read my advice. My advice is that the OP should not need to wait if the right house comes along, because with discipline he can refi to the best available rate in 2014. I never said he would have a problem qualifying for a mortgage now, which seems to be what you are arguing about. However, there is no way he can qualify for the best available terms on a mortgage given his current circumstances. But in 2 years, with $150k in 2012 and $185k in 2013 of documented income, along with disciplined savings for 20% down (OP said $5k a month in savings, 16 months till 2014 = $80k or 20% down for $400k house), he will be able to refi into the best available terms in 2014, in the form of a conventional mortgage.

The only caveat is if the OP's firm offers financing that have discounted / favorable terms. In that case the firm is probably subsidizing the loan, and that will surely come with it's own can of worms - minimum service committment, instant repayment of full balance if you leave, etc.

My advice is quite simple really. There is no need to for the OP to constraint himself into looking at a house (next summer) only after he has enough money on hand to qualify for a "prime" mortgage. With his future earnings power and discipline in savings, he can refi into a "prime" mortgage in 2014. So why wait?

If he has 150K on W2 in 2012 and rents, he should have at least 50k in assets.. How is he spending money

needdealsnow said:   If he has 150K on W2 in 2012 and rents, he should have at least 50k in assets.. How is he spending money

Haven't finished making $150K this year, but have already paid off $40K in other debt in the last six months that I wanted to eliminate prior to saving for a house. From now until year-end, I intend to sock away at least $5K/month and continue into 2013.

DamnoIT said:   Billions and billions of dollars.

But really you should add detail to the title however even then there are a multitude of factors that come into play like:
Job History
Income
Savings/retirement/investment
Credit History
Age
Expenses
........


AGE!!! Really!

Skipping 4 Messages...
sttuu said:   I'd also vote for a low closing cost variable rate or even a 15 year rate if you qualified. - To get the lowest rate/ closing costs possible for now. If you get a less than perfect rate, you're going to want to refinance anyways.

Something like the Penfed 5/5 with closing costs would be perfect, except of they won't approve with such a small percent down. I think NCFU (Navy Federal) will pay some closing costs on loans. (membership restrictions)


I'm a member at both PFCU and NFCU so I'll definitely look into their products, depending on how much I can get together for a down payment.



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