Getting Mortage worth more than House Value? 1st time buyer

agullotti · Joined: 08 Jan 2008 Posts: 8 5.58 Dollars($)

Ok, some background information real quick. I'm 24 married and interested in buying our first home. Combined annual salary ~$50k, approximately 15k debt (10k student loans) my wife is finishing up RN nursing school this year, no savings (no idea what our credit/FICO numbers are).

We're located in the NE Indiana area (Fort Wayne/Angola). Our current rent is $610, 2 bedroom 1 bath apartment something like 1300 sq ft. We're looking into buying a house in the Coldwater, MI area. I have a very steady job in Angola, IN (~15 min from MI), so I'm not worried about buying a house in Michigan then losing my job.

Due to Michigan's current issues, housing in the country-areas surrounding Coldwater is at very very nice prices. We're looking at a 4.6 acre lot 3 bed 1 bath ~1800sq ft, listed at $69,500 today. The area we're looking at has somewhere in the vicinity of $800-1000 property taxes.

We're not looking to tax ourselves financially with high monthly payments. We're looking at a 30 year loan. We plan on living in our first home for 10-15 years minimum.

My question is most of these houses were built in the 1920-1950 era. They also need a lot of work. I have no problem with buying a fixer, but as a first time home buyer am wary as we don't have any money really. So, can I get a loan for say $85,000 to $100,000 with a good interest rate so I can rennovate the home we buy?

Or am I dreaming?

On a side note, we're living rather comfortably at the $610/mo apartment but are just too cramped on space (plus no place for kids in a few years). I'm planning on also once a year making a $2,000 - $3,000 payment on our mortgage in addition to our monthly payments from our tax return.

All comments are appreciated. Thanks!

agullotti · Joined: 08 Jan 2008 Posts: 8 5.58 Dollars($)

Well I rambled enough without actually asking for much help..

Any details on specific mortgage options that you feel would be a match for me, or alternate plans that you think would be better than my above ideas is also very much appreciated.

ckalvesmaki · Posted: Tue Jan 08, 2008 8:54 am Post subject:

Good morning......There is a loan available via FHA which will allow you to borrow more than you are buying the house for......With the additional monies to be set aside for for renovation. FHA is not score driven so this may be the best scenario for you.....However depending on some other factors there are conventional loans available as well through Freddi mac that offer the same kind of options.......When looking at lenders you will want to find a lender that can offer both programs so you have a choice.

gmakerley · Posted: Tue Jan 08, 2008 9:41 am Post subject:

agullotti, the firm i work for offers an OTC (one-time close) program that allows for rehabilitation of a property - a product that is valuable for someone in a situation such as yours. there would be a bit of homework entailed for you, and you would need a general contractor to do the work for you, but it would allow you to purchase and also cover many, if not all, of the costs of your construction to bring the property up to your desired level.

there may be other, more local lending sources for you; but shop around a bit. any additional information you need is readily available as well.

agullotti · Joined: 08 Jan 2008 Posts: 8 5.58 Dollars($)

Hrmm.. so just taking a quick look at the FHA and OTC loans I'll need the following for a down payment:

FHA 203k: 3%
OTC: 5% - 10%

So by negotiating the closing costs to be taken care of by the seller I'm still looking at most likely somewhere in the $5,000-7,500 range for my out-of-pocket expenses.

Also both of these loans would be 100% loans and require PMI correct? Is PMI factored into the monthly mortgage payments or is this something I will have to pay separately?

Also I've heard of deals/bargains/incentives etc for first time home buyers, where can I find more information or can anyone recommend any steps I should take?

Thanks again!

gmakerley · Posted: Tue Jan 08, 2008 10:32 am Post subject:

pmi is typically incorporated into your mortgage payment. there are specific programs available for first time homebuyers, yes; the otc loan i noted is not one of those Sad

if there is a bond program in michigan, you may have good fortune there (but keep in mind that bond programs are usually pretty "vanilla" and as such, don't do much outside the box stuff.

stephenie1 · Posted: Tue Jan 08, 2008 11:19 am Post subject: First time homebuyer

I see that you are having trouble with the idea of mortgage insurance. The government is allowing Mortgage Insurance to be a tax write off. At the price range you are looking at your Mortgage Insurance would not be that substantial. I hope this helps!

Jessica

Yes Stephanie, Agullotti can get deductions on mortgage insurance premium (PMI).

But Agullotti, if it's 100% financing, then you need not pay the PMI. If it's a loan with insurance premiums then the monthly payments will include the premiums. And, initially you will have to pay a percentage of the total premiums at the time of closing.

As far as the 203k loan is concerned, well, you can go for it. But take a look at the eligibility requirements from a previous discussion on FHA 203k Rehab Loans .

One more thing is, you should get your credit score from any of the credit bureaus - Experian, Equifax and TransUnion or you may get it online from annualcreditreport.com . This will help lenders get an idea about your overall credit situation and they'll be able to evaluate your creditworthiness based on which they can offer you mortgage quotes.

Regards,

Jessica

adonis · Posted: Thu Jan 10, 2008 5:01 am Post subject:

Agullotti,

You will find some more details on FHA 203k at http://www.hud.gov/offices/hsg/sfh/203k/203kabou.cfm . Have a look and in case you have come across some other options, feel free to discuss it here again.

gmakerley · Posted: Thu Jan 10, 2008 7:43 am Post subject:

jessica, i dont understand what you are addressing when you say "if it's 100% financing, you don't have to pay the pmi." actually, that whole paragraph about insurance premiums, etc., baffles me.

when you are financing 100% of the purchase price, it is inevitable that you will pay pmi. most lenders now offer a few ways to do this - lender paid pmi, monthly paid, and even a prepaid method on occasion.

please explain better - if i am confused about what you have said - and i have been a mortgage insurance company underwriter for more than 10 years prior to originating loans - think how the poor potential borrower will feel.

Jessica · Posted: Thu Jan 10, 2008 10:36 pm Post subject: RE:

I understand your concern George and appreciate it. But what I meant was, not in every situation is a PMI required for 100% financing. For instance, in 100% financing such as 80/20 loans, one need not pay the PMI.

I hope I could clear it now.

Regards,

Jessica

gmakerley · Posted: Fri Jan 11, 2008 7:58 am Post subject:

thanks for the clarification, jessica. keep in mind, however, that 80/20 loans have almost completely disappeared. lenders are much less likely to do such a thing these days. and, of course, mortgage insurance isn't such an awful thing after all, anyway.

agullotti · Joined: 08 Jan 2008 Posts: 8 5.58 Dollars($)

Isn't it true that a bill passed that makes all PMI payments on mortgages made within the next few years tax deductable?

This means that you're going to get the money back at the end of the year, so it isn't as big of a deal correct?

gmakerley · Posted: Fri Jan 11, 2008 8:09 am Post subject:

you won't get back dollar for dollar, but your year-end statement for the mortgage will reflect interest paid throughout the year, as well as the mi premiums paid.

these numbers can then be entered on your irs schedule a (itemized deductions), which should serve to reduce your taxable income; thereby increasing any tax refund you have coming (or reducing the tax you must pay).

i'm sure the irs has already addressed this in the instruction booklets for the current tax year, as this law was initially passed for 2007.

lisascherzer · Joined: 04 Jan 2008 Posts: 755 1.03 Dollars($)

There are some mortgages that will let you borrow based on what the home will be worth after the improvements but you must use contractors and the work needs to be completed within a certain amount of time. Unless you are going to gain several thousands of dollars in equity by doing this, I would suggest trying to find a home that doesnt need as much work. If it just needs some cosmetic work, I would suggest using the 2 to 3K that you usually get for income tax and use that for making improvements in the home, year by year.

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