Buying a house...Questions.

[Ron 10]

OK thinking of buying a house...I know NOTHING about this.

So questions:

1. Block or Framed? Seems I can buy a new framed house for the same cost as a 50 yo block home.

2. Should I take 10 grand out of my 401K for the DP? I should not need PMI since I have the VA home loan. It seems to be that a big DP does not help that much. I could put as much as say 15-20k down...I'm tempted to just leave it in and finance the total cost of the home since I am getting better return on my investments than the intrest rate of the loan would be...Thoughts?

Again...I have no clue and to be honest its kinda driving me crazy....Well crazier.

Right now I am saving 47% of my salary, I increased my saving recently to try and get a big DP.
17% to a 401k.
20% to a mutual fund (The plan was for a DP and then a slush fund for maintenance, emergencies, ect.)
10% to Stocks.

"No free man shall ever be debarred the use of arms." -- Thomas Jefferson, Thomas Jefferson Papers, 334

[wmw999 2,560]

The biggest advantage for me of a big down payment is that I don't have to have my taxes and insurance escrowed -- I'm in charge of them. Which means I control which year I pay them in (significant if you itemize, which you will with a house), especially when you realize they can screw up and NOT pay them.

It means I have to save for that, but, well, a larger house payment would enforce that anyway.

The best advice I can give is to set the payments so that you can pay more than the minimum as much as possible, and have it structured so that there is no prepay penalty, and prepayments go towards the principal. You can cut years and many dollars off your mortgage with prepayments in the beginning.

Wendy W.

There is nothing more dangerous than breaking a basic safety rule and getting away with it. It removes fear of the consequences and builds false confidence. (tbrown)

[NWFlyer 2]

Ask around to find a good mortgage lender or broker. Sit down and spell out everything with that person, including your financial situation, your goals, the money you're comfortable touching vs. the money you do not want to use. Find out what your options are with different amounts of money down, which may help you decide whether it's better to touch the 401(k) money or leave it where it is. Ask about any special programs in your area for first-time home buyers or people with certain characteristics (income, where they buy a house, etc.) - there's all kinds of stuff.

Beyond that, I don't know much. The one piece of advice I'd add from my own experience is this: Know how much YOU are comfortable spending, and don't go over that amount per month. I was approved for a loan much higher than what I wanted to spend and I think sometimes people get tempted to think "Well, if I got approved for it, it must mean I can afford it."

"There is only one basic human right, the right to do as you damn well please. And with it comes the only basic human duty, the duty to take the consequences." -P.J. O'Rourke

[Buried 0]

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2. Should I take 10 grand out of my 401K for the DP? I should not need PMI since I have the VA home loan. It seems to be that a big DP does not help that much. I could put as much as say 15-20k down...I'm tempted to just leave it in and finance the total cost of the home since I am getting better return on my investments than the intrest rate of the loan would be...Thoughts?

may want to verify but i think if you happen to take out of a 401k, be aware that it's not necessarily bad since you are repaying yourself and the interest should be tax deductable. (or maybe that was the PMI - check on this)

Another thing about the PMI route, is that you can increase your morgage/loan and it's amount and pay it upfront.

Where is my fizzy-lifting drink?

[meltdown 0]

I've been involved in a few real estate transactions, and the best advice I can give is this: expect that everyone involved is trying to screw you(including your own agent). Make sure you read and understand all of the closing paperwork. The last house I sold there was a $1200.00 screwup on the closing docs, and if it weren't for me catching it, I would have been out that cash. Also, when you get the place inspected, be there and ask lots of questions. Home inspectors are not all created equal, and I've had inspectors miss major problems. And don't expect your real estate agent to watch your back. Of the realtors I've worked with, I'd say the vast majority are either incompetent, or just don't give a shit. Pay attention to the details...all of them.

[pleifer 0]

There is so many possible senerios with this one.

Things to consider:

I believe you can pull money out of your 401k for a home purchase tax free (advantage) which will significantly reduce the payments and interest. but if the average return in the 401k is 10% and the home loan is 5%, you are effectively losing 5% every year. Of 20grand that is $1000 a year that could be going to your retirement.

By leaving the 401k you will get to write off the extra inetrest paid, which you are still paying more inetrest, but, you are making up for that by leaving the monies in the 401k.

Now, is there a significant difference in inetrest by having a larger down payment?

You are looking to leverage various assets, so I would pay the money to have a financial advisor explore the different options of... What if I do this? or do that? and will show you in 20-40 years (read retirement time when you have access to the 401k) the different payouts, or which will put you farther ahead.

I know my spelling sucks, but I've aced all my 3 and 4 hundred level finance classes

_________________________________________
The Angel of Duh has spoke

[skymama 37]

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1. Block or Framed? Seems I can buy a new framed house for the same cost as a 30 yo block home.

OK, I just asked my dad this. He's been building in FL for 35 years. He said block houses were originally built in FL back when there was no air conditioning because the blocks will hold the cooler night air, thus making the house stay cooler during the day than a frame house. He added that with the cost efficient new air conditioning systems that a brand new house would have, you could buy the frame house if it's the same cost as the block house and it would be fine.

The only downfall to a frame house is a higher risk of termite infestation. Very important: With either house, but especially if you do get the frame house, make sure you are diligent about termite inspections every year and also get the termite barrier around your home if you get a frame house. You will be wise to pay for a termite bond every year. Termites are a terrible problem in FL and they aren't choosey about whose home they go after. We did a room addition on a million dollar home that actually did have a termite bond and inspection on it. Once we tore through a wall, they were infested with termites and didn't even know it. Thanks to the bond, it was covered by the termite company or they would have been out thousands of dollars.

Edit to add: He would only let me get a block house when I was looking for a house.

She is Da Man, and you better not mess with Da Man,
because she will lay some keepdown on you faster than, well, really fast. ~Billvon

[MarkM 0]

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1. Block or Framed? Seems I can buy a new framed house for the same cost as a 30 yo block home.

How bad are the termites in that part of Florida?

[wmw999 2,560]

This would imply, then, that a block home will be cooler without A/C -- if you're into conservation, might be worth considering.

Also -- are you only considering new houses?

Wendy

There is nothing more dangerous than breaking a basic safety rule and getting away with it. It removes fear of the consequences and builds false confidence. (tbrown)

[Ron 10]

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How bad are the termites in that part of Florida?

Bad read Skymama's post

"No free man shall ever be debarred the use of arms." -- Thomas Jefferson, Thomas Jefferson Papers, 334

[Buried 0]

wouldn't a block house be also a little better for hurricain type winds?

Where is my fizzy-lifting drink?

[Ron 10]

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This would imply, then, that a block home will be cooler without A/C -- if you're into conservation, might be worth considering.

I was thinking along the Termite/Hurricane issues.

But energy eff is important, and I plan on getting to that bridge when I get there. Already planning motion detecting light switches for common areas.

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Also -- are you only considering new houses?

No, but a 30 year old block home and a new frame house seems to be the same price.

Also the hosing market around my area is really nuts. A house stays on the market less than a week.

Buy a new one would be nice since they cost about the same, I get to make it my colors/style.

Planning on living in it for a few years then renting it out and becoming a slum lord

"No free man shall ever be debarred the use of arms." -- Thomas Jefferson, Thomas Jefferson Papers, 334

[Ron 10]

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wouldn't a block house be also a little better for hurricain type winds?

Yes, but I have no idea home important that really is...so thats why I am asking.

A block home would be better for Hurricanes, and termites. But from Skymama it seems no matter what house I get I will have to deal with termites. My trailer survived the last 4 hurricanes just fine.

Plus the frame house is new, and will meet all the new building specs. And the block homes seem to be about 50 years old...I have no idea if 50 years is a big deal in a house.

"No free man shall ever be debarred the use of arms." -- Thomas Jefferson, Thomas Jefferson Papers, 334

[Deuce 1]

Generally you need a 20% down payment to avoid paying PMI, or mortgage insurance. A way around this is to have your mortgage broker do an 80% first mortgage with a 20% second that you use as "down payment". Effectively "zero down".

I don't know about the rest of the country, but here in CA the appreciation rate is faster than the percentage rate of most mortgages.

[Buried 0]

personally i'm not a fan on new construction, but i suppose if you switch things to solid wood doors, etc the new construction could be very nice. It could be easier to maintain too than an older home, but also depending on the area, the older homes could have charm.

Where is my fizzy-lifting drink?

[Ron 10]

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Generally you need a 20% down payment to avoid paying PMI, or mortgage insurance. A way around this is to have your mortgage broker do an 80% first mortgage with a 20% second that you use as "down payment". Effectively "zero down".

Yes, but I plan on useing my VA benefits which make it so I don't need a down payment, and don't have to pay PMI.

So I don't know if taking the 10 grand allowed by law out of my 401k is a good idea since I am getting a better ruturn than the current interest rates.

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http://www.homeloans.va.gov/faqpreln.htm
What are the benefits of a VA home loan?

Equal opportunity.
No downpayment (unless required by the lender or the purchase price is more than the reasonable value of the property).
Buyer informed of reasonable value.
Negotiable interest rate.
Ability to finance the VA funding fee (plus reduced funding fees with a downpayment of at least 5% and exemption for veterans receiving VA compensation).
Closing costs are comparable with other financing types (and may be lower).
No mortgage insurance premiums.
An assumable mortgage.
Right to prepay without penalty.
For homes inspected by VA during construction, a warranty from builder and assistance from VA to obtain cooperation of builder.
VA assistance to veteran borrowers in default due to temporary financial difficulty.

My big question seems to be 50 year old block or a new frame home?

"No free man shall ever be debarred the use of arms." -- Thomas Jefferson, Thomas Jefferson Papers, 334

[marcandalysse 0]

I got the Sentricon termite monitor system around the perimeter of my house. Works very well. Costs about $300/year. Block Houses still have wood in them!

New house as you mention will be up to hurricane specs.

Just make sure you have room for all those RC toys of yours!!!

Good luck!
marc

[wmw999 2,560]

I have relatives who live in 50-year-old block houses in Florida (that makes me an expert, right?).

Termites will be less of a problem if you don't have a frame that's close to the ground. I don't know if they're much worse in Florida than they are in the Houston area, but I had them a few years ago. Did a treatment, and I have it kept current now. I had to have a windowsill replaced, but there wasn't anything else structural that needed repair because I caught them reasonably quickly. You need to what what you plant and where, and know what to look for. Prevention is definitely easier. I do not have the Sentricon -- the contractor who did mine said that the chemical treatment is cheaper, lasts for 5 years, and takes less maintenance. I paid less than $1000 originally, and annual checks are $85, as compared with $2000 for Sentricon with more for annual maintenance. No new termite trails.

I've had the same house for 17 years (!). Wear items include appliances (relatively cheap), air conditioning/heat systems (updated/high efficiency is much better; natural gas is cheaper than all electric generally), roof (probably good for 15-20 years max, and if you can get one with ridge vents it's probably a good thing), and possibly plumbing (different years have different issues).

Popularity things include plug numbers and placement -- more recent houses have more plugs. Houses in general have gotten larger over the years.

Walls are easy to paint -- my BF and I did all of the walls in our downstairs that weren't papered with a power roller in a day. Just not a big deal. I replaced 750 sq. ft. of carpet and vinyl with stone tile for about $2200, and couldn't be happier. That was a good price, though. I put my own engineered hardwood floor down in a weekend.

It's easy to be handy about the house. And it's much easier to take care of a house that has the big, important things of good quality.

Wendy W.

There is nothing more dangerous than breaking a basic safety rule and getting away with it. It removes fear of the consequences and builds false confidence. (tbrown)

[wmw999 2,560]

If you get a frame home, you can get Hardi-plank. Developed in Australia where the termites are more aggressive. I have it, and really like it. Seems to be a really good product.

Whatever you get, whenever you fix something, if it's structural or high-use, fix it right and high-quality, even if it's not the cheapest way.

Another thing to consider is that you might get an older house with a repair/updating escrow (i.e. you get money with which to upgrade the house). That can be a really good option if you know what you want and don't have to move in right away.

Wendy W.

There is nothing more dangerous than breaking a basic safety rule and getting away with it. It removes fear of the consequences and builds false confidence. (tbrown)

[jdhill 0]

Check to see if your state has any vetran's programs that will lower the interest rate... TX has one that can save up to a full point off market rates.

With the VA loan, the first $36K of the loan is secured by the VA, which means that if you don't need more than that to avoid PMI you are covered (which is usually up to $180K purchase price)

When you are shopping loans, make sure you get all the fees disclosed from the get go (there is a "funding fee" for VA loans)

I would not recommend touching your 401k for a DP.

Look at the payments with or without a DP, and look at what else you can do with the money... pay bills, furniture, etc... T&I Escrow is also something to consider.

J

All that is necessary for the triumph of evil is that good men do nothing. - Edmund Burke

[Brains 2]

You have already gotten some great advice about the purchase and PMI etc. I agree with the others that taking out of your 401K would not be a good idea. You aren't gaining that much by putting more down and you are making more off of your 401K than you would save anyway.
A block home (older) will have more initial maintenance than a new home and you will have to pay for it. New homes come with builder warranties, be picky and make them fix anything you don't like or think is wrong.

Energy efficiency: Block homes will hold in cool air better, however, insulation R values in a 50 year old home will be crap. Provided that it hasn't been re-done sometime in its life. New construction frame homes will more than likely be just as energy efficient if not more so. I am in the new construction A/C business here in TX, if you have any questions about A/C systems shoot me a pm.

Never look down on someone, unless they are going down on you.

[skymama 37]

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A block home would be better for Hurricanes

Dad just said that wasn't necessarily true. He said with proper engineering, plywood with properly placed nails can stand up to the same winds as concrete. A block home is more energy efficient and is better protection (although not 100%) to termites.

I bought a new home because I didn't want to have to deal with upkeep on an older home. The house my ex now has is 20 years old. We had to replace some of the plumbing, installed a new a/c and added an air handler, had to add insulation in the attic because the old stuff had settled too much, had to repaint the exterior and interior, the yard could use new sod and the roof will need to be replaced soon. If you are handy and have the disposable income for all of these types of things, get a 30 year old house. If not, think twice and find a newer block house if you can.

She is Da Man, and you better not mess with Da Man,
because she will lay some keepdown on you faster than, well, really fast. ~Billvon

[jmprdmpr 0]

This is my first time posting here, so if I do something incorrectly, have mercy.

I'm a loan officer in Michigan. If you are buying in Michigan I'd be more than happy to help you out.

As far as taking the money out of your 401, I'd recommend against it. VA will allow you to finance 100%. They do charge you a 2.15% funding fee, which is also financed, bringing your loan to 102.15% of the purchase price. Putting money down will lower the funding fee, not significantly though. VA will also allow you to ask the seller to pay your closing costs and pre-paids, allowing you to get into a new house for literally 0 out of pocket money.

As far as block vs framed, can't help you.

[Ron 10]

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This is my first time posting here, so if I do something incorrectly, have mercy.

Nope you did everything great...and Welcome....Oh and Beer!

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I'm a loan officer in Michigan. If you are buying in Michigan I'd be more than happy to help you out

Unfortunately FL....But you have helped anyway.

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As far as taking the money out of your 401, I'd recommend against it

I thought so, but its nice to get confirmation....I don't think anyone thought it was a good idea...But I was unsure, so thanks folks.

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They do charge you a 2.15% funding fee, which is also financed, bringing your loan to 102.15% of the purchase price.

That I sorta knew. Makes me wonder if a traditional mortgage would be better? But without the 20% down I doubt it. Thoughts?

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VA will also allow you to ask the seller to pay your closing costs and pre-paids, allowing you to get into a new house for literally 0 out of pocket money.

Well its a new build most likely. Don't know if that changes things.

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As far as block vs framed, can't help you.

I am leaning towards the new framed house. I kinda was anyway, but to be honest I could still be swayed.

Thanks folks.

"No free man shall ever be debarred the use of arms." -- Thomas Jefferson, Thomas Jefferson Papers, 334

[jmprdmpr 0]

If you can put some money down, not necessarily 20% you can get a second mortgage to take you to 20% down. This would let you avoid PMI and also give you conventional rates, which can be better than VA rates(not always the case, but conventional rates are usually lower than VA). You would probably find that your monthly payment would be lower going this rout than going the PMI or VA route.

New build will change things considerably. Make sure the builder knows that you are going VA. They require more inspections than a typical new build. VA may also require a 10 year warranty if the inspections aren't done.