Question on buying a house

[IlliniKrush]

What's the baby's message board handle, and how much time until he/she is posting? Gotta start em early....

 

Anyway, congrats Mike that's awesome.

[Rex Hudler]

Nope that's my blog.

 

There were some people (Tex included) who knew what was going on before everyone else did, because there were some nervous times before we got the ultrasound results.  We didn't want to tell too many people before we knew everything was OK.

 

 

Mike, the first thing we need to do is find the guy who is responsible and kick his ass!!! ;-)

 

Sorry, that's a running joke between me and a few buddies anytime someone's wife gets pregnant. Maybe you have to be there......

 

Congrats and best of luck! Where is the cigar toting smiley when we need one?

[Rex Hudler]

Now back to the house hunting issues.....

 

1. Yes you have to record the money as a gift. Some lenders will allow only so much of that to go toward your downpayment, depending on what program you are looking into. For example, if you are getting into a program that requires 10% down, they may require you to come up with a certain amount of that 10% and not allow the whole 10% to be a gift. You'll just have to ask.

 

2. I am not an accountant, but depending on the size of the gift, you should not incur a tax liability if it is coming from your (or your wife's) parents. Of course, always contact a tax professional and never blindly take the advice of some schmuck (me) on a message board.

 

3. I suggest you look into a piggyback program like FlaSoxxJim previously mentioned. If you take out an equity line for the difference between 80% and your downpayment, you will avoid having to pay PMI which is basically like throwing away good money. I went with an 80-15-5, meaning I put 5% down, took out a first mortgage on 80% of the total and an interest only equity line on the 15%. It saved me as much as $75 a month on my townhouse. I am sure it will save you quite a bit more on your mansion you are about to buy.

 

4. Before you make assumptions that a fixed rate is the smart way to go because interest rates are so low, think about what you are getting yourself into. Do you realistically see yourself staying in that house 5 years? 10? 20? If the answer is 5 years or less, you can probably save yourself money by going with an adjustable rate mortgage (ARM). Your interest rate will lock in for a certain period of time (usually 3-5 years depending on what interest rate you want) and vary with current interest rates after that, still having protections against it going up too much in one year (usually 2%) or over the life of the loan (usually 6 or 8%).

 

Do the math. If this is likely a starter home that you see yourself selling within 5 years, you can chop a good amount off of your payments and still come out smelling like a fresh rose when you sell. The risk involved is if things change and you are all of a sudden "stuck" in the house longer, then when interest rates eventually do rise, you will be paying more and not be able to get the low fixed rate you can get now. I did a 3 year ARM and figured that if interest rates went up 2% in both years 4 and 5, then it would still be about 5 1/2 years before I hit the break even point. Anything under that I was saving money, and after that I had lost money on the gamble. You just have to decide what is right for you. But do know that you have options that can save you $$.

 

5. Also, no matter what the Good Faith Estimates the mortgage company provides, plan on at least $500 in surprises at closing. It may not happen, but if things don't go exactly right, you will be the one that owes more money. It happened to me and from what I understand, it happens often. So put that money aside and if you don't have to use it, then you have just bought yourself a nice house warming gift.

 

6. Lastly, have a home inspection done. Also, if the house is even slightly old, pay (you hire and pay, not the seller) a HVAC (heating and air) company to do a thorough checkup on the system, including all the ductwork. If you are paying them, they will point out not only problems that may exist now, but things that are coming in the near future. If they pay, the company will certify that the system is working properly "today" yet not be responsible for a problem that could occur 2 weeks after you close. If the system is old, tell the seller you want it replaced and negotiate a price based on bids YOU get. If you allow them to do it, they will put in the cheapest system possible, which will just cause you problems later. Have them check for leaks in the ductwork as well as the equipment itself. Leaking ducts cost you more money in utility bills and make a system break down more quickly.

 

Hope some of that helps........