First home buyer, financing questions
I think we would be good with paying around $1200 monthly mortgage fees (with all other property fees included like tax etc.) You probably can't get a $250k house for $1,200 a month including taxes and insurance.  Even at a 4% rate and 20% down, your mortgage payment alone will be $954, and with taxes and insurance on top of that you're going to be over $1,200.  You might get a lower rate but even a drop to 3% only lowers the payment $90/month. Getting a cheaper house (which also reduces taxes and insurance) is the best option financially. What to do with the $15k that I have? If you didn't have a mortgage I'd say to keep 3-6 months of living expenses in an emergency fund, so I wouldn't deplete that just to get a mortgage. You're either going to be  Since 1) the mortgage payment would be tight and 2) you aren't able to save for a down payment, my recommendation is for you to rent until you can make a 20% down payment and have monthly payment that is 25% of your take-home pay or less.  Which means either your income goes up (which you indicate is a possibility) or you look for less house.  Ideally that would be on a 15-year note, since you build equity (and reduce interest) much more quickly than a 3-year note, but you can get the same effect by making extra principal payments. Also, very few people stay in their house for 30 years - 5 years is generally considered the cutoff point between renting and buying.  Since you're looking at a 10-year horizon it makes sense to buy a house once you can afford it. "When you say ""apartment"" I take it you mean ""condo"", as you're talking about buying. Right or no? A condo is generally cheaper to buy than a house of equal size and coondition, but they you have to pay condo fees forever. So you're paying less up front but you have an ongoing expense. With a condo, the condo association normally does exterior maintenance, so it's not your problem. Find out exactly what's your responsibility and what's theirs, but you typically don't have to worry about maintaining the parking areas, you have less if any grass to mow, you don't have to deal with roof or outside walls, etc. Of course you're paying for all this through your condo fees. There are two advantages to getting a shorter term loan: Because you owe the money for less time, each percentage point of interest is less total cash. 1% time 15 years versus 1% times 30 years or whatever. Also, you can usually get a lower rate on a shorter term loan because there's less risk to the bank: they only have to worry about where interest rates might go for 15 years instead of 30 years. So even if you know that you will sell the house and pay off the loan in 10 years, you'll usually pay less with a 15 year loan than a 30 year loan because of the lower rate. The catch to a shorter-term loan is that the monthly payments are higher. If you can't afford the monthly payment, then any advantages are just hypothetical. Typically if you have less than a 20% down payment, you have to pay mortgage insurance. So if you can manage 20% down, do it, it saves you a bundle. Every extra dollar of down payment is that much less that you're paying in interest. You want to keep an emergency fund so I wouldn't put every spare dime I had into a down payment if I could avoid it, but you want the biggest down payment you can manage. (Well, one can debate whether its better to use spare cash to invest in the stock market or some other investment rather than paying down the mortgage. Whole different question.) ""I dont think its a good idea to make any principal payments as I would probably loose them when I would want to sell the house and pay off the mortgage"" I'm not sure what you're thinking there. Any extra principle payments that you make, you'll get back when you sell the house. I mean, suppose you buy a house for $100,000, over the time you own it you pay $30,000 in principle (between regular payments and any extra payments), and then you sell it for $120,000. So out of that $120,000 you'll have to pay off the $70,000 balance remaining on the loan, leaving $50,000 to pay other expenses and whatever is left goes in your pocket. Scenario 2, you buy the house for $100,000, pay $40,000 in principle, and sell for $120,000. So now you subtract $60,000 from the $120,000 leaving $60,000. You put in an extra $10,000, but you get it back when you sell. Whether you make or lose money on the house, whatever extra principle you put in, you'll get back at sale time in terms of less money that will have to go to pay the remaining principle on the mortgage."
"First off; I don't know of the nature of the interpersonal relationship between you and your roommate, and I don't really care, but I will say that your use of that term was a red flag to me, and it will be so to a bank; buying a home is a big deal that you normally do not undertake with just a ""friend"" or ""roommate"". ""Spouses"", ""business partners"", ""domestic partners"" etc are the types of people that go in together on a home purchase, not ""roommates"". Going ""halvsies"" on a house is not something that's easily contracted; you can't take out two primary mortgages for half the house's value each, because you can't split the house in half, so if one of you defaults that bank takes the house leaving both the other person and their bank in the lurch. Co-signing on one mortgage is possible but then you tie your credit histories together; if one of you can't make their half of the mortgage, both of you can be pursued for the full amount and both of you will see your credit tank. That's not as big a problem for two people joined in some other way (marriage/family ties) but for two ""friends"" there's just way too much risk involved. Second, I don't know what it's like in your market, but when I was buying my first house I learned very quickly that extended haggling is not really tolerated in the housing market. You're not bidding on some trade good the guy bought wholesale for fifty cents and is charging you $10 for; the seller MIGHT be breaking even on this thing. An offer that comes in low is more likely to be rejected outright as frivolous than to be countered. It's a fine line; if you offer a few hundred less than list the seller will think you're nitpicking and stay firm, while if you offer significantly less, the seller may be unable to accept that price because it means he no longer has the cash to close on his new home. REOs and bank-owned properties are often sold at a concrete asking price; the bank will not even respond to anything less, and usually will not even agree to eat closing costs. Even if it's for sale by owner, the owner may be in trouble on their own mortgage, and if they agree to a short sale and the bank gets wind (it's trivial to match a list of distressed mortgaged properties with the MLS listings), the bank can swoop in, foreclose the mortgage, take the property and kill the deal (they're the primary lienholder; you don't ""own"" your house until it's paid for), and then everybody loses. Third, housing prices in this economy, depending on market, are pretty depressed and have been for years; if you're selling right now, you are almost certainly losing thousands of dollars in cash and/or equity. Despite that, sellers, in listing their home, must offer an attractive price for the market, and so they are in the unenviable position of pricing based on what they can afford to lose. That again often means that even a seller who isn't a bank and isn't in mortgage trouble may still be losing thousands on the deal and is firm on the asking price to staunch the bleeding. Your agent can see the signs of a seller backed against a wall, and again in order for your offer to be considered in such a situation it has to be damn close to list. As far as your agent trying to talk you into offering the asking price, there's honestly not much in it for him to tell you to bid higher vs lower. A $10,000 change in price (which can easily make or break a deal) is only worth $300 to him either way. There is, on the other hand, a huge incentive for him to close the deal at any price that's in the ballpark: whether it's $365k or $375k, he's taking home around $11k in commission, so he's going to recommend an offer that will be seriously considered (from the previous points, that's going to be the asking price right now). The agent's exact motivations for advising you to offer list depend on the exact circumstances, typically centering around the time the house has been on the market and the offer history, which he has access to via his fellow agents and the MLS. The house may have just had a price drop that brings it below comparables, meaning the asking price is a great deal and will attract other offers, meaning you need to move fast. The house may have been offered on at a lower price which the seller is considering (not accepted not rejected), meaning an offer at list price will get you the house, again if you move fast. Or, the house may have been on the market for a while without a price drop, meaning the seller can go no lower but is desperate, again meaning an offer at list will get you the house. Here's a tip: virtually all offers include a ""buyer's option"". For a negotiated price (typically very small, like $100), from the moment the offer is accepted until a particular time thereafter (one week, two weeks, etc) you can say no at any time, for any reason. During this time period, you get a home inspection, and have a guy you trust look at the bones of the house, check the basic systems, and look for things that are wrong that will be expensive to fix. Never make an offer without this option written in. If your agent says to forego the option, fire him. If the seller wants you to strike the option clause, refuse, and that should be a HUGE red flag that you should rescind the offer entirely; the seller is likely trying to get rid of a house with serious issues and doesn't want a competent inspector telling you to lace up your running shoes. Another tip: depending on the pricepoint, the seller may be expecting to pay closing costs. Those are traditionally the buyer's responsibility along with the buyer's agent commission, but in the current economy, in the pricepoint for your market that attracts ""first-time homebuyers"", sellers are virtually expected to pay both of those buyer costs, because they're attracting buyers who can just barely scrape the down payment together. $375k in my home region (DFW) is a bit high to expect such a concession for that reason (usually those types of offers come in for homes at around the $100-$150k range here), but in the overall market conditions, you have a good chance of getting the seller to accept that concession if you pay list. But, that is usually an offer made up front, not a weapon kept in reserve, so I would have expected your agent to recommend that combined offer up front; list price and seller pays closing. If you offer at list you don't expect a counter, so you wouldn't keep closing costs as a card to play in that situation." "The advice to pay off near-7% debt is tough to argue against. That said, I'd project out a few years to understand the home purchase. Will you plan for the 20% down John recommends? The Crazy Truth about PMI can't be ignored. The way the math works, if you put 15% down, the PMI costs you so much, it's nearly like paying 20% interest on that missing 5%.  If your answer is that you intend to save for the full downpayment, 20%, and can still knock off the student loan, by all means, go for it. I have to question the validity of ""we will definitely be in a higher tax bracket when we retire."" By definition, pretax deposits save tax at the marginal rate. i.e. If you are in the 25% bracket, a $1000 deposit saves you $250 in tax that year. But, withdrawals come at your average rate, i.e. your tax bill divided by gross income. There's the deductions for itemized deductions or the standard. Then 2 exemptions if you are married. Then the 10% bracket, etc.  Today, a couple grossing $100K may be in the 25% bracket, but their average rate is 12%.  I read this Q&A again and would add one more observation - Student Loans and Your First Mortgage is an article I wrote in response to a friend's similar question. With the OP having plan to buy a house, paying off the loan may be more costly in the long run. It may keep him from qualifying for the size mortgage he needs, or from having enough money to put 20% down, as I noted earlier.  With finance, there are very few issues that are simply black and white. It's important to understand all aspects of one's finances to make any decision. Even if thee faster payoff is the right thing, it's not a slam-dunk, the other points should be considered." "Do you think that you had previously been over-saving for retirement? If so, then the first time home buyers exemption might be a good opportunity for you to reverse that error. On the other hand, if you think you have been saving the right amount, or too little, for retirement, then why would you undo that savings?  ""Because I can, under existing tax law"" seems like an inadequate answer. Remember that if you are anticipate to be maxing out your tax advantaged accounts in the near future, then such a distribution is a permanent loss of opportunity.  You can't get the money back in. Are you thinking more clearly now, or were you thinking more clearly back when you decided to contribute to an IRA rather than build up a down-payment fund in the first place?" "All very true.  Keep in mind that the parents of the boomers saw it all coming first and took full advantage of the opportunities.  In 1972 the rent prices just plain exploded, just in time for all those 20 something boomers who were leaving home. Those rents ""bid up"" housing prices.  I bought an old house in 1972, on rent with option to buy or contract for deed, same thing, for $10,900.00 and sold it for $17k in 77.  I would expect to see more ""rent with option to buy/contract for deed"" sales when the flipper crowd realizes they need to address the fact that buyers can be found without using banks." It seems you understand the risks, it seems like a fine enough idea.  Hopefully it works out for you. However, you may want to talk to a few local banks about getting a short term home equity loan.  I know someone who was able to do this getting a very low rate for 7 years.  At the time of the loan, the prevailing rate for a 15 year was 3.25, but they were able to get the HEL at 2.6 fixed.  There was no closing costs. The best part about it was the payment was not that much more.  While going from ~1200 to ~1800 is a 50% increase it was not that much in dollars in relationship to his household income.   Note that I did not say Home Equity Line of Credit, which are vairable rates and amount borrowed. There is no issue whatsoever, getting a mortgage this way as an unmarried couple. This is very similar to what I did while my wife and I were engaged. We we're on the title as joint tenants. I would expect them to have her as a signee to the mortgage.  She won't be able to claim 50% ownership and make things hard on the lender. The title will be contingent on the mortgage being paid. What will be harder is if you guys decide to split. It's not at all uncommon for unmarried couples to buy a house together. Find a broker and get their advice. Purchase loans tend to be more challenging to get the best possible rate, because you have to balance closing the loan and getting the contract. So there isn't as much time to shop around as when you do a refinance.  I disagree with the sentiment to go with your local bank. Nothing wrong with asking at your local bank and using their numbers as a baseline, but chances are they won't be competitive. There are many reputable online mortgage originators that will show accurate fees and rates upfront assuming you provide accurate information.  In the past there were a lot of issue with Good Faith Estimates being pretty much worthless. There were a fair number of horror stories about people showing up to closing and finding out fee or rates had increased dramatically. There was a law passed after the housing debacle that severely limits the shenanigans that lenders can do at closing and so there is less risk when going with a lesser known lender. In fact I would say the only real risk with a lender now days is choosing one that happens to be overloaded and or just has poor customer service in general. Personally I have found the most competitive rates from Zillow's mortgage service and the now defunct Google mortgage. The lenders tend to be smaller, but highly efficient. They are very much dependent on their online reputations. I have heard good things about a number of larger online lenders, but I don't have personal experience so I will leave them off. I personally wouldn't worry much about whether the loan is sold or not. Outside of refinancing I don't think I have ever talked to the bank servicing my mortgage about my mortgage. There just isn't much need to talk to them. What options do I have? Realistically?  Get a regular full time job.  Work at it for a year or so and then see about buying a house. That said, I recently purchased a decent home.  I am self-employed and my income is highly erratic.  Due to how my clients pay me, my business might go a couple months with absolutely no deposits.   However, I've been at this for quite a few years.  So, even though my business income is erratic, I pay myself regularly once a month.  In order to close the deal with the mortgage company I had to provide 5 years worth of statements on my business AND my personal bank accounts.  Also I had about a 30% down payment.   This gave the bank enough info to realize that I could absolutely make the payments and we closed the deal. I'd say that if you have little to no actual financial history, don't have a solid personal income and don't have much of a down payment then you probably have no business buying a house at this point.  The first time something goes wrong (water heater, ac, etc) you'll be in a world of trouble.