Teach me about first time home buying

Ugh, being a grown up is tough. We'd recently been talking, after 5 years and the demon, about maybe moving in together and becoming a "real" family.

Obviously were not going to run out and buy the first thing we look at, but I saw an amazing shop that happens to have a house, at a monthly payment amount we could afford. We're going to look at it Thursday morning.

In this particular case, the house is a foreclosure. Pictures say it needs work, hard to tell if cosmetic or structural though.

What do we need to know and or look out for buying a first home?

I have great credit, but sketchy income records from working for cash for so long, she has not good credit (525ish), but steady job and more than enough income to cover the monthly requirements. There's also her father, who has offered on many times to buy her a house, and actually bought her brother a house when he got engaged.

She doesn't want to jump up and say "dad buy me this" but it is a possibility, as is him co signing on a loan, or just loaning us the money for a down payment.

We've not actually talked to him yet about this relationship development, but we'll be seeing him around thanksgiving and will be bringing it up then. 

What would be the best course of action? Is it worth it to get prequalified? Could we even be prequalified? Foreclosures are mostly cash sales, but loans can happen, how difficult is that actually make happen?

A are there still any tax incentives for first time buyers like there were?

Maybe a better question is what kind of questions should I be asking?

Why buy? Mortgages are, for the most part, half the cost of renting. Giving someone thousands of dollars a month for years and never owning it doesn't sit well with either of us, and honestly, renting a house big enough for us and the 2 girls, 12 and 5, is so stupidly expensive it's not worth considering. 

Dangerous to do this without getting married? I know success and failures personally who've been unmarried buying homes, seems about 50/50. Giving up the alone time is a rough sacrifice for both of us, but something we're willing to work towards.

I'm just way out of my depth, (good I guess)things have happened between us the past month that are pretty big steps from our 5 year status quo, and grm always has the answers.

Where we're looking Thursday. Low taxes, lots of job and work opportunity for both of us, decent school district, but my god that shop

Your lack of income records and her poor credit score are going to be issues here. You'll likely need to tap into your FIL to help with both of those. Her credit score can be fixed over a few months, especially if someone will add her to a long-standing credit card. Your income.... well, if you can document it going back with bank records and tax documents, then you may have something; if not, start documenting it NOW. Otherwise FIL will need to be called. 

A foreclosure also CAN, but not always present problems. My parents paid cash for their foreclosure. Still took over a year to close due to liens on the house. They can be hard to finance. Again, not always, but often. If you're going after the foreclosure, I'd say tapping into your FIL would be your best resource here. 

Otherwise, if you can wait a few months, you'll want to start documenting your income, get your partners credit score up, and start going to every open house you can. You'll want to buy the best neighborhood you can (not house, but neighborhood). Also, figure out what your monthly payment will be - mortgage (principal and interest), taxes, and insurance. Can you afford that? What if you or your partner loses employment? Happended to us, twice. Had we bought what we were approved for, we would have been out on the street. Instead I figured out what we could afford if one of us lost our job, and bought that number. 

Do NOT fall in love with a house, or a kitchen, or a shop. Don't let your partner do it either. There is always another house available, another good deal available, etc. This is a business transaction - treat it that way. 

Other general advice, but none of it is set in stone:

• A ranch (or at least first floor master/bath) can be a lifetime home; a two story makes it very hard
• Walls can be moved, carpeting replaced, etc. Buy what you cannot change (school district, lakefront, proximity to train station, mountain view, etc.)
• Imagine living there. I never knew I hated split levels until I lived in one, and had to climb 10 stairs with groceries. 
• As a general rule of thumb, there should be at least 2 toilets for 4 people, 3 for 5+ people.
• Look into the zoning/HSA rules. HSA and zoning isn't inherently bad, but KNOW what they are before you move there
• For any given neighborhood, I recommend tracking the average sale price over the longest period you can. Make sure that it hasn't been appreciating at a 5% rate; it should more or less follow inflation over the past [longest period you can track]. Acutally, this one should be a rule set in stone.

Otherwise, if you can wait a few months, you'll want to start documenting your income, get your partners credit score up, and start going to every open house you can. You'll want to buy the best neighborhood you can (not house, but neighborhood). Also, figure out what your monthly payment will be - mortgage (principal and interest), taxes, and insurance. Can you afford that? What if you or your partner loses employment? Happended to us, twice. Had we bought what we were approved for, we would have been out on the street. Instead I figured out what we could afford if one of us lost our job, and bought that number. 

I just started a business last month, finally, that I'm running my stuff through to get records developed. My income can only go up, and I can cover the whole thing and still live on the rest if we had to. 

I also reminded her, again, that it only took a month for my score to go up 120 points when I was added as a user on my mom's 20 year old card. Her mom won't, but her dad would if she asked. I think that's something we should really do first and foremost, because a lot of her credit problems from her ex are finally disappearing from her credit report. 

Be careful borrowing a down payment.  Sometimes they make you sign off it was a gift.  

I looked at 50+ homes and when I found the right one I knew.  I stopped at lunch tome to look at it and knew instantly. 

Take your time.  

There is NO WAY I would co-sign a note for my daughter and her live-in boyfriend. Not if his name was supposed to be on the note.

There is NO WAY I’d buy a house with someone I wasn’t married to. 

Not a lifestyle judgement. Simply a recognition of the practical problems that can arise. 

I seriously doubt a lender would lend to someone who started a business last month.  In the past, it has always required 2 years of tax returns for a self employed person. 

Very cool shop. 

Can you buy just the shop? 

SVreX said:

I seriously doubt a lender would lend to someone who started a business last month.  In the past, it has always required 2 years of tax returns for a self employed person. 

Yea that's where I'm coming from on my end. They typically want 2 years of records, and I just don't have them. 

The thing with that shop in particular is that it is perfect for my business, and almost exactly what I've been looking for as far as a base of operations goes. I'm trying really hard not to be blinded by it, even if there is space I could rent car storage to other people to cover the mortgage and still have room to work. 

There is another option, that I think would be a lot harder to pull off, and a bit more painful considering the past couple years, but it's sort of an option. If somehow we could leverage buying a house on condition of selling my current one, it would make things considerably easier financially but come with its own problems. Not the least of which being the $6500 we spent on a roof, $1500 in the floor this year, and all the other major put off for far too long repairs that have been taken care of the past couple years. It would almost feel like a waste of money that we didn't really have to spend in the first place. It would also require my mom finding somewhere else to live, which she kind of wants to do anyway, but I don't know if it would be worth enough to cover buying 2 houses or a house and a townhouse or whatever. She wants to move to senior living when I'm out of the house, and we haven't looked into what all that would entail. 

This has its own problems, like my current house would never pass a prepurchase inspection, and I would have a hell of a time Getting it "showing ready". But the land it's on is actually worth more than the structure itself, so that could help sell it, especially with a casino moving in a mile away. The carport wiring is so far away from code though, combined with lots of bandaids on top of bandaids the only reasonable thing to do would be tear it down and rebuild, which we can't afford either.

Had my family not been made up of greedy selfish uncaring vajajays, none of this would be a problem, but you can't pick your family. 

My initial thought is $99k might buy the place but you'll need to still have a lot of cash available to fix some immediate needs.

Said another way, "you might be able to afford to buy it but can you afford to live it? Keep it?" 

In reply to John Welsh :

That depends. If that's not water damage in the pictures, I have the time and the know-how, and the township is lax enough, that making it livable wouldn't be terribly expensive. But from the pictures it's hard to tell if paint, floors, and modern bathrooms would fix it or not. 

We would not be moving in until after the school year ends, which would suck shelling out the money every month not living there, but also make getting it livable much easier not having to deal with people living there. 

I'm taking my flashlight, my inspection bore cam, and a legal pad with me when we look, and maybe some moisture testers. 

How this came about was rather random. A friend in that town mentioned his maker space is opening January 1, so for the hell of it I went in realtor.com just to see what was in the area, and saw the shop. "Hey Dana, wanna impulse buy a house? Hahaha" turned into "make an appointment to go look this week, see if you can fix it cheap, and we'll call my dad".

You already have a house based on your last post? I am somewhat confused, but if that is the case ... stay put and find a way to build a shop. A prefab building might be a good option, and you might be able to get a loan using your equity. 
Just a thought. 

Is it being sold, or auctioned?  Is $99K a real price?

Can it be financed at all, or cash only?

Why did the value drop by 60% since 2015?

Its been on the market 24 days. That’s too long if it really is the bargain it appears to be. 

Slippery said:

You already have a house based on your last post? I am somewhat confused, but if that is the case ... stay put and find a way to build a shop. A prefab building might be a good option, and you might be able to get a loan using your equity. 
Just a thought. 

We both live with our mom's currently, sadly at 32 and 30, in the houses we grew up in. When she had the baby, I gave up my amazing paying job/life's dream in California and moved back here to be a dad. We'd only been together a few months before she got pregnant and weren't really in a position to rent anything, so I moved back with my mom to take care of her and the house and have help with the kid, while she stayed with hers after a bad breakup before she met me. We've been doing the two house thing since then.

I do have a shop here, a rather decent one, but it's too small, and the record amounts of rain we've been getting year after year are starting to sink it with the rest of the driveway and yard. Being a steel carport, making it bigger really means buying another one and dumping more money into a property I've been trying to get away from with little to no return on the investment, so it's hard to want to do. 

It is natural to want to think the house went into foreclosure because the previous guy could not make the payments.  More often, the reality is that the house went into foreclosure because the previous guy could not sell the house (and could not sell the house at any price.)  

There is often something so wrong with the property that makes it hard (impossible) to sell.  This impossibility often has to do that its condition forbids banks from lending on it.  So, $99k seem like a deal but you might have to have all $99k in cash (no loan.)  

SVreX said:

Is it being sold, or auctioned?  Is $99K a real price?

Can it be financed at all, or cash only?

Why did the value drop by 60% since 2015?

Its been on the market 24 days. That’s too long if it really is the bargain it appears to be. 

Sold.

Financing is an option, at least it sounded like it on the phone. She said "foreclosures are usually cash, but I've got a few loans through for people"

According to the realtor, she doesn't know why the price dropped so much. "There's nothing but this listing on the multi list" is all she said. That was the first question I asked when I got called back, even before I got the agents name. Looking at the tax history, my guess is that they took a bunch of land out of the property that's for sale. Tax assessment went from $15k to $1500 in 2015 or 16. Looking on satellite view confirms that suspicion a little bit, but I haven't had a chance to dig into county records yet to find out for sure. To me it looks like it was a 5-10 acre plot that's been subdivided to just the house. 

24 days with a shop that size concerns me in the area. That's why I'm trying to get eyes on it. I know bunch of contractors, and even body work guys that would jump at it and tear the house down at the listed price. 

SVreX said:

 

Why did the value drop by 60% since 2015?

WHOA. That’s supported in the tax history too-either realtor is pulling the wrong data, or something happened, like they sold the mineral rights. 

In reply to RevRico :

If it was in my town, I’d have bought it for cash the first day it listed. 

Unless it’s a toxic waste dump, or has title issues, or tax liens, etc, etc. 

Sold in 2016 as 11 acres or at least listed for sale as 11 acres. Only record i can find. Lot 1 is where the house is situated, bottom right of the pic.  This meshes with the driveway and tree line in the satellite view of the address, so they cut off a E36 M3load of property. No telling how long the house itself has been empty then, but the papers on the toilets and sink are definitely from a winterization service, so it at least had some minor property preservation going on. Oddly, the same sort of business I started. 

To check out tax records and look for liens, my county wants a $25/month subcription on a 1 year contract, to use the search service for 50 minutes per month. I might go to the courthouse and see if someone there can help me cheaper, or a member here who rarely posts that I know IRL just got his notary license, he might have access. 

They're going to be building a development around it. This would be at the entrance to the development if I'm reading at right. Could prove lucrative as an investment, if they actually build the neighborhood. 

In reply to RevRico :

Careful. You are sounding like you are in love with it. 

In reply to SVreX :

I'm in love with the shop because it's 4 of mine. I'm trying to block it out of my head, and look at it as what it is. A questionable house, on a small lot, that could have lots of traffic around it in the next few years. A $1000 bill I'm not currently paying every month until we move, die, or pay it off. Google really didn't bring back what I was expecting to see, like previous owners, or news reports, or even a sheriff sale listing, just the current listings and the loopnet link I posted, which concerns me. 

It's also in a different township than I thought. This is actually beneficial to someone like me, as it has NO ZONING, but could be problematic if they build the over 55 community and those people decide I need to follow an HOA or something. 

It's a lot less land than I want, you've got even more experience than I do especially with residential so I know you're seeing the same issues in pictures I am but probably thinking of different causes, I'm trying to think of worst case scenario for every ugly wire, stained wall, missing paint patch, or stained carpet, and remember how frustrating and expensive the worst case is to fix. It claims to have gas but I see electric baseboards in a lot of rooms and I don't see duct work or a furnace in the house, just the hideous fireplace. I'm seeing city water, but nothing about sewage, I've been through both problem septic tanks AND sewage tap ins, they're destructive and expensive. City water isn't exactly a pro either. There is also a disappointing lack of high speed internet, which if cell phone service sucks, immediately takes this house off my radar. 

I do also know that if a property preservation company has been taking care of it, like the winterization pages make it seem, it *should* have no broken windows and no active roof, foundation, or plumbing leaks, and that someone at a bank somewhere has a E36 M3load of pictures of it from the time they took possession to now as the work was being done. It should also not have the overgrowth in the pictures, and it's very likely that the person just took pics and never did any work, or didn't winterize the plumbing properly, or just repaired the roof when the problems were much deeper. 

My focus when we visit is the house itself. See just how bad it is, how big it is since there's no square footage listed anywhere that I've found yet, how it feels to be inside even empty, or how the location looks in person instead of top down. See how it feels for us, and if we think we can make something with it. Seeing the distinct lack of need for permits does make renovating easier, but it's also still an expense of time and money that needs to be considered. 

My number one question is what's up with the sewage, so far. If it's septic tank now, ugh, but what happens if they actually build the development? A tap in was almost $3000 in the early 90's, I imagine they've gone up since then. I'm trying to make a list of things to ask about, and a checklist of things I specifically want to look at to keep myself focused on just the house. On the one hand, it looks like $10k and a few months of elbow grease could make it really liveable and nice, but it also looks like it could be hiding a blackhole for money. 

This is back to where I was trying to get when I started this thread, what kind of things should I be asking about that I'm not thinking of, and what I should be looking at other than schools.

So you two have never lived together for any real period of time right?

Move in together somewhere first before you buy! Cohabitation just may not be suitable for you guys and it's a big old mess to try and get out of the situation if you're mortgaged to it. 

She needs to fix her credit, you need to have more time to establish your business and the relevant history, a trial cohabitation while you both fix up what you need to would make alot of sense. It's a lot easier to E36 M3 can living together of it's only a lease, or calling a truck to pick up her stuff from your place if it all falls in a heap.

There will be other houses, and even potentially better houses if the pair of you can get your proverbial ducks in a row.

Also, having just gone through house hunting, remind yourself (as hard as it is, and it's reeeallllyy berkeleying hard) that you don't live in the shop, and even if you think you do, your partner and daughter probably aren't going to agree. It's easier and cheaper to build a brand spanking new shop than it is to try and make a basket case house workable. 

Sorry mate, I know it's not the usual grm grade enabling we all normal give and expect. Best of luck regardless of how you decide to proceed.

I'm going to let our contractors and financial people answer most of your questions.

What I'm going to offer is a highly specific piece of advice since your profile lists Pennsylvania.

Be extremely careful about the "property taxes" (quotes are there for a reason) in PA and what is estimated on your loan documents and payments. 

As you're probably aware, Pennsylvania funds its school system through "property taxes." The problem is, while the school tax is based off the property valuation, the tax bill leveraged by the school district is completely separate from the municipality. What most data sources, and lenders unfamiliar with PA's tax structure, look at and list is the only the municipal tax rate.

 As such, sometimes lenders only include the municipal taxes in the estimate and leave the school taxes off the payment schedule. After you sign for the loan you'll find that your tax bill can be quintuple or more than the estimate. If you don't know this is the case it can really blow a hole in your budget and leave you with no recourse.

I don't know the area but that price seems to high for the condition. I see a house that needs gutted and completely redone. Looks like possible water issues with the side entry door. Heating system questionable etc, etc. However, I'm cheap and picky and always see the negatives in old houses.

Check and see if your area is eligible for USDA housing loans, terms and rates are very reasonable for a 30 year fixed loan.  I purchased a brand new home last year for essentially no money down that way, just bare minimum closing costs.