What advice would you give to a young person contemplating buying her first home?
January 31, 2011 by
Filed under Silver Investment FAQ
It seems like one of the few silver linings of the gloomy economy is the real estate market that now has more affordable properties, and I’d like to explore the possibility of buying my first home. I am currently on a gap year in between high school and college interning, and next September I’ll be moving up to Palo Alto, California where I’ve discovered a few properties near campus that seem to be good investment opportunities. Ideally I would buy a three or four bedroom home and rent out the larger rooms to graduate students or young professionals, and keep the smallest room for myself for a weekend retreat from dorm life. I would give the roommates a discount in rent in exchange for taking care of my dog during the week.
I recently read that one in three applications for home loans are now being denied, and I know I would be a long shot for approval primarily because of my age. What criteria do they look at when determining your eligibility? I’m young, but I’ve technically been working for 11 years now because I began modeling and acting at the age of six. I was never in the league of Dakota Fanning by any means, but I was able to earn a fair amount, and my parents have invested it wisely for me over the years. I could use that money for a down payment, and would still have enough in savings for a rainy day. I’ve never had a traditional 9-5 job, but I do have a steady income from modeling and my creative pursuits, and I’ve saved all my tax returns and other documentation showing my financial viability. My parents are paying for college, so the mortgage and other expenses related to the house would be my only substantial financial responsibilities.
I’m going to talk with my parents about this, of course, but I’d like to gather a bit of advice and information first so I can be more knowledgeable before having a conversation with them. Based on what I’ve told you, do you think I stand a chance at getting approved for a home loan? How do you qualify for the first time home buyer incentives the government offers? Besides the mortgage, insurance, taxes, and maintenance, what other expenses should I expect? How much do each of those things usually cost? If you’re familiar with the Palo Alto area, do you think the home prices there will continue to drop, or is now the ideal time to buy? Would my parents have to co-sign the loan with me if I found a home I wanted to buy before I turn 18 next spring? Sorry for bombarding you with questions! If there are any books, websites or other resources you can recommend for learning more about the home-buying process I’d be grateful if you could list them in your answers. I realize that I’m a bit naïve about this whole process, and am appreciative of any advice and suggestions you may have.
Thanks in advance for your answers, and for taking the time to read this lengthy question. : )
If the government grant is what encouraged you to bu a home I suggest you don’t because that means you will live beyond your means.
My advice will be to save as much money as you can. The less debt the better.
Wait a while for house prices to fall and then buy one. They will fall soon. The bubble has not popped fully yet.
Palo Alto is pretty pricey.
Being so young, and most likely, not having any credit established yet (you cannot legally get credit until you are 18 for now..by Feb 2010 it will be changed to 21) you will not get a mortgage. Not on your own anyways. You would most likely need your parents as cosigners and a hefty down payment. Even then, you may have trouble qualifying due to the fact you sound as if you are self employed and the rules for them is what is your net income a year not gross. Another thing is, I wouldn’t tell a lender you intend to rent out the rooms. That turns the place into an investment property, and you are definately not going to get a loan for that. As for the tax credit, you most likely will be too late to get in on that, as you should have already been approved for a mortgage, and in escrow NOW to close the deal and have the deed recorded in your name prior to December 1, 2009. Even if you were to get in before the deadline, you have to use the property as your primary residence to get the credit, not as an investment you would be renting to grad students and the like.
you will need to be 18, and you will need a steady income, prove-able income. And your credit score, do you have credit yet? you may need one of your parents to co-sign, or possibly be the only one on the loan. Your ideas are great and you seem to have a good investment mindset, you just need to be a little bit older… If your parents would like to buy the house for you and need a lender, look me up! good luck.
Well, Palo Alto has an extremely expensive market. A standard 3 bedroom, 2 bath, 1300 sqt home in a decent neighborhood in Palo Alto can range anywhere between 850k to 1.2 mil.
http://www.coldwellbanker.com/servlet/Se…
Even the tiniest least desirable homes are in the neighborhood of 900k -1 mil. This house listing is a prime example. http://www.coldwellbanker.com/servlet/Pr…
I don’t have any background in really estate (so you should probably not take my advice too seriously) but assuming you decide to purchase a decent 900k home — Let’s say you put a down payment of around 180k and get a standard 30 year fixed mortgage with a 6% interest. You would need to make monthly payments of about $,4,400 a month – Which is about $53,000 per year. Most 3 bedroom rental units in the Stanford-greater bay area are in the $2,750-$3,500 range -as per craigslist. The average house room rental for single family homes in Palo Alto is around $650…so you would have to get at least 7 roommates to get a profit if your monthly mortgage fixed at $4,400. So, you could potentially end up with a pretty hefty monthly difference even after you rent out all of the rooms…which could then lead down the road of miss payments and eventually foreclosure.
As far as acquiring a loan is concerned, the most important criterion that most lenders look for is usually the ability for you to make the payments. …So net worth, stable income, credit history, FICO scores, and employment record. They would probably also require a minimum employment status from a single employer for a give time range (let’s assume 3-4 years) —just to give validity to the borrower’s claim of repayment. I don’t know if acting/modeling would be considered a stable income…just because the industry is almost exclusively based on vanity…I’m not saying that you will break a leg or something and not be able model or act but even the modeling industry has trends. For instance, the early 2000s-present time have been very good from African models and models with very distinct ethnic-racially ambiguous features (Alek Wek, Liya Kabeda) …they could easily be old news several years from now…and East Asian models might be the next new thing…or women with square jaws..or some other “different” feature…and they might also put into account your status as a full time student and how that would play a role is your ability to pay your mortgage.
I think that you should definitely invest your money when you go off to college but real estate is a VERY serious investment. It would probably not be wise to invest 800k or so of your savings at such a young age. I personally wouldn’t invest more than 5k. College is a GREAT place to exercise your entrepreneurship skills and there are MANY business endeavors that you could get it.
Eg.
You could invest in a screen printing machine and design/print shirts for college clubs/interest groups/frats/sororities/events. College organizations LOVE shirts and you could make a TON of money printing shirts.
You could tie some of your passions with your investments. For instance, you could partner with a non profit in Mexico or Cali and sell your own bottled water in the campus (It’s actually not hard to find a natural spring and a company that can purify the water and bottle it —-lol, with your own logo –a portion of the profits could go to your favorite charity and most college aged kids would not mind supporting such a cause-biz).
You could start a college-high school tutoring biz. My sister gathered a few friends and recently started a h.s tutoring biz for h.s kids in NYC. Parents are MORE than willing to pay college kids (especially those who attend high ranking schools) to tutor their kids. My sister pays her friend a fixed wage ($6/hr) to tutor h.s kids (Algebra, SATs, Chemistry, Biology, general college prep e.t.c) –the parents/kids pay her $18/hour so my sister actually ends up making a VERY nice profit. The more friends/college students she recruits to tutor her clients — the more money she makes.
The point is, there are MANY innovative ways to invest-make money in college. Real estate (even now) is not always the best investment….and chances are, it would be very difficult for you to get a loan so keep your eyes open for any business opportunities that come your way.
Waite another year and have good credit and about $20 to 40,000 cash for finance and closing.I believe that will be better for you.