Advice for a potential first-time home buyer

Sorry, my bad. I dropped a zero - it was less than $3,000.

Still, paying monthly for even 15 years, much less 30, seems like it would cost much, much more overall.

 

You shouldn't have to pay it for that long. Once you acquire a 20 percent equity/debt ratio you can apply to have the insurance removed.

That means if your house appreciates rapidly, you can apply to have it removed, even if you have not paid 20 percent of your principal loan balance.

If you pay $20,000 down on a $200,000 house, they will charge you mortgage insurance (you have only 10 percent equity). But if that house appreciates to $225,000, all of a sudden you have $25,000 more equity, and your equity/debt ratio is roughly $55,000/$180,000 (not counting any payments you already have made).

Problem is, banks do not want to do this automatically (although there are all kinds of resolutions out there to make them do so). It's pretty much on the homeowner to take the steps necessary to get the mortgage insurance removed. It usually requires paying for an appraisal to do so.

IIRC I paid about $50/month for about two years ($1,200 total) before I was able to get mine removed way back in 1999.

 

Always figure out a way to not do mortgage insurance if you can. In addition to the main financial drain element, it does absolutely nothing for you. I'm not even sure it does anything for the bank, but I'd guess it does or they wouldn't include it.

If something happens like another crash or you for some reason are under water or need to get out of your loan, they will not in any way be helpful and might actually ask you to pay thousands upon thousands of dollars (on top of all the money you've already thrown away on it) to get out of the loan -- a short sale for example. It's a side people don't consider, especially because buying a house everything seems like happy times and nothing will go wrong, but trust me, the PMI companies are out for money and more of it. I would likely rent forever over having a loan with mortgage insurance again.

 

Just not enough people realize that PMI should only be a 2-3 year thing. The banks will never tell you when you're eligible to have it removed. They'll just continue to take your money as long as you're foolish enough to keep paying it.

 

To move to more mundane topics - you can buy all kinds of hand, power, and garden tools on the cheap at estate and garage sales. You'll be wanting them, and it beats paying new prices at Home Depot.

 

Yeah, just read the obituaries for that. Don't buy a paper though. Just read them online.

 

As an aside, I will say buying our house is what led to our financial problems we have today. More cash out of pocket going toward higher household expenses meant more things went on the credit card and it really went downhill a year later when Baby Monkey showed up. I share my sob story not to elicit sympathy but to tell you to be aware of what expenses you don't have to think about when you rent. Air conditioner break? There's $300. Stove go out? There's another $800 you're on the hook for.

 

We didn't have mortgage insurance for lack of down payment but we did have a second smaller mortgage. Costs us $42 a month. Maybe it is mortgage insurance with another name

 

Yeah, homeowners' insurance is what I meant.

 

Your lender has an obligation to tell you when you're eligible to have your Mortgage Insurance stop. I just got a notice in the mail. You can have it cancelled when your loan is scheduled to reach 80% of the value of your home or once the unpaid balance actually reaches 80%. For example, if your home was worth $100,000 when you closed your mortgage, you can cancel your PMI when your unpaid balance is $80,000. However, the lender won't automatically cancel it (i.e., cancel it on their own) until the value reaches 78%.

I pay about $115 / month. I was only able to put down 3% or something.

 

I think spending $500 per year for a home warranty that could cover the replacement cost of a new roof is a pretty good deal.

We kept ours for two years. We got a new roof, new dishwasher, a handful of plumbing calls (including one major leak) and the hardwood floor in our den repaired, sanded and stained. After two years, our salaries, savings and my Mr. Fix-It abilities had increased to the point we didn't need it. We've come out ahead since then, but we made out like bandits the first two years.