First time buyer hesitations
Good afternoon. I have been searching for a home around the east side of Indianapolis for about a month now with the intent to find something that is live-able but could use some fixing to add value (I have a background in construction, and between myself and my friends, could perform most of the work myself). My intent was to buy a property, live in it for two years and either sell it or rent it out afterwards. I have great credit, but with interest rates the way they are my monthly payment was going to be $1500+ a month. Below is a breakdown from the bank at the time I was about ready to put an offer in on a property but ultimately got cold feet, covering 3 different types of loans. The house was listed at $209,900.
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0 Down – Moderate/low income tract – which is where there is house is located
- Purchase Price $209.9K
- Interest Rate: 5.75%; 30 yr fixed
- P&I Payment $1225
- Add $300 for property taxes and insurance….I said payment of $1515 on the phone, but rounding up $1525 should be safe, not know the cost of insurance
- No PMI and we waive our $795 Lender Fee.
5% Down Conventional
- Purchase Price $209.9K and loan amount of $199,405
- Interest Rate: 5.50%; 30 yr fixed
- P&I Payment $1132 + $73 PMI + $300 taxes and insurance ='s $1505 total payment
- You would have the $795 Lender Fee too.
FHA 3.50% down
- Purchase Price $209,900 and loan amount of $206,100. This loan amount includes a mandatory 1.75% fee from FHA be added to the loan amount…it is financed in, but you are still paying it via the loan as it increases the monthly payments
- Interest Rate 5.25% =’s $1138 + $146 pmi + $300 =’s $1584
- Lender Fee of $795
- “Best rate” but worst option for a loan for you.
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I was in the market to utilize the top loan, which is a "neighborhood loan" where you don't have to have a down payment and there is no PMI - as long as the house is in a low/moderate income area. Seemed like a home run to me as my buddy utilized this loan and had no issues. The east side of Indianapolis is up and coming aka the poverty is being pushed further and further away from downtown. The whole reason I wanted to buy a house was to start the process of creating some passive income, as well as get out from under a $1455/month rent payment at my apartment... after I started my search, I realized that my monthly expense would increase after seeing what interest rates did to the monthly payments. After a lot of contemplating over the last few weeks I am questioning if buying a house right now is a good idea - granted we are pending a recession at anytime. Please correct me if I'm wrong but here are my thoughts on purchasing a house before a recession:
-House prices take a big hit if we enter a recession. True or False?
-If a buy a house at an already inflated price, and the value drops during a recession, I'll be on the hook for more than my house will appraise for. If the market takes longer than two years to bounce back, I would then need to increase profit margins on the renovation, or hold for longer. True or False?
-I have money in savings for a down payment, is there any value in going conventional over the no down payment program? The way I looked at it is that it didn't lower my monthly payment that much and the money could go towards renovation instead of a hefty down payment, which would lower my risk. Thoughts?
Thanks in advance!