Hello, fellow BPers.
I am new to BP and new to real estate investing. I am 44 years old and have never bought a home before. My plan is to buy-and-hold to be able to retire at a decent age. My lease at my apartment ends Sept 30th. I have the option of signing a five month lease and keeping current rent amount or going month- to month and paying $150.00 more per month. I should mention my credit has not been great but it is improving very quickly ever since I got an amazing company repairing it for me late June. My highest score is 690 (improved by 154 points!) and my middle score is 624 (improved by 87 points). All within 2 months. Before I start shopping for my great deal for owner occupied rental home I am wanting to know what you would do in my situation; stay in my apt until February with 5 mnth lease (and potentially miss out on great deal) until my score is awesome and save the $150/ month difference OR go month-to-month in case a really great deal comes along and take the chance of my credit score improving at the rate is has been?
So far i have $4000.00 saved for down payment if I choose FHA. If I choose USDA, I could use it for closing costs. I can save up about $1000.00 per month if I need to wait longer.
Just wanting to get you guys' opinion on the matter and find out what the wisest choice would be.
Thank you in advance for your guidance!
Run your numbers. Talk to a lender to figure out what the mortgage payment would be for a place if you were to qualify and figure out how much you qualify for. If tying up your 4k and living in your own place is less than $1500/month, sign month to month. If you're going to pay more than 1500/month to own your own place, sign the 5 month lease. Your answer is always in the numbers.
Thank you, Kristina! Great advice! I am planning to get in contact with a few lenders to see what I qualify for and find out about their rates. I guess that is my best place to start. My credit counselor advised me to wait until my credit score is higher before applying for a mortgage so I can get the best interest rate. But, honestly, I am anxious to buy my first property and start building equity and get closer to being able to purchase a second property. One of my concerns about going to a lender just yet is the fact that they will need to pull my credit to see where I stand creditworthy-wise. I don't want to shoot myself in the foot and have a hard pull on my credit when i am just now getting it closer to "good" status. I wonder if I could print out my current report and have them take a look at it without pulling it for themselves.
I may be wrong but I feel that house prices will be less expensive in the Fall/ Winter months since most people are settled in school being in session and thinking about the holidays and not home shopping/ buying. Is that true?
Thank you so much for your input
@Alissa Rodman Very extremely cautious with month to month leases. In many states that basically means you will have trouble terminating the lease agreement. Many tenants have stayed way beyond their welcome on month to month leases.
@Alissa Rodman Take the 5 month lease. When / if you find that great deal make your offer based on your lease end date. My last SFR we set the closing 2 1/2 months out and still had to extend the closing date. The reason is it was a conventional loan and therefore subject to Dodd Frank rules. the appraisal took over 30 days to complete and because I have so many loans on other property's I had to provide every note deed and explain several different deposits into my bank accounts. Dodd Frank has greatly complicated the loan process and it takes major time for a loan to process. If you live in your apartment for 3 months looking for a good deal it could take another 2 months to close anyhow. By then your lease will be up. Besides wats the penalty for breaking the lease?? Maybe it's cheaper than the $750 extra it will cost you to go month to month. A month to month lease is typically only 30 days to break the lease. Typically you give notice when you pay rent on the first of the month and move out by the end of the month. As a landlord I prefer M2M. I can have a tenant out in 30 days and no eviction cost. Sign the lease and save another $150 a month for reserves and down payment. Your odds of closing on a house in the next 5 months are slim. RR
I agree with @Ralph R. It will take few months to close the deal. Set your closing date about a month before the lease expires. Good luck. It's never too late. Colonel Sanders started KFC when he was in sixties. Good luck
@ Ingrid J. Thanks! When we do month to month at my apt complex we don't sign any agreements. I'll need to find out the amount of days notice to give before move-out. I think it is 60 days. I'm leaning toward signing five month lease anyhow. Thanks again.
@ Ralph R. Great advice! Thank you so much! I think the office lady said the penalty for breaking a lease is basically I'd still have to pay the rents owed for the term of the lease. My current lease amount is $1150.00. If it is going to more than likely take about five months or more to close on a home, I think I'll go ahead and sign the five month lease and save the $750 that i would be paying extra for M2M. Thanks again!
@Tan Mehedi ~ Haha! You're right. It is never too late! I appreciate that. Thank you for your reply :)
Another question I have is: Are house prices usually lower during Fall/Winter months?
you also need reserves when you buy a home. usually 3 months. in addition to down payment you will/may have closing costs (some programs allow you to roll those into the loan) and you will have "prepaids" such as taxes, insurance, HOA fees, etc.
Sounds to me that you should opt for a little longer hold period. I would find a local realtor who is willing to give you the details on best time of year to buy in your area (less competition for you as a buyer) and ask them what the trends are (sold prices going up or down?) and then determine your lease period based on that. You may also find yourself with overlap with your lease and your purchase. We have been renting since moving to Texas and have had to overlap our leases every time.
@Alissa Rodman , from what my agent tells me, yes. During the fall/winter, everyone has their kids in school and during the colder seasons no one wants to move living spaces in the colder months. In summer, kids are out of school and there are always more houses for sale in the summer because of this. Good time to look/sell.
@Debra Grumbach I don't know how long you've been here, but, Welcome to Texas! I lived in Allen (just down the road from you) for several years before moving to Austin area. Frisco is a nice place.
I appreciate your reply. Seems like most people are recommending I sign the five month lease. With the reasons and explanations, it makes more sense to do that as oppose to the M2M. I will take your advice and speak with my realtor about the trends and such. I have an appointment this Saturday to interview an agent. There are two others I have by chance met that want my business as well. I need to figure out which one to go with. I don't want to hurt anyone's feelings or step on any toes. One of the agents is my patient. Would be awkward if I didn't choose him since I will be seeing him every 3-4 months for dental cleanings. If you have any advice on how to choose a real estate agent, please let me know. This particular gentleman got his RE license five months ago. One of the other agents I was referring to is a new license holder as well. The one I have an appt with on Saturday is a bit more seasoned. I'll find out how long she has been in the business when I meet with her.
Thanks, @Wil Reichard . I appreciate your reply! That is good to know :) I won't mind moving in the colder months. It doesn't get that cold here in central Texas anyway so I guess that will be good timing since my lease will end in February. Thank you so much!
@Alissa Rodman typically there is a slow down of real estate sales in my areas around the holidays and during the first quarter as nobody has any money. Not only is that a good time to buy real estate but also a good time to buy cars, boats and here in alaska it's a good time to buy airplanes. I have a primary residence and a secondary residence. I have never heard ofany reserves required for a loan on your primary residence. according to Fannie, Freddy or FHA there is no requirement for reserves when financing your primary residence. If your lender is requiring reserves on a primary home loan than you need a new lender. Non owner occupied loans require both a higher down payment and reserves. That's why I use commercial loans. Less reserves required allowing me to invest a larger percentage of my money. RR
Just going on what I've read here, it sounds like signing the 5 month lease makes sense over paying $150/mo. extra for M2M. I strongly recommend that everyone have at least 3 months of expenses set aside as savings in addition to whatever is used for a down payment, closing costs, moving expenses, etc. Signing the lease will allow you to save more and continue to improve your credit. No matter what loan option you choose, don't count on any seller in the Austin area paying a *single cent* toward your closing costs (I've only had one this year). Why not? In short, it's a seller's market and they don't have to. In fact, in a very competitive multiple offer situation (pretty common), sellers often request that a buyer pay for the title policy, which is most traditionally a seller closing cost.
Your only real reason I see for wanting to jump into the market now, as opposed to waiting to save more and improve your credit, is that you're worried that you'll miss out on a deal in the off-season. You're right that the Austin area market is seasonal and that you're more likely to find a good opportunity in the fall/winter than you are in the high summer season (see below). Sellers are usually more motivated, and there are fewer buyers in the market to compete with. However, whatever you'd find in the off-season may be more than made up for in waiting for a bit and qualifying for a better interest rate (lower payment and/or able to qualify for higher purchase price), being able to put more down (lower payment + better LTV and/or able to qualify for higher purchase price), and writing more attractive offers (pay your own closing costs).
I hope this helps! Feel free to reach out if there's anything I can do for you.
P.S. Here's some info. on seasonality in the Austin market. As an example, this is a chart of SFR sales volume by month over the past 5 years in Austin:
Here's the raw data for the above chart:
Here is the monthly median SFR sales price over the past 5 years:
Here's the raw data:
Thank you Ralph R. and David Ivy. I really appreciate all the information you have given me. I am going to take your advice and wait a few more months before moving forward with my first purchase. You guys have been most helpful!
Your FICO is boarder line and w/o disclosing your profession the anws is I do not know the ans. I will go to my bank mortgage talking to a loan person what you are qualified. I suspect you end up renting 5 months to save your downpayment.