Tag Archives: minimum down

My First House: Then and Now

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“Cautious Buyer” asks this question on my post the other day when I referenced that my first house had a rate of 11% during the comments:

“Do you think a young couple with similar jobs could buy the same place in Tacoma today? How about 1 year ago today?”

Then

My first house was a rambler in northeast Tacoma.  It’s a 3 bedroom with 1 bathroom and a galley kitchen. 

At barely 1000 square feet, it suited my boyfriend and I just fine.  We liked the 7,500 yard with fruit trees and two car garage with RV parking.  We purchased the home in the summer of 1988 for about $68,000 using minimum down FHA at 11%. 

  • 3% down = $2,040
  • Estimated mortgage payment (PITI) @ 11% = $765

At the time, we were both 21 years old.  I worked at in the title insurance industry as a “home equity title rep” and my boyfriend was a bagger/meat room cleaner for a large grocery store.   Our combined income at that time was about $34,000.

  • 34,000 /12 months = 2,833 monthly gross incomes x 28% = $793.  (We were barely below the recommend “front ratio”).  
  • 2,833 x 43% = 1218 less our mortgage payment of 765 = $453 for maximum allowed monthly debt.  

I didn’t have a company car yet and so I’m sure we were pretty close to using the maximum allowance when we qualified for this mortgage.  Plus, I began receiving offers for credit cards at 18 years old.  I think I was the first girl in school to get a Nordstroms card (I haven’t had a Nordie’s card in YEARS.   I was young and naive when it came to credit.  I managed to pay our bills on time but did learn the hard way…I digress).

Now

Current guestimated value of my first house is around $220,000.  I verified this with ARDELL and it happens to be fairly close to what Zillow is zestimating as well (Zillow is a little higher).   This is assuming it has been updated along with the rest of the neighborhood.

  • 220,000 x 3% down payment = $6,600.  Assuming the seller is paying closing costs.
  • Base loan amount = $213,400 plus upfront mortgage insurance @ 1.75% = $217,134.
  • Interest rate of FHA 30 yr @ 6.500% (apr 7.191% per Friday’s rates) = $1,372.44.  Plus monthly mortgage insurance of 0.55% = 97.81.  2008 taxes = $2525/12 = $210.43.   Total payment (incl. estimated $40 per month home owners insurance) = $1,720.68.

I estimate incomes for both jobs at $67,000.  (I have close sources in both the title and grocery industries).

  • 67,000 /12 = $5,583 gross monthly income.  The total proposed payment of 1,720.68 divided by the monthly gross income = 31%.   This is an acceptable front ratio with FHA. 
  • $5583 x 43% = $2400.69.   2400 less the proposed payment of 1720 =  $680 of allowed monthly debt for FHA in order to stay within a 43% total debt ratio.

It’s been twenty years since I bought my first house.   The house has tripled in value while the incomes for our jobs have pretty much doubled.  I commuted 27 miles one way each day (not even factoring when I made calls on accounts, which at that time my territory was banks and credit unions in King County)…I was thankful once I was promoted to a real “title rep” and had a company car to clunk the miles onto instead of my personal one.  

The answer to your question, Cautious Buyer, is:  YES.  Someone could buy that home today with the same jobs that we had when we purchased it.  Last year’s value?  Since it’s in NE Tacoma, I would say that it hasn’t experienced the same degree of “appreciation” as the Seattle/Bellevue markets did.   According to Zillow, the home is worth 0.9% more now than a year ago and 0.4% less in the last 30 days…so we’re splitting hairs.  

What I wonder is how many first time home buyers would be willing to commute like I did or to buy a true starter home? 

Our agent for our first home did select our loan officer.  As I mentioned, we were 21 and were totally green.  Even though I had worked for a title company for a few years, it’s completely different to actually go through the process.  With our subsequent home purchases, we selected our loan officer first and then the home.

By the way, we did sell that house one year later.  There was a bit of a housing panic (at least I had one at the time) and we sold it for $90,000.  The proceeds was the down payment on our next home located in Federal Way’s “Affordable Street of Dreams“.  Yes, that’s how the new plat was marketed.  Affordable dreams (our “affordable dream” was $125k for 1500 square feet in 1990).   We were able to move just a little closer to family and jobs (and continued to do so with the next home we purchased together).   This photo is from our second home in Madrona Meadows.   We lived in my grandparent-in-laws (we were married at this point) basement for a few months until this home was finished since our first home sold in days with back up offers.

Sellers and Agents: Don't Rule Out FHA Buyers

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I was just working on a finance flyer for a listing agent…something I haven’t done in years!   Anyhow, the home is priced at $442,000 and she requested a 30 year and 5/1 ARM both with 20% down for scenarios…I added FHA at 3% down.  The property is in King County and would qualify under the FHA Jumbo program.   Until the end of the year (I suspect the “economic stimulus” loan limits will be extended beyond) Sellers have an opportunity to expose their homes to buyers beyond the normal “jumbo” or conforming market.  

Here’s a comparison:

30 Year Fixed with 20% down at 5.75% (APR 5.902%).   Principal and interest payment = $2,064.  Cash needed to close = $88,400 plus closing costs of approx. $6,000 (the rate is priced with 1 origintation/discount point) plus prepaids.    This rate requires a mid credit score of 720 or higher. 

5/1 ARM-LIBOR with 20% down at 5.25% (APR 6.810%).  Principal and interest payment = $1,953.   Cash needed to close = $88,400 plus closing cost of approx. $2,350 (the rate is priced with zero discount/origination points) plus prepaids.   This rate also requires a mid credit score of 720 or better.

FHA-JUMBO 30 Year Fixed with 3% down at 6.25% (APR 7.030%).   Principal, interest and mortgage insurance = $2,850.64.   Amount needed to close factoring down payment and closing costs is $20,350 plus prepaids.   FHA is not credit score sensitive (yet) and buyers who are truly FHA approved have done so via a “fully documented” loan.   They’re pretty darn serious!

When you compare 20% down conforming to the 3% minimum down required for FHA; it’s the difference of having approx. $100k for your down payment and closing costs to having a quarter of that.   Some folks have the income (they still have to qualify with FHA) but they’re shy on that kind of savings.   Maybe it’s their first house or perhaps their savings is tied into their retirement or children’s college fund.   These are buyers you don’t want to rule out.

FHA Jumbos allow buyers to have a loan amount of $567,500 in King, Pierce and Snohomish Counties with as little as 3% down payment (some lenders require 5% down).    With second mortgage’s evaporating and fewer “piggy back” options available, buyers who have less than 20% down where their loan amount will be over $417,000 will be considering FHA as an option.    For example, sales price of $625,000 with 10% down (loan amount $562,500) would be an excellent FHA JUMBO candidate…only offering cash or conforming products will pretty much limit your buyers to those with 20% down.   FHA buyers do not have to be minimum down…they can be less than 20% down or have a credit score or perhaps one of the borrowers has a mid score of 679.

I’ve written before about why Sellers should consider FHA…however with the temporary expanded loan amounts…now it’s even more compelling.