Several of y'all have much more experience with this than I do so I want to present a hypothetical situation and see what everyone thinks the likelihood of a loan is:
Single 72 yr old woman w/ good credit and maybe $20 - 25,000 in the bank with a part time job wanting to buy a house probably in the $125-150,000 range.
This is my sister - she thinks she'll be able to do it - I'm very doubtful. I know if I were a bank or lending institution I'd sure be leery of giving a loan. How much longer can she continue to work and if her SS is only about $800 a month what will she do to make the payments?
So - what do y'all think?
Really too many variables in the hypothetical to give an accurate answer BUT I'll give it a try!
First thing to realize is that lenders are looking at the life of the property - not necessarily the lifetime of the buyer - so it can be done but it would be challenging.
If your sister finds a property @ $125,000 and puts down 20% (her entire savings) and finances the remaining $100,000 at 3.75% over twenty years, her monthly payment would be $514/mo without taking into account taxes and insurance. Might make her "house-rich" and "budget poor" but that would be up to her on how she wants to spend that last quarter of her life!
I don't think the problem will be in getting the loan IF she is able to put down 20% of the purchase price since very few purchasers are expected to stay put (or, in this case, stay alive for the term of the loan now days ) and lenders are comfortable with 20% down as long as the property itself is suitable.
Better question is this: Will devoting over 50% of her disposable income every month to housing leave your sister short on some other very basic items like food, utilities, health care, transportation, etc? In the past, 25% for housing was considered to be conservative and then it started inching up to 30-35-40%...
If she really wants to become a home-owner, I think it can be done but she should start with the upper end being $100,000, put down 20% (leaving her with $5K in savings instead of nothing); payments on the remaining $80,000 at, say, 3.75 for 25 years would then be $411/mo. Still a tight budget but probably feasible - how much is she paying in rent right now? But also have to remember taxes, insurance and maintenance on top of the monthly mortgage loan.
Bottom line, yes, it is very likely that your sister can achieve her dream - even at her age - it's not the loan itself that will be the problem - it's the percentage of her income that it will take to service the loan. But, then again, how much is she paying in rent?
Tell her good-luck! Wishing her the best!
Right now she is paying $500 in rent that includes utilities. As I said, she is working (Activity Coordinator in a retirement home) part time but goes home totally exhausted every day and on her two days off all she can do usually is lay low. It's not feasible here (for what she wants to find a house for less than $110k at the lowest - and taxes are high here. My mortgage payment (with taxes,etc) is right at $1,000 a month, plus of course the high utility bills we have here. Oh - should have also mentioned she is driving a 16 yr old car 40 miles per day (rt) so that will have to be replaced. I'm not trying to squash her dreams but I just can't see how she can do it - especially when she goes home at night muttering "I might be too old for this job", which if she does have to leave it, will mean she's bringing in $800 a month. She could probably make the mortgage payment (with taxes)and even maybe utilties - but don't know what she'd live on for food, etc.
Anyway - appreciate your response.
I'm with you, doodles. Why would your dear sister want to encumber herself at this stage of her life with owning a house? Especially given the somewhat tenuous nature of her finances.
Is she so unhappy with her current living situation that she feels the need to make such a big leap? Is it just a change of scenery she wants?
I would want to get to the bottom of the situation and explore the psychological and emotional reasons behind her desire to own a house before wading into the weeds of how to finance a home purchase. Perhaps there is an alternative to buying a house that might be more gratifying and also more financially feasible for her.This message has been edited. Last edited by: aychihuahua,
I'm also with you on this. What if she needs to replace any appliance or many other normal house repairs?
What if she is forced to quit her job for health or any number of reasons?
She has no hope of future higher income, will be house poor for the rest of her life.
sounds too stressful for her.
Home ownership is wonderful, but we all know it has its many problems which many people cannot afford. I'm somewhat of a risk taker, but in her circumstances it is too risky.
Looking at the total picture it sounds miserable.
Oh boy, this is really hitting home. LOL.
I just bought a new car,will have car payments of 200 a month for five years, this is the only debt that we have.
And now my husband is crying about the fact that we are now in debt. We can more than afford this. But now he's telling me that he will die before I pay the car. and then what?
I just told him that worse comes to worse, I will sell his car, LOL
She is currently living with a family member who has allowed her pretty much full freedom w/ her home - has allowed her to use 2 of the 3 bedrooms as her own, the rest of the house as she would her own (laundry/cooking/living space/yard) and only has her pay $500 a month without contributing anything to utilities or upkeep. Yet my sister (altho admitting this person has been more than generous) continues to whine about wanting her "own house" and wants to OWN rather than rent. She told this family member if she (my sister) were successful in finding her own home she was welcome to move in with her - to which the family member said "you're nuts - no thanks - too big a gamble".
Anyway - I know my sister tends to go for pie in the sky and to think she can do anything she wants - that it will just "happen" - and perhaps this will snap her out of it. She had a mutual friend who is an agent sending her property listings a few months ago but got ticked when she was told she needed to see if she qualified first before they went any further.
Thanks so much for all the backup and information. I'm only the "little sister" and know nothing.LOL
ITA with the previous comments, doodles. I thought about your sister's situation and would be extremely concerned. After reading your initial post, I wondered about roommates for her - glad to hear she's in a good situation, currently. Yes, I too, hopes she stays there. Sounds like she might insist on going forward, however.
Don't know if by good credit you actually mean excellent credit. She would need excellent credit in order to qualify for the lowest interest rates. BTW, it's against the law to discrimate against her b/c of her age - if she's able to qualify, lenders must approve financing for her. If she insisted on going forward, I would definitely consider an FHA loan for her. Although some of the costs are higher, some can be rolled into the loan. Best of all, the downpayments are significantly less.
Most importantly, she needs to retain her emergency fund. If she obtains conventional financing and needs 20% down, then I would recommend she build up her emergency fund b4 going forward. We normally recommend 6-8 months of expenses for emergency funds. In her situation, I would recommend 12 months of expenses. That's after/in addition to the 20% downpayment. Besides being critical for her needs, many lenders require a cash reserve of between 2-6 months of p&i. (My reserve, however, considers total expenses.) It's one of the factors often considered in underwriting so it might help her obtain that premium interest rate.
Before working seriously with her realtor, I would suggest she informally run some numbers and also check her credit score. In particular, I would calculate the two main ratios used in underwriting and consider them on an $800/mo fixed income. Personally, I don't know enough about her situation to express MHO on her chances of qualifying. If she works with enough lenders/loan agents ...
In addition to calculating p&i, she needs to consider taxes, insurance, maintenance, utilities and also associations dues (if applicable). Moreover, IMHO, the largest unknown to consider is health care. What will her out-of-pocket costs be, if she unfortunately is no longer healthy and able to work? Does she have any long-term care insurance? (BTW, the costs would probably be prohibitive, if she wanted to purchase it at age 72.)
What about adult children and estate planning considerations? If she went forward with her plans, I would attempt to involve them in the process. Incidentally, they shouldn't be added to title. (That's an error we frequently encounter and work to correct with elderly clients.)
If she came into my office, I would assist her with running the numbers and (nicely) attempt to discourage her. If either you or she would like to PM me, I'd be happy to go over the ratios with you. (Don't have time to walk through them today, here.)
Best of luck to both you and her! I know what it's like to be the younger sibling in these situations. You might gently remind her that everyone currently in foreclosure applied for and received financing. Just b/c you can qualify doesn't mean you should go forward.
ETA: Another thing I would suggest - while she's building up her emergency fund, she might try essentially "playing house" for several months. Set aside the piti plus all the other costs and see how that feels on both her current income and a reduced, $800 fixed income. That might dissuade her from going forward, if nothing else will.
All of the above, IMHO.This message has been edited. Last edited by: RErocker,
For whatever reason, she may be unhappy with her current living situations. However, she would have to qualify for a loan. I would ask her to consider an FHA approved condo community.
She would have to putdown 3.5 percent FHA and she could ask the seller to pay for closing costs.
To search out FHA approved condo community search "FHA Aprroved Condominiums" on the net. There are several websites with criteria.
Many markets are distressed and include decent condo inventory from the $30,000 mark for a 1 BR in a gated comunity. She would have to check with local Realtors to get a feel for the martketplace in her area.
However, I think the first step should be to check with a local lender to get pre-qualed. Her part-time could be on the low side like 15-20 hours, and she may not even qualify for a loan.
One of my buyers just qualified for a home with 30 hours a week employment.This message has been edited. Last edited by: real estate lady,
Glad to see so many helpful responses and, thanks, Doodles, for posting back with more info.
I totally get where you are coming from - I'm a "younger sister" myself and sometimes think that I am stuck at age 8 - the age "way older" sisters remember me to be!
Bottom line, yes, this is probably just another "pie in the sky pipe dream" BUT you should listen carefully to it. Why? Because she is 72 years old and, obviously, unhappy living where she is currently living notwithstanding the generous living situation currently being extended to her...
One question? Is it possible for you to engage her in a rational conversation to determine why she has decided that she wants to OWN as opposed to renting? Perhaps a move to a place that would be "all her own" with a six-month lease might be a first step for her.
If she is truly serious about this subject, she will talk to you about it. Otherwise, she probably knows that it is all a figment of her imagination but loves to get others involved... spices up her life a bit without actually putting herself at risk.
Good luck - post back when you have the chance.
I really do appreciate all the responses and information. One thing about her - she's going to do what she wants and doesn't take "advice" well, especially from her little sister. Honestly, we are close (there are just the two of us) but make each other crazy on a regular basis. I saw how ticked she got at the agent friend who told her she needs to be qualified first. My biggest concern (even tho I know it's not truly my business and she's a "big girl") is that she's going to leave this secure living situation and jump into something she is going to get burned on (yes, she's done this before)and be unable to go back to that same secure situation (the family member where she's staying does need the $500 a month and will have to replace her if/when she moves).
Guess we'll see what happens - and again, thank you to all who responded.
Oh - and the reason she is "so unhappy" is because it's not hers, and even tho the person she's staying with has invited her to change things around,even in the kitchen or do whatever else she needs to make it more comfortable for her, she doesn't - just whines about it.
Sisters..... it's just complicated, isn't it.... I don't know where y'all live, but she will have to get qualified before she buys (sadly, we all do), so I would keep my head down and see how it unfolds. I think the market/banks/etc will provide the reality check she needs, and she won't blame you.... My cousin and I were just having this discussion yesterday on why everyone thinks they need to buy, when sometimes it's just not the right thing for them to do financially (or from a work to upkeep the place perspective)... I had a friend once that fell in love with an old house that needed MAJOR renovations and had a huge garden (landscaper lived there). She had never lived anywhere that needed to have the lawn mowed - much less major landscaping to keep up. And the electrical...... scary.... Anyway, she bought even though all her friends said "get a condo" (did I mention she also traveled alot?), but NO - she wanted a house. She took a bath when she tried to sell because it didn't pass inspections since the maintenance she needed to do never got done and the yard became a nightmare.... A nice apartment or condo would have been perfect........
Yep, Debi, a condo sounds like a good idea. I know if I had it to do over again I'd be buying a condo rather than having to worry about lawn services, etc. I'm pretty much stuck with my house for the duration, but if she has to get her own place, I don't see why a little condo wouldn't be better for her.
I get the picture, sounds like my SIL. All you can do is give your opinion in limited doses, she has her own plan.
I know it is difficult, I don't understand people who choose to be so, I don't know is it insecure or unstable, at this age. I don't think I could sleep at night, but as long as someone is mentally competent, they can make their own decisions, we just get to watch from the sidelines. You have my sympathy.
Condo might be a good idea but wonder what she'd save in purchase, she'd spend in the long run on condo fees. Still the upkeep would be so much easier.
Has she ever had her own place before, Doodles?
LOL - she wants it all. She has this "vision" of getting a place that needs a bit of "work", which she will do - she will need at least 3 bedrooms or 2 bedrooms and a place for a "studio" (she's pretty artsy but lacks the self-promotion she'd need to actually sell her stuff). Yes, she's almost always had her own place - all 3 of her husbands were well to do - and she's never rented before (other than the last time she lived with someone for a bit and then jumped into the first house she found that was ultimately not really a good deal) so I can understand it - I just don't think it's a smart move.
But, as has been said - she has to do what seems good to her. I am concerned but can't exactly do much. Her eldest daughter was trying to get her to move to the retirement home where she works and you'd have thought she'd suggested being buried alive. She still thinks she's 35 rather than 72!
Renting a condo would be far better than purchasing one and worrying about special assessments and fee hikes, especially if the condo building is poorly managed and has few reserves. Not a good choice for someone with limited financial resources.
ETA: I don't know of any condo in Central Texas where you could get away with paying only $500 in mortgage and fees each month. Nigh impossible.This message has been edited. Last edited by: aychihuahua,
Well, bless her heart!
This will be interesting. Keep us in the loop, ok?
I will - should prove interesting. I drove her by a client's new townhome where the yards are miniscule and she hated it - she wants "SPACE" as she enjoys gardening. At one time she had bought 30 acres (bare land - the kind you had to have a road graded in) south of Tucson and was going to build a strawbale house. She did sell the land but only recently (in the last year) has admitted maybe she's too old to build a strawbale house herself.
AY: She realizes she'll have to pay more than the $500 a month she is paying now and will have utilities, etc. At least she realizes that on some level - just not the practical one! LOL
Given her background, doodles, I understand where she's coming from and the situation you're in. Happy to hear her adult children are involved.
Best to both of you -
Maybe she's also thinking she can get a roommate.
Ah..well maybe it's on her bucket list. As long as she's got her senses about her let her do what she wants.
Speaking just in general, as family members get a little older, others in the family tend to be
a little more concerned about thier decision making, goals, and wishes. We all know it is out of love, however it is part of their "independence".
On a personal note, I remember on many occasions
my Dad wanted to do this and that.. projects around the house. I would say that's okay Dad Ill take care of it, don't worry. Mistake.
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