Buying a homestead?

[NickyBlade]

Hi everyone! I really need some financial advice and have read enough on here to feel comfortable sharing our personal matters without feeling like I'm airing our laundry... if that makes sense.

Right now we have no revolving credit, a car loan, a student loan, and our month to month utilities and insurance things. DH is a soldier and has 7 or 8 more years until he retires, at which time we would like to be able to homestead 100% without either of us working outside the home. This will require us to live as inexpensively as possible, which we all ready do as much as we can being stuck in Hawaii.

Anyway, I am saving money like a mad woman! Here's the advice I need because we've never owned land or a home. We're thinking we might be better off buying in two years at our next duty station rather than waiting until DH retires because that 5 years worth of rent (BAH = housing allowance) would go to a mortgage instead of a landlord... along with all the extra money I can muster!

When we move in two years I will still owe about $8000 on our car (24 payments). Would I be better off paying that off and having $12000 for a down payment on a house or still owing on the car and having $20000+ for our house down payment?

Thanks for any advice or information... I'm worried to make any bad decisions that could negatively effect us being able to get the best mortgage we can.

[Common Tator]

Originally Posted by NickyBlade

Hi everyone! I really need some financial advice and have read enough on here to feel comfortable sharing our personal matters without feeling like I'm airing our laundry... if that makes sense.

Right now we have no revolving credit, a car loan, a student loan, and our month to month utilities and insurance things. DH is a soldier and has 7 or 8 more years until he retires, at which time we would like to be able to homestead 100% without either of us working outside the home. This will require us to live as inexpensively as possible, which we all ready do as much as we can being stuck in Hawaii..

Tell your DH that we really appreciate his service to our country!

You have done well on staying out of debt, but I think you may want to be a little more realistic about being able to rely on the homestead for 100% of your income needs. You may want to look at other opportunities that would allow you to work from home, or have a job that isn't too far from home. Homesteading isn't a big money maker. It's more of a passion, and if you can sell some of what you produce, great!

Originally Posted by NickyBlade

Anyway, I am saving money like a mad woman! Here's the advice I need because we've never owned land or a home. We're thinking we might be better off buying in two years at our next duty station rather than waiting until DH retires because that 5 years worth of rent (BAH = housing allowance) would go to a mortgage instead of a landlord... along with all the extra money I can muster!

When we move in two years I will still owe about $8000 on our car (24 payments). Would I be better off paying that off and having $12000 for a down payment on a house or still owing on the car and having $20000+ for our house down payment? .

Where do you want to live? You may not like the area he gets stationed at next, or it may be an area that isn't affordable. Sometimes you stumble across the perfect piece of land at a great price. When that happens, that is the time to buy. Right now there are distress sales around and bargains to be had because of the housing crisis. A few years down the road, the market may have recovered sufficiently that prices will have risen.

You might want to rethink buying new cars in the future. They devalue so quickly! In two years you will still owe more for you car than we paid for the used car we bought in January for DH. His old one died, and with cash in hand I was able to negotiate a great deal on a very nice used car. Someone else paid the full price and took it in the shorts on depreciation. Every used car we have ever bought had most of it's useful life ahead of it when we bought it. We take good care of them, and they take good care of us. They build cars better than they used to, so they last a lot longer.

Good luck!

[RiverPines]

It depends, larger down payment smaller mortgage.
But less debt is great too.

We kept the car payment and went with the larger down payment.
It payed off. We have less than a year on the car and mortgage payments lower than any rent.
Our goal was the smallest mortgage possible as that last 30 years!
We loaned only 36K.

Once our car is payed off that money can go to pay off the mortgage faster. Just make sure you never have penalties for early pay and that any over payment goes to principle, not interest!

And please get a traditional loan, not one of those lousy loans that are the main cause of all the foreclosures.

Dont forget closing cost, those fees really add up too.

[NickyBlade]

Yeah, the car thing hurt... I'll explain. When we arrived in Hawaii we bought a 2004 Neon for $6400 cash from a dealer. 5 weeks later, the engine went. It was in the guarantee period but they kept blowing us off for two weeks saying the mechanic wasn't in, we couldn't park it there for when the mechanic came in because they didn't have the room, etc. The whole time we were unable to use the car. Finally, we hired a mechanic to fix it... who had to order the Dodge parts from the Dodge dealer who two more weeks later never shipped the parts. At that point we had been without the car for over a month, had no money in the bank because we had used it all to purchase the car and had no choice but to trade it for a down payment as we desperately needed transportation. We got $2000 for the trade and bought a 2006 Impala for $18000 (financing $16000)... basically at the mercy of the finance company because all we had was the trade. We lost $4400 on that Neon. I filed with the BBB and nothing came of that. We blew our chance at a lawsuit as we HAD to trade the car as we had no money to put down on another car. Had we been able to keep the car, we probably could have gone to court and got our money back. It still makes me sick... and makes me hate Hawaii.

Edit to add: We will have DHs military retirement to live off of once he retires... which will be half his pay. That's approximately what we live off of now and I save the rest, so really, hopefully, unless something goes terribly wrong, we should be able to just homestead and not work.

[NickyBlade]

Originally Posted by RiverPines

Once our car is payed off that money can go to pay off the mortgage faster.

That's what I was thinking too. Thank you for the advice, RiverPines.

Thank you Common Tator also for the very good advice. I've never bought a new car and never will... never bought such an expensive car before either. It was just a bad situation, but one we learned from. Hopefully we'll be smarter when home shopping because of it.

[Callieslamb]

I always think it is wise to live as much out of debt as possible. I would pay off the car ASAP and then work on the down payment. You could buy a great homestead for the money you will have saved either way.

[Common Tator]

Gah! My sister lived in Hawaii, and got ripped off by a dealer that didn't want to do a repair under warranty. Blew her off until the car was out of warranty!

The advise about getting a fixed mortgage and paying it off early is good sound advice! If you find yourself with a little extra cash from time to time, apply it toward the principle of the loan. Write a separate check and in the memo box specify that this is principle only! Make sure there are no prepayment penalties!

I am getting cantankerous in my old age, and more brazen too. If I found a property I liked, I wouldn't hesitate to approach the owner and ask if he would owner finance. Offer him what you would have paid the bank, say 6 and a half percent, no points. You can go through a title company or escrow company for the proper paperwork, and save yourself the lengthy process of going through a bank for the financing, and save yourself the points. What is in it for the seller? Higher interest than he could earn anywhere else right now!

If the seller has a mortgage on the property, they probably can't do it, but a lot of older folks own the property free and clear, and getting a steady source of income may appeal to them.

If you find a property you love, and it obviously isn't being lived in or cared for, you can find the owner throught the county recorder or tax assessors office. Contact them directly.

I have actually done this, and this is how we got our ranch. I pestered the absentee owners for two years before they finally relented and sold us the place. And they sold it for a fraction of what they had paid. They didn't do their homework before buying, and couldn't build what they wanted to on the property, so it became a liability and a millstone to them. We sold investments and came up with all but $10,000 of the full purchase price. So they carried a loan for that amount. We got that paid off in about a year and a half, and now own the place free and clear.

[plowjockey]

Buying a home to save money on rent, is almost never a good deal, IMO. A $2,000 furnace repair bill, home insurance and a thousand other "little" things, can eat into the "savings" quickly. Usually the best home bargains are not found near Military bases anyway.

As you know, military PCS orders can change overnight. Could you sell the house quickly and make a profit? Would it sell at all? Being a absentee landlord is a recipe for disaster, if you are more than a few miles away.

Sometimes renting is money well spent, as someone else pays for the roof leak and if it's time to go, give a months notice and go. Your PCS may be in an area that has high home prices and even higher property taxes.

The only way I would suggest buying is if you are at a PCS that you want to retire to, hopefully your last PCS.

When I was in the USAF, we were at a small town in Montana. Soon -to-be retirees were buying houses for cheap, as the economy was slow. it worked for them, as the small dusty town appealed to them

Even if renting, being debt free is the best way to save money for a home down payment.

Good news is that you should get a good deal on a VA loan. Unfortunately, they are picky on homestead projects, but it could be done.

Also, after your home down payment, it is a very good idea to have a few thousand $ set for home/car/family emergencies. Emergencies can hurt big time.

God bless military families. Good luck.

Marty

[Old Vet]

What area are you going to retire to? The reason that I ask is that you will be eligible for Tricare and the way things look now the only place you can get treatment will be a military hospital. You may want to think about that when deciding where to live after he retires. You can homestead anywhere but you may not get medical care anywhere.

[NickyBlade]

Thank you for all of the responses so far!

Marty, thanks for the advice! Yes, I will have to re-save our "uh-oh" money immediately before I pay extra on a mortgage if we buy. Our next PCS should be our last, but if DH has to PCS again, I will not be going with him. We are on the same page about that. DD will be beginning 9th grade when we leave Hawaii and we'd like to have her finish school without moving again. So, I'm trying to prepare financially and praying that God will provide a nice piece of land within our budget at our next location... well, within an hour drive of our next location. We're pretty sure we'd rather get a traditional mortgage than trying to go through the VA.

Old Vet, thank you! Yes, that is a huge part of our reasoning wanting to be close to a military post... We're not exactly picky about where we retire. Home is what you make of it and I can make anyplace (except Hawaii) work.

So, I guess I will just continue to save as much as possible. Saving sure is easy when you are saving for such an awesome goal! Even looking at something that costs like $5 in a store and I think "I don't really need that. That $5 could go towards our homestead!"

[Lifer]

You sound like my wife! Keep paying off those bills!
During the first five years of a mortgage almost all of the payment goes towards interest. BAH will probably not cover the payment so utilities will come out of pocket. That's no way to get ahead! In that short of time span with the housing market like it is now the $250 in equity would probably have to be spent on paint to freshen the place up for sale. Take on-post housing and the free utilities and save the out of pocket money for a down payment on the house when he retires. That way if you don't like the area you aren't stuck living there forever...I don't want to retire anyplace that I have been stationed and am glad that I haven't been tied down to one of those areas as my retirement spot.
I'm in a similar situation myself and was able to afford 20 acres in southern Mo. while I was on leave from Iraq last month. We close in two days, retire in two years to build the house and begin the new journey...

Good luck!! And God bless you and your DH, wherever he may be!

[plowjockey]

Originally Posted by NickyBlade

Thank you for all of the responses so far!

We're pretty sure we'd rather get a traditional mortgage than trying to go through the VA.

I would recommend reconsidering a VA loan. Not sure how it is today, but 15 years ago, we purchased our first home through VA. No big deal. Just sign a few forms.

It worked out great. No money down. I believe we paid $4K for a funding fee. Plus no PMI, which is usually required, if the down payment is less than 20%. PMI is about $100/mo extra on a $100K loan.

You earned VA benefits. Use them

[MN Gardener]

Keep the money for the downpayment. With the way the market is today most borrowers might "need" to have a downpayment. Also, the more you have down, the less your MI will be. VA loans are great, but there is a 2+% funding fee that is added to the closing costs that a conventional mortgage doesn't have. Research what is best for you at the time you purchase. If for some reason you don't need the downpayment or want to go the VA route you can payoff the car loan, but if you payoff the car loan and then need the downpayment you will be SOL.

[benevolance]

I would sell the car off now if you could free yourself from the payments..and drive a cheap beater something that costs 500 bucks or whatever.

A car is the absolute worst investment you can have..It is not an asset it is a liability. a new car always depreciates in value. The best thing to do is get out from under the car debt and drive a cheap car that is paid for now.

That way you would have 20,000 minus what the cheap beater car cost you...Say you paid $2000 for a beater...That is 18,000 down...A huge start to owning a place free and clear

Best of luck

[Chuck R.]

Originally Posted by NickyBlade

Edit to add: We will have DHs military retirement to live off of once he retires... which will be half his pay. That's approximately what we live off of now and I save the rest, so really, hopefully, unless something goes terribly wrong, we should be able to just homestead and not work.

Please just keep in mind it's half his base pay, the BAH and ration money disappears. You'll also have to think about whether or not you want to buy into SBP, which isn't cheap. Right now Tricare is a bargain at $115 a quarter and we live near a fort, so there are virtually no co-pays for us and prescriptions are free. There’s a move afoot to bring TriCare in line with other medical insurance premiums due to the cost to the DOD. Some of the figures I saw were close to $150 a month depending on rank. In the big picture still very reasonable, but another variable that might make his pension smaller. There seem to be a lot of little things that chip away at the bottom line.

One other thought will be your husband’s work history. Right now I’m the “task lead” for a defense contractor and I do some interviewing and hiring to support my contract. Your husband’s experience and security clearance are pretty valuable to employers, especially i n the defense contractor realm. Let his clearance lapse and his knowledge get dated and that value decreases. Most guys that got out and took a few years off I simply won’t hire, things change rapidly especially technology.

I retired in 2005 and my pension is just about the median income here in KS, I could theoretically stop working and we could live off it. But there are quite a few unknowns such as inflation and the future state of SS that keep me working. Every year the COLA seems to be slightly less than the current rate of inflation.
Just a couple things to think about.

Chuck

[Terri]

When you buy, let it be for long-term. Selling a property a few years after you buy it might or might not give you a profit.

Of course, if you LIKE! the area your DH is next stationed on, you might WANT to stay! In that case, I would buy. Otherwise, I would rent.

As for the question of paying off the car or not, both are good. More cash means more flexibility, which you might need. But, paying it off early means savings on the interest payments which is also a winner.

So, I think the MAIN question is, do you like the next duty station, and do you want to live there permanantly?

As for getting all of your needs off of the homestead, remember Uncle Sam takes no chickens for the property taxes. No matter how good you are, you will need some cash.

Will you be selling the excess produce? Have you practice in selling? Farmers markets are popular but not all vendors make a profit. Grocery stores are ALSO advertizing that they buy from small local farmers, but that income is mostly in the summer.

If you want an income off of your place, you need to figure out what you need to do to prepare to be in a micro-business. A few homesteaders manage to be self-supporting, and you will have your husbands retirement to help. Whether or not his retirement will cover property taxes, toothbrushes, salt, gas, etc is up to you two!

Good luck!

[NickyBlade]

Thank you MN Gardener! I think that's the best route for us to take, even if we end up paying a little more interest on the car over the next couple of years... at least we'll have 20% (or more depending on the property we decide on) saved for a down payment.

Thank you Terri! Great advice! I hope we like our next duty station... as long as we can grow a garden, we'll be happy! I love farmer's markets. I've never sold at one, but have friends (and this group here) that I could ask for advice. I'm also a photographer and make a few hundred a month online now. If we were desperate, I could always start doing weddings again... if we were starving and desperate! lol.

I really do appreciate all the other advice too, but I think we're a little off track here. The things being mentioned are things we've discussed over the years and have decided on the cheapest lifestyle in return for time together. You make sacrifices in some areas in order to have what you want in other areas. I'm pretty sure DH would rather live in a box than get a job after he retires. lol. We're aware of what the retirement amounts are, the cost of Tricare after retirement, and the cost of the Survivor Benefit Plan. DH will be in his 50s when he retires and he left a great paying civilian job to finish his 20 in the military in order to have that extra 12 years of retirement. I take care of our bills and finances and it's my job to see that he gets those years... which is why I need to be sure I do what I need to in order to get the best rate on a mortgage. Living cheap is easy! We are hillbillies at heart!