How To Get More House For The Money

When my wife and I bought our first house, we were moving from a small one bedroom apartment with a modest rent payment of $475. When we realized that our house payment would be three times what we were originally paying, we had second thoughts about whether or not we wanted to keep looking in that price range. We felt like we could afford the payment, but we did not want to experience what lenders call "payment shock", or having a drastically more expensive housing expense that we are used to.

Underwriters often take payment shock into account when determining whether or not they will approve a loan. If your payment shock is too severe, the underwriter may deny the loan, or the lender may compensate by increasing the interest rate in order to mitigate risk.

One problem with the recent real estat boom in Utah is that desirable homes that were once affordable, are now out of many first time homebuyers' price range. Many buyers fall into this catagory, and if they actually end up buying a house, they are stuck with 3 basic decisions:

• Bite the bullet and buy a more expensive home (while the cons to this approach are evident, some buyers feel it is a decent comprimise to spend a little bit more in order to live in a "comfortable" house).


• Conservatively buy a house with a monthly payment you are comfortable with, instead of making yourself house-poor.


• Do what Tibbs did. Buy a house you really like, for more money than you would like to spend, but cut the mortgage you pay in half.

Our first house was a 2500 sq. foot home with a mother in law apartment. We bought the home for $162,000, had the seller pay closing costs, and rented out the basement for $650 a month. Our mortgage payment turned out to be about $1,250 per month, which means our tenants in the basement were paying more than half of OUR mortgage.

When we moved, we kept the house which is now worth about $220,000 and we are currently able to rent out it out for $1,600 per month. It turned out to be a good investment for us, especially when you consider that we were only technically paying $175 more than we were paying for rent.

For time home buyers, it may be a good option to buy a duplex, or a home with a mother in-law apartment to compensate for the higher housing expense. It worked out well for me

A few duplexes/homes with mother in-law apartments that catch my eye:

MLS#: 786581 List Price: $6,800,000 Tibbs' Price: 6,200,000 Notes: Not a very economical decision, but it did catch my eye. Dang! 6.8 Mill!? Strategy: Avoid financial decisions like this.

MLS#: 805779 List Price:$235,000 Tibbs' Price: 225,000 Notes: Less than $100 per sq. foot. Nice newer home. If you could pick this baby up for 225k, I think it would be a decent deal. Strategy: Primary Residence

MLS#: 796576 List Price: $209,900 Tibbs' Price: $199,779 Notes: Quaint East side rambler for less than 200k, and less than $100 per sq. foot would make this a good deal Strategy: Primary Residence

MLS#: 803511 List Price: $199,900 Tibbs' Price: $187,500 Notes: This big boy is over 3,000 sq. feet. Plenty of room to grow. West Side rambler Strategy: Primary Residence

MLS#: 791824 List Price: $159,900 Tibbs' Price: $150,250 Notes: While this home may be a little ugly, it definitely has some cash flow potential. One unit is currently rented for $1,000 a month, the other for $450. You should be able to get your mortgage to $1,100 a month. Strategy: Investment Property/Primary Residence

MLS#: 791824 List Price: $150,900 Tibbs' Price: $143,250 Notes: If you don't mind living in a small unit, this little guy could work out for you. It has been listed as high as 190k, and I think with the rental market heating up, this would be a really nice property to snag. Strategy: Investment Property/Primary/Fix and Flip