A YOUNG North Carolina real estate ace has revealed how she bought her first home at 22 with just $3,000 down.
Emily McAllister now earns $400 a month in passive income profit on the property, but there’s one mistake she wouldn’t make again.
3Emily McAllister is a young North Carolina real estate aceCredit: Emily McAllister
3She bought her first rental property aged 22 with just $3,000 of her own moneyCredit: Emily McAllister
3The cozy pad now brings in $1,100 a month in rental incomeCredit: Emily McAllister
ABOUT EMILY
Emily is a 25-year-old real estate agent from Greenville, North Carolina who now has an impressive portfolio of three rental properties under her belt.
She got started with her very first house aged 22, which she lived in for one year, and now rents out for $1,110 a month.
“I always knew that I wanted to own something,” Emily told The U.S. Sun during an exclusive interview. “I wanted something that belonged 100 percent to me and to have the freedom to do whatever I wanted to a property.”
The young realtor began eyeing up her first property of her own when she was 22 and was renting one side of a duplex.
THE PROPERTY
On the other side of the duplex, Emily had neighbors from hell.
“They were very loud and very destructive. Constantly causing problems, in the street fighting with each other, banging on the door late at night, screaming and hollering,” she recalled.
Emily, who had now been working full time for two years, decided to ask the landlord if he would consider selling the property to her off-market.
That way, not only would Emily own her first ever home, but she’d also get rid of her nightmare neighbors,
The property was a two bed, two bath, and had a backyard and a front yard.
Emily agreed a price of $63,000 with the seller, which she says was slightly below market value.
THE FINANCIALS
Instead of taking out a typical mortgage, Emily opted for a Federal Housing Administration loan, better known as an FHA loan.
These government-backed mortgages can have an easier approval threshold for those with poor credit history, and are popular because they require just a 3.5 percent down payment.
Although Emily had good credit and a good financial history, she used an FHA loan so she could also take advantage of the North Carolina Down Payment assistance program.
At the time, this program gave forgivable grants of up to $8,000 towards closing costs and down payment.
Overall, Emily put just $1,890 down for the house, and used $2,200 of the down payment assistance money towards the closing costs and down payment.
The closing costs were around $5,000, of which the seller covered $2,000.
Overall, her out of pocket costs were reduced to approximately $3,090.
PROS AND CONS
One of the biggest downsides of an FHA loan is that it requires the loan holder to take out private mortgage insurance (PMI) for the lifetime of the loan.
FHA loans also typically have higher interest rates.
“Looking back I don’t know if it was necessarily worth the higher interest rate,” said Emily, who used an FHA loan in order to access the NC Down Payment Assistance.
‘Personally, I’m not a huge fan of the FHA loan. I can understand why they are desirable, because there is a consumer misconception that there’s a lower down payment associated with FHA mortgages.
“A lot of people make the incorrect assumption that in order to get a conventional loan you have to have 10 or 20 percent down, and that is not the case.”
Emily continued: “If you qualify, if you meet the income requirement for a conventional first-time home buyer product, then it’s only a three percent down payment, whereas FHA is three and a half percent down payment.
“Then with a conventional loan, your PMI is going to drop off after you meet 80 percent of the land value of the loan. FHA has PMI for the life of the loan – that’s really my biggest qualm with the FHA loan.”
However, if you have poor credit, the rate pricing and threshold to be accepted for an FHA loan is lower.
“That’s the appeal for most people,” said Emily. “If you’re on the cusp of qualifying, FHA is going to be the cheaper route.”
However, Emily advises talking to a loan officer about your particular circumstances before taking out any loan product.
GETTING SHIPSHAPE
Emily had to make some important repairs to her property before it could be rented out.
“I immediately started taking stuff apart,” said Emily. “Anytime you go into a property that hasn’t been taken super well taken care of, you find some wonky stuff.”
But as is required by an FHA loan, Emily lived there for one year, while carrying out the work at a slow, steady pace.
She had her dad, stepdad, and grandad help with the repair tasks, which included painting everything, laying new flooring, and laying new countertops.
The total renovation bill came to around $11,000 over the course of 12 months.
After a year, the property was ready for tenants to move in, and the home has been rented out ever since.
Emily takes $1,100 a month in rent on the property.
Her mortgage and insurance costs are between $700 and $750 a month, giving her $350 to $400 a month passive income.
WHERE EMILY IS NOW
Emily has since built on her first rental property and acquired another two, which she rents out for $1,500 and $1,700 each month.
“At this point I have enough passive income through my three rental properties that I’ll be in a position to buy a fourth, using strictly through the funds that have been generated by these properties.”
As someone who did it at 22, Emily has some advice for young people looking to buy their first home.
TIPS FOR FIRST-TIME BUYERS
“Being cash heavy is really important,” she said. “You should keep your expenses as low as possible.”
Emily particularly advises not buying a car with a high monthly payment, as this can prevent you from having extra cash to save up.
“I just didn’t do that,” she said. “I felt like that was silly.
“That allowed me to be able to save more cash to put down on this property.”
DOWN PAYMENT ASSISTANCE PROGRAMS
Before you apply for a mortgage, it is worth checking to see if there are down payment assistance programs available for which you are eligible.
For example, The USDA Single Family Housing Direct Home Loan is one program that offers 100 percent financing for low-income buyers with no down payment required.
Meanwhile, Veteran Affairs (VA) loans are for current and veteran military service members and eligible surviving spouses.
It’s also worth doing a Google search for local down payment assistance programs, which are available in almost every state.
Another real estate expert spoke to The U.S. Sun and shared her top three tips to buy a house with little or no money down.
And see five money hacks to help you both before and after you buy your first home.
https://www.the-sun.com/money/8427461/first-time-mortgage-fha-loan-down-payment/
