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| geterdoneSIR |
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I'm now 3 years out of college. Got married about a year and a half ago and have a 6 month old son. I have a stable career with a modest income. We don't have a ton saved as we've been trying to pay down debt. But we are tired of renting. It feels like we are throwing money out the window each month. Considering how low interest rates are and the incentives for first time home buyers its almost too good to pass up. Cost of living is cheap here in the Midwest any advice for a first time buyer? Looking to get into a home after the first of the year. . |
| ROB ROB ROB calc |
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i know a guy who bought a townhome (2005) and pretty much regrets it everyday. before you engage any realtor twits(thieves) - google rent-or-buy calculator - it will tell you if it makes any sense at all for you to buy right now. here are some unsolicited tips/reminders: do not buy anything if you have less than 20% for downpayment. you will pay PMI(rent) for YEARS and YEARS. the whole bullsh!t about taking a tax deduction on mortgage interest is basically saying spend a dollar to save a quarter. the after tax net interest paid - RENT. again. property taxes - RENT. ( net after tax deduction ) if you move to a condominium or townhome association - you will have association fees - another RENT ( imho ). you are young, and your career seems stable. what happens if your company is acquired and you are offered a severence package or a relocation? and your house is underwater? it's a freaking nightmare. young people whose primary asset is their labor need to stay as mobile as possible, in case they need to move for a job transfer or opportunity. if you do find a place you must buy ( finance with a mortgage ) - check out the adress on blockshopper.com to see the price history for the past 15 years ( or comps in the neighborhood ). Be careful paying more than what the place was selling for 15 years ago. there is still more bleeding from the collapse of the housing bubble. you should pay off all of your debts and look to save some cash and investment. a home is just a place to live - it is not likely to be a investment that pays off the way it did for previous generations. there are plenty of RENT components in buying a home with a mortgage ( and property taxes, and association fees if its a condo ) that easily surpass the explicit rents of a 1 year apartment lease. |
| Real Estate Professor |
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I would not advise buying RE. It generally is a very poor investment and no one takes into consideration the cost of upkeep/maintenance. You would be much better off renting throughout your adult life. |
| Purple Maize |
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Renting isn't throwing money out the window. It's paying for a place to stay. It also has the benefit of not totally f*cking you over in the event that you lose your job. |
| vintick |
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Some valid points but right now is the best time to buy, interest rates are at the lowest since soldiers were coming back home 60 years ago. If you have a nice saftey stash in case of an emergency and stability in your job I would say look hard, take your time and find a steal. With the amount of foreclosures on the market this is very doable. Do your research first. Goodluck. |
| Was in the Biz |
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Home ownership is completely over-romanticized and misrepresented by those who stand to gain from a ready stream of naive buyers. Between property taxes and maintenance costs, the cost of "ownership," comes close to the cost of renting. Add in the 360 (three hundred sixty) mortgage payments, and it's just a losing proposition. Pay, over and over again, in many ways, and that's called "ownership?" Nonsense. It's a trap, particularly at today's overinflated prices. Take ten hours per week for the next 18 years and teach your son math/science/history, etc. far in advance of what schools teach children his age. Share the world with your children and your family. Worry not about renting. Just don't be one of the fools who have to work those ten extra hours per week to cover the property taxes, insurance and the 360 mortgage payments and risk financial ruin if they lose their jobs. Save 20% of the cost of a home and keep renting. Forever! You will come out far, far ahead, savings, vacations, and time to enjoy life. |
| igiveup |
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Don't listen too hard to all of the haters here. I recently bought a home. Yes, I financially would have been better off staying in the small crappy apartment with the low rent, but it is nice having lots of space and a yard. If I want to paint the walls green, I can do it. There is a freedom and pride to ownership along with all of the responsibility. Think long and hard about what is most important to you. Figure out what neighborhoods might be desirable and affordable for you. Go to open houses, and talk to the agents. No doubt some will try to scoop you up as a client. Find one that melds nicely with your personality. I had to tell a pushy female agent to more or less fuc* off, because there was no way I wanted to work with her. But only think about buying if you are pretty sure you'll be staying in the same area for the next 5+ years. |
| Was in the Biz |
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Mr. igiveup, if you are fairly going to compare owning and renting, then a "small crappy apartment," is you not even making the comparison honestly. What a terrible way to give advice! Do you tell people to eat apples instead of rancid bananas or drive a new Chevy instead of a Mercedes with no steering wheel or brakes? I'm sure you like your home. I like mine too, but it's paid for from a home bought long ago, for which there was no mortgage. I'd never go out and buy one now with 360 mortgage payments in front of me, or advise some other young person to do the same. I'd rent, in a heartbeat. A good rental is a smart way to go, don't use the example of a bad rental to justify the 30 year chains of a mortgage. It's not home "ownership." It's a worse form of renting, with extra costs and far more downside risk. |
| geterdoneSIR |
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Thanks for the replies. Though I must admit I'm as confused as ever. When elders tell me something with the same consistency of advice, as many of you have, I listen. If yall don't advise buying, are you saying rent just for now and buy later or rent forever? At some point 15 or 30 years a mortgage is paid off but rent payments never end. It's hard to know what's best when everything I Google says buy now bc there has never been a better time to buy. If I was to forgo buying for another 3 to 5 years, or longer, will I ever have as good of a chance to get so much house for so little like right now? Ideally we would like to buy a smaller home and do improvements ourself, slowly increasing the value. Really appreciate the advice thus far for those that have been there and done it |
| just some runner |
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My two cents: When I was 25 I was one year out of college, moved several states away from where I grew up, and rented for the first year of a new career. So far, so good. All of a sudden I got the idea that I could & should buy a house. So, in 2008...at the "lowest point the market could be" (sarcasm intended) I bought a townhouse for $135,000 because that is what the bank qualified me for on a 30 year fixed mortgage with my $35,000 year income. Let me tell you...that townhouse was the sh*t. Bamboo floors, granite countertops, stainless steel appliances, huge windows, close to downtown nightlife...for a single, 26 year old guy, I didn't blink at the payment. Two more years passed and I came to a sudden realization that I didn't like my job, I didn't like the state I was living in, and even more pressing was a pending job offer for more money, better benefits, & living where I grew up. Despite loving my bachelor pad that I severely overpaid for, the overall quality of life issue was more important (and rightfully so). So, not wanting to be a long distance landlord, which is never a good idea btw, I had to put the townhouse on the market. I ended up selling that place for under $100k and was lucky to do so. The area was ripe with townhome developments and new construction developers were killing the market with "lowest point the market could be" prices. Talk about a hit to the gut...selling a house after two years, losing over $35,000 and a sweet place to live. Moral of the story: I was young, I got a serious case of house fever, and I bought based on what the bank told me I could buy. Stupid, stupid & stupid. I made $35,000 a year...what the hell was I thinking buying a $135,000 house? If I really was in the mindset of "I have to buy a house" I could have picked up a older & used townhouse or condo for probably $75,000 and probably would have broken even when it was time to sell. Right now I am three years into that new job that ended up being the absolute best thing for my life & lifestyle. I just spend three years renting and saving up a 20% down payment for a second house. I do believe that now is the best time to buy - houses are on sale and interest rates are ridiculously low. I am also of the opinion that house ownership involves pride & something to call your own - I understand the desire to want to buy. The difference between now and then is the price of a home I am considering. I now make $55,000 a year - I will not consider a house that will be more than 25% of my take home pay on a 15 year fixed rate mortgage. If I am completely wrong this time and the housing market gets worse, at least I will be buying something that I realistically can afford (ie, I'm not taking advice from the bank this time) and I am extremely confident in my desire to stay where I am located in my job. So, my message to you as a young buyer: 1) Do not get house fever. There's a house on every corner no matter where you go. 2) Do not overpay for a house. Figure out what 25% of your take home pay is and factor that into a 15 year, fixed rate mortgage. That will ensure you will get a house that you can afford and one you can maintain to afford if times get tough. If you are in your 20's, you won't be buying your dream house. It wont even be close to your dream house. Please take it from my experience that buying your dream house by over extending yourself on a monthly payment will make that house a business transaction you will wish you never approached in the first place. Buy cheap, really cheap, and look at your home and smile knowing that someday you will be able to move up as you are financially able - there will always be a house on every corner. |
| hbhjbjb |
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As someone else said, do a buy vs. rent cost analysis. But do it so that you come up with a monthly cost/SF of of owning vs. renting a comparable home. Factor in everything you can think of in owning (taxes, maintenance, insurance, tax write-off, etc...) Your comparison should be a similar type rental of the home in that market. This should give you an idea if your buying in a overpriced market. |
| Real Estate Professor |
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Well written and a nice lesson for anyone. |
| asdfeee |
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I would advise you to not buy a home. You'll be locked into payments for decades. We're told that home ownership is part of the "American Dream" but it's not for everyone. |
| geterdoneSIR |
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WOW! And this is why I created this thread. What a great response. Thank you for sharing! Like I stated, we are looking to get in a house for under 90k (if we were to buy) and then slowly do renovations ourselves, which me and some friends are very capable of doing. Like you said, it will be far from a dream home, more of a pure investment. We certainly are in no rush at all, in fact we hadn't even planned on starting to look until after the first of the year. I just figured that if we bought something in our price range (much lower than what we qualify for) or buy a foreclosure that it would be a great investment. I hope more people respond, but I will certainly not forget your story and I continue to research if buying would be a smart decision for us. |
| homeownerman |
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I purchased my condo in 2003 for $98,000 with a 4.5% interest rate. I saved up for a down payment of $10,000 plus closing costs. My job at the time paid a gross salary of $34,000/year. The goal was to live frugally and pay off the mortgage in less than 30 years. Fast foward to 2010. I received a couple promotions at the office over the previous several years. My salary went up to $43,000 in 2006 and $51,000 in 2008. I kept a frugal lifestyle and made additional payments against the principal. I paid off the mortgage in 7 years and saved $60,000 in interest by paying it off so quickly. The current market value of my condo is $145,000. The equity will be nice when it comes time for upgrading to a house. I have no regrets about becoming a homeowner vs. renting for the last several years. A lot of good advice has already been offered. I suggest checking out the neighborhood and immediate neighbors on all sides once you find a house. If you and your wife prefer going to bed early, it won't be easy living next to party animals that play loud music into the late night hours. |
| Adam Smith |
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Remember these things: 1. It's your responsibility to figure out what you can afford, what is reasonable, etc. It's no the responsibility of your spouse, parents, friends, trolling online running community, realtor, banker, or title agent to tell you what you should do. Well maybe it is your spouse's responsibility, but regardless. 2. When you sign a loan you are making a promise to pay all of the specified money. Don't sign a loan unless you (a) understand what you are doing and (b) realize the extent of your promise 3. Nobody owes you anything. 4. The "good time to buy," whenever that is, is determined by you and not the market. If you're bored and want a change of pace, go buy furniture, a dog, or a new car. At least you can get rid of these if you grow tired of them. I've bought 2 houses and enjoyed them both. I suppose I've been fortunate with both purchases, and both have fit well within my family's budget. If there's any other advice I can offer, it's this: don't buy crap and don't overextend your budgetary constraints to buy quality. |
| melikey |
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I am in a similar situation as the OP... just starting to look. Until recently, I thought I would not be able to buy a house for another decade plus, but the in-laws are interested in gifting us some money to help with a down payment. I would love to see this discussion continue because there have been some great opinions and thoughts from both the "buy" and "don't buy" side. We have significant student loan debt (and wife may go back to school), but no other debt. Our general thought has been - if we can buy a small cheaper house / cottage (the 700 sq foot cottage we currently rent for $875 / month would go for around $100,000 - 110,000... we'd definitely buy it if we could) with a 20% down payment that may allow us to have a cheaper mortgage than our current rent. Then that would help if my wife goes back to school. I'll look into the cost vs. buy analysis (found one: http://www.nytimes.com/interactive/business/buy-rent-calculator.html) |
| Precious Roy |
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If you can afford a 15 year, do it regardless of whether you have 20 % to put down. The PMI goes away quickly on a 15 year. 3% is too good to pass up. Equity builds quickly too. You won't be underwater if you have to sell in 3-4 years. In 6-7 years, you will have enough equity to do an addition or major renovation. In your 40s you will only pay taxes and upkeep and can use the money to pay for kids college and invest for retirement. A lot of people bought in the bubble and got burned badly by real estate. Don't let their stupidity deter you. Just watch out for the following when you buy: 1. Schools: make sure you are buying into a good school system. Even if you do not have kids, schools drive price a lot of the time. 2. Growth: buy into an area that is up and coming, not an old tired suburb. A lot of cities are seeing a strong resurgence of close in neighborhoods. High gas prices will only make that trend continue. 3. Fads: do not be a sucker for granite countertops and funny looking bathroom sinks. Remodels tend to be overpriced. Buy something that will be liveable for 5-7 years and then have the work done yourself. 4. New construction: the major benefit of new construction is energy efficiency. But do not get caught up in the idea of building a house or buying new. A lot of entry level new construction is garbage that will not last 15 years. Especially in areas with weak building codes, new construction can be a disaster. |
| Lenny McGill |
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Don't buy a house unless you know you are going to be in it for at least five years. Younger people are more transient. If you buy a house and sell it in a year, you're going to lose a lot of money. If you must take a 30 year mortgage, pay ahead anyway and try and knock it out in 15 years. Take an honest look at the calculator which shows total cost of ownership. Interest payments are huge. Don't think of a house as an investment. This is the downfall of many. The payments, interest, taxes, insurance, and upkeep often cost MORE than rent, as is pointed out. Yes, you may get a lot of that money back down the road when you sell it, or you may not. Buy a place because you want to live there, not because you think it is a good investment. Bought my first house at age 29, 11 years ago. Paid $92,000 when my income was around $65,000/year. Got married a couple years ago. House is paid off now (I'm now 40), wife and I have a combined income of north of $130,000 -- no debt. House is now worth $125,000. Life is good. Good luck. |
| Wols |
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Be careful with renting. We got screwed over once more in our last rent that we knew it was time to buy a house. Landlords are getting anal, pinching every penny out of you. Security deposit? In this economy try getting that back. We opted to over-spend on our family home, about $400k in one of the most desireable cities in the area. The guy before us bought it for $426k and we paid $388k. We also decided to do this because this is where we love, we are calling this home. It's our third home and one that we are looking to stay in for the next 8-12+ years, if not longer. If you can buy and it's where you want to live, buy a home and don't rent. But be careful, my career changed three times before landing this career move. If you are young, I would advise holding off until you feel you have your dream job. |
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