rent or buy? how to buy?

lpavlas

Hello all! My husband and I have been married since july 6 and just got back from our honeymoon. for the last couple months we've been debating whether or not to buy or rent. In the beginning I wanted to rent, and he wanted to buy, but now that it's getting down to making a decision, I want to buy and he wants to rent. We both have jobs and don't really plan on leaving our area, unless an amazing job opportunity presents itself, such as double the pay in a beautiful place. We eventually want to move to the country when we have kids/they start school, so we plan on staying in the same area for at least 3 years. our reasoning for buying: so we wont have to move every month we don't have rules we can update it to get more money back when we sell have as many pets as we want have a large area to host parties, holidays, family events most importantly...have a place to call home! our reasoning for renting: save more money not tied down don't have to pay for repairs I am new to the home buying process and need advice from someone other than my parents. Someone who will be honest. I don't know how much we would be approved for, cause I don't even know how to go about doing that. I know I have very good credit, and my husband has good credit. How much is needed for a down payment? Ive seen anything from 5% - 20%. I've also seen those newer homes with zero down, but was advised to stay away from those homes. Any tips or advice would be greatly appreciated!

musictchr25

Here's an easy way to find out how much you can afford.  Add up all of your monthly expenses minus rent, but including utilities and bills, because you will have those in your new home.  Add up how much you and your husband make each month.  Figure out how much extra money you want to have for spending each month, and then how much you want to put into savings.  The rest would be what you feel you are comfortable at spending per month on a mortgage.  Chances are it's similar to what you are paying in rent, but this would give you your maximum amount to spend per month based on your income and spending habits.  The bank may approve you for more based on your credit scores and your debt-to-income ratios, but you need to decide on what you and your husband want to spend.

Once you have a number, check out a mortgage calculator and they will tell you what price you can spend on a house, and how much down payment you would need to have 20% down.  Keep in mind that if you have less than 20% down for your down payment, PMI will be added to your monthly mortgage payments, which increase the amount by anywhere from $80-$400.   

MommyLiberty5013

Find yourself a recent copy of Home Buying for Dummies at your library or buy at a bookstore.

The generally accepted perspective now is to not buy unless you plan on living in the home for at least 10 years. Based on what you have written in your post (wanting to move within 3-5 years), this means you should rent for now.

Costs of home ownership are more than just a mortgage payment. You will have homeowners insurance, property taxes, repairs, maintenance, and the added costs of decorating and buying supplies as well as buying things like hoses and a lawn mower, which add up quickly. You are absolutely correct to pay attention to the freedom you have with renting.

The idea that you will get more money back when you sell a home isn't always true. And, that probably shouldn't be factored into your decision for buying or not buying. It is possible to sell a home at a profit - but still, in most home sales markets nationwide, this is still a buyers' market meaning that sellers are taking loses or breaking even (if they are lucky). Buying a home and expecting to recoup costs of upgrades and updates in only a few short years probably is unlikely.

Having a down payment will get you a lower interest rate and will make you more favorable to lenders. If you do not have at least 20% you will be required to pay PMI for a set duration of your loan (if you go a conventional loan route). If you go a government loan route, like FHA, you can put less down, but you will pay PMI for the entire mortgage period if you do less than 10% for a down payment (this is a new rule as of June 2013).

To figure out how much home you can afford you need to have a detailed perspective on your budget. How much you earn and how much you spend.

You may also wish to budget your home purchase based on one salary instead of two, that way if one of you decides to SAH, you aren't totally strapped. Or, if one of you loses a job or if one of you wants to put all his/her earnings into savings, you have flexibility. 

The generally accepted rules for home costs are:

If you live in a low to mid cost of living area 25-28% of your take home pay. In a high cost of living area, 30% of your take home pay.

Take home pay is your income after taxes, health insurance and any automatic retirement savings are deducted.

Your monthly housing costs are made up of your mortgage payment (interest and principle), property taxes, home owner's insurance, and major utilities (gas, water, sewer, trash and electric).

So if you have annual take home income of $60k...

...at 25% that's housing cost per month of $1,250.

...at 28% that's $1,400.

...at 30% that's $1,500.

 

 

 

 

Sisugal

You do NOT want to buy if you are only going to be in the area for 3 years.

Right now get  your finances in order.  Pay off consumer debt, keep your credit useage no more than 15% of allowable limits.  Save a 6 month's expenses emergency fund, a 20% down payment for best interest rates, closing costs, inspection, moving costs, utility deposits, repairs/renovations, decorating, furniture/appliances, yard items, tools/ladders, and a ton of misc.  This is not something you want to do unprepared financially.

You cannot count on your home increasing in value.

General rule of thumb is housing costs (mortgage+PMI+utilities+insurance+taxes+hoa) should not be more than 25-28% of your TAKEHOME pay.  30-35% in a HCOL area.  More than that (which many lenders will allow) can easily make you house poor.

Track your expenses so you have a clear picture of what your expenses are before you make this move.

Ditto the recommendation on the Dummies books.

gnc0988

Renting sounds like a good option for u if you only plan on staying for 3 years or so. We were in the same dilemma and talked my husband into renting while we got our money in order and saved up for a new car, furniture, paid of debts and improved our credit. We don't want to move again after we buy our house so this next move will be it for us. Hopefully our Mortage will be less than our rent ($925, which is pretty high for this area) and it'll be OURS so we can do whatever we want with it. Have either of u lived on your own before? I would keep renting before taking on such a responsibility of owning, give yourselves time to really narrow down what u really need in a home vs want 

mcskatcat

I think if you both aren't totally convinced you should be buying.... then you definitely should not be buying.  Buying a home is a long-term investment, and not one to be taken lightly.  I would really consider renting for at least another year and in that time you can start really getting your finances together - figuring out what you can afford, start looking at houses to see what you can get for the $$ in your area.  

 I also agree with the PP that said you definitely shouldn't buy if you're wanting it for a short-term.  We have had our house 3 years and we are moving suddenly, but getting rid of the house has been one huge headache on our to-do list before getting out of town.  I would really not recommend our situation to anyone else, so if you think that what you want in a home is going to change - I would definitely wait it out.  

Another thought would be to try renting a home - that way you can see how much work goes into maintaining a home!  This part of home ownership is a big wakeup call for a lot of folks.  Even squeezing in the yardwork every week is a hassle, let alone taking off work for contractors or when you have an emergency at home.  Make sure you fully understand the responsibilities that come with home ownership before you consider it, because I definitely believe that while there are perks to home ownership, there is definitely a list of drawbacks as well.   

court115

My husband and I bought our home 3.5 years ago and are quickly outgrowing it so it is on the market. If we sell for our asking price, we will break even and that's after we put about $15k in updates into it. We are fully prepared to have to bring a couple thousand to the settlement table when we do sell because we're very doubtful that we'll get our asking price with no settlement help.

That being said, I know that I'm an Internet stranger, but learn from our mistake and rent for now! I wish we had rented for at least a year longer.