Long Term Renting Question

PurpleBookmark · November 2015

We are a family of 5 and currently live in a 2-bedroom townhouse style apartment. We absolutely love it here and would happily live here for decades to come - except with 3 small children a 2 bedroom isn't going to work forever. With one boy and two girls we are looking to move to a three bedroom apartment in the next 2-3 years. We have found a few nice options and will probably be paying roughly $1300/month.

Our main reason for wanting to rent is freedom from paying for repairs and huge maintenance issues that a home can bring. I used to work in real estate law offices and I heard so many horror stories. Even our friends and family seem to deal with costly issues - totally understandable as that's part of home ownership but thinking of a sudden $10k roof repair literally makes me nauseous. DH is also not a fan of buying a house.

But - we are seriously looking to find a place to settle down until retirement or later - so like 30 years! Is being a life-long renter a bad idea? I know we could own in neighboring areas for much less than $1300 but of course the mortgage and taxes are just one part of the expenses of owning. Do you need to contribute more money to retirement if you don't have a house as an asset? Does it just make more financial sense to own if you're staying put for so long?

I feel like we're the only people we know either not in a house or saving for a house - in our situation is it silly to rent long term?

julieanne912 · November 2015

For long term, I think life-long renting is a bad idea, especially since you're not in a place like NYC or SF where you have rent control.

Owning does have it's risks for sure, but so does renting. What happens if you're renting a house, and you're there 10+ years and the owner decides to sell it? Then you'd have to start all over again. Or what if the rental prices skyrocket in your area, and your landlord raises your rent by hundreds of dollars when your lease is up? That has been happening here in the Denver metro area... rents in some areas have doubled in a matter of a few years. At least with a mortgage, it's pretty much a set amount. The only variables in a monthly payment are taxes and insurance.

Also think about it, say you rent for $1300 for the next 30 years, that's $468,000. That's a HUGE amount of money to put into something you have nothing to show for at the end of it. If that same $1300 is going towards a mortgage, yes, you're paying interest (which is tax deductible btw), but after the 30 years are up, you have a huge asset you can either stay in with no cost other than taxes and maintenance, or you can sell it and keep the cash to live on in retirement.

In my opinion the ONLY time renting makes sense is if you aren't sure if you want to stay in the area, or you have credit issues that prevent you from owning.

As for being scared of repairs... it's not very often do huge repairs just appear out of nowhere. If you are good at maintaining your home, you can plan for something like a roof replacement, or sewer line issues, or whatever. For us, we purchased a brand new home, so we know we don't have to do any major repairs for awhile. If something nature related happens (like hail storms are big here), then our homeowners insurance covers that cost, minus the deductible. Keep in mind that the stories you saw at work are very unusual.... a very small percentage of homes have catastrophic repairs that aren't covered by insurance. When buying, get a good home inspection.

You mention you can own for less than you pay in rent. What about if you ended up buying a house and your all-in mortgage (with taxes and insurance) was say, $900. You could take that extra $400 you're used to paying, and put it into a "home repair" fund. That way you aren't completely blindsided by a costly repair.

You can also look into buying a townhome or condo, since most of those have all the exterior issues covered by the HOA... so exterior painting, landscaping, roof. That way your HOA that you pay into covers those, versus you having to come up with the money yourself. You'd only be responsible for fixing things inside.

bmo88 · November 2015

PurpleBookmark:

I think it depends on preference and affordability. Personally, we own our home because of the ability to do what we want with the house, to have a long term asset and have more stability. However, owning a home can be very expensive, tie you down and be a hassle. I know people who absolutely hate owning and others who love it.

If you want to rent long term, then go for it. Try to find a place you can afford, really enjoy and works for you. Don't be pressured into buying if it isn't for you.

I would suggest doing your research, consider your options and really understand your choice. Maybe you have justified concerns or maybe they are just invalidated fears. You won't know until you look into it. You might find home ownership isn't all that bad or it's the last thing you ever want to do.

The worst thing you can do is make a decision you aren't comfortable with because others told you should do it. Long term, owning might be better financially for you, but it may cause you a lot of stress, anxiety or frustration. That isn't good for your health or your lifestyle.

As individuals, we make financial and lifestyle decisions every day. If you can afford your choice and you can sleep at night with the decision, then I would suggest you do what works for you.

Edit: Disclaimer--We don't like home repairs or renovations, so we bought a new build. It was actually cheaper than a previously owned home because we moved to the outskirts of our city right before the real estate boom in Colorado. Our same home now costs $45,000 more than it did 1.5 year ago when we closed on it. But with our warranties and having newer appliances, we should be able to avoid major expenses for awhile.

short+sassy · November 2015

Although I agree with @julieanne912 that buying a home makes the most financial sense when you know you aren't planning to move, at the same time, if it isn't your cup of tea...it isn't your cup of tea. Just keep in mind that, over the course of time, you are paying for the convenience of having a landlord responsible for home repairs, insurance, property tax and all the other slew of stuff that comes with home ownership.

Keeping in mind that $1300/month now, might be $2,000/month ten years from now. Rents won't stay at a stabilized amount the way a mortgage does.

If you all decide to stay long term renters, you definitely need to keep that in mind for your retirement plans. I'm guessing that most retirees own a house free and clear, which is what often makes retirement possible because expenses are less.

On the plus side, being a renter gives a lot more flexibility versus a homeowner. If you're nice neighborhood starts getting sketchy/seedy, it's easy to move. If your kids grow up and all move across the country, you can easily move also (if you wish).

I belong to a real estate investing website that has a huge forum. Believe it or not, there are LOTS of people who rent the same place for crazy long times. Some of the posters on there have had the same tenants in some of their houses for 20, 30 years.

Heck, there was one story where the tenant had outlived the owner and then rented from the heirs. He was renting the same house for over 50 years. But now the bad part, the post I read this in was the current owner asking for advice on how to best handle asking (plus helping) this 90-year-old man leave the house. Because the heirs had gotten to a point where they wanted to fix the house up and sell it, instead of renting it.

If you do decide to rent long-term in a few years, use that to your advantage. I'm a landlady and, take it from me, the worst part of owning a rental is the tenant turnover. It's costly and its a PITA. I bet a lot of landlord's would agree to lowering the rent by $50/month if you are willing to sign a 2-year lease. I know I would.

It's also appropriate to let your prospective landlord know that you are looking for a long-term rental and ask questions such as how long they have owned the house and if they have any plans to sell within the next 5 years.

For example, my last tenant was just starting medical school and...before we even signed a lease...he made it very clear to me that it was important to him to rent a place for the entire time he would be in med school. That was music to my ears and I assured him I had no plans to sell the house in that time and would probably still be living there myself. Unfortunately, him and his g/f broke up after about a year and so he only stayed for 13 months .

hoffse · November 2015

I agree that it's probably silly to rent forever. Something to consider is that mortgages are very often cheaper than rent per dollar, especially in desirable areas. For instance, our brand new associate is renting, and he is paying $700/month more in rent for a 2 bed/2 bath apartment than H and I pay for our mortgage on a house with 4 beds, 3 baths, and 2900 total finished square feet. That's an $8400/year difference. Over a 30 year mortgage, assuming no rent increase, that's an extra $252,000.

If you plan to continue renting you will need to account for this cost in your retirement planning. Many retirement calculators assume you are going to retire without a mortgage (or rent payment) and your ongoing housing expenses will be limited to property taxes, insurance, maybe an HOA, and routine maintenance. That sounds like a long list, but it works out to be MUCH less than paying rent forever.

As for repairs, I agree with PP on those 100%. A lot of people spend a lot of money on house stuff, but quite frankly, much of it is discretionary. H and I have spent tens of thousands of dollars on our house in the past year, but we have only had one true out of pocket emergency that cost more than $100. This was when our water heater died and needed to be replaced. BUT like PP said, it was something we could anticipate. In fact, our inspector picked up on its age and said it was only a matter of time before it died. So we got a concession from the seller for it. We also know to expect our A/C to die, and we have money set aside for when that happens. Our roof is new and should last us for the time we are in this house. Our water line could burst because the house is old, but we pay $5/month for water line insurance to cover that possibility. If it happens, it will suck, but we will be reimbursed for it by insurance.

And yes, a new build will buy you many years of low (or no) maintenance living. Most new builds are designed to have at least 10 years of virtually no maintenance, often longer. Condos are even lower maintenance because your HOA is going to cover the exterior bits of the building, and you are only responsible for the interior.

PurpleBookmark · November 2015

@julieanne912 I really like the idea of saving the difference in a home repair fund, that would probably help me feel more comfortable.

Thank you for all of your experience, we definitely have a lot to think about. Retiring with a rent payment and no home to sell or live in is not ideal. I also cringe at the thought of a situation like @short+sassy with losing a home after renting 50 years.

@bmo88 I do know a lot of people that seem to resent owning, although they are probably just venting since none of them are actually selling and becoming renters. I like your point of view, we definitely need to figure out what works best for the family and gives us peace.

@hoffse that's a good point about a lot of repairs being discretionary. It also sounds like a good inspection is helpful to anticipate what to save for.

dragonstarjk · November 2015

Totally agree with everything @julianne and others have said. I mean, I definitely don't think you should buy if you guys just really don't feel comfortable with it, but that huge chunk of change staring you down when you pay off the house is too big to ignore, in my opinion. If you continue just renting, that money is just gone--no investment, no assets.

Also agree that a lot of large expenses are discretionary. Even some things people say they 'need' might not really be needs. We didn't 'need' a new bathroom; our fixtures functioned properly. However, the bathroom was a trainwreck with peeling walls and all sorts of nastiness, so we remodeled the bathroom when we bought our house. Still, this wasn't a 'need'. I'd say the only things we have HAD to spend money on would be appliances as they have died, and occasional furnace repairs (because it gets too cold here not to have heat!). If you decide to buy, starting an account just for home repairs/improvements would be a grand idea.

Xstatic3333 · November 2015

OP, have you considered condo ownership? My parents hate home projects and repairs, so they are lifelong condo people. The condo I grew up in had the square footage of a single family without the worry of exterior maintenance of any sort. It doesn't remove all risk, but a good portion of it falls to the condo association.

PurpleBookmark · November 2015

Xstatic3333 said:
OP, have you considered condo ownership? My parents hate home projects and repairs, so they are lifelong condo people. The condo I grew up in had the square footage of a single family without the worry of exterior maintenance of any sort. It doesn't remove all risk, but a good portion of it falls to the condo association.

I would definitely consider it if we could find one big enough. I've mostly seen 2 bedroom units in our area but I've also only casually looked at real estate online. I wonder if a townhouse would be easier too?

abrewer5 · November 2015

I agree with PP about putting the difference between rent and mortgage in a savings account each month to cover any home repairs if you decide to buy. In my neighborhood houses rent for $1400-1500, but our mortgage with taxes and insurance is $1150. That's an extra $3000-4200 people pay to rent per year. If you put that money into a savings account it would easily cover home repairs, plus you get the added benefit of being able to write off your insurance.

If you decide owning a home isn't for you, then I would definitely consider looking at your retirement contributions to make sure you could live comfortably in retirement with your current expenses plus any additional expenses for traveling. You may need to be contribute more, but that's ok owning a home isn't for everyone.

I think the majority of 'horror' stories we hear about owning a home are just people venting. A roof repair/replacement is no surprise. You know when something like that is coming unless a tree falls thru it, and then insurance would most likely cover it. Stuff happens and that's all part of ownership but I would say the majority of the time owning a home has been great,

Good luck in your decision! And definitely do what is most comfortable for your family, not what other people would do.

cbee817 · November 2015

hoffse said:

I agree that it's probably silly to rent forever. Something to consider is that mortgages are very often cheaper than rent per dollar, especially in desirable areas. For instance, our brand new associate is renting, and he is paying $700/month more in rent for a 2 bed/2 bath apartment than H and I pay for our mortgage on a house with 4 beds, 3 baths, and 2900 total finished square feet. That's an $8400/year difference. Over a 30 year mortgage, assuming no rent increase, that's an extra $252,000.

If you plan to continue renting you will need to account for this cost in your retirement planning. Many retirement calculators assume you are going to retire without a mortgage (or rent payment) and your ongoing housing expenses will be limited to property taxes, insurance, maybe an HOA, and routine maintenance. That sounds like a long list, but it works out to be MUCH less than paying rent forever.

As for repairs, I agree with PP on those 100%. A lot of people spend a lot of money on house stuff, but quite frankly, much of it is discretionary. H and I have spent tens of thousands of dollars on our house in the past year, but we have only had one true out of pocket emergency that cost more than $100. This was when our water heater died and needed to be replaced. BUT like PP said, it was something we could anticipate. In fact, our inspector picked up on its age and said it was only a matter of time before it died. So we got a concession from the seller for it. We also know to expect our A/C to die, and we have money set aside for when that happens. Our roof is new and should last us for the time we are in this house. Our water line could burst because the house is old, but we pay $5/month for water line insurance to cover that possibility. If it happens, it will suck, but we will be reimbursed for it by insurance.

And yes, a new build will buy you many years of low (or no) maintenance living. Most new builds are designed to have at least 10 years of virtually no maintenance, often longer. Condos are even lower maintenance because your HOA is going to cover the exterior bits of the building, and you are only responsible for the interior.

This is the opposite for us actually- our clay tile sewer pipe partially collapsed a few days after Thanksgiving last year and we had an emergency $8,200 repair bill after it was fixed on December 4th. We put it on a 0% credit card and I'm making the last $700 payment next month. We had the cash for it, but we decided to use the financing option instead. Our home is older- build in 1930's so the sewer lines are much different than a neighborhood built in the 1980's and newer. We've also had to replace our furnace, roof, HWT, and replace quite a bit of plumbing from galvanized/cast iron to copper/PEX. It's a pain for sure, but the house is in great shape (we've also gutted the kitchen and plan on gutting the upstairs bathroom in a few months) and it will sell fast when we do decide to move.

jtmh2012 · November 2015

I want to start off saying that home ownership isn't for everybody. Some prefer renting and there's nothing wrong with that. As others have said, even owning has various levels with varying levels of responsibility (single family houses, townhomes, condos, etc).

That said, I think a lot of the horror stories come from poor planning. A home purchase should be a "business" decision. Don't just go look at houses and go "omg, I love this house!" and buy it. Yes, you should love your house. But look at the cost of the house, the neighborhood, the current condition of the house. Too many people in my opinion don't consider these and then get surprised when there shouldn't be any surprise. A roof eventually needs replaced. Your HVAC will eventually need to be replaced. Hot water heaters will die. This is normal, but it doesn't happen every day. I've had all of these happen in the 12 years I've owned homes, but they weren't life altering events. Why? Because I bought less house than I could afford. I put money away in an emergency fund. I knew eventually these repairs would have to be done. Even with a brand new house, if you're talking 20-30 yrs of ownership, this stuff still needs done, but it may be 10 yrs down the road. Save for it.

And just another note, while I don't think you should own for short-term stays, I don't see home ownership as inflexible as most people make it sound. A properly priced house in a good area will sell in any market and will sell quickly. The key there is properly priced. That doesn't mean what you think you should get for it nor does it guarantee you'll get enough to pay off the mortgage.

jtmh2012 · November 2015

short+sassy said:

I belong to a real estate investing website that has a huge forum. Believe it or not, there are LOTS of people who rent the same place for crazy long times. Some of the posters on there have had the same tenants in some of their houses for 20, 30 years.

If you don't mind my asking, could you share the link to the forum?

als1982 · November 2015

I agree that homeownership isn't for everyone, but if you do go that route, I would absolutely look into a 15 year loan versus a 30. The amount of interest you'll save is staggering. There is no way we will ever go back to a loan that long.

PurpleBookmark · November 2015

als1982 said:
I agree that homeownership isn't for everyone, but if you do go that route, I would absolutely look into a 15 year loan versus a 30. The amount of interest you'll save is staggering. There is no way we will ever go back to a loan that long.

I've heard that's the way to go, if we end up purchasing we'll have to look at our mortgage options. One of the firms I worked at represented a bank for their mortgage closings and it was amazing the difference a 15 year term made.

vlagrl29 · November 2015

personally I would not rent forever. I bought this home that we are currently in brand new. Its 10 years old and the only repairs we've had thus far are some minor air conditioning repair, a sump pump that gave out and a minor dishwasher repair. We did just notice last night that the seals on the windows in the basement are leaking now.

You eventually pay a house off - you never have that with renting.

julieanne912 · November 2015

PurpleBookmark said:

OP, have you considered condo ownership? My parents hate home projects and repairs, so they are lifelong condo people. The condo I grew up in had the square footage of a single family without the worry of exterior maintenance of any sort. It doesn't remove all risk, but a good portion of it falls to the condo association.
I would definitely consider it if we could find one big enough. I've mostly seen 2 bedroom units in our area but I've also only casually looked at real estate online. I wonder if a townhouse would be easier too?

It depends on the type of townhouse.

Some townhouses are owned just like a condo, meaning, all you really own is the the airspace from the drywall, in, and you also own a percentage of all of the common elements (ie yards, driveways, sidewalks, plumbing, parking areas, roof, pool, etc.). In this kind of townhome, it's really important to make sure the HOA has good financials, that way you aren't stuck paying for a special assessment to cover repairs to one of the common elements. Generally with newer townhomes/condos, they don't have the reserves built up to a level that can cover major repairs.

Other townhomes are owned like a single family... meaning you own the actual building and the land it sits on. There may still be an HOA that maintains all the common elements (again driveways, parking lots, pools, etc) and has rules for exterior paint colors, roof type, yard etc. But, if something happens to your portion of the building, you end up paying for it.

I owned an actual condo (not a townhouse) and shortly after I sold, the HOA had to do a special assessment to do roof repairs to the building... I heard it was around $2,000 for my unit. So, not as much as paying for a roof on a house, but still a surprise, especially since the HOA dues were around $150 a month already. That's the downside of condo ownership... you're basically relying on other people to maintain the building and the financials....and they may not always do the right thing.

cbee817 · November 2015

julieanne912 said:

PurpleBookmark said:

OP, have you considered condo ownership? My parents hate home projects and repairs, so they are lifelong condo people. The condo I grew up in had the square footage of a single family without the worry of exterior maintenance of any sort. It doesn't remove all risk, but a good portion of it falls to the condo association.
I would definitely consider it if we could find one big enough. I've mostly seen 2 bedroom units in our area but I've also only casually looked at real estate online. I wonder if a townhouse would be easier too?

It depends on the type of townhouse.

Some townhouses are owned just like a condo, meaning, all you really own is the the airspace from the drywall, in, and you also own a percentage of all of the common elements (ie yards, driveways, sidewalks, plumbing, parking areas, roof, pool, etc.). In this kind of townhome, it's really important to make sure the HOA has good financials, that way you aren't stuck paying for a special assessment to cover repairs to one of the common elements. Generally with newer townhomes/condos, they don't have the reserves built up to a level that can cover major repairs.

Other townhomes are owned like a single family... meaning you own the actual building and the land it sits on. There may still be an HOA that maintains all the common elements (again driveways, parking lots, pools, etc) and has rules for exterior paint colors, roof type, yard etc. But, if something happens to your portion of the building, you end up paying for it.

I owned an actual condo (not a townhouse) and shortly after I sold, the HOA had to do a special assessment to do roof repairs to the building... I heard it was around $2,000 for my unit. So, not as much as paying for a roof on a house, but still a surprise, especially since the HOA dues were around $150 a month already. That's the downside of condo ownership... you're basically relying on other people to maintain the building and the financials....and they may not always do the right thing.

This exactly- I bought a condo back in 2004 and everything was great until water started seeping into a corner of my bedroom and soaking the carpet, pad, and sub floor. It took months for the roof to be fixed properly and to get reimbursed for replacing the carpet once the roof was fixed. I did not like relying on someone else to fix my home- that part definitely frustrated me. By the time I sold the unit in 2007, the HOA was in much better financial shape and had a management company that oversaw everything.

abrewer5 · November 2015

julieanne912 said:

PurpleBookmark said:

OP, have you considered condo ownership? My parents hate home projects and repairs, so they are lifelong condo people. The condo I grew up in had the square footage of a single family without the worry of exterior maintenance of any sort. It doesn't remove all risk, but a good portion of it falls to the condo association.
I would definitely consider it if we could find one big enough. I've mostly seen 2 bedroom units in our area but I've also only casually looked at real estate online. I wonder if a townhouse would be easier too?
It depends on the type of townhouse.

Some townhouses are owned just like a condo, meaning, all you really own is the the airspace from the drywall, in, and you also own a percentage of all of the common elements (ie yards, driveways, sidewalks, plumbing, parking areas, roof, pool, etc.). In this kind of townhome, it's really important to make sure the HOA has good financials, that way you aren't stuck paying for a special assessment to cover repairs to one of the common elements. Generally with newer townhomes/condos, they don't have the reserves built up to a level that can cover major repairs.

Other townhomes are owned like a single family... meaning you own the actual building and the land it sits on. There may still be an HOA that maintains all the common elements (again driveways, parking lots, pools, etc) and has rules for exterior paint colors, roof type, yard etc. But, if something happens to your portion of the building, you end up paying for it.

I owned an actual condo (not a townhouse) and shortly after I sold, the HOA had to do a special assessment to do roof repairs to the building... I heard it was around $2,000 for my unit. So, not as much as paying for a roof on a house, but still a surprise, especially since the HOA dues were around $150 a month already. That's the downside of condo ownership... you're basically relying on other people to maintain the building and the financials....and they may not always do the right thing.

I second this. I live in a townhouse with an HOA but the dues are fairly cheap $105 a quarter so they do not cover any siding, roof, decking, etc. That's our responsibility. Also, if I had to do it over again I would not get a house with an HOA. Just my personal preference but I haven't really figured out what exactly we pay for other than someone to cut the grass on the common areas only. Snow removal is scarce in the winter and usually they come by way after it's iced over already, so it's pointless. And they don't remove snow from the main sidewalk either, we have to. Then again if you want a condo or townhouse you're pretty much guaranteed to have an HOA, at least in my area that's how it is.

bmo88 · November 2015

PurpleBookmark said:

I agree that homeownership isn't for everyone, but if you do go that route, I would absolutely look into a 15 year loan versus a 30. The amount of interest you'll save is staggering. There is no way we will ever go back to a loan that long.
I've heard that's the way to go, if we end up purchasing we'll have to look at our mortgage options. One of the firms I worked at represented a bank for their mortgage closings and it was amazing the difference a 15 year term made.

Depending on your situation and ability to stick to a plan, I would actually recommend a 30 or 20 year loan and then pay extra so it is gone after 15 years. You will still save thousands in interest, but it will give you flexibility in the event you need more cash flow or get in a tough spot.

short+sassy · November 2015

jtmh2012 said:

short+sassy said:

I belong to a real estate investing website that has a huge forum. Believe it or not, there are LOTS of people who rent the same place for crazy long times. Some of the posters on there have had the same tenants in some of their houses for 20, 30 years.
If you don't mind my asking, could you share the link to the forum?

The name of the website is Bigger Pockets and their web address is:

www.biggerpockets.com

I think you can search and read the forums without signing up, but registration is free anyway. Although BP will send occasional e-mails, they are not obnoxious about it. And they don't sell your info to anyone. At least I've never received spam e-mail about real estate.

als1982 · November 2015

bmo88 said:

PurpleBookmark said:

als1982 said:
I agree that homeownership isn't for everyone, but if you do go that route, I would absolutely look into a 15 year loan versus a 30. The amount of interest you'll save is staggering. There is no way we will ever go back to a loan that long.
I've heard that's the way to go, if we end up purchasing we'll have to look at our mortgage options. One of the firms I worked at represented a bank for their mortgage closings and it was amazing the difference a 15 year term made.

Depending on your situation and ability to stick to a plan, I would actually recommend a 30 or 20 year loan and then pay extra so it is gone after 15 years. You will still save thousands in interest, but it will give you flexibility in the event you need more cash flow or get in a tough spot.

IMO if you have to have a 30 year mortgage to afford a home, you're buying too much house.

julieanne912 · November 2015

als1982 said:

PurpleBookmark said:

I agree that homeownership isn't for everyone, but if you do go that route, I would absolutely look into a 15 year loan versus a 30. The amount of interest you'll save is staggering. There is no way we will ever go back to a loan that long.
I've heard that's the way to go, if we end up purchasing we'll have to look at our mortgage options. One of the firms I worked at represented a bank for their mortgage closings and it was amazing the difference a 15 year term made.

Depending on your situation and ability to stick to a plan, I would actually recommend a 30 or 20 year loan and then pay extra so it is gone after 15 years. You will still save thousands in interest, but it will give you flexibility in the event you need more cash flow or get in a tough spot.
IMO if you have to have a 30 year mortgage to afford a home, you're buying too much house.

In many places that's the only option to own... especially when rents are just as high or even higher than a 30 year payment.

bmo88 · November 2015

als1982 said:

PurpleBookmark said:

I agree that homeownership isn't for everyone, but if you do go that route, I would absolutely look into a 15 year loan versus a 30. The amount of interest you'll save is staggering. There is no way we will ever go back to a loan that long.
I've heard that's the way to go, if we end up purchasing we'll have to look at our mortgage options. One of the firms I worked at represented a bank for their mortgage closings and it was amazing the difference a 15 year term made.

Depending on your situation and ability to stick to a plan, I would actually recommend a 30 or 20 year loan and then pay extra so it is gone after 15 years. You will still save thousands in interest, but it will give you flexibility in the event you need more cash flow or get in a tough spot.
IMO if you have to have a 30 year mortgage to afford a home, you're buying too much house.

Well, I guess that's your opinion, but I would disagree, given 30 year is a standard option. We have a 30 year mortgage that we are paying off in 15 years, so it's not an issue. Our mortgage payment doubled is only 25% of our take home pay, so clearly we can afford it.

Additionally, you are making a sweeping generalization. It really comes down to total cost and percentage of income spent on housing. If someone keeps a low overall percent of their income spent on their mortgage and pay over 30 years, they can afford it. Sure, they will pay more in interest if they extend it out, but it could still be cheaper than renting.

Without knowing someone's finances, cost of living for the area and personal situation, it is too much of a generalization to just say, "a 30 year mortgage means you bought too much of a house."

kmurphy2131 · November 2015

als1982 said:

PurpleBookmark said:

I agree that homeownership isn't for everyone, but if you do go that route, I would absolutely look into a 15 year loan versus a 30. The amount of interest you'll save is staggering. There is no way we will ever go back to a loan that long.
I've heard that's the way to go, if we end up purchasing we'll have to look at our mortgage options. One of the firms I worked at represented a bank for their mortgage closings and it was amazing the difference a 15 year term made.

Depending on your situation and ability to stick to a plan, I would actually recommend a 30 or 20 year loan and then pay extra so it is gone after 15 years. You will still save thousands in interest, but it will give you flexibility in the event you need more cash flow or get in a tough spot.
IMO if you have to have a 30 year mortgage to afford a home, you're buying too much house.

You must be in a low cost of living area, I can't imagine that the average person has a 15 year mortgage in my area. Most people can't even afford a 20% down payment (we can't! rents are so high, it's impossible to save enough, so it is cheaper to pay PMI on a mortgage). But starter homes in my area are $300,000-400,000. Condos aren't much cheaper. And that is for a 1000-1500sq/ft home that is often not remodeled. So we are talking a true starter home.

kmurphy2131 · November 2015

So I use to be firmly in the "I don't want to own - I'll rent forever" camp. Recently things finally clicked for my husband and I and we want to own a home now for various reasons. Point being - maybe now isn't the time but when things change (kids are older, rent goes up to a seemingly unmanageable level) you will feel more of a desire to own a home and maybe there is no rush.

That said - equity is a big piece of it. At least if you pay a mortgage you have a home. I actually was talking to someone recently who bought a home in their late 40's and realized that it is unmanageable and they will have to pay it off into their 70's. They sold it and are renting now because the house was too much. So in some ways, you have to either have big cash reserves, or buy (relatively) younger.

formerlyGDaisy09 · November 2015

kmurphy2131 said:

als1982 said:

PurpleBookmark said:

I agree that homeownership isn't for everyone, but if you do go that route, I would absolutely look into a 15 year loan versus a 30. The amount of interest you'll save is staggering. There is no way we will ever go back to a loan that long.
I've heard that's the way to go, if we end up purchasing we'll have to look at our mortgage options. One of the firms I worked at represented a bank for their mortgage closings and it was amazing the difference a 15 year term made.

Depending on your situation and ability to stick to a plan, I would actually recommend a 30 or 20 year loan and then pay extra so it is gone after 15 years. You will still save thousands in interest, but it will give you flexibility in the event you need more cash flow or get in a tough spot.
IMO if you have to have a 30 year mortgage to afford a home, you're buying too much house.

You must be in a low cost of living area, I can't imagine that the average person has a 15 year mortgage in my area. Most people can't even afford a 20% down payment (we can't! rents are so high, it's impossible to save enough, so it is cheaper to pay PMI on a mortgage). But starter homes in my area are $300,000-400,000. Condos aren't much cheaper. And that is for a 1000-1500sq/ft home that is often not remodeled. So we are talking a true starter home.

+1 to this! our monthly rent costs, for a reasonable apartment in our area 4 years ago were $1800, our mortgage payment plus taxes Insurance and the small PMI charge for putting less than 20% down is $1675. plus, to find an apartment at that price we had to look about 20 miles away from where we both work (so we were each commuting 200 miles a week) we now live 2-4 miles from our jobs and save hundreds a month on gas.

PurpleBookmark · November 2015

kmurphy2131 said:
So I use to be firmly in the "I don't want to own - I'll rent forever" camp. Recently things finally clicked for my husband and I and we want to own a home now for various reasons. Point being - maybe now isn't the time but when things change (kids are older, rent goes up to a seemingly unmanageable level) you will feel more of a desire to own a home and maybe there is no rush.

That said - equity is a big piece of it. At least if you pay a mortgage you have a home. I actually was talking to someone recently who bought a home in their late 40's and realized that it is unmanageable and they will have to pay it off into their 70's. They sold it and are renting now because the house was too much. So in some ways, you have to either have big cash reserves, or buy (relatively) younger.

Good point, we are early 30s currently so if we did get a mortgage in a few years we'd be looking at 65 ish if we had to do a 30 year mortgage. As PPs said a shorter term or paying off early would be ideal.

jtmh2012 · November 2015

bmo88 said:

PurpleBookmark said:

I agree that homeownership isn't for everyone, but if you do go that route, I would absolutely look into a 15 year loan versus a 30. The amount of interest you'll save is staggering. There is no way we will ever go back to a loan that long.
I've heard that's the way to go, if we end up purchasing we'll have to look at our mortgage options. One of the firms I worked at represented a bank for their mortgage closings and it was amazing the difference a 15 year term made.

Depending on your situation and ability to stick to a plan, I would actually recommend a 30 or 20 year loan and then pay extra so it is gone after 15 years. You will still save thousands in interest, but it will give you flexibility in the event you need more cash flow or get in a tough spot.

Just a note on this......if you go this route (and it is a good idea depending on your finances). The rates on 30yr mortgages are higher than 15yr mortgages. The 20yr will depend on the bank. Some use the 15yr rate, some the 30yr, others come up with a different rate in the middle. The reason I mention this is the payment you need to make on the 30yr loan to make it a 15yr loan could be higher than the 15yr loan payment, so do the math.

I wanted to buy on a 15yr loan, but did the 20yr just to have some wiggle room. That's how I figured out the above.

jtmh2012 · November 2015

short+sassy said:

jtmh2012 said:

short+sassy said:

I belong to a real estate investing website that has a huge forum. Believe it or not, there are LOTS of people who rent the same place for crazy long times. Some of the posters on there have had the same tenants in some of their houses for 20, 30 years.
If you don't mind my asking, could you share the link to the forum?

The name of the website is Bigger Pockets and their web address is:
www.biggerpockets.com
I think you can search and read the forums without signing up, but registration is free anyway. Although BP will send occasional e-mails, they are not obnoxious about it. And they don't sell your info to anyone. At least I've never received spam e-mail about real estate.

Thanks!

PurpleBookmark · November 2015

julieanne912 said:

PurpleBookmark said:

Xstatic3333 said:
OP, have you considered condo ownership? My parents hate home projects and repairs, so they are lifelong condo people. The condo I grew up in had the square footage of a single family without the worry of exterior maintenance of any sort. It doesn't remove all risk, but a good portion of it falls to the condo association.
I would definitely consider it if we could find one big enough. I've mostly seen 2 bedroom units in our area but I've also only casually looked at real estate online. I wonder if a townhouse would be easier too?

It depends on the type of townhouse.

Some townhouses are owned just like a condo, meaning, all you really own is the the airspace from the drywall, in, and you also own a percentage of all of the common elements (ie yards, driveways, sidewalks, plumbing, parking areas, roof, pool, etc.). In this kind of townhome, it's really important to make sure the HOA has good financials, that way you aren't stuck paying for a special assessment to cover repairs to one of the common elements. Generally with newer townhomes/condos, they don't have the reserves built up to a level that can cover major repairs.

Other townhomes are owned like a single family... meaning you own the actual building and the land it sits on. There may still be an HOA that maintains all the common elements (again driveways, parking lots, pools, etc) and has rules for exterior paint colors, roof type, yard etc. But, if something happens to your portion of the building, you end up paying for it.

I owned an actual condo (not a townhouse) and shortly after I sold, the HOA had to do a special assessment to do roof repairs to the building... I heard it was around $2,000 for my unit. So, not as much as paying for a roof on a house, but still a surprise, especially since the HOA dues were around $150 a month already. That's the downside of condo ownership... you're basically relying on other people to maintain the building and the financials....and they may not always do the right thing.

Yeah that definitely would not be fun, special assessments or as another poster mentioned repairs that aren't being done correctly or in a timely manner. I'm a worrier so I'm not sure being in a situation where someone else is in charge of keeping the property safe is the best thing. On the other hand I currently trust our management company in our rental but they are professionals that have been doing this for decades.

Reading everyone's responses has definitely given us a lot to think about. I think we're becoming more open to the idea of buying, I also really want to give our kids stability and having a home might be nice for them. I would love to move to our "forever home" before DS starts school but we definitely need more time to save. I'm hoping to move him in the early elementary years, hopefully that won't be too hard on him.

On that note, what type of home did you live in growing up and did you like it? Did you move much and if so how did it affect you?

I moved a lot because my Dad was in the military. I don't think it affected me negatively but it always took a while to make friends and was a bit lonely. I really don't want my kids to have to deal with that, or at least as little as possible.

Long Term Renting Question

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