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Starter home?
Hi everyone! This Buying a Home board has been hugely helpful and will continue to be helpful in the next few months as my hubby and I try to find a home. I've been lurking and reading some of the other posts and there is a wealth of knowledge here! It's great!
My hubby and I currently rent a 2 bedroom apartment. It's actually very nice but we are really itching to quit throwing our rent money away every month and actually put it towards a home payment.
We got pre-qualified and can get about $120,000 together, but since we have a certain budget the bank told us to look for homes priced between $65,000-$75,000. Needless to say there aren't many nice homes at that price. We have looked at some homes in need of major home improvements. We don't mind doing small improvements but we don't want to have to do any huge projects right off the bat when moving in. We actually found a house that looked very nice on the inside but it's in the middle of nowhere practically and we think it might be hard to resell it later on.
We finally found what is described as a 3 bedroom townhouse. It's actually not much bigger than our apartment (except for the extra bedroom and it has a small yard and a small deck). The asking price is $72,500. We also found out that it lies in a flood plain (it's a little ridiculous because it is just a small drainage ditch in the back yard) and the seller's disclosure described problems with mold and water in the basement before (they have actually done a lot of work to try to prevent this from happening again).
My hubby and I just don't know what to do. We don't know if we should get this home as a starter house and then hope to have more money later on to move into a larger home or if we should just keep looking. We have been told that flood insurance can be expensive and that's just one extra expense we were not looking for. Unfortunately at our current budget this might be the nicest home we are able to find. It's something that doesn't have a lot of room to grow so we would definitely be trying to move to a larger home later on. We've been told that having this home in a "flood zone" might make it harder to sell later on but on the other hand, my hubby thinks that if the person who lives in the other side of the townhouse moves out we can buy that side later on and make one large house.
Having read about our situation, would you recommend buying this starter home? Or should we keep looking?
TTC #1 since July 2012
Cycles 1-9: BFN
Cycle 10: Surprise BFP on 10/17/2013!
EDD: June 25, 2014
Baby Girl born via induction June 26, 2014
Re: Starter home?
Renting is NOT throwing you rmoney away!!!
I would wait, continue to save a large downpayment and pay off consumer debt.
Buying when you are not ready (which from what you have said, I would deem not ready) just leads to more headaches and financial problems.
A house is MUCH more than the mortgage payment - and they can be real money drains with one unexpected thing happening after another. You NEED a good emergency fund in place (6 months expenses) prior to buying a house.
The house you describe will be difficult to sell, housing is not expected to increase in value for the next 5-10 years. The current recommendation is to live in your home a minimum of 7 years just to cover your buying and selling costs -- with no appreciation.
A good rule of thumb: Housing costs (mortgage+PMI+insurance+taxes+utilities) = 25-28% of your TAKEHOME pay. More than that will make most people house poor. You will need a downpayment, inspection fee, closing costs, moving costs, start up utility deposits, repair/renovations costs, and all the extras you don't have now that you need with a house (ladders, yard equipment & tools,) decorating and additional furiture and appliances. Emergency fund for leady roofs, furnace/waterheater replacement etc.
To be honest, I wouldn't purchase the home because I imagine it will be a tough sell if you are looking to upgrade in a few years. Definitely, if you can't imagine living in a home for 3-5 years, buying isn't a great idea. I would probably start saving, do what you can to improve your credit, and rent a bit longer.
If you do want to consider the home more, I would try to schedule an inspection for after a heavy rain if possible so you can have the inspector look for possible leaks and water damage issues. Those can be pretty costly to fix if the issues aren't really resolved.
Don't buy this house. Don't buy anything right now. Save until you can afford something better.
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Good for you for looking under your preapproval amount and knowing what you can afford.
Are townhomes a big thing in your area? I know in mine, it's mostly single family homes and not many people (no one I know) buy townhomes or condos. In that case, they are also really really hard to resell here. If that's similar to your area, I wouldn't buy the townhome because it will be difficult to resell, flood plain issue aside. We did not look at anything in a flood plain and looked at one house near a creek. We looked during a month when we had record rain and the creek was not close to the house but still too close for my comfort. I do know that flood insurance usually is really expensive so that would add to your monthly carrying costs as well as adding to the difficulty to resell.
I would keep renting in your situation. Rent until you've saved enough and/or increased your income enough to move into a larger house that you will live in for a long time!
I agree wholeheartedly with everything everyone else has said.
I also agree that you shouldn't view renting as throwing money away. You have a place to live, and it should enable you to continue saving money so you can buy a nicer home better suited for your needs later on. Buying a home you can afford that isn't ideal for you isn't an investment. In this market, it's highly unlikely that you'll ever recoup any money you put into it unless you are willing to stay put for at least five years, if not closer to 7-10.
If you're looking at homes that need major work, tack on that price to the sale price. Renovations and even silly cosmetic stuff can add up and quickly push even a cheap home out of your budget.
4 years ago we too fell into the we should buy instead of rent thought process. Prices were looking really good for our area and it seemed like a great time to buy. Our house is now worth 100K less than we bought it for. We bought with the intention of being in the home for 5 years as we knew that it would be some time before we saw any equity built since the market was still sliding, but everyone thought for sure we would come out on top in 5 years. They were saying the same thing that they are saying now...just a few years and it will stop sliding which has yet to come true as prices are still dropping in our area. The only way out for us is to do a short sale, default, or wait it out (we are adamant that we are not cut out to be landlords). For now we wait though we have outgrown the house and are ready for something different. When we leave this house we most likely will not have any equity to take with us, and we will be starting over.
We would have been better off renting all these years and saving the money for the house we really wanted. Homeownership isn't cheap. On top of mortgage and taxes you pay for everything that is typically included in your rent. Need a plumber...you pay for it. Need pest service...you pay for it. No calling management/landlord and having it taken care of as part of your rent. Not to mention our utilities went up with a bigger place. I will not buy a "starter" home again. The next time I buy will be a house that I see myself in for the long haul.
Ditto everyone else. Do not buy. And I really hate this concept of "renting is throwing money away". It's NOT.
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RENT IS NOT THROWING MONEY AWAY.
And I truly think that the concept of "starter homes" is pretty much dead.
The housing market sucks. There is absolutely no guarantee that your house/property will appreciate in value over the coming years - thousands and thousands of homeowners will attest to that. So the house that you buy now for $72,500 might be worth $60,000 in 5 years..........then what?
You're either stuck in your "starter home" for a lot longer than you had planned, or you bring a large check with you to closing IF you can find someone to buy your townhouse (typically harder to sell in most markets) that happens to be in a flood area.
Seriously - continue renting - that money isn't being thrown away, it's paying for a solid roof over your head.......throwing away money is buying a house, putting thousands of dollars into it, and then learning that it depreciated in value and is worth less than what you paid for it to begin with.......THAT hurts worse than renting. Wait until you have the money to purchase your "forever" house.
Keep looking. We set out to buy a house with a small budget (here, a small budget is $200K, so your $65-75K is shocking to me), and while we had to settle on some details (no garage, side patio instead of back deck), we still found a comfortable home in a good area that should be a breeze to re-sell in a few years when we can afford to upgrade.
The flood plain is a big red flag to me. I would never buy a place on a flood plain, and it will cost more/be harder to insure even if you do buy it. And it sounds small, so you'll probably want to upgrade sooner rather than later. Add on top of the flood plain the fact that there has been mold and water problems already, you don't want to go there.
(And as for turning it into 1 larger home eventually, don't count on that. There are so many things that could go wrong and prevent that from happening.)
40/112
An update for those who offered advice: My hubby and I have decided to pass on this townhouse and wait until next spring to start looking again. We do really want to own a home but we both talked and decided that maybe if we wait until next spring we can save more money and actually take time to figure out how much we can really afford. He is starting a full-time better-paying job this week and once he does we will be able to track our expenses and incomes and figure out the max amount that we can afford for a house payment. He will also hopefully be able to get on his feet a little more. Also, we can save more money for a down payment and for the other related expenses that might pop up after buying.
Thanks for the advice! It definitely helped!
TTC #1 since July 2012
Cycles 1-9: BFN
Cycle 10: Surprise BFP on 10/17/2013!
EDD: June 25, 2014
Baby Girl born via induction June 26, 2014
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