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To Buy or Not To Buy?
Hi! First time posting on this board!
Here's my situation. H and I are very interested in buying a house. We are tired of putting money into rent and are ready to have a place of our own. The problem with this is that we do not make quite enough to afford the nice, large home that we want. To do this, we need to spend a few more years saving.
However, I realized today that there are a lot of homes in the area where we live now that would be a major upgrade from our current rental and would barely increase our monthly payment ($1,200 vs. $1,400ish including PMI & taxes). If we went this route, we would obviously have to put some money down, decreasing the savings we've already made. But, the benefit (I think) would be that we would be building equity and still saving a lot every month.
So, what would you do? Do you think it makes sense for us to buy something smaller now, stay for a few years, then sell and upgrade? Is this a bad idea? Feel free to throw out things like having to pay for maintenance or any problems that come up with the house, i.e. the basics. Also, is there a minimum amount of time we should stay in order to make a purchase worthwhile at this time?
Re: To Buy or Not To Buy?
We thought about this quite a bit before we started the process. Personally, I wouldn't consider buying anything that I couldn't stay in for at least 10 years (though I hear many people say 5). Reason being that the market is unpredictable and I don't want to get "stuck". Here are some of the factors we thought about:
First I would check out stats for the area you're looking in and find out how high the foreclosure and unemployment rates are and compare them to the national average. You want them to be low since that is one indicator that prices are somewhat stable. If one or both are high, then I would wait since prices might drop lower and it's unlikely that they're going up in the short term.
Do you want a one or two bedroom, or something larger? I wouldn't buy larger than a two bedroom if it was in a less than stellar school district. Where we are, school district is EVERYTHING. We don't even have kids yet (and likely won't for at least 3 years, which means ~8 years until schools are an issue) but didn't even consider certain areas because they were "average" or "poor" districts. Houses in good school district sell exponentially faster in our market.
Have you also considered the closing costs you'll incur for both buying and selling? When buying you can probably get some or all of them covered (depending on your financing) but if you sell in a buyers market you'll probably have to cover some of the buyers closing costs AND pay agent commission of 5%.
Of course maintenance is something to consider as well and you'll want to be keenly aware of the age of the roof, windows, siding, hot water heater, appliances, etc. Make sure to get a good inspector so you'll know what you're signing up for. Are either of you handy? That could help.
Good luck!
Even though your monthly payment won't increase that much, you will have other expenses. You have to pay for utilities and maintenance. Make sure you take all of that into account before going ahead with a home purchase.
Building equity in today's market? It is still going down! The current recommendation is :Do not plan to be able to sell for a profit unless you wait at least 7 years (and that time period will only pay for buying and selling costs ).
I would not buy unless you also have a 6 month expenses emergency fund in place, have your closing costs, moving costs, repair/renovation costs, decorating/furniture/appliance costs, yard equipment/tools etc already saved.
Owning a home is much more than a mortgage payment.
Keep housing costs to no more than 25-28% of your TAKEHOME pay. (mortgage+PMI+insurance+taxes+utilities)
Waiting is much better than buying and selling and moving twice. Interest rates will remain low as will housing prices for the next several years.
I would not buy with the intent of moving somewhere bigger inthe next few years. Like mentioned above there are extra costs to homeownership- property taxes increase, more $ for utilities, things break (roof, a/c, appliances, heater, etc) and that's all on you.
Getting a mortgage is expensive too. You'll have closing costs plus when selling you'll have buyers and sellers agent commissions which would easily wipe out any equity you've built. In the first few years of having a mortgage, most of your payment goes towards interest.... Little goes toward principal.
I skimmed some of the answers above and think someone suggested buying a 2 bedroom since you don't have kids. I wouldn't recommend buying anything less than 3 bedrooms. At least in my area, everyone is wanting 3-4 at a minimum so resell on a small 2 bed house would be difficult. I say stay where you are (or find cheaper rent if possible) and save. Don't count on building equity as a lot of people are now stuck for thinking the same thing 3-5 years ago.
Homeownership is SO much more expensive than renting, even when the monthly payment is comparable. Consider:
- maintenance (are the appliances new? what about the furnace? the windows? the roof?)
- landscaping costs (do you plan to buy property with lots of land? are you prepared to give up every weekend in the nice months to slave outside doing yardwork? do you own all the tools? or are you going to hire someone to take care of everything? you can't just let it go.)
- decorating (does it have window treatments? what about all the new furniture, linens, accessories you'll need to buy to fill up this "major upgrade?")
- utilities (that "major upgrade" sounds like it'll have significantly larger square footage - are you prepared to heat and cool all that? how efficient is your current apt compared to the age of homes you're considering?)
We've owned 5 homes and we're moving next year and we cannot WAIT to rent again. So excited to have all the headaches be someone else's.
And, of course, there's the super obvious fact that you won't be able to upgrade in a few years. I saw yesterday on the news that the market is only expected to appreciate 2% a year for the next decade. You'll be trapped in that house for years.
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Thinking of doing cosmetic updates to a dated home? These were our costs.
I agree with many of the points already made.
I would not buy anything I didn't intend to stay in a minimum of 10 years. If you decide to buy (and I'm not sure you should), do not buy the house that fits you right now. Buy a house you will still fit in 10 years from now. You need room to grow, you don't want to get stuck in a house that's too small.
Also, gaining equity is not guaranteed these days. Do not buy a home on the premise that it's smarter because you'll gain equity while renting is "throwing money away." I own a condo that I bought in 2006, and even though I've faithfully made mortgage payments on time for almost 6 years, I have zero equity. In fact, I owe $60K more on the mortgage than the place is worth because home values have decreased so much since I bought. I would have been so much better off if I had continued to rent instead of buying that condo. I "threw away money" by buying.
Mr. Sammy Dog