Looking into possibly buying a home.

[strider]

So housing prices are extremely low right now (3 bedroom, 2 bath condo, for $113,000). The mortgage (not counting PMI or taxes) is lower than my rent now. I keep hearing I should definitely buy if the mortgage is lower than the rent. It's a real nice place. However I have a few circumstances that may impact that decision.

1. Job security: I'm the newest guy on the totem pole. I've been working here for a little over a year. I like the job but there have been cuts here in staff.

2. I don't have a 20% downpayment. Seeing as how I only graduated a year and a half ago I have not saved enough for a downpayment. I have about $3000 in cash on hand right now. I know that doesn't even cover closing costs but it's a start toward my savings.

3. I would have to get PMI. Not sure what that costs.

4. I may move in the next 5 years voluntarily. I'm not from this area and would like to be closer to home.

5. I'm not against the landlord thing but I'd be far away and that would be a crappy situation for tenants.

Thoughts?

[Deleted]

IMHO, I would save more until you have more of a down payment. 20%, ideally, but at least 10%.

[CarolinaKat]

If you would like to move soon and aren't sure about your job security, I'd see if there was a cheaper place to rent and save for a downpayment. The savings from 'such a good deal;' might get eaten up by transaction costs if you sell/move away in the near future. Plus I thought lenders wanted 2 years of earnings statements when looking at what rate to give?

[strider]

20% is around 20k. Not bad but it isn't going to be that high of savings anytime soon (probably a year and a half or more). Isn't there a first time homebuyer program?

[Angel!]

Personally I wouldn't do it - you aren't sure about your job security & your not sure how long you want to live there. You just graduated & your life may change a lot in the next few years - new job, move to a different city, wife, kids, dog, etc. If prices don't appreciate by the time you are ready to move, then odds are you still spent more than you would have in rent - transaction costs in buying & selling, maintenance, HOA fees, etc, - it will really start to add up.

With that being said - you may still be able to buy with little or no money down even in todays economy. If you are still interested, then call a few lenders or realtors & find out what they can offer you. If you can get a second mortgage, then you can get out of paying PMI.

[strider]

I'm leaning towards not doing it but I'll be damned if owning a home that may cost less than my rent payment isn't appealing. Flexibility with renting can't be beat though.

[crockpottin]

Jun 21, 2011 10:02:37 GMT -5 strider said:

4. I may move in the next 5 years voluntarily. I'm not from this area and would like to be closer to home.

This point is why you should stay a renter for the time being. Home values fluctuate; it's one thing to be underwater on your house for a while if you're living there long term, but what if the value drops and you're trying to sell and move? You could end up stuck in a place for longer than you'd like.

[midjd]

I wouldn't do it. The monthly mortgage payment may be less than the rent, but there are a lot of other costs associated with owning a home - even if you put 0 down (which would be difficult to do without a longer employment history), only having $3K to cover new home expenses probably wouldn't be a good idea.

We bought in February 2011, and our house was built in 2010 - so it should be about as maintenance-free as possible. We've still spent probably $2K to re-charge the A/C, re-gravel the driveway, and take down a couple of precariously-leaning trees. The day after we moved in, a young hawk (RIP, poor guy) flew into and shattered the upstairs window. Not to mention the "optional" stuff like painting, grass seeding, buying outdoor trash cans, getting furniture... I could go on for days

I don't think home prices are going anywhere for a while. I'd wait a year and see where you are.

[raeoflyte]

When I was young and in a similar situation, I bought the house because having paid off multiple rental properties is part of my retirement plan. (Although Phil has me thinking of keeping my money working by refinancing when I get to that point. ;D)

Grain of salt: I did buy in the area that I plan to retire though, and having mortgages has tied me down more than I would have liked in my 20's. Landlording has worked out well for me, but when there are issues, it is a PAIN!

I would check into the going rent, and see if you could at least break even with a tenant to make the payment, pay a manager (so you could move if needed), and put some money away for repairs/vacancies. If you could, then I'd lean even more towards buying.

You can get into an FHA home for 3.5% down (ask for seller paid closing costs), and you probably have an affordable housing bond program in your state that you may qualify for. Those programs typically have income and purchase price limits. But if you qualify, you can buy usually for $1000 down.

[swamp]

Jun 21, 2011 10:20:06 GMT -5 strider said:

I'm leaning towards not doing it but I'll be damned if owning a home that may cost less than my rent payment isn't appealing. Flexibility with renting can't be beat though.

Add in the taxes, insurance, HOA, and maintenance and see if it's still cheaper.

[strider]

This has been a wealth of knowledge. Thank you all. Yeah I'm not ready to buy yet haha. I guess I just keep saving and investing money for now.

[souldoubt]

No down payment, somewhat questionable job security and you might move in 5 years - pretty easy to see buying a place isn't right for you at this time.

[cael]

Jun 21, 2011 10:20:06 GMT -5 strider said:

I'm leaning towards not doing it but I'll be damned if owning a home that may cost less than my rent payment isn't appealing. Flexibility with renting can't be beat though.

I know how you feel. If we had $20k saved and bought a $100k house, our mortgage would be less than our current rent, and our rent is already cheap! We also may not stay in this area long-term, but after we're married we're starting a serious house fund so we can buy something once we decide where to settle for a while. It is tempting!

[muttleynfelix]

Jun 21, 2011 10:20:06 GMT -5 strider said:

I'm leaning towards not doing it but I'll be damned if owning a home that may cost less than my rent payment isn't appealing. Flexibility with renting can't be beat though.

It may look that way ... but there are a lot of things that can make homeownership more expensive. You only think you are getting a good deal.

DOn't buy if you aren't sure you want to stay in the area. It really ties you down.

[Tiny]

I keep hearing I should definitely buy if the mortgage is lower than the rent.

You aren't calculating/comparing your costs correctly... 1st you need to calculate/guesstimate your mortgage payment - Principle and Interest, then your Taxes and Insurance. you may also need to add in PMI. Next add in the HOA Fees.

Next, you look at what your Rent includes - if it includes any UTILITIES (like heat or cable) you'll need to either pull that OUT of your 'rent amount' or add in a guesstimate of those costs to the amount you calculated for your Condo above.

Once you have an Apple (the fixed cost of your mortgage, taxes, insurance, HOA fees, PMI) for the Condo you can compare it to the Apple (Rent minus any included utilites) of your rental unit.

Take it a step further and compare the Utilites for the condo to the cost of Utilities to the rental Unit. Maybe look at your commute (cost of gas for shorter/longer commute).
Then add in some maintenance costs on the Condo - if any appliance fails (A/C, Furnace, Fridge, Stove, Microwave, Hotwater Heater, Toilet, etc) you'll be on the hook to get it fixed.

Maybe the fixed cost of the condo is less than your rent - but I bet you'd be on the hook for bigger fixed expenses (utilites, gas for a longer commute, ownership expenses) with the Condo - so LESS discretionary money every month.

[Phoenix84]

I don't know how things have changed since 2009 when I bought my condo. But there used to be FHA loans that you only needed 3.5% plus closing costs. I don't know if you can still do that.

I bought a condo and ended up moving about a year and a half later. Buying would probably be a good idea IF you plan on staying in the area at LEAST eight years. You don't want to get into the situation I'm in where you have to move for work and pay a mortgage on top of rent, and try and sell your place for more than ten thousand less than you bought it for. But if you plan on staying there for a long time 8-10 years, I'd say it's a good idea.

[Deleted]

Even if the market claws back slowly over the next 5 years, you still have to overcome a realtor fee to sell the place. So the question is, how much would the TCO be versus renting. Add up call the costs associated with the purchase and ownership and see if you really save over renting. Take that estimated savings x 60mo and see what it equals.

Rates are so low right now that this may be workable.

[Deleted]

I agree with the others that buying only because the mortgage payment is cheaper than your rent isn't a reason to buy. It's like getting a coupon for something you wouldn't normally buy. You don't spend a dollar to save $.25.

That said, now is a really good time to buy if it's part of a longer term strategy to build wealth by investing in real estate IF you do your homework and structure your financing. ATsiaRU did a great job of listing additional costs associated with ownership.

I'm not that fazed by long distance landlording. I'm a super long distance landlord (currently living in Germany and our properties are in CA & AZ). I manage 4 of the 5 myself (one is in vacation rental ownership so it needs someone in the area). The keys to good long distance management is having a good support system in place (I have great handymen in each location) good communication with your tenant(s) and visiting the property at least once a year. I also run the ads and screen prospective tenants before the property is shown and I make sure I'm there during the handover between tenants. It's more about good planning than anything else.

An important piece of our situation is that we plan on moving back into these properties at some point, harvest the capital gains and move on to the next property. There are other options, such as doing a 1031 exchange into another property in a better location (we've done that too) but the key is building in flexibility for your plan.