Should I buy a house?

[fral945]

I'm a single, 28 year old male with a steady job and career and make decent money. I have a couple of thousand dollars in savings, and about 5 times that in a 401K account that I don't believe I can touch without some stiff penalties (though I could be wrong).

 

I've had a lot of family, friends, etc. asking me why I haven't bought a house yet. Their arguments for buying are:

 

1) It is a great investment

2) Homes are getting more affordable with the down market in real estate

3) I'm just throwing my money away renting an apartment and would make money by owning

 

My counterarguments are:

 

1) I could live in a cardboard box

2) A house requires much more maintenance (yard work, home repairs, etc.) and I'd have to purchase all kinds of maintenance equipment

3) I'd rather wait until I get a wife or steady girlfriend, because she'll care more about the house than I will anyway and I'd rather have her approval

4) I would buy a house because I want to live in it and don't see it as an investment

 

I thought I'd open this up to you all and hear some more opinions outside of my little world. What would you do if you were in my situation?

[Meaplus3]

When you buy a house you build equity. When you rent your throwing money out the window. If I were you, I'd buy a house. But only if the market is good.

 

AP:)

[Explorer]

When you buy a house you build equity. When you rent your throwing money out the window. If I were you, I'd buy a house. But only if the market is good.

 

AP:)

 

This is not technically accurate. You only build equity when what you owe is less that what the house is worth. There are many variables that determine the house's value.

 

Why not rent cheap and save for a condo (Less maintenance)?

[JamesM]

If I were you, then I would rent unless...

 

you know that you will stay where you are at for your job (to the best of your knowledge).

 

you know that you will marry someone from your town.

 

you enjoy repairs and maintenance.

 

you love yardwork.

 

you hate living in an apartment.

 

The benefits for renting are many. But as has been said, you do "throw" your money away. However, if you plan on moving within the next five years or do not know, then it might be advisable to wait and build up some more cash.

 

With five grand on a house, you will leave yourself with a big debt. Plus you will need to purchase furniture. Then every house needs repairs and maintenance. You also have utility bills. If you are not careful, then you may find yourself in a big debt hole.

 

Again, it is a big investment that you are undertaking. It is important to consider every angle.

[fral945]

If I were you, then I would rent unless...

 

you know that you will stay where you are at for your job (to the best of your knowledge).

 

you know that you will marry someone from your town.

 

you enjoy repairs and maintenance.

 

you love yardwork.

 

you hate living in an apartment.

 

 

My answer is no to all of those questions except number #1, which is a maybe.

 

The benefits for renting are many. But as has been said, you do "throw" your money away. However, if you plan on moving within the next five years or do not know, then it might be advisable to wait and build up some more cash.

 

With five grand on a house, you will leave yourself with a big debt. Plus you will need to purchase furniture. Then every house needs repairs and maintenance. You also have utility bills. If you are not careful, then you may find yourself in a big debt hole.

 

Again, it is a big investment that you are undertaking. It is important to consider every angle.

 

I agree, almost all of what you mentioned are things I have pointed out to those trying to persuade me otherwise. I have zero debt and am not really interested in taking any on.

 

I have never completely understood the "throwing your money away" argument on apartments, though. For me, it allows me to be less tied down and committed, which I like. I'm paying for a place to live and all of the routine maintenance is taken care of for me. And if I don't like it, I can leave and find another one without having a huge mortgage payment left. I surely don't feel like I'm throwing my money away.

 

It seems I'd be throwing a lot more money away on a house. For example, if I had bought a house 5 years ago, I'd still have almost 15-20 yrs left to pay it off. And that's assuming I'm not out of work or have any financial issues (medical hardship, wife, kids, etc), which it seems almost everyone has at one time or another in their lives.

 

I just can't grasp the concept of putting myself into 10s or 100s of thousands of dollars in debt to pay for something. It's like taking a submarine down to the bottom of the ocean and trying to swim back up. I might make it back up before I die (i.e., pay off the house). But I'll spend most of my life underwater.

[jerbear]

Well how do the numbers look? Credit score, down payment, real estate location (location & location), and what you are paying in rent right now, etc...

 

If you can afford roughly the (rent * 125%) + utilities and still be ok then you'll probably be "ok."

 

I would wait till next year and before April (I think April for the $7500 1st time home buyer tax credit expires) I suggest next year because there MIGHT be a 4.5% mortgage rate that goes with the first time home buyer and add the tax credit. Plus, do you really want to move during the holidays?

 

Anyway I view a home as redirecting the housing costs to something else. Instead of renting, you'll building an equity stake.

[2sure]

Why not buy a condo?

 

We own a single residence home and are actively fighting for less condos to be built in our community. Developers are building more condos than houses (because they sell) , but condos dont help the tax rolls.

 

I'll tell you why:

 

1. The value of a condo as an investment has held and even increased while houses continue to fall.

 

2. No maintenance

 

3. Depending on your state and county - you could be paying less than 1/3 (or even more)the taxes than a regular house of the same value.

 

4. Stand alone condos, sometimes called patio homes, are getting the same multi-residence breaks as traditional side by side or multi floor units.

 

So, I hate them...but if were single, I'd buy one.

[norajane]

I bought my first condo at age 29. It was a great investment. I sold it four years later when I moved out of state for a nice net profit.And I enjoyed living in it at the time. I was able to use that money for a house in CA. Again, made out really well when I sold. And 6 months ago I moved into my new condo. Love it and plan on staying for a while.

 

I prefer to put my money toward my investment, rather than give it to a landlord. And I get to enjoy living in my investment - my place is much nicer than an apartment I could get for the same amount I'm paying each month in mortgage and taxes. I would recommend ownership over renting hands down.

 

Howevah, you have virtually no savings and no down payment..I would never, ever counsel anyone to buy a house that has no down payment. You should not be getting anywhere neara mortgage loan at this point. You should really have a 20% down payment, so you can avoid the private mortgage insurance payment tacked on to the interest and principal. And that's at minimum.

 

Ideally, you'd have more down payment than that so you can get a smaller loan. AND, you should have some significant additional savings so you can pay that loan for a while if you lose your job. You can tap into the 401(k) in an emergency, but, as you said, some heavy penalties and you also have to pay that back.

[fral945]

Well how do the numbers look? Credit score, down payment, real estate location (location & location), and what you are paying in rent right now, etc...

 

Credit score - very good (over 800)

Down payment - just a couple of thousand dollars (~ $4000) saved at this point. I have about 4 times that in a 401K but don't think I can get to that money unless there is a creative loophole I don't know about

Location - Georgia, market seems to be down here like everywhere else, but there are decent houses in the 100K-150K range where I live

Current rent - 715/month

 

If you can afford roughly the (rent * 125%) + utilities and still be ok then you'll probably be "ok."

 

I've never looked at it that way. Yes I could afford that. I've calculated my expenses and I spend about 60% of my take home pay.

[jerbear]

You can tap into the 401(k) in an emergency, but, as you said, some heavy penalties and you also have to pay that back.

 

I believe the first $10,000 can be withdrawn without penalty provided it is paid directly either in to escrow or payable to the bank at closing.

 

The $10,000 lifetime withdraw rules apply to 401k's and IRA's, but read the fine print as 401k's are employer sponsored plans while IRA's are self directed plans.

[fral945]

Thanks for the condo ideas, 2sure and norajane. I may actually look into that, as there have been quite a few new condo complexes built in the area I am in, especially near the beach and on the islands near where I live. Though I imagine the oceanfront condos go for a couple of million a piece.

 

A condo doesn't seem much more different from an apartment, and I could possibly make a profit for when I am ready to step up to a home.

[fral945]

I believe the first $10,000 can be withdrawn without penalty provided it is paid directly either in to escrow or payable to the bank at closing.

 

The $10,000 lifetime withdraw rules apply to 401k's and IRA's, but read the fine print as 401k's are employer sponsored plans while IRA's are self directed plans.

 

Thanks, I will look into that. $10,000 would at least get me close to some kind of reasonable down payment if I decide to go the house route.

[Trialbyfire]

Georgia, as at the end of October, had an unemployment rate of 7%. Take a look at these statistics from the U.S. Bureau of Labor. Take a look at which sector you work in and you can see if it's a declining industry.

 

These are bad economic times. Be careful not to over-extend yourself.

 

http://www.bls.gov/eag/eag.ga.htm

[jerbear]

Georgia, as at the end of October, had an unemployment rate of 7%. Take a look at these statistics from the U.S. Bureau of Labor. Take a look at which sector you work in and you can see if it's a declining industry.

 

These are bad economic times. Be careful not to over-extend yourself.

 

http://www.bls.gov/eag/eag.ga.htm

 

I'll agree with TBF on not over-extending yourself. I still suggest reaching a savings of at least 3% (FHA loan requires 3%) and start there. 20% downpayment as NJ mentioned would be the ideal. Also use the 30 yr fixed APR scenario as your base.

 

I'll also suggest keeping your savings as a rainy day fund while you build the required down payment. i.e. 3% bare FHA min, 10% min to 20% would be more ideal. In other words you should have, $4k rainy day fund and 20% of 150k as down payment before you even look to buy.

[carhill]

Hey, OP, buy a REO duplex and let your tenant make most or all of your mortgage payment.

 

I'd do that in a heartbeat if we didn't own 3 houses already. If I was just starting out, I'd take a real hard look at it. Also, there are a ton of incentive programs out there for first time homebuyers, especially if you're willing to locate into a developing neighborhood. In our city, the city will actually make a forgivable loan for most of the down payment, plus all of the other incentive programs.

 

IMO, the important thing is being conservative in your selection of price range that you can afford and have sufficient capital to cover 3-6 months of essential expenses for emergencies. Double that if you're self employed. Conserve liquid capital at all costs. Cash is king

 

I've bought a house every time there was an economic downturn, except this time. It was my wife's turn

 

Take your time and good luck!

[andle]

I bought a townhouse when I was 27. I went for a townhouse because the deed includes the land the house sits on; what you buy with a condo is cubic content, no land. Not a huge distinction but I was told at the time that land has better long-term value than the structure on it. In hindsight, it was good advice.

 

Two years years later I moved to another state and rented the house for enough to cover the mtg, taxes and insurance. A year later I got a call from a friend I grew up with; he was a RE agent with a client, asking if I wanted to sell. It had appreciated in value and I sold for enough to buy two little starter homes in a town 20 miles from where I'd moved to. Again, I rented them for enough to (barely) cover the monthly costs.

 

When I got married, we traded those homes for a nice place in the city, and that's where we settled to start a family. No, I wasn't some kind of RE expert, then or now. Actually, I was kinda sweatin it on the edge of my seat during each of those deals. I was building a nestegg and I sure didn't want to lose it!

 

Point is, buying real estate is one of the best ways to acquire wealth, and the earlier you start the more you'll have when you eventually want it for something. What kind of wealth? As an example, say you bought something for $100K with a $20K down payment, what kinda money would you be looking at down the road?

 

Go here:

http://www.mortgage-info.com/mortgage-calculators/equitygrowthcalculator.aspx

 

and

 

Enter 100,000 in "Property Value / Sales Price"

Enter 6% in "Anticipated Annual Real Estate Appreciation"

Enter 80,000 in "Mortgage Amount"

Enter 6% in ""Mortgage Rate"

Enter 30 years in "Mortgage Amortization Term"

Then click on "Calculate Future Real Estate Equity"

 

Under the heading "Real Estate Equity Growth Results" take a look at the last three entries. Those results are reasonably accurate whether its just one home for all those years, or going through several homes in different places like I did.

 

If you like what you see, well... the choice is yours. As carhill mentioned, take your time and good luck!