Go For It? (House Purchase)

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Go for it?

Yes
9
30%
No
21
70%
 
Total votes: 30

alonas
Posts: 3
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Go For It? (House Purchase)

Post by alonas » Wed Feb 20, 2013 12:11 am

Age: 20s
Tax Rate: 25%
Savings (Excluding Retirement): $30,000
Savings Rates (Excluding Retirement, After Taxes): $1,800 to $2,000 per month
Retirement Savings: ~$80,000 in 401k and Roth IRA
Retirement Savings Rate: 12% to 20% of gross income to 401k (with additional 6% match), $5,000 to $5,500 yearly for Roth IRA
Debt: None

Given that I started out with a net worth of -$35,000 after graduating from undergrad, I believe that I am money-conscious and have been keeping the course diligently.

My Circumstances/Question:
I am committed to my location for another 5+ years. My parents have retired elsewhere, but I have strong roots where I am currently located (hometown). 1 bedroom apartments run for $750 at a MINIMUM in decent neighborhoods. I am entertaining the idea of buying a 4 bedroom house for $200,000 or cheaper very close to a university. Given the close proximity to the university and my fiancee who will be attending this university for the next year or so, finding renters (friends) will not be an issue. I would most likely only put 10% down, and despite how much we all would like to avoid PMI, would this be a good opportunity to take advantage of the market and personal circumstances?

Housing is very cheap here and I would definitely not be settling on a house that I do not see myself staying in for the duration of how long it'll take to pay off. This house would be in a good neighborhood, have good bones, and have much better finishes than if I try and live as cheaply as possible renting. Thoughts?
Last edited by alonas on Wed Feb 20, 2013 10:41 pm, edited 1 time in total.

NorCalDad
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Re: Go For It? (House Purchase)

Post by NorCalDad » Wed Feb 20, 2013 9:23 am

I would wait. Too many balls in the air with your fiancee in school and finding tenants, not enough money saved for a down payment, not enough money left over for an emergency fund. Regardless of the still-low interest rates and your sense that housing values may rise, it doesn't seem like the ideal buy situation. I'd wait until your fiancee graduates, gets her career figured out and you decide on the ideal neighborhood where you want to start a family.

Grt2bOutdoors
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Re: Go For It? (House Purchase)

Post by Grt2bOutdoors » Wed Feb 20, 2013 9:35 am

NorCalDad wrote:I would wait. Too many balls in the air with your fiancee in school and finding tenants, not enough money saved for a down payment, not enough money left over for an emergency fund. Regardless of the still-low interest rates and your sense that housing values may rise, it doesn't seem like the ideal buy situation. I'd wait until your fiancee graduates, gets her career figured out and you decide on the ideal neighborhood where you want to start a family.
Second that. You buy the home and that $1,500 - $2,000 you save every month will go right out the window. My house has good bones, guess what?.... it still needs to be maintained. Your fiancee - wait til she becomes your wife and she either gets a job or you decide something else together.
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wilked
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Re: Go For It? (House Purchase)

Post by wilked » Wed Feb 20, 2013 10:09 am

Grt2bOutdoors wrote:
NorCalDad wrote:I would wait. Too many balls in the air with your fiancee in school and finding tenants, not enough money saved for a down payment, not enough money left over for an emergency fund. Regardless of the still-low interest rates and your sense that housing values may rise, it doesn't seem like the ideal buy situation. I'd wait until your fiancee graduates, gets her career figured out and you decide on the ideal neighborhood where you want to start a family.
Second that. You buy the home and that $1,500 - $2,000 you save every month will go right out the window. My house has good bones, guess what?.... it still needs to be maintained. Your fiancee - wait til she becomes your wife and she either gets a job or you decide something else together.
Agree with both posters above. Buying a house at this point would be a rash decision. Want to know what will strain a fiancee / newlywed relationships? Roommates. So you lose the roommates, now you are paying the mortgage on a 4 bedroom when you could have been simply renting a 1 bedroom and saving. Or the new wife convinces you that, now that you are approaching your 30s, your future lies somewhere besides the heart of a college area, and you are now selling at a loss or becoming a landlord to college kids with no respect for your house.

In short, I would not.

NoVa Lurker
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Re: Go For It? (House Purchase)

Post by NoVa Lurker » Wed Feb 20, 2013 10:18 am

Right now, you are in a good financial position, and it gets better every year as you save more. If you buy the house, you will be creating a lot of pressures on yourself. It could work out very well financially - even if you later move and rent the place to college kids - but there will be a lot of headaches along the way. I would wait. Rent a nice 2-bedroom and enjoy life with your fiancee. Buy in a couple of years. Congratulations on having no debt in your 20s.

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bottlecap
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Re: Go For It? (House Purchase)

Post by bottlecap » Wed Feb 20, 2013 11:22 am

My response would be no, although admittedly you don't give us enough info (are you 20 or 29, what your life is like, etc...). A big factor is how you live your life. Do you like to go out and do fun things at night and on weekends, or is your idea of fun doing home repair over the weekend?

My reasons for not doing so:

1. Owning a house can be expensive, between insurance, repairs, taxes and whatnot.

2. Owning for 5 years in the hopes of making a profit is speculative (Don't forget you will likely have to pay realtor fees as well, possibly taxes, depending on how long you live there and how long you keep it after you move).

3. Only 10% down means you can't afford it.

4. Being a landlord is tough and usually not worth it unless you enjoy it and can do your own taxes and at least some of your own repairs.

Good luck,

JT

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Aptenodytes
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Re: Go For It? (House Purchase)

Post by Aptenodytes » Wed Feb 20, 2013 12:54 pm

Jeez, what a bunch of spoilsports. I voted "yes."

You seem responsible with money and are saving at a good rate. If you can buy a decent home for $200K and are willing to have roommates, you can cover most of your mortgage, if not all of it, with rental income. You might be able to swing a 15-year mortgage if your roommates can cover a large fraction of the mortgage, which would lower your borrowing cost and speed up your equity build-up.

Mobility is an issue. If you knew for sure you would move within five years, I'd be inclined to rent. If you aren't sure about that, I'd go ahead and buy.

Savvy
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Re: Go For It? (House Purchase)

Post by Savvy » Wed Feb 20, 2013 1:47 pm

What do you expect your monthly payment to be? What do you expect to come in from renters?

pheleven
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Re: Go For It? (House Purchase)

Post by pheleven » Wed Feb 20, 2013 2:16 pm

So I'm new here (cut me a little slack), but I think purchasing my home was a great deal, even though I ended up with some PMI. I found a REO, listed at 95k owned by Fannie. I got pre-approved for the maximum FHA loan. I offered 90k+3 points and they accepted. The lenders all balked at the 'minuscule' loan, and wouldn't take it if I paid 20% down, but agreed to carry 90k (which necessitated the PMI). Sure, I probably could have re-organized with a conventional, but I likely would have lost the offer.

In the end, I own a home and I went from paying $900/mo rent (500sq ft) in a bit nicer location but poorly repaired place to $680/mo PITI for my own place (1200sq ft). I may refi to 15 yr as I'm on that payoff projection anyway and it would save me the PMI (could probably save ~.75-1%+PMI).

While appreciation is subjective, I've put about $7k into the house in repairs and could easily sell it today for $150k (less than a year after purchase). Low-end houses in my area are up ~50% YOY - I doubt they'll come back down to where they were. The house could double in value again and not be where it was 10 years ago. Too many people were thinking exactly what I was... rent is (was) massively higher than the house payments and the lower spectrum of the property market was down about ~66% from highs, prices not seen in the area for a couple decades. I genuinely never thought I'd be able to buy a house where I grew up until the bubble burst.

All that said, our our situations the same? Certainly not. Should you consider it? I think so. It was worth it for me.

finley
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Re: Go For It? (House Purchase)

Post by finley » Wed Feb 20, 2013 3:43 pm

I vote yes (assuming both you and your fiancee both want to live in the same town for awhile), if you purchase a home for $200,000 with 10% down and a 3.5% interest rate, the payment will be just over $800 plus taxes and insurance. I can not imagine this would be much higher (if not less) than rent for an apartment after you deduct interest and mortgage insurance (assuming you itemize deductions on your tax returns). If it were me, I would buy the home. If you decide to, rent a room or two to friends to help build equity and eliminate the mortgage insurance. You never know what will happen, but if interest rates go up it might cost you more to wait a year or two to buy than to pay mortgage insurance for a year or two.

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bottlecap
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Re: Go For It? (House Purchase)

Post by bottlecap » Wed Feb 20, 2013 4:15 pm

I might add that the results of the poll may add very little - I'd pay attention to the contents of the posts. The real question is why you want to do this. If it's because you want to own a home, then financially it sounds like you could go for it. If the reason is you want to buy low and sell high, that's certainly not guaranteed - particularly with your time frame - and not a good reason to become a homeowner, which is a whole lot more responsibility than just making the mortgage every month.

Good luck,

JT

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Watty
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Re: Go For It? (House Purchase)

Post by Watty » Wed Feb 20, 2013 5:46 pm

It was not clear if you would be buying this yourself or if you and your fiancée would be buying it together. I would not recommend that anyone buy a house with someone before they get married, this has caused major problems for people in the past when the relationship didn't work out.

A few other things to consider would be;
What happens when your fiancée graduates and finds a great job that has a long commute from where you are at?

Be sure to look into homeowners insurance and liability insurance for renting out the rooms. This will be much different that a non-rental or a house where you rent the entire house.

Houses near the university likely cost more and have a less family friendly ambience then houses that are not so close. A non-university area house might be a better and less expensive choice to live in long term and your fiancée could commute until she graduates.

Eventually you will likely want to not have renters and a four bedroom house could be too big and expensive for you then. A duplex might be a better choice than a large house.

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interplanetjanet
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Re: Go For It? (House Purchase)

Post by interplanetjanet » Wed Feb 20, 2013 7:41 pm

I'm not going to say yes or no - this could potentially be a good deal for you even if you only put 10% down. It could also be bad. We don't know the town or the real estate market.

However, I think it could leave you tight on cash if a major issue crops up. If you do purchase, I would move your Roth IRA into either a money market or similar very safe fund and consider it an extension of your emergency fund/liquid cash. Assuming it amounts to $15k-25k or so, it would tip the scales for me as to whether or not you had a sufficient cushion.

As you built up additional nonretirement savings, you could move the RIRA back into your asset allocation. This way, you have preserved the tax-advantaged space you have built up.

livesoft
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Re: Go For It? (House Purchase)

Post by livesoft » Wed Feb 20, 2013 7:49 pm

Go for it. Seriously.
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jridger2011
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Re: Go For It? (House Purchase)

Post by jridger2011 » Wed Feb 20, 2013 8:38 pm

The red flag seems to be 10% down. Why not wait until your fiance/wife finishes school and see where the winds of a career may lead you both? There will be sunk costs in closing, property taxes, and maintenance you will not recover even in the 5 years.

alonas
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Joined: Tue Feb 19, 2013 11:32 pm

Re: Go For It? (House Purchase)

Post by alonas » Wed Feb 20, 2013 10:21 pm

Thanks for the insight everyone. The responses are sort of what I expected. Here is some more info for a few of the questions that were thrown my way.
bottlecap wrote:My response would be no, although admittedly you don't give us enough info (are you 20 or 29, what your life is like, etc...). A big factor is how you live your life. Do you like to go out and do fun things at night and on weekends, or is your idea of fun doing home repair over the weekend?
I'm in the Mid 20's. I'm the type of individual that enjoys staying in on Sunday to watch football games and drink beer as opposed to going out to sports bars. I also enjoy many DIY/outdoor hobbies that would welcome some badly needed garage space/freedom. Overall, I would say that I am more domesticated, handy, and home-oriented than the average individual my age.
Grt2bOutdoors wrote: You buy the home and that $1,500 - $2,000 you save every month will go right out the window. My house has good bones, guess what?.... it still needs to be maintained.
When I do buy a house (whether it be soon or many years down the road), I hope to find a property that does not require me to spend more than 10% of its purchase price each year on maintenance (i.e. If it really costs $24,000/year to maintain a $200,000 house, a lot more people would be in trouble). I am still relatively young and plan to see my salary increase as I progress throughout my career. Also, these numbers are based on my income alone. When my fiancee joins the workforce FT, our gross income is expected to double, but in the long run, we hope to move to SAHM status and/or PT when the time comes.
Watty wrote:It was not clear if you would be buying this yourself or if you and your fiancée would be buying it together.
I'll be purchasing this under my name alone.
Watty wrote:What happens when your fiancée graduates and finds a great job that has a long commute from where you are at?
Location would be a high criterion in the home search. I'll be looking in central neighborhoods that would avoid potential commute issues.
Watty wrote:Be sure to look into homeowners insurance and liability insurance for renting out the rooms. This will be much different that a non-rental or a house where you rent the entire house.

Thanks for bringing up the property insurance issue that can arise if I choose to rent out a room or two. I haven't considered that yet.
Watty wrote:Eventually you will likely want to not have renters and a four bedroom house could be too big and expensive for you then. A duplex might be a better choice than a large house.
I think a 4 bedroom house would be better for my outlook as it would give me the option to rent out a room or two, but can be used as a standard single family residence. A duplex would lock me into landlord status.
interplanetjanet wrote:I think it could leave you tight on cash if a major issue crops up. If you do purchase, I would move your Roth IRA into either a money market or similar very safe fund and consider it an extension of your emergency fund/liquid cash. Assuming it amounts to $15k-25k or so, it would tip the scales for me as to whether or not you had a sufficient cushion.
Good point with the emergency fund. Depending on the type of loan that I go with, I can definitely be in the situation where my Roth IRA will have to fill in for a good chunk of my emergency fund.

alonas
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Re: Go For It? (House Purchase)

Post by alonas » Wed Feb 20, 2013 10:34 pm

Savvy wrote:What do you expect your monthly payment to be? What do you expect to come in from renters?
Here are some numbers that I've run with an online calculator.

Purchase Price: $200,000
Down Payment: $20,000
Mortgage Term: 30 years
Interest Rate: 3.8%
Property Tax: $2,100/year
Property Insurance: $1,200/year
PMI: 0.75% (Default was 0.52% on the calculator, but I do not know what is standard nowadays or how much it varies)

RESULTS
Total Monthly Payment until PMI is omitted: $1,234
Total Monthly Payment without PMI: $1,122
First Payment Allocation:
  • Principal: $269
    Interest: $570
    Tax, Insurance, PMI: $396
If I choose to rent out a room or two (if/when I go through with this :confused ), I would have my choice of tenants with a rent of $400 (+utilities) each.

NorCalDad
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Re: Go For It? (House Purchase)

Post by NorCalDad » Wed Feb 20, 2013 11:47 pm

Even though I think you should wait, I've seen worse homebuying scenarios and you seem level-headed. I just don't think there's a rush to buy, and my standard advice would be to wait until you're ready to settle into a situation for the long haul. Marriage, a new career and kids can change your needs very quickly. In many cases I've seen, the house people choose when they're 20-something and childless is not the same house they want when they're 30-something and have kids.

wilked
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Re: Go For It? (House Purchase)

Post by wilked » Thu Feb 21, 2013 7:23 am

As I see it there are two main negatives.

1. If you were to buy and sell 5 years later, you lose appx 7% from real estate fees, etc. On a $200,000 house that is $14K, or appx $3K a year.
2. You lose flexibility at a time when you need to be most flexible (early in your career, possibly about to get married, and with a possible wife in college).

Those negatives outweigh any positive of possibly saving $200-400 a month on the rent in my book.

bigred77
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Re: Go For It? (House Purchase)

Post by bigred77 » Thu Feb 21, 2013 10:39 am

My questions for you would be:

1.) Whats your gross salary and how stable is your job?

2.) Who's Paying for your upcoming wedding?

3.) Why 10% down if you can wait a year and put 20% down, buy a little furniture, and still have 10k in emergency savings?

epilnk
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Re: Go For It? (House Purchase)

Post by epilnk » Thu Feb 21, 2013 12:37 pm

NorCalDad wrote:Even though I think you should wait, I've seen worse homebuying scenarios and you seem level-headed. I just don't think there's a rush to buy, and my standard advice would be to wait until you're ready to settle into a situation for the long haul. Marriage, a new career and kids can change your needs very quickly. In many cases I've seen, the house people choose when they're 20-something and childless is not the same house they want when they're 30-something and have kids.
+1

I wouldn't. But OP may be 'older' than I was at 25 - some people are ready earlier than others. It has a reasonable chance of working out and the downside probably isn't huge. At worst OP starts his family in this house, then exchanges it for the one he really wants after the clue train hits but before the kids are ready for school.

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