Best way to be a first-time home buyer if I intend to move in three years?

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Topic Author
JustGotScammed
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Best way to be a first-time home buyer if I intend to move in three years?

Post by JustGotScammed »

Hello. I have tried saving for a down payment the past four years while homes in my area have increased 80%. My wife decided she wants a house, as all of our friends have one except for us, even if it's a starter home. It will probably take us another 3-4 years to be able to afford "a nice house" and we've already been renting for 7 years and don't want to do it for 3-4 more years.

My question: What is the most cost effective way to be a first-time home buyer now for a starter home with the understanding I'll be looking to buy a larger home in 2027 or 2028. Thank you.
WhitePuma
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by WhitePuma »

JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm
My wife decided she wants a house, as all of our friends have one except for us.
This has to be one of the most ridiculous reasons I’ve ever heard for wanting to get a house. You really should try to focus on whether a house makes sense for your lifestyle, needs, budget, career plans, etc.
LakesandRivers
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by LakesandRivers »

Not a great reason to buy a house, and given your short timeline, renting is the best option.
Mike Scott
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by Mike Scott »

Keep renting until you are ready to settle for more than three years.
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ResearchMed
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by ResearchMed »

JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm My question: What is the most cost effective way to be a first-time home buyer now for a starter home with the understanding I'll be looking to buy a larger home in 2027 or 2028. Thank you.

You would be a first-time home buying which very likely means that you are not very familiar with costs of buyer a home... and then soon selling another. Each time, it can be expensive due to a variety of regular costs.
And IF the housing market moves in the "wrong" direction (up when you are buying; down when you are selling), those costs can be considerable.

That money could instead be saved and used toward a home that you plan to be in for many more years.
If you don't think you'll ever be in a home for a longer time, then continuing to rent is prudent.

If you want a "house", chances are you can find a single family home to rent.
But as mentioned above, to spend the money (and effort!) buying/selling a home for just a few years because your friends own homes... not wise at all.
If they each purchased a very expensive car, would you feel the need to do that too? (If you answer is "yes" to this also, then you should both spend some time planning future savings and what you'll need for retirement and possible long term care... and see how that might work out, or not.)

RM
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spth
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by spth »

LakesandRivers wrote: Tue Jan 16, 2024 8:53 pm Not a great reason to buy a house, and given your short timeline, renting is the best option.
I don’t know, seems like a reasonable non-financial reason to want a house. And buying a starter home, creating equity, and then using the equity to buy a nicer house seems like a typical path.
DoTheMath
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by DoTheMath »

It is reasonable to want to own your home. Two warnings, though.

First, it is very easy to underestimate the cost of buying and owning a home. For example, we recently bought a new home. Despite having experience with owning a home and getting a good inspection, we were surprised to learn after some heavy rain that while they look good, the gutters are actually complete garbage. They were not properly installed in various ways. Presumably this will require all new gutters, and repairs in various places, and quite possibly a new roof years before we planned to do it. From experience, we knew to have the money for such possibilities and this is only an annoyance. A first-time buyer who is stretching their budget would find it a budget blowing disaster.

Even if there is no surprises, the costs run up quickly. We've spent a lot of money in the last month and made many trips to Home Depot.

Second, it is also easy to not realize the high roundtrip cost of buying and selling a house. I'd say ~10% is a fair estimate.

Putting those together, you and your SO should accept that buying a house now likely pushes back your second house by another 3 years (or more). If you're okay with that, then feel free to go ahead. My advice then to buy with an eye towards selling, not towards what you want in a house. You don't plan to live in it for long, and you don't want it to take long to sell (or to appreciate more slowly than the market) because it's quirky in some way.
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supersharpie
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by supersharpie »

JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm Hello. I have tried saving for a down payment the past four years while homes in my area have increased 80%. My wife decided she wants a house, as all of our friends have one except for us, even if it's a starter home. It will probably take us another 3-4 years to be able to afford "a nice house" and we've already been renting for 7 years and don't want to do it for 3-4 more years.

My question: What is the most cost effective way to be a first-time home buyer now for a starter home with the understanding I'll be looking to buy a larger home in 2027 or 2028. Thank you.
Just a word of warning: there is a good chance you will lose money only owning for three years. You have to factor in taxes, fees, commissions, home repairs, and the potential for a downturn in the housing market.

The smart move is to keep renting until you can afford a home that you would be comfortable staying in for the long-term.
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JustGotScammed
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by JustGotScammed »

supersharpie wrote: Tue Jan 16, 2024 9:59 pm
JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm Hello. I have tried saving for a down payment the past four years while homes in my area have increased 80%. My wife decided she wants a house, as all of our friends have one except for us, even if it's a starter home. It will probably take us another 3-4 years to be able to afford "a nice house" and we've already been renting for 7 years and don't want to do it for 3-4 more years.

My question: What is the most cost effective way to be a first-time home buyer now for a starter home with the understanding I'll be looking to buy a larger home in 2027 or 2028. Thank you.
Just a word of warning: there is a good chance you will lose money only owning for three years. You have to factor in taxes, fees, commissions, home repairs, and the potential for a downturn in the housing market.

The smart move is to keep renting until you can afford a home that you would be comfortable staying in for the long-term.
If you had to choose between stretching now financially to avoid the second move, or spending less and making the second move in three years, which would you choose?
rossington
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by rossington »

JustGotScammed wrote: Tue Jan 16, 2024 10:05 pm
supersharpie wrote: Tue Jan 16, 2024 9:59 pm
JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm Hello. I have tried saving for a down payment the past four years while homes in my area have increased 80%. My wife decided she wants a house, as all of our friends have one except for us, even if it's a starter home. It will probably take us another 3-4 years to be able to afford "a nice house" and we've already been renting for 7 years and don't want to do it for 3-4 more years.

My question: What is the most cost effective way to be a first-time home buyer now for a starter home with the understanding I'll be looking to buy a larger home in 2027 or 2028. Thank you.
Just a word of warning: there is a good chance you will lose money only owning for three years. You have to factor in taxes, fees, commissions, home repairs, and the potential for a downturn in the housing market.

The smart move is to keep renting until you can afford a home that you would be comfortable staying in for the long-term.
If you had to choose between stretching now financially to avoid the second move, or spending less and making the second move in three years, which would you choose?
Everyone’s situation is different. As mentioned above there are many different factors in life that should be considered. You need to dig deep with your spouse and compare the pros and cons of either decision.
Give us more details about where you are at this stage in life and what the actual situation is for you two.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
FIRWYW
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by FIRWYW »

supersharpie wrote: Tue Jan 16, 2024 9:59 pm
JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm Hello. I have tried saving for a down payment the past four years while homes in my area have increased 80%. My wife decided she wants a house, as all of our friends have one except for us, even if it's a starter home. It will probably take us another 3-4 years to be able to afford "a nice house" and we've already been renting for 7 years and don't want to do it for 3-4 more years.

My question: What is the most cost effective way to be a first-time home buyer now for a starter home with the understanding I'll be looking to buy a larger home in 2027 or 2028. Thank you.
Just a word of warning: there is a good chance you will lose money only owning for three years. You have to factor in taxes, fees, commissions, home repairs, and the potential for a downturn in the housing market.

The smart move is to keep renting until you can afford a home that you would be comfortable staying in for the long-term.
+1. Been there. Done that. Learn from my mistakes. Can add this to the thread of “what is you worst financial mistake”
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by dboeger1 »

We bought our first home a little over 3 years ago. One thing I'm super happy about is that it's just good enough that we would be content staying here for the long term. Sure, we would like a bigger house in a better neighborhood with better schools, but we are fine where we're at. With some recent sweat equity in the form of a DIY retaining wall and raised patio (which was well beyond my DIY comfort zone and a great, albeit all-consuming, learning experience), my wife has said she would have trouble selling this house knowing how hard we worked on making it on our own. There have also been, and continue to be, many surprise costs, everything from plumbing to the roof, because of the age of the home. We had enough going into the purchase to comfortably deal with these situations as they arose, but I could easily see how first-time buyers stretching their budget could get trapped in a difficult place trying to pay for emergency repairs.

As you can imagine, from my experience, it's really hard for me to recommend stretching that far for a starter home just because of peer pressure. That peer pressure can quickly and easily turn into more serious types of pressure. Having a home that is affordable and the right fit for you is such a wonderful feeling. I wouldn't want you to miss out on that because you jumped the gun and bought something for the short term at the expense of your long term goals.
gotoparks
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by gotoparks »

Too many costs involved with buying a home to move in 3 years. Houses can be money pits with all the costs.
Bimmer
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by Bimmer »

Justgotscammed,

Your second question is the better one. My initial reaction to your first question was the same as most others - just wait rather than owning for 3 years. But my second reaction to your initial question was, that if you buy a starter home, one way to protect yourself is to make sure the starter home has room to grow in the future if you cannot move. If the smaller home has the potential to be added on to, it is less risky. My starter home was on a very small plot of land, so we had to move when we had a third child, as adding on would not have worked. The third option, as you say, is to stretch and buy the larger home. Just do this carefully. If it seems too much to stretch, buy a smaller home that has enough land to do an addition later on if your cannot upgrade to a larger home for whatever reason. You may actually prefer putting an addition to moving after you have made relationships in your starter home neighborhood.

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rushrocker
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by rushrocker »

It's my understanding that as a general rule of thumb you should plan to keep a house for at least 5 years to avoid losing money on the investment. Depending on the housing market you're in, this could actually be more like 10 years.
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by muffins14 »

spth wrote: Tue Jan 16, 2024 9:33 pm
LakesandRivers wrote: Tue Jan 16, 2024 8:53 pm Not a great reason to buy a house, and given your short timeline, renting is the best option.
I don’t know, seems like a reasonable non-financial reason to want a house. And buying a starter home, creating equity, and then using the equity to buy a nicer house seems like a typical path.
The transaction costs from buying, selling, and buying two homes in 7 years seems like a nontrivial cost. Plus mortgage fees. Plus actually being able to offload house number 1 as expected.

The answer here is to rent until you can get the longer-term house. Or to settle for a more modest house. just because other friends own a house doesn’t mean the friends are financially responsible. I’d rather have a million dollars and rent than have 200k and own a home
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liz24
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by liz24 »

JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm Hello. I have tried saving for a down payment the past four years while homes in my area have increased 80%. My wife decided she wants a house, as all of our friends have one except for us, even if it's a starter home. It will probably take us another 3-4 years to be able to afford "a nice house" and we've already been renting for 7 years and don't want to do it for 3-4 more years.

My question: What is the most cost effective way to be a first-time home buyer now for a starter home with the understanding I'll be looking to buy a larger home in 2027 or 2028. Thank you.
I am 37, and I used to feel like your wife. I lived in a really nice, new, and big (to me, 2,000+ square ft) home, and endured the issues that come with a home, weather events, HVAC in the crawl space (?), and oddities that come up with home ownership.

For anyone feeling this way- I wish I could give you the experience of home ownership to help you realize that the house, by itself, is not going to make you happy. It comes with unique headaches, concerns, unexpected expenses, that are different from apartment life.

After owning a home for 2 years (purchased in 2020 and sold by 2022), I came to realize that a home can be established anywhere, an apartment, condo, or single family dwelling. It really is your own mindset that helps make a place cozy & home.
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by Yarlonkol12 »

rushrocker wrote: Wed Jan 17, 2024 2:40 am It's my understanding that as a general rule of thumb you should plan to keep a house for at least 5 years to avoid losing money on the investment. Depending on the housing market you're in, this could actually be more like 10 years.
+1, we moved in 2006, bought a house and lived there for 8 years. Sold it in 2014 for 20% less than we bought it for. The next home we bought was also "on sale" and has since doubled in value so it can work out overtime but just keep the transaction costs in mind amd possibly of depreciation
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Jeepguy
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by Jeepguy »

Op how much do you pay in rent. How much have you saved for a down payment. And what is the cost of your starter house. What is your gross annual expenses. What is the mortgage for your starter home. Knowing these will help evaluate if you can afford a starter home.
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by Pops1860 »

This thread has been moved to the “Personal Finance (Not Investing)” forum. Moderator Pops1860
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by BrooklynInvest »

At minimum I'd make a good estimate of the purchase costs AND the sale costs after 3 years to discuss.

For the sale it'd be easy to model selling at current price, at 10% premium and 10% loss. If you're putting 20% down and paying a realtor, say 5% to sell (plus lawyer fees etc.) a 10% decline in purchase price pretty much wipes out a 20% down payment.

Personally I wouldn't buy anything with less than a 5 year horizon but each person's situation is different... sometimes. Good luck OP,
Sax32
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by Sax32 »

JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm Hello. I have tried saving for a down payment the past four years while homes in my area have increased 80%. My wife decided she wants a house, as all of our friends have one except for us, even if it's a starter home. It will probably take us another 3-4 years to be able to afford "a nice house" and we've already been renting for 7 years and don't want to do it for 3-4 more years.

My question: What is the most cost effective way to be a first-time home buyer now for a starter home with the understanding I'll be looking to buy a larger home in 2027 or 2028. Thank you.
IMO, I think most people make the mistake of buying a starter home. We first bought our starter home in 2006 for 224k. The great recession hit and housing prices plummeted. 9 years later we sold that same home for 224k. We then moved to a bigger home with 4 bd's, 3 baths, 2 car garage, with an acre lot in a good school district in 2015 for 280k. What most people forget is that you pay closing costs both ways. It ended up being 45k to move twice. Costs to purchase that house, costs to sell the house and costs to buy another home. I wish we could have been given more wisdom when buying our first home, would have saved us a bundle. Experts have said that on average, you should stay in your home for a minimum of 7 years to recoup the costs of moving in. For us, we lost a bundle after 9 years.
spth
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by spth »

Sax32 wrote: Wed Jan 17, 2024 9:24 am
JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm Hello. I have tried saving for a down payment the past four years while homes in my area have increased 80%. My wife decided she wants a house, as all of our friends have one except for us, even if it's a starter home. It will probably take us another 3-4 years to be able to afford "a nice house" and we've already been renting for 7 years and don't want to do it for 3-4 more years.

My question: What is the most cost effective way to be a first-time home buyer now for a starter home with the understanding I'll be looking to buy a larger home in 2027 or 2028. Thank you.
IMO, I think most people make the mistake of buying a starter home. We first bought our starter home in 2006 for 224k. The great recession hit and housing prices plummeted. 9 years later we sold that same home for 224k. We then moved to a bigger home with 4 bd's, 3 baths, 2 car garage, with an acre lot in a good school district in 2015 for 280k. What most people forget is that you pay closing costs both ways. It ended up being 45k to move twice. Costs to purchase that house, costs to sell the house and costs to buy another home. I wish we could have been given more wisdom when buying our first home, would have saved us a bundle. Experts have said that on average, you should stay in your home for a minimum of 7 years to recoup the costs of moving in. For us, we lost a bundle after 9 years.
You know your math, but what would your current home have cost in 2006? I’m guessing at least $280,000, but you could not afford it then.
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by anon_investor »

Mike Scott wrote: Tue Jan 16, 2024 8:53 pm Keep renting until you are ready to settle for more than three years.
+1000!
phinanciallyfit
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by phinanciallyfit »

Like others said, if you buy a 'move in ready' home then you will likely lose money selling in 3 years. But maybe you'll end up liking the home and stay in it longer. You can run a few scenarios with different assumptions about later selling price (don't be overly optimistic - things can change) and the typical real estate fees for your area.

How handy are you and how much free time do you have in your weeks? Another option is to buy a 'fixer upper' and improve it so that you are more likely to gain equity. However, you'd need to do your due diligence because there are some issues that are very expensive to fix (I wouldn't get anything with foundation issues, for example).

Everything comes at a cost -time, money, or both. I'd sit down with my spouse and develop a list of shared long term goals then decide what path is most likely to get us there. Good luck.

I think calculating the lost cost on buying a house vs your rental costs also make sense. Owning a home is expensive, but if you are set to lose $50k and you'd spend $50k in rent, then it is more a matter of which 'headache' you'd prefer. These are just random numbers, you can run your own and compare as you see fit and then make a decision.


If you are open to it, you could also create a post with your budget and see if people can give you insights into how to save more so that you can reach your down payment goal faster.
Last edited by phinanciallyfit on Wed Jan 17, 2024 10:50 am, edited 2 times in total.
raisinsaregrapes
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by raisinsaregrapes »

"Best way to be a first-time home buyer if I intend to move in three years?"

Wait three years, then buy a home. That's the best way.
JfonLA
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by JfonLA »

Here's how I think about it - let's say you spend $2000 a month on rent. At the end of three years, that's $72k gone. Or you can spend $12k or so on closing costs, plus the payments for principal, interest, taxes, insurance on a home. If you buy on an ARM at 5.5% and the all-in payment is about $2000k, assuming a $300k house as an example, you'd have $12k in accumulated equity in three years (offsetting your closing costs). Plus any appreciation, less the transaction costs to sell it (realtor fees, closing costs, moving costs). So maybe it's little more expensive but satisfies your desire for a house. Or maybe you end up making money.

There's a bunch of variables that I can't know the numbers on, but that's the thought process to me. Also, it depends on surprise expenses, luck in the market, etc. And of course some will argue the opportunity cost of the downpayment.

Here's some ideas if you decide on buying:

- Look for an area that is appreciating more rapidly than others. Sometimes the 'better' neighborhoods appreciate at slower rates.
- See if you qualify for downpayment assistance programs. Keep an eye on the terms - some may have clawbacks if you sell too early, some are 'forgivable seconds' that require you live there for so long, etc. Some are simply grants - aka 'free money' with no strings.
- Try to negotiate seller paid closing costs. It may not save you much on the house overall because smart sellers factor that into the overall deal, but it does let you put more cash to downpayment and perhaps get you past a loan-to-value threshold that will save you money on the payment
- Look for an Adjustable rate mortgage. A 3 year ARM will have the lowest rate and suitable if you truly intend to sell in three years and/or you can handle a payment increase. However, it's likely you won't have a payment increase and may have a decrease based on current rates. That's a complete guess of course, since we can't know.
- pick a house that you won't be tempted to invest in improvements, three years is not enough to be worth much investment unless you buy a fixer for which you can live in while you reno and believe you'll get a significant return. BTW, cosmetic renos can be inexpensive and go a long way, but be sure you aren't out-doing the area. Fixers are not a bad option, but is a whole other topic, and probably won't satisfy the reasons you want a house in the first place (which sounds like feeling on par with friends)
- If you like an area that has doubles, you might consider that. Projected rental income can be used to qualify for many loan programs and at some future point you might take the option to convert that double to a single if you otherwise love the area but want more space (I did this).

I'm don't hate the idea as much as many of these posts do. But do be smart about it and consider the closing costs and move in costs.
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by Big Dog »

JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm Hello. I have tried saving for a down payment the past four years while homes in my area have increased 80%. My wife decided she wants a house, as all of our friends have one except for us, even if it's a starter home. It will probably take us another 3-4 years to be able to afford "a nice house" and we've already been renting for 7 years and don't want to do it for 3-4 more years.

My question: What is the most cost effective way to be a first-time home buyer now for a starter home with the understanding I'll be looking to buy a larger home in 2027 or 2028. Thank you.
I woudl not buy a house with a plan to move in 3 years.
JS-Elcano
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by JS-Elcano »

dboeger1 wrote: Wed Jan 17, 2024 12:27 am We bought our first home a little over 3 years ago. One thing I'm super happy about is that it's just good enough that we would be content staying here for the long term. Sure, we would like a bigger house in a better neighborhood with better schools, but we are fine where we're at. With some recent sweat equity in the form of a DIY retaining wall and raised patio (which was well beyond my DIY comfort zone and a great, albeit all-consuming, learning experience), my wife has said she would have trouble selling this house knowing how hard we worked on making it on our own. There have also been, and continue to be, many surprise costs, everything from plumbing to the roof, because of the age of the home. We had enough going into the purchase to comfortably deal with these situations as they arose, but I could easily see how first-time buyers stretching their budget could get trapped in a difficult place trying to pay for emergency repairs.

As you can imagine, from my experience, it's really hard for me to recommend stretching that far for a starter home just because of peer pressure. That peer pressure can quickly and easily turn into more serious types of pressure. Having a home that is affordable and the right fit for you is such a wonderful feeling. I wouldn't want you to miss out on that because you jumped the gun and bought something for the short term at the expense of your long term goals.
That is what I did too and completely agree. I bought what most would consider a starter home, but decided to renovate it to my liking (nothing major like additions or removing walls, just new floors, bathrooms redone, paint, new patio, etc) and will stay put. I love it. It's far below my means and nearly paid off. Of course, if I looked on zillow, I would find something "bigger & better", but that will always be the case.
Sax32
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by Sax32 »

spth wrote: Wed Jan 17, 2024 10:14 am
Sax32 wrote: Wed Jan 17, 2024 9:24 am
JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm Hello. I have tried saving for a down payment the past four years while homes in my area have increased 80%. My wife decided she wants a house, as all of our friends have one except for us, even if it's a starter home. It will probably take us another 3-4 years to be able to afford "a nice house" and we've already been renting for 7 years and don't want to do it for 3-4 more years.

My question: What is the most cost effective way to be a first-time home buyer now for a starter home with the understanding I'll be looking to buy a larger home in 2027 or 2028. Thank you.
IMO, I think most people make the mistake of buying a starter home. We first bought our starter home in 2006 for 224k. The great recession hit and housing prices plummeted. 9 years later we sold that same home for 224k. We then moved to a bigger home with 4 bd's, 3 baths, 2 car garage, with an acre lot in a good school district in 2015 for 280k. What most people forget is that you pay closing costs both ways. It ended up being 45k to move twice. Costs to purchase that house, costs to sell the house and costs to buy another home. I wish we could have been given more wisdom when buying our first home, would have saved us a bundle. Experts have said that on average, you should stay in your home for a minimum of 7 years to recoup the costs of moving in. For us, we lost a bundle after 9 years.
You know your math, but what would your current home have cost in 2006? I’m guessing at least $280,000, but you could not afford it then.
That's why if you cannot afford it, you should wait and save up more for a good DP, otherwise your moving twice.
Sax32
Posts: 216
Joined: Wed Jan 11, 2023 8:44 am

Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by Sax32 »

Here's another thought. Are you at all handy? What if you moved into a duplex and lived on one side and rented the other side? This would allow you to move into a more expensive home for the next 3 years and have your tenants pay a significant amount of your mortgage. After 3 years you can move out it and either sell or rent the duplex now to two tenants covering the entire mortgage. If you don't have the savings to buy the house you want, then you sell the duplex and take the proceeds and buy a good house that isn't a starter home. I strongly believe that interest rates on home purchases will go back down to around 4.5% or so and that will cause more home owners that have 2-3% interest rates who want something different, to put their home on the market, which will increase the supply of homes, which could start to bring down the prices. I think this will happen within the next 2 years. I saw on bankrate.com that interest rates are now in the 5's.
Spooky
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by Spooky »

Since tax laws have changed, the NYT Rent/Buy calculator may not be as accurate as it was previously, but it is still worthwhile to play with the numbers.
https://www.nytimes.com/interactive/201 ... lator.html

Another consideration with planning to own for 3 years is that when you find the "nicer home" in 3-4 years, you have to get your equity out of the first home to buy. That's not the end of the world, but it does add some complexity. If you can make an offer without having to have selling your house as a contingency, that is more appealing to sellers. If you can't afford the "nicer home" now, how long can you afford to cover 2 mortgages? And it's hard to predict what the housing market might look like in a few years.
WhitePuma
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by WhitePuma »

OP- you’ve received a lot of good advice here. What do you plan to do? Keep us posted and best of luck!
SmallSaver
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by SmallSaver »

raisinsaregrapes wrote: Wed Jan 17, 2024 10:46 am "Best way to be a first-time home buyer if I intend to move in three years?"

Wait three years, then buy a home. That's the best way.
Just a counterpoint - I did that and the cost to buy a home more than doubled.
LittleMaggieMae
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by LittleMaggieMae »

JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm My question: What is the most cost effective way to be a first-time home buyer now for a starter home with the understanding I'll be looking to buy a larger home in 2027 or 2028. Thank you.
First, you need to do some homework:
1.) look into whatever first time homebuyer things you can use. WARNING: they may not be smart things to use (high interest rates or having to fulfil some qualifications or have to stay in the house a specific amount of time). You should make yourself familiar with the criteria for what constitutes a "first time home buyer" so you can best utilize what's available, now and maybe in the future.

2.) wrap your mind around not putting 20% down and having PMI. This isn't always a bad thing. The homework part involves determining it YOUR situation/income/goals will benefit from putting down less than 20%.

3.) As part of number 2 - some of the homework may involve learning how ARMs work and which type MIGHT best fit your situation/income/goals.
(A nephew put down less than 20%, got an ARM that doesn't adjust for 10 years, and got some help with the down payment from family and some local program (he's a teacher) that waives PMI or something like that.) He should be fine long term unless life happens really really bad. And no amount of "doing the safest thing" overcomes really really bad life happening. :(

4.) More homework involves coming to terms with cost of buying a house AND then turning around and selling that home. These two transactions may eat up any equity you build over the first few years of home ownership. You may go into your next home with even less money after the dust settles from the sale.

And last but not least
5.) start thinking about all the expenses you will have AFTER you buy your home - and then work your budget/spending plan/current savings so that you will go into homeownership with an EF. You don't want to buy and then run up MORE debt in the first 12 to 18 months of home ownership. It just makes selling the house soon after purchase an even bigger money drain (loss).

Keep in mind that what ever "starter home" you purchase may become a more permanent home - 5 to 10 years (maybe longer).
Choose your "starter home" carefully. Don't think "Oh, I can live with A, B, C, D, E, F and G for a few years - it won't be so bad!". Get a starter home that has a minimum of things or NO things will feel you will just tough out living with because some day you won't have to deal with it. No house is ever "perfect" - but a "good imperfect" house will have faults that are easier to live with than a house you quickly buy and settle for whatever it is so you can just be done and say "Yay! I'm a home buyer!" .
Tavistock1
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by Tavistock1 »

JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm Hello. I have tried saving for a down payment the past four years while homes in my area have increased 80%. My wife decided she wants a house, as all of our friends have one except for us, even if it's a starter home. It will probably take us another 3-4 years to be able to afford "a nice house" and we've already been renting for 7 years and don't want to do it for 3-4 more years.

My question: What is the most cost effective way to be a first-time home buyer now for a starter home with the understanding I'll be looking to buy a larger home in 2027 or 2028. Thank you.
Long time Realtor- min time I’ve ever recommended when purchase is 5 years and preferably 7+
MarkRoulo
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by MarkRoulo »

JfonLA wrote: Wed Jan 17, 2024 11:14 am Here's how I think about it - let's say you spend $2000 a month on rent. At the end of three years, that's $72k gone. Or you can spend $12k or so on closing costs, plus the payments for principal, interest, taxes, insurance on a home. If you buy on an ARM at 5.5% and the all-in payment is about $2000k, assuming a $300k house as an example, you'd have $12k in accumulated equity in three years (offsetting your closing costs). Plus any appreciation, less the transaction costs to sell it (realtor fees, closing costs, moving costs). So maybe it's little more expensive but satisfies your desire for a house. Or maybe you end up making money.
...
One must run the numbers for the specific neighborhood and house/apartment.

The Zillow infor for a specific house near me shows this:
  • Est. refi payment: $13,182/mo
  • Rent Zestimate: : $4,526
The numbers are plausible. The house is part of a complex with many similar houses so the comps are pretty straight forward and easy to check. I can see that similar houses to rent in the area are in the $4,500 - $5,000 range.

If I plug the Zillow price estimate for the house into my local credit union's mortgage estimator is says that a 5/5 30-year ARM would have a payment of ~11,000/month.

So in this case it would cost you about $7,000/month to "own" rather than rent. In this case, even if prices are rising, it may be a good idea to not buy ...

Other areas with other prices and costs might result in a different conclusion.

But you need to run the numbers at a bare minimum.

OP, what happens to your monthly housing expenses if you purchase rather than continuing to rent???
Nottingham
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by Nottingham »

If you know you are going to move in 3 years don't bother. It will take you at least 6-12 months just to settle down and adjust the house to your needs.
spth
Posts: 259
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by spth »

Sax32 wrote: Wed Jan 17, 2024 11:56 am
spth wrote: Wed Jan 17, 2024 10:14 am
Sax32 wrote: Wed Jan 17, 2024 9:24 am
JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm Hello. I have tried saving for a down payment the past four years while homes in my area have increased 80%. My wife decided she wants a house, as all of our friends have one except for us, even if it's a starter home. It will probably take us another 3-4 years to be able to afford "a nice house" and we've already been renting for 7 years and don't want to do it for 3-4 more years.

My question: What is the most cost effective way to be a first-time home buyer now for a starter home with the understanding I'll be looking to buy a larger home in 2027 or 2028. Thank you.
IMO, I think most people make the mistake of buying a starter home. We first bought our starter home in 2006 for 224k. The great recession hit and housing prices plummeted. 9 years later we sold that same home for 224k. We then moved to a bigger home with 4 bd's, 3 baths, 2 car garage, with an acre lot in a good school district in 2015 for 280k. What most people forget is that you pay closing costs both ways. It ended up being 45k to move twice. Costs to purchase that house, costs to sell the house and costs to buy another home. I wish we could have been given more wisdom when buying our first home, would have saved us a bundle. Experts have said that on average, you should stay in your home for a minimum of 7 years to recoup the costs of moving in. For us, we lost a bundle after 9 years.
You know your math, but what would your current home have cost in 2006? I’m guessing at least $280,000, but you could not afford it then.
That's why if you cannot afford it, you should wait and save up more for a good DP, otherwise your moving twice.
Like you did?
Charon
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by Charon »

JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm I'll be looking to buy a larger home in 2027 or 2028
May I ask why you'll be looking for a larger home? Home sizes today are already ridiculously big - is there a specific reason why you'll need a large one? (And "kids" is not a great reason, unless you're planning on 12 of them - the average family size has been dropping for decades while the average home size has been substantially increasing.)

You'll save yourself a lot of headache and a lot of money if you abandon the idea of a "starter home" and just call it "home". Assess what you actually want, as opposed to just keeping up with the Joneses.
Glockenspiel
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by Glockenspiel »

If you know you're moving in 2027 or 2028, I'd just keep renting and saving money until then. No need for a starter home, just save for your forever home.
Sax32
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by Sax32 »

spth wrote: Wed Jan 17, 2024 7:15 pm
Sax32 wrote: Wed Jan 17, 2024 11:56 am
spth wrote: Wed Jan 17, 2024 10:14 am
Sax32 wrote: Wed Jan 17, 2024 9:24 am
JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm Hello. I have tried saving for a down payment the past four years while homes in my area have increased 80%. My wife decided she wants a house, as all of our friends have one except for us, even if it's a starter home. It will probably take us another 3-4 years to be able to afford "a nice house" and we've already been renting for 7 years and don't want to do it for 3-4 more years.

My question: What is the most cost effective way to be a first-time home buyer now for a starter home with the understanding I'll be looking to buy a larger home in 2027 or 2028. Thank you.
IMO, I think most people make the mistake of buying a starter home. We first bought our starter home in 2006 for 224k. The great recession hit and housing prices plummeted. 9 years later we sold that same home for 224k. We then moved to a bigger home with 4 bd's, 3 baths, 2 car garage, with an acre lot in a good school district in 2015 for 280k. What most people forget is that you pay closing costs both ways. It ended up being 45k to move twice. Costs to purchase that house, costs to sell the house and costs to buy another home. I wish we could have been given more wisdom when buying our first home, would have saved us a bundle. Experts have said that on average, you should stay in your home for a minimum of 7 years to recoup the costs of moving in. For us, we lost a bundle after 9 years.
You know your math, but what would your current home have cost in 2006? I’m guessing at least $280,000, but you could not afford it then.
That's why if you cannot afford it, you should wait and save up more for a good DP, otherwise your moving twice.
Like you did?
Guess you didn't read my post. Let me try and spell it out for you. My advice is not to make the same mistake I made by buying a starter home, knowing full well we'd have to move and upgrade once we started having children. It's very costly. Be patient and buy once. Cannot believe you didn't get it the first time. If your only reason to be on this forum is to not provide helpful information, why are you here?
spth
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by spth »

Sax32 wrote: Thu Jan 18, 2024 9:42 am
spth wrote: Wed Jan 17, 2024 7:15 pm
Sax32 wrote: Wed Jan 17, 2024 11:56 am
spth wrote: Wed Jan 17, 2024 10:14 am
Sax32 wrote: Wed Jan 17, 2024 9:24 am
IMO, I think most people make the mistake of buying a starter home. We first bought our starter home in 2006 for 224k. The great recession hit and housing prices plummeted. 9 years later we sold that same home for 224k. We then moved to a bigger home with 4 bd's, 3 baths, 2 car garage, with an acre lot in a good school district in 2015 for 280k. What most people forget is that you pay closing costs both ways. It ended up being 45k to move twice. Costs to purchase that house, costs to sell the house and costs to buy another home. I wish we could have been given more wisdom when buying our first home, would have saved us a bundle. Experts have said that on average, you should stay in your home for a minimum of 7 years to recoup the costs of moving in. For us, we lost a bundle after 9 years.
You know your math, but what would your current home have cost in 2006? I’m guessing at least $280,000, but you could not afford it then.
That's why if you cannot afford it, you should wait and save up more for a good DP, otherwise your moving twice.
Like you did?
Guess you didn't read my post. Let me try and spell it out for you. My advice is not to make the same mistake I made by buying a starter home, knowing full well we'd have to move and upgrade once we started having children. It's very costly. Be patient and buy once. Cannot believe you didn't get it the first time. If your only reason to be on this forum is to not provide helpful information, why are you here?
I’m trying to be helpful. I think your math is funny. Buying a started home is often a logical thing to do.
cmr79
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by cmr79 »

OP, it sounds like FOMO is playing a very significant role in this...your friends all own houses, you and your wife see how their houses have appreciated 80% over the past four years and you feel like if you don't jump into home ownership now, you won't be able to afford the future house you really need/want in 2027.

My questions for you: what makes this different from attempting to time your local housing market and assuming that the future will reflect the recent past? What if we hit a recession that disproportionately affects your locale and housing values drop over the next three years? Why doesn't buying a house where your local housing market has significantly out gained the national housing market over the last several years seem like buying at the top to you?
Sax32
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by Sax32 »

"Like you did?" is helpful?? What part of my math is funny? Are you saying that paying closing costs to buy your starter home and then paying closing costs for the sale of that same home a few years later, where you turn around and then purchase a larger house with more closing costs, is that "Funny" math to you? Explain? How many homes have you bought and sold?
LakesandRivers
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by LakesandRivers »

spth wrote: Tue Jan 16, 2024 9:33 pm
LakesandRivers wrote: Tue Jan 16, 2024 8:53 pm Not a great reason to buy a house, and given your short timeline, renting is the best option.
I don’t know, seems like a reasonable non-financial reason to want a house. And buying a starter home, creating equity, and then using the equity to buy a nicer house seems like a typical path.
Could be, but non-financial reasons can only really be evaluated by the individual. If the non-financial outweighs the financial, go for it. But I don't think the it makes sense financially.
Topic Author
JustGotScammed
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by JustGotScammed »

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JustGotScammed
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by JustGotScammed »

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Carl53
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by Carl53 »

JustGotScammed wrote: Mon Feb 26, 2024 1:09 am
WhitePuma wrote: Tue Jan 16, 2024 8:48 pm
JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm
My wife decided she wants a house, as all of our friends have one except for us.
This has to be one of the most ridiculous reasons I’ve ever heard for wanting to get a house. You really should try to focus on whether a house makes sense for your lifestyle, needs, budget, career plans, etc.
I don't think it's ridiculous. No one wants to be the laggard/bottom of the peer group, especially with something like owning property.
Financially it will likely be less advantageous than renting. That said, happy wife, happy life. This and the outside risk that not considering her desires might ultimately lead to a financial (and personal) fiasco, as in divorce should give you pause.
cmr79
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by cmr79 »

JustGotScammed wrote: Mon Feb 26, 2024 1:09 am
WhitePuma wrote: Tue Jan 16, 2024 8:48 pm
JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm
My wife decided she wants a house, as all of our friends have one except for us.
This has to be one of the most ridiculous reasons I’ve ever heard for wanting to get a house. You really should try to focus on whether a house makes sense for your lifestyle, needs, budget, career plans, etc.
I don't think it's ridiculous. No one wants to be the laggard/bottom of the peer group, especially with something like owning property.
I think most Americans don't find "keeping up with the Jones" to be ridiculous. Most Americans aren't Bogleheads, though. You and your spouse need to make a joint decision of whether you want to take a more Bogleheads approach to home ownership vs a more typical American approach.

Most Bogleheads don't follow Bogleheads approaches to everything. Some of us buy brand new luxury vehicles. Some of us buy several thousand dollar watches. You don't have to financially optimize every decision when you get big things, like buying and holding low-cost passive index funds, correct. Housing is a pretty big one, though, and while you might get lucky with appreciation and come out ahead, you will certainly face a big penalty in terms of the extra round of closing costs with such short term ownership. Go into it with eyes wide open if this is what you choose and at least you won't be surprised if it burns you. Definitely don't take the pushback you get here as a suggestion that it would be a personal failing to buy the house and then sell it for another in 3 years. It is just a choice, and it is your money and your right to make it.
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