| Should we buy now or wait? |
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jtnc06
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| Should we buy now or wait? |
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Sorry if this is long/convoluted- this is my first post and I don't really know how to simplify our situation.
My husband and I joined the mass exodus from California so we could afford a larger home and I could stay home with our baby. We made a nice profit, moved and put that profit ($155K) in a savings account earning 4.25%. Since I am staying home with our child, my husband is the sole income and he just started a commissioned sales job. His income right now is about $45K per year- it could be more but it could also be less. So our dilemma is whether we should buy now (we're looking at homes b/w $275-$300K) or keep renting (we pay $1200/mo in rent) until he is making more money and we can easily afford our mortgage. I'm leaning toward waiting/he wants to buy now.
I'm hesitant to buy now b/c I'm nervous we'd be struggling to make our mortgage each month. We'd also have less in savings after putting 20% down on a home and it's nice that our savings is earning $500+/mo right now. We are compleltely debt free and are able to afford our rent and expenses relatively easily (although on a tight budget).
My husband is leaning toward buying now because he's nervous interest rates will continue to rise as well as home prices and we may kick ourselves if the home we want is then out of price range or the interest rates have gone too high for us to afford it. He'd rather us dip into our savings to make the mortgage each month and is confident he'll be making more money in a year or so.
Both scenarios have their pros and cons. Any advice?
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Fri Jun 16, 2006 3:09 pm |
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Kiaser
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| Re: Should we buy now or wait? |
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Well if you're debt free than you definetely have a one-up, otherwise I'd tell you to save up some more if you already scared of getting low on cash and meeting mortgage payments.
But seriously, when looking at buying a house and your budget seems a little tight it's definetely NOT gonna get any better after you bought the house. You may want to hold off until you guys are in a situation where you'll feel more comfortable about buying a house. I've seen it over and over where a couple budgets for a new house, and they thought of (what they think was) everything they needed to consider to meet the mortgage payment and have a little buffer left over. But when they actually get finished and moved in there's this or that they forgot, or some new expenses, etc etc.
As far as timing when to buy property because of rates and such, it's a little difficult. NO ONE ones which way the economy is gonna go otherwise everyone would be millionairs. Historically, interest rates are still in the low end even though they have jumped up. Don't sit and hope that it'll return to 4-5% anytime soon just because there was a few years time period that stayed that way.
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Fri Jun 16, 2006 4:59 pm |
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coaster
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That's a lot of rent. Do you need to spend that much on a house? I don't know where you live now, but around here you certainly don't need to spend that much on a very nice house suitable for your family. You only need to stay there for a few years until your family income is higher. I hate to see you spending $1200 a month and have nothing to show for it at the end of the month.
~Tim~
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Fri Jun 16, 2006 5:51 pm |
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jtnc06
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$1200 is reasonable for rent for a 3 bedroom apt where I live. $275K is on the low end for a home here. Where we moved from- California- rent was about $1800/mo for a 2 bedroom and the median home price was over $600K. So to us, $300K for a home doesn't seem like much. Our whole reason for moving was to afford a nicer home so we don't want to step back and buy something smaller than what we had before. I guess our situation is just complicated because my husband's income is so unpredictable right now.
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Fri Jun 16, 2006 7:16 pm |
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coaster
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IF you like where you are, IF you're confident your family income will be rising (and not interrupted), then I think you should use as much of that cash as you need to buy a house that's adequate. You can size your downpayment as appropriate to adjust the mortgage payments to what's comfortable. I just hate to see someone paying rent when the capacity to buy is there. Rent payments you'll never get back; and if your husband's income fluctuates downward for a time, you'll still need to spend on someplace to live. Just keep enough cash to cover the possibilities. For a single-income family, six months' living expenses is recommended. Maybe you'd be comfortable with more.
~Tim~
Eye Candy : Why Whimsy
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Fri Jun 16, 2006 8:35 pm |
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xboxundone
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If things are tight now and mortgage plus interest plus taxes isn't equall or less than your current rent then you best option is to hold off nothing like struggling to keep your home... much better to rent for few months or year...
I always say if you can't afford the home it doesn't matter what the market is doing it makes no sense to buy.
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Mon Jun 19, 2006 10:15 pm |
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No-Brainer
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| Buy slowly . . . |
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From what I read you're flushing $700 a month down the toilet.
Why not at least shop now, if you can pick something up in a distressed situation at a discount price, I'd say go for it.
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Fri Jun 23, 2006 7:55 pm |
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coaster
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Some parts of the country have turned into "buyer's markets" over the last few months. Despite the higher interest rates, it's becoming a good time to be a buyer.
~Tim~
Eye Candy : Why Whimsy
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Fri Jun 23, 2006 8:31 pm |
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mots32
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I think there are many things to consider here. You are in a great position and you have many options.
Where do you live? Are you in one of those bubble markets, such as Cali where home prices are flattening out and will most likely dip? So where did you move to? That will help in your desicion on whether to buy now or wait.
But you still need to consider interest rates, which are going up. Maybe you should take a reverse look at it...like we can afford $1500/mo and at xx% rate that will afford us a $XXXk house. Remember to add in your insurance and property taxes.
Remember when you own you are paying down your principal, when you rent you are paying down someone elses!!!
If you put 20% down on a 300k house thats $60k that leaves you $95k left in savings. A $240k mortgage at 7% for 30yrs is about $1600/month + TI.
If you've alreay established that you can afford $1500/mo then you should look for a cheaper home or consider putting more down, remember you still have $95k in the bank. You would have to play with the numbers.
You can find some caluculators at http://www.bankrate.com.
You will also find a Rent vs. Buy Calculator there.
What about buying a 2-family or a house with an apartment you can rent out to offset your costs?
You should consider investing some of that money for a higher return. I've invested as a private investor with other real estate investors who pay a 12% ROI. Get that money working for you. Start researching investment opportunities.
All things considered, I would lean towards buy, as long as you plan to STAY where you buy for awhile. That way if homes dip, it really shouldn't matter to you.
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Sat Jun 24, 2006 2:01 pm |
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jtnc06
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Well, seems like I have half of you telling me to wait and half of you telling me to buy! About the same % as our family and friends. Some help you are! 
We live in a housing market that is exploding right now- new construction everywhere and lots of existing home inventory. We talked to our tax guy and he said that he can deduct some of our rent and moving expenses since my husband works from home. His advice was to hold off buying until my husband knows better what he'll be averaging income wise. He also said we should know what the fed is doing regarding interest rates by mid august- is this true?
I guess our main worry now seeing that interest rates just went up again, is that if we wait until next year, we might price ourselves right out of the market. We've also noticed just in the 3 months since we moved here that prices seem to be creeping up a bit.
$260K is about as low as we want to go for a home, which here would be an older, existing home- anything much lower we worry will not appreciate the same way a nicer or newer home will, esp in this market where new home construction is as prevalent as it is and the average home price in the area we live is about $300K. There's also a growing market of super luxury homes starting in the $700's right around where we're looking. Don't know how this affects us really...
If we bought at $260K and put 20% down with a 6.5% rate, it would put us at about $1500/mo with tax and ins. So the big question is: is it worth it if we dipped into our savings say $300 a month for a year. After that time, if we still are struggling to make the payment, I'll go back to work or my husband will get a second job or get a better paying job. Is this a sound decision or are we just trying to justify buying something we really can't afford?!
The other scenario would be to keep renting until next March and then pray that home prices and interest rates haven't gone up so much that we can no longer afford even a home on the lower end of the spectrum. But at least we'd be comfortable for that time with my husband's current salary and the chunk in savings would be earning lots of interest.
I feel like I'm beating this to death but neither of us are that financially savvy as far as real estate and investments and we're so afraid of making a big mistake! 
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Tue Jun 27, 2006 4:53 pm |
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coaster
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quote:
Originally posted by jtnc06
Well, seems like I have half of you telling me to wait and half of you telling me to buy! About the same % as our family and friends. Some help you are!
Ha ha!!  Yeah, that often happens when you ask for advice. Hopefully you've got some different viewpoints from different people, though, giving you some insight into making your decision. But sometimes when there's no clear best way -- when it's 50/50 -- then you just have to close one door and open the other and go through, not looking back.
To offer a little bit of learned wisdom: sometimes it's not what you decide to do that most affects the outcome, it's how long you diddle about before you finally do it (or fail to do it.) 
~Tim~
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Tue Jun 27, 2006 5:03 pm |
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jtnc06
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I do appreciate everyone's advice and I expected to hear differing opinions so I'm not surprised. I know in the end it comes down to what WE want. We're just so on the fence about this and I go back and forth on it several times daily.
quote:
To offer a little bit of learned wisdom: sometimes it's not what you decide to do that most affects the outcome, it's how long you diddle about before you finally do it (or fail to do it.)
I know you're right about that! I wish I was someone who could just go with my gut feeling but both my husband and I are too cautious for that and to be honest, I couldn't even tell you what my gut feeling is anymore! Buying a home is such an emotional decision too and we all know how emotions can cloud things!
We'll probably make a decision here in the next couple weeks. Sometimes you just wish you could put in a formula and out would pop the solution!
Thanks to everyone for taking the time to consider my situation!
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Tue Jun 27, 2006 5:54 pm |
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coaster
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You're welcome to hang around here ... GIVE advice, ya know. 
Or just update us on how things turned out.
~Tim~
Eye Candy : Why Whimsy
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Tue Jun 27, 2006 7:43 pm |
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bong12187
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| Re: Should we buy now or wait? |
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People here have provided you good recommendations. What I am presenting here is a breakdown analysis dealing with numbers. I hope that this will also help you into your decision making process...
155k earning from 4.25% savings
45k yearly income
looking for 300k house
rent now is 1200 a month
would like to put down 20% in downpayment
If you continue to rent you'll be paying 1200 a month or 14400 a year. Lets say that you are in the 20% tax bracket with 2 dependents. 45k x .20 = 9k tax payment. When you do your 1040 your W2 will show 45k (Line 7 in 1040)but since you have no deduction, you have no choice but to take the standard deduction which is 10k (line 40 of 1040). 45k - 10k = 35k. Your family equals 3 (line 32 of 1040) x 3200 (per individual) = 9600. Now subtract that from 35k will give you 25400. 25400 is now your tax bracket. By going to your tax table in publication 17 you'll find out that your tax payment requirement is 3084 but since you paid 20% tax or 9k, you will receive a refund of 5916.
So in reality, out of your 45k - 14400 (rent) = 30600 - 3084 (actual tax payment) = 27516. So you are actually only keeping 27516 out of your 45k or 61% of your hard earned money. (I decided not to factor in other things for simplicity's sake.)
Now, lets calculate what would happen if you were to purchase a house worth 300k. Lets say that mortgage is 30 years with 7% APR with 20% down or 60k so mortgage will be for 240k which will give you a monthly payment of 1597 or 19164 for the first year. Principal gained in the first year is 2438 while interest payment is 16722.
Lets do your tax now. Income 45k - 19164 (mortgage paid for the year) = 25836. For this example we'll keep you in 20% tax bracket. So you would have paid 9k for the year.
Line 7 of 1040 salary 45k
Line 40 of 1040 is 16722 interest paid (16722 is higher than 10k standard deduction so we'llkeep that).
45k - 16722 = 28278
3 people in the household multiply by 3200 = 9600
28278 - 9600 = 18678 (hmm.. the first example his tax bracket was 25400)
Publication 17 put 18678 tax bracket into 2071.
9k (tax paid) - 2071 = 6929 refund
So in reality, out of your 45k - 19164 (mortgage) = 25836 - 2071 (actual tax payment) = 23765. So you are actually only keeping 23765 out of your 45k or 53% of your hard earned money.
Some places appreciates more than the other. However, the trend is 5-7.5 appreciation every year. I don’t like being aggressive when it comes down to appreciation especially if it not for investment rental property so lets bring the appreciation increase to a minimal 2%. 300k x .02 = 6k
Hmmm… Now within the first year, your house appreciated 6k + the principal payment made for the year is 2438 would give you 8438 appreciation. You add 8438 + 23765 = 32203 or 72%. You are actually now keeping 72% of your money instead of 61% if you continue to rent. An 11% return that you never had before.
Hope this helps you…
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Fri Jul 07, 2006 9:28 am |
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moneylogue
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| Affordable housing still exists |
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If you really want to find nice homes at affordable prices, then I would suggest a midwestern city. Typically, these areas are immune to large price jumps and drops. If you're husband is in sales, then his skills should be transferable to any market.
I live in Ohio and $300,000 will get you a new build in a nice subarb - no surfing though - LOL
http://www.moneylogue.com
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Sat Jul 08, 2006 3:24 am |
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