Buying a House

[ramssuperbowl99]

37 minutes ago, theJ said:

Renting is more expensive, yes.  But i would generally advise against buying immediately when first starting your adult life.  Mainly because you're very statistically likely to sell that place within a few years anyway, so you're already at risk of losing money on that transaction (sellers fees, closing costs, market trends, etc.).  Also because the first place you buy is going to be the cheapest, and hardest to resell.

Just one example, but i know a guy who bought while still in college because of the exact reasons you named.  It was a dump (but cheap!) in a bad part of town.  It took him a few years to sell that place, and he and his family had to live that hole the whole time.

Renting is pretty smart when you first start your adult life, IMO.  We did it, and we're just about to move out of our first house.  And that house should sell fast, because we could afford to buy a decent property that had good resell value in a decent area.

There's other costs too with early homeownership that I'm not exactly a fan of. I've seen a lot of my friends who bought houses before they really needed to (e.g. kids) accumulate a ton of crap that they don't need. "We've gotta fill out/furnish/finish up the house" was a really common expression, and since it was permanent and they were excited to be adults, they weren't going to an Ikea or getting cheap furniture either. Between that, the snow blower, the lawn mower/yard gear, and everything else, I'd bet some of them were in the $15k+ range of expenses range really early on in their life.

I've been in that "probably should start looking" to buy mode for a while now, and am not in a huge hurry to do it. Long term, I will. But renting isn't that bad short or long term.

[MWil23]

52 minutes ago, ramssuperbowl99 said:

There's other costs too with early homeownership that I'm not exactly a fan of. I've seen a lot of my friends who bought houses before they really needed to (e.g. kids) accumulate a ton of crap that they don't need. "We've gotta fill out/furnish/finish up the house" was a really common expression, and since it was permanent and they were excited to be adults, they weren't going to an Ikea or getting cheap furniture either. Between that, the snow blower, the lawn mower/yard gear, and everything else, I'd bet some of them were in the $15k+ range of expenses range really early on in their life.

I've been in that "probably should start looking" to buy mode for a while now, and am not in a huge hurry to do it. Long term, I will. But renting isn't that bad short or long term.

100% this.

My wife and I rented a small 1 bedroom apartment for the first two years that we were married. During that time, we got ourselves completely debt free (student loans), then spent 3-4 months living with her folks before we could move into our house.

We lived in our house for 5 and 1/2 years, refinanced to a 15 year mortgage, had 10 years left on it, and are now "sale pending", and after the dust settles, will walk away with about a $40K profit, which we are using as a down payment on our "forever home".

We are both 32, have 3 kids, and debt free aside from the house. I'm thankful we waiting 2-2 and 1/2 years to buy our house. It was worth it in the long run.

[vikesfan89]

1 hour ago, theJ said:

Renting is more expensive, yes.  But i would generally advise against buying immediately when first starting your adult life.  Mainly because you're very statistically likely to sell that place within a few years anyway, so you're already at risk of losing money on that transaction (sellers fees, closing costs, market trends, etc.).  Also because the first place you buy is going to be the cheapest, and hardest to resell.

Just one example, but i know a guy who bought while still in college because of the exact reasons you named.  It was a dump (but cheap!) in a bad part of town.  It took him a few years to sell that place, and he and his family had to live that hole the whole time.

Renting is pretty smart when you first start your adult life, IMO.  We did it, and we're just about to move out of our first house.  And that house should sell fast, because we could afford to buy a decent property that had good resell value in a decent area.

You make good points. It worked out for me though. I've been there 5 years now and I think it would sell ok if I decide to move. I did live at home for a year after college but luckily I didn't buy a place when I first started looking.

[theJ]

2 hours ago, vikesfan89 said:

You make good points. It worked out for me though. I've been there 5 years now and I think it would sell ok if I decide to move. I did live at home for a year after college but luckily I didn't buy a place when I first started looking.

Not saying it can't work out, but the math isn't as easy as rent - mortgage = profit.  There are many things to consider, and buying is always riskier.

Just trying to provide more prospective for anyone reading that's considering going that route.

[vikesfan89]

2 hours ago, theJ said:

Not saying it can't work out, but the math isn't as easy as rent - mortgage = profit.  There are many things to consider, and buying is always riskier.

Just trying to provide more prospective for anyone reading that's considering going that route.

No doubt it's riskier and there is a lot of other expenses besides the mortgage.

I've just never liked the idea of paying rent but I'm sure it makes a lot of sense a lot of the time

[milanb]

20 hours ago, theJ said:

Not saying it can't work out, but the math isn't as easy as rent - mortgage = profit.  There are many things to consider, and buying is always riskier.

Just trying to provide more prospective for anyone reading that's considering going that route.

Yes.

Buying is not always cheaper than renting, for a number of reasons:

1. Transaction costs are typically 5-10% of the value of your home. If you are staying in your home for less than about 5 years it is difficult to make up the difference.
2. Real estate prices do not always go up.
3. If your mortgage amortization is more than about 15 years you are mostly paying interest.
4. In some markets (like e.g. Toronto) the purchase/rent ratios are very high.

All that said, there can be huge financial benefits to owning, but you usually need to own your home for a long time to see them.

Edited April 2, 2019 by milanb
Additional information

[MKnight82]

3 hours ago, milanb said:

Transaction costs are typically 5-10% of the value of your home.

The only possible way your transaction cost would be that high is if you are counting the down payment, which goes towards principle and will be returned to you when you sell.  

[MKnight82]

Also a lot of you guys are ignoring the tax benefits of owning a home vs. renting. 

[RavensTillIDie]

What are everyone's thoughts on down payments? Specifically, which scenario seems better to you guys?

Scenario A:
House Costs - $800,000
Down payment - $160,000 (20%)
Zero Debt
Purchase House in ~2 Years

Scenario B:
House Costs - $800,000
Down payment - $400,000 (50%)
Zero Debt
Purchase House in ~4-5 Years

 

 

[theJ]

3 hours ago, MKnight82 said:

Also a lot of you guys are ignoring the tax benefits of owning a home vs. renting. 

Not anymore.  Most people don't itemize with the new rules.

[theJ]

3 hours ago, MKnight82 said:

The only possible way your transaction cost would be that high is if you are counting the down payment, which goes towards principle and will be returned to you when you sell.  

The seller's cost are generally:

2-3% for seller's agent
3% for buyer's agent
Misc fees, which usually total a few thousand

So yeah, 5-10%.

EDIT: plus, factor in the closing costs when you buy.  So definitely 5-10%.

 

[theJ]

2 hours ago, RavensTillIDie said:

What are everyone's thoughts on down payments? Specifically, which scenario seems better to you guys?

Scenario A:
House Costs - $800,000
Down payment - $160,000 (20%)
Zero Debt
Purchase House in ~2 Years

Scenario B:
House Costs - $800,000
Down payment - $400,000 (50%)
Zero Debt
Purchase House in ~4-5 Years

 

 

Depends

1) How does it impact your monthly budget?  Scenario A obviously is going to be a much higher mortgage payment.

2) I'd do the math on the whole picture.  If you're doing the math on the downpayment, i'm assuming you'll try to pay it off faster than the regular payment schedule.  See if one option over the other gives you a quicker payoff period.

Honestly, 20% is good.  And if it fits in your budget, i don't see a reason why not to go with it.  But it really depends on your personal finance goals.

[MKnight82]

1 hour ago, theJ said:

The seller's cost are generally:

2-3% for seller's agent
3% for buyer's agent
Misc fees, which usually total a few thousand

So yeah, 5-10%.

EDIT: plus, factor in the closing costs when you buy.  So definitely 5-10%.

 

Seller pays for buyers agent.  Then just sell the house yourself.  

[MKnight82]

3 hours ago, RavensTillIDie said:

What are everyone's thoughts on down payments? Specifically, which scenario seems better to you guys?

Scenario A:
House Costs - $800,000
Down payment - $160,000 (20%)
Zero Debt
Purchase House in ~2 Years

Scenario B:
House Costs - $800,000
Down payment - $400,000 (50%)
Zero Debt
Purchase House in ~4-5 Years

 

 

With interest rates as low as they are I would put down as little as possible.  20% is high, shoot for 5%.  You can probably get a mortgage loan around 4.5-5.5% right now.  You could take that 200k and invest it in something making 10% a year.  

[vikesfan89]

12 minutes ago, MKnight82 said:

With interest rates as low as they are I would put down as little as possible.  20% is high, shoot for 5%.  You can probably get a mortgage loan around 4.5-5.5% right now.  You could take that 200k and invest it in something making 10% a year.  

How much does mortgage insurance cost?