Should I buy a house???

[billybob]

OK- here's my situation:

I have been thinking about buying a house. The problem is, I don't really have any money to put down. Here are my stats:

Current rent- $1200
Outstanding CC Debt- $800
Other Debts- $0
Amount I am currently able to save (once CC is paid off) - $700/month (not including 401k)
Closing costs- I could borrow from parents
Downayment amount - $0
Housing price range- $200k - $250k

What do you think? Does it make sense for me to buy a house with no money down, or should I wait a few years, renting (a lot of $$ down the tubes), until I have a substantial downpayment?

[34saving]

Well, what would be your interest rate/PMI/closing costs in a no money down situation? What's your current income? How secure is your job? What type of house can you get in your area for the price you're talking about? (IE, will it need lots of repairs or is it basically new? How big?) How long are you planning on staying in your area? In general I'm against no money down situations because they show you're not really ready to have a house yet. However, if you in this situation because you've been dealing with the other debt in your life it might not be so bad. . . . Still need more details though

[baselle]

Originally Posted by billybob

OK- here's my situation:

I have been thinking about buying a house. The problem is, I don't really have any money to put down. Here are my stats:

Current rent- $1200
Outstanding CC Debt- $800
Other Debts- $0
Amount I am currently able to save (once CC is paid off) - $700/month (not including 401k)
Closing costs- I could borrow from parents
Downayment amount - $0
Housing price range- $200k - $250k

What do you think? Does it make sense for me to buy a house with no money down, or should I wait a few years, renting (a lot of $$ down the tubes), until I have a substantial downpayment?

You really want to be able to put down something, or at least still have a little bit of savings as you take ownership into a house. Remember that you will be furnishing the house and paying for the upkeep (if the roof leaks, its your baby, not your landlord's).

You want to also take into account ALL of your costs of owning a house. If you think renting is a lot of money down the tubes, just wait until you're paying property tax and PMI.

You also want to keep in mind these days that both the realtor and the banker want to get you into a house, no matter whether its good for your financial situation or not. (6% closing costs and 20% PMI)

You also want a loan situation that builds equity and is straightforward to budget against. ARMs, I/O loans, and neg amortization loans are none of these. At best you are treading water; you've traded a landlord for the bank, an entity that knows nothing about plumbing. At worst, your house is sinking you because when the ARM readjusts and you have no savings, your "rent" goes up, and you have to sell.

I know I sound like a doom-and-gloomer, but is saving a pile of cash while you dream such a bad thing?

[billybob]

I live in Center City Philadelphia, and am looking to buy in the same. The thing is, I want to buy in an area of the city that is quickly gentrifying and the houses there are still at a reasonable price for center city (the townhouse next door to where i currently live sold for 850K! I just want to find a place in that area before it too is too expensive to live there. Still not sure what to do. The other thing is, I will still be saving money. Right now I am renting for 1200 and paying 700/month to CC, soon to be savings. That means even if I was paying 1700 a month total for Mortgage, pmi, etc, I could still sock away 200/month...

[terry1156]

Originally Posted by billybob

The other thing is, I will still be saving money. Right now I am renting for 1200 and paying 700/month to CC, soon to be savings. That means even if I was paying 1700 a month total for Mortgage, pmi, etc, I could still sock away 200/month...

No, you won't. One thing that many people forget is that owning a house is much more expensive than an apartment. You will have real estate taxes, you'll have a yard to upkeep, you space will be bigger meaning you'll need to buy more things to fill it. Since it is bigger, utilities will be higher. That extra $200 you think you'll be able to save will disappear quickly.

People often think that renting is "throwing money away." I'm of the opposite opinion...if you save the extra money that a house costs, renting can be a great way to save much more than owning a house.

[VJW]

Given we’re in a rising interest rate environment, I don’t think it would be irresponsible to take the ‘no money down’ mortgage. Then you can go ahead and put aside the money you intended anyway, and refinance when interest rates decline again, and use the saved funds to create a smaller loan, providing you with equity in the house. Or instead of saving the additional funds, you could make additional principal payments (be sure the mortgage allows for this), which would produce the same result when you eventually refinanced.

Just don’t take the ‘no money down’ mortgage and then fail to pay down an additional part of the loan, as that would leave you exposed to an upside-down loan if housing prices go negative.

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[billybob]

Well, the loans I am looking at are 30 year fixed rate at about 5.85%. That way i dont have to worry about interest rates rising

[BAGAGT1]

I've taken the numbers you've provided, and here is what I see.

A 30 year mortgage of $225,000 at 5.85% has monthly payments of $1327.00.

In the area that I live in, a good rule of thumb for taxes is 2% of home value

($225,000 * .02)/12 = $375/mo taxes.

Mortgage Insurance with no equity will surely cost between $80 - $100 a month.

$1327
$ 375
+$ 100
--------
$1802

So even if all things were equal, you would have less than $100 in savings a month.

Now, do you pay for your own heat in your apartment? If not, you need to figure that cost in as well. Same with water bill. How about repairs? If you are buying an older home, you need to have some funds saved up to make repairs regularly. I guarantee you this much, you can not trust a home inspector to find everything that is wrong with a house, this is especially true of older homes.

My general rule of thumb, is that you should have at least 5% down if you want to own a home. Owning a home is not a purchase, it is an investment. Just as I would not reccomend anyone to buy stocks on margin, I would not recommend the no down payment mortgage. Everybody who buys a home, needs to have a little equity in the house just in case the worst should happen, you can always sell without being upside down.

[Fern]

Everyone here had good comments to make. I am no expert, but my gut reaction is that you are not ready to buy a house.

[gakline]

Take a look a this amortization file It was very helpful to me when buying a house.

[mccartygirl]

Terry - good way to think about renting. We bought our first place 1 yr ago. The mortgage payment is $5 less than what we were paying for our apartment but there are things that needed to be done around the place. Paint that needed to be bought. I can say that it has cost us more to have a house than if we were renting. Not to mention, if something breaks - you have to pay to fix it or figure out how to fix it yourself. I'd love to be renting again. I was able to save a lot more. Stupid house. Only good thing - we bought at a very good price and should be able to make a good profit when we sell it in 2 yrs.

[billybob]

It is a good point, except that you're forgetting that the amount you pay each month is going into something you own, building equity, whereas rent is simply going to your landlord. Y'all have me definitely reconsidering though. I'd almost rather save money for extra house expenses than to put down a nice downpayment

[VJW]

Originally Posted by Fern

Everyone here had good comments to make. I am no expert, but my gut reaction is that you are not ready to buy a house.

Normally, I would agree completely, but given the rising interest rate environment, by the time he has saved for a down payment, interest rates may be prohibitively higher and shut him out of an affordable mortgage.

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[sweeps]

I'm siding with VJW on this one. I think buying a house is something that most people have to stretch a bit to achieve, but ultimately it's worth the investment. With interest rates going up and housing prices still rising (albeit not as quickly), it might be many years before billybob gets another chance to become a homeowner. I don't think a $200k-$250k house is unreasonable when $1200 is already being wasted on rent each month.

[Fern]

Good point, VJW, but i've been reading a lot about the stalled housing market and, what's more, the beginnings of an inventory glut. Those rising interest rates are working in tandem with ridiculous asking prices and more cautious buyers now sitting on the sidelines to see what happens. That will exert downward pressure on home prices, so i don't think someone who waits to build up their down payment will be priced out of the market.

[gakline]

Originally Posted by Fern

Good point, VJW, but i've been reading a lot about the stalled housing market and, what's more, the beginnings of an inventory glut. Those rising interest rates are working in tandem with ridiculous asking prices and more cautious buyers now sitting on the sidelines to see what happens. That will exert downward pressure on home prices, so i don't think someone who waits to build up their down payment will be priced out of the market.

It all depends on where Billybob is looking to buy. I don't think the prices will drop in the midwest. East coast and west coast it's tough to say.

[billybob]

Center City Philadelphia, PA. In an area of the city that is quickly becoming "nice"...

[VJW]

Originally Posted by Fern

Good point, VJW, but i've been reading a lot about the stalled housing market and, what's more, the beginnings of an inventory glut. Those rising interest rates are working in tandem with ridiculous asking prices and more cautious buyers now sitting on the sidelines to see what happens. That will exert downward pressure on home prices, so i don't think someone who waits to build up their down payment will be priced out of the market.

Oh, you are exactly correct. Just today from Bloomberg:

UNSOLD HOMES REACH 18-YEAR HIGH

“U.S. previously owned home sales fell a larger-than-expected 2.7 percent last month and the number of unsold homes rose to the highest since April 1986, evidence that rising mortgage rates and skyrocketing prices are putting buying out of reach for some.”

However, normally, this would give rise to the expectation that interest rates would level off or even decline. But the Fed cannot lower interest rates, due to runaway inflation. The inflation rate so far this year is at 4.9% on an annualized basis.

Stagflation anyone ?

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[cercis]

I wanted to let you know that I started a thread called "Buying a House information" (or something like that).

It's to list all the information we can think of for buying a house, including pitfalls. I also listed the general expenses you find in my area - and I invite everyone else to list their general expenses.

Only you can decide if this is a good decision. If you do your homework and get lots of opinions, I am confident you will make the right choice.

[billybob]

Thanks for all your advice, everyone. I think I've decided to wait, at least a year. It would be good for me to save at least some money, to get ahead of the game rather that trying to scrape by just because I can. If I'm a good little saver, I should be able to save about 10k/year...