Don't Want to Buy a House

[ThePennyHoarder]

My best friends in the world are seriously considering buying a house in the next few weeks, but not because they want to. My friends are 25 years old and are very good with saving their money. They have been renting a house the last couple of years while they build a nest egg. Their plan was to buy a house two years from now and continue renting until then.

Their plans were thrown a bit of a wrench this past week when their landlord informed them that they are planning to sell the house they are renting. My friends have to be out in 60 days. Rather then spend the money on moving twice, extra deposits, etc., my friends have come to the conclusion that they should just buy a house now.

Truth be told, they have enough money saved up, but they are feeling pressured to find a house in such a short amount of time. They have already looked at 20 or so, but haven't found "the one" They have found a few which would work, but that they aren't in love with. They are concerned that they might be settling and aren't sure what to do. What do you guys think?

[jIM_Ohio]

If they have the money to move, why were they waiting to buy?

Answer that question, and I think the solution lies in examining why they were renting, why they waited to buy to begin with, then seeing if any of those reasons have changed.

[jimmyrules712]

I think the inconvenience of moving twice is worth not spending 30 years feeling like you didn't get the house you wanted. Or buying a different house 5 years later (and thus moving twice anyway).

I'd say tell them to find something cheap and basic for now to rent, don't unpack most of the boxes, and buy a house as soon as they find the one they want.

[littleroc02us]

Why not just find a cheap apartment that allows you to rent monthly until you find just the right house?

[cypher1]

My friends (they're married), a few months ago were put in a similar issue with their apartment lease ending within 60 days and decided to buy a house since they didn't want to keep moving. As for the wife being laid off already, and they really didn't have much saved, is another topic. Took them over 30 houses to look at before finding the "one" in less than 2 months. If I was in that situation, I'd just bite the bullet, find another apartment and keep saving. On and off it took me a good 6-8 months to find something I really liked. Too much pressure, and I couldnt justify having a 30 yr mortgage to end up moving within a few years.

[ActYourWage]

Originally Posted by jIM_Ohio

If they have the money to move, why were they waiting to buy?

Answer that question, and I think the solution lies in examining why they were renting, why they waited to buy to begin with, then seeing if any of those reasons have changed.

Good question. If they were waiting to save up more money for a bigger down payment thus a bigger house ("right one"), this move may force their hand to get a smaller house with a smaller down payment, which in turn, could be better off in the long run.

However, if they are "pressured" to find the "right one", then I would hold off and rent a bit longer.

[Fizgig]

I agree with the others - Don't put yourself in the position of feeling you have to buy a house within a short time frame. Most everyone has to compromise on one thing or another when buying their first house, but they'll have to make far too many concessions if they have a MUST BUY date lurking over their heads.

They should rent cheap and keep looking until they find the right house, even when that means moving twice.

[littleroc02us]

Speaking from someone who has bought a house, if I could do it all over again I would save up a 50% down payment and have a very small mortgage. It's not fun watching so much money go towards interest when I could be using it for compound interest wealth building.

[Hector]

Originally Posted by littleroc02us

Speaking from someone who has bought a house, if I could do it all over again I would save up a 50% down payment and have a very small mortgage. It's not fun watching so much money go towards interest when I could be using it for compound interest wealth building.

I dont own house, but for the sake of argument, aren't these the few reasons why we buy houses?

A person making 100k/yr is not able to borrow 400k for the interest rate of 6% or so. The most common place a person would able to borrow this amount of money is by having mortgage. Then one would count mortgage deduction and would claim that he is actually paying less than 5% towards interest rate. Later in the life, amount of interest would go down and there wont be much tax benefits, but one would think that his income would go up and it wont be an issue. In a situation where a person is capable of making more than minimum payment towards mortgage, he wont do it because he is smart enough to make 8-10% by investing in stock market and who cares about paying tax on capital gain? So what a person pays around 800k over 30 years for the house whose buying price was 400k, person is making equity and not wasting all the money by renting and housing prices would appreciate that a person would able to sell the same house at least in 800k after 30 years if he needs to....

[jIM_Ohio]

Originally Posted by Hector

I dont own house, but for the shake of argument, aren't these the few reasons why we buy houses?

A person making 100k/yr is not able to borrow 400k for the interest rate of 6% or so. The most common place a person would able to borrow this amount of money is by having mortgage. Then one would count mortgage deduction and would claim that he is actually paying less than 5% towards interest rate. Later in the life, amount of interest would go down and there wont be much tax benefits, but one would think that his income would go up and it wont be an issue. In a situation where a person is capable of making more than minimum payment towards mortgage, he wont do it because he is smart enough to make 8-10% by investing in stock market and who cares about paying tax on capital gain? So what a person pays around 800k over 30 years for the house whose buying price was 400k, person is making equity and not wasting all the money by renting and housing prices would appreciate that a person would able to sell the same house at least in 800k after 30 years if he needs to....

Two additional points

1) don't get a house for the tax deduction.
2) paying mortgage off in 15 years is close to a 100% return on money...

compare interest paid on a 15 year and 30 year mortgage (over life of mortgage)- the 30 year is usually 2X the total interest paid relative to 15 year (which is 1X interest paid).

YMMV.

[Seeker]

Settling?

Both these people need to draw up a list of what they want in a house; room-by-room. They need to do this separately. Externals are also important. Natural light in a room (windows and direction they're facing). Noise from outside. If they have or plan for kids in the future, schools may be important. The proximity to gorcery stores, etc.

Kitchen -- generally the wife is more interested in this room of a house. What does she hate about kitchens? What does she love about kitchens? Have a pro and con list for each and every external/internal thing that is important to each of them.

Then together they need to compare their lists and draw up a combined listing taking both their considerations into it. "He" might not care as much as "she" in some aspects of the combined list; that's natural. But they need to be flexible in drawing up a "combined" pro/con listing.

They need to take a combined listing to each house they "sorta feel like they might be settling."

I'll tell you, I was not certain that I had found the right place for me when I purchased my first condo (and I still live in the same place almost 20 years now), it's natural to "feel" ambivilant or uncertain. It's a major expense that you cannot just easily back out of.

The listing will help though.

[rj.phila]

i would suggest they do both! seriously-keep looking for a house, and in the meantime, devote a few hours here and there to finding a place to crash for a few months if they dont find a house. pick a cutoff date, and if they find one by then, great-if not, rent for a few months, chuck the stuff in a storage unit, and that's that.

fyi, if they have seen 20 houses or so, statistically, they are approaching the time when they should be finding "the one".

a helpful tool one of my RE agents gave me once about how to know when you find "the one" is this: imagine you woke up tomorrow, and you found out that the house was sold. would you be disappointed? if so, it might be the one".

[Slug]

Let's see:

rushing into biggest purchase ever made + no experience homebuying = recipe for disaster

Just rent for now. Move twice now or move twice later when you figure out the house that was close to the "one" wasn't quite close enough.

[snafu]

There is no justification for rushing into a really big purchase like a house. Have they sought out the new purchaser of their rental to see if they want to extend the rental? Have they already done the paperwork for mortgage approval? Buying your 1st home should be an enjoyable experience not a pressure filled mission.

Larger isn't necessary better but it sure is a lot of work!

[littleroc02us]

Originally Posted by Hector

I dont own house, but for the sake of argument, aren't these the few reasons why we buy houses?

#1 Never buy a house for the tax deduction. Ex. If you had a mortgage on a 400k house, you pay the bank in interest 25k a year to only get back $7000 from the IRS if you were in the 28% tax bracket. Hmmm, sounds like simple math would show that. Bad idea to carry a mortgage for the tax deduction.

#2 A home is a place to live. If I didn't love my home so much and the people who live in my neigborhood we would have sold to break even, rented for 2 years and saved up a huge down payment.

#3 A home is like an investment, some years it goes up and some years it goes down.


Good luck! Save, Save, Save....

[MonkeyMama]

Actually, never *keep* a mortgage for the interest deduction.

The home interest deduction can make owning a home more lucrative than renting, when comparing the two side by side.

That said, tax breaks come and go. So I wouldn't make any long term plans on tax breaks.

Putting a strict time frame to buy a house sounds like a terrible idea. I'd rent something else in the interim, if it were me. Even if they find the perfect house, there is no guarantee it will close escrow in time, etc. I think I would make other renting plans.

[disneysteve]

I agree with the others that nobody should ever rush into buying a house or feel pressured to do so. These people need to rent.

They also need to understand that "the one" perfect house doesn't exist. What might seem perfect when house hunting may turn out not to be so perfect later on. Sometimes features seem attractive until you are actually living there. Also, over time, things change, people change, families change, neighborhoods change, jobs change and all of those changes can affect how appropriate your current house is for you and your family.

An example: When we saw the house that we bought, we loved the kitchen. It was huge compared to what we had been dealing with. We thought it was the best thing ever. Fast forward until we were actually living there for a while. We realized there wasn't really as much counter space as we thought. The stovetop had some limitations that were really annoying. The layout of the room created a bottleneck between the fridge and countertop. Those were all things that just weren't apparent when we viewed the house as potential buyers.

My point is that they might need to lower their expectations a bit and realize that there is no perfect house. Still, I'd say they aren't ready to buy anyway.

[littleroc02us]

Originally Posted by MonkeyMama

Actually, never *keep* a mortgage for the interest deduction.

The home interest deduction can make owning a home more lucrative than renting, when comparing the two side by side.

How does that math work out.

1st year:

Renting an apartment= $1000 a month equals 12k for the year.

Mortgage of 400k=$25,000 interest payments to get back $7,000 making your payments 18,000 for the year. Plus Home insurance @ 1.5 % and other house expenses like roof damage, new washer, broken furnace. A house is always more expensive to run then just to simply rent and save money while the lanlord covers those expenses.

*There is no gaurantee that the value of your house will go up. It is possible that after time or by the change in the market that you could gain equity in the house.

[cjscully]

It sounds like this couple can afford to buy but they're not really ready to buy. As others have stated, you should not try to buy on a deadline. They're better off getting into another rental and continuing to look for a house they feel good about purchasing.

There is no perfect house. I have also had people list out what they want in a house (not necessarily room by room) and then refine the list by marking each item on the list as VITAL, Important, Merely nice to have. Prioritizing wants like that can help a lot.

The main thing is their house shopping should be done at their pace, on their timetable, not on someone else's.

[ThePennyHoarder]

Thanks to everyone for their replies.

For those who asked why there were waiting to buy a house - Their hope was to be able to take the summer off and travel Europe. They were planning on using part of their savings for the trip and then rebuilding the account before ultimately buying a house in a year or two. Their new plan is just to go ahead with the home buy this year and put off Europe for a year or two. The only thing is that they are getting closer to having kids and wanted to do a big trip before becoming parents. They obviously have plenty of time so I hope they don't feel rushed to do any of these things.

They are continuing to house hunt and hope to find "the one" before time runs out, but I think they have also decided that they will put everything in storage if they don't find something in time.