Can I afford to buy a house?

[jsk]

Hi
Can you please help me decide if it is good idea for me to buy a starter home instead of renting ?
I will be able to put down 5% downpayment, earn around 80k a year,no other mortgages or loans. I am also planning to take-in a roommate to help me with the finances. I currently paying 900 for rent and utilities but likely to increase since i have to move out of my current place.

Appreciate your time..
Thx

[greenskeeper]

how much would your mortgage be per month including taxes and insurance?

[disneysteve]

1. If you can't afford a 20% downpayment while still maintaining a 6-month emergency fund, I'd say you are not financially ready to buy a house.

2. If the mortgage with principal and interest, taxes and insurance would exceed 28% of your monthly take home pay, you are not financially ready to buy that house.

3. The roommate is a non-issue and should not be counted on in the decision. You must be able to afford 100% of the costs on your own because you can't guarantee the roommate will always be there or always pay as promised or on time.

[mcfroggin]

Originally Posted by disneysteve

1. If you can't afford a 20% downpayment while still maintaining a 6-month emergency fund, I'd say you are not financially ready to buy a house.

2. If the mortgage with principal and interest, taxes and insurance would exceed 28% of your monthly take home pay, you are not financially ready to buy that house.

3. The roommate is a non-issue and should not be counted on in the decision. You must be able to afford 100% of the costs on your own because you can't guarantee the roommate will always be there or always pay as promised or on time.

I'm going to disagree with you on some things. I only put 3% down (maybe it was 3.5%), and it is working out just fine. Even with PMI, my rate is below 3%. PMI really doesn't make enough of a difference to justify not buying a house at these rates.

My principal + interest + taxes + insurance is over 35% of my monthly income. I'm doing quite well. I save plenty of funds each month, but I live cheaply. I don't spend much on many other things but my home. I figure I get the most enjoyment out of my home than anything else, so why not spend more on it? 35%+ is not ideal, but it really depends on the individual. If you enjoy eating out, have car payments, children, etc. then staying under 30% could be important. The ratio really depends on your current situation.

I agree that you shouldn't "count on" the roommate. Ideally be able to pay everything alone, but I think even if it is tight, its doable. Try to obtain a good roommate before actually purchasing the home. Its nice to be prepared going into the purchase.

I think many large cities have excellent deals available right now.

[LivingAlmostLarge]

Depends if you can buy with 5% DP and have it be less than renting, then perhaps it works out. If rent is 50% of income then perhaps you can buy if it's 35% because of other unexpected costs.

[disneysteve]

Originally Posted by LivingAlmostLarge

Depends if you can buy with 5% DP and have it be less than renting, then perhaps it works out. If rent is 50% of income then perhaps you can buy if it's 35% because of other unexpected costs.

When comparing renting to buying, be sure to include ALL costs. When you become an owner, you have to pay for (or do by yourself) all of the things that were previously covered by the landlord - lawn care, snow removal, interior and exterior maintenance, painting, carpet cleaning, appliance repair, leaky faucets, exterminator, the list goes on and on. Suze Orman tells people to figure 40% above the mortgage payment, so if your mortgage is $1,000/month, you can estimate actual costs of $1,400/month. Obviously, that is just a ballpark figure, but I think people often mislead themselves when comparing potential mortgage payments to rent payments.

[jsk]

i am in land of expenses and taxes, california-- houses are neither cheap nor is the rent low.. approximate_mortgage + insurance + tax+ hoa is amounting to about 45% of my net salary, everything calculated on the higher side... without room-mate, i will have to manage the expenses very closely but still my current savings into retirement fund can be maintained.

[Hector]

Originally Posted by mcfroggin

I'm going to disagree with you on some things. I only put 3% down (maybe it was 3.5%), and it is working out just fine. Even with PMI, my rate is below 3%. PMI really doesn't make enough of a difference to justify not buying a house at these rates.

My principal + interest + taxes + insurance is over 35% of my monthly income. I'm doing quite well. I save plenty of funds each month, but I live cheaply. I don't spend much on many other things but my home. I figure I get the most enjoyment out of my home than anything else, so why not spend more on it? 35%+ is not ideal, but it really depends on the individual. If you enjoy eating out, have car payments, children, etc. then staying under 30% could be important. The ratio really depends on your current situation.

I agree that you shouldn't "count on" the roommate. Ideally be able to pay everything alone, but I think even if it is tight, its doable. Try to obtain a good roommate before actually purchasing the home. Its nice to be prepared going into the purchase.

I think many large cities have excellent deals available right now.

Everyone's lifestyle is not similar. For some spending more than one third of income in home means house-poor. A lot of people enjoy life by more than paying mortgage. For a lot of us eating out, having car payments and children is more than paying mortgage.

The concept of putting 20% down payment is important. So many things could happen in life including loosing a job and accident and other things were people need a lot of cash unexpectedly. If one had put 20% down payment, he/she should able to sell house even thought it market price goes down. We see a lot of people upside down into their mortgage and in these situation one has to come up with the money = selling price - mortgage that one owes. A lot of people who pour most of their income into mortgage do not have this much and one would go towards bankruptcy as some of us know that a lot of people did in last 3 years or so.

For a lot of middle class people excellent deal is not the deal when home price drops 20% or more from its pick, but its a best deal when one could afford.

[jsk]

thank u all.. sounds like my dream to have a my own roof over my head has to wait for some more time...

[guidemesingapore]

LivingAlmostLarge is absolutely right.

[MonkeyMama]

Originally Posted by Hector

For a lot of middle class people excellent deal is not the deal when home price drops 20% or more from its pick, but its a best deal when one could afford.

Absolutely 100%.

I personally would not buy without 20% down. I am in California, and have done so. It didn't happen overnight - that is for sure.

Likewise, most of the *great deals* aren't that great if you look at real estate before 2002. I've been a homeowner for 12 years, and all I have heard for 12 years is, "Buy now or be priced out FOREVER!" Boom or bust... It's all the same hype - *buy NOW.* I find it ironic that after this real estate bust that so many people are so eager to buy too much house and make the same mistakes all over again.

[disneysteve]

Originally Posted by MonkeyMama

I find it ironic that after this real estate bust that so many people are so eager to buy too much house and make the same mistakes all over again.

So true. I see very little evidence that anyone, buyers or lenders, have learned anything as a result of the whole housing mess.

[bjl584]

Originally Posted by disneysteve

So true. I see very little evidence that anyone, buyers or lenders, have learned anything as a result of the whole housing mess.

I was at a car dealership last night, and in listening to some of the conversations between individuals and salespeople, I can tell you that there are quite a few people that haven't learned much.

[debtelim]

I am also getting ready to buy a house so we have that in common!

I actually wanted to buy a house three years ago but got good advice from family and friends that I should wait until I have at least a 20% down-payment. Since I live in LA this comes-out to about $100,000 I had to save-up in order to buy a one-bedroom condo so while it was painful, I've finally reached my goals.

Definitely makes sense to wait. If you end-up paying PMI you'll be doing something similar to renting, which is throwing money away, couple this with HOA and you may as well rent.

Save up the 20% first and then go for the house, until then keep your rent low, car payments low, and save, save, save!

[jsk]

debtelim, goodluck in buying your house soon !! I was thinking of 2 bedroom condo, that way i can take-in a roommate (as it is easy to find a roommate in northern california).. anyway, for now its save, save and save mode..

[Hector]

Originally Posted by debtelim

Definitely makes sense to wait. If you end-up paying PMI you'll be doing something similar to renting, which is throwing money away, couple this with HOA and you may as well rent.

Renting is not throwing away money. For most of us buying primary residence is not always a smart financial decision, it is about lifestyle.

[QueenOphelia]

I agree that renting is not throwing away money in many areas of the country.

However, there is no way I could have afforded my co-op if it was a rental in today's NYC real estate market. My mortgage/maintainence fees combined are around $500 less that what the co-op would command on the rental market.

So, in the long run, renting is not always cheaper than buying. Timing and a little bit of luck is part of the equation IMHO.