Wanting to buy house...or rent?

[Quoc414]

Everybody says that buying a house is better than renting in the long run, so i'm trying to educate myself on what options that are out there.
What are you guy's take on FHA loan? Is it a good idea? because I definately don't have enough for 20% to 30% downpayment on a house..seeking advice.
Thanks

[bjl584]

Without knowing the details on your finances, it's hard to answer. But conventional rule of thumb is to not buy a house with anything less than a 20% downpayment and with at least 6 months worth of expenses in an Emergency Fund. If you have to buy a house through FHA with a 3.5% downpayment, then you should keep renting and keep saving your money.

[disneysteve]

1. Buying a house is not always better than renting.
2. If the only way you can afford to buy is with an FHA loan with 3.5% down, you can't actually afford to buy.

In order to buy...
1. 20% down payment
2. 6 month emergency fund
3. payment no more than 28% of monthly income
4. plans to stay in home for at least 5 years

[jpg7n16]

Everybody says that buying a house is better than renting in the long run, so i'm trying to educate myself on what options that are out there.

Not everyone says that.

I frequently say just the opposite.

In fact, it is highly detrimental to your long-run to get into a house you cannot afford today.

I definately don't have enough for 20% to 30% downpayment on a house

Then....

...then you should keep renting and keep saving your money.

Edit: Oh and by the way, you should be renting at around 25% of your takehome pay (after tax). If your rent is much more than that, you should move to cheaper rent.

[robertgpitts]

Everyone has given you great advice so far. I'd add that buying a house should probably be considered a lifestyle choice rather than an investment. In the long-term, and considering taxes and maintenance, you can expect price appreciation of 1% to 2% a year. Not that great compared to other investments. See William J. Bernstein's "The Investor's Manifesto" for more on the topic.

Robert Pitts
Freedom Personal Finance, Lakeland, FL

[SimplySaving]

My husband and I made the mistake of buying a house before you could truly afford it. We bought into the lies that would could afford it but we couldn't. Our mortgage is really too high for us and it puts a strain on our finances. Somehow we have still managed to pay off our debt and start building an emergency fund - but this would have gone MUCH faster if we had rented first while we paid off our debt and built up and emergency fund and down payment. We would be in a much better place right now financially if we had waited - live in learn from our mistakes!

[amarowsky]

I think in this rare state of the housing market that it can be an excellent opportunity to either by a house u are satisfied with at an excellent deal. Or make an excellent possible return . Granted that I am in metro Detroit where I have the best picks of the litter as far as price to quantity and quality of house. I think if u have steady income and find a home that you like that is well below your means as in relativity to your income, then it is a justified risk to take .

[Radiance]

This is very cool Steve, financial goals:

I re-ordered them..

1. 6 month emergency fund - this I need mo matter what. I need $4000/mo so this is $24000. at $700/mo = 34 months = close to 3 years. 2014
2. 20% down payment - If it was today I would be looking at a $100k home = 20.000 downpayment. This is roughly 2 years... so 2016...
3. payment no more than 28% of monthly income - This should be ok
4. plans to stay in home for at least 5 years - This should be ok

Do you think I can afford a 15 yr mortgage? Is that ever advisable?

Thanks!

[disneysteve]

1. 6 month emergency fund - this I need mo matter what. I need $4000/mo so this is $24000. at $700/mo = 34 months = close to 3 years. 2014
2. 20% down payment - If it was today I would be looking at a $100k home = 20.000 downpayment. This is roughly 2 years... so 2016...

So you could buy a home in 5 years. That's not bad at all. And if you can trim expenses and/or boost income along the way, you can speed up that timeline. The key is having a goal and having a plan to reach that goal.

[hard2figure]

Radiance, If you can get a 15 year at that 28% of income then yes, 15 year mortgage would be a great option. You will get a lower rate and be paid off quicker.

[cicy33]

Not everyone says that.

I frequently say just the opposite.

In fact, it is highly detrimental to your long-run to get into a house you cannot afford today.



Then....


Edit: Oh and by the way, you should be renting at around 25% of your takehome pay (after tax). If your rent is much more than that, you should move to cheaper rent.

This is not always true anymore. renting prices have gone through the roof. Where I live, the average pay is minimum wage. the average rent for a 2 bedroom 1 bath house: $500. 3 bedroom, 1 bath is closer to $600. While it is nice to think you should only pay 25% of your takehome pay I think it would be more accurate to say keep it to that amount with the household combined income.

Buying is only worth it if you are not planning on moving in the next 10 years. (must be there that long to build some actual value, unless not financing) Then you have to figure in the cost of the taxes. Best to take that number and average it so that it is a monthly bill for you and not all at once. Depending on where you live this can easily be another $100 per month. Where I used to live it was almost an extra $150 per month, where I am now it is only about $50 per month.

Be sure to get a check done so that you aren't going to be stuck with a lot of bills you don't want and can't afford.

[MrPolarZero]

Well, buying a house should definitely be your goal. But don't go rushing into a housing loan just yet. Assess your finances first and see what you can do to lessen the need for a loan

[moneyclass]

first question is...do you plan on staying in that house or area for at least 5 years. theres no point to buy a house if your not going to live there that long. better off renting then. your first 5 years of payments is like all interest to the bank.

[jpg7n16]

This is not always true anymore. renting prices have gone through the roof. Where I live, the average pay is minimum wage.

I'm gonna call BS on this one. By definition, this cannot be true. If the average pay is minimum wage, that means that no one anywhere is paid more than the minimum. Which means the people paid to manage get paid the same as the people they manage? More responsibility and no benefit?

Plus I see from your info that you're in Illinois. Even doing a quick careerbuilder search for jobs only $40k+ in your area provides over 100 current openings in your general area. (CareerBuilder.com Search Results)

So I think you have been misinformed about what's possible in your area.

the average rent for a 2 bedroom 1 bath house: $500. 3 bedroom, 1 bath is closer to $600. While it is nice to think you should only pay 25% of your takehome pay I think it would be more accurate to say keep it to that amount with the household combined income.

Do what? If rent is $600 shared by 3 people, that means my rent is only $200. And then I'd only need an income of $800 for the month. Which is very easy to make on minimum wage.

Unless you're a single mother living on minimum wage trying to support 2-3 kids, I don't know why you'd need a 3 bedroom apt, and you definitely shouldn't be looking to buy a home.

I'm not sure what you mean that I should instead compare that amount with the household income. Do you mean gross income? Or consider the incomes of the other roommates/spouse? I'm just not sure what you mean.

[cicy33]

I'm gonna call BS on this one. By definition, this cannot be true. If the average pay is minimum wage, that means that no one anywhere is paid more than the minimum. Which means the people paid to manage get paid the same as the people they manage? More responsibility and no benefit?

Plus I see from your info that you're in Illinois. Even doing a quick careerbuilder search for jobs only $40k+ in your area provides over 100 current openings in your general area. (CareerBuilder.com Search Results)

So I think you have been misinformed about what's possible in your area.

Do what? If rent is $600 shared by 3 people, that means my rent is only $200. And then I'd only need an income of $800 for the month. Which is very easy to make on minimum wage.

Unless you're a single mother living on minimum wage trying to support 2-3 kids, I don't know why you'd need a 3 bedroom apt, and you definitely shouldn't be looking to buy a home.

I'm not sure what you mean that I should instead compare that amount with the household income. Do you mean gross income? Or consider the incomes of the other roommates/spouse? I'm just not sure what you mean.

You can bs all you want. First, of all. AVERAGE means average not everybody. yes, of course there are jobs that pay more than minimum. But you don't know anything about where I live. I live in a small area with a 3 colleges within a 30 mile radius. Result? LOW WAGES. I work for a lawyer. I am a bookkeeper, payroll and do the human resources aspect of the business. I make 11 an hour. Not great, compared to many places but for here pretty good. yes, there are places that pay more than min wage. I never said there wasn't. I said the AVERAGE was minimum wage. lots of restaurants around here not much else. in the past 5 years we have lost two major businesses. Maytag Factory and Circuit City warehouse (not the store). maytag was the better place for wages. ciruit city was through a temp agency so most made right at min or maybe a $1 above. and I had several friends that worked there so, yes, I knew what the wages were.

PLEASE PLEASE tell me where these great 40K a year jobs are. PLEASE. they are not here. I live in SOUTHERN ILLINOIS. Down by Carbondale. Home of SIU university. easy to look up I promise! Mind you I live 30 miles from Carbondale. oh, and I am 40 miles south of Mt Vernon the other big city. And please don't preach to me the ones that require a bachelors, masters, or teaching (wait thats a laugh, poor teachers. my sister is a teacher and is NOT paid enough) degrees or something that people must first pay for a 2 year college these rates:

* In-district: $84.00 - this means you live within the county.
* Out-of-district: $215.99 - this means you live outside the county
* Out-of-state/International: $279.00

or for the four year university

Resident Tuition 1 Credit Hours $328.00 PER CREDIT HOUR!!!! this is insane.

It is also nice to say well, then I must be only paying 200. Well that is only if the other people in the house are paying 200 each & have their own separate income, then it applies. but if you are a family then that 400 doesn't get split up. not that you could find something here for 400 anyways!! there is another area you are not considering. If you have a boy and a girl (in my state anyway) you are required to have separate bedrooms for them after they are a year old. So, that is: 1 for mom and dad, or even just mom or just dad. 1 for girl and 1 for boy. equal? 3 bedrooms. and yes, it is a law here. my ex sister-in-law had the DCFS or whatever it is called now come to her home and tell her she must provide another bedroom for her son because it was unacceptable he was sharing with his sister. He was 2 she was 5. they threatened to take away her children due to be negligent. so don't tell me a family with 2 kids might not need a three bedroom. it is very possible. especially if one is a teenager. Would you want to share a room with your parent as a teenager? gross and yuk.

So, to summarize. a young mother is making min wage. Her average paycheck depending on how she claims is about 266. after taxes. so that is $1064.00 per month. Lets say her husband earns about the same. Now they earn about $2100 a month. average rent here, yes HERE. is as I said 550 a month for a two bedroom. P.S. I rented a two bedroom house about 9 years ago here for 550, so that is one area I get my numbers and talking with my friends that rent is why I know it hasn't changed much. thank goodness. so, back to summary. they are paying approximately 25% of their take home pay in rent.

Generally what happens is that people are on assistance. Lot of people here are on assistance. I would say I know at least 100 people closely that are. and these are just the ones that I personally know. Right now it is incredibly difficult for the teenagers to find jobs that pay minimum wage. McDonalds isn't hiring. and when they are they are wanting the kids that can work more hours than school allows.

So please before you go around telling people they are wrong at best and lieing at worst you might want to do a little better research. You don't live here. You don't know what it is like here. I know our rents are a little cheaper than other areas but that is because we make less money here. everything is the same or close I'll bet. Milk, $3.19 a gallon (skim) Gas: $3.25 a gallon. etc.