Should I buy a house???

[flash]

Re: Should I buy a house???

Flash I know what you mean. I'm in a townhouse, can reach every lamp with a regular chair and it was still expensive. Something else to check into are misc. deposits. I had a make a $200 deposit on my electric service! That was shock. I will be getting it back after 2 full years of good payments. Only 6 months to go.

Great point. I had forgotten, or maybe blocked it out of my mind, ALL the fees for service. We moved one town away, all the services were the same providers, but still had to pay cancellation and start up fees for cable, phones, electric, etc. And installing an alarm system, and monitoring, and adding a water purifier since we were getting sand through (met inspection criteria!). Maybe we should start a list of all the incidental costs that occur with becoming a new owner?

Re: Should I buy a house???

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.

Hello BAGAGT1,
I'm new here.
My husband and I are planning on buying our first home together, hopefully next year.
I'm glad to read your post because it gives me a lot to think about and confirms my thoughts on this subject as well.

[joesixpack]

Re: Should I buy a house???

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

There's no way you are paying 5.85% with zero down. No way at all. You might have been in November when you posted this, but with PMI you're adding $200 per month.

[joesixpack]

Re: Should I buy a house???

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.

All good advice. I will add one thing:

If you are buying a house for a VERY GOOD price, I mean legitimately good price, you can get away with zero down because you have "instant equity." This situation is rare, but if you're willing to be patient, you can find these golden deals. Of course by that time you might have saved a nice down payment!

[Saving in So Cal]

Re: Should I buy a house???

I know you have decided not to buy, but I wanted you to know about my first real estate experience and what not to do.

At the time, there was no such thing as 0% loan unless you had VA benefits. The lowest was 5% and the conventional wisdom was put 5% down, let the property appreciate for a few years, then sell it and buy something bigger and better.

We were yuppies with good jobs and decided to follow the conventional wisdom. We bought a nice condo in an up and coming area with 5% down. Because of the low down, we paid a higher interest rate and PMI. Still, we were unconcerned because we could make the payments and we were getting a big tax write off -- or so we thought.

Within a year and a half, both the economy and housing market tumbled and the condo had lost 25% of its value. After another year, the condo had lost another 25% of its value. To compound matters, my husband lost his job, I started grad school, and we were relocating to another county.

Then, things got really bad. One of the condos in the complex caught fire and we learned they had been built without the required fire stops and fire walls. The developer was bankrupt and the developer's insurance policies were running out. We were facing the prospect of a five-figure special assessment to repair the problem.

Although interest rates were going down, we could not refinance the condo because we had no equity in it. We could not sell it for the same reason and the bank would not consider a short sale because we were not penniless. We could not rent the condo because the rental value was less than what we owed. Moreover, we had trouble insuring the condo and did not want to have renters without good liability insurance. In the end, after talking to several attorneys and realtors, we made the tough decision to walk away from it.

After that, we lived in the smallest apartment we could tolerate until we saved 20% down for a single-family house in a nice community where we hope to live until we retire. Although it seemed like it took forever, it actually only took us 4 years to save the money. With 20% down, our past failure was not a factor in getting a loan. We got a good interest rate and did not have to pay PMI. We now have enough equity in the house to weather any future downturns in the market and, if all goes well, we'll pay it off early.

If we had done the same thing with the condo, we would have had more options when things got tough. Consequently, I always tell people thinking of entering the real estate market to save 20% down even if they think they are going to be priced out of the market (they won't).

In my opinion, buying a house is the single most important financial investment you will make. There is nothing wrong with taking your time about it. Plus, as I alluded to earlier, the tax write-off, while welcome, is not as good as you might think no matter what tax bracket you're in.

[b4freedom]

Re: Should I buy a house???

DON'T BUY. Save. Seriously. For the next two years, pretend you have a house and make a mortgage payment to yourself.

In two years, when the housing market is flat and flooded with forclosures, take your savings a buy a house. Seriously.

[lrjohnson]

Re: Should I buy a house???

DON'T BUY. Save. Seriously. For the next two years, pretend you have a house and make a mortgage payment to yourself.

In two years, when the housing market is flat and flooded with forclosures, take your savings a buy a house. Seriously.

It's nice to see the posts that indicate waiting can be a good thing. I'm saving and waiting.

[Broken Arrow]

Re: Should I buy a house???

Yes, I too am a proponent of saving and waiting. In fact, if I can get away with it, I'd like to be able to buy my future house with cash up front.

Whether I can pull that off or not is a different story, but... I'm definitely going to try!