Buy or Rent

[skives]

I am getting married in September and our original plan was to rent and pay off my one student loan which is the only debt we have but the rental market where we live is really bad. There are basically no places to rent that would be cheaper than buying at the moment. I know this can change but if it doesn't I was wondering if we should buy if there is nothing to rent cheaper.

Our Income- $4,000 gross a month
Student Loan- $110 a month but will pay as much as we can each month
Savings- $8,000 now but will have about $12,000 or $13,000 by the time we get married.
401k- $36,000


We have no other debt.

Is it wise to look at buying if we can't find a place to rent that would be cheaper? Right now we are looking at a house that is $69,900 but is a short sale and maybe we could get cheaper, but if not the mortgage, taxes, and insurance would come to about $550 to $575 a month. Any advice would be appreciated. By the way I am 28 and she is 23. Thank you.

[MonkeyMama]

I am one who bought because it made extraordinarily more financial sense to buy than to rent, when we were first starting out.

BUT, there was a lot more to it than that. This was considering the housing market (for the long run) and knowing we wanted to settle in this city for the long run, etc. & we opted for non-traditional living/rent situations so that we could save 20% down for a home, etc. Meaning, we didn't use it as an excuse to buy before we were truly ready. {We instead we decided not to marry and live together until we could truly afford rent or a mortgage, without roommates. I wasn't particularly partial to either/or at the time - just what ever was most logical}.

If the only compelling reason to buy is because "it is cheaper," I personally would not do so. That in itself is not a good reason to buy a home. I'd keep it flexible with the rent situation (keeps things more open and flexible) and I wouldn't feel comfortable buying a home, even at that price, without a lot more in savings. I would only start thinking about this route if you really had a good feel about where you wanted to settle in the long haul. But even then, I'd want to put 20% down and have some emergency funds available. Home ownership comes with a lot of expenses.

[phantom]

It doesn't sound to me like you have the cash to buy a house right now. Your current savings would only amount to a 10% downpayment on that house you're looking at, and even if you wait till you're married, you still won't quite be able to put down 20%. Either way, you can't really completely drain your savings anyway, because once you own a house, having a proper emergency fund becomes more important than ever. Houses need upkeep and repair, and repairs can get expensive.

You don't say how much the cheapest rentals are in your area. But, I would guess that if you take into account the upkeep you'll pay for a house, the cost of renting and buying will become closer. Utilities also might make a difference depending on whether or not you're looking at rentals that have utilities included. Even if you have to pay for them either way, the cost of heating and cooling a small apartment should be lower than the cost of heating and cooling a house.

If buying really is cheaper than renting when you take everything into account, then saving up and buying a house as quickly as possible is probably a wise decision. But, I wouldn't do it until you can put 20% down on a house and still have an emergency fund.

[skives]

Of the rentals I have seen in the paper they were $600 or more a month plus all utilities. I was told by a local realiter that the rental market is full here. She said she knew of maybe three places that were for rent. We have lived here all our lives and feel comfortable that we want to stay here. We are thinking about a RD loan that is zero down payment so we can keep our savings.

We have been engaged for three years now each of us living with our parents so we could pay off debt and save. Guess we have to try to find a way to find a place to rent that is cheaper than what we have seen.

[BudgetSurgeon]

I would hold off right now, and pay off your other debt first, before incurring further debt. I understand your dilemma, but I would venture to become debt-free first. Also, with down payment and closing costs involved, it seems like you are really a bit short on cash. I would save up, and make sure you have at least 6-12 months of reserve in the bank, over and above what your down payment and closing costs will be. Additionally, depending on where you live, housing may remain at a standstill over the next few years, and with interest rates anticipated to remain low (according to Bernanke), you probably don't have any sense of urgency to have to buy now either.

[riverwed070707]

People who use the excuse that buying is cheaper than renting often fail to take a lot of costs into consideration. It's not the cost of your monthly rent vs the cost of your monthly PITI payment. There's a lot more that goes into it than that. $600/mo rent is cheap. $550/month is not all you will spend on home ownership. 0% down loans are a bad idea. Keep saving until you have 20% to put down, then buy.

Buying a short sale is a whole other can of worms that I wouldn't bite into, but that's JMHO.

[bumstah]

It seems like you want to buy a home because you can't find a rental property. I don't think this is a good reason to buy a home. There are a ton of homes available everywhere and I think you just need assistance in finding a rental that will fit you and your future wife. Have you contacted a realtor? Check the local magazines, websites -- I helped my girlfriend find her apartment through Craigslist and got a pretty good deal. There's bound to be one (or even more!) that you will like.

[dczech09]

You should work on paying off the student loan and saving up a 20% or higher down payment.

You say that buying would be cheaper than renting. But I am assuming you are only comparing the cost of rent versus the cost of a mortgage. That is not an apples-to-apples comparison. I just wrote a new post on my new money blog yesterday.

Yes I am self-promoting, however I think my post has a lot of good information for you.

You need to consider the actual cost of owning a house, not just the mortgage price. As the others said, "cheaper" does not make it the best move. You also need to consider if you will be there for the long run, if you can cover emergencies, if you can put a good down payment on, and if you can afford the maintenance and other expenses. I do not think you are considering the whole "buy" picture. Most people fail to see the whole picture, and a lot get into trouble as a result.

[snafu]

I think others have offered excellent advice. A short sale can be ok so long as you fully understand that the both the seller and the mortgage holder must sign off and that can take an extra ordinary long time. There must be extra careful check for liens, legalities, and inspection as you are buying 'as is.'

There is a long list of monthly expenses associated with home ownership over and above PIT [principal/interest/taxes],mortgage insurance, property/content insurance, utilities [electric/water/sewerage/heat/trash/cable, landscaping, maintenance, repairs and more.

It's important to know your specific housing market as there is another tranche of foreclosures waiting for the review of paperwork completed before being released for sale. This can mean a further price reduction in some areas.