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Yesterday I have had a friendly debate with my realtor on budget and timing.
She has been showing me homes where I am not comfortable with my monthly payment but she thinks it is worth it because the home would be 10-20% more expensive next year.
I am first time buyer so it is natural I am confused especially when I know I will not be using every room of the house.
My rent is now $1100 (2 BR, 2 bath) and a decent place to live (in here for 3 years).
Lack of storage, older appliances all are concerns but I could easily live here for another 2-3 years.
My income is likely to remain the same for next 2-3 years.
I am married but no kids so I have been looking for 3 years and decided to invest my money elsewhere and never had the downpayment.
But I do not need same home.
As I see it my monthly payments if I buy 450k home (my realtor has been recommending these) are $going to 3400 with tax bill alone being 11000 (almost same my rent now).
So my debate with her was that if I am not using all bedrooms in home or the schools right away, why should I buy the home?
She mentioned building equity for a home that I may buy next year out of necessity (if I have a child).
But my argument was that there will always be 450k home that I can buy and by waiting I will have flexibility of location and investing all the money I save.
If I choose to live in $1100 rented apartment for 1-2 years instead of staying in nice home, does waiting for market to cool down make sense?
Even if market heats up, wouldn't the money I save (almost 2300) every month give me larger downpayment towards same or better house 1-2 years from now?
Why are you jumping to a $450k house when you currently pay a mere $1100? Why can't you find something in older Plano or older Richardson for under $250k? If she's showing you more expensive houses, it's because of the criteria you've given her.
Why are you jumping to a $450k house when you currently pay a mere $1100? Why can't you find something in older Plano or older Richardson for under $250k? If she's showing you more expensive houses, it's because of the criteria you've given her.
That is a good point - this realtor specializes in new construction and my wife wants minimum of 3000 sqft.
Wanting good location like Frisco, Flower Mound all homes with decent upgrades are costing 450k.
My realtor is saying that even an older 3000 sqft home will cost close to 400k in these locations and we may have to spend 50k to do upgrades. A new home would have all the upgrades and the money would be part of low interest mortgage instead of cash from my pocket.
One option I have been considering is buy 2010-2013 built home 2600 sqft home for 350k - 400k.
Would that be a better option for me to lock up interest rates even if it means I move or upgrade 4-5 years from now?
There you go, your criteria is putting you into that price point and it's not the agent telling you that you need to be up that high. As a Realtor, my job is to show you what you "want". As the buyer, you then need to figure out what you "need". If you don't want $450k, you should not be shown $450k... BUT, you have to be willing to compromise on what you want.
Why are you stuck on a sqft number? A number means nothing, it's the floorplan. Many 3000 sqft homes feel like 2000 sqft because they are choppy and don't flow well. Many 2000 sqft homes feel like 3000 sqft because they're a good use of space. Drop the number, and look for the number of bedrooms you need, gameroom/media, whatever, and if that's in a 2500 sqft house, so be it.
The average person moves every 5.9 years, so there is nothing wrong with you moving again in 4-5 years. People do it everyday.
OP,
Renting is a comfortable place to fall for a first time homebuyer. In your case its (much) cheaper, it comes with less responsibility and is just easier. There are merits to homeownership. But dont ever feel pressured to buy a house. ( Unless that pressure is coming from your wife...in which case say yes honey and proceed to call a realtor)
There are many people that have opted out of homeownership and that decision works out great for them.
That said, in our market, buy a home if you can and want to. Rents are trending up right along with the home prices and taxes and there is no guarantee that the rent you are paying now will remain where it is. Your price range has much better availability than others so you should have more options than a lot of other buyers as long as you MANAGE YOUR EXPECTATIONS.
A good realtor will take your concerns about the price range you are looking in seriously and knowing you are a first timer... Should educate you on your options. The fact that you are on here asking these questions when you have a realtor concerns me. "The prices will go up next year" is not a good reason to buy a house you arent comfortable with even if that statement is true. No-one can guarantee you that and i would be leery of such statements having an impact on your decision making. Houses will always be here. All the houses in DFW will not suddenly dissapear. If there is no compelling reason to buy right this minute you shouldn't. Yes they may cost more later but they may be cheaper. Nobody knows for sure. Same goes for interest rates.
Talk to your wife, figure out what you guys NEED in a new home and go from there. If that means that you dont buy a new home and loose your current realtor so be it. If it has to be new, decide which upgrades you NEED to have and how much they will cost you. Take a hard look at your finances. Can you afford the home your list came up with? And not just the PITI but maintenance and utilities. How will the higher bills affect your life?
Based on those answers look at your NEEDS list again. Which one of those can you compromise on or live without? How much does modifying the list save you? At the end of that homework you will at least understand why you have to pay whatever your end number is. If you are paying for needs you should feel more at ease.... Assuming of course you can afford the end number.
Sounds like buying isn't a great option for you. I think the one thing most calculators forget to consider is the opportunity cost of tying up your down payment. Let's say you have to put down 10%, which is maybe $40k. Average stock market returns over the long-haul is 7% a year. Not only that, but your money is very liquid and you can get it out if you need it. That's not the case with a house.
Also, for the first several years of mortgage payments, very little of it actually goes to equity. That's called amortization and they arrange the payments so that you pay a lot of interest in the beginning (therefore not much goes into equity), but conversely, once you get to the 30 year mark almost all of your payment is going to equity. You're also paying PMI (mortgage insurance) until you hit the 20% equity mark, which is money down the drain, home owners insurance, and taxes. This all means that in the beginning you're basically building very little equity. Compared to average stock performance, it's much worse. This doesn't even consider the maintenance costs, time spent working on upkeep, and the loss of flexibility that come from owning a home. If you've never owned a home before, you likely don't realize the amount of time and money that goes into maintaining one. You will go to Home Depot nearly every weekend and you'll never leave without spending $100. Grass seed, a rake, fertilizer, weed killer, crab grass preventer, a hose...
I say wait until you actually need the rooms and then consider if you're in a place where you're likely to stay the full 30 years. Buy a home because you need it, not because you think it's a good investment. It's not a good investment. It's of course possible that your house will greatly appreciate in value, but to rely on that by taking out a huge loan and putting down $40k up front for a possible pay off decades down the line is just a little crazy. A lot can happen in decades--you can have more or less kids than you planned for, relationships can change, economic bubbles can burst...etc.
Like the realtor above says, the average person moves every 5.9 years. Now calculate how much equity you would have after 5.9 years. Then remember that when you sell the house you'll be paying those realtors 6% of the sale price along with thousands of dollars in closing costs. How confident are you that the price will increase enough to pay off all those fees and still give you a profit? Further, if your bet is wrong, the bubble burst and your house loses value, then you're on the hook for a lot of money or stuck in a place you don't want to be. Why do you think the banks do amortization so that they get their interest early and you get equity later? Because they know you aren't staying for 30 years and they want their cut up front. Don't buy a house just so you can pay to air condition and maintain rooms that you don't need now, but may need some day.
OP,
Renting is a comfortable place to fall for a first time homebuyer. In your case its (much) cheaper, it comes with less responsibility and is just easier. There are merits to homeownership. But dont ever feel pressured to buy a house. ( Unless that pressure is coming from your wife...in which case say yes honey and proceed to call a realtor)
There are many people that have opted out of homeownership and that decision works out great for them.
That said, in our market, buy a home if you can and want to. Rents are trending up right along with the home prices and taxes and there is no guarantee that the rent you are paying now will remain where it is. Your price range has much better availability than others so you should have more options than a lot of other buyers as long as you MANAGE YOUR EXPECTATIONS.
A good realtor will take your concerns about the price range you are looking in seriously and knowing you are a first timer... Should educate you on your options. The fact that you are on here asking these questions when you have a realtor concerns me. "The prices will go up next year" is not a good reason to buy a house you arent comfortable with even if that statement is true. No-one can guarantee you that and i would be leery of such statements having an impact on your decision making. Houses will always be here. All the houses in DFW will not suddenly dissapear. If there is no compelling reason to buy right this minute you shouldn't. Yes they may cost more later but they may be cheaper. Nobody knows for sure. Same goes for interest rates.
Talk to your wife, figure out what you guys NEED in a new home and go from there. If that means that you dont buy a new home and loose your current realtor so be it. If it has to be new, decide which upgrades you NEED to have and how much they will cost you. Take a hard look at your finances. Can you afford the home your list came up with? And not just the PITI but maintenance and utilities. How will the higher bills affect your life?
Based on those answers look at your NEEDS list again. Which one of those can you compromise on or live without? How much does modifying the list save you? At the end of that homework you will at least understand why you have to pay whatever your end number is. If you are paying for needs you should feel more at ease.... Assuming of course you can afford the end number.
My wife is very understanding. She appreciates a nice house but at right price. She also understands we do not need it right away. That is a good suggestion to have NEEDs list but when I talk with my wife everything is a need. She says it is all or nothing - same apartment or a really nice upgraded home. That is the reason I go from an affordable 1100 apartment to 400k+ home. I will need to have a chat with her again about need versus want.
The pressure is mostly from realtor but only because she thinks we would be happier in a nice home and sees great options that will appreciate in a year or two. I guess I will need to chat with her about keeping my monthly payment low is my preference compared to buying 450k home that will appreciate to 550k home I cannot afford.
Sounds like buying isn't a great option for you. I think the one thing most calculators forget to consider is the opportunity cost of tying up your down payment. Let's say you have to put down 10%, which is maybe $40k. Average stock market returns over the long-haul is 7% a year. Not only that, but your money is very liquid and you can get it out if you need it. That's not the case with a house.
Also, for the first several years of mortgage payments, very little of it actually goes to equity. That's called amortization and they arrange the payments so that you pay a lot of interest in the beginning (therefore not much goes into equity), but conversely, once you get to the 30 year mark almost all of your payment is going to equity. You're also paying PMI (mortgage insurance) until you hit the 20% equity mark, which is money down the drain, home owners insurance, and taxes. This all means that in the beginning you're basically building very little equity. Compared to average stock performance, it's much worse. This doesn't even consider the maintenance costs, time spent working on upkeep, and the loss of flexibility that come from owning a home. If you've never owned a home before, you likely don't realize the amount of time and money that goes into maintaining one. You will go to Home Depot nearly every weekend and you'll never leave without spending $100. Grass seed, a rake, fertilizer, weed killer, crab grass preventer, a hose...
I say wait until you actually need the rooms and then consider if you're in a place where you're likely to stay the full 30 years. Buy a home because you need it, not because you think it's a good investment. It's not a good investment. It's of course possible that your house will greatly appreciate in value, but to rely on that by taking out a huge loan and putting down $40k up front for a possible pay off decades down the line is just a little crazy. A lot can happen in decades--you can have more or less kids than you planned for, relationships can change, economic bubbles can burst...etc.
Like the realtor above says, the average person moves every 5.9 years. Now calculate how much equity you would have after 5.9 years. Then remember that when you sell the house you'll be paying those realtors 6% of the sale price along with thousands of dollars in closing costs. How confident are you that the price will increase enough to pay off all those fees and still give you a profit? Further, if your bet is wrong, the bubble burst and your house loses value, then you're on the hook for a lot of money or stuck in a place you don't want to be. Why do you think the banks do amortization so that they get their interest early and you get equity later? Because they know you aren't staying for 30 years and they want their cut up front. Don't buy a house just so you can pay to air condition and maintain rooms that you don't need now, but may need some day.
Thanks for giving advice based on my situation.
I still think buying is best option for a family who would use all the rooms and would actually play in the backyard.
But my situation is different and I need to work with realtor only if it makes sense for me to buy.
She is doing the best because she thinks I will be happier in a home.
I have the downpayment after saving up every penny for 5 years planning to buy a home if we start a family. But renting right now sounds comfortable especially when I am not even sure what location in the metroplex is best (depends on wife's career changes etc).
I am leaning towards renting even if it means downpayment just sits there in the bank.
At least I am not burning money paying 2000+ rent.
I can save up little more, invest in 401k, IRA and revisit next year.
If you are happy and satisfied in your current 2/2 at $1100 don't move, house ownership is not for everyone...and as you pointed out you could save thousands every month by staying there. There are many other fees besides taxes, and mortgages that you need to cover such as HOAs, higher utilities, fix/break, lawn, etc. It is really up to you, just don't stress yourself financially as it is not a pretty picture when you seat in a $450K home but can't go out for a dinner to save for the monthly mortgage payment.
If you are happy and satisfied in your current 2/2 at $1100 don't move, house ownership is not for everyone...and as you pointed out you could save thousands every month by staying there. There are many other fees besides taxes, and mortgages that you need to cover such as HOAs, higher utilities, fix/break, lawn, etc. It is really up to you, just don't stress yourself financially as it is not a pretty picture when you seat in a $450K home but can't go out for a dinner to save for the monthly mortgage payment.
Thanks for the advice.
It is important that I hear opinions other than my realtor.
I keep picturing nice home, yard and media room but then when I start crunching numbers on monthly payments, 3200$ payment brings me down to reality.
With uncertainty on wife's career, I cannot even commit to a location so I guess being flexible would be wise choice. Right now I have asked for locations close to my work but if wife has to drive 30+ miles, she will not be happy.
After things settle down, I would know what out income level is (I may be able to afford the home without losing sleep) and what location is ideal (for both our commutes).
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