First time buying a house... (feedback, 4%, agent, investments)

[teltic]

I'm looking into buying my first house and I have a whole bunch of questions regarding that... I thought I'd throw a post out there to see if I can get any feedback or advice. My three main questions are...
1. New or Used house?
2. Small or big house?
3. 15 or 30 year loan?


When it comes down to buying a new house or used house I think they're even. If anything I'd might get a newer house. I read on some new rule starting in 2009 that they require the houses to be so efficient, so I think the oldest house I'd buy is 2009. With older houses you'll have smaller closets (could care less) and newer houses usually have the kitchen connected with the family room (to make it feel more open, since we spend the most time in the kitchen area). I'd honestly buy a new house with an unfinished basement. I'd tell myself I would finish the basement myself because I like working with my hands, but I dunno
.
The real question is big house, or small house. closing fees in Salt Lake City are around 2-4%, thats the only expense from selling a house to buy a different one right? Meaning a small house makes sense as long as the savings exceeds the 4% closing cost on your future bigger house.
4% * 300,000 = $12,000 (this would be the closing cost for a new house)

Looking around the internet I found these guestimates...

.55% homeowners insurance
3.5% 30 year loan (or 2.6% for a 15 year loan)
1% property tax
and like 500 dollar mortgage insurance a year, or something like that.
so basically 5%.
so small house that cost 200,000 *.05 = $10,000 year compared to 300,000 * .05 = $15,000... Meaning you're saving $5,000 to live in a smaller house. This doesn't include utilities, but houses are so efficient you'll save what, $25 a month from a big house to a small house?
So buying a small house will pay for the cost of closing fees on your future bigger house in (12000/5000) = 2.4 years. After that you're paying yourself $5,000 to live in a smaller house.

Lets pretend that small and big houses appreciate at the same rate. The big house obviously makes more money (or loses more money) since it cost more. Obviously. Heres a cool site that shows the average appreciation rate for houses depending on location

Moderator cut: link removed, linking to competitor sites is not allowed

farmington had 3 different locations, all with different rates, I chose the smallest one which is 4.7% (being conservative, which I still think 4.7% seems too high). If you think about it you pay 5% in insurance and other expenses while your house appreciates 4.7%, meaning you almost break even. Wouldn't say houses are investments, but a good way to.. save and sit on your money.
$200,000 dollar house in 15 years will be worth $398318,
$300,000 dollar house in 15 years will be worth $597477

The $5,000 would increase as the house increase. meaning you'd pay 105,488 in 15 years. Still showing the bigger house wins at $93671...

5000 is the difference between the 2. Since estimated appreciation is 4.7 and expense is 5% youre technically losing .3%. The 200,000 house youd lose 8813 total. Long story short i think youre appreciation of your house will break even with your expense of the house with a 30 year loan at 3.5...


With the 300,000 house youd lose 13220. Meaning it would cost you that much to live. The rest of the your money all youre doing is tucking it into a house.

So if you did a 15 year loan youd make .6 percent. Making 18,000 on a 200,000 house. If you sold after the 15 years (house is now worth 392650) 392650 * 6 percent for sellers agent is 23559. Youd lose money buying a small house on a 15 year loan and then selling to upgrade.


I guess with the small house problem i only calculated your position in the first 15 years. Once your house is paid off youre making 2.5 percent more. So 2.9 percent for 15 years is .... My brain is fried. an extra $213272 profit. But a dollar today is worth more than a dollar tomorrow, did I calculate the time value of money? FML


So basically, is it financially smarter to buy new or used? small or big (I plan to have a fairly large family so I know if I bought I small house I'd end up in a big house in 15ish years)? 15 year or 30 year loan?

[davebarnes]

I am an engineer, but you are way over analyzing this.

1. A house is NOT an investment. The house you will buy will become your home: a place to live.

2. Many large families have grown up in and are growing up in small houses. Each child does not need their own bedroom with a built-in bowling alley.

3. Never over extend your financial self. The world changes in unexpected ways.

4. I have owned 3 new and 2 used houses. I believe the optimal purchase is a 3-5 year old house.
You get a modern layout. The appliances are relatively new.
The defects have shown themselves. For example, foundation cracking.

5. 30 year. Keep the flexibility. Make extra payments when you can to reduce the overall cost.

6. Avoid mortgage insurance if you can. Recently, this has become a huge cost for buyers. It is way more than $500/year.

7. Ignore everything you wrote about appreciation. See #1. And, "past performance is no guarantee of future performance".

[raveabouttoast]

I always find it amusing when people talk about "old' houses. In New England, 100+ year houses are common and, in many cases, are very well built. Some people even make the argument that a lot of new houses are poorly built with cheap materials. My point is don't rule out an older house just because of the age.

Find a budget that works for you. It could mean a large house, or a smaller house but with more features you want. Don't count on making a profit on the house. As we've seen in recent years, house prices don't continuously rise. I think it's relatively safe to think you'll get back what you paid into after several years. But think of it as a home, not a money maker.

Keep location and resale in mind too. A few months ago I looked at a few very nice houses, but the location was terrible. They're still on the market now. You might be able to get them for a good price, but they'll still be difficult to sell if you need to move.

[clutchrider]

$300,000 and not older than 2009. HA! As was said before I think it's funny what people consider to be old. $300k in CT will get you something built around the 50's and 60's, most likely a Cape with under 1500sq ft. and .25 acres. Oh and you will be on septic, well, oil, and be paying over $5k a year in taxes.

Being from a different part of the country we are extending our budget for the most part to find the most home since we do not plan on moving ever if we can avoid it. Looking at a 30 year fixed and 350-400k for a home. I have 10k for closing but really have no clue what it will come out to. Some people say 5 others 10 grand, so who knows. Oh and 10% down.

[vermonter16]

Wow....I really tried reading the post all the way through...but my eyes went crossed and my brain started to hurt....sheesh.

[wireyourworld]

Wow. Yeah, you're spending too much time on financials. Find a house that you can live in and love for 15-30 years, the rest will work itself out. You're planning on having a large family? Are you married? Wife pregnant with quadruplets? Does she know this?

[Ohiogirl81]

Buy what you can afford. Work down from that.

[rburnett]

Originally Posted by Ohiogirl81

Buy what you can afford. Work down from that.

Precisely. I'm on my second house and this is critical.

A house is a place to live, not an investment.

If you can comfortably afford a house to accommodate all your planned offspring and you are 100% sure that you will stay there for 15+ years, then go for it. Otherwise, you should look at renting a house or purchasing a lower priced house that you are prepared to sell (possibly at a loss) when you feel the need for more space.

I think you're doing the wrong math here. You should be looking at what you can afford, not what you can make. Get an idea of what you'll spend on maintenance, renovations, upgrades, decorating, etc. because this will consume most of your imagined equity. A house isn't a hedge fund. If you're assuming appreciation and selling for a "profit", you start walking a slippery slope. A much better "investment" is first paying off high interest debt, then buying stocks which have a long term average return of 7-10%. Average housing values barely keep up with inflation.

[glamatomic]

Originally Posted by rburnett

You should be looking at what you can afford, not what you can make.

^^ Perfect advice!

[byoak]

The real question is big house, or small house. closing fees in Salt Lake City are around 2-4%, thats the only expense from selling a house to buy a different one right? Meaning a small house makes sense as long as the savings exceeds the 4% closing cost on your future bigger house.
4% * 300,000 = $12,000 (this would be the closing cost for a new house)

You need at least 3.5% down on an fha loan. So you will need at least 7.5% at closing