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Can you explain the significance of this? I guess I'm not quite understanding how this action would hedge against the risk.
If you put 20% down, and the home goes down 20% when you have to sell it, you will still be able to get rid of the house without foreclosing or doing a short sale. Yes you would lose all your downpayment, but at least you could get rid of the house. But I think that's the risk everyone will be taking whoever puts a downpayment on a home in today's market.
Well, I guess I'm still confused here. What are other young couples like us doing in the big cities, where commute is an issue, when they don't want to have an hour commute to work each way, where the housing is more reasonable? My understanding is that many young couples buy townhouses or condos close-in.
It's unlikely that these days, most young couples like ourselves are able to afford anything more than a starter home in the close-in suburbs. In the big cities like Chicago, you don't get much for your money in these suburbs. If we buy the starter home with the reasonable commute, we're worried that when we're ready to move up in 5-7 years, prices will have dropped to the point where the house will have lost a lot of value, making it impossible for us to sell without taking a loss, which will make it impossible for us to sell. Then we'll be stuck in the starter home. We're sort of risk averse. This is a huge chunk of change to be dealing with, and we're scared to see that equity vanish when/if prices drop. We've seen a lot of starter homes, and they're okay, but again, they'd need $100K of work to do all the updating. Many of them have good schools and have nice yards, but are very small.
It seems like we have two options: a) continue renting for however long it takes, and hope prices will come down and stretch a little more to buy the more ideal house that could be our permanent house, or b) settle, and buy now because we can't stand the hassles and inconvenience of renting any longer, and buy the starter home that needs lots of work, but keeping in mind that we're taking a risk that we might not be able to sell it in 5-7 years without taking a loss?
Am I not seeing the whole picture here? We're first-time home buyers, we need guidance.
Honestly? I don't think you guys are ready. You are fretting too much about the "what ifs" and you also seem to be extraordinarily picky, i.e. unable to distinguish "need" from "want".
If you put 20% down, and the home goes down 20% when you have to sell it, you will still be able to get rid of the house without foreclosing or doing a short sale. Yes you would lose all your downpayment, but at least you could get rid of the house. But I think that's the risk everyone will be taking whoever puts a downpayment on a home in today's market.
The only advantage of putting down 20% is no PMI. You have nothing further you can gain from the internet. Go meet with your agent and review your situation. Go get prequalified by a mortgage lender. Then decide to buy or not buy and commit to it one way or another.
Well, I guess I'm still confused here. What are other young couples like us doing in the big cities, where commute is an issue, when they don't want to have an hour commute to work each way, where the housing is more reasonable? My understanding is that many young couples buy townhouses or condos close-in.
We are one of those Other Young Couples--early 30s, first-time homebuyers in a very expensive market (Seattle), exactly the same situation as yours, sounds like about the same price range, too. We have very picky demands about location re: public transportation and commute times--and we want to be close to the city as well--and have a yard and not a major fixer-upper (note: there is a big difference between a minor fixer and a major fixer--do you expect to not have to make *any* renovations, or are you willing to take, say, an ugly kitchen or bathroom, etc?).
And yes, we have considered going for a condo or townhome, but for the house and investment potential we'd be getting (almost zilch with condos/townhomes, since there's no room for renovation--which you DO want to be able to do, to increase your home value over time, right?), we'd rather pay a few tens of thousands more and get a full-on house in the same neighborhood. Which is what we're doing--making offers on houses between $450-500K (about to put in another one tomorrow morning), and seeing how it pans out. There has been something "wrong" with almost every house we've looked at in this price range, because that's just simply what comes with the territory--if we wanted a house that didn't require any fixing whatsoever, it would be a hundred thousand higher in price. So yes, we are willing to settle for single-pane windows, a smaller kitchen, non-updated electrical system, a yard that needs some work, etc. in order to get the house that we want.
We don't see it as our "starter" home. We see it as a place to live, and a place to raise our future children--5-10 years down the road, we'll reassess, but if we end up "stuck" in the house for whatever reason, we believe we'll still be very happy there. Why do you think you'll want to move into a more "permanent" home in the future?... what would that look like, compared to a "starter" home?... I guess I just don't quite understand what you mean. A bigger yard? More bedrooms? Better high schools? I'm not clear on what you want in a "forever" home, that you're not seeing in your price range right now (minus a few fixes).
Anyway, sorry for rambling... but to answer your question: yes, many couples do go for the condos and townhouses. But many others pick a home that meets most of their needs, some of their wants, and then MAKE it into the home that they love... and that doesn't mean it has to be a dilapidated fixer. It can just be a great home that needs a few minor repairs over the years, all of which will add to your home's value over time. Some people don't move for decades. Some move within 5 years. Life just throws stuff at ya... who knows where you'll be down the road?
Hope this was helpful. I really identify with where you're at, as my husband and I are almost exactly the same demographic as you--but man, I can't imagine taking 1-2 years to find a home. It's just too much energy spent, especially if a realtor isn't doing most of the legwork. But if you're okay with that--well, I don't have much to add.
Even with very high inventories - 75 - 100 houses?!?!?
No, I don't think you are serious buyers. I think you are excellent lookers. I suggest you continue to just look.
I understand you have the abilty to buy, but it's clear you don't want to. So why push it? Keep looking and have fun with it.
Enjoy!
Having lived in Chicago when we bought our first home and now being in the market for a home, I see your dilemma.
I think your first question about finding the right home, has been answered by many of the fine folks here. Make your realtor work and find your home. Even in a buyers market, the good one go fast. Our realtor knows exactly what neighborhood and what type of home we want. We hear from her the day a home goes on the market that meets our criteria. We see it and decide if it is for us. (So far over one year and nothing that works for us, but I know I will hear from her the minute a home hits the market.)
Your second question seems to be - is the investment worth it? And that can only be answered by running the numbers.
For example if you are paying $2400 in rent, but buy a $400,000 home with 10% down your mortgage payment will be about $2800 with taxes etc...
So if you continue renting for 5 years, you will pay $156000 (assuming a 4% increase in rent annually), but you can put your downpayment in the bank and add monthly the $400 difference between rent and mortgage.... So you would have $46,000 (downpayment plus some closing costs) plus $400 per month added to savings. Total saved at only 2% interest (being conservative) is $76,000 in the bank after 5 years.
Now after 5 years of owning a home, you will have paid $92,000 in interest (I did not add PMI and calculated at 5.25%) and probably about $6000/yr in maintenance (total after 5 years $30,000). So you will have paid about $122,000 to own your home. So in this case about $30,000 less than renting, but that is IF your rent continues to increase by 4%.
You will have a mortgage balance of about $335,000 after 5 years. So you can only compare that to what you think your home will be worth in 5 years. If you think there will be no appreciation, then you have about $65,000 in equity ($400,000 - 335,000). And in the "keep renting" situation you have $76,000 in the bank. So the renting puts you ahead by $10,000. So if you pay $30,000 less by buying than renting, BUT you have $10,000 less in equity vs. savings, you come out $20,000 ahead by buying after 5 years. Unfortunately, if you plan to sell in 5 year that $20,000 will easily be eaten up by commission and closing costs of selling.
But do your own numbers and play with it.... See what happens if the home does appreciate a bit... or if it does depreciate.... If you truly believe the market will decline in the next 5 years, the numbers will make it hard to come out ahead....
Well, I guess I'm still confused here. What are other young couples like us doing in the big cities, where commute is an issue, when they don't want to have an hour commute to work each way, where the housing is more reasonable? My understanding is that many young couples buy townhouses or condos close-in.
It's unlikely that these days, most young couples like ourselves are able to afford anything more than a starter home in the close-in suburbs. In the big cities like Chicago, you don't get much for your money in these suburbs. If we buy the starter home with the reasonable commute, we're worried that when we're ready to move up in 5-7 years, prices will have dropped to the point where the house will have lost a lot of value, making it impossible for us to sell without taking a loss, which will make it impossible for us to sell. Then we'll be stuck in the starter home. We're sort of risk averse. This is a huge chunk of change to be dealing with, and we're scared to see that equity vanish when/if prices drop. We've seen a lot of starter homes, and they're okay, but again, they'd need $100K of work to do all the updating. Many of them have good schools and have nice yards, but are very small.
It seems like we have two options: a) continue renting for however long it takes, and hope prices will come down and stretch a little more to buy the more ideal house that could be our permanent house, or b) settle, and buy now because we can't stand the hassles and inconvenience of renting any longer, and buy the starter home that needs lots of work, but keeping in mind that we're taking a risk that we might not be able to sell it in 5-7 years without taking a loss?
Am I not seeing the whole picture here? We're first-time home buyers, we need guidance.
Another tip I can give you is to know why those houses declined. Basically at 300k+ you are looking at luxury homes. John Joe average does not bring home enough to buy a house after about 250K. A 100-150K house might have declined in this market but only by about 10-20K. 10-20K isn't significant.
A house that costs over $300K can decline that much because there isn't anything there to support it. There are no great masses of qualified buyers at this price range and those that can afford to hop off $2400 in rent are a month are spending more in rent than some people make in a year.
Now not all houses in this price range will be affected or be affected as much. An area that has been luxury for decades isn't suddenly going to become cheap. (i.e. Barrington or Lincoln park). However an area that was recently developed(i.e. it was a corn field 10 years ago) or that was not traditionally luxury can.
Also I agree with the idea of putting 20% down on the house. It gives you much more room to maneuver should you need to sell the house for some reason(sick relatives that need care). The more you have the house payed off the less you have to sell it for to cover the remaining mortgage. If some emergency or if your job should relocate you have an option. Yes, you may loose money, but better to keep a job with income than be stuck with a house note and no job. Heck if push really came to shove you could sell your house at a loss and move into a cheap rental and keep your credit intact.
Another thing to warn you about is buying on two incomes. If you buy on two incomes you have effectively doubled the chances of loosing the house. If one of you should loose your job or be forced to take a job with significantly less income then making the house note will be tough. Yes, you do have savings to cover situations like this, but better to keep your fixed expenses like a house note in line first. It is better to dip into emergency savings to cover something like groceries(i.e. small and something you can directly affect) than house note(large and you need a bank to change it for you).
Also skip the ARM type of mortgage unless you have enough money to cover the possibility of it rising.
But do your own numbers and play with it.... See what happens if the home does appreciate a bit... or if it does depreciate.... If you truly believe the market will decline in the next 5 years, the numbers will make it hard to come out ahead....
My husband and I are in our early 30's and are ready to buy a house.
We're also first-time homebuyers who live in a very high cost of living area.
We're not in any hurry, since we can always renew our lease.
Quote:
Originally Posted by kibblesandbits
Anyhow, because this is such a high cost of living area, I guess we've been more picky than we otherwise might be if this was an average cost of living area, like Cleveland, where we could get a very nice house for a reasonable price. Here, you could get a one-bedroom condo for what you could get a nice single-family house in Cleveland for.
Quote:
Originally Posted by kibblesandbits
Yes, this is an issue of not being able to afford what we want, but only because we're in a high cost of living area. If we were in Cleveland, we'd have the house of our dreams with our budget. Here in Chicago, we're probably going to be settling, since we want to keep our commute for work reasonable. We're financially and emotionally ready to buy.
We're also considering leaving the area altogether--that's another option.
You are ready but in no hurry and you want a forever home but are thinking of relocating sends a mixed signal.
Comparing Cleveland to Chicago is pointless. According to Sperlings, Cleveland is 38% cheaper than Chicago and housing is 83% cheaper.
The local cost of living is a factor in dertermining salaries. In most cases, one is not going to make the same income for the same job in Cleveland, as they would in the greater Chicago area. I believe that Cleveland's unemployment rate right now, is approaching 20%. It's greater in some sectors and less in others.
The cost of housing varies greatly in the greater Chicagoland area.
cannot believe all the people on here saying that you are being picky or unrealistic. I guess realtors want people to make 500000-thousand-dollar decisions lickety split in the middle of the Great Depression, 11% unemployment, companies going out of business, people homeless, and on. It is in your best interest to be as cautious as possible. Caution is much much better than making a 500000-thou mistake.
Maybe all these naysayers have nmade that mistake and want you to join em.
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