"Starter homes" a good idea? (Dallas, Richardson: real estate, apartments)

[aggie972]

So I'm 25, pretty good income, about 6k student debt, no car loans, no credit card debt, modest 401k and roth ira. I dont have any reason I NEED a home yet, but Im wondering if it would be the best financial decision at some point in the near future. Especially if the Fed keeps interest rates this lower. Apparently 15 year fixed is ~2.8% now!.

I've played around with the New York Times rent vs buy calculator. Right now my rent is pretty cheap, but I know its going to go up. It seems like Dallas is about to see a lot of rent increases, but not a lot of home value appreciation. I'm pretty good with the numbers and figuring out how long I'd have to stay in a home for it to be a good financial decision, but what Im curious about moreso is how much bang for your buck you can get in Dallas on a home. I have no real concept of what $150k or $200k would buy? When I compare home prices to my rent payments Im comparing homes that would be a lot bigger than my current apartment. But then again, my apartment (the village) is in a great location. Would $150k-$200k buy a respectable single family home inside of 635 (no far out suburbs) in a safe neighborhood that didn't need a ton of fix up work done? If it would, it seems like this could be a pretty solid financial move for me while interest rates are low, as the earliest I would probably "need" to move would be about 5 years after having a kid, when schools really come into play. Would $150k-$200k buy a respectable condo in uptown? Ive generally hear to stay away from condos and any attached housing that has an HOA, but is this location an exception since its so in demand?

[Squirl]

Uptown or Park Cities would be an exception to the "avoid condo/townhouse" general guidelines. If you can find something in Uptown or the Park Cities that is affordable and you like -- go for it. Just make sure it has parking and a place to do laundry in the house. Go to one of the realtor websites and do some searches. Look around in Richardson and Lake Highlands, too, just to get a sense of what your budget provides. Remember maintenance, taxes, insurance, and utilities are all factors too. Utilities on apartments are typically lower than on houses.

[ChristieP]

GET THE STUDENT LOANS PAID OFF BEFORE BUYING A HOME. I put this in caps because it is VERY important. The student loans will survive no matter what, so it's ally best to get them paid off before anything else.

Originally Posted by Squirl

U Remember maintenance, taxes, insurance, and utilities are all factors too.

Absolutely! You must be able to have money in savings for those emergency home repairs that always seem to come up at the wrong time. This is why most young people choose to rent at first. Do you really want to be spending your money on buying a new roof while your friends are going to Las Vegas on vacation?

Also, what is the likelihood that your work location is going to change in the future? Buying a home is putting down some permanent roots, and if your work relocates you, it is a lot more work to sell a home than to just get a new apartment. And if you do have to sell quickly, will you have the extra cash in case you are "upside down" on your house? DFW real estate is notorious for appreciating in value rather slowly. We usually say it takes 5 years just to cover the closing costs.

Oh, you aren't going to find a doghouse in the Park Cities for $150k...just saying... SFH within 635 that cost $150-200k are either going to need a lot of work, or will be in a bad neighborhood. You might get lucky and find a few within that price range, but as a general rule, houses that inexpensive are going to be way out in the suburbs.

[aggie972]

Yeah, my plan next year is to save about $1k a month and split it between maxing out my Roth IRA and finishing off my student loan payments. At around 6% interest (less when considering its tax deductible), I dont see it as a huge albatross or anything, but with the way things have been lately, I'll go ahead and take that guaranteed return instead of just throwing everything into the stock market.

[mossalista]

I purchased my first single family home at the age of 21 (about 4 years ago), and it was one of the best investments I had ever made, so I think that this is a great route for you to be taking.

I'd suggest to go sit with a lender first, let them pull your credit and see what route they suggest you take first, then make your move. Paying off your student loans first may or may not be the best route to take. I still have a few small student loans (about 4k).

See how much you can get approved for, if your pre-approval is $200k, try and stay well underneath that once you start looking at properties (between 100-150k) because you don't want to get in over your head.

Think about your mortgage payment being about 1% of your loan. 100K loan - approximately $1,000 per month mortgage. $200k loan - $2000 monthly mortgage.
With the interest rates the way they are now, I'm sure this guesstimate is a little over, but its better to assume worst case scenario, but remember taxes and insurance.

House hunting can be a bit stressful though - make sure you know what you are looking for and what items you are willing to compromise on.

Are you looking for just an income property to sell in a few years? I purchased my first home as a foreclosure - and I am now getting ready to sell it for a little over 10k more than what I originally purchased for. It's not a huge return, but it's a nice profit.

Check out realtor.com for some listings too. That can give you an idea of what you can get for how much you want to spend in the specific areas.

Good luck!!!

[Considering Coming Back]

Do you know if you qualify for a 150k or 200k loan? Have you done the math on what mortgage+taxes+insurance will be?

If yes, you can find nice 2 bedrooms on the east side of White Rock (Little Forest Hills, Old Lake Highlands, Eastwood) and in Lake Highlands (L Streets).

[Considering Coming Back]

Originally Posted by mossalista

Think about your mortgage payment being about 1% of your loan. 100K loan - approximately $1,000 per month mortgage. $200k loan - $2000 monthly mortgage.
With the interest rates the way they are now, I'm sure this guesstimate is a little over, but its better to assume worst case scenario, but remember taxes and insurance.

That's way high. 100k borrowed at 3.4% for 30 years is about $450 a month. 15 year loan at 2.8% is under $700 a month

[mossalista]

I know it was high - in reality, a $100k loan is probably $800ish per month. The purpose of rounding up is to consider regular living expenses and any additional spending that she may have during the month.

$450 doesn't include county taxes and insurance. Unless insurance and taxes are paid once at the end of each year?

[Considering Coming Back]

Originally Posted by mossalista

I know it was high - in reality, a $100k loan is probably $800ish per month. The purpose of rounding up is to consider regular living expenses and any additional spending that she may have during the month.

$450 doesn't include county taxes and insurance. Unless insurance and taxes are paid once at the end of each year?

I was just factoring in the mortgage, but taxes aren't THAT high.

[aggie972]

Do you know if you qualify for a 150k or 200k loan? Have you done the math on what mortgage+taxes+insurance will be?

I havent gotten pre-approved yet, but I like my odds. 740ish experian score according to quizzle. My
monthly payment on my student loan right now is about 2.5% of my gross income. If I had a mortgage payment of say, $1300/month, that would be a little under 30% of my gross income. I know the FHA max is 43%, not sure how much stricter private lenders are w/o FHA guarantees.

On the new york times rent vs buy calculator, I approximated all of that assuming a 2.8% rate for a 15 year fixed, or about a 3.2% on a 30. One of its default assumptions was 1.35% property tax, which sounds low for Dallas County. I know the actual rates are out there, but I dont want to bother calculating deductions and the like right now. The calculator tells me that buying is cheaper than renting after 3 years on a $150,000 house, but cheaper after 6 years on a $200,000 house (compared to $800/mo rent, which is about what my rent will be raised to at the end of my current lease).

My apartment is pretty small and unspectacular, but I like the commute/the neighborhood/proximity to the city. If $150,000 couldnt keep me in the city, and away from overly sketchy neighborhoods, it wouldnt be worth it to me.