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I'm in an interesting position. I'd like some feedback.
Basically, I am a first time home buyer currently renting (1k a month). I have been approved to buy a home and they would accept up to about $1600 for my monthly. That equates to about a $210k house (depending on taxes).
Frankly, I don't feel comfortable doing over $1400 personally, but I would extend to get a nice place. Problem is, I can't find any, not even for 200k (nice). I do have a 1 year old baby.
Is it smarter to go the opposite way? I found similar places to the place I'm renting for 100k. My monthly would be lower than my rent now. I could do that and save more money in hopes in 3-4 years to have a good chunk of money to buy the $250k house I want.
Is that a smart move? The good thing is I know this area so the 100k coach home I'd buy would be in a similar area. Problem is, will it be impossible to sell it? Will I lose money doing this? Am I not thinking about something?
I've been searching for months and only found a few places I like, one I REALLY like is 230k and if they went down to 220k my monthly would be $1550. I've thought about this place for a long time, I really like it but not sure if I'd be doing the right thing.
Any thoughts? Buy a crappy home and save or buy a nice home and go for it! On the nice home, I would expect that at some point my monthly would go down a little due to the PMI dropping off.
Thanks
EDIT:
The nice place I'm referring to is in a fantastic neighborhood with excellent schools. The place I'm at now is not a great area and the schools are below par, not the worst, but I'd certainly want to move before my son got too old.
Basically, I am a first time home buyer currently renting (1k a month).
In my world than means you are earning no less than $36,000 gross... better $48,000.
(or even more and you've been saving like a mad man)
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I have been approved to buy a home... That equates to about a $210k
In my world than means you are earning no less than $70,000 gross... better $80,000.
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Frankly, I don't feel comfortable doing over $1400 personally...
Good for you. Don't ever make decisions based on what brokers are willing to lend.
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Any thoughts? Is it smarter to go the opposite way?
Very probably; but that depends on your repair skills and how much free time you have.
If you have to hire it all done or won't have any personal life then it's probably better to buy
a "nicer" place from the get go. In that vein... go rougher (or even bigger) IF it has some space
you can rent out. Let your tenant pay for the work needed.
I make about 55k at my job (of which they are using for my loan), but I also make about 15k on the side each year. So, about 70k a year. Last year was almost 80k.
I'm NOT handy at all. Although, the places that are 100k-120k are nice and need no work, just small really in a not so desirable area, but close to everything important (target, jewel, etc.). I say not so desirable because of the general area, but I've lived here for 2 years and it's not that bad. No gangs or anything like that. More minorities, but no foolishness.
I probably can't rent anything out of any place because I have a baby and a GF living with me (no she does not work and probably won't).
The biggest problem is that I would find a place that is like 170k, but with taxes and HOA fee I would be paying about $1450. If I'm going to pay that much, I might as well get the place I like for an extra 150 a month! That's the whole problem.
I'm partially afraid if I buy at 100k or 120k, I won't be able to sell it for that and have to sell for 20k less in which case blows my savings plan out of the water! Then I'd be in the same boat I am now just 4 years down the road.
HMM... I want to do the smart thing, but I don't know what that is.
I make about 55k at my job... about 15k on the side... Last year was almost 80k.
I have a baby and a GF living with me... I'm NOT handy at all.
You don't mention how much cash you have available for down, fees, reserve, etc.
Quote:
I'm partially afraid if I buy at 100k or 120k, I won't be able to sell it for that
and have to sell for 20k less Then I'd be in the same boat I am now just 4 years down the road.
Maybe I missed a detail... but WHY would you need to sell in four years time?
If you know in advance that this is the case then you aren't ready to buy at any price.
Continue to rent until you are certain you will be in one spot for no less than 5 years.
When the baby is ready to enter elementary school is a reasonable target.
Last edited by MrRational; 03-26-2013 at 09:45 PM..
Maybe I missed a detail... but WHY would you need to sell in four years time?
If you know in advance that this is the case then you aren't ready to buy at any price.
Continue to rent until you are certain you will be in one spot for no less than 5 years.
When the baby is ready to enter elementary school is a reasonable target.
I want to sell before the baby goes to school, which will be in 4 years to get him into a better school. Buying for 4 years would allow me to build equity instead of 1k a month going to rent, 1k would go to me (well, more like 500 or something), at least I'm building some equity.
Why not sell in 4 years? Even if I sold for the same price I bought it at, I'd have money built up (minus fees). Right? Even at a modest $500 * 12 * 4 = 24k of equity + whatever else I could save to put towards a better house. Even if that 24k is really 15k because of fees/agent fees, I'd still have 15k + my savings towards a better house... no?
I want to sell before the baby goes to school...
Buying for 4 years (I hope will) allow me to build equity...
Why not sell in 4 years?
Because it's not all that far away: you lose too much in the settlement churn.
If you're confident that your job and all the other factors will hold...
then buy in the best school district you can afford NOW... and plan to stay put.
Don't buy a wreck that needs to be rebuilt...
but do look for "the worst house in the best neighborhood"
Repair what's needs repairing (hire it out if needed); fix up what you can do yourselves,
trade time/skills with neighbors, friends and relatives... and make it work. hth
One important item you need to consider is where interest rates might be in 4 years. I would surmise they will be higher, in the 5-6% range, maybe higher if the economy really starts to get going. Can you afford the house you want at an interest rate 2-3% higher? How might higher interest rates change the market for the property you hope to sell in order to move up?
Also, your assumptions about how much equity you will have built appear to be based on a 15 year mortgage since on a 30 year only about $200 per month goes to principal. While you might save a few bucks in interest, you're locking the extra principal into an illiquid asset. Better to get a return on a liquid investment. 15 year is great for people who are going to stay put and want to get out of debt, not for someone who will need cash.
...get into a house I'm going to like to live in for many many years?
Closer. Look for the house (and financing) that will meet your KNOWN long(er) term needs.
You still haven't mentioned how much cash you can bring into the transaction...
(for down payments, closing costs, reserves, repairs,etc) That is what will tell the tale about
whether you can make the jump now or will need to keep renting for a few years.
Good luck.
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