House and mortgage affordability advice

[pragmatic12]

Originally Posted by SmartMoney

80/10/10 would be a smart place to start. Seriously reducing your wants (lowering your price to 400K as a "sacrifice") is setting yourself up for failure. I'll give it 18 months max before you're unhappy with the home or location, but now you are stuck. To sell, any equity and your original down payment has been eaten up by closing costs. So you can get out, but now you need to find a 100% program at 6%. Any purchase, where you could possibly need to move, potential rental income should be evaluated in the equation. New homes are a great way to go, but plan to be there for a bit. It's hard to compete selling a home while the builder is offering a shiny new product.

I am thinking along those lines currently. If I could stretch a bit and get a slightly bigger house, e.g. at 500 instead of lower 400s, that would head off the potential future overhead of home too small and having to sell and buy something else, both in terms of effort and money.

I think you need someone to analyze your options.

Suggestions on who that would be? Probably can't be a lender or anyone with a conflicting interest.

If you are uncomfortable with the payment for what you want, rent. If you aren't certain about the location, rent. Have with of you lived here previously? You may hate it, it's not everyone's cup of tea. Fortunately, there are many micro-markets, you just need to find the right match. (Know what you like -- need open space where you can sit on your porch naked and no one see you? Or do you want to be able to live with one car and walk everywhere? Horse riding important? Junior League for the daughter?) Don't buy and sacrifice what's important.

If the job situation is unclear (for the primary wage-earner), you really can't make any plans until that part of the picture is known. Then determine the max payment you feel comfortable with, not with what someone says you should pay. Start with a budget, if you aren't sure and track spending. There are some great apps for that. It's overwhelming, but if you break it down into manageable tasks, much of the stress will be gone.

There was good response from testing the waters in the past.

Even though we like the flexibility of renting, we overall dislike it due to the rent increases, dealing with landlords and getting them to do repairs, especially in this area where its easier to get renters, and the possibility of having to move just because the landlord decided to sell. And any rent in this area is going to be north of 2k anyway, so that's getting into the region of a mortgage payment.

As for the property itself, we are fairly relaxed. If the property is in good shape, has space, and resells easily if required later on, we are good to go. So at least from that perspective, we are ready to buy. But that's just from looking at it from being on the renters side and not having owned.

[thelopez2]

Originally Posted by pragmatic12

And any rent in this area is going to be north of 2k anyway, so that's getting into the region of a mortgage payment.

As for the property itself, we are fairly relaxed. If the property is in good shape, has space, and resells easily if required later on, we are good to go. So at least from that perspective, we are ready to buy. But that's just from looking at it from being on the renters side and not having owned.

If rents are close to your mortgage payment, it makes sense to buy.

If rents are close to the mortgage payment, it will be easy to sell, but if rates go up the price will have to come down due to the higher borrowing cost. Market price may be lower than what you paid for it.

[Lowexpectations]

Originally Posted by thelopez2

If rents are close to your mortgage payment, it makes sense to buy.

It's not that simple

If rents are close to the mortgage payment, it will be easy to sell, but if rates go up the price will have to come down due to the higher borrowing cost. Market price may be lower than what you paid for it.

It's also not that simple. Just because rents are close to piti doesn't mean you should buy. The transaction cost to get in and out of a purchase aren't small so you really have to be committed to an area for some time or get lucky with appreciation. People most often buy more than they'd rent as well so being realisitc you may rent 2bed 2bath 1400 sqft but wouldn't buy anything less than 3/2 2000. So then comes furnishings, finishes and maintenance. If you are being honest the cost comparison you'd have to take those three topics into account.

[pragmatic12]

Originally Posted by thelopez2

If rents are close to your mortgage payment, it makes sense to buy.

If rents are close to the mortgage payment, it will be easy to sell, but if rates go up the price will have to come down due to the higher borrowing cost. Market price may be lower than what you paid for it.

That's the big question. For the dc market, will the prices come down corresponding to rate increases, or will it be both interest rates and prices going up?

Certainly you would rather pay a higher rate than a higher price that would later fall and leave you underwater or in the red when you sell.

[tweez]

Originally Posted by pragmatic12

I would like to buy once, buy right and stay there but with the option to be able to sell quickly if required.

TI!

You should never have an expectation that real estate will sell quickly when/if you want to sell.

[Lovehound]

The general rule is never buy a house unless you are willing to commit to living there for at least 7 years.

This based upon historic inflation and mortgage rates, and also on the tradeoff between owning a house, being responsible for repairs and maintenance, vs. the apartment benefit if something breaks just call the manager and get it fixed (free for you).

Are you thrilled enough to commit to live there 7 years? Are the rental + taxes + insurance costs worth trading off vs. rent costs? (Note that tenants should have renter's insurance although many don't.)