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My wife and I have been flirting with the idea of purchasing our first home. Both of us are in our late 30’s and have no children, nor do we plan to. We are currently renting in a wonderful gated community in Florida’s gulf coast. We pay $1100/month for a 2br, 2bath, 1200sq ft apt. Amenities include 2 swimming pools, jacuzzi, dog park, fitness center, car garage, and storage room. We can easily afford the rent as we split everything 50/50 and are able to save/invest excess cash.
We’ve been doing some mortgage interest calculations, and it turns out that on a 250k home, we will pay over $100k in interest at 3.75% over 30yr years. Call me crazy, but I just cannot justify that. Is there something that I’m just not understanding? On top of that, you’re on the hook for taxes, insurance and basic maintenance and repairs of your home.
The only benefit that I can see from owning a home is that you have more private space and nobody can evict you (unless you stop mortgage or tax payments). Other than that, I dont see the upside.
I see the argument all the time of how “you’re just throwing money away by renting as you build no equity and are just lining someone else’s pockets”. Well aren’t you lining the pocket of these banks buy paying an exhorbanant amount of interest over the years?
Why shouldn’t I just keep my $50k (20%) down payment in the bank and continue to save and invest while paying an affordable rent instead of locking myself into a long term loan paying an insane amount of interest?
Again, we are new too all of this and are just looking for some information on how buying a home rather than continuing to rent would be financially beneficial to us because I dont see it.
Thanks...
In general, it is often a lifestyle choice. If you crave stability, it may make sense to buy. If you crave flexibility, it may make sense to rent.
Financially, if you would otherwise be renting and saving a huge amount of money in cash each month and not investing, it is likely to be better to buy, assuming you will stay put for a while. Why? Each dollar of idle cash would earn you less than 1% interest. By contrast, each dollar prepaid on a mortgage at 3.75% effectively earns you 3.75% of saved interest.
On the other hand, if your alternative is to rent cheaply and invest in the stock market, you might do better this way if the rent is less than your "PITIMRHOA" (PITI, maintenance, repairs, HOA). But again there are always intangible factors to consider as well.
There is no one-size-fits-all answer to the buy vs. rent question. It is matter of both your circumstances and your preferences.
I want to thank everyone for their posts and input.
What we have decided to do is stay put and continue to rent and in 3-5yrs buy a condo cash. We just cant wrap our heads around being locked into a mortgage for 15-30yrs while paying an aborbanant amount of interest. With what we currently have in savings plus what we will be able to save over the next few years, we will have the cash to buy something out right and still have a nice little nest egg of liquid savings in addition to our retirement investments.
We’ve decided on a Condo rather than a house in order to keep the upkeep/maintenance costs low. Where we reside, HOA fees are only a few hundred bucks per month. Will it be the same when we buy? I doubt it, but it will still be lower than the upkeep/maintenance cost associated with house. I have a few friends who purchased homes in the area a few years ago and I hear the same thing from every one of them. “Owning a house is a money pit”. One of them is about to put his house that he only purchased 3yrs ago on the market and purchase a condo.
It’s just my wife and I. We have no children and have guest come visit just a few times per year. We dont need a ton of space in order to live comfortably. A condo will be a perfect fit for us.
I want to thank everyone for their posts and input.
What we have decided to do is stay put and continue to rent and in 3-5yrs buy a condo cash. We just cant wrap our heads around being locked into a mortgage for 15-30yrs while paying an aborbanant amount of interest. With what we currently have in savings plus what we will be able to save over the next few years, we will have the cash to buy something out right and still have a nice little nest egg of liquid savings in addition to our retirement investments.
We’ve decided on a Condo rather than a house in order to keep the upkeep/maintenance costs low. Where we reside, HOA fees are only a few hundred bucks per month. Will it be the same when we buy? I doubt it, but it will still be lower than the upkeep/maintenance cost associated with house. I have a few friends who purchased homes in the area a few years ago and I hear the same thing from every one of them. “Owning a house is a money pit”. One of them is about to put his house that he only purchased 3yrs ago on the market and purchase a condo.
It’s just my wife and I. We have no children and have guest come visit just a few times per year. We dont need a ton of space in order to live comfortably. A condo will be a perfect fit for us.
Thanks again folks.
Just remember, your HOA is not your landlord. They don't take care of all repairs and maintenance. Typically HOA dues pay for just exterior painting and roofing. That means you are responsible for everything else. Like HVAC, windows and doors, appliances, plumbing, flooring etc. etc. etc. Given that, don't expect to avoid upkeep/maintenance costs with a condo. You'll still be on the hook for the majority of costs as well as paying monthly dues for the items the HOA does cover.
Make sure you read the CC&Rs carefully when considering a purchase so you know exactly what you'll be paying for and what the HOA covers.
I want to thank everyone for their posts and input.
What we have decided to do is stay put and continue to rent and in 3-5yrs buy a condo cash. We just cant wrap our heads around being locked into a mortgage for 15-30yrs while paying an aborbanant amount of interest. With what we currently have in savings plus what we will be able to save over the next few years, we will have the cash to buy something out right and still have a nice little nest egg of liquid savings in addition to our retirement investments.
We’ve decided on a Condo rather than a house in order to keep the upkeep/maintenance costs low. Where we reside, HOA fees are only a few hundred bucks per month. Will it be the same when we buy? I doubt it, but it will still be lower than the upkeep/maintenance cost associated with house. I have a few friends who purchased homes in the area a few years ago and I hear the same thing from every one of them. “Owning a house is a money pit”. One of them is about to put his house that he only purchased 3yrs ago on the market and purchase a condo.
It’s just my wife and I. We have no children and have guest come visit just a few times per year. We dont need a ton of space in order to live comfortably. A condo will be a perfect fit for us.
Thanks again folks.
Let me understand this. You didn't want to buy a house because of the interest paid over the life of the mortgage, interest which is deductible on your taxes, so you are instead buying a condo for which you'll be paying interest on the mortgage. In addition you'll be paying a "few hundreds" a month in condo fees which are a non-deductible payment. Is that correct? If so, I believe you thinking is a bit off center.
As a note, don't expect to save a whole lot in upkeep expenses. In addition to the expected individual owner expenses already mentioned you will also be on the prorated hook for a major building repair if it can't be covered by reserves.
Let me understand this. You didn't want to buy a house because of the interest paid over the life of the mortgage, interest which is deductible on your taxes, so you are instead buying a condo for which you'll be paying interest on the mortgage. In addition you'll be paying a "few hundreds" a month in condo fees which are a non-deductible payment. Is that correct? If so, I believe you thinking is a bit off center.
As a note, don't expect to save a whole lot in upkeep expenses. In addition to the expected individual owner expenses already mentioned you will also be on the prorated hook for a major building repair if it can't be covered by reserves.
Correction.
He's planning to make a cash purchase.
I want to thank everyone for their posts and input.
What we have decided to do is stay put and continue to rent and in 3-5yrs buy a condo cash. We just cant wrap our heads around being locked into a mortgage for 15-30yrs while paying an aborbanant amount of interest. With what we currently have in savings plus what we will be able to save over the next few years, we will have the cash to buy something out right and still have a nice little nest egg of liquid savings in addition to our retirement investments.
We’ve decided on a Condo rather than a house in order to keep the upkeep/maintenance costs low. Where we reside, HOA fees are only a few hundred bucks per month. Will it be the same when we buy? I doubt it, but it will still be lower than the upkeep/maintenance cost associated with house. I have a few friends who purchased homes in the area a few years ago and I hear the same thing from every one of them. “Owning a house is a money pit”. One of them is about to put his house that he only purchased 3yrs ago on the market and purchase a condo.
It’s just my wife and I. We have no children and have guest come visit just a few times per year. We dont need a ton of space in order to live comfortably. A condo will be a perfect fit for us.
Thanks again folks.
Prices are going up 6% a year or more in many markets. You should buy as soon as you can. You can always get a 15 year loan which will have a lower rate and less interest overall. Plus instead of waiting and saving you can pay off a mortgage whenever you want to save on interest.
So if you buy a $100K condo now and put down $20K you can relax and pay off what you can as you go, You can just make your monthly payment or make extra payments or pay off the loan in 3 or 5 years and you only owe the remaining principal.
Prices are going up 6% a year or more in many markets. You should buy as soon as you can. You can always get a 15 year loan which will have a lower rate and less interest overall. Plus instead of waiting and saving you can pay off a mortgage whenever you want to save on interest.
So if you buy a $100K condo now and put down $20K you can relax and pay off what you can as you go, You can just make your monthly payment or make extra payments or pay off the loan in 3 or 5 years and you only owe the remaining principal.
Are prices going up really going to be sustainable? I can't see how our economy can keep having house prices rise ontop of raising rates. Is it safe to assume, rent is never going to drop for people at least? that would be an incentive to buy all together to lock in a monthly payment for life.
When the housing market crashed years ago, did rent prices across the nation decrease as well? I was too young back then and have no idea
Are prices going up really going to be sustainable? I can't see how our economy can keep having house prices rise ontop of raising rates. Is it safe to assume, rent is never going to drop for people at least? that would be an incentive to buy all together to lock in a monthly payment for life.
When the housing market crashed years ago, did rent prices across the nation decrease as well? I was too young back then and have no idea
There are crashes, but real estate in general has always increased in price and value, and that is not even speaking to any equity built of from ownership.
When the crash happened a few years ago, rent dropped in some markets, like Miami, but then shot straight up as loan requirements tightened and waves of foreclosures came, along with the lack of construction. I bought the condo I was renting, I pay less in mortgage and condo fees than I did in rent, lol.
I think Miami is again over valued, but do not know to what extent, but when I see the income-rent-home price ratio, and the number of people room mating together, the availability, etc, I just become a bit wary. I am only interested because I want to purchase a condo to use as a rental.
Are you taking into consideration that your rent will likely go up over time, whereas your mortgage payment will not? Where will you be financially in 10 years if your rent has gone up to $1600? That's $7,200 more a year than you're paying now, so that will cut into your savings/investing. Will you just start chasing rent (and paying for moving expenses every two years or so) to keep your rent low?
Another consideration is that, at least for now, your mortgage interest and real estate taxes are tax deductions. Your rent is not tax deductible.
Home ownership is not for everyone, but I'm one who believes in the many benefits of home ownership!
I just bought a home with my fiancé, but had an apartment for 18 years prior. My rent went from $650 to $813 in that time, $163 over 18 years. In the new home, our taxes alone are $608 a month on a home that was $103,000 with closing costs included, and I would be very surprised if they don't rise at a much faster rate than my rent ever did.
I don't regret it, we love our new house and excited about the prospect of getting a puppy now that we can (after the cats get over the trauma of moving!) but i don't think that particular argument is the reason to buy.
Correction.
He's planning to make a cash purchase.
Yeah, I saw that after I posted. But he still will be paying those condo fees, not to mention any special assessments. Which in my experience just watching, aren't rare for condos.
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