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I'm 28 years old and need about 4 more years to save money so that I can make a 20% down payment on a starter home that's about $200,000+. That means I won't be able to buy my first house until I'm 32! I don't want to do FHA because the monthly payment is significantly higher, and the PMI is outrageous at about $180 a month these days. Yes, things are expensive in New England.
Anyway, my concern is this. I understand that home values have already bottomed out and are starting to rise again. Does this mean that in four years from now (2017), prices will be so high, and I won't be able to get a deal on a home? Will my salary likely increase in correlation to home prices? In other words, since it's going to take me four years to save up for the down payment, does that mean I will have missed the boat and I will be screwed? And interest rates will be higher? I mean, what a shame......does that mean I shouldn't even bother saving for a down payment?
Nobody knows what's going to happen to house prices in 4 years (no, wait! realtors know! prices will be increasing starting today!!! lol ))
ANyways, I would consider to buy a house with minimal downpayments - 5-10% or at least start to look for a house when you will have 5-10% for downpayment. Factoring PMI with conventional loan it might be not a bad idea.
I'm 28 years old and need about 4 more years to save money so that I can make a 20% down payment on a starter home that's about $200,000+. That means I won't be able to buy my first house until I'm 32!
Do you need a house? Do you have a family?
School age children that need to be in a certain district?
Are you certain that you will be (or even want to be) in THAT location for the next ten years?
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I understand that home values have already bottomed out and are starting to rise again.
1) Appearances can be deceiving. 2) Don't confuse value with price.
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Will my salary likely increase in correlation to home prices?
Will it increase at all? In proportion to anything you can gauge? For any reason?
I was in a similar position when the bubble started. I waited it out and bought last year. I do not see a great advantage in waiting now the way there was between 2004-2009.
Look at the historic trends. Real estate, as well as other economic indicators such as the DJIA go up and down in cycles. Save up for your down payment. Don't put yourself in a position where you cannot afford your house. When the time comes, look at the market, where it is in the cycle, look at your life and where you are and whether it makes sense to buy, and buy something you can afford. Ups and downs in the cycle only matter after you buy if you need to sell.
You can purchase with 3.5% down on an FHA loan but you will pay extra in mortgage insurance.
Rates are at historic lows, will likely go up, and it's not likely they will go back down to this rate in the future unless/until there is another economic slowdown like we have experienced in the last 5 years.
The amount you will save paying in PMI will probably be lost due to home prices rising if you wait 4 years. But that's just a guess!
You may want to research rules for USDA Guaranteed Loans, since I believe they charge a reduced PMI amount. Depending on your income and the location you want to buy, it might be a good option: USDA Rural Development-HAD-Guaranteed Housing Loans
And you might be able to find additional programs to help with the down payment locally as well, if you did a workshop for potential home buyers, even though they're harder to find these days.
I'm not an expert by any means, but one of the reasons DH & I 'rushed' to buy a house this past year was due to the fact that we were both afraid that if we waited too long, we wouldn't be able to take full advantage of the slump in the housing market. However, we were in a position to buy financially, plus, the housing market we were looking at is more affordable than the East Coast.
With that said- assuming you're looking in Granby, CT (which is your set location) I did a quick search and noticed quite a few houses for sale under the $150k mark. Some of them do look a bit worse for wear, but depending on the issues they have, they may be still worth considering just to get your 'foot in the door' so to speak.
What DH & I kept having to remind ourselves was that we were looking for a 'starter' home, not a 'forever' home. It was just by chance and good fortune that we ended up with what we hope will be our 'forever' home (it needed some work, but we factored that into the price we eventually negotiated). Just remember that cosmetic improvements can be made easily, as long as the house has good bones you're in good shape.
Plus, carrying a $150k loan versus a $200k loan could possibly be a difference of about $400/month in mortgage repayments.
I personally think that now *is* a good time to get into the property market, but only if you can afford to without too much stress on your financial situation.
As for wages increasing on par with property prices, honestly, I doubt it. Historically, salaries haven't necessarily increased on par with inflation. For instance, between 1990 and 2006 (the top of the housing bubble) the average cost of a home in the U.S. went from 190k to 330k- an increase of almost 74%. During that same time period, the average family income in the U.S. went from approximately 47k in 1990 to 52k in 2006 which is less than an 11% increase. Obviously these numbers differ slightly depending on which source you're looking at, but generally speaking they're about on par in my opinion.
Although I don't think you'll necessarily not be able to afford a house in 4 years time (I doubt we'll be back to 2006 prices in 4 years although who knows what the market will do), I do believe that now is a good time to buy. With that said though, I wouldn't over extend myself- I'd opt for something I could truly afford.
You are either ready to buy or you aren't for both financial and personal reasons. If you aren't, it isn't a good time to buy, period.
Right.
"Haste Makes Waste."
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