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If you have at least 3-6 month of income in your emergency fund plus the 5 % down, I say go for it. Buy a modest house in a good area. Don't look at it as a home you will be in forever but as a starter home. Be extra firm with your realtor that you don't want to see ANY home higher than your budget no matter what. Especially if your total mortgage payment will be equal or just a bit higher than your rent payment.
The problem is that they will be underwater from Day 1 once you account for 6% selling costs. if they lose their job soon after buying, it goes straight to the foreclosure court.
This is what is so wrong with these 5% down, no emergency fund loans. 3% and 0% are even more ridiculous, of course.
Rent is not "flushed down the drain" any more than food, gas, or light bills are "flushed down the drain". You're getting a service in exchange for payment.
But apparently not motivated enough to save any money.
You can tell you are motivated when you act on it. So far you have done nothing. Start saving, if it is that important to you.
Sorry, but this is a very ignorant response.
1. Food, gas, light bills. Yes, they are also flushed down the drain. Just the same as rent... It may be a service, but that doesn't mean it's above being a sunk cost. That money is doing nothing for you.
When you purchase a home, you pay interest, but you're also paying for something you now own, thus increasing your equity and value. You could pay off the home, sell it, and the money from the sale is yours. You could say the same if you upgrade the lighting in your house to something more economical. Paying $1000 (just example) to rewire lighting is an investment if it saves you money you pay on the service, plus it will increase the price you can sell the home for when you sell. Why should I settle for another sunk cost and expense when the alternative is an investment that builds our equity and networth?
2. Done nothing. Wow, I am having quite a laugh here. Since recovering from my terrible 1 year unemployment and being down to $1000 in the bank, we've since rebounded to saving up a 6 month emergency fund, are renting a single family home again, have started retirement plans, and saved up a 5% downpayment for a ~175k home. Not bad for 6 months.... Apparently that's doing nothing to you though!
Should EASILY be able to save another 10% over the next year, and that's not even aggressive saving.
The problem is that they will be underwater from Day 1 once you account for 6% selling costs. if they lose their job soon after buying, it goes straight to the foreclosure court.
This is what is so wrong with these 5% down, no emergency fund loans. 3% and 0% are even more ridiculous, of course.
The OP states that they do have significant emergency funds which they prefer not to access for purchase.
1. Food, gas, light bills. Yes, they are also flushed down the drain. Just the same as rent... It may be a service, but that doesn't mean it's above being a sunk cost. That money is doing nothing for you.
When you purchase a home, you pay interest, but you're also paying for something you now own, thus increasing your equity and value. You could pay off the home, sell it, and the money from the sale is yours. You could say the same if you upgrade the lighting in your house to something more economical. Paying $1000 (just example) to rewire lighting is an investment if it saves you money you pay on the service, plus it will increase the price you can sell the home for when you sell. Why should I settle for another sunk cost and expense when the alternative is an investment that builds our equity and networth?
You could make the exact same argument: Why buy food, when you could both buy food and invest in a farm that produces it? Why pay electric bills when you could both pay the bills and buy stock in the electric COMPANY?
There is no more reason to treat rent as a silly expense than food or power. If the option of owning equity in a farm or power company is not a reason to consider buying food or power a waste, then by the same logic, the possibility of buying a home does not make paying rent a waste. The logic is the same: You can buy only the service (food, housing or power) and build no equity, or you can purchase an equity ownership stake in addition to the service. But there is no more reason to consider housing service a waste than food or power.
Quote:
Originally Posted by the_grimace
2. Done nothing. Wow, I am having quite a laugh here. Since recovering from my terrible 1 year unemployment and being down to $1000 in the bank, we've since rebounded to saving up a 6 month emergency fund, are renting a single family home again, have started retirement plans, and saved up a 5% downpayment for a ~175k home. Not bad for 6 months.... Apparently that's doing nothing to you though!
Should EASILY be able to save another 10% over the next year, and that's not even aggressive saving.
Ok, well then hold your horses, and buy when you have 20% down. Or buy now, with the understanding that you are taking on a lot of risk just to get instant gratification. Your decision. The posters above me laid out the details of the loans. I'm merely pointing out that you are taking on a lot of risk just to avoid waiting another couple of years. But again, your choice.
You could get an FHA loan for 3.5% down; that would be one option if you don't have much savings. Also, some lenders are doing conventional low down payment loans. I think your biggest hurdle is actually going to be your length of employment at your current job and possibly your employment history. The lenders I've worked with lately don't like to see employment gaps and they'd like to see 2 years of consistent paychecks within the same industry; not necessarily the same company. Best of luck to you.
There are other expenses to owning a home besides the mortgage. Also, FHA loans have PMI for the life of the loan, conventional loans do not. All else equal, the conventional loan is better.
Last edited by vter; 04-16-2015 at 08:19 AM..
Reason: orphan
My credit union offers 100% financing with no PMI and no down payment required. It's something I'll probably look into in the next 6 months. 20% down usually means easier approval for a loan and a lower interest rate. However not many people have that and people will tell you to wait until you do but in many cases, waiting can be costly as well. Housing prices don't seem to be falling anymore. That $200,000 house you can get now might cost $230,000 in a few years in desirable areas, which means you need even more money down.
My biggest piece of advice is not to do anything at all until you are married. Get married and then start thinking about buying a house.
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Be realistic
