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I’m sorry for the long post! Any help you guys can give me would be greatly appreciated! I will ask some more questions later.
I am thinking about buying home but I have no idea if it is a good idea or what all is involved. Everyone I know that owns a home either bought their home a long time ago or they aren’t that helpful (I think they are worried they may accidentally reveal too much info on their own finances). Will the banks guide me through the process or leave me on my own is the big question? Personal note: I hate dealing with banks and I am very nervous about dealing with them on an issue that I am very uneducated on.
So here is my situation. Housing is very cheap where I live. I would like to buy house between $40,000 - $50,000. I’m single, 28 years old and make about $50,000 a year (gross income). I have about $900 in total credit cards debt that I’m paying off. My only monthly payments are $200 in student loans, $299 in an auto loan and my auto insurance $180 a month. I moved around a lot and had some unexpected life events so I only have about $2000 in my savings. I’m not worried about a job because my company is doing very well and this year 2 companies in town tried to recruit me.
Currently I rent part of a duplex. I had no intentions of buying but this couple just moved in beside me and they are very weird. The police are there at least once a week. I order a lot of stuff online and my friend that is a cop told me not too have it delivered to my door anymore because my neighbors are thieves. This is very inconvenient for me.
I pay all my utilities and my rent is $425 a month. If I had a house financed for 15 years the mortgage would be very similar to what I pay for rent. I was thinking if I get it financed for 30 years it would be under $300 a month. I could use the extra money to get my car paid off quicker and I would be in better shape because it was used so my interest rate is 12%. Then I could start doubling my mortgage payments.
The biggest issue is that you only have $2,000 in savings. You'll need money for closing costs, downpayment, home inspection, etc and $2,000 might not be enough. Even if it is, you're now cash poor, so if any problems arise with the house, for ex: ac, heat, roof, hot water heater, etc, you won't have any money to fix it. I'd wait until you have more money saved up. As for your neighbors, you might want to consider moving to another rental for 1 more year until you've saved up more money.... if you feel like you can't live at your current place anymore.
Granted, housing is very cheap where you live... but with only $2K in savings, where are you going to get the downpayment? You need to have more than that in savings, enough to live on for at least 6 months of being unemployed (yes, you think you will never be without a job, but you really do not know what will happen in the future when you have a mortgage to pay).
The big negative is that you said you move around a lot. If you plan on staying where you are for ~5 years it sounds like a pretty good deal for you. i would probably do the 30 year payment, pay teh other stuff off, than put that money towards the house. It could be a sweet deal. Remember thoufgh, that your responsibilities will increase with home ownership. You need to pay for all repairs & maintenance. My first house I bought for ~50K, then I learned how to install flooring and pretty cheaply replaced the flooring in the house and painted the walls, it looked so much nicer. I knew very little about home repair at that time, but asked a lot of questions to other home owners and at the local hardware stores. I have owned 4 houses now and I am pretty handy around the house, saving thousands of dollars in repair, renovation, and maintenance over time.
The initial fees for home ownership also need to be overcome. I think you should start by talking to a mortgage broker or bank...or both. Ask questions and don't feel funny for not knowing the answers, everyone needs to learn. Then you can make a personal plan going forward.
Keep on renting for the time being, whether it's to renew at your current place or somewhere else at about the same you are paying now. Savings needs to be a bit higher, $10K total is a good goal to shoot for. Pay off the last of the credit card, see if you can pay off the car too.
Granted, housing is very cheap where you live... but with only $2K in savings, where are you going to get the downpayment? You need to have more than that in savings, enough to live on for at least 6 months of being unemployed (yes, you think you will never be without a job, but you really do not know what will happen in the future when you have a mortgage to pay).
My financial goal (Made assuming I was a renter) was to build a 6 month emergency fund by the middle 0f 2011. I was thinking if I can finance my house for 30 years in the event I was unemployed I would be in a better situation because I would have less to pay for housing and may even been able to pay my car off before it happened.
The big negative is that you said you move around a lot. If you plan on staying where you are for ~5 years it sounds like a pretty good deal for you. i would probably do the 30 year payment, pay teh other stuff off, than put that money towards the house. It could be a sweet deal. Remember thoufgh, that your responsibilities will increase with home ownership. You need to pay for all repairs & maintenance. My first house I bought for ~50K, then I learned how to install flooring and pretty cheaply replaced the flooring in the house and painted the walls, it looked so much nicer. I knew very little about home repair at that time, but asked a lot of questions to other home owners and at the local hardware stores. I have owned 4 houses now and I am pretty handy around the house, saving thousands of dollars in repair, renovation, and maintenance over time.
The initial fees for home ownership also need to be overcome. I think you should start by talking to a mortgage broker or bank...or both. Ask questions and don't feel funny for not knowing the answers, everyone needs to learn. Then you can make a personal plan going forward.
Thanks for your advice! I have been in my current town 2 years and don't want to move but I have a girlfriend in another area so who knows. I was thinking that if I had to move I could rent it out. I'm sure I could get at least enough to cover the morgage payment while I look for a buyer. Worst case scenario and I would have to sell it when I was underwater on it I wouldn't owe that much (probably just a couple thousand). That might even still be worth it if I could get my car paid off quicker.
I don't expect housing prices to appreciate in my area or decrease for a long time.
Buying a home right now is one of the STUPIDEST things you could do. Especially if you don't plan on being in it for AT LEAST 5 years. Sorry but that's the truth and anyone that cares about your livelihood should tell you what I just did. I'm in CA. And let me tell you housing prices are STILL WAY over inflated. Most housing, especially here in CA is still overvalued by upwards of 30%. Combine that with an overall deteriorating state of economic affairs in this country i.e. burgeoning state and federal deficits, rising unemployment, threat of large scale war etc. waiting another year or two is the best advice anyone could give you. If you listen to the media, the government or realtors (NRA) you'd think things are great. They aren't. The only positive thing is that interest rates are most likely to rise and they are still low right now. But the days of building up double digit equity in housing is OVER. The equity some people built up in the last 10 years usually took our parents or grandparent's generation their entire lives to build up. A house is no longer the get rich quick scheme is used to be and is going back to a safe long term investment that it should be. I'm sure you'll a hundred people chime in and disagree with what I'm telling you but my wife and I are in the same position that you are. We are middle class, with good jobs, in a great position to buy a house. Every year we inch closer to pulling the trigger the market gets worse. 2010 is going to be worse than 2008 and 2009 from an economic perpsective so if you weren't going to buy a house then why would you now? Real estate is a money pit right now. You're better off renting and staying mobile.
Buying a home right now is one of the STUPIDEST things you could do. Especially if you don't plan on being in it for AT LEAST 5 years. Sorry but that's the truth and anyone that cares about your livelihood should tell you what I just did. I'm in CA. And let me tell you housing prices are STILL WAY over inflated. Most housing, especially here in CA is still overvalued by upwards of 30%. Combine that with an overall deteriorating state of economic affairs in this country i.e. burgeoning state and federal deficits, rising unemployment, threat of large scale war etc. waiting another year or two is the best advice anyone could give you. If you listen to the media, the government or realtors (NRA) you'd think things are great. They aren't. The only positive thing is that interest rates are most likely to rise and they are still low right now. But the days of building up double digit equity in housing is OVER. The equity some people built up in the last 10 years usually took our parents or grandparent's generation their entire lives to build up. A house is no longer the get rich quick scheme is used to be and is going back to a safe long term investment that it should be. I'm sure you'll a hundred people chime in and disagree with what I'm telling you but my wife and I are in the same position that you are. We are middle class, with good jobs, in a great position to buy a house. Every year we inch closer to pulling the trigger the market gets worse. 2010 is going to be worse than 2008 and 2009 from an economic perpsective so if you weren't going to buy a house then why would you now? Real estate is a money pit right now. You're better off renting and staying mobile.
Remember that real estate is local. I wouldn't buy in SoCal right now.
I found an apartment for $120 less a month then what I'm paying now. I keep going back and forth between renting one more year and buying now. The big reasons for buying a home aren't really financial to be honest. I really want to be able to garden and have a dog. I probably will just keep renting another year and then take a look at my situation when I get my tax return back.
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