When to Purchase a Home

[Gonzo]

So after graduating you're now where you feel you want to be, are going to be, for a good chunk of time? After I graduated I was living and working in places I knew I wasn't going to end up, they were just the places I had the best initial job offers to begin building experience. Columbus, Ohio, then Chicago. Even when we were in Chicago, we were pretty young and living in the city so buying wasn't realistic, and we knew we were just as likely to move back to Iowa to raise our family (after we had our city kicks) as we were to stay there and move out to the 'burbs. So we rented for quite a long time, and waited to buy until we moved back to Iowa. If you know you're dug in where you are now then it makes a lot of sense to buy something if possible, but I'd suggest being really, really sure you aren't going to want to get out and live in other parts of the country.

 

[KnappShack]

Wide range of opinions. I don't agree with them all, but consider everything.

I do know there is no feeling like buying your first home. Pride, fear, excitement, worry, and that transition into adulthood.

Enjoy the ride when you do it. It's one stressful *** project!

 

[cycloneworld]

Now that I'm in my mid-30s, my priorities seem to be very different than my 20s. I've been in "pay down any debt" mode for a few years. I want to stay as flexible as possible and if you are saddled with debt, that is very difficult to do. So I'd make sure you are as debt free as possible before you buy a house. No credit card debt, no car loan, no charge accounts, etc. Even student loans if you can. I'm almost done with my student loans and having only a mortgage payment will be nice. But even that sometimes feels like too much.

Having 20% to put down is great but sometimes its not practical for younger people. Personally, locking in a low interest rate is more important by far IMO. Rates are going to eventually start climbing. And a 1% rate difference can easily offset PMI (which will go away once you hit 20% in equity). Especially if you plan to stay in your house for many years.

 

[JP4CY]

I agree with the others that say think long term. We got a great deal with our house, fair cost, good credit so we had a low interest rate, put down 10% on a 30, and away we went. A couple years later, I refinanced to a 15 year, re closed on it, and are on our way again. If possible, do a 15. I am so glad that's where I'm at now.

 

[Cycsk]

Get a very good house inspector. Homes in Ames can be pretty beat up or have a lot of deferred maintenance. You don't want to buy the house and then "discover" you need to drop $10k on the roof, furnace, etc.

 

[dmclone]

It boils down to how long you think you will be in not that city or area, but in that specific dwelling. If you will stay in a house that you buy for five or more years, then go ahead and do it; otherwise, renting provides more flexibility for moving both to other cities as well as to other dwellings in the same city and is less risky (i.e. if the housing market turns south and you're stuck with a house you can't sell when you want to).

Couldn't agree more. There is a strong possibility that you could lose more money by owning the shorter the time frame. When figuring out rather to rent vs. buy people tend to underestimate things like realtor costs, property taxes, loss of mobility, costs to fix, loss of capital, pmi, etc. but they always talk about the big tax break you get.

We bought a townhouse in 2000 and sold it in 2005 and made a nice profit. In 2005, we bought our current house and if we sold it today we may get 10k more than what we paid and we've probably put $30k in the house. Sometimes it's just lucky timing. I'm enjoyed the house but renting isn't always bad.

 

[boone7247]

I would say buy when you can afford it. Keep in mind that just because the mortgage is less than the rent, doesn't mean your expenses will be less than rent. That said you are in Akron, IA those expenses aren't going to be as great as being in Des Moines or a bigger city.

If you can afford the 30 year mortgage payment, real estate, insurance and all the utilities then I would say buy now. Interest rates are low still, and are only going to continue to rise, so you will be able to build equity quicker now than you will if you wait. Also don't forget the good old itemized deductions for real estate taxes and mortgage interest that help combat the cost of those expenses.

I was lucky enough to buy at the bottom of the market and at low interest rates. That really helps build equity quickly. Also, you own your own business, so a 30 year mortgage at today's interest rates will allow you to put more money in your business that should provide a return well over any interest rate charged.

And if you have any friends that can help out go that route. Rent to them, or buy the house together you both can earn equity. Just make sure you iron out the details before signing on the dotted line.

Good luck on the business and house hunting!

 

[cybychoice]

I am 24, bought a house in Ankeny this past July. I can do most maintenance myself and if its a big enough project a card from one of the big box home improvement stores goes a long way (deferred interest, just pay it off in the 6 month limit). I plan on staying in Des Moines area for the next 10 years at least. I did 30 yr with a first time home buyers loan. PMI really isn't that bad if you aren't buying a house at the top of your price range.

 

[CloneIce]

Although it would be nice to avoid PMI and get a 15-year loan, I would not follow that as a rule. It may very well be better to pay a little extra towards PMI then to pay everything towards rental property that you don't own (you can typically get rid of PMI in a few years too, if you get a conventional loan). I wouldn't necessarily follow the 15-year rule - you can always get a 30-year and pay extra down on the principal too.

Just a heads up, but those calculated mortgage rates usually assume you put a solid % down, and don't always include homeowners insurance, property taxes, etc.

 

[Tre4ISU]

Lately I've been thinking more and more about real estate with each rent check I give to my landlord. I've always looked at real estate online as a hobby, and seeing the calculated mortgage rate being less expensive than what I'm paying for rent in a property I'll never own can start to make a guy wonder. Personally, my ultimate goal is to be on an acreage someday, and while affording one currently is pretty much out of the question, it seems to me that a house in town for the time being would make more financial sense than throwing away rent.

Having started the process of purchasing a business after graduating from ISU this past May, I obviously have plenty of priorities taking up my income. Having "just" graduated and dealing with plenty of expenses as is, I know that purchasing a home is not on the top of my priority list. I'm just curious to hear when you all decided that it was time to stop renting (whether it be an apartment or other form of rental) and start seriously looking into buying a home.

I'm older but in the exact same spot as you. I have no answers.

 

[Tre4ISU]

So after graduating you're now where you feel you want to be, are going to be, for a good chunk of time? After I graduated I was living and working in places I knew I wasn't going to end up, they were just the places I had the best initial job offers to begin building experience. Columbus, Ohio, then Chicago. Even when we were in Chicago, we were pretty young and living in the city so buying wasn't realistic, and we knew we were just as likely to move back to Iowa to raise our family (after we had our city kicks) as we were to stay there and move out to the 'burbs. So we rented for quite a long time, and waited to buy until we moved back to Iowa. If you know you're dug in where you are now then it makes a lot of sense to buy something if possible, but I'd suggest being really, really sure you aren't going to want to get out and live in other parts of the country.

Did you read anything he wrote?

 

[BCClone]

Marry a chic who owns a paid for house.

 

[NATEizKING]

30 year isn't a bad deal right now, it might actually be smarter to get the 30 and invest your money for the next home purchase when you upgrade over the 15, but I'm not a financial professional. Our rate from 2.25 years ago is 4.5% for a 30 year and the stock market returns over the long run averages 7-8%. Definitely don't want to buy if you won't be there at minimum 5 years.

When comparing mortgage to renting though, for us it's almost 50% of the loan payment to pay for insurance, property taxes and PMI if you don't put 20% down so take what mortgage you are seeing x1.5. Only about 25% of the mortgage payment goes to principal when you start out on a 30 year with PMI.

These numbers are just my personal experience.

 

[Wesley]

hookers, booze, and blow....oops wrong thread

Mancave.

 

[Cyclonin]

I will throw in my 2 cents. Wife and I spent the first 3 months of our marriage in CR, then moved to Dallas and rented in the Uptown area for 2 years. Last summer we decided we decided we we're ready to set roots and started looking for a home to buy. I'll try and keep this short.

Bought a home at 4% interest, 30 year mortgage with only 5% down. We pay $93 a month in PMI and probably will for 5-10 years. It's not ideal, but no way we had 20% or would be very close in the next few years when we really wanted to purchase. We will plan to refi in the near future to a 15 year to build equity quicker and hopefully get a lower rate.

We did buy thinking of the future (unlike most places in Iowa, school districts make a HUGE difference), we bought in a good school district, and bought a home that we would feel comfortable with adding a few children to. We also bought a house that is perfectly suitable for most people, but we want to update here and there, so we set money aside to do so every month.

Things I recommend from my personal experience: Budgets are your friend. Realtors and others will sell you on PITI (Principal, Interest, Taxes, Insurance) under something like 35% of your income. I think this is far too high. When we bought, we were at about 25% of take home, now we are around 21%, and that's with throwing a little extra to principal every month. I thought 25 was a good number to give you flexibility. So if your take home is $4k/month, I personally wouldn't get into something more than $1k all-in. You don't want to be "house-poor" and not be able to live or improve your house because PITI is draining you.

 

[Gonzo]

Did you read anything he wrote?

I did, maybe I missed the part where he said he was certain that he was going to want to stay put for a while. I'll re-read.

 

[DSMCy]

A little off topic here, but I've also been doing research into possibly buying a house. I've got myself sold on a 5 (or 7) year ARM mortgage. The initial interest rate is lower than a 30 year fixed and there are limits to how much the rate can increase after the initial 5 year term.

Another way to avoid paying PMI, if you do decide to buy, is to find a bank that will do a piggyback or an 80/20 loan.
You basically have 2 mortgages, one for 80% of the value and 1 for 20%.
I'm not sure many banks still do an actual 80/20, but you could put some money down to do 80/15 or 80/10.

Downside is the 20% loan will carry a higher interest rate, but if the interest is less than the PMI, you're coming out ahead in my opinion.

 

[Cyclonin]

A little off topic here, but I've also been doing research into possibly buying a house. I've got myself sold on a 5 (or 7) year ARM mortgage. The initial interest rate is lower than a 30 year fixed and there are limits to how much the rate can increase after the initial 5 year term.

Another way to avoid paying PMI, if you do decide to buy, is to find a bank that will do a piggyback or an 80/20 loan.
You basically have 2 mortgages, one for 80% of the value and 1 for 20%.
I'm not sure many banks still do an actual 80/20, but you could put some money down to do 80/15 or 80/10.

Downside is the 20% loan will carry a higher interest rate, but if the interest is less than the PMI, you're coming out ahead in my opinion.

Good point, our guy said that was an option to do 80/15, then our 5, but with the extra interest, it was within a couple hundred bucks of eachother over the term of the loan so no real difference. Plus I liked the sound of 1 mortgage over the sound of having a 2nd mortgage.

 

[ISUME]

A little off topic here, but I've also been doing research into possibly buying a house. I've got myself sold on a 5 (or 7) year ARM mortgage. The initial interest rate is lower than a 30 year fixed and there are limits to how much the rate can increase after the initial 5 year term.

Another way to avoid paying PMI, if you do decide to buy, is to find a bank that will do a piggyback or an 80/20 loan.
You basically have 2 mortgages, one for 80% of the value and 1 for 20%.
I'm not sure many banks still do an actual 80/20, but you could put some money down to do 80/15 or 80/10.

Downside is the 20% loan will carry a higher interest rate, but if the interest is less than the PMI, you're coming out ahead in my opinion.

I just bought my 2nd house 4 months ago and went with a 5 year arm instead of a conventional loan, the only reason I did that is because I know I will be moving within 5 years.

 

[Ficklone02]

20% down and 15 year note I think is a pretty risky proposition for someone just out of school and looking to buy a business. People suggesting that must have had alot of help from parents, or are thinking thru the lense of there current age vs. in there 20's.