I got a new job and will be moving this summer! I'm beginning the search for a home, but I'm trying to decide what way to go...rent or buy. The area I'm moving to is very expensive, especially for rental property, which makes me feel that buying would be a better choice. This is an area I intend to stay in long term and I'd really like to only make one move. The biggest hang up is that I have no money for a down payment on a house. I have very little debt (just school loans) which works in my favor. Where do I start and what should I do? I know the basic...contact my bank to see if I can qualify and find a realtor...but I'm not good with all this stuff!
I *think* there are some loan programs out there for first time home buyers that offer down payment assistance, like requiring less than the usual 10%. In my area, housing is crazy expensive. A rent payment and a mortgage payment are really close $ wise. I'm wondering if it'd be similar in your area? If I wouldn't be saving a ton of money by buying, I'd probably rent for a while. Home ownership has lots of advantages, but there's always unexpected expenses that really suck to deal with - new a/c heating unit, plumbing issues, etc. Sometimes I wish DH and I rented so that'd be someone else's headache, lol. Then, with buying, there is a buttload of closing costs, inspections, and misc fees. Maybe there's a suburb within reasonable driving distance (won't cost an arm and leg in gas) where you could rent cheaper than the town you are working in? I'm thinking that'd give you a chance to save $ for a down payment. There is a town about 10 miles from us where you can buy/rent twice the house as you could in my town. Good luck in whatever you decide. There are advantages and drawbacks to each scenario.
I think that you should rent for a year. This will give you time to save for a down payment, which is important. Even with those zero-down programs, which can be difficult to qualify for anyway, you end up paying a lot more over the course of the loan because you're paying interest on what would have been your down payment. Renting for a year will also give you an out if you decide that the school or area isn't for you. Sometimes it takes actually working and/or living in a place before the cracks start to show. It would be terrible if you were stuck with a house and mortgage in a place that don't want to stay.
If your budget is going to be tight, rent. I paid $800 a month in rent for a 1 bed/1 bath apartment. I had family coming to visit several times a year, so I started looking into buying. I bought a home with $0 down and my mortgage was $830 a month for a 3 bedroom/2 bath house. When I purchased the house, I had $10,000 in the bank and $0 in credit card debt. I did buy a house that needed all new flooring and paint. That quickly ate up my $10,000 and even went over (with moving costs and a few other expenses.) Then things started to break. My house was below street level, so I had a sewage pump. It broke and my yard filled with sewage. That was a few grand. Air conditioner problems, another grand. That was just in the first year. Other things came up and after 5 years, my mortgage had risen to $920 (taxes and insurance went up) and I was now in about $8000 in credit card debt and working retail 25 hours a week just to make minimum payments. (School district has been on a pay freeze for 7 years, so no raises to cover the added costs.) I loved my house. Loved, loved, loved my house. But, looking back, it was not the best financial decision I made. Right now, I am renting the cheapest apartment possible for a year or two to get myself back out of credit card debt. Renting is as high, or higher, than buying, but I will not buy again until I am on solid ground with some cushion. Lesson learned.
Maybe I have a skewed perspective coming from CA (my "very expensive" may be a lot different than yours), but would the mortgage really be as cheap as rent with little or no downpayment? That would not be the case here, even in the much cheaper area we are moving to this summer. We would need a pretty sizable downpayment to keep the mortgage low. I would rent for all the reasons that have already been mentioned. Yes, in many cases rent is close to the cost of a mortgage payment, but there is more to consider. When you rent, you are not responsible to pay for any upkeep or repairs on the apartment or house. This can be quite significant, and things can be quite unexpected, as giraffe mentioned. Also, when you're new to the area, it's probably better to get your footing in the area first, as Caesar mentioned. Even if you KNOW this will be your long term home, I think getting to know neighborhoods and the general feel of the area for at least a year would be a good idea. Honestly, local moves are not THAT terrible, so moving in a year or two wouldn't be a big deal. We move every two years (2010, 2012, and now in 2014), and will likely continue that trend. It's not necessarily the most pleasant situation, but you do what you have to. Bottom line, I wouldn't consider buying a home without a downpayment. But we could NEVER afford to do that here. In our new area 3 bed/2 bath houses start in the mid $200ks. In our current area the same size houses start in the mid to high $600ks and $700ks...no I am not joking. But anyway, even $200ks is far too high to comfortably afford a mortgage with no downpayment.
I always felt like renting was flushing money down the toilet. I was able to buy a house last year with the knowledge that my parents could help. I've had some things go wrong, and thankfully my parents were able to help out. The rent and mortgage are about the same with 20% down. I'd only do it again if I knew I could rely on my parents.
Do your research and find a realtor with a good reputation. Tell him/her what you are looking for and what you have to spend. The realtor can point you to a mortgage broker if that's the route you want to take or to rental properties if you decide to rent. I think if you go in with an open mind and look at all your options, put pencil to paper and figure out all the costs, etc., then once you've made your decision, it will be one you are happiest with. My instinct would be to buy a smaller/cheaper property or condo to build equity.
I say, if you don't have money for a down payment, rent. This gives you time to save without those extra expenses popping up that come with owning a home. Your utilities will be cheaper in a smaller place. You can get to know the area better before you buy. Loans are getting more difficult to get. Any loan that is offering zero down or somewhere close needs to be something you look into very closely because predatory lending is on the rise again. So, while you may be able to get into a loan with little down, the terms are probably questionable. Also, if you don't have money for a down payment do you have money for points, escrow, and any fees that will be associated with buying. What about costs when you get into the house. I will never recommend that anyone without a good nest egg and a sizeable down payment purchase house. Houses are expensive and if you can't afford it once you own it, it will cost you a lot of money to sell it.
Of course renting is flushing money down the toilet, but if you have no downpayment (as the OP said), it may be the wiser option anyway. I've had people tell me what a waste of money renting is. Well, of course. But until we have a downpayment, we will rent. Our parents have helped us out in different situations, but not $50k of help. lol. ($50k being 20% on the very cheapest house we could buy.) I live in the land of high home prices and foreclosures caused by people biting off more than they could chew so maybe my view is different than that of people in other areas of the country.
A mortgage payment could very well be the same as a rent payment, depending on location. We did the minimum down payment through a program for first-time homebuyers, and our mortgage is just about $200 less than our rent payment had been (in the same city). Our apartment was nothing amazing either (truth be told, it was sort of a dump). Sometimes you can get into the market at exactly the right time. That plus a modest home at a reasonable price could definitely result in a pretty low mortgage payment.
I've known way too many people who bought houses because they didn't want to rent. They assumed when the bank gave them a loan amount that it was something they could live on. Well, after getting loans such as zero down or worse, interest only loans, and having taxes go up, homeowners insurance go up, and other costs go up they found themselves so house poor and going quickly into debt because they couldn't save a cent. I've known many who lost their homes or had to get second jobs just to get by. Instead of having a life, they worked for their house. Sometimes owning just isn't worth it.
Interesting. I really must just have the skewed California perspective. Although there are some areas of CA where that might be possible - just not anywhere I've lived. I still would be wary of buying in an area I have never actually lived before, all cost factors aside. Forgive me if this is a hijack, but does student loan debt prevent you from qualifying for those first time home buyer programs?
I live very close to California. The biggest factor in the affordability and availability of homes in my city has been the bursting of the housing bubble. My city was hit very hard in that whole thing. My hoosband and I were very lucky in that we waited to purchase a home until after the bubble had burst and things had started to settle down. We would never, ever, ever have been able to afford a home here if that wouldn't have happened. I don't believe that having student loan debt, or any particular kind of debt, would prevent a person from participating in a program first-time homebuyers. It's more about the amount of debt and debt-to-income ratio.
Thanks for the insight! I know buying isn't probably the smartest option and I don't want to rush into anything, but rent is SOOOO ridiculous! The prices are expensive in all of the surrounding rural communities! Luckily though, a friend from high school is moving to the same area. We are going to talk tonight about renting a place together at least to get going for a year.
Around here rent is much higher than owning. We have one of the tightest rental markets in the country, because people are moving here so fast that developers can't keep up with building housing and vacancy is at less than 1%. Rentals can charge what they want and they know it. However, I still don't feel stable enough in the area to look at buying something. I don't feel ready to put down something permanent. Also, like others mentioned it's nice that all of the repairs are the owner's problem and not mine, plus upkeep of the outside (like landscaping, snow shoveling, mowing grass, etc.) is not my responsibility either. My parents live several states away, so no one to help with repairs. My best friend bought a house this year, and her parents have had to be over practically every other weekend helping fix or upgrade something.
Not sure if this will be useful, but here's an online rent-or-buy calculator: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0
That would be me. We moved 900 miles away from home. We rented the first couple of years here, mostly because buying a home wasn't financially possible. On the plus side it gave us the opportunity to get to know the area and have an idea of where we wanted to buy at.
I have been renting for the last 10 years and just recently bought my own place. Rent is not a waste of money. Sure, you don't build up equity, but it is an opportunity to save, save, save. All the home maintenance expenses are the landlord's concern. It's a great way to find out what kind of place you want to buy. I have rented apartments, rooms in houses and now a house. I have learned that owning a house is not for me and I bought a condo with all the features that I have learned are important to me.
I have been turned off of the idea of buying recently. I live in a residential area here in CR in a house that was converted into four apartments. The house next to us has been demolished and built into a large apartment building since January. They are still constructing. The noise is AWFUL. If we weren't moving in a few months we definitely would have moved away. You don't get that luxury with a home. Though I think the likelihood of something like this happening in residential USA is a lot lower than here in CR.
As a former real estate agent, I probably can give some advice on this. For a buyer in your situation, it would be best to go with FHA loan. These require small down payments, and have lower rates, because they are especially for first time home buyers. The condition on FHA is owner-occupied only, haven't owned a home in the last 3 years, and the home must be in good condition with few repairs needed to bring it to livable condition. To whether or not you should buy or rent, if you have no money saved up, you might not be able to get a loan. They have cracked down on no money down loans for mortgages over the years because of predatory lending and the increased amount of foreclosures, so banks want to do all they can to mitigate their losses. Also, location is the most important aspect of real estate, so not knowing where you are, it would depend on the market in your area. If you plan on living there a long time, that works in your advantage, because you won't really need to worry about how long it will take to build good equity, or if the value will increase by the time you want to move. Also, I would definitely get a realtor, and not look for a for sale by owner. The FSBO sellers often have no idea what they are doing, and there is so much paperwork as well as legal issues that go into buying a home. They also have access to the Multiple Listing Service, in which they can show you evidence of what a house is worth from sales records, and have access to every property that is listed with the MLS regardless of the company. Gosh, this is making me want to be a Realtor again.
Also, rent is always going to cost more than owning, unless of course you get foreclosed upon. You have absolutely no equity in a rental, and you don't increase your net worth at all. Even if your equity in a home is negative at the present time, each mortgage payment you make increases the equity and adds to your net worth. If the equity is positive, you can qualify for home equity loans, and if your home sells for more than what you owe on it, and you have some cash left over after paying commissions and title fees, you made money. Renting never gives that option. However, based on reading upon your situation, I would rent for two years and see how you like the area, but more importantly put money in the bank. More money for a down payment gives you a much better chance of qualifying for a loan.
I'd be careful with this statement because it doesn't give the whole picture. While rent may be cheaper than a mortgage, additional costs of owning a home can escalate your costs quickly. Broken furnace, needing new windows, breaking appliances, and general maintenance costs quickly add up.
When I rented I couldn't decide to paint a room any color I wanted or hang anything that needed something bigger then a picture nail. I don't want to think about the money we've spent since Labor Day: We've painted every room, minus the closets & my son's room. This has also required new window coverings & some new wall decorations. That's only the painting. I need to redo my floors & other maintenance.
I have seen a lot of young families rush into buying and then regret it because of all the costs of home ownership. I have also seen a lot of hearts broken when they lost their houses the last few years due to weird loans that went up and not enough equity to make it worth keeping. Whatever you do, stay on the cautious side.
I haven't been a home owner before, but I would hope that major renovations and repairs are far and few between generally. Remodeling kitchens, finishing basements, new siding, and new roofs are generally repairs that aren't frequent expenses. I would hope that over the long term, those would be less than the cost to rent a similar sized residence.
If you are not a handy person in general then try renting for a year (or 2 like someone suggested). I own a home and about 90% of repairs/upgrades are done by my husband. My sister's husband can barely hammer in a nail to hang a picture so when they need repairs for their home they have to call someone. It adds up really quickly when you have to pay for labor and materials instead of just the materials. Just don't rush into anything and good luck!
The issue with repairs is definitely labor. Again, as I said, it would vary by location. There are some locations I wouldn't want to buy unless I had a huge down payment because of all the property taxes and other expenses, and if I needed out within five years, I would be stuck.
Renovations are usually optional, whereas repairs are not. If your A/C goes out and you live in the desert, for example, you're going to be shelling out at least $3,000 on the spot for a critical repair. If your pipes burst or your toilet backs up and there is flooding, that's going to be a critical repair that could cost thousands. Labor is a factor for minor, do-it-yourself repairs. For the big stuff, though, most people probably can't do those sorts of repairs and need to hire out someone else's services. Whether you're paying mostly for labor or for the parts themselves, you could definitely find yourself in a very expensive situation. Homeowners need to be prepared for those sorts of expenses.
My mortgage is $150 more than what I paid in rent for a 1bd/1ba apartment. It was a very nice apartment complex, but the better option was for me to purchase a home. My home was a foreclosure and I shelled out the down payment. I guess my situation is a bit unique, though, since I was born and raised in the town I work in. There was never a question of whether or not I wanted to live/work here (hence, I didn't need a trial period to see if this was the right place for me).
With my house, we have very unusual plumbing - the house was built in the 40s. The pipes that go to the sewage line on the street are apparently U shaped pipes that curve up a hill, which leads to our pipes getting clogged once every year. It's cheaper to spend $150 to have a plumber/roto rooter come fix it than spend 10 grand redoing the plumbing.
Just be sure to have an inspection of the house. We did, and negociated repairs. We got the sellers to lower the price by $80,000 to allow for repairs.
This is a very individual situation and there's no universal right answer. I HIGHLY recommend checking out the NY Times rent vs buy calculator if you are considering buying a home. Someone linked it but it didn't get much attention. Please use this before buying a home! It lets you input all your relevant financial information to see which option leaves you better off financially in the long run. The link is here: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html For the record, I would also never buy without a down payment and solid emergency fund. What happens if your basement floods or the heater needs replacing or some other major issue that needs immediate fixing? It sounds like it might be a good idea to at least do more research on the costs involved in owning a home before taking on such a huge responsibility.
I've never understood this idea (flushing money down the drain). Can somebody explain? Even if renting is the same as your mortgage (let's exclude cost of utilities, etc. which would be the same too), you still have to take care of repairs, maintenance, home insurance, taxes as a homeowner. And that would be substantial savings for the renter, which could presumably be put to investing/saving. I mean, I understand that living in a home offers an advantage in terms of privacy, and when you pay off your home--you OWN a home. I get that. If two couples started two paths: one rented, one bought. Assuming they both stayed in same situation for 25 years, and assuming mortgage comparable to monthly rent. And assuming the other couple invested their (saved) money wisely. At the end of 25 years, Couple #1 owns their home. Couple #2 doesn't own their home, but they have 25 years of investing that they can fall back on. Is it just cause real estate is just more reliable than a conservative investing plan? I would tend to think that Couple #2 could be in a better place. No?
If the mortgage is comparable to rent, why would couple 2 have any extra money to invest? The homeowner can sell the home and make a profit, then renter cannot.
Exactly... hubby when we first got married...not renting...bought a house did some improvements...sold for profit for land to build house!!!
Home improvements, maintenance, property taxes... In my example, (realistically) mortgage and renting aren't going to be the same. And more often than not, quite cheaper (renting). If you add that difference to the extras I mentioned, I'm just wondering whether that is an equally good situation to be in when it comes to financially (and if not, why).
The idea is that when you are renting, none of that money your paying is money you're ever going to be getting back. When you buy a home, once you pay off the mortgage, everything the house sells for minus commissions and other fees will be yours to keep. Of course, there are property taxes and sometimes HOA fees that you won't get back that you don't have to pay when renting, but a home is an investment. An investment either pays off or it doesn't. When renting, there is no opportunity for any kind of investment.
But landlords will have already incorporated those expenses into the rental price; they don't rent property in order to lose money.
When renting a single family home yes. I think most people rent houses because they have a large family and either don't have the desire to settle on one house, or they don't have the ability to get a mortgage because of credit problems. A family of 3 or less will generally settle for a duplex or an apartment I think, which would be cheaper than a mortgage, but no opportunity for an investment.
