The new forums will be named Coin Return (based on the most recent vote)! You can check on the status and timeline of the transition to the new forums here.
The Guiding Principles and New Rules document is now in effect.
Buying/Renting a home and all that sort of yap
Ledneh
shinesquawkRegistered User regular
shinesquawkRegistered User regular
Here's the situation. I'm 22, still living with my mother. We rent a nice home in a good neighborhood; we each cover half the rent each month and we alternate on utilities and that crap. But she wants to move soon--preferably to own a home instead of rent--and since I've graduated college and got a steady job and all that, it's getting to be that time to get my own place to live.
Unfortunately, the world of getting a place to live is hostile and very alien to me.
I've been doing research over the past couple of (very boring) days at work, and plan to look for/see a realtor this weekend. But in the meantime I'm going to stream-of-consciousness here and hopefully get some advice from you fine upstanding gentle(wo)men.
- First the obvious and expected thing: buy or rent?
Up to now I've been pretty sure that I want to own a home, since renting seems like pissing money away on nothing and you get tax breaks for paying a mortgage. One article I've read advocating renting suggests otherwise: it suggests that home value does not appreciate significantly when compared to inflation, and all things taken together it's far better to use the money difference between renting and buying and invest in stocks, which DO have a significant long-term return. He's also said that after the tax payments you make on a mortgage, the April tax break doesn't really exist. I've seen several arguments for both sides, and they all seem logical, leaving me very confused.
I would live alone for the foreseeable future, so it doesn't exactly need to be a big home. Hell, I'd probably be even happier in an apartment or condo; being alone in our two story, four bed home kinda gives me the willies after a while.
- Then, how much do I have to worry about my current finances?
Besides my 401k (which has only just started, really) I don't have any rainy-day funds to speak of, just the value of my checking account. I have an open $12k loan on my car and $3k on a card (though I expect $4k out of that total to disappear in a month when I sell my motorcycle). Originally I had planned to sit where I am and wait until my debts are zeroed; not to ensure my income (I have no trouble at all keeping up with payments), but just to get a better score in case I DO decide to buy into a mortgage. Friends have told me that when it comes to getting a home, credit score is completely irrelevant. They wouldn't lie or intentionally misinform me, but are they loony?
I make $43k/year gross right now, for what it's worth. (I should be making more damn you employer!)
- If I DO buy a home, are there any gotchas to buying into a foreclosure?
I haven't researched this fully so I'm probably spouting shit. But scuttlebutt says that I can get a much cheaper mortgage by buying a foreclosed home straight from the bank, and there (at first inspection) seem to be a LOT of nice homes that have been foreclosed around here. But there's gotta be a gotcha in there somewhere. So, what is it?
There're probably other questions but I don't have enough info to form them yet. I realize the answers to these are probably opinionated and contentious, but any advice (or even arguing!) anyone can offer would be awesome.
Thanks folks!
Unfortunately, the world of getting a place to live is hostile and very alien to me.
I've been doing research over the past couple of (very boring) days at work, and plan to look for/see a realtor this weekend. But in the meantime I'm going to stream-of-consciousness here and hopefully get some advice from you fine upstanding gentle(wo)men.
- First the obvious and expected thing: buy or rent?
Up to now I've been pretty sure that I want to own a home, since renting seems like pissing money away on nothing and you get tax breaks for paying a mortgage. One article I've read advocating renting suggests otherwise: it suggests that home value does not appreciate significantly when compared to inflation, and all things taken together it's far better to use the money difference between renting and buying and invest in stocks, which DO have a significant long-term return. He's also said that after the tax payments you make on a mortgage, the April tax break doesn't really exist. I've seen several arguments for both sides, and they all seem logical, leaving me very confused.
I would live alone for the foreseeable future, so it doesn't exactly need to be a big home. Hell, I'd probably be even happier in an apartment or condo; being alone in our two story, four bed home kinda gives me the willies after a while.
- Then, how much do I have to worry about my current finances?
Besides my 401k (which has only just started, really) I don't have any rainy-day funds to speak of, just the value of my checking account. I have an open $12k loan on my car and $3k on a card (though I expect $4k out of that total to disappear in a month when I sell my motorcycle). Originally I had planned to sit where I am and wait until my debts are zeroed; not to ensure my income (I have no trouble at all keeping up with payments), but just to get a better score in case I DO decide to buy into a mortgage. Friends have told me that when it comes to getting a home, credit score is completely irrelevant. They wouldn't lie or intentionally misinform me, but are they loony?
I make $43k/year gross right now, for what it's worth. (I should be making more damn you employer!)
- If I DO buy a home, are there any gotchas to buying into a foreclosure?
I haven't researched this fully so I'm probably spouting shit. But scuttlebutt says that I can get a much cheaper mortgage by buying a foreclosed home straight from the bank, and there (at first inspection) seem to be a LOT of nice homes that have been foreclosed around here. But there's gotta be a gotcha in there somewhere. So, what is it?
There're probably other questions but I don't have enough info to form them yet. I realize the answers to these are probably opinionated and contentious, but any advice (or even arguing!) anyone can offer would be awesome.
Thanks folks!
Ledneh on
0
Posts
So basically, say your rent is 700/month and a mortgage in the area would be 1500. Take the difference each month and put it away in a bank account. This will give you a good test of what you can afford each month as well as giving you a nice chunk of money for a down payment when you move.
This also means you don't end up in a mortgage you can't afford (the banks will give you a mortgage above what you can actually afford).
1. Where you live. Depending on where you live house prices have either been going up sharply over the last few years or remained relatively stable. In most of the US (especially larger cities) housing prices have been going up double digits each year.
2. The market is currently a bit soft in most places. I personally expect that prices will continue to drop over the next year as more foreclosures hit the market. Bear in mind that I am not in real estate. About the best clue we have for the past for a soft market is what happened in the early 80's... if your area stayed pretty stable that is good, however many areas dropped sharply in value and took roughly 10 years to return to their initial value.
3. Houses tend to go up in value by some % each year, which is lower than stocks. What makes them a nice investment is that your initial investment is fixed and if you sell before you pay off the loan you can make a disproportionate return. For example if you buy a $200k house with $20k down and a $180k mortgage. If the house goes up by 5% a year for 2 years, your house is now worth ~$220k. Your effective return (not including interest on the mortgage) is 100% or roughly 50%/year. It also works the other way that if the price decreases by 5% in a year, in 2 years your initial investment is gone.
Your friends are mostly wrong. Your credit score relates to what kind of interest rate you can get on a home. With better credit you can get a larger loan for the same amount of out of pocket money per month or an equal size loan for a smaller amount of interest per month.
Foreclosures have often been trashed by their former owners and may need some significant TLC to make them habitable. AFAIK you don't always get a chance to see the interior of the place before you make an offer though I am very likely wrong on this point.