So, I am at a point where I am looking to see if I should buy or Rent. The rental market is really awesome right now, with all the house and yard we would like well with in range, in fact even cheaper than it was a year or two ago, and many more places to choose from. We can likely find a nicer place to rent than we have now for less money and be able to save money. I do have some money for a down payment, not the 20% I would like though. If the bank says we can’t afford anything reasonably nice now, we will be renting for sure and saving up more toward a down payment.
OTOH, housing prices are high. Soon I will ask the bank how much they think we can reasonably afford. My own calculations are that we can barely afford anything suitable with prices as they are. Two years ago, houses stayed on the market here for a week or so, but not much longer. Now it seems that the for sale signs stay up forever, so I think the housing market is softer and I know in some places nearby prices have even dropped a bit. I really fear that once we buy, the price could drop. While we plan to go a fairly traditional mortgage route and not take out more loan than we can afford (No interest only or gimmicky loans which count on equity rising due to rise in housing prices), if prices do drop, it means we are stuck in that house, so we better like it. I would really like to own and would like to get a mortgage before interest rates rise more, but I don’t want to move in a place much smaller than I have now and be stuck with it.
I would tell you to buy now. The market is slow so you can take your time, be picky, and possibly bring a price down if the seller is desperate to sell. Interest rates are still really good and if they rise you won’t be able to get a lower rate. If they fall you just refinance.
House prices rise and fall together also. So if you want to “upgrade” later on while the market is down, your house will be worth less but so will a bigger house.
If the market is up your house may inflate in value, but so will the bigger houses.
I don’t know about the real estate market in IL, but here are some things I would keep in mind
[ul][li]Houses are heavily leveraged, meaning that even a relatively small dip in the market can have serious effects on the amount of equity/down payment you have. If you don’t have a big enough down payment, you’ll have to pay more for a bigger loan and for mortgage insurance.[/li][li]I’d trust yourself over the bank. They’ll tell you that you can spend 40+% of your pretax income on housing. Many people would take a pretty serious lifestyle hit to do that.[/li]Consider the cost of renting vs. the cost of buying, per month, and calculate how much you’re likely to make by investing the difference in some other area for 30 years.[/ul]
In my area most sellers just haven’t figured out that they’re overpricing their homes. They hear stuff about how homes are selling for tons of money and prices are going up-up-up and they assume they can sell for a higher price. Most of them are wrong and their homes remain on the market for a good long time. Check into your specific market, there are tons of “market analysis” type articles with regional breakdowns because of the hubbub over a housing bubble. If your market is not one of those whose home prices have risen drastically over inflation then you’re probably fine with buying. Even markets which did not over-inflate like the coastal areas and DC did will probably suffer when those markets slow down, but if you buy a reasonably priced home now you should be able to ride it out. It is rare to find a truly bad market for someone who is wanting to buy their homestead home. The horror stories you hear are mostly people who buy homes as investment vehicles or to “flip” them getting screwed by a shift in the housing market. I wouldn’t treat this market, as a person wanting to buy a home for the family to live in, as anything special unless I lived in DC, or CA, or a small handful of other locations.
Houses here have definitely risen in price much more than inflation. Homes which went for $230K five years ago seem to be priced at $450K now. I know I can’t afford $450K. Heck even Forbes is saying this may be a good time to rent, so it is not a way out there strategy. As Mtgman many sellers have not figured out they are over pricing their homes. I say this because of the long time the houses stay on the market.
I am not worried about agreeing to more loan than I can afford. We can afford what we pay in rent, and a bit more than that, but not much. I am worried about what we can buy in that range. I hope we can talk someone down to a reasonable price. We do rent a whole house and take care of it for the most part, so we are a bit better acquainted with most of the costs than some renters are.
I am also afraid that our unusual situation will mean that we can’t get a loan with a good rate for an amount that will buy a house we would want to live in. Part of what is going on is that over the last five years or so idiots have been thinking they can get rich fast by buying houses and renting them out or by hanging onto a house for a little bit and flipping it over. This means that the market has been rising bases on competition not by people who want to live in the houses, but by them and idiots who think they can get rich fast. Sure, it may be possible to make money renting houses, but generally it is not easy to find good tenants, and with so many having bought houses intending to rent them out, rental prices have gone down.
I want a four bedroom ranch, with enough yard for some daffodils and not too far from the el, and not too far from where I live now. Near a park would be nice. I can rent that easily enough. I can rent that, pay off remaining debts, and save money. The thing is, if buying that means I can’t save money, then buying is potentially riskier than renting.
There are lots of cost-saving avenues you can pursue, including foreclosures and the like. Such ways are full of caveats and pitfalls. Still, you can save an enormous amount of money and still get what you want by careful and creative shopping. (Also, listen to the advice about putting down as much money as possible. At least twenty percent. Lots of savings that way.)
If your debts are at a higher interest rate than a home loan would be, and can be paid off in the next few years, I’d probably rent and save cash. Being cash-poor when trying to buy a home is doable, but much tougher unless your credit is sterling. Having a sizeable down payment and/or being able to pay points if you intend to live there for a long time is a nice option. If you have great credit you can get a low rate and an 80/20 loan where you eliminate PMI. Plus with many 80/20 loans you can manage your own property tax/insurance escrow account. This means your mortgage payments are principal and interest only and you can put money in an interest-bearing account through the year so it can work for you until tax/insurance premium time instead of going into a mortgage-company controlled escrow account and earning interest for them.
In general if you plan to be in the home 5 years or more it makes things like market fluctuations much less of a worry. Still a price survey and comparison of house prices versus inflation would be a good idea. Shop slowly and don’t set your heart on anything. Basically be willing to buy if you come across a good deal.
I juggled my debts and paid them down so that I don’t have any high interest debt. I do have some debt as well as some savings and some investments. I’d like to just pay off that debt now, but house debt is better than non-house debt as it has positive tax implications, but at least the rate I pay now is not bad.
I would love to find a good deal, but I am afraid that what looks like a good deal might be a good deal of trouble. Sure, we will have the place inspected, but that is not fool proof.
In general I’d always say buy if you can afford it - but maybe not right now. You should study the market in your area. What is the asking price per square foot now as compared to a year ago. What’s the delta between asking price and selling price? How about days on market? What’s the inventory like? Has there been a big runup in prices in your area which has just stalled out?
If there is going to be an adjustment of 5 or 10%, which is not a crash, you might do well renting for a while. It’s unlikely that the boom will resume, so your downside is fairly minimal.
One alternative - look for houses with long days on market with nothing wrong except the seller screwed up. That’s an advantage you have buying locally. We lucked out in this way - the owner of the house we bought put it on the market, and then started a rennovation. By the time he was done it was stale, and we got a good deal on it. Some of the houses we looked at were anti-staged. This was ten years ago, when things weren’t all that hot. Some had rooms filled with trash, some had clothes all over the floor of the master bedroom. You might get a bargain by finding a good house, with no problems, with an owner who doesn’t care about selling. But I’d be extra careful on the inspection!
Well, we found out what we can afford. The bank is willing to lend me more than I want, but what I can afford is not very much. I have found an area which has livable houses in our price range, so I am seriously considering buying there. I drove through there today and even looked at a house.
The house meets all of our requirements, and most of our nice to haves. It is considerably below the upper limit of what we can afford, but I think it is a bit overpriced. A house with similar size, room count, larger floorspace, and slightly higher assessed value sold for $32K less than this one is currently listed for last year. It was on the market for a year at $4K higher price tag than they have it listing now. It has very little curb appeal and many minor aesthetic issues ranging from orange shag carpet badly patched with two other kinds of orange shag carpets in the largest bedroom, to many small obviously amateur repairs all over the house. I don’t want to pay too much for this house as there are others nearby for sale at a similar price with more bedrooms and other features that usually raise the price a bit, but I would really like to have it at a reasonable price. Any suggestions on how to negotiate? We have excellent credit and can easily get approved for a 30 year fixed loan for the asking price. We are poised to take possession in March, but are not in a bind if we can’t move then. I think our position is pretty strong, what can I do to get the best price for this house? How can I determine a fair price?
The American tax code is designed to encourage home ownership. The tax advantages of owning are quite remarkable, although as a tax refugee, I am not up to the minute on them. Run you last 1040 again assuming your present rent payments were mortgage payments, you will be quite impressed I think.
The market is still too darn high most places. That works in your favor. I vote on planning on renting, but having a hoot abusing real estate professionals for the next year or two looking for a very very sweet deal. “Time is money.” You have time, use it to save a lot of money.
First of all, if you’re in the market for a house, find a realtor. A good realtor will represent you to the seller’s realtor so you don’t have to do all the footwork yourself. You sit down with them and spell out your wants and needs, and they’ll dig up all sorts of leads. It really does make it easier. Having a realtor representing you also makes it much easier to negotiate. Your realtor will help you get pre-qualified for a mortgage, and seller’s agents are much happier to work with pre-qualified buyers (they know that you’re serious about buying and not just out “kicking the tires.”)
Now, if you’re really interested in the house you described above, you can make an offer on the house. It doesn’t have to be the asking price - it can be as low as you like. Feel free to lowball the offer, but let your agent know that you are open to negotiating. If the price is too low for the seller, they will make a counteroffer, or they may say, “Sorry, that’s far too low” and leave it at that (it makes you kind of guess at the price range that way, but you’re still always free to make another offer.)
Go through the house with a fine-tooth comb. List all the defects you find, and include the list with the offer - make it clear to the seller that the reason you’re not willing to meet their asking price is this boatload of “problems” you see with the house as is. Remember, you’re trying to bring the price down. The owner may, in his counter to your bid, offer to fix the problems with the house, or foot the bills for contractors to come in and do the work. That’s part of the dance, too.
Be prepared for some back-and-forth, but be firm with the seller as well. Put a time limit on your offer and be ready to look elsewhere if the seller isn’t willing to deal. More than anything else, don’t completely fall in love with a house so that your emotions guide your purchasing decisions. Shop and buy as if this is going to be the house you retire and/or die in (even if it isn’t.) After all, you’re not hurting while you rent, you’ve got all the time in the world.
I wish you the best of luck, having just gone through the process on both sides - sold my old place and bought a new one. The process can be a pain in the ass, but it doesn’t have to be scary or frustrating if you take advantage of the stuff in place to help you.
[Oh yeah - forgot to mention - find a good real estate lawyer, too. Run all the paperwork by him before you sign or approve anything. Your lawyer will catch anything disadvantageous to you in plenty of time to keep you from making an expensive mistake.]
lee, we’re in the same boat and have decided to rent, probably until early 2008. I don’t know much about your market, but here (desert Southwest) the bubble is breaking, but the prices haven’t come down nearly enough yet. For a gleeful, albeit perhaps a tad hysterical look at the whole rent/buy bubble issue, you might want to check out The Housing Bubble Blog. There is some tinfoil hattery going on in the discussions, but the daily articles are enlightening. Good luck, and if you decide to buy, [bitter experience]chose your own appraiser, not the rubber stamper your realtor recommends.[/sadder but wiser]
