Good idea to buy a house, or not?

Factual Questions
1

It’s kind of a complicated question. I’ve never owned a house because I’ve never been sure up to this point that I would actually be staying where I’m currently living long enough to make it worthwhile. The next place I move to, though (for an MSW program) will be where I plan to live for at least several years. My question is, do I have any business buying a house within the next several years, or not?

Here’s the situation: I will be going to school full time or almost full time, and will be able to work only part time. I’ll probably be making about $3,000 a month at the most. I have to spend a lot of money on health insurance and medication. So I can’t do a large monthly payment. $800 is probably the most I would have any business spending on a mortgage payment. If I did this, I’d like to buy a duplex, live in one half, and rent out the other. One good thing is that I could do a large down payment if necessary (20% plus closing costs would be okay; I guess I could do up to $80,000 if I had to.) I don’t have dependents (unless you count the cat!) If I could get the kind of loan that has smaller payments for the first several years, that would be a big help, and my credit is good. Also, I’m looking seriously at the Portland and Seattle areas.

Does this situation sound feasible? Or should I plan to rent for awhile?

All advice appreciated! :slight_smile:

2

Are you wanting to buy in Seattle/Portland or TN? Because that makes a big difference in property values. Seattle is not cheap, real-estate wise. You’ll be able to get a much nicer house in your price range in TN than in Oregon. Having said that, buy a house if you can, especially if you can get a good deal on one and do a little work to it. If you rent, you will have nothing to show for it when you leave, if you buy you will have lots of money when you sell. Plus, it is just plain rewarding to own a house. Real estate is a great investment. BTW, don’t get too stuck on the duplex idea, just because you are then making yourself a landlord. You might want to read up on that before you decide you want the hassle. It could work, or it could end up costing you lots of money.

3

Living in Tennessee is horrible for my health, and my family is moving to the Northwest. Also, there isn’t a good MSW program in the Nashville area. I should say, though, that in Tennessee, landlords can get away with absolutely anything at all and tenants basically have zero rights. (Nobody I know has ever gotten one cent of a security deposit back, for instance, no matter how careful they were with the property, or how scrupulously they cleaned. Any tenant who takes a landlord to court over a dispute loses. Don’t get me started… )Nice if you’re a landlord! I don’t expect to find the same situation everywhere.

Mostly, what I’m wondering about is if it’s a good idea or even possible to buy a house without a decent income stream. The biggest asset I have is that I could make a very good down payment. But that’s about it!

4

[QUOTE=Anise]
Mostly, what I’m wondering about is if it’s a good idea or even possible to buy a house without a decent income stream. The biggest asset I have is that I could make a very good down payment. But that’s about it!
[/QUOTE]
Well, a big down payment means that the total amount you are borrowing is reduced, so your monthly payments will be lower. It’s definately a good idea to make your down payment as large as you can afford - it will be better to spend the money on that than pretty much anything else you could invest it in.

Other than that, I would just suggest general information gathering: Figure out how much the type of house you are looking at will sell for, and use a mortgage calculator to figure out how much the payments will be. I don’t know what the banking system is like in the U.S. but if there are banks that have branches where you are as well as where you are going it would be a good idea to talk to them about what kind of mortgages you would be eligible for.

If you can afford the payments and you plan on staying for at least a few years then it’s probably a better idea to buy than to rent.

5

[QUOTE=Anise]
It’s kind of a complicated question. I’ve never owned a house because I’ve never been sure up to this point that I would actually be staying where I’m currently living long enough to make it worthwhile. The next place I move to, though (for an MSW program) will be where I plan to live for at least several years. My question is, do I have any business buying a house within the next several years, or not?

Here’s the situation: I will be going to school full time or almost full time, and will be able to work only part time. I’ll probably be making about $3,000 a month at the most. I have to spend a lot of money on health insurance and medication. So I can’t do a large monthly payment. $800 is probably the most I would have any business spending on a mortgage payment. If I did this, I’d like to buy a duplex, live in one half, and rent out the other. One good thing is that I could do a large down payment if necessary (20% plus closing costs would be okay; I guess I could do up to $80,000 if I had to.) I don’t have dependents (unless you count the cat!) If I could get the kind of loan that has smaller payments for the first several years, that would be a big help, and my credit is good. Also, I’m looking seriously at the Portland and Seattle areas.

Does this situation sound feasible? Or should I plan to rent for awhile?

All advice appreciated! :slight_smile:
[/QUOTE]

Do you foresee your income increasing in a few years? If not, what good will it do you to have a mortgage with small payments at first and bigger payments later?

It’s one thing if you are going to law school or medical school. But if you are getting a PhD in literature, don’t plan on a big jump in income.

Next question: Why do you want to buy? As an investment? A hedge against inflation?

The thing is, as a fulltime student with health problems who also has a part-time job, you may not enjoy the added stress of being a landlord. What happens when your tenant calls you in the middle of the night to report some maintenance problem? Or stops paying rent and you have to evict them?

Also, real estate went up quite a lot in the last few years and most people agree that it will cool off for a while. If you have to sell in a hurry, you can count on losing money.

Have you already lived in the area you want to buy in? If not, at a minimum you should rent there for a year. So you can learn the local real estate market and know for sure if you like the area. There are plenty of scam artists out there who will sell you an overpriced POS in the middle of nowhere with no resale value whatsoever.

The bottom line is that you must be careful about being overly optimistic when you buy a house. Life invariably ends up being more expensive than you plan for.

6

My mileage does vary: I live in the UK, and I saved for years before buying a house.

I bought my first house for £30,000 (18 years ago!) and sold it one year later for £41,500. :eek: (There was a UK housing boom.)

I bought my current house for £60,000 (paying £30,000 of that as a deposit) 16 years ago. Mortgage payments fluctuate slightly, but are about £200 / month, over 20 years.
The house is estimated at £160,000 today. :cool:

So in general, if you can afford it, buy. As Mark Twain said “Buy land - they’ve stopped making it!”

7

I work in real estate in the Northeast, and I can tell you that prices are starting to drop. As a buyer beware, don’t count on investing right now: You might not be able to unload it five years down the road.

8

I know little about the NW housing market, FWIW. But I want to suggest that if you engage the services of a Realtor, see if the state allows Buyer Agency representation. If so, it is to your advantage to have the agent on your side to advise you.

Unless you find a bargain price on a duplex, I suggest you forget the landlord idea at first. It’s too much of a jump to buy a house in a new neighborhood and learn to be a landlord all at once. It also is likely to obligate you more financially and be a bigger risk should a good tenant not be forthcoming.

As a rough guide, if you plan to hold onto the property for two years or more, you are likely to come out ahead when you sell. Less than that and any profit will be eaten up with fixed expenses (commissions, loan fees, etc.) Of course, a rapidly changing market can change all that. It’s very hard to predict, especially the future.

9

[QUOTE=smile4me2222]
Also, real estate went up quite a lot in the last few years and most people agree that it will cool off for a while. If you have to sell in a hurry, you can count on losing money.
[/QUOTE]

I bought my house in Birch Bay from a friend. He owned it for two years and made 50% on his investment. Were I to sell it now (after two and a half years) I would probably make 100% on my investment. Enven when I bought the house prices were rising so quickly I thought I wouldn’t find one. I was lucky that my friend wanted to sell.

I’d like to buy another house in the area. But as has already been stated, housing prices are in flux. Given that beach-front property is a limited resource, I think my house will maintain its value rather than decline. But I think its value won’t increase as rapidly as it has done in the past four years. I’m hoping that I’ll be in a position to buy another house, and that the price on it will drop so that I can buy it. But I think that unless someone has to sell, and unless I’m very quick, the best I can expect is that prices will just level off.

So I think that right now is not the time to buy, at least in that area. On the other hand, I think that places with overpriced housing will see a decline soon. Funds and financing permitting, then would be the time to buy.

But I’m not a real estate agent. I really haven’t a clue about how the timing will work out. It’s just my completely unprofessional feeling.

IIRC I was told that if I planned to keep the house more than seven years I should get a fixed-rate loan, and that if I would keep it for less time than that a variable-rate loan would be better. I don’t know. But I prefer to know what my mortgage payment will be from month to month rather than having to budget for increasing interest rates. (I got a 5.325% interest rate. Not the lowest at the time, but at the time it was going to be a ‘second house’ – which it has become again. Still, it was a reasonable interest rate and rates are rising so I think I made the right decision.)

Do put down as much as you can. Putting at least 20% down allows the buyer to avoid certain expenses, though I don’t remember what they are.

General thoughts on home ownership: An increase in value doesn’t do you any good until you sell. And when you sell, you’ll have to find another place that’s also increased in value. People can and do ‘trade up’. But be careful you don’t trade up so high that you’re in danger of not being able to make the payments.

10

[QUOTE=Anise]
It’s kind of a complicated question. I’ve never owned a house because I’ve never been sure up to this point that I would actually be staying where I’m currently living long enough to make it worthwhile. The next place I move to, though (for an MSW program) will be where I plan to live for at least several years. My question is, do I have any business buying a house within the next several years, or not?

Here’s the situation: I will be going to school full time or almost full time, and will be able to work only part time. I’ll probably be making about $3,000 a month at the most. I have to spend a lot of money on health insurance and medication. So I can’t do a large monthly payment. $800 is probably the most I would have any business spending on a mortgage payment. If I did this, I’d like to buy a duplex, live in one half, and rent out the other. One good thing is that I could do a large down payment if necessary (20% plus closing costs would be okay; I guess I could do up to $80,000 if I had to.) I don’t have dependents (unless you count the cat!) If I could get the kind of loan that has smaller payments for the first several years, that would be a big help, and my credit is good. Also, I’m looking seriously at the Portland and Seattle areas.

Does this situation sound feasible? Or should I plan to rent for awhile?

All advice appreciated! :slight_smile:
[/QUOTE]

If you’re going to school full time, you do NOT want to be a landlord- taking care of your tenants’ needs is not a small task, and you probably won’t have the time.

Heck, just owning your own home without tenants is more difficult and expensive than you think. Do you have the time and money to do all the upkeep? If you’re a full-time student, there IS something to be said for letting somebody else take care of all that.

You’re the only one who knows what you can afford, but when you try to calculate the payments you’d have to make when buying a house, do NOT forget the property taxes! That may seem obvious, but I’ve known people who calculated out their monthly payments as, say, $900 a month, not stopping to think that, with property taxes, they’d be paying closer to $1200.

I can’t tell you categorically what to do, especially since I know nothing about local conditions, but right now, I’m inclined to think you have enough on your plate without the hassles of being a homeowner, too.

11

I think that unless you’re certain to be in an area for more than five years, you’d be better off renting.

Unless you’re sure that your house’s value will appreciate 15% or more in the next couple of years before you sell it, you might end up losing money. Real estate agents take 8% or so as commission when you sell.

Secondly, can you guarantee that you’d be able to sell quickly if you had to move to another area? If your house stayed on the market for months, you’d have to make the payment as well as pay for rent wherever you moved until it sold.

12

I really appreciate all the great advice. :slight_smile:

I have to say that I think I’d be better off renting for at least a year. I don’t see any problem with being able to afford to rent a duplex in the Portland area (probably will end up there-- the MSW program is good.) I also agree about real estate prices being in flux right now; who knows exactly what’s going to happen, and then what if I suddenly had to sell?

The graduate program, BTW, is an MSW (master’s in social work.) Two year program, a little longer if it’s not full time. I would then work full time or almost full time supervised for two years before taking the test and getting an LCSW license. Then, I’d go into a PhD program (again in social work.) Portland State does have that, but I guess I can’t be completely sure I’d go all the way through there. Also, I will get two payments of $250,00 and $350,000 in eighteen and twenty-three years, respectively (don’t ask why, it’s a long story!) That’s why the idea of lower mortgage payments in the first several years is appealing. (Is there any way to put off a large payment for 18 years?)

13

[QUOTE=Anise]
That’s why the idea of lower mortgage payments in the first several years is appealing. (Is there any way to put off a large payment for 18 years?)
[/QUOTE]

Yeah, there is, but everyone I’ve ever seen use this option has deeply regretted it.

There’s a thing called “Interest-only Mortgage” where you make small payments for like ten or fifteen years, and then are suddenly socked with paying off the principal. With this option, you get no equity, and many people never get the raises they count on to pay the larger payments in the future.

Five or six of my Hubby’s co-workers have lost their houses this way. They just couldn’t make the larger payments

14

Of the people I know who have bought houses, none have regretted it, myself included.

Couple things:

Buy the lowest price house you think will meet your needs for the next 10 years or so. Too many fall into the trap of buying the largest house they can possible get a mortgage on. First unplanned expense and they are running up credit card debt, etc. As a homeowner, there WILL be unplanned expenses.

When shopping, you are looking for a piece of safe property in a good neighborhood, with a sound building upon it…not a home. If you are looking for a “home” you will fall for things that are pretty simple and relativly cheap to change once you own the building.

15

Huh. I still think it would be a good idea to wait at least a year after moving, but I might be one of the few people who could actually benefit from an interest-only mortgage. The money I’ll be getting in 2024 and 2029 is part of a structured legal settlement, so it is absolutely guaranteed. What I wonder about is if you can make larger payments and build equity if, say, you start making decent money earlier.

16

[QUOTE=Anise]
Huh. I still think it would be a good idea to wait at least a year after moving, but I might be one of the few people who could actually benefit from an interest-only mortgage.
[/QUOTE]

There’s one more reason to wait a year, which no one has mentioned so far. It is useful to be able to get the dirt on various neighborhoods, something hard to do when buying a place in a hurry. Every town has the good parts and the not-so-good parts, which can affect the appreciation of property in the future. In a year you can check things out at your leisure, and get info from long term residents. I’ve bought houses where I’ve lived, and I’ve bought them on house hunting trips, and the former is much less stressful.

17

[QUOTE=Anise]
What I wonder about is if you can make larger payments and build equity if, say, you start making decent money earlier.
[/QUOTE]

I’ve heard various things. One person swore up and down that they got “penalized” if they tried to make larger payments when they had an interest-only mortgage. Others have said they could, but they somehow never had enough money at the end of the month to make larger payments.