Would you think about buying a home if this were your financial situation?

[Boyo_Jim]

Before buying a house I’d want to see some evidence of rising prices. As long as the trend in your area is downward, don’t buy.

Ok, you might not get the “rock bottom” price and ride it up as far as theoretically possible, OTOH prices won’t jump up 20% in a month either. So you probably don’t lose much by waiting.

[Jodi]

@LSLGuy

My take is houses in most of America have another 20-40% to fall, while houses in LA & Miami have another 60% to fall. Once they cost about what they did in 1980 they’ll be properly priced and then there’s some expectation they’d be a neutral or slightly positive investment for the next 20 years.

I’m considering buying a house too, so . . . Cite? I’m not being snarky or implying you’re wrong, I’m genuinely asking what you’re basing this on.

[dgrdfd]

@China Guy

I’m maybe overly conservative. I would suggest waiting 12-24 months. This would give you time to

1. save more
2. probably get an even cheaper house (there’s virtually zero risk that property prices are going to rise in that time frame)
3. and if a depression does come on, 12 months from now you’ll be in better shape than if you had bought

For me, it was much more important to get a good cash reserve going before I bought property. You definately be safer waiting and year and probably get that house cheaper as well.

Note: I’m not sure if this is a 2009 only tax credit.

Ever since I was able to, I’ve always had at least 2 years worth of lving expenses in savings as my minimum bar. That makes me sleep a lot better at night.

I can really go either way on this at this point. I certainly see the advantages of getting a stronger cash position before buying, but I can also see the advantage of getting a home now. I looked up some information on home sales in my area to see how the downturn was affecting it.

http://www.city-data.com/county/Madison_County-AL.html

You can see that at the top of the bubble the median home price was about 185k. In the 4th quarter of 2008 the median price had dropped to about 150k. SO there’s been about a 19% drop in home prices. I am not sure what the average nationwide is. So I suppose it’s certainly possible it could drop more. The 8k I would get back only corresponds to a 5.3% drop in the value of my 150k home. So waiting is certainly something to think about. I thought my area was holding up better than the 19% number indicates, but with housing it’s so difficult to get information. The same people that put out the statistics are the realtors who have a vested interest in getting you to buy. So, of course, they want everyone thinking everything is great.

As of now, the tax credit is only available until December 1, 2009 so it won’t be around next year unless it’s extended.

@Isamu

I take it this is for living in and not strictly an investment right? If so, I think the general rule is that you’re almost always better off paying a mortgage than you are paying rent (caveats of course for bad loan agreements, shitty property etc etc). I’d say you’re in a good position to buy, so long as you find a place you’re happy living in. The price you quoted seems very low, so I don’t know whether your just living in an area where housing is cheaper or the place you are buying is small or rundown.

Yes, I would be taking this as my primary residence. There are definately advantages to home ownership: I could finally get satellite, a decent barbecue grill, play my music as loud as I want, paint walls, etc.

I saw some cost of living index and the nationwide average is 100 and my area is about 80. So the cost of living in my area is pretty low. For instance, I did a quick search and here is a home I found that after 30 seconds of looking at looks great:

http://northernalabamahomes.com/index.php?action=listingview&listingID=20929

So I wouldn’t be getting a dump in my area for that kind of money like you would in many parts of California or Florida. I would consider that to be a great place for someone just starting out.

@Broomstick

While you are clearly thinking very well about long-term money have you paid adequate attention to the short term? You say your job is stable, and for your sake I hope it is, but what if something happens? You need to cover today and the short-term as well as your retirement.

You should have at least six months worth of cash on hand if at all possible whether your own or rent - in my case, that’s the only thing that has saved us from bankruptcy after I lost my job in 2007. You need this to protect against job loss, sudden home repairs if you’re an owner, and various other emergencies. In today’s environment 1-2 years worth is not unreasonable although (Og help me, I can’t believe I’m saying this) I agree with Rand Rover that if you do that you need to stash the majority of it in some sort of interest-earning form. The key is that you can get to it easily and quickly. Another key is that this is not 6 months (or whatever) of your current income, it’s 6 months of the minimum you need to get by.

Yeah, I would be in a very precarious situation if I bought in December. Virtually all my money would go for downpayment and closing costs. I could leave myself around 1k - 3k. Then I could put away 1k in January, and should get 9k or so in taxes back in February (8k for refund and then normal tax refund). So my emergency fund would get built back up very quickly. After getting the home my expenses would be around 2k per month so my 6 month emergency fund would need to be at least 12k+ (the plus being to add a buffer since I would be a homeowner)

@Broomstick

I’ll even go out on a limb and say if you don’t have at least six month’s cash on hand right now that you should temporarily reduce your 401(k) and IRA contributions until you DO have that in place. At age 24 a temporary reduction in those two will make little to no difference by the time you retire, but if Something Happens having that short-term cash fund may make a huge difference. It can also double for emergency home repairs, such as needing a new furnace or water heater or whatever. Once you have your cash stash go back to maxing out the retirement funds.

I do have a 6 month emergency fund currently. But if I got the house, the emergency fund would be going for a downpayment. Obviously, that’s risky.

@China Guy

I would think as an engineer, that you would be freaking crazy not to have 2 years in reserve to cover your mortgage payments. Turn your engineering brain onto this. Think circuit breakers. I’ve never met an engineer in my life that was satisfied that a bog standard circuit breaker and the minimum recommended level is “good enough.” You’re either outside the norm for an ahem engineer, or you haven’t been trained to put the same analytic emphasis on financial engineering.

Maybe we run in different circles, but I know of NO one who is not in their 40s or older who keeps 2 years of living expenses in a liquid account. That’s far too conservative for me and everyone I know. 2k per month * 24 months is 48k. I would hate to have that much money sitting there barely keeping up with inflation. I could see maybe doing a year and then keeping the rest in a stock market index fund, but not 2 years. But maybe your perspective changes once you have a family depending on you.

@Dangerosa

I have to agree…while saving for retirement is a GREAT thing and saving young is a GREAT thing, you have a lot going to retirement right now, which is maximizing your long term goals (early retirement), but really limiting what you can do now (you have a car loan, you don’t have the cash for a house). Back off - not completely - on the amount you put into retirement until you can get into a house, have a savings cushion (2 years is a LOT for most people - but does make sense for others, and probably makes anyone who has that sleep well at night right now), and carry no debt except your mortgage. Work towards a little more balance between today and tomorrow.

Yeah, the balance between saving for the future and spending now is something I struggle with. I grew up very poor so even after putting 23k into retirement each year I still have far more money than I ever did growing up so I don’t really miss it, ya know? If I didn’t max out my 401k and just did enough to get my company match, I would get about another 8k or 9k (but then that would increase my taxable income come tax time). I just have a hard time doing this. I would honestly rather wait on getting the house than limit my retirement contributions. Does that seem crazy? Should I loosen up a bit?

@Dangerosa

Probably, but it probably isn’t that much money - 5k for a few years, and dgr seems to be (and I’m reading a lot into his post) the type who would fall back on retirement savings only as a last resort. He also needs money around he is willing to touch - particularly in the wild wilderness of homeownership where “oh, damn, we need a new roof” and “did the washer just flood the basement?” happens.

Yeah, that’s pretty accurate. It would have to be a pretty bad situation to pay the 10% penaly to withdraw 401k contributions. I don’t have much in my Roth though so getting at it wouldn’t really be an option.

@Hampshire

I may be overly conservative but I wouldn’t touch a new home without having the traditional 20% down for it. And an additional $10K in cash for all the hidden expenses that pop up in the first year.
Being single, 24, and not in any real “need” of a house I’d put some thought into if you want all the things that tie you down with a house. Maintenence, repairs, replacements, updates, etc. that are a constant drain on your checkbook. Not being able to immediately move across town or out of state if another opportunity suddenly pops up.

That’s absolutely true and something I need to keep in mind. I don’t HAVE to have a house, even though there would be benefits. I could rent a detached home, but I would pay more in rent than I would to purchase a similar house. Detached homes for rent are somewhat few and far between in my area so they are kind of expensive.

@MichaelQReilly

Yup.

I was pretty much exactly the OP 3 years ago and I bough the house. You don’t realize how much you are tying yourself down when you do it. Make sure that you really want to stay where you are. I can probably still sell my house for 95 - 100% of what I paid for it, and even still I would lose money based on the money I put into the place (new diswasher, new patio, new fridge, fence, landscaping) and the various fees associated with selling. And my situation is better than people in other areas who have lost 30-40% of their home’s value.

Thanks for sharing. Often times when people talk about their homes they only quote how much they made without taking into account realtor fees, maintenance costs, opportunity cost, etc.

@Dangerosa

The bigger question is the whole “do you really want to be a homeowner.” And I think that is a really good question. There are definately advantages to making the plumbing someone else’s problem.

Yeah, I really think I would like to be a homeowner. There’s something to be said about having a place that is really yours. I can tear down a wall, paint rooms, have a garage and/or basement, etc. That’s something that really isn’t available to me as a renter. Of course, there are negatives in that when pipes break I have to pay to fix them, etc. But I enjoy doing yardwork and working with my hands so as long as I can google how to fix the problems I think I would enjoy working on them.

@Boyo Jim

Before buying a house I’d want to see some evidence of rising prices. As long as the trend in your area is downward, don’t buy.

Ok, you might not get the “rock bottom” price and ride it up as far as theoretically possible, OTOH prices won’t jump up 20% in a month either. So you probably don’t lose much by waiting.

I found the website above, but I am looking for more information for my particular area and I am having a difficult time finding it. From a purely financial perspective, if home prices in my area are going to drop another 5 to 10% or more then that pretty much erases the first time homebuyers tax credit. Although that really isn’t the only concern in this, I will readily admit the 8k is factoring into this quite a bit.

And I wanted to sincerely thank everyone for responding to this thread. It’s great to get so many varied opinions and perspectives!

[China_Guy]

not sure where you are located but looking at the state of the economy, rising layoffs, inreasing foreclosures, etc, it;'s pretty likely that your price will fall more than your tax credit…

[usedtobe]

Where are you? The “big draw” locations (Manhattan, San Francisco, Honolulu) will hold value better than a remote subdivision near south succotash.
I have been predicting a huge crash in R.E starting in another 10 years as we boomers start dropping en masse. I didn’t foresee the insane bubble of 2000-2007. Big Q: will the market recover BEFORE the boomers start their extinction? If not, hell, buy a house now and, beginning in about 10 years, another every year.
If you are where you want to be (24 is a bit young to be absolutely certain), and the nesting instinct has kicked in, go for it. I assume that you, as most others, will have a financially thin streak when you move in. Big deal. If everybody waited until they had all the money they could possibly EVER need before buying houses, there would be a whole bunch fewer houses, and more apartments.

[dgrdfd]

@usedtobe

Where are you?

I live in North Alabama.

[ENugent]

@glee

*My parents bought a house for £25,000 and brought the family up in it. 55 years later they sold it for £250,000.

This represents an annual yield of 4%, not counting inflation (which further reduces the yield, probably to zero). Not the best ever long-term investment, although they did get the benefit of living in it for those years.

[Duckster]

[ul]
[li]How long have you been in your current position?[/li][li]How long have you been with your current employer?[/li][li]What’s your salary history for the last ten years? (Yes, I know you are only 24.)[/li][li]What field are you in?[/li][li]How big is your employer?[/li][li]How long has your employer been in business?[/li][li]Do you supervise anyone? If so, how many?[/li][li]What is your formal education level?[/li][/ul]

[ZipperJJ]

I’m no expert, but I figured I’d share my story with you so you have some other perspectives…

In 2005 I was 26 and living at home with my folks. I had (and still have) my own business and worked from home. My dad came to be on disability for a bit, and I was not happy having him around all day so I decided I needed to move. I didn’t feel like renting so I decided to buy a house.

I had decided on a house because I really loved my neighborhood and there were 2 houses for sale there that I thought I could get a good deal on.

I paid off all my credit card debt, and saved up $5k. I don’t remember how long this took me - maybe like 6 months or less. I was making maybe half of what you are making now, maybe less. I also had 2.5 more years on my car loan.

Once I had my CC debt paid off and the $5k saved, I found that the house I wanted was going for $150k. My credit rating was just shy of 800 when I applied for a loan, and got approved for $250k I think. This was just at the tail end of the whole “we’ll give anyone a loan” mess.

I wanted a better rate so I went to my grandpa to borrow $10k so I could put 10% down. I got the house, and the realtor I hired as my buyer’s agent got all of the closing costs and fees paid for by the seller as part of the deal (the house I bought probably wasn’t worth $150k, more like $145, so I got my money’s worth so to speak).

When I moved in I filled my house with a lot of used/free furniture and kitchenware. I spent maybe $1000 on other furniture and window dressings and shit you don’t think of like trash cans and cleaning supplies. I spent some money on paint, too, and got my friends to help me paint the place.

Since 2005 I have…

• Had a $1200 fence installed
• Paid $1800 to have my foundation fixed for basement water problems
• Completely overhauled the yard, including paying $750 for tree removal
• Painted the entire exterior (thankfully, it’s a ranch) with about $300 in paint
• Got central air with an air filter for about $6000
• Had my bathroom floor replaced for $1600
• Had my sump pump replaced and upgraded the piping for about $300
• Got a bit of a raise at work (still make about $30k less than you)
• Paid off my car loan (about $7k I think)
• Paid off my grandpa’s loan ($10k)
• Paid off all my credit card debt that I’ve accumulated since I bought the house
• Pay about $60-100 extra principal a month to the mortgage

Now, I do not have any retirement savings and am just now getting my emergency savings built up, but like I said I STILL make $30k less than you even though I’ve gotten a good raise.

Yes, I do live like a miser and have had to put a lot of sweat equity in to the house. But my situation is/was a lot like yours if you consider our wage disparity, and I have never stumbled in my ability to pay bills. I’ve never once felt the pinch of the mortgage. Yes, I did lean heavily on my credit cards but I have never once in my life paid the minimum - I pay my bills every month and put all the rest of my money into paying down the credit card debt.

In exactly 3 years and 2 months (October 2005 to January 2009) I went from being debt free to owning a home (with some new features) and a car and being debt free.

You can do it if you want. You can choose to sweat out every detail or not, depending on how you roll. The most important thing for me was to tighten my belt and make that my new lifestyle, and to have very very set financial goals.

Another thing that probably worked in my favor is that I do not see myself selling the house any time soon. Any time ever, really. So all the improvements I’ve made were for my own comfort or safety (bathroom floor, basement drainage). So I’m not dreaming of improvements as investments and it’s much easier to keep myself in check.

Anyway, that’s my story. Similar enough to yours, I hope, to give you something to think about.

[sugar_and_spice]

@dgrdfd

I saw some cost of living index and the nationwide average is 100 and my area is about 80. So the cost of living in my area is pretty low. For instance, I did a quick search and here is a home I found that after 30 seconds of looking at looks great:

http://northernalabamahomes.com/index.php?action=listingview&listingID=20929

So I wouldn’t be getting a dump in my area for that kind of money like you would in many parts of California or Florida. I would consider that to be a great place for someone just starting out.

Actually I’d consider that to be a great place for a family of four. It’s not much smaller than my parent’s “dream” retirement house in AZ. Also a 3br ranch, plenty of room for two retired adults (who don’t really need to be in the same room that often…)

Anyhow, if that’s what 150K will fetch in your area, then it’s quite possible that you can take 10 or 20K off your target price and still find something suitable for a single person or (potentially?) a young couple. So that’s less of a down payment, and less that you have to commit to for your monthly payment. If you really want to own sooner rather than later, then lowering your price point is one way to make it happen.

[papergirl]

Re: the tax credit. My sister just bought a home, and she tells me that she can file an amended return in order to get her $8K within a few weeks. I haven’t researched it so I can’t cite, but the woman knows her stuff, so you might look into this. It would mean you don’t have to wait until next tax season to get the money for the incidentals you’re going to need.
I just bought a house in September and I’m very happy with the decision I made. Look around and see what’s out there, and get a good feel for the market in your aread before you make any decisions. Good luck.

[Mosier]

@Rand_Rover

Ah, got it. Another idea may be to get a credit card with a decent line before you get the house so you have some source of funds if you come home and there’s water everywhere (or whatever). Anyway, good luck.

If you’re determined to buy this year, this is good advice. Make sure you have a secured line of credit for emergencies, if you won’t have any savings once the deal closes.

[Mosier]

@LSLGuy

My take is a bit different. A house is an investment.

So, right now, is that house a good investment (ie likely to go up in value), or a bad investment?

My take is houses in most of America have another 20-40% to fall, while houses in LA & Miami have another 60% to fall. Once they cost about what they did in 1980 they’ll be properly priced and then there’s some expectation they’d be a neutral or slightly positive investment for the next 20 years.

In other words, buying a house now is dirt-stupid. Even foreclosures in perfect condition (as if any of those exist) are overpriced by 20+% in most markets and 40% in the former boom markets.

Keep saving, keep renting cheaply, and keep investing smartly. You’ll be able to steal a house in another 2 years.

That is goofy advice. He’s calculating roughly 300 dollars a month extra above what he pays for rent NOW in a worse living condition. He’s paying 600 to rent, meaning that the house would have to depreciate in value 300 dollars a month for him to just BREAK EVEN when compared to renting.

[Captain_Lance_Murdoch]

You are in pretty much immaculate shape finances-wise. $75 a year in north Alabama a the the age of 24? Get out of here! I would start looking for a house now. It will probably take some time to find what you are looking for. I would not try to time the market looking for a bottom that might be coming or might already be here. Just find a place you really like and buy it.

[Hampshire]

This guy seems to think renting is the way to go right now:

Why renting is better than buying a home

[Emmy2635]

Once you buy the house, you could reduce the taxes you are currently paying so as to take the $8000 credit over 52 weeks instead of in one lump sum.

[Jodi]

As I posted in another thread: I’m making an offer on a house tomorrow. I honestly don’t know if I have rocks in my head or not.

[Really_Not_All_That_Bright]

As a recent (August '08) homebuyer, let me throw this out: no matter how much cash you think you need for post-move-in expenses, you need more. Something will be broken (and not covered by your home warranty), you’ll need many little somethings you didn’t think you’d need, and so on.

Also, if you’re paying 7% interest on an auto loan, your credit might not be as good as you think. Assuming you didn’t buy in the last six months, you should have gotten a much better deal. I have poor credit (no defaults or anything; just never had a credit card) and my interest rate is barely higher than that.

[dgrdfd]

@Mosier

If you’re determined to buy this year, this is good advice. Make sure you have a secured line of credit for emergencies, if you won’t have any savings once the deal closes.

I actually have 3 credit cards with credit limits totaling around 25k or 30k. I got them when attempting to build my credit so I would always have them as backup in case something went wrong, but they would be a last resort.

@Captain_Lance_Murdoch

You are in pretty much immaculate shape finances-wise. $75 a year in north Alabama a the the age of 24? Get out of here! I would start looking for a house now. It will probably take some time to find what you are looking for. I would not try to time the market looking for a bottom that might be coming or might already be here. Just find a place you really like and buy it.

Thanks for the advice. I am still torn between paying off my high interest car loan and the home down payment. I would probably be better off paying off the car loan within the next month when I have the cash, but with the economy the way it is it is really comforting having the 6 or 7 months saved up so I will probably keep that there at least until the economy turns around.

@Emmy2635

Once you buy the house, you could reduce the taxes you are currently paying so as to take the $8000 credit over 52 weeks instead of in one lump sum.

That’s certainly true. That’s something I could do now so I could have the cash on hand come closing time.

@Really_Not_All_That_Bright

Also, if you’re paying 7% interest on an auto loan, your credit might not be as good as you think. Assuming you didn’t buy in the last six months, you should have gotten a much better deal. I have poor credit (no defaults or anything; just never had a credit card) and my interest rate is barely higher than that.

Well, I think my credit is fine, but I didn’t have time to do a lot of research before going into the dealership. I used to have a very old vehicle that wasn’t worth a lot and it was stolen. I only had liability coverage (as the KBB value was under 2k). So when it was stolen I was really pressed to find something else quickly. I made the mistake of going to the dealership and finding something and letting them arrange the financing with no negotiation on my part. I now realize I should have had financing in advance. I also made the mistake of not paying in cash; I should have never financed anything to begin with, but now I know better so it won’t happen again

I think the best thing for me to do it is continue piling up cash. With the December 1st deadline for the tax credit, I could wait until September 1st and still have 3 months to get everything in order. That would also give me 5.5 months to see what the economy and my job situation is going to be. I am honestly leaning on the side of being more conservative and waiting until I can do the Dave Ramsey and save 20% down on a 15 year fixed loan that’s about a quarter of my take home pay AND I have my 6 month emergency fund. But that’s just a lot of money to have to save up when you can’t roll equity from a previous home (it would require me to have about 40k to 45k).

Again, even if I didn’t directly quote you, I read all the replies and am sincerely grateful!

[Zulema]

I suggest waiting also.

1. The 8,000 tax credit seems like a big deal, and it is, but over a mortgage period you’ll save way more than that by borrowing less.

2. You’re too young to be tied down by a house, not everything is just about money. Before you own one you don’t realize how much time and mental energy a home takes from your life. My advice is to rent as cheap as you can stand for as long as you can stand it. Some of my friends have moved back into apartments recently and they all say how much more time and freedom they have.

You’re at an age when life can make huge changes that you don’t expect and you want to be able to take advantage of opportunities without being tied down by a house. You can be tied down later when you get a family. Don’t be in a hurry to give up your freedom.