when do you know you are ready to buy a house?

[Ummm]

we're renting right now, and we aren't sure when we will / can afford to buy... financially speaking, when is 'ready'?

[crazycaro]

For us it was as soon as we could scrape together the minimum required, which also happened to be wedding planning time, not the smartest mov, but we managed in the end. We just got sick of renting, knowing we were giving money to someone else when it could be going towards our own mortgage. Our mortage ended up less than it costs to rent a lot of places too.

[tlew12778]

We're basically in the same situation as crazycaro mentioned. We spend about 10k euro a year in rent and we've been renting for the last 7 years. That's 70k euro we've given to someone else.

We currently live in a 1BR apt. For the same amount that we spend in rent each month, we could buy a 1BR apt in the area we currently live in or nicer. If we are willing to move a little further away from the hubub of activity, we could possibly squeeze in a 2BR. I just don't see the point in renting considering these circumstances. We'd be going into the investment with precisly that in mind -- it's an investment for us that we later plan on renting, especially since we may move back to the US at some point.

[Asha]

i would draw up a budget and decide if you are financially ready to buy a house. personally, i would wait until you had 20% to put down. we didn't do it, and we regret it bc we are paying a lot of money towards interest. we can afford the house according to our budget, but we still wish we would have waited until we had a bigger down payment.

also, something to consider is home maintenance. not only the money, but also consider the time it takes. we spend about 1% of the value of our home in home maintenance each year. i have spent several w/e's and nights after work doing home improvement. also, consider if the house is bigger than your rental you are going to spend more time cleaning and doing yard work.

you should also have an emergency savings account, so if something big breaks or needs repairs you could use that. also, you would need an emergency account if one of you were to lose your job, so you could still keep up the mortgage payments.

[amorey]

We weren’t sure we were ready, but we went to talk to a mortgage consultant and she showed us some options that were available to us with our current savings/income situation. I am so glad we bought when we did. Because our income was relatively low, we were able to get a low rate FHA loan without having perfect credit or 20% down. Not only are we not paying someone else rent, but our home is a good investment – it’s appreciated 10% a year so far, which is much more than we’d have ever been able to save. After 2 years we have more than 20% equity in our home, and are hoping to put 20% down on our next non-starter home.

So in my experience, if you run the numbers and find that you can afford to buy without being totally broke, than you’re ready to buy! :)

[Hello Kitty]

I agree with the PPs.

I think you need to have some money down on your house. Obviously more is better, but the 20% rule isn't so hard and fast with the different financing options. Definitely make sure you have some savings left for emergencies (either repairs or mortgage payments) and home improvements.

Sit down and make a budget of your current situation - just simple ins and outs. Then take out the things that will go if you move. Now add in all the expenses that come with owning a home - utilities, etc. The residual will be used for savings and your house payment (plus escrow). From there, you can find out how comfortable you are.

I think everyone has different tolerances for what they have left each month. I personally don't feel comfortable being house-poor, so we chose a house payment that was just over our old rent payment. Being in a house is no fun if you can't buy things for it or continue a reasonable lifestyle.

[Asha]

ummmm - also, consider if you live in a cold climate, you heating bill will be considerably more. in nyc, you don't pay heat as a tenant, so our heating bill skyrocketed. we pay close to $300/mo in the winter.

[Ummm]

thank you all!! really helpful.

rebjc - you are right, right now we only have to pay for electricity, internet and phone. all other utilities are paid for and it's definitely cold here!

I guess another factor we have to consider is that we'll probably be in the same town for the next couple of years, but we aren't sure what we'd do after that (it really depends on the job situation after I graduate from grad school, which i'm diong p/t at the moment). so i wonder if it'd be hard to sell...

[Asha]

yes, i wouldn't count on huge increases on your equity in the next couple of years. they keep saying things are going to slow down. i heard a financial advisor say once that you should think twice about buying a home if you plan on moving in the next five years.

[kcjules]

For us it was as soon as we could scrape together the minimum required, which also happened to be wedding planning time, not the smartest mov, but we managed in the end. We just got sick of renting, knowing we were giving money to someone else when it could be going towards our own mortgage. Our mortage ended up less than it costs to rent a lot of places too.

That's how we feel right now. We've found a condo that we really want, and isn't too pricey. We're going to find out the minimum to put down and hopefully get a home :)

We've been renting since April 2004 and are sick of throwing money into a place we can't keep. Plus we are moving back home and wanted a place of our own, not another apartment. We are hoping everything works out and we can get this condo in a few months!

[smartgrrl]

I tend to think that if you can afford to buy a house, do it. Renting is throwing money away and even if you do have to pay interest, you can still deduct it from your taxes (even though idiot GW is trying to change that). Buying a house is a great learning experience and, if you can afford the payments, it will be good for your credit, too. I say go for it!:)

[Asha]

the interest thing doesn't always work. people often say that you can write it off but you don't get it all back. we pay close to 1,500/month for interest. according to our financial planner that saves us $600/month in taxes. so that means a difference of $900 a month that is still getting thrown away. instead of getting thrown to the gov't. it gets thrown to the bank. though, that's worth it bc we were spending that much in rent anyways. so, you have to calculate it to see if in fact you saving money. you are still throwing away money if you have a house. instead of throwing it away on rent. you are throwing it away on interest.

[elladee]

you are still throwing away money if you have a house. instead of throwing it away on rent. you are throwing it away on interest.

Don't forget about closing costs, too. That's more money you are throwing away.

DH and I could afford a house. We can even get a VA loan which means no downpayment, plus we can finance the closing costs. But since we're not sure we'll still be living in the area in a couple years and our rent is currently quite cheap, it's not a wise move for us to buy.

[kcjules]

We were looking at apartment in the city we are moving to and it's not cheap at all. But for less than $100 more a month, we could be owning a condo.

That's worth it to us.

[Hello Kitty]

Besides what Rebjc said, depending on the amount of your mortgage and your interest rate, you may not even be able to use it at all.

The interest and property taxes we have paid this year is much much less than the standard deduction if we file married filing jointly (10k for 2005). If that were my primary motivation for getting a house, or even a decision maker, I would be out of luck.

[Asha]

i forgot about the closing costs. those could be quite pricey. we paid about 13k in closing costs. that's a year's worth of rent.

[granada]

you are still throwing away money if you have a house. instead of throwing it away on rent. you are throwing it away on interest.
i forgot about the closing costs. those could be quite pricey. we paid about 13k in closing costs. that's a year's worth of rent.
Great points! You all are actually making me feel better about *not* buying a house right now. :)

[amorey]

Closing costs vary a lot. Ours were about $5k and we rolled part of it into the mortgage.

[kcjules]

Closing costs vary a lot. Ours were about $5k and we rolled part of it into the mortgage.

Is that option available with all types of mortgages?

[amorey]

Is that option available with all types of mortgages?

It depends on the seller and how the house is priced. Let’s say you want to buy a house listed at $100k. You make an offer to the seller that says you’ll buy the house for $100k if they pay your $5k worth of closing costs. You are essentially offering the sellers $5k below asking. Sometimes they’ll pay it, or sometimes they’ll counter $105k. So you’re paying the full price of the house plus your closing costs, but it’s all getting rolled into the mortgage. The only way this doesn’t work is if the bank comes back and says that the house isn’t worth any more than $100k and they won’t underwrite the loan.

[kcjules]

Thanks, amorey :)

[Ummm]

Thanks again for all the great information :)

guess we'll need to do more research / educate ourselves more on buying a house before making any decision.

[kam]

We knew when we were getting angry as soon as we pulled into the driveway of our apartment complex. After many years of apartment living, we had enough. We went in without much research or a vast amount of funds but we caught up when we found the house we wanted. I would pull your credit reports just to see where you fall - this will help you in talking to mortgage brokers before they pull your reports themselves. If you have a range and know your credit history and disclose it at first, it saves everyone a little bit of time.

[ee_chick]

Like kam, we bought our first house when we just couldn't take sharing walls anymore. We worked with our realtor and mortgage broker to see what we could afford, and chose a house that fit comfortably into our budget. We bought in 2003 and it was a great decision for us.

We moved this time because our first house was a starter house. We could afford the forever house at current prices and I wanted to get in while the interest rates were still pretty low. Our feeling was that the end of the boom had been predicted for years now, and I didn't want to risk paying 10%+ more for a house in a year or two when we could afford one now.

[MrsSmith]

I knew I was ready for a house when I realized that my rent was more than what some people were paying for their mortgage. I also didn't like someone telling me what I had to do with my place and how I had to park, what I could put where. I wanted to do whatever I wanted to do. I wanted a place that hubby and I could make all of the decisions for. That's when it was time.

[justHB]

It's going to be different for everyone, but for us it was when we could swing the cost of an increased monthly mortgage and HOA fee and not realize a change in our established lifestyle.

Because I live in an area where 1 bedroom condos can cost over half a million dollars, renting is probably always going to be the cheaper option, but I was tired of having homes that weren't up to the standard of what I would want to live in and not being able to do anything about it. We got very lucky in that the place we purchased has appreciated nearly $100K in one year, so we have made money on our investment, even though we're also paying $1000/month more than we paid to rent. That said, our place now has better amenities (parking, in-suite w/d, and a *lot* more space.

[ks_piper]

We wanted to buy eons ago, but were living in SoCal and that market is just insane! We probably should have bought out there before we got married, but hindsight - ya know.

When is the time right? When you have stable income and have good credit or are fixing credit problems. In many cases, ours included, your mortgage payment will be less than your rent and you'll build equity.

We've got two kids, so as soon as we could financially afford it we decided to buy. Luckily we live in an area with a lower cost of living so even with our tiny income we can afford to buy. Keep in mind that buying is a good idea if you plan on staying put for awhile too.

We fixed some past credit issues, stayed current on all our bills for over a year and applied for a loan. We got approved much to our surprise and delight. :)

We're putting 10% down and that helps a lot. I wouldn't recommend that anyone do a 0 down loan - especially in a currently booming market - you could end up upside down if the market slows down.

The more you can put down, the less PMI you'll have to pay (unless you can put 20% or more down and avoid PMI all together). We're being gifted our downpayment by FIL, but we plan to pay him back when we sell.

I've wanted to be a home owner for years. It was the next big step for our family and darn it, I want to be able to paint my walls! ;)

Best of luck it is an exciting journey!!!

[Asha]

The more you can put down, the less PMI you'll have to pay (unless you can put 20% or more down and avoid PMI all together). We're being gifted our downpayment by FIL, but we plan to pay him back when we sell.

if you take out two loans, you don't have to pay pmi insurance. the only way you would pay pmi if you only have one mortgage and put down less than 20%. i don't know of anyone who pays pmi insurance. most people go with something called an 80/20 loan which means you borrowed 80% on the first loan and 20% on the second loan. it doesn't have to be a 100% loan, but that's what it's conventionally called. you could borrow 80% on one and 10% on the other or something like that.

[ks_piper]

i don't know of anyone who pays pmi insurance. most people go with something called an 80/20 loan which means you borrowed 80% on the first loan and 20% on the second loan.

I know lots of folks paying PMI - me included (or at least I will be as of next week!). I'd much rather take out only one loan and pay PMI. Plus if you have less than perfect credit or are going with a FHA or VA loan I'm not sure you could do an 80/20.

The problem with an 80/20 is that you're paying interest on 2 loans, not just one. I'm, personally, more comfortable putting 10% down and paying PMI for a year or two until I make up the other 10%. We plan on aggresively paying down our mortgage so that we are in a really good position in three or four years to buy a bigger house.

Totally off topic, but keep in mind that if you can make an extra mortgage payment or two a year it will shorten the length of your mortgage significantly.

Happy house hunting!

[Asha]

kspiper - how would having just one loan save you on interest? maybe, i am a dummy on it, but i can figure that one out. we would have had to pay close to $400/mo on pmi insurance if we didn't take out two loans. i would rather have used that pmi money going towards the principal of the loan. which we are bc we plan to pay off our second loan by the end of this year.

though, i agree that some people may not qualify for two loans. we happened to have very good credit, so i am sure that affected it. plus, you have to call around to different banks. i ended up calling around 10 banks before i could find one willing to give us the 80/10 loan.

[Tanya]

I agree with rebjc that taking out 2 loans at 80/10 would be the same interest (roughly) as doing a 90% mortgage, which is what you are doing if you put 10% down. And, you are saving PMI. Unless you are saying that the second loan is at a higher interest rate, then maybe you'd be better off, but it would have to be much higher. FWIW, I've never paid PMI--my first house I put down 20% and this house, we did an 80/20 to avoid it and use the money we would have put as a down payment to add landscaping, new front doors, etc. Our 20% loan is less than 1% point higher than the first.

[amorey]

Depending on the market you’re in and the financing options available to you, it might be better to go with one loan vs. an 80/20 or an 80/10. Often those second loans have higher interest rates and variable interest, which can really bite you in the butt when rates go up. We financed 97% of the value of our home when we bought it. Our PMI was $60 a month. We remodeled our kitchen and we’re in an appreciating market, so two years later we have more than 20% equity.

[Asha]

i think the reason why some people have lower pmi insurance is bc the cost of housing is less. as with a lot of housing issues, a lot of it depends on the region of the country where you are buying.

[greenbunny]

if you take out two loans, you don't have to pay pmi insurance. the only way you would pay pmi if you only have one mortgage and put down less than 20%. i don't know of anyone who pays pmi insurance. most people go with something called an 80/20 loan which means you borrowed 80% on the first loan and 20% on the second loan. it doesn't have to be a 100% loan, but that's what it's conventionally called. you could borrow 80% on one and 10% on the other or something like that.

I pay PMI. The option you're talking about actually is not always better, contrary to popular opinion. We shopped around a bit and we could do an 80/10 loan, but the interest on the second loan was higher than the cost of PMI per month, and we have excellent credit (both over 700).

It would have cost us about $60 more per month to have the second loan than to pay PMI. If we didn't pay ahead at all, we'd be done with the PMI in 5 years. But we are paying ahead, and so we'll be done with PMI within two years. That will add up to significant savings, considering the 10% loan would definitely go longer than that.

Definitely be sure to calculate this before deciding on a double loan.

ETA: Oops, should have finished reading. :o Sorry to duplicate.

Also keep in mind that you are barely paying any principal at the beginning of a mortgage, most of it goes to interest. It's a lot easier to pay a few months ahead at the start of your loan versus later. If you request an amortization schedule from your lender, you can chart this to the penny.

[Asha]

do you get to deduct pmi insurance on your taxes?