Buying a house ... (gasp)

There's so much doom and gloom in the national media about the housing market crash. I am a few days from closing on a house in San Antonio, TX. Apparently, none of the national trends apply here. Housing prices are at least steady or rising modestly.

With that said, why do I still feel like a fool for buying right now? What if the housing plague infects Texas after all? I'd be screwed.

But I hate living in apartments, and I can't bring myself to pay as much $$$ as it takes to rent a decent house close to work.

So buying a house is my best option, but it may ultimately be my worst choice if values fall.

Anyone care to tell me if I'm making the right or wrong choice here? Thanks.

Re: Buying a house ... (gasp)

As long as your getting a good rate and your not trying to turn the house over immediately, why is it a bad time to buy? Seems to be a perfectly fine time to buy to me. The only people getting burned by the housing market right now are those morons taking on a second mortgage trying to flip a second house for a quick profit.

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Robert, it's simple. Do you want to keep putting money into other peoples pockets from paying rent? Or, would you rather put that money into an investment, which is what a house is. You never have to worry about someone selling it out from under you like a landlord. You control your destiny to an extent and it'll bring you peace of mind to know that the home is yours. I used to rent and have had bad experiences from it. I own my house and can tell you, there's nothing like it. Many people out there can't even afford to get out from under the renters cycle, even though in most cases a mortgage payment would be cheaper than rent. They simply don't have the money saved for that down payment. You are one of the lucky ones. Consider your choices between buying and renting. To me, buying is the best option when given the choice.

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I heard from a coworker that housing costs are down 50% from last year down here in Florida. The time to buy is now.

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Really Robert, think for yourself. A house is almost always a good decision so long as you don't plan to move anytime soon. At the very worst, even if you end up selling the house sooner than expected, if you sold it for an amount less than you bought it for that equals how much you would have paid for rent plus all the tax deductions, you are still breaking even compared to renting.

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I agree with the others, Robert. Buying instead of renting is almost always a good decision. Just try to avoid the "creative" mortgages that have burned a lot of people during this recent downturn in the real estate market -- things like interest-only mortgages, balloon mortgages, adjustable rates, etc. Try to lock in at a fixed rate and put down a decent down payment.

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The only thing that would give me pause if if the entire area/city were fueled by the same company, or maybe industry. Then, if things go bad, even if you stay above it, yuo are in the position of winding up in a "ghost town" with no services and certainly no way to sell should you need to. Since San Antonio is big enough that I've heard of it I doubt that's the case.

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This is exactly what I'm talking about. Housing costs are down 50% in Florida. But I'm in San Antonio, TX. We're fine ... for now. Is there good reason to believe that SA will remain immune to the housing crash? I don't know. My realtor says so, but he works on sales commission.

I appreciate the other comments. I have a 30-yr fixed mortgage at a good rate. If it weren't for all the negative press, I wouldn't be giving this purchase a second thought ... well, except for this:

I made the mistake of asking my bank "What's the most I qualify for?" And now I'm buying a house at that level. Being a lifelong cheapskate, this is a huge step. And highly uncharacteristic of me. Maybe that's my main concern -- not the housing market in other states, but my own state of mind in making an out-of-character decision.

And why am I making this out-of-whack decision? The same reason George Constanza converted to Latvian Orthodox ... "For a woman."

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From what I have experienced, you can afford that house at that level...If you don't want to do anything else. No car payments, no new furniture, vacations, etc... If there is a Ms. RobertZ, you will probably be wanting purchase a lot of new furniture, curtains and decorations for the new place. I have purchased houses at 50-75% of that "most I qualify" number.

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Yourmistake wasn't asking what the most is you could qualify for. It was then deciding to purchase a house for that amount.

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asking this question a few days from closing leaves you few options (unless you paid little or no earnest money and have a way to get out from under the contract) but given what you've said so far, I would get out if I could. While housing may not crater in San Antonio like it has in FL, GA, unless something wacky happens it will eventually experience a significant decline before the overall market rebounds - as well as the fact that you are buying at the top end of your loan qualification. Even if you stand to lose $1000+, I would advise you to wait.

Most financial websites say that to break even on buying a house vs renting you'll need to stay in it for 5-7 years under normal economic conditions. Of course its great to have your own place, buut there is a lot of upkeep that you don't have to deal with in a rental.

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Although I agree with the down payment comment, I don't necessarily agree with a fixed rate given how low interest rates are on variable mortgages. While a fixed rate will bring certainty to your payment, it could also end up costing you tens of thousands more depending on the spread. I would do some calculations to determine how much higher the lending rate would have to go with a variable rate to actually cost more than the fixed rate.

Assuming there aren't any major structural issues with the house which will require large investments to correct, the biggest mistakes you can make in home buying are overbuying (spending more than you can really afford) and overpaying (buying overvalued property). The combination of these two is what is causing the current crisis. It is also wise to think about the potential resale of your home, and make sure you aren't buying something that is going to be hard to sell later due to unique features that limit the market, undesirable locations, or being too expensive for the neighborhood.

As to overbuying, I would suggest that if you can't pay the house off in a reasonably short term (25 years or less depending on your age), then you are buying too much house. Your money won't be buying you equity, it is just paying interest.

If I had the money to do so, buying into the market now when there is a glut of properties is certainly something I would want to do, the caveat being to make sure you know what you are buying.

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Buying a house is, I believe, more a lifestyle decision than anything else (including issues of investments). Do you want to be a homeowner? Do you want a place that is truly yours, that you can do whatever with that you want? Do you want to take care of maintenance, tend the lawn and garden, fix broken things, and all the responsibilities that no renter worries about? Are you tired of shared walls with neighbors (Ok, not true for some owners)?

As for peace of mind: it's a mixed bag. You don't have the uncertainty of roommates moving in and out, and needing to move apartments accordingly. You don't have to worry about the landlord of your privately owned unit kicking you out. You don't have to worry (as much) about idiot college kids moving in next door, with shared walls.

But now you have to worry about mortgage payments, real estate taxes, sub-prime lending crises. If you lose a job, you can just leave an apartment. As a homeowner, you have to sell the house. And it could take six or twelve months in a bad market (happened to my parents 20 years ago). As a renter, if your kitchen floods, your landlord fixes it. For your house, you have to fight with insurance, manage dealing with the contractors to fix it, and worry about it all being done right (happened to a friend last month).


As for the investment issue: in San Antonio, I'd think it's truly a good investment. But I'm convinced that in low appreciation markets (like where I live), that all the money I'd earn on a house is spent on maintaining the house. I've never spent so much money before. Now there's furniture and lawn care and painting and home improvements, and on and on.

I bought a home a few years ago. Objectively, for me in my area, I think it was poor financial decision. But I was truely tired of apartments. I love having a garage. I love not worrying about stereo volume when watching TV. I enjoy, finally, having good neighbors to chat with in the good weather. I enjoy having a "home" with my wife. I enjoy having a grill.

If you want a house and can afford it, then enjoy. Be as savvy and financially sensible as you can, but in the end, it's about how you want to live and you should live as you want if you've the means.

Re: Buying a house ... (gasp)

DaveF

Re: Buying a house ... (gasp)

Buying a home for the first time is a scary thing. Remember, you wont live there till you die, 7-12 years is the average, then you'll get another house. I'm in my 3rd house, and have not regretted buying any of them. But a fixed mortgage is your best bet, especially if you are at the edge of what you can afford.

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After the last 2 paragraphs in Robert's last post, I take back everything I said. It's a BAD idea.

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Well said DaveF. Thanks.

This will be my second house. The first I co-owned with the same GF for almost 3 yrs before we broke up. Hope we have better luck this time.

Bill Cowmeadow, I think the only way I'll regret this house is if the local housing market crashes when I have to sell, whether that's in 6 months or 6 years. I am not buying it as an "investment," but as a good home in a great neighborhood, a place that I can be proud to call my own.

And a place where I can finally hook my HD projector back up, fire up my 300 watt Omni sub and fire away with my Carver 360X3 power amp. Woo-hoo! I can't wait.

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Don't forget property taxes, which can be quite a hit on your escrow. Even with housing prices going down, mine have went up every year. We bought at the top of our price range and the mortgage is no problem but it is all the other crap that sinks the budget.

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[quote=Robert_Z]Well said DaveF. Thanks.[quote]Thanks But I see now you've owned previously, so of course you know all that.


To veer off topic a bit, how does this work? I've seen lately -- new to me -- unmarried couples such as boy/girlfriends or engaged couples buying a house together. And I simply don't understand. How is the house dealt with if the couple breaks up? Is it like a divorce where you have to fight over the house? Or is there a pre-nup type contract in place to settle the issue in case of breakups? This is alien relational territory to me and I can't quite get my brain around it

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I can only refer to my experience. My GF and I were friends long before we got together, so the break up was civil. But, there was extra paperwork because we were both on the note.

This time only I'm on the note. If we were to split again, I'd give her half the equity ... or she'd pay me half the debt.

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[quote=DaveF][quote=Robert_Z]Well said DaveF. Thanks.
Dave,

One can litigate anything, especially in California.

Re: Buying a house ... (gasp)

If you can afford it I believe a 15 year mortgage is a much better deal . I may even lower the interest rate by a 1/4 point.

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Or take a 30 yr mortgage and make monthly payments equivalent to having a 15 yr mortgage. Most of the savings of a 15 yr, but some with the flexibility to lower your payments if personal finances require it.

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As long as the mortgage terms allow it. My previous mortgage limited me to how much I could pay per year above the year's negotiated payment amount. If ever I wanted to pay more than the limit, it first had to be authorized by the bank.

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It's done! I'm in baby. Wish me luck.

I'm having a home theater installer over on Friday to give me an estimate on doing my HT right, with no wires in sight.

Take care.

Re: Buying a house ... (gasp)

> As long as the mortgage terms allow it. My previous mortgage limited me to how much I could pay per year above the year's negotiated payment amount. If ever I wanted to pay more than the limit, it first had to be authorized by the bank.

That means you need a better bank. There shouldn't be a limit on how much extra you can pay.

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I agree. You should be able to prepay whatever amount you like. I paid off a 30-year mortgage in 5 years and 2 months.

I like the 30-year fixed because it gives you the opportunity to prepay as much as you like [assuming you are disciplined] with the ability to pay only the minimum if you run into financial problems.

If you start prepaying at the beginning - throwing whatever spare cash you have available against it - you can cut a ton of interest and time off your loan.

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It wasn't a problem for me because the limit was so high that there was no way I could ever match it. That doesn't mean I didn't pay more than the minimum payment. But my finances did limit me to an overpayment of about $100-$150 above the minimum payment. The ceiling would have allowed me to pay about $1000 above the minimum payment before I had to ask for approval.

Also, this is a Canadian mortgage, not a US mortgage. The rules are different from one country to another. But however you look at it, the mortgage broker who got me the mortgage not only got me an excellent rate, they also found me a bank that finally gave me satisfaction. And because of the high ceiling, the overpayment limit never became an issue.

Here's another interesting question. Do US mortgage lenders also require a payment of a portion of the property taxes along with the mortgage payment? My bank took responsibility of paying the property taxes, so I was obliged to pay an extra $250 per month which was held in a special account until it came time to pay the taxes.

This may seem bizarre until you think for a moment this is probably one of the best ways to prevent a homeowner from defaulting on the property taxes.

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U.S. mortgages sometimes require this, depending on how much down payment you make and your credit rating. It's called escrow, which is an account that holds up to 13 months of property taxes and insurance. Generally, if you have more than 20% equity in your home you can get an escrow waiver and pay your own taxes and insurance.

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I have both my property taxes and insurance added to my monthly payment in escrow. I like it because it's fewer things I have to remember to pay.