Trying to buy first house (1 Viewer)

[Tim Markley]

I very much disagree with that. Lots of people can easily afford the mortgage payments but can't come up with 10% - 20% down.

 

[Jeff Peake]

yep that does sound pretty old-school

The interest rates are so low now, that even with an increase due to no down payment, you should still come in at under 6%.

I agree that rolling equity over to cover a down payment on a 2nd home can really help you trade up. But for a first home that you will most likely sell in a few years it doesnt do much good.

 

[Andrew Pezzo]

Lots of good advice, I appreciate all of it. When I have some updates I will share them.

For now I just going to keep looking and save as much as I can. Today my wife and I went on the same auto ins policy which will save us about $750 a year. Even thinking about selling all of my av gear for a down payment. Sort of a deseperate measure so we will see. Its just that for years I had nothing but some clothes and a bed. Now that I have some nice things I would like to keep it that way.

 

[Philip Hamm]

Basic economics: Buy Low Sell High. A wise man once said "you make all your money in bear markets, but you don't realize it at the time."

Right now housing is very high. It's hot. The natural tendency for people is to get into it because it's so hot. But the reality is that right now is exactly the worst time to get into real estate. Look at the numbers and the disconnect between wages and housing prices, this is going to slow down and even go down.

Remember when tech stocks were the hottest thing around? Now it's easy to see with 20/20 hindsight that the tech bubble was a fluke, but at the time people thought that the tech stock runup was real and lasting. Naysayers were unable to understand the "change in the fundamentals", and were largely marginalized. Lots and lots of people bought into the market when it was high because it was high. That meant it was hot. That was the time to sell, not buy, and if you didn't own, it was not the time to buy.

The same thing's happening now. People will deny it and say I'm chicken little, but I look around and see the same kind of crazy speculation and nonsensical prices as I saw then. A $175 townhouse in NoVA selling for $610? IN just a few years? What person with a functioning brain doesn't understand that this is going to correct itself?

Rents are at historic lows across the nation right now, especially in places where the real estate market is really kooky. I say continue to rent (as a matter of fact try to lock in as long as possible a term) and save your money. Save your money in your 401(k) at least to the amount that your company matches. Remember when you are ready to buy you can take a loan out against this (usually up to half the amount) for the down payment on your house. Then pay off the credit cards, then fund a Roth IRA, then and only then buy the house.

Whatever you do DON'T buy a house in this kind of market if you don't have a significant amount of money to put down. If (when) the house goes down in value you'll have negative equity and that's really bad. (I have a couple siblings who bought in the late 80s housing boom and ended up 5-10 years before they were even again).

If you plan on living in this home for over 15 years my advice would be different.

 

[Philip Hamm]

All the mortgage "rules of thumb" have been pretty much thrown out the window in the last 5 years orgy of American Consumer Debt. Pretty much anybody with a job who can sign their name can get a mortgage. Pundits will tell you that this is good because it means that "people who couldn't afford a house before can afford one now" and "it enables homeownership". Others will reply that there was a reason for those old rules in the first place and this is a big part of the reason that the housing market and mortgage industry is due for a major shake-up. I'd be in the latter camp. What happens when prices plummet 20% to get more in line with incomes and people are stuck refinancing their 80/15/5 ARMs for 80K more than the house is worth?

 

[Jeff Ulmer]

Not only that, but when they are refinancing that same house which they can just afford payments on now, only to find that interest rates are doubled when they have to refinance. There were a lot of people losing their homes in the 1980s due to 18% interest rates and refinance time. To add to the problem, with the rates that high, the housing market was dead, so not only did you need to sell, you needed to sell at a sizeable loss just to get out. Buying the most house you can afford when prices are already over inflated is courting disaster, especially at low interest rates. Do a "what if" scenario and see whether you could weather a sharp increase in rates (and payments), or a decrease in the market.

Philip is dead on when it comes to market realities. That doesn't mean staying out of the housing market, it just means planning for shifts in the market, and how you will sit when they occur. A 20% reduction on a 200K house is a lot more than 20% on an 80K property.

 

[Philip Hamm]

Try that kind of reduction on a $500K house.

 

[Anthony_J]

I agree with the above that in a potential bubble" market it's safer to go with a smaller and cheaper single family or town house. The prices on these units are just more stable. We may see prices drop over the next couple of years, but I think we've reached a point where they won't go below a certain price base (e.g., I don't think we'll ever see the days of a 2 bedroom town home selling for $150,000 any more regardless of condition, the new base is at least $220,000 or $230,000 in my area)

So if you buy a $240,000 home, it's never going to drop below $230,000 around these parts. On the other hand, there is no base for large single family homes. Who's to say where you draw the line between $600,000 and $400,000? At that point, you're paying for luxury and it's a matter of what the market will bear.

 

[Andrew Pezzo]

I saw a 2 bedroom, multi story condo for $155K yesterday. The price is so low compared to many others I am temtped to put in an offer. The place was in great shape but the HOA dues are $300/month. And its only 3.5 miles from work.

 

[Ted Lee]

exactly what i did as well. i had to bite the bullet and pay the pmi for the first year or so...but that was about it.

phillip makes some good points about going into a sale blind and ending up upside down on the house. i think my sister fell into a similar situation. so i think you'll really need to look into similar homes in your area. ask your realtor to run "comps" on similar homes in the neighborhood you're looking for. that will give you a good idea of what kind of equity you can expect.

right now, i'm (knocking on wood) doing okay. my first house appreciated quite a bit and my new home has appreciated over 30k -- and i haven't even moved in yet! that's the kind of crazy market we have here now.

to me, renting is simply throwing your money away.

-----

btw, about selling your gear, changing your lifestyle, etc. i think, in the long run, it's a good idea. yeah, you worked hard and have some nice stuff now. but you know what? it's just stuff. heck, taking it to an extreme -- i can argue it's just more materialistc junk you don't need, more stuff to weigh you down, etc.

believe me, there really is a wonderful feeling of pride and joy when owning your own home. even if it's a fixer-upper (something you may want to consider), it's nice to come home to *your* home.

anyway, i think any sacrifice you can make to get yourself into a home will be worth it.

 

[SteveA]

There is a simple explanation for this phenonemon. In some markets (Southern California, Northern Virginia), speculative investors are buying up to 40% of all houses on the market, hoping to flip the properties for a quick buck. This is resulting in a LOT of landlords out there competing for renters.

 

[Mort Corey]

Wow Ted...on a home theater forum this gets pretty close to subversive

Mort

 

[Ted Lee]

i know...i better watch my back walking down the htf hallways!

 

[Andrew Pezzo]

I shudder just thinking about it (selling my gear) but it would help the cause a little. I just dont know if that little bit is worth it considering who knows how long it will be before I could get nice gear again. Also, I dont want to move into a house and not have anything to put in it. Happily my wife agrees on that.

I have been renting for 5 years in the same apartment so my rent has barely gone up over the years, about $90. I am tired of renting but it does have its advantages.

 

[Andrew Pezzo]

And I have no problems with a fixer-upper. In fact, I would prefer this because I want to learn how to be more handy (not so much now unfortunately) The problem I see is that money will tight so I dont know where the funds would come from to make improvements, let alone some major unforseen repair.

 

[Mark Sherman]

man oh man only if you lived in MA. I just bought a BRAND NEW MINTY FRESH town house only about 20 minutes from Boston. I just talked to my agent and he said that he has about 70 out of the 90 sold.


they are starting in the 260 range

 

[Andrew Pezzo]

Do you get the YES network there?

I have friends that live in Summerville (or is it Somerville) and I love it there. Its about the only other area I would choose to live besides CT. I actually prefer Boston to NYC but dont how I would handle living in Red Sox country. My alligence to the Yankees is pretty strong (much to my wifes dismay).

 

[Shane Martin]

Directv will get it in HD starting this baseball season .. if that helps at all.

Tough call on the housing issues. The others have much better advice than I do.

 

[Andrew Bunk]

I agree it's good to hear the feedback about the market such as it is-it's pretty obvious it can't be this much of a seller's market forever. But, the area I am buying into is doubtful to ever drop significantly. People moving in from out of state try to move there for the school districts. Most people who live there are not barely making it-the cars are the first giveaway I think. We'll see though....either way I'm very excited about the house and ability to finally crank up my A/V gear and home recording gear!

 

[Craig]

I guess the housing bubble hasn't burst yet (per CNN):