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"

"throwing away money on rent."

  "


Why dont people say that they are "throwing away money on interest"  ?

Why do people who argue that a lease is a better way to own a car because you dont have to pay for the upkeep, want to own a house?  Houses 'break down' too and they are just as expensive.  A garbage disposal can cost $300, an AC over $1000!Then there are taxes and insurance, not to mention lawns to mow.  (Do you own a lawn mower?)


You are not throwing your money away on rent.  You are getting a place to live, without the upkeep.  You also get a lot more mobility. 

For what it is worth, you are in debt, and have no savings to speak of.  From your post, am I correct to assume that your job does not even start until fall?  In a year you will be in a better financial condition.  Continue to live like graduate students for a year and pay down your debts.  Houses will not suddenly go up in value that you will be priced out over the next year.  A house is a wonderful investment, once you can afford it.  Just now, I dont think that you can.  Dont be in a rush

Renting is not a life plan, just a place you pass through.  Patience has many benefits. 

[shamu]

As others noted here and on various other threads, there is no easy answer, but there are factors you can plug in and see if you come out ahead. Ultimately, you have to do the math and be comfortable with your decision.

In this market, I think a 0 equity loan is a very bad idea. Even in great growth markets, buyers should shoot for 20% down (but my bare minimum that would allow me to sleep at night would be 5% in a strong, rising market). The very first question every prospective buyer should ask is: "If something happens tomorrow and I MUST sell the house, would I at least break even (i.e., not owe money after settlement)?" If the answer is negative, perhaps you might want to think a bit harder about such a purchase. In a strong growth market, you can turn a property around and sell, but in a weak market (and we're talking local market here), you can be upside down in your home and actually owe money. Mind you, this question is specific to the very property you want to buy. For example, if you find a gem that is way underpriced, you may be fine even in a generally weak market.

I think the national housing market will be in a slump for a while. It may have upsurges, but I do not see a quick rebound. However, I don't think interest rates will go down a whole lot more, but if you can improve your credit rating in the near future, you may get a better rate then even if there were a slight overall rate increase.

If you haven't done so, do all the rent vs buy calculators, breakeven points, and even amortization schedules. Just as other investments, buying a property can be a great investment, and there is also some risk involved (especially if you are not thinking long-term, like 10 years). Also, if you own your home, every problem with it is YOUR problem.

Finally, here is a web site you may find helpful (Historical Census of Housing Tables Home Values):
http://www.census.gov/hhes/www/housing/census/historic/values.html

[oopsadaisy]

Don't forget, too, to add into your monthly payments things like heating bills.  We're in the northeast and have gas.  This hasn't been a particularly hard winter (didn't start getting cold at all until Jan.) and we keep the thermostat at 62 unless it drops below 20 then raise it to 65 for a couple of hours.  And our gas/electric bill last month was still $400.

If you can't save enough for a down payment, you are going to be up the creek the second anything breaks down (like the water heater, which can run you $5,000...).  And you still have to come up with closing costs.  In many parts of the country, the average for that size house is $10,000.  And with a fico score of 660 it's unlikely you'll get a 6% mortgage rate.

On a $300,000 loan PMI insurance will cost you approx. $150/mo.  Homeowner's insurance (which will be required) another $50-100/mo.  Property taxes vary greatly (in states that have them) but even if reasonably low $2000/yr (I know some paying $18,000!) that's another $160/mo.  So your $2000 mortgage payment just ballooned to almost $2,500.  Plus, everything else...

Wait til your fico score is higher so you get a better rate, house prices come down, and you have more money in the bank!  What's the rush?  As was pointed out in a year or 2 renting you could have a respectable 10% to put down.

[raoul]

Certainly I think buying a $300,000 house on a salary of $63,000 is a stretch. However, this thread has also brought up a number of opinions about the decision to buy that are, I think, really misguided.

Quote
"throwing away money on rent."
  "


Why dont people say that they are "throwing away money on interest"  ?

Well, because home mortgage interest is tax deductible in the US, and rent is not. And because when you are paying interest on a mortgage you are also accruing equity in a property, whereas if you pay rent you are not. So rent and mortgage interest are quite different.

Why do people who argue that a lease is a better way to own a car because you dont have to pay for the upkeep, want to own a house?

Well, most people who own homes probably also own their cars rather than leasing them. But to the extent that some people do lease a car and own a home, the rationale is rather obvious: a car is a depreciating asset while a home is an appreciating asset. If you are going to rent one and own the other, it is much smarter to rent the depreciating asset and own the appreciating asset.

 

Houses 'break down' too and they are just as expensive.  A garbage disposal can cost $300, an AC over $1000!Then there are taxes and insurance, not to mention lawns to mow.  (Do you own a lawn mower?)

You can get a home warranty for a coupel hundred dollars a year that will pay for a number of common break downs in the home. In the US these warranties typically cover appliances as well as basic systems like plumbing, heating, and electrical. In my first house, the toilet started leaking and needed to be replaced. My cost: a $50 co-pay to the home warranty company. In my second house, a pipe burst in the basement and the plumber had to come to replace it. My cost: a $50 co-pay to the home warranty company. It's true that once in a while you will get stung with something that costs a few hundred dollars to fix, but when you compare that with the tens of thousands of dollars in equity you are likely to build in only a few years of owning, it's a trivial expense.

and you will be required to have PMI (private mortgage insurance).

I have met a few people who insist that they will never buy a house until they can pay 20% down and avoid PMI. This is mind boggling. PMI is about a hundred bucks a month. Not a trivial expense, to be sure, but these people want to spend years saving and saving, meanwhile missing out on all those years of building equity, just to save themselves this much smaller amount of money. Meanwhile, if you put 5 or 10 percent down, you have to pay the $100 a month for PMI (at least for a few years until you reach 20% equity), but you can take all of the rest of the money that you would have been putting in savings for your 20% deposit and sock it away in your IRA or 403(b) account. You are coming out doubly ahead if you buy with a small down payment. In fact, I would never recommend putting 20% down on a house even if the buyer had the money sitting in a savings account. Use the bank's money to buy your house, and invest your own money in better places--tax sheltered investments such as IRAs. You will come out ahead. Way ahead. You not only get to grow your IRA contributions tax free, and use the bank's money to leverage your investment in your home, but you also get to deduct all the interest you pay the bank from your taxable income. It's amazing to me that people put 20% down on a house.

If your the real estate market is down for a year or two then, horror of horrors, you must...continue living in your house!

[trabb]

I simply cannot wrap my head around hypothetical situations when it comes to finances.  Here's my own experience with 100% financing.

Seven years ago, the lowest rent I could find for a decent (i.e. safe and within comfortable distance of work for both my spouse and me) 2-bedroom apartment was $750.  My experience has been that rent typically goes up a minimum of $25/year.  I knew I was going to be in the area for a minimum of five years.  In five years, on these assumptions, I would have payed $48,000 for a place to live. At the end of five years, my monthly rent would have been about $875.

I decided to buy and did something like 98% financing.  I bought the smallest decent house I could find (i.e. safe and comfortable distance from work) which cost $102,000 with a mortgage payment of $825 that has remained pretty stable.  At the end of five years, here's the situation:

• Money spent on monthly payments (including insurance and taxes): 49,500
• Money saved on taxes: around $10,000 over the course of five years.
• Money spent on repairs/improvements/lawnmowers/appliances:  around $10,000 over the course of five years

The money saved on my tax returns almost exactly balanced out the expenses of home ownership, and my mortgage has been almost exactly what my rent might have been.  All in all, I came out just about even buying or renting.  The difference is that buying got me a quieter neighborhood and my own place.

Now, here's the kicker.  Five years later, I'm selling the place for a modest profit ($15,000 or $20,000).  Not a huge amount, but certainly it's the downpayment for the next place.

I'm not advocating rushing into 100% financing, however.  I had several things going for me.  First, if things got too tight, I knew that it wouldnt' be too hard to find a job that payed more than my grad student stipend.  Second, where I live, it was possible to find a house for which mortgage payments would be the same (or less!) than rent.  That's not always the case.

Just some thoughts for you.  Good luck making this decision.
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[clean]

A different story:

(1998) My first job was in an overbuilt town highly dependent on agriculture and the rains had not delivered.  My apartment rented for $475 for a 2 bedroom 2 bath with about 900 sq. feet.  I was moving from my 400 sq foot grad. student housing 'efficiency' apartment.  Being used to much higher rents, my first impulse was to balk.  "I wouldnt dare live in any place that ONLY cost $475 a month!". 

My unit was in the back, overlooked a natural area and was more than quiet.  I stayed there for 3 years and never had a rent increase. 

I rented because I was
1.  30K in debt from school
2. summer school was not guaranteed and the year I was hired the university had unsuccessfully tried to change summer from 7% to a flat price based on rank ($1800 for assistants).
3. Tenure was not for 6 years and until then each year was a one year contract.  (In fact, in the first year, they had until April to tell you if you would be back in August.  In year 2, they had until Dec. 15.  Only in year 3 did they have to give you a full year's notice)
4. Rent was only $475, while a 'decent' house would have required me to borrow at least 115K.  (mortgage interest would have been closer to 550 per month with a mortgage payment over $600, and I would have had to pay taxes and insurance, etc.)
5.  The housing market was pretty stagnant, and it did not look like you could sell a house quickly, if you had too.  That also meant that housing prices were stable to declining.
6.  I believe that you should rent for a while anyway to try the place out before deciding where to buy.  You dont want to end up buying in the neighborhood across from the new jail or truck farm.  Unless you live there a while, you wont be plugged into the news.

I did buy a house in year 3 after I had paid off my student loans and saved about $10000.  (amazing how much you can save when you continue to live like a student and only pay $475 a month for rent).  The house I bought was from a faculty member that was leaving.  It was assessed for 125K and I bought it for 112K.  Interest payments alone, as I said were now $550 a month and I paid $7000 correcting the deferred maintenance that the house needed.  Even though the interest, and then the state income tax, and property taxes became deductable, I spent more money out of pocket after tax, than I had on rent.

Oh, and since my house size doubled, I doubled my electric bill.  I acquired a water and garbage bill.  I had to pay homeowner's insurance.  I needed to buy furniture as suddenly my lazy boy chair and $99 walmart futon were not appropriate for my new living room.  I also had to get a 32 inch TV since I could no longer see my 19" from so far away in my much larger living room.


ADVICE (worth 2ce what you paid for it):
If you are in debt, you really can not afford a house and it be a blessing in your life.
If you are new to an area, it takes time to figure out a good place to live.
Renting is not a sin.  It allows you a lot of flexability and is almost always cheaper.
Renting is NOT a way of life.  You should hope to own someday.  However, a poorly timed house is much more dangerous to your health, relationships, career and wealth.

Good luck, no matter what you decide.