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tedd's avatar

Is it a good idea or bad idea for me to buy a house?

Asked by tedd (14013 points ) August 20th, 2012

This may be kind of long, so I apologize ahead of time.

Ok, basically, I’m contemplating buying a house. I know the market for buyers is probably never going to be much better than it is now. So whereas normally I may not even be considering this right now, the cost savings are too much for me to just ignore.

But it’s not so cut and dry. I am currently working a job that I do not intend to stay at long term. It was meant to be that first transition/experience job out of college that I worked at for 1–2 years before moving onto something more in the field I want to work in (I’m an analytical chemist, I want to be a Forensic scientist). Well I’ve worked here almost 3 years now. I’ve applied for several jobs more towards my eventual field in the last year, interviewed for a few even, but not got them. At the moment I’m kind of “stuck” in my current city as I moved in with my g/f back in May and we signed a one year lease. The prospect of staying in this city for a year didn’t really bother me cuz I didn’t want to have too many life changes at once (moving in and a new job, etc). Also as much as I don’t want to do my current job for a long time, I should be so lucky to have such an awesome “filler” job. Pay and benefits rock, flexible hours, nice staff, etc….

It’s also very important to point out that I have over 100k in debt from student loans. I have the money to afford the monthly bill on those (~$950), and still enough for rent, car payment, etc. I also have a near flawless payment history on those five student loans (never having missed, only twice having been late) as well as flawless payments on a few credit cards and whatnot over the years. But I do have well over 100k to may name in debt (when you throw in the car).

What turned me onto the idea was my older brother. He lived in this town too and about a year ago got his first house. He makes a fair amount more than I and has far less debt so I figured he just had enough money to pay the mortgage payments which were surely high. Well a few months ago he got a new job out of state and offered to rent me his house so he didn’t have to deal with selling it or renting it from out of state to a stranger. His mortgage payment on the moderate-sized house with a two car garage was less than my rent for my almost 700 square foot apartment. If I could get a mortgage for a similar monthly price, I could very easily afford it, without even taking into account that I would likely have a room mate in my g/f (or if things ended up not working out between us I would get a room mate).

The real catches mostly involve my career. If I land a job out of town (which is the likelihood if I pursue that Forensics career and want it to start moving soon [there are few such jobs in my area]), then I’ll be stuck with this house and the same problem my brother had… can I/do I sell it, or do I try to rent it out from a distance (possibly having a 3rd party/company do it for me). Also, though I could afford the payments quite readily, is there some hidden financial issue I’m not seeing here with my already outstanding debt and incurring this new debt?

Sorry that’s so mixed up, hopefully you guys were able to follow it. What do you think?

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18 Answers

creative1's avatar

Sounds like you might have a high debt to income ratio which having a too high of one will mean a bank will not give you a mortgage. With a house its not just about the mortgage, there is taxes, water, sewer, maintenance and the such and if you don’t have the extra income to pay for everything you will end up in a hole trying to climb out. Yes its a buyers market but they predict it to be that way for a least a couple years and I would be certain of where you want to live before you buy a home rather than sell or rent it out.

tedd's avatar

@I’m not sure what my debt/income ends up being exactly… But roughly I make about half of what I owe total, in one year.

I hadn’t thought of the taxes aspect (water and sewage I’m not too worried about, I basically pay those in utilities now).

Pied_Pfeffer's avatar

Items to consider:
* Owning a house is not as cheap as seems. It requires insurance, utilities, maintenance, etc.
* If there is any chance that you will move out of the area any time soon, the fees involved in buying it and then attempting to sell it can also be hefty. Until the house sells, you are stuck with that mortgage, and possibly additional rent somewhere else. Otherwise, it might require taking a substantial loss on the house’s initial cost in order to sell it.

Even if you were able to get a loan to buy a place, my recommendation would be not to do it at this point in your life. Find a cheap place to live and work on getting out of debt. Focus on pursuing your career goals. This is more likely to happen if you don’t have the albatross of owning a house that you can’t really afford around your neck.

SuperMouse's avatar

@tedd to figure your debt to income ratio divide your total monthly payments by your total monthly income. Mortgage lenders base qualifying on a front end debt to income ratio which includes on principle, interest, taxes, and insurance on the house you are purchasing, as well as on a back end ratio which includes all of those things plus your other debt (student loans, car payment, etc. – it does not include utilities). Typically lenders won’t do a mortgage loan unless the back end ratio is less than 50%. With the debt you are carrying it does sound as though your ratios might be a bit out of whack. It is totally worth speaking to a loan rep to find out though.

There is no doubt that in most areas of the country it is still a buyers market. You can probably get a screaming deal on a decent house with an excellent interest rate. In order to make a profit selling it though you will have to hold onto the property until the market starts to turn around. In the meantime though you are paying toward something you own and getting the mortgage interest deduction on your taxes.

The question then becomes whether you are willing to be an absentee landlord. We had rentals half way across the country at one point. It worked out ok, but since we had to pay a local property management company to manage it, we were able to break even but never made a profit.

Tropical_Willie's avatar

@tedd If you are really interested go and get pre-qualified at a large mortgage company / bank. This will let you know where you stand for buying a house.

JLeslie's avatar

My gut reaction is keep renting for now. Not so much how much debt you have, but it sounds to me that it is better not to be tied down by a house right now, and the market is fairly flat in most places. Some towns are seeing prices go back up a little, so I would need to know more about your market to feel like it was a good idea or not. Buying and selling costs money in closing costs and paying realtors, so if you just sell for what you paid for the house, you lose money. People don’t usually calculate in all the costs. The loss of money might still be less than what you paid in rent, I would need all the numbers.

I have some questions:

Will you and your girlfriend be buying it together? You live with her right?

Can you rent a house instead of an apartment for a reasonable price where you live if you like living in a house better?

tedd's avatar

@JLeslie We live in Columbus Ohio. I don’t have specific numbers for you but I know; It’s the strongest economy in the state of Ohio (and one of the best in the midwest), it’s one of the largest cities in the country, it’s the only larger city in Ohio to have a population growth over the last decade, it’s been largely unaffected by the economic downturn (maintaining ~7% unemployment for sometime before and after).

I would be buying the house alone, but with the expectation that she would be moving in with me and “renting” from me. She would undoubtedly be involved in picking the specific house too, but more from an advisory standpoint than a partnership standpoint.

We can rent a house for similar pricing, but typically if it’s around what we’re paying now it’s in a bad neighborhood, and if it’s similar to the living conditions we have now it’s well outside of our price range. My preference of house or apartment has nothing to do with the desire to buy one, so much as just wanting to not throw money away every month in rent… yet still have more space and pay less in a mortgage than I do in rent (assuming that is a possibility).

gailcalled's avatar

@tedd: Perhaps before you buy the house predicated on your g/f moving in ane paying rent, you should resolve the huge issue of wanting children.

Your query of one hour ago

There are way too many uncertainties in your life to buy a house now.

One buys a house for two reason…

Stable life, job, love and finances.

Interest in house purchase as financial investment, with all the concomitant hassles.

tedd's avatar

@gailcalled Oh no I’m already fully aware of that. But my plan would be to just get a renter if she and I broke up (as stated in the OP).

Even without a renter/room mate living with me, if the mortgage is as low as my rent in my last apartment… I could easily afford it on my own.

gailcalled's avatar

If you can find an attractive and suitable renter and if you can make the numbers work, then the only question is “do you have the energy and experience to sell it when the moment comes?”

I have had friends who had to walk away from their house sale when it wouldn’t sell and the bank foreclosed. That is financially ruinous and emotionally truly disheartening.

Check out recent sales in the neighborhood that interests you..

JLeslie's avatar

@tedd usually mortgage payments are mostly interest in the beginning, so you won’t be paying down the mortgage much, that can be part of your equation.

When is your lease up, how fast do you feel you need to decide?

tedd's avatar

@gailcalled Those are precisely the things I’m really contemplating here. If I move, sell it, rent it, what..

@JLeslie Lease isn’t up until May. Could probably be broken but it would almost surely cost me some amount of money to do so. I am in no pressing need to decide on this. I just want to get a house cuz I’d rather start paying for that than wasting money on rent… especially if I can get it for cheaper per month cost. But there is no need/requirement for me to get a house, I could rent indefinitely if need be, and I could extend my lease or rent month-to-month.

JLeslie's avatar

Here is a calculator that gives you a table of how much interest is paid each month. I did it for a $165k mortgage, not sure if the link will maintain the numbers I put in. For my example the monthly payment was $836 and the amount that goes to principle in the first year $217. So, $600 a month goes to pay the interest on the loan, not into the house. You will get a tax break of course, but you will also be paying property taxes.

wundayatta's avatar

You’re pissing away money in rent that could be used to build equity in a home.

You do have the problem of the low liquidity of the investment—i.e., it is potentially difficult to sell if you have to move. But If you pay 1000 a month in rent, that’s $12000 a year. So if you own the house for a year and lose $12000 on the turnover, you’re really no worse off than if you had rented. In fact, you are better, because you can use the mortgage interest as a tax deduction. Say you paid $10,000 in interest the first year. That might be worth $2000 to you at the 20% tax rate.

So, depending on how much of a hit you take when you sell the house (and don’t forget there will be the feel to the seller), it could still be worth owning the house. If you hold the house for a longer period of time, it’s even better. If you rent the house and bring in more income than the mortgage, then you are essentially building equity in the house for free. This is why so many people make their money by owning property. Of course, you do have the headache of being a landlord. Being a distance landlord is even harder.

I think that, bottom line, if I was thinking I would only own the house for a year, it wouldn’t be worth it. But if it was going to be two years or more, I’d do it.

YARNLADY's avatar

No. Owning a house can be a series of unfortunate events, and you can’t call the landlord to fix them.

The industry standard is you begin to break even financially in terms of equity in five years, so buying a house short term is not advisable.

For a positive spin on it, visit a realtor and ask them to see if you “prequalify”. This means they work up a financial statement based on your answers to their questions, and then they let you know what you can afford.

nicole29's avatar

Unstable variables: girlfriend, job, city, car payment, student loans, probability of getting approved for a home loan
Stable variables: current income (at a job you do not want to keep…)

Do you really think that it’s a good idea?

Just be happy where you are for right now.. you can always buy a house later

tedd's avatar

@nicole29 Well actually the car payment and student loans would be stable variables, because they are a known quantity. I would simply subtract them from my monthly income.

The girlfriend is an unstable variable, but not an important one. If I got a mortgage in the range of my brothers, I could very easily afford it alone, and I would not purchase a house I couldn’t afford on my own.

The job and city are the only two truly unstable variables here. And really I view them as one, because I wouldn’t leave my current job for one that didn’t pay at least the same (and the field I’m hoping to get into actually pays a fair amount more than I make now). But that’s where the idea/issue/problem/plan of renting it from a distance or getting a 3rd party to rent it comes into play… and one of the goals of this post was to find out other peoples experiences with that and opinions on it (as at the moment I only have that of my brother).

Getting approved for a homeloan isn’t an unstable variable, it’s an unknown.

I’m not unhappy with my current living situations, and I know it could be complicated to get a house with the potential changes in my life coming…. (that’s why I’m asking about it here)... but it upsets me to contemplate that in the last year alone I’ve basically thrown away over $6000 in rent. IF I could get a mortgage without complicating things too much, and instead of dumping that money down the drain every month I was putting it towards a house… I fail to see how that would be a bad idea….. which basically just again brings it to the practicality questions.

JLeslie's avatar

@tedd The $6,000 is not thrown away, you live there. And, again, a mortgage of $6k means only $1500 actually pays into your mortgage, the other $4500 is thrown out on the street. But, I do know what you mean. You know I lean towards not buying, but I certainly don’t think buying will be a “bad” idea. I think you want to buy a house, just my impression, but it could just be that you are simply thinking about all sides. Several jellies pointed out how long you will live there is an important part of the decision. I agree, but also it is probably kind of hard to know for sure how long you will be there, so this is one of those things that if you don’t buy a house and you are still there in 4 years, you will feel you wasted an opportunity. If you buy a house and need to move in a year, the hassle will be annoying, and you could lose, gain, or be even regarding the money.

You seem pretty analytical, I think you should talk to a mortgage person. They will give you a good faith estimate of all the fees. You can look up the taxes on a house you might consider, utilities, and really assess the financials. Since you are a first time home buyer you will have surprise fees you don’t expect. Even if the seller pays closing, you will still have to pay for the mortgage closing most likely. If you have a lawn you will be paying to upkeep it yourself, or a maintenance fee. You will want to make 100% sure there is not a prepayment penalty on your mortgage since there is a high likelihood you might move within a few years. If you get a 15 year loan it pays down much faster and you get a lower interest rate, but the monthly payment is higher of course.

Which brings me to my last question. I don’t expect you to state how much money you have in the bank, but do you have a nice cushion? After paying all closing costs will you have minimum 4 months of salary in the bank for a rainy day?

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