You mention low interest rates. Be careful there. I believe, as do many Piggs, that buying when prices are low and interest rates high is much better than buying high when rates are low. You will achieve better asset growth buying at a low price, and you will be able to later refinance.
Also whether prices are low or high may depend heavily on the ‘hood where you buy. If I take the $390K price one of the posters mentioned, those neighborhoods may have already been hit pretty hard. Still, economic uncertainty should make you take pause, for sure.
Lastly, you’ll do so much better waiting until you have 20% down. Most importantly, you’ll avoid PMI and can go for a conventional loan. I’m not sure of why, but I know HLS is not fond of FHA loans and that is good enough for me to suspect you may not want one.
My best advice is this. I have given this advice to many both on and off this board:
Take the monthly payment of a house you would buy (include monthly principal, interest, prop tax, insurance, maintenance). Take your current rent amount. Subtract the two. (I’m assuming the payment is higher). Put that much into the bank every month until for at least a year, or until you have a 20% down payment – whichever comes later. When you reach 20%, you will be very close to ready to buy.
An obvious benefit is that you force yourself to save money, build a down payment, and thereby lower your payment when you do by.
A hidden benefit of this plan is that it makes you feel comfortable about making the house payment, because you effectively have been making it for a year. You lived without that extra money so you will be 100% confident that you can manage the payment.
If you find it difficult to put that much money away, you certainly aren’t ready to buy.[/quote]
An excellent post, and very good advice regarding setting aside the difference between renting and buying. Also consider the maintenance costs that go with buying. Too many buyers neglect to factor in these costs when trying to figure out what they can afford.
As to the first part (buy low price/high interest rate), I agree completely **IF** you have cash or expect to be able to save a significant down payment in the near future (5 years or so).
IMHO, rates are extremely low right now, and we might not see these levels for many decades (or we might not see them rise for many decades). Don’t attempt to buy in a low price/high rate environment with the expectation that you will refi into a lower-rate loan. That’s speculating on interest rates, and if you are stretching your payments with the high rates, it could be problematic if rates don’t drop.
Basically, if you’re looking to buy in an area that has already seen 50% drops in price, and if you are going to mortgage the majority of the purchase price, it’s reasonable (IMHO) to buy right now IF you plan to stay for the long term, and if rent and PITI payments are similar. Using the FHA loan will enable you to buy now and lock in historically low rates.
It really depends largely on your job stability (be honest with yourself) and your ability to come up with that 20% down payment in a relatively short period of time. The advice about kids is good, too. Not only might you lose one income, but you will have all kinds of new expenses (food, clothing, school, activities, college, medical, etc.). Definitely consider these additional costs *in addition to* the potential loss of an income when considering what you’re willing to pay for a house.
