When is buying a house a good idea?

1

Everyone and their mom is getting a loan and buying a house because of the low interest rates and this has been suggested to me by relatives.

I do want to settle in this area and am having a hard time finding a suitable rental. I may not be living in this area in 5 years but for sure I’m here for 5 and want to make this where I raise my family eventually, even if I have to leave for a couple years for husband’s job. So having a rental property would be fine in the interim.

How can I ascertain if this is a bad or good idea? What financial questions should I be considering?

I have a high credit score (over 760 last I remember) and about $30k liquid, $10k in post tax investments. Rest is pretax retirement accounts so I guess don’t matter.

ETA: I have a home buyer personality. I like fixing things and want space to garden and have the resources to do so (knowledge and manpower wise) in my family. I’m not big into travel anymore. I am very boring and desiring of deep roots.

13 Likes
2

NYT rent versus buy calculator is always a good starting point. There’s also a “buy now or save more for down payment” calculator. If you can’t find it, let me know and I’ll dig out my laptop to get the link.

9 Likes
3

This is great! Thanks!

1 Like
4

BJ gave the classic recommendation for the money side of things. If buying does end up more expensive, put it into monthly $ terms and ask if the intangibles are worth that amount to you.

4 Likes
5

We knew we were probably better off financially to rent than buy, so we waited and built our down payment. Once the mortgage we’d have to take out for the kind of house we wanted was something we could comfortably fit in our budget, with buffer in our budget, we waited to find a house where the intangible benefits would make sense (ie, the “perfect house”).

That might help as another calculation to run, so you can see that even if it makes “sense” to buy instead of rent or the opposite, you are also making a good decision within your own budget.

6 Likes
6

Oh, and this may go without saying. But go based on what you feel you can afford, not what the bank feels you can afford. You should have a number in mind for what you’re comfortable with for mortgage prices, property tax, home maintenance, all of that added in. Before you ever go in to talk to the bank.

6 Likes
7

JL Collins has some really interesting thoughts on the matter. Here are a few of his posts I found really helpful:



I’m a homeowner and it has worked out so far to be a pretty decent financial idea, but I’m glad we went into it thinking that we were doing it for reasons other than financial and not counting on it to be a decent idea.

7 Likes
8

I agree that home ownership should really be about the other aspects than the financial. When you look at opportunity cost, it’s often not really worth it. You have to want that ability to customize, the stability, the constant maintenance, or you’ll probably be miserable lol.

Personally, we rented a house with a hands off landlord before we bought the first time. I’m so glad we did. Even though we both had lots of maintenance and construction experience in the past, it was nice to have some home ownership lite to test drive the idea. It’s a pain to give up every damn weekend to the house. But for us, it’s worth it.

Finances are such a small part on many ways if you’re otherwise squared away financially. It’s a good financial tool for many families since it’s a forced savings plan and is incentivized tax wise. But if you save and invest otherwise, that reason is really diminished IMO.

5 Likes
9

My market is one where owning is a substantial discount from renting but stability (not having to worry about rent increases or lease non-renewals) and the ability to do all my crazy urban farming things are the real wins.

1 Like
10

Some markets also really don’t have the same options available in rentals versus owning. Ex, Portland area. If you want a newer single family home, you either need to be much further out from the city center, or buy. There just is not the inventory. So sometimes, buying can get you into the type of space you want much more easily than renting. I view that as another “intangible” of sorts.

3 Likes
11

That’s an excellent point.

1 Like
12

We’re running into this. Rentals are old homes and usually not deleaded. I have a 2yr old so… Yeah not an option.

1 Like
13

Yep. That was a big component in our recent purchase choice. I’m sick to fuck of drafty houses too. I want shit with insulation, and I don’t want a $100k full Reno to get that. :woman_shrugging: It was move an hour from the city, or buy and be much closer. Plus we missed a lot of the customization stuff. It was the right time for us.

But with young kids. Home maintenance SUCKS. I do miss renting, because there’s a billion small things I want done and we do not have the time, period. Trade offs for sure.

1 Like
14

My BIL loves DIY projects but even he hires a lot out for lack of time

2 Likes
15

I’m always so torn on this. On the one hand, we owned a condo once and got totally shafted on it. (Bought right before the 2008 crash, the bank that held our mortgage failed, our loan was sold to a loan servicer in India who promptly told us they required more of a “cushion” in escrow, beyond what our taxes actually were, than our previous lender did. Mortgage went up more than $300/month overnight - I had NO idea that this could happen with a fixed rate mortgage which we’d insisted on even though at the time everyone was pushing interest only ARMs on us. I mean, I knew the loan could get sold but I thought that fixed-rate meant only small increases based on taxes, not new lender might insist on unreasonably large extra amount in escrow overnight.)

On the other hand, one big reason we bought - and a reason that I’m considering it again, should we decide which city we are going to live in and end up in a place where home prices aren’t obscene, is that I’m just sick to death of not being in control over who comes into my home and when and why. Now, it’s because of covid, back then it was because our then-landlord would not respect my written (via signs on door) and verbal requests to please not let the cat out while he was in for repairs. On one occasion he also let a feral cat in, that was fun, coming home and a cat who’s the wrong color walks by you…

On the THIRD hand, I would warn anyone away from homeownership if you don’t also have savings on top of the down payment to deal with the shit that’s going to break, or to outsource maintenance if you’re not going to have time to do it yourself. I come from a family who does not maintain the properties they own, like, at ALL, and I didn’t want to be like them but we were very very stretched in making sure things were maintained and repaired - and that is with a condo so we didn’t even have all the outdoor/buildingwide stuff to take care of.

On the fourth hand, I really don’t want to go through again what we went through this summer - holding our breath to see who our ex-landlords were going to sell the building to, and whether the new owner would kick us out. That ended up not happening, but it could have; one interested party wanted to turn our 2-flat into a single family home, but they ended up not making an offer.

IDK, there’s a lot to take into account that isn’t financial, I think. Though, if we were staying in Chicago we’d likely keep renting because home prices are so high unless you move far enough out that your transportation costs skyrocket… it probably ends up being a wash in the end, honestly.

4 Likes
16

These days, in our 60s, if we sell/buy a place, it’s likely to be a small home, hopefully on a largish lot. What we have now is a multibedroom, 2 bath house, in two stories. We’re working actively on turning it into single floor living.

If I was buying a home now, and I was younger, I’d have done a lot more thinking about what it was I expected to be doing in 30 years. Every other home we’ve bought (2) we were in < 10 years, so I expected that when we moved here too. That’s an entirely different set of expectations. If the home is fundamentally sound, you get it painted, spiff it up and sell it. After 25+ years, almost every home needs systems replaced: water pump, septic, electric, water heater, etc.

We have:

Replaced the water heater 3 times.
Changed the heating system 2 times.
Replaced or bought 2 woodstoves.
Bought or replaced 3 refrigerators.
Bought or replace 3 sets of washers/dryers.
Replaced the well pump twice
Replaced the pressure bladder once.
Got the roofing redone.
Got the chimney pipe replaced.
Replaced the spark arrestor at the top of the chimney and flashing for the chimney/roof.

When we moved in, the home was only 6 years old, but the guy who was here had worked construction and I swear used scraps, left overs, and replaced pieces from other homes for a lot of things. And his workmanship wasn’t great either.

So, what i’d recommend? Look at the home’s systems and make a timeline of when you’d expect to replace whatever. When we bought this place, during the Bush bank/real estate recession, there were a lot of junked houses on the market and it was impossible to sell a house. Six months after we moved in, DH was let go.

And we used savings to hang on.

None of that was expected. We didn’t have a backup plan and much of what we had planned for the future was shot down when 1) we couldn’t sell this place after he got work elsewhere and 2) the second new job he got was with a small company where the boss didn’t like running payroll, so at one point he was 3 paychecks behind.

We ate up our savings, and ran up a lot of credit card debt. It has taken us years to pay that off and then start saving again.

So, plan for the worst case, not what’s “normal” is probably my biggest suggestion. Buy less than what the bank etc. say you can afford.

5 Likes