I am gripped with fear over buying a house.
My fear is that I will buy a home and promptly lose my job, run through my savings, and end up homeless.
I am terrified to part with my savings and throw it into a down payment where I cannot access the money if I need it.
I am also terrified to wait longer because interest rates could rise, prices could rise, and so forth.
Someone talk sense to me!
Slap her, Wilona!
Pay it off as soon as you can, and you'll never have to worry about homelessness again.
I only have a few more years to go...what am I going to do with the extra cash, I wonder....
If you live in fear you will never enjoy anything. The fact is, with a house, you can leave if you can no longer afford it. You do not have to burn through all of your savings before giving up the house (if you lost your job). Fear detracts wealth as well, so you might be missing out on some $$$!
Just rent. Why buy a house? I think we are on the verge of a big economic collapse.
Buying a house isn't really buying until it's paid off. In the meantime, you're renting the place from the bank without the bank having to fix anything.
You might not have to worry about being homeless once it's paid off unless you fail to pay your property taxes. Or if something catastrophic happens and you can't afford to fix it.
A house is just sticks and stones. Interest rates rise and home prices do too, then they fall. Most everyone I know is upside down on their houses. But if you have found your dream home, go for it. Just don't expect to make money from it.
[quote] Pay it off as soon as you can, and you'll never have to worry about homelessness again.
Or at least as long as you can pay your property taxes....
We bought our house outright in 2002 for $350k, and it ended up costing another $50k to fix things like some roof damage and rebuild the wraparound porches.
My partner and I both worked for the same company, and we were "laid off" a month later. We had my investments and inheritances to live off of (which I'm very fortunate to have), but having to dip into them for about four months did make me edgy.
The house would probably sell in the current market for $40k less than I paid for it. So, yes, be wary, be smart, kick the tires hard, and make sure you're getting quality and value. (Also, hire TWO different inspectors.)
Relax. Nothing is irreversible. I transitioned from full time employee to free lancer about 6 years after buying my first home. It would not have been possible without the equity I built. The Fact that you're even asking these questions indicates that you're probably a good risk and making your choices from a very responsible place.
Enjoy you new home.
R4 = sucker
But thanks for paying MY mortgage!
[quote]I am also terrified to wait longer because interest rates could rise, prices could rise, and so forth.
If interest rates RISE, prices will FALL.
People at whatever income, cannot afford as much house.
R9, Thanks for fixing up everything for me while you're renting me a place that you still owe money on.
r9, have fun paying that mortgage, when your lousy renters don't pay their rent, the taxes go up, and some idiot tenant leaves the stove on and goes on vacation, etc.
Buy a house well within your means, not your dream house. The goal should be to get it paid off as fast as possible (despite what the experts claim). I went with a 15 year mortgage and paid it off in 9 years, paying way more than the minimum house payment, and doing without a lot of luxuries. I have lived in it now for 23 years, 14 years mortgage free, best decision I have ever made. I have had the luxury of no house payments for longer than I had a house payment. That is worth more to me than all they luxuries I did without while paying it off.
I bought a condo 10 years ago with the stipulation to myself that I had to buy something I could afford in good times and bad times. In other words, I sunk a whole lotta money into it so that my mortgage was next to nothing. And it's worked out. Been laid off twice since then for up to 6 months and been easily able to pay the mortgage, condo fees and taxes. Now I'm going to retire next year so we've done all the upgrades this past year. Forget the dream house thing, it can drain you dry. Scale down your expectations, get something you like and can always afford. Never be house poor, there's more to life. And don't get caught up, like all those idiots on HGTV on huge bathrooms, open kitchens with granite and stainless steel and half an acre of land. Buy what you can live with and not worry about paying for. But do buy a home, you'll be glad you did.
OP -- R13 has offered some very wise advice.
OP, if you have this much fear about buying a house, then you're probably not ready yet. Listen to your gut.
Not everyone is cut out to be a homeowner. It's a big responsibility.
If you aren't afraid when buying a house there is something the matter with you. The only people I have ever heard of not questioning themselves when making a very large purchase are complete idiots. It is the largest purchase you will probably ever make, you should be scared. If you are generally a responsible person, go for it. You can make no gains in life without taking some risks.
If you're going to be a nervous nellie about it, second guess your every move, fret every time you have to pay for some repair, worry that the world is going to collapse, or panic over every property tax change, don't buy.
Also, don't buy until you have some confidence in understanding your real estate market and what sorts of properties are more resilient to economic cycles than others. Don't buy until you have a good idea of what the day-to-day, month-to-month impact is on your finances.
And don't buy until you want to own a place. Interest rates and prices are not unimportant, but they are the last reasons one should buy a house for your own residence.
Buy a house if you like the freedom of being able to make changes to your place, without having to ask permission; if you can appreciate that there are long term financial benefits to owning, and that choosing wisely and buying within your means are in themselves protection against economic upheavals. Buy if you can see that the monthly costs (including maintenance and all the rest) over time are likely to be much more in your benefit that the "savings" and flexibility of renting; many people see this benefit not many years at all into buying, long before they have paid off a mortgage in that the costs stay stable as income rises and other expenses decrease or stabilize. Buy if you realize that you'll never sock away all that imagined huge difference between the cost of renting and the cost of owning - almost no one ever does. Buy if you want to have substantial equity or ownership in a place that appreciates in the long term, even if figured at a conservative VERY modest increase. Buy if you don't want to be paying for your landlord to live far away collecting your checks each month in your old age. But mostly buy because the idea of owning a place is appealing in itself.
OP, you should wait and buy when you're in a long-term relationship. I can tell from your post that you need a strong man to take care of things. You're not strong enough to own a home on your own.
OP - If you don't want to sink all your savings into a home, go for an FHA loan. I believe you only have to pay 3.5% down. Now, this may change what's available to you but you'd be surprised how many condo buildings and houses you can find that can be financed with FHA. TONS.
FHA is for new home buyers and unless you're pretty well off, you'd qualify.
The only downside is that you'll have to pay an extra insurance premium each month until you have 20% equity. But it's not really THAT much.
Seriously - look into it. You can also get pretty substantial loan amounts as well.
Home Ownership AND you'll still have your savings. Win, win.
Put enough down to avoid mortgage insurance if you can. It does you no good, just your lender.
Better yet, pay cash in the first place.
You'll be glad you did.
R21 - that's part of OP's problem, s/he doesn't want to put all his savings into a home.
And mortgage insurance is tax deductible - so you do get some of it back each year in your taxes.
The insurance isn't THAT much and it's not forever.
Bless your heart, I never paid it, r22, so I would't know.
I defer to you.
[quote]And mortgage insurance is tax deductible - so you do get some of it back each year in your taxes.
It's a very small offset. No financial advisor worth his salt will suggest that the deduction is reason to carry a mortgage; the benefits are so slight that the capital could be put to better use in many other ways.
R13 is correct, but really, buy a house now? there will be another "correction" in about three months.
We need your figures to advice you properly op.
age, savings, retirement savings, salary, price of home, debt
for r22 --
From Wikipedia's "Mortgage Insurance" entry/
Please note last sentence.
"Private mortgage insurance
Private mortgage insurance is typically required when down payments are below 20%. Rates can range from 0.5% to 6% of the principal of the loan per year based upon loan factors such as the percent of the loan insured, loan-to-value (LTV), fixed or variable, and credit score. The rates may be paid in a single lump sum, annually, monthly, or in some combination of the two (split premiums). In the U.S., payments by the borrower were tax-deductible until 2010. "
Only buy a home if you plan to be in it for 5-7 years at least. Figure out what YOU can afford, not what a lender is telling you you can afford. Had I listened to my lender I would have a 400K mortgate. Instead I opted for something I could put 20% down on to avoid PMI and nothing above a monthly payment I was paying in rent. I went with a 185K as my price point. Yours might be different depending on the market and where you live. Right now it is a buyers market but that is quickly changing as investors are gobbling up property that got devalued.
I'm going to second r13's advice and add do NOT - under any circumstance - let a realtor talk you into a larger or more expensive house than what you can comfortably afford.
They work on commission and the bigger you buy, the more they make.
YOU know what YOU can comfortably afford so stick with it.
Good luck, OP. I bought a kitchen and a big yard. A house just came with the property.
I felt exactly the way you did, OP. Back in 1991.
Real estate prices seemed very high. I wasn't certain I could afford the payments.
But I bit the bullet, put 25% down, and bought a 3 bedroom, 2 bath house for $450,000.
Now prices did go down a lot in the next 5 years. I even got the property reassessed for $350,00 three years after I bought it. And I went through some financial challenges. But always, the payments on the mortgage were very easy to make. In fact, most months, I put an extra thousand bucks toward the principal.
Cut to today. The house, thanks to those extra payments, is paid off. I recently had it assessed for $1.5 million. It is the single best financial decision I ever made.
R31, what are the chances that if OP does what you did but in this economy that he will be rewarded with the same rise in value that you've experienced?
[quote]I'm going to second [R13]'s advice and add do NOT - under any circumstance - let a realtor talk you into a larger or more expensive house than what you can comfortably afford.
I'd go even further -- buy something for considerably less than what a realtor tells you you can afford.
Always live below your means whenever possible.
I cannot stress this enough: Avoid debt like the plague.
Money in the bank ALWAYS trumps putting your wealth for display out on the street (property) or on the road (car).
If some people wish to judge you by the size of your home or the flashiness of your ride, fuck 'em, and take comfort in the fact that the odds are much greater for you to be retired LONG before them.
Only buy something that is either almost new or at least has been remodeled with stainless steel appliances and granite counter tops. You don't want to buy a dump.
r35, you are obviously too young to remember harvest gold and avocado green appliances.
These were the stainless steel of their day.
Everything has a time and a season and the season for stainless steel appliances and granite counter tops is waning fast.
Buying "a dump" is often a wise move.
Get the property for a great price-per-square-foot compared to the neighbors, fix it up, and live in it.
Are you a property virgin?
Or just young 'n' stupid.
I am like the OP. I am looking to buy a home in So Cal and it is difficult to find property I can afford. I will not max out the approved amount at all. Realtors will send you houses for your max amount, do not tell them the max amount. Just tell them that you have a letter to qualified for a mortgage and let them know that you will spend up to this amount for a house.
I HATE HOUSE HUNTING....
Sorry for the shout it is stressful and scary.
r31, you only see that money if you can sell it for that. And it isn't likely you will in this economy so I don't see how you have made any money really. You just have a place that is paid off but now your property taxes must be pretty high if it's estimated at that amount.
I highly doubt you'd get even half of what you think it's worth.
r37, I can't afford anything in Southern CA unless I want to move somewhere far from Los Angeles and sit in traffic for the rest of my life.
Buying a home or condo in CA as a single person is almost impossible.
You don't want to be tied down with a home and having to pay property taxes and stuff. I would never buy one, it's a money pit.
House people are like dog people or new parents, it's all they can talk about.
[quote]Just rent. Why buy a house? I think we are on the verge of a big economic collapse.
What am I, chopped liver?
Funny how once a renter becomes a home owner, they suddenly think they are now better than renters.
My niece just hit me up for $20,000 to keep her house. This after I spent $1,000 to fill her oil heater tank, bought her a $1,200 snow blower, $1,500 gift, flatscreen TV and DVD player.
She'll lose her house and you will lose your house. Be afraid, be very afraid.
Buy the worst house in a great neighborhood.
You can always tear down the house.
The best house in a marginal neighborhood, is a mistake far too many people make.
Nobody NEEDS more than 3 bedrooms, and that's with 6 kids.
When I was looking for a home, banks were offering a 6-week home buying class, one hour per week. They had a lecture by a banker, a realtor, a home inspector, a lawyer, and others. Call around and see if they still do. You might learn something, and even if you don't, you'll get more confident in whatever decision you make.
Don't buy the nicest house on the block. If you're handy, you can buy places needing more work.
I disagree with those that write to pay it off as quickly as possible. I've refinanced many times to take money out, and put it it in the stock market, because I know I can make more there than I am charged by my bank on my mortgage. That's worked well for me over 20 years. I owe more on the house than I paid for it, but I have over a million in the market that I could use to pay it off in a snap. It's a judgement call, everybody's different.
There's a difference between being scared when buying a house and buying a house out of fear (fear that interest rates will go up and/or house prices will go up). It almost always ends up being a mistake when you buy something out of fear. I watched people "panic buy" in Las Vegas from 2001-2005 ("We're running out of land! Everybody wants to live here! Buy now or be priced out forever!" Blah blah blah!). It was hard not to get caught up in all of it. Of course we all know how that turned out.
As so many have said, don't be talked into spending a fortune on a huge house you don't need. The realtors are not your friends. Work out what you can comfortably afford, aim for paying a bit less than that, find a very good home inspector to check over the fixer uppers you'll be looking at. If you buy something that's already been done you're paying too much for someone else's taste.
Renting is not a sound financial proposition. You're paying someone else's mortgage. Home maintenance isn't something that has to be paid for every month so don't be put off by those saying they prefer to rent so they don't have to pay for maintenance - they ARE paying for maintenance, they're just going through a middleman to do it. The rent doesn't just cover the landlord's mortgage, he charges for wear and tear too. That's how it works.
A lot of work can be done yourself - ever painted, stripped wallpaper, sanded a floor? Easy jobs that don't need to be expensive. Take a couple of evening classes if you're unsure. Put in sweat equity yourself to maximise your investment. Good luck.
R31 My parents also bought a house in 1991. Paid $350k for it. They'd be damn lucky if they could get $450k for it today, a full 23 years later. Location obviously has a lot to do with how things pan out. We have no idea where OP is thinking of buying.
These are the threads that keep me coming back to DL.
Yes, R48 "everybody's different" when it comes to home buying and I'm glad you said that because I'm with R21 in paying cash. I'm a single older person on a low, and unstable income, so for me, saving the money first means I buy within my means, pay it off and have a home with no worries about finances. Also, in many cases you can end up knocking a big chunk off of the asking price by having the cash upfront.
R13, R14, R31 and R21 all offer good advice depending on different situations and I like the Point - Counterpoint between R7 and R8
I have lived well below my means for years now in order to save up enough cash to buy a house outright. But what I'm noticing is that, even with the home paid for in full, all the added expenses (property taxes, maintenance, possible HOA fees, lawn care, etc) I'll still be paying nearly what I currently pay in rent! Granted, I'll be in a much larger & nicer home than the space I currently rent, but still. It's not the financial no-brainer I always thought it would be when I really hash everything out.
I cannot say enough good things about being free and clear of a mortgage.
Paying off your house will be the best raise most people will ever experience in their personal finances.
R50 makes a good point about renting. As a renter all of my adult life so far (I'm the guy planning to buy a home with cash in a few years)I've enjoyed some convenience and good deals, but yes, ultimately the place is not yours and the monthly rent doesn't benefit you. Of course if you'd be house poor or can't afford to buy then you'll have to rent. A roommate situation can be a pain but cut your renting expenses by half to help you save for a home.
One thing for older people especially to consider is the possibility of a lowered income in retirement. Paying the same amount -- or likely even higher due to increases -- in rent as you did when working won't make financial sense on your retirement saving or pension check. This is why I want to buy a condo. The monthly maintenance fees for condos where I live are less than a third of what it would cost to rent!!
Condominium Owners -- Aren't you afraid of getting some spendthrift condo board in office that wants to make extravagant repairs and improvements and you are dragged along with the majority to pay your "fair share."
I've known people who lived for many years in a condo they owned but were forced out when the monthly maintenance fees exceeded their ability to pay in their later years because they were now on a fixed incomes.
I've noticed that working people with steady paychecks tend to believe everyone is situated just like them financially.
Hell, I know I was guilty of this assumption when I was working my career.
So where the hell is OP, hiding under his bed?
Buying with a 20% down payment, as opposed to paying in full, means you can leverage your investment. For example, if a $200,000 house increases in value by 10%, that's a $20,000 gain. If you bought it with a low down payment, maybe $40,000, that's a 50% gain on your investment. This happens in reverse, too, so you have to be careful.
The point is, if you are buying in an area where prices are rising, you can beef-up your gain buy putting less money down on the purchase.
The OP doesn't sound like someone who has the money to pay cash in full for a home, so I wanted to speak up to say that it is perfectly reasonable, and can be quite lucrative, to finance your home.
Op r13 is so right, buy a home you can afford and pay as much extra as you can afford every month specifying that the extra money is applied to the principal.
I paid my house off in 16 years and that is true financial freedom. Almost everyone feels the same as you when they buy their first house. Enjoy.
R57 Yes, good point about condo boards and that is the one thing that scares me. I will research all this before buying though and understand that I should check into past condo repairs/purchases as well as current rules and how old the roof is and any upcoming renos planned etc. The upside of condo living for me is that I don't like maintaining a yard etc. myself, plus the buildings I'm considering include heat, electricity and water so this will save me money on utilities. One building even includes cable. The other issue about condos is noise and I'm lucky that I can stay where I am until I find the top floor corner of my within budget dreams.
Yes also to your point about people assuming everyone has the benefit of a steady paycheck. Freelancers like me do not and that's the main downside of working for yourself. But, at least in my case, I save money by not having to have a car with the insurance gas and repair costs that go along with it. I don't have to spend time commuting everyday and time is money for me. I also don't have to have the workplace wardrobe. But yeah not having a steady paycheck is the hardest thing and why I will need to pay for a condo outright.
IF you work from home you can deduct the expenses of your mortgage, utilites etc from your taxes. You need to be very diligent though that the part of the condo you use for work is dedicated to work.
Couple of tax-related comments here ...
Someone found an internet cite that the deduction for mortgage insurance premiums expired in 2010. (Golly... if it is on the internet, it MUST be true, right?) Wrong. It was extended several times, currently set to expire (again) after this year, 2013.
As far as working from your home offsetting your mortgage costs, don't bank on it. For one thing, the rules for business use as an employee are very strict. You must not only USE a room/section of the house exclusively for business, but the usage can't be contrary to local or contractual law (E.g., if a HOA says you can't work out of your home, that nixes the deduction, technically.), AND the usage must be for your EMPLOYER'S convenience, not yours! So, if your employer LETS you work out of your home, say, two days a week, but you also have the option to come into the office instead, you get NO deduction for using that room, as it is clearly for your convenience.
And even if you qualify for business use of the home, you can only write off a tiny percentage (the ratio of that "exclusive use" space to the total square footage of the home) of the utilities, HOA, general repairs and maintenance, etc. You also claim depreciation on the room, and may have to repay that part of the tax benefit when you sell. And, last but not least, as an employee expense, this goes on Sch A, subject to the 2% of AGI limitation, so it might not even save you a dime of tax, over what you might save anyway from the mortgage interest and taxes.
Basic rule: NEVER buy a home PRIMARILY for tax savings. Depending on your income, other deductions, and amount of interest you pay, it might not save you a dime.
You can always sell on if you run into financial trouble &there's always going to be some element of risk. You know, it may still be more profitable to rent and make money from investments than getting a mortgage. I don't know.. you'd have to work it out.
Just pay cash for it, problem solved.
OP, is there any chance that you could pay cash for your hours? I can't imagine Mose people could.
Pay cash for a house, OP.
It's the gay way!
[quote]Pay cash for a house, OP.
It's the gay way!
I realize you mean this as a joke, but - in my experience - it is somewhat true, at least regarding my tax clients. As a group, my gay male (not so much, lesbian) clients tend to be more conservative about borrowing money for home owneership, at least putting down a much higher percentage as a down payment, as compared to my hetero clients, both married couples and singles.
I've also had more than my share of clueless clients who COULD have paid cash for all/part of their home, but felt it was better to get a mortgage for the whole thing, because "the interest is deductible." Uh, that doesn't make it *free* folks. If you are paying 4% interest, and are in a 25% marginal tax rate, that means it is still COSTING you 3%, after tax benefits. Does it make sense to have that money in a bank CD, earning less than 1% after taxes, when it could be saving you 3%?
R68, you're absolutely right, except the homeowner might have that money in the stock market, other houses, or other investments that are earning him more than 3%.
I have the bare minimum in my house, because it's only saving me about 3%, the cost of the mortgage less tax deduction; whereas I've made many times that investing in the market, year over year, for years.
Now is a great time to buy with super low interest rates and cheap houses.
If you are buying with a partner/spouse whatever and both work, if possible take out a mortgage that you can pay even if one of you loses your job.
[quote] Someone found an internet cite
r72, DON'T "Oh dear" TaxTrollEA. He gives out free advice year round, answers questions even during busy season.
And, I believe he meant internet cite as in citation, not as in website, which is perfectly correct.
It's all scary. You KNOW you're not getting that money back or making any type of investment if you rent. I guess they're security in knowing?
[quote] I guess they're security in knowing?
Say you have a home loan at around 5% with another 20 years on it, and the balance is around $200,000.
Now also say you came into a little money and could very well pay it off in one lump sum.
If you instead kept that money in a cd the best you could earn in today's sad rates would be 2%?
So wouldn't it be smarter to pay of the 5% home loan?
If I was asking this in 1985, I would have been able to invest that money in a far higher return percentage cd....
Buying a house was one of the smartest financial things I ever did. And I was scared like OP also. I work freelance and had the same concerns. There were some setbacks along the way, but I always had the option of renting out a room. Never had to. I bought by myself and in Los Angeles, so it can be done. The first place was an easy payment. Later, I bought a second one. Needed more space and privacy. That was a stretch but something I need to do for my sanity. The first I sold 8 years later at a great profit. Bought a building. That means rental income. Retirement income.
The residence equity is mostly a comfort on paper. Let's face it, until you sell you can't really use the money. But it gives you options in retirement. And in emergencies you can tap the equity if you have to. Not smart but it is security.
I look forward to paying it off. That is only a few years away. Though currently I am splitting my extra cash between advance principal payments and investing. I can make so much more on investments than I am paying on the 2.5% mortgage. It is a tough call. However the peace of mind of having a paid off house is going to exceed the satisfaction of having more money in the bank.
Just try not to buy at the top of the market. Especially in places that are not LA or New York. People will always want to live in those two cities, so values always come back. And don't buy in a crappy neighborhood. Like others have said, snag a fixer in the best neighborhood you can afford.
Condos? I think they are a bad call. They are the last to gain in value and the first to drop. Unless it is NYC. The market for those is much smaller in almost every city.
Are you paying rent ? same thing could happen - and they will evict you and you'll be homeless