Is it Time to Buy Our First Home?
|Buying a House or Buying a Home?|
Renting Versus Buying
Ever since my husband and I got married, my mother insists we should buy a house. I know she means well, but we are not financially ready to take the plunge. When we got married, hubby and I were making a total of $18 per hour together! He has since changed jobs and we have much improved our lifestyle, but I am still not sure that we could handle it. Please send advice. Is it smart to rent and be safe or to buy and worry?
More Than Just Income to Consider in Renting Versus Buying
Renting versus buying depends on factors other than your income. Consider the amount of your income only after you consider the other factors, which include the following:
- How long would you live in the house? If you plan to live in it more than five years, it might be smart to buy.
- How much debt do you have currently? Or, what is your credit-worthiness? If you have no other debt and are current in all bills, you may be more able to afford a mortgage.
- How secure is your current income?
- What are your goals in terms of starting a family, going to school, etc.?
- Are you willing to spend time taking care of your property? Owning takes more time than renting, whether you buy a house or condo.
Now, if you decide you want to buy a home, then consider what you can afford and where.
Frankly, from the tone of your note, it sounds like you are not ready. So don't let Mom push you into something you do not wish to do.
Look at Mortgage Calculators
Check out www.bankrate.com. In the middle of the page, you will find different calculators. Click on the ones for mortgages to see what you would be up against or would be able to do.
Think carefully about renting versus buying and make your own decision. The only right or wrong decision is made with full information and with your husband.
Have a Five- to Ten-Year Plan in Place
Never buy a home until you are ready. It is easy to make mistakes and buy something you wish you hadn't. It sounds like you are young and not totally sure where you will be in five years. Have you stopped to think that Mom may want to ensure that you don't move out of the area? Now can be a buyer's market if you have the right loan and down payment, but you must be sure it is right.
My niece and her husband bought an expensive ARMS house before all of the foreclosures. They both earn a good paycheck, but it is now an anchor for them. Her husband took an interview out of the area and one of the reasons he is not taking the job is because of the house. His parents, unfortunately, told them they couldn't have a child until they bought a house. Guess what? No baby. They are too busy with work for that. Before you buy a house, have a five- to ten-year plan of what you want to do with your lives. A house is an expensive commitment.
Mary in WA
Consider Taxes and Insurance When Making Decision
One of the factors I think this young couple should seriously consider is the cost of taxes and insurance on a home before making a buy or rent decision. In some areas, it is very hard to get good coverage and expensive to boot, adding not only the expense of the coverage but also the concerns of cancellation to the mix. We have been homeowners for many years and have considered selling and renting again just for the relief from that worry. If you have a mortgage, you have to have insurance.
The Time to Buy Is Now
In my opinion, the time to buy is now. The housing market is slow. In other words, houses are not selling. This makes it a "buyer's market." Houses in our area are going for thousands less than they were in the 1990s. If you had bought a house in the 1990s and were trying to sell it now, you'd end up taking a loss.
When the market picks up again, prices will increase. Who knows when that will happen? But if you buy now and the market improves, so will the value of your house. If not, you will have gotten a nice house for a decent price and you can live in it for a long time. If you want more house for the money, now is the time to take the plunge. Buying is usually less expensive than renting and interest is pretty low right now. It's a win/win situation.
Just be sure you get a fixed rate mortgage so your payment will stay the same and not go up at some point in the future.
This Is Not Mother's Decision to Make
I think you've answered your own question when you state that you're not financially ready to "take the plunge" and buy a house.
Renting is a wise decision if your financial situation is not stable or if you don't have a significant emergency fund in savings. First of all, if your financial situation changes unexpectedly (in the form of a layoff, for example, or a new baby), you're not bound to this property. You can move to a cheaper place as soon as the lease is up. Secondly, when (not if) major repairs become necessary, it's the landlord who will have to quickly come up with several thousand dollars to clean up a flooded basement or replace an aging furnace.
While buying a house is often a better investment in the long-term, you're wise to wait until you and your husband are financially stable enough to bear that responsibility. Your mother neither knows your full financial situation, nor bears the responsibility of making payments and repairs on your property, so she cannot make this decision for you.
Make Sure You're Ready
If you can afford to put 20% down on a home and can make the payment plus set aside each month the amount needed to pay taxes and insurance, then think about buying. Remember that there are closing costs involved in the purchase, so be sure you have those available as well.
A conventional loan is better than other types of loans because you can earn interest on the funds you set aside for taxes and insurance. You don't have to worry that the bank will increase your taxes and insurance payment to meet their criteria. You can also shop for insurance if your current carrier raises your premium.
Parents always want their children to buy a home. It's the American dream, but if you can't meet the 20% down, don't get yourself in trouble with a "get it now" loan that could leave you with nothing.
Take the Next Step
- Make sure you're not overpaying on your mortgage. If you haven't looked for a lower mortgage rate in the past year, use our simple tool that compares different lenders to see what your monthly mortgage payment could be. It's private, only takes a minute and could show you how to save thousands!
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