Rent Vs. Buy housing

I'm glad you posted this. I've been vacillating between renting and buying and it sounds like I'm in a similar boat as you regarding savings.

For what it's worth, I'm most likely going to end up renting for several of the reasons people have listed in this thread: "hidden" costs of owning a house, mobility, and convenience.

Tenks_sl said:

All this is true and I wonder if renting is better for some people who don't generally keep money on hand. If I have less than $5k in my savings account I start freaking out and stop buying anything. I generally prefer to keep it around the 8-10k range, though, for peace of mind. So if something happens I have the cash on hand to deal with it. But with rent, like you said, you're just paying for the new roof little by little over the months.

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I'm doing exactly the same thing as you. I suck with investments so I'm putting everything into my house. We have a shit ton of equity in our house so my wife and I took out a home equity loan to cover any unexpected expenses and we can be aggressive paying off our house and not worry if anything comes up. We used to keep our account around 10k. Now anything over 3k in our account goes into our mortgage. Will have the fucker paid off in 6 months hopefully.

When you buy a house, you soon realize that you don't own the house... the house owns you.

I'm sure there is better ways to spend your money if you know what the fuck. We are doing it so my wife can stay home with our kids whenever we have them. That'll be easy without a mortgage. After that's finished we'll start investing.

Julian the Apostate_sl said:

I'm doing exactly the same thing as you. I suck with investments so I'm putting everything into my house. We have a shit ton of equity in our house so my wife and I took out a home equity loan to cover any unexpected expenses and we can be aggressive paying off our house and not worry if anything comes up. We used to keep our account around 10k. Now anything over 3k in our account goes into our mortgage. Will have the fucker paid off in 6 months hopefully.

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Deathwing_sl said:

Someone good with finance explain if that's good or not. Stock market grows at ~7% per year. If I have a 3.75% home loan over 30 years, why should I ever pay it off early, PMI withstanding?

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Dude, with interest rated where they are right now, paying down your mortgage as fast as possible is the WORST thing you can be doing with your excess cash. Yes, there is the impulse to eliminate debt (your mortgage), or simply having the feeling that you "own" your home, however with interest rates hovering around 3.5% it actually is a BAD investment to pay off your mortgage. Why? Well think of it this way: say you have $1000 excess at the end of the month. You can either use this to pay down your mortgage, effectively saving 3.5% interest on your 1k, OR you can invest that into a moderately conservative ETF fund and probably make double that in interest AND maintain your mortgage interest tax reduction.

IMHO, paying down your mortgage only make sense if you can't beat the interest rate via investments, and with mortgage rates being so low and the market doing well you are better of investing the money..

I actually have enough in savings to pay off my mortgage entirely, but I've made 10% interest on the money in investments that I would have not made if it was used to pay off the house. Remember, your house builds equity whether or not the mortgage is paid off, but you can only make money on investments IF you invest.

I need to learn how to invest. I saw some books in the finance section. Maybe ill pick them up. Personally houses get old. Always something to do lol...

I own two houses. I bought the first one when I was 24 and the second when I was 29. I rent a room in the first one to one of my best friends and rent the whole second one to a single mom who gets a big alimony check each month.

If you do not have your finances in-place ahead of time, you are going to be consumed with doubt and constantly worrying. So, don't rush things.

1. Figure out the lowest possible price range you can live with. $150,000? $200,000? $250,000. The banks will offer you more than you are comfortable, so don't fall into the trap of thinking, "Well the bank thinks I can afford a $500,000, so that's what I am going to buy!" Don't over spend or stretch yourself on your first house. You will regret it. Buying is already so stressful, and unforeseen things will pop-up and happen.
2. Look to your future. How long are you going to live in the house. You are basically committed for at least 2 years.View this article.
3. Calculate and save the 20% down amount you will need. $30k, $40k, $50k? Plus have an additional $10k on hand for living expenses.
   -No PMI "Private Mortgage Insurance"
   -Banks will be lined up to offer you loans if you put up 20% and you get to choose the best deal.
   -It's obvious, but your mortgage will be smaller if you put more in upfront. The more you put in, the lower your interest rate will be. They might even knock off an additional 1% if you go up to 25% or 30%.
4. I don't even recommend looking till you have your 20% and are pre-approved. You will be far less likely fall in love with something that you cannot afford. You won't have agony to have to watch as your dream house gets bought up.
5. Start looking for houses. Care more about the neighborhood than the condition of the house itself. Look for old people houses that died before they got a chance to update. Look for poorly maintained landscaping. Look for houses that need new carpet and paint. Cosmetic fixes are easy and cheap if you do it yourself and will send your home value up immediately. Look for extras like garage space. Avoid things like pools. Take notice of things like proximity to parks or traffic in the area (good/bad).
6. Get a good home inspection, which will cost $250-$500. They will give you an idea if you are buying a lemon or not. Bad electrical, cracked foundations, bad roof, or something catastrophically wrong will ruin you if you don't catch it upfront.
7. See as many houses as possible. It will give you a great idea of value. Once you see 15 or so houses, you will begin to price them yourself, without even seeing the asking price. I saw 30 houses over the course of 2 weekends before I found the one with the right value number for me. I had a good agent who knew I was ready to buy, so they were happy to give me their time.
8. Always give a lower offer than the asking price. If they counter, you know a deal is there to be made. If they deny, they likely already have another party offering more that you or they are not in a desperate position to sell.
9. Do your home work on the cost expectations of upgrades if you find the right place. Will you need to buy appliances? New windows, doors, carpet, or paint? Find out how much that stuff costs and see how much additional money you are going to need... after you cut a check for $40,000.
10. Remember, there are many extra fees that get tacked on to your closing: Homeowner's insurance, Title insurance, Document preparation fees, Appraisal fees, State recording fees, Credit report fees (should be free, unless you burned all 3 in a year), Property taxes (in some cases), Points or origination fees (pick a lender that doesn't tack these on).

If you are cash tight (or not), don't be afraid to ask the seller to pay a portion, or all, of the closing costs.

Deathwing_sl said:

Someone good with finance explain if that's good or not. Stock market grows at ~7% per year. If I have a 3.75% home loan over 30 years, why should I ever pay it off early, PMI withstanding?

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Guaranteed return vs. non-guaranteed return is what it comes down to really. But otherwise yes, investing in equities is probably a better financial decision than early payment of your mortgage in the long run with mortgage rates so low. I paid off my mortgage as quickly as I could, but that was mostly in 2007-8. Had I invested it in the stock market, I'd have lost my shirt on it and have barely gotten back to even by now, whereas my mortgage rate was about 4.25% at the time, meaning I "made" myself about 20% on that money (or saved that in interest costs). So it worked out for me in the end.

Frenzied Wombat_sl said:

Well think of it this way: say you have $1000 excess at the end of the month. You can either use this to pay down your mortgage, effectively saving 3.5% interest on your 1k, OR you can invest that into a moderately conservative ETF fund and probably make double that in interest AND maintain your mortgage interest tax reduction.

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Any ETF making 7% is by definition not a conservative one.

Frenzied Wombat_sl said:

IMHO, paying down your mortgage only make sense if you can't beat the interest rate via investments, and with mortgage rates being so low and the market doing well you are better of investing the money..

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The market's doing well? I've lost 5% of my portfolio's value in the last 3 trading days due to volatility. Nothing's guaranteed man.

Eomer_sl said:

Any ETF making 7% is by definition not a conservative one.

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It is in today's market. Put together something that is 60% large cap equities with 40% corp bonds (by definition a benchmark "moderately conservative" mix) and you've made 6.96% year to date.

Eomer_sl said:

The market's doing well? I've lost 10% of my portfolio's value in the last 3 trading days due to volatility. Nothing's guaranteed man.

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Of course it isn't guaranteed, and you know as well as I do that unless you need the money in the very near future volatility should be pretty much ignored. The point is that with mortgage interest rates being so low, normalized over the course of years it is practically impossible for you NOT to outperform the rate on your mortgage. Now if rates were 5-6% the argument changes significantly, but at 3.5% you'd have to be a retard not to do better through investing.

Also, in the US unlike Canada you can deduct the interest you pay on the mortgage from your taxes. This is HUGE. So if you paid $13,000 in interest you can just deduct this amount right of the top of your net income for tax purposes. Accelerate your mortgage payments and you reduce your interest paid..

Porkchop_sl said:

Even if I saved $1k a month, which is nearly impossible for me to do and still maintain a familyand decent lifestyle, that would take 60 months, or 5 years of saving and not using that money for any other life event.

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I think the bolded part is what separates people. Now "decent lifestyle" varies from person to person. If my sister didn't eat out for lunch every day, plus 5 dinners a week, and blow $150 at the bar on weekends, well, she just wouldn't be living a "decent lifestyle". Myself, if the wife and I eat out more than once every two weeks, and spend more than $20 for the entire meal, we feel we're wasting money. I'm not sure where on that spectrum you fall, but if you really want something, and you don't have money flowing outta your ass, you're going to have to give up something else to get it. It's a real change of mindset, and if my anecdotal experience is worth anything, most people don't have it. Do you?

ZyyzYzzy_sl said:

In the DC metro area, I can't realistically see putting 20% down on any of the houses I have been looking at, especially with the current rates.

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I know that feel, bro. I live in the DC metro area and it rustles my jimmies seeing people on here occasionally talk about the enormous, cheap houses they've bought out in the Midwest/South.

I think the bolded part is what separates people. Now "decent lifestyle" varies from person to person. If my sister didn't eat out for lunch every day, plus 5 dinners a week, and blow $150 at the bar on weekends, well, she just wouldn't be living a "decent lifestyle". Myself, if the wife and I eat out more than once every two weeks, and spend more than $20 for the entire meal, we feel we're wasting money. I'm not sure where on that spectrum you fall, but if you really want something, and you don't have money flowing outta your ass, you're going to have to give up something else to get it. It's a real change of mindset, and if my anecdotal experience is worth anything, most people don't have it. Do you?

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I've said the same you responded to, about living a decent lifestyle. It's incredibly hard with the ridiculously high prices for rent and houses in some areas.

I consider myself able to live a pretty spartan lifestyle, and yet I can still barely manage to live in the DC metro area. Rent on any place that isn't going to be dangerous to live will be a minimum of 950 - 1100, then add on utilities. Not to mention gas, insurance, and food. Hell, that $1100 rent is more than half of my monthly salary, then subtract the other basic necessities of life and I'm already surviving on about $500/month. That's not even counting unexpected expenses like car problems, medical issues, etc. It doesn't leave much opportunity to save; at most, a couple hundred dollars a month if you're lucky.

And all of that is for a single, young guy. If you've got a young family and you're trying to get established in this area I really feel sorry for you. It's going to be almost impossible.