The "Looking to become a homeowner" Thread

[novicius]

No, rent is not "cost control" IMO. It's the exact opposite actually. It's a massive cost you pay every month that goes completely out the window. It doesn't go towards equity in a house or anything like that, it just goes right to a landlord.

Depends on the area; in my area, renting is cheaper than owning. So by comparison I'd say that the downpayment, interest and PMI (in the event you have less than 20% down) constitute "massive costs". Over a 30-year term, you end up paying as much in interest as you do in principle -- that's a huge amount of money paid to your bank IMO. You lose sleep over the idea of rent, I lose sleep over the idea of 100% interest paid on a long term loan.

If you live in an area with cheap rents, not only are you mobile but the buy-in price is very low (half of a month's rent for a security deposit?) and there are no repair costs. Nice and clean.

[Crazed_Insanity]

I'm all for home purchasing..., but I don't think TSG's points are completely baseless...

If your parents can afford it and willing participants, yeah, for sure utilize their help to build up your down payment asap. If your folks also need some income, then might as well pay rent to your parents at a discount price... rather than pay rent to some random stranger landlords. Point is you need to find ways to save up for that down payment as fast as you can in order to minimize waste. I don't think the main point was to just leech off of your parents just because you can!

Further, my central heat and A/C went out. I spent nearly $15k replacing it. Fortunately Federal government subsidized nearly half and I had 0% financing from home depot, but it's still a big hit. Termite treatments can also be expensive. I think I also need to replace my roof in a couple of years... and that should also be well over $10k. My house was built in the 50s, so things rotting away is definitely a possibility. The price I paid wasn't really for the 'house', but land. Yeah, majority of the cost is land! So one should try to buy the cheapest possible house in an best area that he can afford. If you're handy enough, you can definitely make a lot of money buying up a fixer upper in a great neighborhood.

Just buy something you can afford, and have your parents pay for the down payments if they can afford it and don't want you to remain in their house!

For sure one needs to be super handy himself... because there will conceivably be lots of little repairs that need to be done. The cost can add up if you had to call up professionals to come to your home to help you out every time.

If you are lazy or you know that you're just not very handy, perhaps it's better to just rent and rely on your landlord.

However, most folks here seem super handy. If you can work on your car, you can work on your house.

If you wouldn't lease a car, why would you lease an apartment? Cars pretty much always depreciate, and, unless you somehow ended up in a ghost town, houses pretty much always appreciate decades later even if you bought at a peak. Yeah, there are no guarantees, but the trend is pretty clear. The property you purchased... yes, the house may fall apart like cars, but that piece of land is yours forever... and earth's land surfaces won't be growing anytime soon, but population will continue to grow. Of course ideally you probably wouldn't want your house to fall apart. You absolutely need to take care of your house just as you'd take care of your cars.

Sure, one might have great reasons to want to lease cars, so one better also have great reasons to rent housing as well. Financially speaking, home purchasing usually won't be the wrong decision. In the event you lost your job and can't pay... what difference does it make if you get kicked out by the landlord or by the bank? You're going to be homeless and move back with your parents anyway. So you might as well invest your money on a piece of 'land'.

[Godson]

I have roofed houses, done drywall, plumbed, wired, painted, tiled, grouted, etc. There isn't much I can't do with a house (but I refuse to do electrical unless I absolutely need to).

FWIW, the only reason I still live with the rents at 28 is because of financial strain while I was in school (next to zero income for nearly 4 years). I was in the process of looking at houses back in 2007 right before the market crashed. I waited and it paid off for my patience, it also allowed me to change careers.


Good advice all around. Keep the info coming.

[Sad, little man]

Don't even know how to respond to that, except to say that is some seriously ignorant shit.

(Removing links to get under post character limit.)

Read, especially, this:


which suggests that the cost of home maintenance, on average, can be as high as 4% of the purchase cost annually. Those costs need to be figured into calculations when you determine how much money you're "throwing away" on rent - along with insurance, taxes, etc.

You also have a fundamental misunderstanding of what "cost control" is. Renting is *the* definition of cost control - paying a fixed, never changing cost for a result. Ownership is exactly the opposite of cost control.

It's great that you've had a positive one year home ownership period, but please check facts before you dispense advice.

Like Mario said, financial decisions should be made dispassionately, using defensible statistics where facts are not available. I wouldn't recommend anything other than that - and have only ever suggested factors that need to be included in that process.

Your first link... A woman's experience of home ownership that is inundated with superfluous costs. You can spend thousands upon thousands on a house if you want to. You don't have to spend a lot of that though. She mentions $4500 in furniture, hundreds in professional landscaping, and $5000 of remodeling. Are you kidding me? These are luxury items you are trying to disguise as just the basic costs of owning a home. You can apply the same principles to all of life. You can be as frugal or as free with your spending as you want in many cases.

The rest of the links re-hash the same basic points about all the costs of home ownership. The bulk of those links discuss things such as property taxes, home insurance, homeowners association fees, PMI, and the one time costs to close the deal.

I contest that, if you don't even realize that these costs come along with owning a home, then you don't have any business being anywhere near the dotted line that you sign on to buy a house. That is not what this conversation is about. These are not hidden costs of owning a home. They are right there in front of you when you close the deal in most cases.

You're right, I don't understand what cost control truly means. Congratulations, you know something that I don't. Unfortunately, it's just a contrived, technical definition for a very basic concept that anyone with any financial sense understands. We don't need to explain the difference between a fixed recurring cost and an unpredictable sporadic cost here.

You say that financial decisions should be made dispassionately, using defensible statistics where facts are not available. But... I do have facts. Sure, they are only facts that apply to me, so I offer them as only one anecdotal example, but they are facts.

My facts are, my house costs approximately $530/mo. This includes the mortgage, interest, taxes, property insurance. To rent a comparable house would be about $1000/mo. Even if you assume the worst case of 4% of the purchase cost to keep up the house every year, that comes to $3120/yr. I'm saving $5640/yr paying a mortgage compared to renting. Even with upkeep costs, seems like it makes sense to own this house to me. And this is making the assumption that every cent I pay into the mortgage goes to interest, which it doesn't. It's small in the beginning, yes, but some of it does go to the principal, so you can count that essentially as money saved compared to renting as well.

This doesn't even touch on the fact that, estimating conservatively, the value of my house has risen about $12000 since I bought it.

Will everyone's rent/own situation be this good? No, probably not. I got extremely lucky. I'm just offering my experience.

And with this, I'm finished discussing this with you. I already told you that I've lived in houses here in Michigan (and had the chance to experience everything that does or doesn't go wrong) for six years. And I've owned this house for two years, not one. You're skewing even the most basic numbers to make any advice I offer look invalid.

Why would I continue to discuss this when you've shown that you will just twist around anything I say to make it look like a pile of shit?

Depends on the area; in my area, renting is cheaper than owning. So by comparison I'd say that the downpayment, interest and PMI (in the event you have less than 20% down) constitute "massive costs". Over a 30-year term, you end up paying as much in interest as you do in principle -- that's a huge amount of money paid to your bank IMO. You lose sleep over the idea of rent, I lose sleep over the idea of 100% interest paid on a long term loan.

If you live in an area with cheap rents, not only are you mobile but the buy-in price is very low (half of a month's rent for a security deposit?) and there are no repair costs. Nice and clean.

It may be a little naive, but I don't really consider the down payment on a house to be a cost. Unless the housing market tanks again, the idea is that you will get it right back when you go to sell.

If we're going to discuss the interest costs of a mortgage over its 30 year term novi, then it's only fair to discuss the total cost of renting for 30 years. At $1000/mo. That's $360,000 in rent. Far, far more than the interest on most 30yr mortgages.

I can respect your desire to just want to rent and not worry about the house. But for me, the headache is more than worth the savings of owning compared to renting.

I'm all for home purchasing..., but I don't think TSG's points are completely baseless...

If your parents can afford it and willing participants, yeah, for sure utilize their help to build up your down payment asap. If your folks also need some income, then might as well pay rent to your parents at a discount price... rather than pay rent to some random stranger landlords. Point is you need to find ways to save up for that down payment as fast as you can in order to minimize waste. I don't think the main point was to just leech off of your parents just because you can!

Further, my central heat and A/C went out. I spent nearly $15k replacing it. Fortunately Federal government subsidized nearly half and I had 0% financing from home depot, but it's still a big hit. Termite treatments can also be expensive. I think I also need to replace my roof in a couple of years... and that should also be well over $10k. My house was built in the 50s, so things rotting away is definitely a possibility. The price I paid wasn't really for the 'house', but land. Yeah, majority of the cost is land! So one should try to buy the cheapest possible house in an best area that he can afford. If you're handy enough, you can definitly make a lot of money buying up a fixer upper in a great neighborhood.

For sure one needs to be super handy himself... because there will conceivably be lots of little repairs that need to be done. The cost can add up if you had to call up professionals to come to your home to help you out every time.

If you are lazy or you know that you're just not very handy, perhaps it's better to just rent and rely on your landlord.

However, most folks here seem super handy. If you can work on your car, you can work on your house.

If you wouldn't lease a car, why would you lease an apartment? Cars pretty much always depreciate, and, unless you somehow ended up in a ghost town, houses pretty much always appreciate decades later even if you bought at a peak. Yeah, there are no guarantees, but the trend is pretty clear. The property you purchased... yes, the house may fall apart like cars, but that piece of land is yours forever... and earth's land surfaces won't be growing anytime soon, but population will continue to grow. Of course ideally you probably wouldn't want your house to fall apart. You absolutely need to take care of your house just as you'd take care of your cars.

Sure, one might have great reasons to want to lease cars, so one better also have great reasons to rent housing as well. Financially speaking, home purchasing usually won't be the wrong decision. In the event you lost your job and can't pay... what difference does it make if you get kicked out by the landlord or by the bank? You're going to be homeless and move back with your parents anyway. So you might as well invest your money on a piece of 'land'.

Well, paying rent to your parents isn't really what I pictured when I heard the phrase "suckle the parental teet," so you're kind of arguing a situation different from what I was envisioning. I can respect someone paying rent that just happens to go to their parents. What I can't respect is the 30 year old guy with no ambitions in his parents' basement yelling for his mom not to forget the Cheetos when she leaves to go to the store.

I'm sorry your home ownership experience has been expensive. It's gone much worse than mine. Again, I only offer my experience as an example. I know that others' may differ.

Godson, you probably won't make out as well as I have buying a house. It's just the nature of the very unique real estate market that I'm in. It would be impossible to duplicate anywhere else. I'm just saying that it can potentially work out. And, I just don't feel like home ownership is half as much doom and gloom as tsg makes it out to be.

[Crazed_Insanity]

For sure tsg and myself are not arguing against home ownership. I think we both own our places and do not freeload off our parents... Just that parents can definitely help if they're rich enough. If not or I'd they're not willing, then too bad.

The doom and gloom situations are simply there to give people prepared. Owning a place is a good investment, but it will be costly at times. Women also love to remodel or redo landscaping... You have a lotus, and you'd really deny your spouse a request to beautify your home?

A house can certainly be a money pit, so inspect it carefully!

[IMOA]

While I'm sure some people will jump up and down and point at the GFC the reality is that over a 30 year period rents will go up, house prices will go up and with a mortgage what you owe will go down. To zero.

If I look at my place comparing interest to rents (and this is using what it was rented for 5 years ago when I bought it, it would be quite a bit more now) my interest payments are about 2/3's of what it would have cost me to rent and the increase in value is around double the interest payments. It's all well and good comparing rent to interest costs now but you really have to project that over 30 years of capital appreciation and rent increases to do a proper comparison and thats before taking into account mortgage payments end, rent never does.

[Kchrpm]

But that's assuming you're going to be staying in the same place for 30 years, and not just renting for now because you plan on (or want to leave the door open to) being somewhere else in <5 years. That makes things more complex, you have to add into your considerations the difference in profit you will get from a sale and what you will save in upkeep costs.

[IMOA]

Moving around a lot does cost more when you own but even still while you're in the market you're taking the capital gain and paying off the actual cost of the house. If I sold up and bought another place now compared to renting I'd be up by about 30% of what I paid for this place.

If you're going to rent make sure you're investing heavily as there comes a point when you won't be working any more and by then you either want to have very low housing costs or a big, inflation protected passive income to cover those costs.

[novicius]

It may be a little naive, but I don't really consider the down payment on a house to be a cost. Unless the housing market tanks again, the idea is that you will get it right back when you go to sell.

Heh, coming up with 20% down is a significant cost to most people -- but Tyler may very well be in your shoes (has a good paying job but still lives with family at the moment). So whereas I'm looking at a difference of saving up $40K for a downpayment vs. $500 + first month's rent, if you already have a sizable savings then buying a house certainly becomes a better argument.

If we're going to discuss the interest costs of a mortgage over its 30 year term novi, then it's only fair to discuss the total cost of renting for 30 years. At $1000/mo. That's $360,000 in rent. Far, far more than the interest on most 30yr mortgages.

Oh I use the New York Times Rent vs Buying calculator for all my data. With my parameters re: median home prices in my area, 5% down, PMI costs, a local 0.7% home price growth rate and the various other factors, I'm coming out ahead even in the far future. If the situation changes (namely, a massive increase in rent) then I may again become a homeowner.

You definitely have a great situation where you're at, SLM, no arguments there!

[Crazed_Insanity]

But that's assuming you're going to be staying in the same place for 30 years, and not just renting for now because you plan on (or want to leave the door open to) being somewhere else in <5 years. That makes things more complex, you have to add into your considerations the difference in profit you will get from a sale and what you will save in upkeep costs.

Let's assume that you know you won't stick around for 30 or even 15 years. Let's say you only want to be around there for 3~5 yrs.

Let's say your house costs $200k and you don't have that much cash on hand, right? So of course you borrow from the bank.

So after 5 years, let's say your house went up in value to $250k. Guess what, you just made $50k profit using not your money, but bank's money!!! But real estate brokers typically take 6% of total sale, it can be negotiable I suppose, but just a heads up that there will be costs associated in buying and selling homes. Not to mention capital gains tax if you sold your primary home without buying another in time... and of course banks make money off of you with interest they charged..., but let's not get into those details for now in our hypothetical situation. Just wish to illustrate the point that should the housing market go up in value, that is YOURS to gain. You don't have to put up $200,000 up front in order to cash in on that $50k profit.

Now, in a worse scenario, let's say your house price tanks $50k instead..., now you're underwater!

Well, if you still have your job or whatever income, it's still life as usual. If you find another job else where and need to move, you could just try to rent your place out to cover your mortgage payment. Basically to delay the sale of your home as much as possible. Eventually it should recover to a level when it makes sense for you to sell and make profit. Heck, if you can, keeping renting out the place as long as you can so that you can have renters pay your mortgage payments to the bank and still keep the house. After 30 years, your rent income would all be yours! Basically you're still making money off of other people's money over time.

Now in a worst case and unlikely scenario, you lost your job and you can't find any renters and your house is underwater, can't even sell it at a loss... pretty much everything is against you and end up having to just surrender it and walk away. About the only advantage renters have over the owners are that they won't have a ruined credit. But seriously, if we should end up in that kind of lousy situation, who gives a damn about credit? What good would a credit score of 850 do for a homeless person? BTW, bankruptcy won't even stayed in your credit history forever. You could still recover from that eventually when your luck turns around.

Moral of the story? If you can qualify for a home loan while having a job so that you can borrow other people's money to invest in your own home, you really should do it.

Capitalism is all about making money using other people's money. For us regular folks who are not super rich, home ownership is about the only way we can make gains in the capitalistic the system. Otherwise, most of us usually end up play the role of relying on job income and then play the role consumers... and continue to whine at the top 1% that this isn't fair!!!