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Question About Homebuying
Old 06-27-2006, 05:31 AM   #1
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Question About Homebuying

Hello,

I just took my first job and need some advice. I am going to work for Apache (Oil) and make right at 45,000. I am almost 23 years old and want to start investing asap.

My company matches 6% in 401k + has its own retirement plan that gives you an extra 6%. I am thinking about putting away 12% of my own salary into the 401k, but I have also heard it may be better to do a Roth. We do our investments through Fidelity, so if anyone knows any good stuff from them, let me know.

Also, I am going to live with my parents until I graduate(fall). I have saved up 15k from side jobs and other stuff since starting college. My truck is paid off, no student debt(thanks parents), and I am getting a company truck and gas card on top of that.

I am getting married next summer, and my wife if about to be graduate as an RN. She also has no debt because a hospital paid for her schooling. What this all boils down to is she will be making close to 45 and me also. We are looking to buy a house in about 8-9 months. I plan on saving as much as possible.

Do you people believe that you need to put down 20% on a house? I would like to put that much down because the houses where I live are relatively cheap. I was thinking of buying a house around 150-200. Just wanted to get some input, sorry for rambling on.

Thanks,
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Re: Question About Homebuying
Old 06-27-2006, 06:43 AM   #2
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Re: Question About Homebuying

Just a question: why, exactly, do you want to buy a house instead of renting? No kids, dogs, cats, etc., right?
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Re: Question About Homebuying
Old 06-27-2006, 07:15 AM   #3
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Re: Question About Homebuying

At your age I wouldn't put a large downpayment on a home. Chances are you will be out of that house in 5-7 years max. I would instead use the money to fund a portfolio even if its after tax money. Your rate of return should be higher than the interest charged on the mortgage. With so many mortgages that require you to put little or no money down with low interest rates it only makes sense to hold on to the cash. They have mortgages for first time buyers that are very favorable as well.
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Re: Question About Homebuying
Old 06-27-2006, 07:15 AM   #4
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Re: Question About Homebuying

I would put down 20% if possible, to avoid PMI.
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Re: Question About Homebuying
Old 06-27-2006, 08:24 AM   #5
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Re: Question About Homebuying

You can avoid pmi by doing 85% and 15% mortgage. Plenty of lenders offer loans like like that.
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Re: Question About Homebuying
Old 06-27-2006, 09:11 AM   #6
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Re: Question About Homebuying

Congratulations on the job and being currently debt free. You are very lucky and wise to be in such a good position. Your employer match is very good and do what ever you can to invest enough with your 401k to get the full match. Anything beyond the match is optional and the advantage is tax deferred growth. The downside is when you take it out it will be fully taxed. A Roth allows you to pay the tax now and take it out later with no additional income tax; only capital gains which should be at a lower rate than ordinary income tax rates.

Buying a house is a huge deal. I have done so many times. Some I lost my tail on due to market conditions...some I broke even and some I made a few $$. The first thing you need to do is ask yourself why you want one? Is it because you always wanted one or is it because you see it as an investment you can live in? Buying a house is not always a sure road to profit. Given enough time you might ride out a down turn in the housing market and eventually make some $$ but this is not a sure thing.

That said, you have to live somewhere. I would suggest renting for a while first to see how you both feel about it a year from now. Getting married is tough enough without adding house stress to it too. Renting will allow you more time together too...no yard work and will allow you to some more $$ (no taxes, no mortgage, no maintenance, less insurance...). If you think you are going to stay put for 5-7 years then buying makes sense. If you move in 2-3 years it makes it tough to recoup your closing costs or make enough on the house to walk away with more $$ for a new downpayment. Realtor fees are 6% in most places and that will eat into your profits when you sell.

Short answer....rent for a year...shop around...save...invest...enjoy each other.
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Re: Question About Homebuying
Old 06-27-2006, 10:49 AM   #7
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Re: Question About Homebuying

Quote:
Short answer....rent for a year...shop around...save...invest...enjoy each other.
I like this advice a lot.* While I don't miss my ex-husband after 25 years, I do look back fondly on the freedom we had when first married.* We both worked but because we had a small apartment, the rest of our time was ours.*

We went skiing, hiking, traveling...* *it's a contrast from my life with my partner right now.* If we're not working on the rental property we're working on our residence, or gardening, or taking a load of our crap to Goodwill... I'm looking forward to digging out, getting rid of most of it, and having some fun.*

What do you two like to do together apart from painting, furnishing, gardening, trash hauling, tiling, and cleaning? ;-)

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Re: Question About Homebuying
Old 06-27-2006, 10:55 AM   #8
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Re: Question About Homebuying

I too am 23 and interested in buying a condo. My fiance am I went to look at a condo in a very desierable area in Pikesville, MD. The condos have not been built yet but they are going to be ready in june/july 2007. The one we want is $350,000. The hesitation is that we are purchasing the condo for 2006 housing prices, but next year who knows what they will be worth. The first building is almost sold out and the second building is going to start at $360,000. Each subsequent building goes up $10,000 to $15,000. Is this marketing hype

Does anyone have any suggestions as to this type of situation?
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Re: Question About Homebuying
Old 06-27-2006, 11:35 AM   #9
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Re: Question About Homebuying

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Originally Posted by geeman
I too am 23 and interested in buying a condo. My fiance am I went to look at a condo in a very desierable area in Pikesville, MD. The condos have not been built yet but they are going to be ready in june/july 2007. The one we want is $350,000. The hesitation is that we are purchasing the condo for 2006 housing prices, but next year who knows what they will be worth. The first building is almost sold out and the second building is going to start at $360,000. Each subsequent building goes up $10,000 to $15,000. Is this marketing hype

Does anyone have any suggestions as to this type of situation?
That seems to be quite a financial commitment at your age. Do you even have the income to support this type of housing? If so, and you really want this, you can check what the terms are. You probably buy some sort of an option with the right to purchase the unit at a price that is fixed now. If you bail out, you will probably lose some or all of your option money or down payment and maybe some other fees. You can probably sell your option to another buyer before closing if you want to as well. It may be part marketing hype, but it is also convenient for the builder that they don't have to show it for months after they finished building especially since a lot of markets are slowing down.

Based on your age alone, I would suggest to just look for something more affordable

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Re: Question About Homebuying
Old 06-27-2006, 11:37 AM   #10
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Re: Question About Homebuying

or rent.
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Re: Question About Homebuying
Old 06-27-2006, 11:40 AM   #11
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Re: Question About Homebuying

Well, they want $10,000 now and $10,000 within 90 days. They said if we decide we don't want to live there when next year rolls around we can settle the condo and call it a day.

I make $60k and my fiance makes $40k.

In the Maryland area there is no affordable real estate.

We are currently renting at $1000 a month and we are tied in to the lease till June, 2007.
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Re: Question About Homebuying
Old 06-27-2006, 12:13 PM   #12
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Re: Question About Homebuying

Quote:
Originally Posted by geeman
We are currently renting at $1000 a month and we are tied in to the lease till June, 2007.
My guess is the mortgage, taxes and insurance will be close to $2500/month.

Maybe the place you are looking to buy is a lot nicer than the place you are renting. Otherwise, why would you spend over twice as much to provide the same thing: a roof over your head?
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Re: Question About Homebuying
Old 06-27-2006, 12:14 PM   #13
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Re: Question About Homebuying

I bought my house at 24 when I was still in grad school. I really don't see many advantages to buying so early. I would have liked to live by the lake, or within walking distance to the greenbelt, or downtown, etc. I could've rented out my house but that's a pain. There's also the PMI, which increases your payments -- I should've saved for 20% down. Then there's running to Home Depot on weekends instead of hanging out with friends who have fewer responsibilites. Add in the mortgage drag, as justin just noted, and it's an easy conclusion: Wait, wait, wait.
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Re: Question About Homebuying
Old 06-27-2006, 12:15 PM   #14
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Re: Question About Homebuying

Quote:
Originally Posted by justin
My guess is the mortgage, taxes and insurance will be close to $2500/month.

Maybe the place you are looking to buy is a lot nicer than the place you are renting. Otherwise, why would you spend over twice as much to provide the same thing: a roof over your head?
Investment, tax deductions, better location...
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Re: Question About Homebuying
Old 06-27-2006, 12:29 PM   #15
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Re: Question About Homebuying

Quote:
Originally Posted by geeman
I too am 23 and interested in buying a condo.* My fiance am I went to look at a condo in a very desierable area in Pikesville, MD.* The condos have not been built yet but they are going to be ready in june/july 2007.* The one we want is $350,000.* The hesitation is that we are purchasing the condo for 2006 housing prices, but next year who knows what they will be worth.* The first building is almost sold out and the second building is going to start at $360,000.* Each subsequent building goes up $10,000 to $15,000.* Is this marketing hype

Does anyone have any suggestions as to this type of situation?
When DW and I were 25, we bought a condo that cost a little over 1X our gross income. It was low maintenance and the monthly outlay after taxes was less than rent. It worked out well for us.

You are looking at a condo that will cost 3.5X your gross income (!). You will be carrying PITI plus probably a healthy monthly maintenance bill. You are looking at new construction, which tends to have delays, etc. Plus the real estate market in the overheated northeast coastal markets is rapidy coming unglued. Doesn't sound all that great to me.

If you manage to scrabble 20% together for a downpayment, you will be looking at a 280k mortgage with a ~$1800 payment. Add $100 a month for insurance and maybe $400 a month for maintenance, plus another $100 for utilities, and you are knocking n the door of $2500 a month. Doesn't leave you much wiggle room if one of you loses a job or something else happens. There is also a very real possibility that you could be trapped in the house if the RE market really tanks.

I think the builder is using classic sales pressure tactics on you. Walk away. There will be plenty of condos for sale in the coming years, likely at lower prices than today.
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Re: Question About Homebuying
Old 06-27-2006, 12:34 PM   #16
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Re: Question About Homebuying

Quote:
Originally Posted by geeman
Investment, tax deductions, better location...
Hey, it's your money! What would rent be for a similar location with similar type housing?

Has the market started dropping in your area yet? I've heard a lot of places in N. Virginia have started to slow down a bit. Just remember investments can go up or down. What happens if that condo you're looking to get is only worth $300k or $250k come closing time? Are you just out of your deposit if you walk away?

A condo will require less home depot trips than a single family house, but be prepared for overseeing the construction at some point and following up on a dozen issues the contractor overlooks. Then in the first few years you're gonna have issues with stuff not covered by the builder. The joys of homeownership.

If you want to invest in real estate, why not buy a reit? At least that way you can't lose more than you put into it.
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