Profile picture for billy269

Advice on my situation. First time buyer.

My wife and I offered $105K ($53/square foot) on this house and it was accepted. With $25K down (my savings and investments are at $72K), our payments on a 15 yr loan will be about $750/month with property taxes and insurance. We are paying $800 rent now, but utilities at the new house will be about $100 more expensive. We are in our late 20s.

We are currently in the inspection period. Foundation is perfect. Roof is new. Well is in great shape. Electric is fine (the circuit box needs a little work). Septic is somewhat worrisome: 15 years old and is a pump/shallow mound leach field. Inside needs painting and could use some remodeling in kitchen and bathroom. Home sold for $335K in 2005.

My wife and I average about $3000-$3500 net income monthly and have no debt. We are both from this area and want to stay here permanently as long as we can keep our jobs. We do not plan to have kids.

With this info would you stay renting or does purchasing this home seem reasonable?

I GREATLY appreciate your time and help and really value this website and forum.

  • July 12 2011 - Quincy
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Answers (19)

Based on the information you provided, buying appears to be the best choice, provided property values in the community you're buying in have a better than average chance improving in the future.

Good luck!
  • July 12 2011
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Thanks for posting your question here "billy269".

I have to go with the standard answer, "it depends" and I am sorry and hate to do it!  We would need to be familiar with your local market to tell you that.  Did it bottom out, is it a landlord's market like most of America, will it be worth a lot more in the future, etc....

Wished I could be more of a help but without local knowledge, I would just be speculating.

Good luck.
  • July 12 2011
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Profile picture for the_country_hick
Find out how much the septic could cost to replace. If it costs $15,000 or more the concern is a lot different than if it costs $3,000 to replace. The pumps in that type of system do need replacing every few years as they wear out.

I do expect that house prices will fall further. However, you are looking at spending an extra $50 a month to own instead of to buy. You are planning to stay there forever. Do not forget that every year insurance, taxes, maintenance, and utilities are likely to cost more.

Paint is cheap. Even replacing the circuit breaker box should not be to expensive. Remodeling is a personal decision not a necessary expense. Just because it is old does not mean it is not still very usable.

In short, if you like the house and are sure you will stay there for at least 10 years buying is not a bad decision. Myself I would pay an extra $50 a month to own (ESPECIALLY for 15 years) instead of to rent (especially when it is utilities adding the extra $50) if I was staying there long term (over 10 years).

Be sure to negotiate some down on the price for the actual problems there. The outdates are not negotiable. You already made an offer knowing they were there. If it needs $2,000 of repairs that is a good reason to negotiate down.

Be sure to save $100 (or more) a month after buying to cover some maintenance issues that will arise.

This sounds like the numbers work for you. Even a 30 year mortgage with $0.00 down the numbers work out. In 15 years you would pay an extra $600 a year that adds up to $9,000 more to own than to rent. Even if you spend $30,000 in maintenance in that time you are far ahead of renting as you will own the house outright..
  • July 12 2011
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Profile picture for Sydney10
Is it in a desirable location?  Is the neighborhood stable or improving?  Are nearby homes well kept?  Are crime rates low? 

If the septic tank can be handled for a few thousand dollars or less, I wouldn't think of that as a deal breaker.  Few houses are perfect.  Same for interior cosmetics.  Relatively easy stuff like paint, appliances, flooring, light fixtures can be done as time and money allows.

Just be sure to budget for both routine maintenance and unexpected repairs over time. First time buyers can be surprised at how much of that comes with any house. 

Overall it sounds like a good move.  Rents usually increase 3-5% per year.  But if you buy now, you lock in a relatively low fixed monthly payment, plus you'll have a paid off home in only 15 years.  Hard to go wrong as long as the neighborhood is good.
  • July 12 2011
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very familiar with the Quincy area and the rest of Plumas County. If a house sold in 2005 for $335 - the average depreciation has been about 40% in the county. I would definitely get an estimate on a new septic. Question - are you using an agent? if so, this is standard fare for their involvement. If not, that is another story. I can give you the names of reputable septic/leach field "installers"  - let me know.
  • July 12 2011
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There are many positives to buying and renting to be honest. I can see the stablilty you will have to purchase this home but it also weighs on the market as well. Get an estimate on the septic so you have all the information. At that point go with gut feeling. Sometimes at jump into a new situation like buying this home can me a bit scary but it can be the best choice you make. Don't over think it and I know you will do great!
  • July 12 2011
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Profile picture for billy269
Thank you everyone for the advice.

This is the home: http://www.zillow.com/homedetails/39877-State-Highway-70-Quincy-CA-95971/83371613_zpid/#{scid=hdp-site-map-bubble-address}

Thank you Lee for the input. Since the value of this home has dropped 68% and you say the average for this area is 40%, wouldn't you say this is a pretty good price?

I will be getting the septic looked at on Friday. From what I have heard, a new mound septic would be between $10-15K. Yikes!

Actually, I posted incorrectly earlier. We have passed the inspection period, so if we cancel now we will lose our $5000 earnest money...
  • July 12 2011
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No brainer to buy on this deal.  Not only because its 15 years and you will build equity twice as fast but their is a profit return as well.  Things will need to be replaced as time goes on, that is part of home ownership.  But rent gets you no where.  $750 a month is out the door and no return, you will at kleast get tax benefits off the $800.  Buy and good luck!
  • July 13 2011
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still have to ask why your agent did not make this happen during the inspection period???? I looked this up in MLS - looks like a good purchase based on comps. If it is only the field that has to be replaced (new location required) the price could be less - if the entire system it could be more. Who is looking at the system with you>
  • July 14 2011
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Profile picture for jrtpapa
ok listen. im not a realtor... im a potential home buyer as well. strictly from a financial perspective there are SO MANY factors. our feeble brains cannot handle it all and so we use shorthand like "you can deduct the interest" and then allow that to dominate the decision. Do this. go to the new york times rent vs buy calculator. google "new york times rent buy" and it should be listed at or near the top. it lets you add in just about EVERYTHING. however it does not add in annual increases in taxes/insurance/maintenance as far as i can tell. so you might put in somewhat higher numbers to account for anticipated increases.  good luck bro! great you've saved that cash and you're only in your 20s.
  • July 14 2011
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Profile picture for billy269
Again, thanks so much to everyone.

Just had the septic inspected and pumped today. It looks like when it was put in 15 yrs ago they did a really nice job and the alarm and pump are working perfectly, and nothing wrong with the leachfield. The inspector did not anticipate any problems in the near future with only the 2 of us in the house.

Lee: I don't know. Our agent said it was "inspected" but it was only a visual inspection which does not tell you anything.
  • July 14 2011
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you are very lucky! . Just curious, are you working with a local agent or out of area agent?
  • July 14 2011
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It sounds to me , based on your information, that your  choice to purchase is a good one.
Even if you have to replace the septic pump and do some updating. You are doing it for yourself. If you rent you are paying your landlords mortgage.
As long as you feel confident in your agent and your inspector, these are the experts that can tell you what to expect to spend.
Everything you do will add value to your home.
  
  • July 14 2011
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Profile picture for billy269
local agent

was not too impressed
  • July 14 2011
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Profile picture for shasta_steve

Sounds like you did great to me.   I am sure you will love your new house.  You are really in the perfect position.  Even if prices fall  a little you are still just about the cost of rent and with a fifteen year loan you are putting money towards the balance every money anyway.  For me the cost to keep up a place has never been a huge expense because I can almost always figure out a way to do most all the work myself.   I know I have always hated to rent and never end up renting anything as nice as I buy anyway. 

I love the Quincy area.   I grew up outside of Burney but almost moved there twice.  Once when I was a kid my dad got a job offer with Sierra Pacific there and about 10 years ago I was working for PG&E in the Bay Area and wanted to transfer out.  I had my bid in for Quincy but ended up going to work for another company.  The bid came up two months after I quit.  I would have stayed if I knew it would have come up. 

  • July 14 2011
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Hi Billy, I would change your financing to a 30 yr loan from a 15 yr loan so your not obligated to the higher payment. I always tell my clients that it is better to do a 30 yr loan and make one extra payment annually and apply it to your principal and it knocks the 30 yr loan to 15-17 yrs that way. You won't be obligated to the higher payment as there are many things that can arise during home ownership. You will then have a payment lower than what your paying in rent now which is more beneficial. Also with you paying $25k down, you won't have mortgage insurance which is a good thing too. I will look for the formula and add it to another post which will show that the extra payment paid to the principal at your convenience will pay off the 30 yr mortgage in 15-17 yrs.
It sounds like the price your offering and got accepted is a good deal as it is a third of the price 5-6 yrs ago which is near or at the bottom of the market in your area. Although I don't know exactly without the address to research it sounds like the bottom or near the bottom of your market value presently. Even if it wasn't the bottom and could fall say another $10k max at $7-8 dollars per thousand payment which is only $70-$80 dollars monthly and then the values rise and surpass the loss into equity. You don't want to be at the other end and just miss it and end out paying more. You Have Nothing to Lose and EQUITY to GAIN. Your in a win win win situation. It is perfect time to buy and pay less for a mortgage than rent. In the future of 5-7 yrs of homeownership most people refinance and that would negate the benefit of the 15 yr loan anyways.
Who knows, in the future you may have children and add a room onto the home which will double the value of what you spend on the home in equity. It also sounds like the septic may be an unforseen expense to fix or replace in the future too. I hope you take my advise and consider the 30 yr loan at 5% or less rate and make the additional payment annually at your convenience so that is near the same as the 15 yr loan without the obligation of the higher payment. Anything can happen in this economy and the less mortgage obligation you have the better financial position. Also home repairs, loss of income, etc. can happen in this economy and paying the extra payment at your convenience achieves near the same result. Congratulations to you and yours on your home purchase and the American dream of homeownership. I hope this helps with your decision and that your building your future equity and retirement. The important thing in the future is to know when to sell high and buy low. If you are fortunate to be able to buy another investment home to rent out with income from it and cash it in the future at the top of the market and keep your personal residence to be paid off in the shortest time possible. Or even better, sell it all at the top of the market and rent again then until it bottoms out and buy again all over at the bottom of the market. I screwed it up a few times thru the market back in the 90's and recently so I know how to do it now and when by experience after the facts, lol. Good luck to you and your home purchase.
P.S. I wrote all this or similar response and it didn't post so I hope it doesn't show up twice, lol. It was slightly different but the same.
  • July 14 2011
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I would definitely buy. Think about it this way. In 10 years, your mortgage will still be $750 a month. Do you think rent is not going to increase at all over the next decade? Also, when you have the house paid off in 15 years, you will only be paying for property taxes for the rest of your life (unless you sell). That will really minimize your costs and allow you to be more flexible with your assets. 
  • July 15 2011
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Sounds like you are an informed and rational buyer and are doing your homework.  Make sure that you have enough money to do the repairs and taken advantage of the current real estate market and buy!
  • July 15 2011
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So inspection passed alright, how about the appraisal now? Hopefully that comes in so you still get your 3% concessions. Sometimes if the value comes in lower, you get a purchase price discount and still get your concessions. Then there are others where they want to drop from concessions so I hope it works out well for you. I hope your considering the 30 yr loan verses the 15 yr loan with paying the extra one payment annually to make up the difference. Ask your lender to show you the formula...
  • July 20 2011
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