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Should I buy now?

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shootabird

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Me and my wife are recently graduated and have stable jobs. Combined income of $88000/yr and combined debt of $100000. The debt consists of auto and student loan, no credit card debt. We are on a budget and save approx $3000/mo. We rent a studio appartment for $650/mo. I drive a respectable distance to and from work every day and we want to relocated mid-way between our jobs and would like to purchase a home when we do. When we buy we want to stay in the home for a long period of time and therefore want to buy a home that we like and is large enough to raise a family in. I understand that all property is in some manner an investment property but i am not looking to make a ton of money from buying at the right time. I just want a yard and a home to call my own. We dont have a huge amount saved up as we just payed for a wedding and only recently graduated college, but we are pre-approved for a FHA loan and are going to try to get %5 and go for a conventional loan depending on how long we can wait to move. I live in central iowa where the housing market is more stable than the U.S. average. We have excellent credit and would like it to remain excellent. I am somewhat concerened with buying as I don't want to do anything stupid and ruin my credit. Given our situation can anyone with experince or knowledge with home buying give any good advice with our situation in mind? Should we just be patient and wait longer, or take the plung when we move?
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July 26 - Central City
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lrryjrry

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1. In most places (especially california) prices are likely to be lower in a year, lower in two years. Ignore agents who don't understand this.
2. With a 20% downpayment, you get the best rates and NO PMI. This makes a good difference in the long run, also your offer is stronger to sellers, so you can generally get a bit better purchase price. THus renting and saving up for the larger downpayment will be beneficial to you in two ways.
3. If an agent ever says, "rent is throwing money away:" or as mentioned above, "you might as well pay rent to yourself" ask them why so many landlords are going bankrupt? ask them what paying taxes, insurance, interest on the loan and maintenance is? paying rent to the bank?

Anybody who says "now is the best time to buy" without considering the rising unemployment, rising delinquincy on loans (up 85% year over year) rising foreclosure filings (up 35% over a year ago) and impending option ARM loan recasts is either clueless or trying to get a commission.

Bob gave you the best answer. The price has no where to go but down. second wave of foreclosure have not yet hitted the market.
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July 28
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BMFPitt

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Absolutely! Home affordability has not been this low in over 50 years.

Actually it's the worst it's ever been other than 2003-08.


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July 27
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jal74

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What I would do if I were you. You want a house and yard, rent one. I realize in the normal course of events people get laid off; but with more frequency now! Rent, keep saving, and seek out a competant financial planner and/or cpa. Unless you have a business, I would work on paying off the autos and remove that debt from the equation. Auto debt is typically a high monthly factor and without it you can increase your housing prospects considerably. best of luck to you.

Good advice - i would only add that you don't have to think that renting is a long-term solution.  Given what's happening currently in the world, even Iowa isn't immune to whats happening.  In a year or two the financial picture will have become far more clear, not only for you but the country as a whole too.  If you keep on your savings track, pay down some debt and save for a nice downpayment, you will be in a position of strength.

The housing market is not like some other asset classes, where recoveries can have a V like trajectory.  Because of the "stickiness" of pricing, the low prices of today will be around for the next couple of years, so you have time to do it right.

Regards
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July 27
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Michael Russell, "real estate mike"

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What I would do if I were you. You want a house and yard, rent one. I realize in the normal course of events people get laid off; but with more frequency now! Rent, keep saving, and seek out a competant financial planner and/or cpa. Unless you have a business, I would work on paying off the autos and remove that debt from the equation. Auto debt is typically a high monthly factor and without it you can increase your housing prospects considerably. best of luck to you.
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July 27
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Rachel Miller, "racheltownsend"

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Absolutely! Home affordability has not been this low in over 50 years. Between the decline in home prices, the low interest rates, and the $8000 tax credit to first time home buyers, there's no question.
If you and your wife have stable jobs, good credit, and a down payment you should seriously consider buying a home. As to your concern about ruining your credit - this will only happen if you stop making your payments. Be wise in your home selection, make sure you are very comfortable with the payments and you'll be ok. I work with a national network of agents - if you need someone in your area to help you find the right home I'd be happy to recommend someone. Best of luck!
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July 27
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You guys just got married, carrying a lot of debt, have money to pay down your debt and have a need to move closer to your jobs, which will save money as well. Taking those things into account. Give yourself one year to pay down your debts and then reevaluate your situation. Remember life happens and when you make plans more things happen. Think about it in this manner: If you reach your written goals how will it effect your  Body, Mind, Heart, Spirit and are your DECISIONS based on your WRITTEN goals?

Angel-Mortgage Consultant



 
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July 27
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BMFPitt

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I'd assume that the only sub-2% student loans are government subsidized, but as long as you have the loans, why care how you got them?  (Maybe I am taking a leap by assuming that I am the norm, rather than the exception here as far as what I have in student loan interest.)

If I have 20k in cash and 20k in loans @ 2.125% and can make 2.6% on 5Y T-bills (or 4.5% in a decent bond ETF if you don't mind a little risk), then why pay it off early?

Now if they have 6% student loans then obviously that changes things, and renting while using any accurred savings to pay them down would be the best use of capital.  But I still say that if the student loans are low interest, then buying should be on the table as long as buy/rent is at least equal.
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July 27
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Nancy Lee, "An OrderLee Home"

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David' suggestion is excellent.  Talk to one or more finance officers.  Find out what you qualify for, what the down payment and monthly costs are likely to be.  Ask lots of questions.  Check out questions and answers on these boards.  See how the numbers fit into your budget and what you can really afford.  Hint: the very best house eats money in terms of occaisional maintenance and upgrades. 
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July 27
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jkonstant

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Alot of the advice given so far is very good. However, the best advice so far is...

"Rent.  You're too young and have too much ahead of you to start shopping for albatross neck ware.   Figure out what you're going to do with Act I of your life first... "

Don't think for one moment that renting makes anybody a second class citizen. It's just not true.
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July 27
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Randy_H

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So, if the inflation rate is negative, you should pay off everything, no?

Right now the only justification to carrying even sub 2% student debt is the flexibility/low-risk factor that *government subsidized* student debt implies.  In other words, if you have privately underwritten student loans, you should always pay them off since real-inflation (as experienced by you) is negative .. ie, there has been and continues to be deflation.

If you have Sallie Mae sorts of loans, then great.  Carry them on the basis of flexibility options.

As for the original questioner:

Rent.  You're too young and have too much ahead of you to start shopping for albatross neck ware.   Figure out what you're going to do with Act I of your life first...
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July 27
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If you are saving 3K, why wouldn't you pay down all of your debt?

I expect that most of that is in long-term low-interest student loans.  Mine are at 2.125% for 15 years.  No reason to pay off a loan that is below the inflation rate.  Even today you can find some no-risk ways to get a better return (though not nearly the spread there used to be.)
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July 27
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If you are saving 3K, why wouldn't you pay down all of your debt?  Your debt to income seems very high!
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July 26
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Roberto Ribas, "azrob"

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It depends. Compare the price to buy the type of home you are looking at, or thinking of, to renting it. If it will cost more to buy per month, then rent, give it a pass. Rent a new home instead, and use the time to pay off your car loans, and save up a larger downpayment.

1. In most places (especially california) prices are likely to be lower in a year, lower in two years. Ignore agents who don't understand this.
2. With a 20% downpayment, you get the best rates and NO PMI. This makes a good difference in the long run, also your offer is stronger to sellers, so you can generally get a bit better purchase price. THus renting and saving up for the larger downpayment will be beneficial to you in two ways.
3. If an agent ever says, "rent is throwing money away:" or as mentioned above, "you might as well pay rent to yourself" ask them why so many landlords are going bankrupt? ask them what paying taxes, insurance, interest on the loan and maintenance is? paying rent to the bank?

Anybody who says "now is the best time to buy" without considering the rising unemployment, rising delinquincy on loans (up 85% year over year) rising foreclosure filings (up 35% over a year ago) and impending option ARM loan recasts is either clueless or trying to get a commission.
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July 26
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BMFPitt

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If you can buy a house for around what you'd pay in rent for the same type of place, then go for it.  What are the interest rates on your car/student loans?  Paying off the car(s) might make things easier, but if you're putting away $3k a month you should have no trouble with a mortgage payment.

Just make sure you're making a rational decision based on the numbers, not just some emotional "I want a house."
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July 26
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David Baker, "halogroup"

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It sounds like getting approved is much less of an issue to you than some of the other things that most people do not think about.  Ideally, if you can find a home in the right place - that is what you really want - now is the best time to buy, period.  There are lots of reasons, and here is what I think they are:
1. You want to buy sometime, so buy when prices are a little lower.
2. Because you plan to be in the new place for a long time, buying now would be a wise financial move as rates are still very good (for now).
3.  Driving less helps our environment - and you'll be home from work to spend more time with your family as it evolves.
4.  The infamous first time home buyer tax credit never hurts to consider.  That's $8000 to start a college tuition fund!

Reasons you may not want to buy:
1.  Not ready for the commitment?  If you are paying rent, you may as well pay it to yourself.
2.  Can't find a home that you really like?  Take your time - there is not any rush (unless you want the tax credit).
3.  Saving up 5% for the downpayment?  This can be a deal-breaker....as FHA loans are expensive up-front.  It would be wise to speak with a finance officer and see what the numbers will look like down the road to see what is a better choice for you now.

I hope this information helps!
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July 26
 

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