Profile picture for tcabaco

Should I buy or continue renting?

Hello everybody!

Sorry for the empty thread... I've posted the content as a reply, two to be exact... the form was giving me a character count error, but it allowed me to post as reply... weird... Sorry about that!
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February 06 2013 - Fremont
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Profile picture for tcabaco
(From what I've been seeing throughout Zillow's advice section) I guess I should start with some details about me:
Age: 26
Base Salary: $140k
Other Income: Around $80k (Bonus and Stock)
Savings: $35k
Current Rent: $2,300 (relatively new apartment complex, 2Br, 2Ba)

I've been pre-approved for an FHA loan with a purchase price of $755k. If I max out that loan I'm looking at a monthly payment of $5,000.

I'm looking at 3+Br 2Ba homes, potentially with room for improvement (FHA 203k) which will really make it my own, ”something that's really really really appealing to me. 3+Br 2Ba rentals in Fremont, and that allow for pets (big one) in the areas we're looking at (safe and with good schools) go for $3,000/month or more. My question or debate is: is the extra $2,000/month that I'll put in to the mortgage payments (if I max out my loan amount) worth it, vs having a $3k/month rent?

But like I said, then I think about the extra $2,000+ a month I add to the mortgage, if I buy instead of renting.. that's like $24,000/year... it's a lot of money. I could save that or use it towards a nicer life style... Thoughts?

Thanks!
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February 06 2013
Profile picture for tcabaco
Some more info/thoughts...

The reasons for me buying are:
- Satisfaction of owning a home (I'm not a US citizen, moved here to study and now work, would be quite a personal accomplishment for me to own a home here)
- Make it meet my, and my family's standards through renovations etc.
- Investment opportunity. I feel like I'm literally burning the money I pay for rent right now, when I could be putting it towards a mortgage... wrong thinking?

Should I be talking this over with a financial planner/advisor? Someone who can look at my financials and tell me with what I'd be better off?

Also, it's not the Peninsula (Mountain View, Palo Alto, Sunnyvale, San Mateo, Burlingame, San Francisco, etc)... it's Fremont (good areas) and a couple of pockets (Cambrian and Evergreen) of San Jose........ humpf... so stressed and confused.... thoughts?
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February 06 2013
Let me preface this by saying, I don't sell real estate in Northern California (I work in Portland, OR). But I do think I can speak to some of your general concerns/questions.

First and foremost, if you feel like you're 'burning your money' by renting, you're absolutely right. The benefit of renting is flexibility (you can get out of a lease) and cost to rent. Flexibility will always be a benefit of renting. But (at least in Portland) renting is now actually substantially more expensive than buying. Rule of thumb in Portland is that a house rented at $1,500 a month would likely have mortgage payments around $1,000-$1,200. 

On top of that, prices are on the rise up-and-down the entire West Coast. We are expecting a 3.1% increase in sales price between now and the end of the year (homes rise on average around 3.1-3.4% a year). Last year we had a 1.1% increase in price, an indication we hit the bottom and are on the way up.

On top of that, we are locking in rates around 3.3% right now. We expect it to be 4.4% at the minimum by early 2014. So, for example, a home that cost $200,000 at a 3.3% right now would equate to a monthly mortgage payment of $886.96. Next year that same house would be worth $206,200 and with a 4.4% rate, monthly mortgage payments would be in the $1,032.87 range.

So, looking at just the basic indicators, if you're in a position to be able to buy (can finance it and will be able to live there and make payments for years to come) then it's absolutely the right time to buy. And, considering owning a home seems to be a goal of yours, that's all the more reason.

Nick
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February 06 2013
It's a great time to buy without much question. We have never seen an opportunity like this and we may never see one this good again...  Prices are down and rates remain near record lows. There is no doubt that this is a great time to buy.

Hope this helps,

Ben

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February 06 2013

Since homeownership is something that you are contemplating and interest rates are at an all-time low your best information source would be talking to a lender or a loan broker.  You would discuss your financials such as down payment and income, this will give you an idea as to how much you would be looking to spend while still maintained a payment you are comfortable with.

When you come up with a price point take a look at what is available for that price and see if it is something you would be interested in. It is a strong sellers' market with limited inventory so competition is high for buyers right now.  Buyers have been putting offers on homes for months to have an offer finally accepted.  Buying a home right now takes desire, commitment and patience.

I wish you all the best in whatever you decide.  Kudos for you for seeking out advice from those in the field.

Samantha

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February 06 2013
Wow, you are doing very well for youself, congrats.   Opinions vary, and you do not have to own your own house.  However, interest rates are very low, I work with many first time home buyers and majority of them are finding properties where their total mortgage is actually less than the rent they are currently paying, plus they actually own their house.  There are many advantages to home ownership, including tax write offs (please talk to an accountant for specifics).
If you are interested, consider starting the process by talking to a local lender to get pre-approved, discuss money down, rates you qualify for, interest rates,  and etc.   Once you are pre-approved, find and interview several local Realtors.  Start the relationship now and remember, buying a home should be an exciting and educational experience.
Best of luck.

Spirit
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February 06 2013
Profile picture for tcabaco
Thanks for the replies everyone.. 

In case it wasn't clear I have pre-approval letters, for an FHA loan and a purchase price of up to $755k... That basically comes down to $5,000/month (if I find something that requires the full loan amount)—already did the math with my lenders...

And that's my problem (I think) is that I could be living in a rental for $3,000, maybe more, maybe less, depending on district, schools, etc... That's about $2,000 less than what my mortgage would be...

Still, it's not my house, not up to my standards, and I plan to be here with my family for a very long while.. My question (I guess) is: would you guys look at the $2,000 difference per month as something you could live with since:
- it's MY house, can make it meet my standards? (home improvement)
- investment?
- personal satisfaction?
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February 06 2013
I wholeheartedly agree that today is the right time to buy and lock in a 30 year fixed rate loan. Interest rates will be on the rise and inflation will soon will bump up faster because it has to. It is no surprise that the government has been borrowing itself out of problems over the past 30 year and the Fed has been printing more and more money - hence the dollar is getting and will continue to get cheaper. Operation Twist will someday be over and when it is, interest rates and inflation will rise. These forces will counterbalance each other. By buying a home today, you will win all the way around. Your home will appreciate modestly due to inflation but not at a rapid pace due to higher interest rates. This may leave you with a theroetically low purchase price today, a very low interest rate, AND you will be paying back the interest with cheaper dollars. Win, win, win. The private equity guys get this and have been buying residential homes like crazy. The smart money knows that too, that's why you see so many all-cash buyers. So, in short, buy! Besides, rents will continue to go up.
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February 06 2013
Profile picture for MatthewSpeltz
Do the math.  I've been using this calculator for a while, and it will detail out what you can afford, and when everything will pay itself off.

http://michaelbluejay.com/house/rentvsbuy.html
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February 10 2013
You should rent.

Short and sweet, I believe that a hybrid of home-as-investment will result in compromises to both home and investment.

Buy a home or rent because of the lifestyle choice. Buying a house that compromises your lifestyle because it makes financial sense is just another way of buying yourself another job.

If you think real estate ownership makes financial sense, then buy an investment property. But don't compromise your lifestyle - the place you go to when you're off work - because it might make you some money. You already have a job, don't take on another.
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February 10 2013
If you are considering buying just make sure you are financially secure when you go in. Even if your payment is lower, the cost of home ownership can be greater at times. If that ac unit or heater goes out it is you paying for it and not the landlord.

Long term I think owning is almost always better. You just need to make sure you are well established financially. Have enough for a downpayment and closing costs and still have a few months in am emergency fund after that is what I always recommend. 
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February 10 2013
I believe renting is a waste of money unless you are planning to be there for a short amount of time. With rates at an all time low and home prices as low as they are you cant go wrong buying your own place. In most cases you can now buy places for less than what rent would cost you each month. Why pay a landlord each month when you could be building equity in your own home? Most people have the issue of getting pre-qualified and coming up with the down payment and closing costs. But from the looks of your income and savings, you should have no issue getting qualified.  
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February 10 2013
Rates are at historic lows.  It sounds like you are doing very well at a young age.  I think your monthly payment would be much better spent toward a mortgage payment rather than a rent payment.  Think of the long term benefits of owning.

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February 10 2013
Did you take into account the tax write-offs you will get if you purchase?  This could make the difference much smaller between monthly rent and mortgage. You may want to talk to your accountant about that and calculate what size mortgage will optimize your tax savings.

Also, if you're going to make a purchase do it soon because FHA is raising their upfront and monthly premiums as of April 1st. And if you're making a down payment of less than 10%, then you will have mortgage insurance for the life of the loan. Although FHA works great because it allows a smaller down payment, your monthly payment gets hefty pretty quickly.

You may want to save some more money for a bigger down payment and then you can get a conventional or jumbo loan. Rates are historically low across the board and you will throw away less money on premiums if you don't go FHA. I would suggest you talk to your lender about this and get their thoughts.

Good Luck!
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February 10 2013
If you are able BUY! Rentals in our area are priced so high that buying has never made more sense if you are qualified! Its the best time ever when you factor in Prices and Interest rates!
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February 12 2013
I agree with many of the other agents... It is a great time to buy. Interest rate have nowhere to go but up. Prices of homes are going up monthly in this market (Grand Rapids MI). 

It kills me to see how much folks are paying for homes (755k). In Michigan that is extremely high end. You could get a 5000sqf with 60 acres, only 30 min away from the city. Move to Michigan, we need buyers with your buying power.

Contact me and I will get you into a vacation home for under a 100k.
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February 14 2013
Now is a great time to buy. Prices are starting to go up in many markets. Interest rates are still low but the government support(they buy Treasury bills which are used to lend the money) is showing signs of being cut back. On a 200000 mortgage if rates go up 1% from 4 to 5% that starts at $2,000 a year interest or $166 a month. That also lowers your mortgage approval by $ 35,000. $166/4.77(cost per 1ooo). Buy now before you pay the price.
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February 26 2013
Rental market have been showing a huge increase in the past 6 months, as foreclosures and short sales declined.  The magnitude of rental demands has increased so much that is cheape to buy a 3 bedroom home than rent in most major US cities.  Reason for this increase is the lack of rental inventory. 
With home affordability at it highest levels and mortgage rates the lowest in 40 years,  2013 is a great time to buy.
Owning a home brings pride, equity and tax benefits.

Best of Luck,

Maria Cipollone
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March 05 2013
In my opinion, this could be the best time in our generation to become a first time home buyer. The U.S economy still is recovering and the housing market is still far from being at its normal conditions. 

However, for first-time home buyers, this is still the best time to buy a home. Affordability, is the key and it tops all other reasons!. 34% decline in the housing market coupled together with historically low interest rates at around 4% for a 30-year, fixed rate mortgage, makes it  still the best time to buy a home. Comparing these two important indicators of real estate with the current rental market, makes home buying much more cheaper and sensible. "Trulia figures that buying is cheaper than renting in 98 out of America's 100 major markets". 

First time home buyers are different in the sense that they were not the victims of the housing market crash and the financial turmoil of 2007. They were not home owners then and so were able to escape the age of negative amortization, adjustable rate mortgages and other risky mortgage products that left many homeless. Considering they're buying a home that is 20-30% below the housing peak price and along with low interest rates, makes it a heck of a great time to for first time home buyers to buy a home.
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November 05 2013
 
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