Is This The Perfect Time to Buy?


By Carlos Portocarrero

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M and I want to buy our first place. Why? We want to build equity some equity, we want to take that “next” step, and we want that feeling of ownership that you can’t get anywhere else.

It’s been very stressful going out to see different places because we’re starting to see that what we want and what we can afford aren’t jiving as well as we’d like. Which makes us think that maybe it’s not our time yet. Or that we should wait. Or that we should compromise some things. Or that we’re going crazy talking about it and should rent for the rest of our lives.

But right now there are three really good reasons to take the plunge:

  1. Prices are down: Not too much, but a lot of nice stuff that we couldn’t afford last year is starting to get down to our price level. In a year we may not be able to afford them, which means the time to act is now.
  2. Rates are low: Not as low as they were a few months ago (sub 5%), but still historically low. This is a pretty big deal.
  3. The Obama first-time homebuyer’s credit: We’d get an $8,000 tax credit as first-time buyers if we buy before December 1. Is that enough of a reason to go out and buy a home? No, but it sure makes it tempting…

But we also have some reasons not to buy:

  1. We don’t have 20% to put down: Putting 20% down is the responsible thing to do, but what we’re looking at now has us closer to 13%. Also, putting down less means your rate isn’t as good and you can get dinged with other fees.
  2. We like our big pile of cash: It feels really nice to have a big pile of cash sitting in the bank making us some interest. We aren’t stressed out about what could happen because we know we have the money to get through any kind of rough patch.
  3. We’ll feel pinched: This is the problem with being frugal—we already feel tight. Throw in a mortgage payment and the liability that comes with owning all the appliances and things can get real dicey real quick. Broken A/C unit?  That’ll cost you. A lot. A kid at some point? It’ll cost us.

What do all the current homeowners out there have to say? I need some words of encouragement to help us through this whole process.

Help!

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8 Responses to “Is This The Perfect Time to Buy?”

  • kasey at thriftylittleblog Says:

    I just commented my thoughts on fivecentnickel, but I wanted to see your take.
    I feel like you really need to go into a lender’s office and see how the numbers come out for you. I’m getting a 5% interest rate without a lot down (would you qualifiy for FHA?) and I will not be spending more than rent. In my situation, it doesn’t really make sense not to buy!
    If you want, you can check out my blog post for today so see more details on my experience.

  • Melissa Says:

    I purchased my first home in November and am in the middle of the refinance from hell right now. I spent well over a year searching for my house. I probably toured 60 homes with my realtor and looked at thousands just by driving by. My advice is to be realistic on the neighborhood you are looking for, don’t count out homes that aren’t “perfect” and by all means when you’re looking at updated homes, look for the expensive updates rather than the paint. I recently replaced a couple windows in the upper level of my house and am so happy that the owner replaced all of the windows on my main floor and basement before I moved in.

    As far as the $8,000 government incentive, that money is beans compared to what you will pay in mortgage interest over 30 years. BEANS. The extra money down is worth so much more than the $8,000 from the government.

    I spent a lot of time walking, biking, and driving up and down every street in the area I wanted to live in. Just when I thought I had seen it all, I found a little street that is off of an avenue, off of a semi major street that was completely perfect. Only 20 years old in an area that’s 80+ years old and completely perfect, even though it was nothing that I had in mind.

    Keep looking, take your time and don’t let anything – interest, government incentive, realtor, whatever – pressure you into moving sooner than is right for you. Every paycheck or month that passes before you close means a little bit more money toward your down payment and a little more cash toward your security.

    • Nut Says:

      Melissa: Thanks for the thoughtful response. It makes me feel like we’re doing the right thing by waiting it out. Thanks!

  • The Other Side Says:

    I think it’s a great time to buy. We thought about upgrading but we couldn’t sell our current house. But if you don’t have to worry about that, I think the time is right. I would make sure you have an emergency fund and I’d probably wait til you can save up the 20% dp. My 2 cents.

  • RB @ RichBy30RetireBy40 Says:

    It is a fantastic time to buy.

    At the end of the day, you have to just do the math. If the cost to own is equivalent to the cost to rent, I’d generally buy. If you plan to be in the area for 5 years, buy. If not, rent.

    There’s no right or wrong reason. Owning my propreties over the past 6-7 years have given me a strong sense of stability and responsibility. The property I bought 7 years ago is now a cash flow positive rental. The house I bought 4.5 years ago is just my home. I’m in the 35% federal tax bracket, and pay 9.6% California state income tax, so the mortgage interest deduction really works for me.

    I’d happily rent if I knew I’d just be here temporarily. The one thing I will highlight though, is that the housing stock is generally better when purchased than when rented, as landlords don’t update the property as nice as owners do.

    You’ve got to live somewhere, so renters who feel they’ve “flushed” money down the drain over the years shouldn’t feel this way!

    I can’t emphasize enough how much your tax break plays a part in the decision. If I was in the 10-20% tax bracket, I’d probably just rent because the deduction isn’t meaningful, and I wouldn’t have enough money for the median SFH in my area anyway. But in the 36% Federal bracket +9.6% state, I’m getting 46% back. On $50,000 in interest expense I spend, I get $23,000 back. That’s very meaningful to me, and makes ownership cheaper than renting my house.

    Rgds,

    RB

  • RB @ RichBy30RetireBy40 Says:

    Also, if you don’t have 20% down, don’t buy! B/c if you don’t have 20% down, that means you don’t have 40% down… i.e. generally, you should have a buffer = to another 20% down after your 20% down to survive just in case something happens.

    Best,

    RB

  • Dennis Says:

    Went “way out on a limb” in 1988 to purchase our first home. Paid $199K here in San Diego for the house we could stay in or the rest of our lives. Yep, it was scary! Yep, it drained all our cash (about $15K). Yep, the house payment was “up there”. But….

    Since then, we’ve refinanced several times. Each time DECREASING our loan amount (NOT taking more cash out of the house). We now owe about $135K and have about 9 years remaining on our newest 15 Yr mortgage at 4.5%. Our house payment is PITI, about $1600/mo. Seemed REALLY BIG way back then, but VERY managable now. House was up to probably $750K and now at about $550 plus or minus. DOESN’T REALLY MATTER though.

    BOTTOM LINE: When in doubt, BUY! There’s not been a better time to buy real estate in the last 30 years. Best PERFECT BUYING STORM we’ve ever seen.

    DO IT!

  • Can You Live off One Income? Says:

    […] ways, but it just doesn’t add up. M and I would have to move to a different apartment (forget about buying), save less than half of what we’re currently saving every month, and contribute a lot less […]

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