Dear Patrick,
Im 42. Always rented. Still I get people saying "now is a good time to buy". My first son is coming in 12 weeks. Wife wants the nursery painted. I can tell if we stay in our 1bed apt. With a full finished awesome basement. This gives us 1800 sq ft total for $1390/month. We have a good income 170k total and we are saving 3k a month for down payment. 33k so far. We found an ideal house in 07922 with 4bed 2 bath good basement great location. Top 20 school in state (out of 320). Price is listed at $435k. I won't pay over 399. Should I even bother. Realtor says it would rent for $2800/month. Anything cheaper is junk tiny cape that we won't take. This is a ranch. We like it. I'm still seeing reductions in this town but this house is better than those. Like a 500k house here we still don't like even if they drop it 100k. I'm scare that my 385ish home will be 299 in the next year or 2 or worse. I can afford the mortgage easily on my income alone. Wife's income is treated as
safety and savings and so on. Thoughts?
What to do?
By lazstan Follow Mon, 16 Apr 2012, 4:11pm 6,939 views 58 comments
In Berkeley Heights NJ 07922
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Corning, NY
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Do whatever is cheaper:
1) renting the house, or
2) renting the money to buy the house + property taxes + maintenance + insurance
renting money = having a mortgage
(the rent paid to borrow money is called interest)
You want to minimize the "money down the drain" every month.
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Palo Alto, CA
It's hard to stay the course renting in this environment. I saw a lot of friends who had their first kids in 2006 and 2007 and they locked themselves into really expensive Bay Area homes and now a lot of them are underwater (maybe just slightly). We've been happy raising our kids in a rented townhouse about about $2k/month. It's not just the difference of rent vs. mortgage, but the losing prospect of future house price decreases, especially with a second wave of foreclosures coming.
You have three or four more years before you have to start thinking kindergartens and such, and that's enough time to survey the housing trend.
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Pleasanton, CA
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lazstan says
Your fear do have some sounds basis. I'd wait until after the foreclosure wave. The first one was tough and I suspect just the warning.
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Davis, CA
Do not let yourself be swayed by "nesting" instincts.
The first weeks of my son's life we changed him on the coffee table. People were surprised we didn't have a proper changing table. Babies actually demand very little outside food, sleep, and changing. Much of the "preparation" people do for them is entirely irrelevant to the actual baby.
We lived in 950 square feet for the first 2 years of my son's life and he was happy as a clam.
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Oakland, CA
genesplitter's website
We have 3 kids (aged 6, 6, and 7 years old) and live in a rented house in Oakland - Rockridge. 2 bed, 1 bath, 952 sq feet. 3 kids share one room. We've been paying $1500 / month since 2005, substantially under market rate, and never a rent increase. We pay on time like a clock and I enjoy doing handywork. We have $200k saved up for a down payment but I won't settle for less that a 3 bed + garage or finished basement for the wood shop I've always wanted. The current going rate for that is $800k (in Rockridge), which is simply insane. If/when the price drops to $500k then I will buy.
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genesplitter says
then you won't ever buy.
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San Jose, CA
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B.A.C.A.H. says
Why the hell not? $500K for a crappy 3bdrm in Oakland, is more than generous. Granted, there are still a lot of very greedy boomers out there, who are still fixated on getting bubble-era prices for their shacks, but they will be dying off, soon.
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Santa Cruz, CA
How do you earn so much when you don't write good English? Just curious.
If you buy something, it's OK because later on you can reverse-mortgage it. Forget leaving it to your kid and you'll make out OK.
Why you haven't saved any significant money yet is a mystery also.
It's a toss up because the pros and cons are numerous.
Since I have only myself to please my decisions are much easier.
If I knew you personally, I would suggest you save up some more money and keep your eye out for something.
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lazstan says
I can relate to your situation, but I’m hard pressed to see how you can easily afford the mortgage based on your stated income, savings and the fact that in a few short weeks you'll have an all new (yet at times rewarding) financial responsibility.
You’re saving at a good clip - but you don't even have enough for 10% down. Not to mention you'll have closing costs, plus you want to have SOME cash in reserve. Life happens.
I tip my hat to you for saving 33k in a year, but that's not nearly enough if your price range is 400k. Wait a year. Adjust to your new bundle of joy. See where you’re at then. You may even need to wait a few years.... there are worse things in life.
My wife and I have been saving for almost ten years. When we started, we weren't even married yet. Now we have a toddler. Our max price is $300k, and that assumes 20% down (plus closing costs) with a decent reserve as a hedge against the unknown.
It's killed me because 1) we could use more space and 2) I've passed up some opperitites over the years as a result.
But, after seeing close friends loose homes, work three jobs to save their homes, etc, I'm glad that I've been patient. It’s not easy, but at least in my case its been the right decision. From the limited information you’ve posted I’d be willing to bet waiting will do you some good to… but its your decision. Best of luck.
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Vicente says
There's a difference between being prepared for the baby, (who will watch it during the workday) and using it as an excuse to become a bigger consumer that wants a bigger house. A baby spends 90% of it's first few months of life motionless in a type of crib/chair that takes up no more than 6 square feet. Even through age 5, 7 or 10 a child doesn't need any real space or privacy.
lazstan says
If you don't have the $$ in non retirement accounts to payoff completely the balance of the mortgage, or live off your non-retirement $$ for at least 5 years, then you are putting a huge chunk of your networth at risk. This is the biggest thing people fail to see when buying a house. If the cashflow stops in your life (you both lose jobs, companies go out of business, local economy tanks, severely disabled, etc) you are in serious jeopardy of losing a huge % of your networth simply because you can't pay a monthly bill. This is an insane risk when you think about it, and why I have a major issue with the institution of home ownership.
You have no $, 33k is nothing where you live. Just think for a minute if you were able to save 33-40k/year for the next 5 years until your child starts school. With a low risk, diversified portfolio you could EASILY be pushing 225-250k. Then you could put 100k down on a house and still have 150k in non retirement accounts giving you serious protection to your networth and your life.
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Rent4Ever says
I really don't get this argument. If the cashflow stops in your life, it doesn't matter whether you own or rent. You will be in serious jeopardy in either case.
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tatupu70 says
If someone who owns a home that they can "comfortably" afford. But isn't putting any real money into savings, because like most americans they are living at or above their means. They put some money down on the house, not a big % but all they had saved to their names, call it 50k. They live in the house for a number of years, build some equity up and then one of the above events happens. Their cashflow stops. All their networth is tied up in the house, so they have no liquid assets. They have to sell their house to get that money to support themselves, well if you don't have savings or cashflow you can't make the mortgage payment, you lose the house and your equity. There could be a number of reasons you can't sell your house when you want, it is not a liquid asset. You are therefore at risk of losing ALL OF YOUR non-retirment networth to foreclosure.
If they didn't own the home and had rented, they would have all that downpayment money, and all the extra money from the added costs of homeownership. So when that event occurred and their cashflow stops, their $$ is liquid and they have many many options and are not at risk for losing everything overnight. They can actually use that money to live on for a number of years until they can figure out a longterm solution.
Either way is a bad situation, but the second is a hell of a lot better. You still have control of your life.
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lazstan says
You can stop right there. There's no point in debating this further, if you don't buy a house and continue to rent you will hear about it everyday from her for the rest of your life. Happy wife, happy life. Good luck with the alternative.
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Wants and needs are two different things, IMO. You want to live in a million dollar mansion, but you need a roof over your head.
Just like Vincent say in Heat, "Don't let yourself get attached to anything you are not willing to walk out on in 30 seconds flat if you spot the heat around the corner."
I would say find more alternative homes or you'll sink more money than what you're willing to pay for.
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Rent4Ever says
I get what you're saying but it's not a matter of owning vs. renting. It's more about living below your means...
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Stout I'm not so sure about it.
It is more important to ask the why. While it is true you might be able to afford the upfront costs but what about all the time, money and energy to maintain the house? Raising a child already takes some of that so I might be better to do things one step at a time here.
If you see the market going down don't try to catch a falling knife.
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tatupu70 says
That is true.
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Oakland, CA
genesplitter says
Wont happen in Rockridge. The Rockridge part of Oakland has been less affected by the real estate downturn in the past 5yrs than any other part of the East Bay (with the exception of Berkeley).
Rockridge has horrendous rent:buy ratios making it a good area to rent and a terrible area to buy. The folks that bought over 10 years ago are sitting pretty though.
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Pleasanton, CA
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lazstan says
Try and find a home owner that has that savings rate. You won't. 3k/month savings is a great setup. Why would you change things? To me, taking on 30years of debt better have some quality of life changes verses me just renting. The flexibility as a renter is amazing and you can't beat the savings rate right now. I can buy or do anything I want and not worry. Throw a 30 yr note on my back and things will not be the same.
If you are unhappy for whatever reason then take 1K/mth and go rent a nice vacation rental for a week and live it up. The amount of things you can do would be amazing. Think about it.
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Pleasanton, CA
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StoutFiles says
If you can't discuss the financial negatives of a decision with your significant other, then you might want to take some of that savings rate and work things out. Happy couple means happy couple. Period.
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Danville, CA
gregpfielding's website
lazstan says
Happy wife = happy life. There are some things far more important than timing the exact bottom of the housing market.
My advice would be to be sure that, whatever you are buying, you will be happy there for 10 years. Even if the prices fluctuate wildly, it's a reasonable conservative bet that prices in 10 years will be at or above today's prices. What that means is that this had better be a house you really like, and in the neighborhood you both really like.
If there are even better neighborhoods that you would prefer to be in but are a little too expensive today, you might be better off renting for another year or two to see if those prices come down at all.
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gregpfielding says
Right and one of the most important things in life is providing a commission to a grinning hyena.
Loved the comment about robo-signing not hurting anyone because the foreclosure victims were all deadbeat scum, anyway. Any answer to the question about the Wells decision in Louisiana? Every foreclosure was bogus and were completely up to date. Short-changing the foreclosure process didn't hurt them, right? The Realtor® answer is who gives a fuck because those dogs already provided a Realtor® with a commission which is their reason for breathing, right?
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Corning, NY
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gregpfielding says
High house prices = happy Realtors
High house prices = happy bankers
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Tarzana, CA
lazstan says
I always feel safe trusting my gut instinct.
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San Clemente, CA
Wait, so you've been saving for whopping total of 13 months? That's not very impressive... Given your savings rate you should have a 25% down payment together in less than 2 years.
I think the choice is pretty clear. Stay were you are till you have a "real" downpayment saved up. Prices won't go up till then and if you're lucky they'll even go down. Seems like a no-brainer to me. Tell your wife to chill.
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46 male
Menlo Park, CA
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gregpfielding says
I would bet that far more divorces are caused by buying a house on the edge of affordability than by waiting and saving.
Once the inevitable financial setback happens and you can't make the mortgage payments, the fights will start, and the blaming:
"Well YOU wanted the house, I bought it for YOU."
"Well YOU just aren't successful enough, are you?"
These things do not happen to renting couples with lots of money in the bank.
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Here are my humble opinions. My first bit of advice is to not seek advice on a forum for such important decisions. My 2nd is to maybe talk to a banker or broker to see what you could afford and whether you can buy. That's a start. When you mentioned you'd saved 33k, is that total for your savings? In general you need to have at least 6 months of "emergency funds" saved up. In the Bay Area, that probably means at least 30-40k.
Lastly, in comparison, my wife and I are only now starting to look at houses and we have been saving for years and years, have rented for well over a decade, and have saved up a lot of cash. Many times over what you've saved. You would think we were all set but even in our situation- granted we are conservative with our money- I wouldn't feel comfortable paying more than 400k-500k max for a house here and even then, that basically gets you a starter home with close to a $2,000 a month mortgage even with a 20% down, of which we intend to pay up front. Its also important to note that we don't have any kids. I guess what I'm saying is that it takes an extraordinary amount of effort to buy a house here and often that takes years of saving and planning. It took us well over a decade to do this. That's just sort of how it goes.
So in my opinion ( again- this is an important decision) I would at least talk to some financial professionals in order to get a better understanding of what you can do with what you've saved.
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Mountain View, CA
bmwman91's website
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Patrick says
A+ post.
Even if the house payments remain manageable, there may well be some resentment due to the loss of disposable income. I would be pretty pissed if my fiancee pushed me into buying a house that we could make payments on, but have little money left for having FUN. The whole point of getting a house is to enhance your enjoyment of life, or at least it is supposed to be. If you are house-poor, I guess you can sit on a folding chair in the living room and stare at the wall for enjoyment. (???) Lots of people seem eager to become house poor to "get their kids into the best schools." Well, good luck with that. Hopefully the "great schools" can provide all of the life enrichment experiences that you can't afford because of the house! That's what high API scores mean, right?
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edvard2 says
Only if you hire them by the hour, which is very expensive.
To take advice from a broker or a financial advisor that stands to make a financial gain from your decision is foolish.
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Larkspur, CA
Patrick says
Stress in marriage can be caused by lots of things. Bottom line is that all decisions in a marriage -- including financial -- have to be mutual and well thought out.
As for renting, there can be downsides. My brother's family thought they had a long term rental but the house had to be sold and he had to move his kids out of the school district. It was very stressful on the whole family and his wife was pissed at him because they did have enough to buy, but he thought that prices would fall more. In the very short time frame they did have to look, they found nothing (not even a rental!)
Maybe prices will continue to fall, but I believe in the nicer hoods with good schools in the BA, the decline will be negligible.
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Murrieta, CA
At $3000 savings a month you could buy a $500,000 house in less than 14 years with the cash stuffed under a mattress.
If you had $500,000 in the bank would you buy a house in cash? I bet you would not Because you would then realize the house is really not worth that amount of money or risk. I'd imagine that being house rich and cash poor really sucks too.
how can leveraging yourself with a mortgage be any better of a situation?
BTW,..50 percent chance the wife is just going to take the house anyways.
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B.A.C.A.H. says
But he can rent that same thing for ever and still come out ahead then buying the same for 800K.
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Rent4Ever says
At some point you have to talk to "somebody" if you plan on buying something because you have to get approved first, which means presenting things like tax returns, getting your credit checked, and so on. Some of these things are dirt-cheap. It cost me $1 to get my credit report for example.
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gregpfielding says
Same old realtor tactic to pursuade some one to buy!
No debt = happy life.
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Belmont, CA
Life in the USA and especially in the Bay Area is starting to suck. hard. Cost of living out of control, schools suck, traffic is bad, jobs are only paying slightly more than other places at this point.
Why buy into this dying garbage dump? The innovation dream is dead here, its all corporate now. Time to move on. Its sad watching this go from innovation central to banker/corporate sweat shop.
Sucks.
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Mick Russom says
Mick Russom says
Early signs of the start of cannibal anarchy!
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At 440, plus closing costs you are going to have a payment that will be very difficult to maintain. You want to live your life, not to live in order to pay for a house.
You should find something a lot cheaper if you want to be financially secure.
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Pleasanton, CA
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Katy Perry says
So true. When you have the 500K and feel the freedom that kinda money gives you, it is very very hard to give it away for a 4000 sqft crap piece of land holding a 1000sqft cottage next to the freeway. People play with credit way too freely in this country.
Love the post, glad others have this type of thinking. Sometimes I feel alone, until I see posts like this.
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Pleasanton, CA
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bubblesitter says
You buy when everyone else starts wanting to rent. :) Never, never follow the masses. It'll be a sure way to be mediocre at best.
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RentingForHalfTheCost says
In this country that will never happen.