So I'm finally close to finishing grad school and will be moving to Houston this June to start residency. Considering that I will be there for at least 3 years, if not 6, I figure it would be smart to buy a house rather than rent an apartment. Or is it? I've played around with a few online rent vs buy calculators and everyone of them seems to show that buying is the way to go, even if the house only appreciates at the rate of inflation. My question is what do I need to think about or consider before plunging into the house shopping market?

Downpayment? With my S2K and savings, I can have almost $20K for a downpayment, but the car will have to go. I will have finished paying it off next month. As much as it pains me to let it go, I will deal with it and buy another one when I'm done with residency. It has been suggested to me that I could take out a student loan to help with the downpayment, but I don't know if that's a wise choice. Also, what about getting a "side loan"?

Mortgage payments? With the cheap market in Houston, payments on 30year loans don't seem to too bad. 600-800/month for a $100-125K house sounds reasonable.

Insurance and property tax? I can find the rates.

Do I buy a brand new home with a warranty or stick to houses a couple of years old so that the kinks have been worked out by the current owners? What else am I missing? Maintenance and repairs? I have no idea how much that will be.

I appreciate any advice on this. I'm feeling a little overwhelmed with all this right now.

 

If you really think you might have to turn it in 3 or 4 years then the transaction costs (buying then selling) may eat you alive. You can also get little surprises in property taxes, one-time charges for a particular improvement, if your budget is too tight.

 

^ I disagree. Buy a house. Probably the easiest way to build wealth, IMO. Although the boom has passed, I still think that you will come out way ahead having owned your home for the last 3-4 years, rather than having rented. The way I look at it, living in our house is free for us. Our monthly house payment is around $2,350 (including mortgage, taxes, and insurance). Of that sum, I believe $550-600 is applied towards the principal, the rest is interest, taxes, and insurance. But, the interest and taxes generate a tax refund of approximately $6,500 for us each year, or around $540 per month. So, we're already getting back around $1,100 per month. And, figuring the house appreciates at no less than 3% per year (our market here never really boomed, so it never busted), that's another $15,000 per year, or $1,250 per month, for us. So, $1,100 + $1,250 = $2,350. Of course, your results may vary, and I offer these figures only to show that a house can help pay for itself.

To answer some of your other questions, I believe you have more than enough for a down payment on a $100-125K house. A traditional mortgage assumes a 20% down payment, but you can also do a 5/15/80 mortgage which assumes a 5% down payment, 15% second mortgage or home equity loan, and 80% first mortgage. This is what we did on our first place. You avoid paying mortgage insurance (which, as I understand it, is typically required when you put less than 20% down) by doing the 5/15/80. This is probably the route I would take if I were you since your S is already paid in full (so you should keep it), and you would also have some of that $20K left over for improvements. I would also do a 5-year or 7-year ARM to get a lower interest rate. That should give you plenty of time in your starter home. We did a 3-year ARM on our first place and a 7-year ARM on our second. As far as new or pre-owned (?), that seems to be a personal call which should be made based upon the totality of the properties available. Our first place was a fixer (fortunately it was just an apartment-style condo so the work needed was limited to the inside), and it required a ton of work and a good sum of money. Our next place we bought new, and I doubt we'll ever buy something again that isn't new. We just have particular tastes and like our home done to our liking, but this is a personal decision. Good luck.

 

in your market, I would say buying is pretty low-risk.

while you won't likely see much if any real (economics-ese for after inflation) you likely won't see much of a loss, either. Basically, volatility isn't a concern for just about all of Texas. Insurance should be cheap enough, too. Taxes too.

Now, where I live that is not the case. My area has seen a 150% increase over the last 4-5 years, but the DEcrease over the last 6 months has been about 20%. Some think the declines are over, but the number of buyers is still well under the number of sellers. Add in that low incomes but high prices and you have a lot of people with -Variable APR, Interest only, and "liar loans" (meaning income is not documented but credit good).

Basically everyone was falling all over themselves to get into the game and leveraged themselves HEAVILY. If you did an interest-only loan last year, for example, you are up shit creek. You lost 3% to inflation, paid 7% in interest, and lost 20%, so you're at a 30% loss (not counting VERY VERY high insurance and taxes). On a $200K loan that is $60K. Plus, they can't sell unless they pay that $60K, but since they did an interest only loan that means they likely didn't have any money to begin with. There are a LOT of people in that boat in Florida, and they are going to be getting despreate. Most are optimistic now, but I can see there is no economic reasoning to expect a rebound.

But, in your situation, I think you're OK. 3 years may have you break even, but that's not a bad thing. You are not likely to walk away with a windfall, though. You may not walk away with anything. Is it better than renting? I don't know. While you may break even, you'll still be paying about 20% of the house's value over 3 years, but you'll get a quarter of that back (or more if you make big big bucks) on your taxes. I think over 3 years you'll probably see that there isn't a big difference over renting and buying because on one side you'll pay rent, but on the other you'll pay interest, taxes, and insurance. There may or may not be a gain, but it probably won't be a substantial real one. Historically, real estate shows very modest real returns so don't expect much.

 

The basic rule of thumb is depending on the size of the house, plan on 1 to 5 percent of the homes value for maintenance every year.

Many people do not plan for this.

 

Buy a house. Houston is cheap. My friend paid 150 k for a house with a pool on a golf course last year. You can get a doctor's loan from Bank of America (I'm assuming you are doing a medicine residency with possibility of fellowship.) With the doctor's loan you can get up to 300k with no down payment and no PMI. I wouldn't spend 300k unless you have an earning spouse, but 150 should be dooable. then after you are done you can rent the house out or sell it. PM me if you want to know about the doctor's loan. I can't get you one because i'm not a broker, but i had one of those loans so I can tell you about it.

 

Not to hijack the thread or anything, but I'm also a potential first time homebuyer with some questions as well.

I just transferred up to Bellingham, WA where I've read that homes are 51% overvalued. In fact, Bellingham has been rated as one of the most overvalued housing markets in the nation right now. In the past several years, many out-of-staters moved to Bellingham after selling their previous homes for absurd prices. The housing supply couldn't keep up with the demand, and prices went through the roof. A 1500 sq. foot cracker-box tract home with no yard now starts at $300K.

It appears the market has crested, with many homes that have been for sale for months, and prices are s-l-o-o-o-w-l-y falling. I've even been told that 70% of the new condos that were built in anticipation of this buying frenzy sit vacant, yet their asking prices are still through the roof.

That's Bellingham's situation, now here's mine. I was able to save a lot of money over the years and am able to put enough down on a house to have a comfortable monthy payment which also includes taxes and insurance on a $300-$320K home. But just because I am able to do this, I don't know if I should...

Due to career advancement reasons, I will probably pursue a transfer out of here as soon as the opportunity presents itself, and I don't see myself staying here longer than three years.

Buying a home here scares me because these ridiculous prices can only be attributed to the sudden influx of out-of-staters who flocked here a few years ago. The job market/economy here is very weak and cannot even come close to supporting the prices being asked for these homes. The weather for the most part sucks - this isn't San Diego or Florida. This all means when I leave and want to sell my $300K+ house, I am going to have to hope that out-of-state buyers with money are still wanting to move to Bellingham.

The alternative to not buying, of course, is renting, and decent rentals can be had for $800 a month or so.

If you were in my shoes, would you even be entertaining the idea of buying? I don't like the idea of being here a couple of years and paying rent, but buying right now, with the the prices so high, seems like a huge gamble to me. Again, I just don't see this recent buying frenzy as continuing forever with the weather and ecomony being what it is here. I would think out-of-state retirees would go somewhere warmer and cheaper...

 

Read "Home Buying for Dummies" - http://www.buy.com/retail/product.as...302314&loc=106

It's a surprisingly good book, especially for the first-time buyer. It covers everything. Buy vs. rent. Financing. Assembling a great real estate team. Etc. Etc.

I'm in a similar situation in Los Angeles. I'd like to buy, but I'm only going to be here 3 years max before moving. Given the high cost of properly and associated transaction costs, I decided to rent.

Houston could be totally different situation, though.

 

Thank you everyone for your informative replies, and Coastie, no problem with asking a related question. Houston seems to have a relatively cheap housing market, but my sister lives down there and has heard from coworkers that they anticipate certain areas near the medical center may depreciate in the next 5 years. Based off of what information, I have no clue, but the thought is certaintly not reassuring. I need to find a list of property that has sold within the last 5 years to get a better idea of any possible trends.

As for the "doctor's loan" from BankofAmerica, funny thing is I just received a letter today from one of their bank officers. I guess this is something worth pursuing since selling my car is the last thing I'd want to do. Raj, I think I'll take you up on that offer and pm you for more info.

There's also this FHA loan for first time buyers, which allows me to borrow up to 97% of the property value. Has anyone used this?

Chuhsi, thanks for the link. I'll think I'll swing by Borders tomorow and pick up a copy.

Again, you guys have my deepest thanks for answering my questions.

 

A very good book. I bought it during the search for my first home a little over a year ago. It answered many of my questions and explained some of the terminology. Your local Barnes and Noble should have it or maybe you can check it out at your local library.

If you are serious, I would start asking friends and family for agent and broker recommendations. A good broker should help you get a good idea of what you can afford and the different loan products available. There are many to choose from and advantages and disadvantages to each. A broker can prequalify you for a loan. Being prequalifed (not preapproved, there is a difference) gives you a big advantage when putting an offer in. I highly suggest using an agent for the buying process especially as a first time buyer. As a buyer you don't pay the agent's commission and they can provide you with sound advice to help you find the perfect home.

When you do find the perfect home be sure to have an inspection done regardless of the home's age or the condition it appears to be in. I'm suprised by how many of my friends have skipped this step. It will cost a few hundred bucks but it's money well spent when you consider how much it cost to repair homes. Plus, this gives you bargaining power.

If you believe you are ready both mentally and financially I say go for it. I've been a homeowner now for just over a year and I absolutely love it. No regrets here...

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