I think that about sums it up. There's no way I'd buy a house in that situation.

Prices are falling and the three year stay means that if you do buy a house you're probably going to lose money, both because the prices are dropping and because of the costs associated with buying and selling within a three year period.

I think you'd be much better off renting, and you might find some good deals. There is a four-bedroom house on my street that has been rented for 18 months now.
The owner had it on the market for $360k just as prices stopped rising. He lowered it to $330k over the next few months, painted inside and out, had the (nasty shag) rugs removed and the hardwood floors refinished, and he still couldn't sell it.
The renters told me they pay $1800/mo, which is good, considering the property taxes alone are probably at least $700/mo.

 

Some very good advice here.

There's also some really good loan deals out there right now. The 5/15/80 is one of them. You can also do a 20/80 without paying the 20% in downpayment. A good credit score, a sizeable income and a known point in time that you will be exiting the home vis a vis selling and moving are 3 things that will help you with the loan. For example, on a $125K house, the bank would loan you $100K at a 30 yr fixed rate and the other $25K as a 2nd mortgage. They'll deem this the Home Equity loan. Since you are planning on selling in 6 yrs, you should be ok. On a $125K house with property taxes in the $3K range, you will end up paying approximately $650 as 1st mortgage, $250 as escrow into property taxes and another $250 as 2nd mortgage. $1,250 in total monthly payments is VERY affordable when you compare it to $800 in rent payments. Expect another $200-$300 in utilities, save $200 a month for "emergency home repairs" and spend $100 a month for "home upkeep". Total monthly bill = $1,850. Live within your means and keep the savings you DO have currently aside as an "emergency OTHER" fund for future use.

Remember to make sure you get the BEST Home Inspection possible. NOT affordable, NOT cheap, NOT someone off the street. The $250 you pay for this service should be well worth EVERY penny. If Radon is a problem in your area, then be sure to check for it. If water is from a well, then it should be tested. If the kitchen has been 100% refurbished, expect to pay a higher price tag for the home. If it has not, then cut down your offer accordingly if the home asking price is too high. If the kitchen needs new range, refrig, dishwasher then again cut your price accordingly. Remember you can source almost new used ones from nearby resellers in the area. The home MUST have double pane windows. If not, cut your offer accordingly.

If you haven't thought about it, then think about procuring a buyer's agent rather than a free-market agent. A buyer's agent HAS to work with your interest in mind while the free-market agent WILL work for his/her commission off the sale.

The longer a home has been on the market, you have a larger opportunity to get it a lower price. Then again, the length of time the home has been on the market should also be a good indicator that something could be wrong with the house, especially in a revolving market.

Again, get the BEST home inspection you can get! I cannot stress this enough. Remember that this is out of pocket expenses. So don't get an inspection on every home you like. (Very obvious but I've seen people do this twice or thrice then complain about their buying experience being costly).

Edit: Lastly, the first time home buyer goes through a VERY stressful experience. Even though you feel you are ready for it, the thought of signing on a HUGE loan gives every first timer the shivers. Don't worry. You aren't alone. Every one of us went through it in some form or fashion. Take your time. Don't let emotions play a role in your decisions.

Best advice initially (and I forgot about this) is to sit down and just post two columns on a piece of paper. One column labelled "NEED" and the other labelled "WANT". Put down your specific needs and wants in a home. Then start looking at homes. After each new home you visit, sit back down and classify the home into needs and wants. It is typical for a first timer to buy a house and immediately afer moving in feel some buyer's remorse. Or see another property pop up just down the street from where you live with the same price tag and better options inside. This is when you can go back to your needs and wants checklist and know that you MADE the RIGHT decision at the right time for you. NOT the market, NOT anyone else. This is when you feel good that you now own a home that meets your needs and some or all your wants. Beware of that other person (we've all met them at some point in time) who will, as soon as you announce your ownership, claim that a house could have been had cheaper, far better, etc etc. This is, time and again, when you look down at your needs and wants checklist and smile knowing that you made the right decision at the right time.

Good luck! If you ever need anything, please know that I am always available for a chat.

 

You may readily qualify for an ACORN subsidized loan. They require you to attend a class (four to six hours), fill out some paperwork, then meet with one of their people to go over the results. They'll then set you up with a bank that does loans under their program. It's free (except $20 to pull your credit so they can help you clean it up) and easy to do.

With that program, you can buy a house with zero down and no PMI, even with little-to-no credit history. They will allow you to use non-traditional credit references (12 month history of rent, utilities, student loan payments, etc, etc). Most of the time, you'll even get .25 to .5% reduction in your interest rate as well and they'll roll your closing costs into your payments, so you don't have to put a cent down.

It's meant for first-time home buyers but you can get one any time as long as you do not have a personally owned/financed residence at the time (ie, you have to be renting or sell your house by the time you close on the new loan for the newest home).

My wife and I did this but we ran into two problems. 1. We don't live in Houston so most banks wouldn't do the program for us. 2. They limit your income to a certain amount and we were over that limit.

Even though we did not use the program, I would highly recommend it. No PMI and zero down and a very competitive interest rate? Hard to beat that, especially if you don't want to spend a fortune.

Also don't forget that the seller can contribute to your closing costs, so you can usually get 3% from them as a downpayment or to cover your closing costs.

 

I don't think it has been mentioned but try not to get emotionally attached when looking. The brokers see this and smell blood immediately. Also, try to do research the market on your own and don't rely solely on what the brokers are telling you. Good luck.

 

I would not buy into a declining market.

 

Something else to consider: when you're putting in an offer on a house, don't make an offer unless you are TOTALLY EMBARASSED about how low your offer is. Seriously, you'd be surprised how much people will come down.

We saved $30K off the asking price of our house - we knew it had been on the market a while, knew that they were anxious to get rid of it, and knew that the market had dropped.

 

That's another question I was wanting to ask: how much to offer? With cars and most other things, I have some sort of idea of what is reasonable and what is lowballing, but with a house? The embarrassment of offering a low price is something I will consider, but is there a more "objective" way of making an offer? I assume that knowing a house's appraisal helps, but is there anything else?

Oh, there's this house in the Fresno area in Houston that seemed pretty decent at $100K, but my sister just informed me that there were over 40-50 foreclosures in that subdivision in recent years. In other words, I should avoid this neighborhood like the plague. But then again, I could pick up a home for cheap, right?

Thanks again everyone for your comments/advice. I can't tell you how much I appreciate it.

 

What about if you're going to be in the area for only two years?
Bo, I'm in the same situation. I've completed a gen. surgery reisdency and will be starting a plastic/reconstructive surgery fellowship in June. I'm debating between (1) renting in Dallas for 2 years (2) buying a townhouse in Uptown for 250K (3) renting and buying in on the condo complex, in the pre-build selling phase, in Austin...right on town lake where there is a lot of growth.

 

Yow, that means the house has a true economic value of $1100 per month, making it truly worth $150K tops.

of course, prices and economic value rarely are the same on the coasts. In the middle-land, they are, though.

 

Appreciation on a home is not guaranteed though. The home prices in Houston are still cheap and they are building homes still. Obviously, at some point it will level out, but probably not for the next couple of years. At 100-150, there are alot of options, both new and used. Because of that, you will have to really look at the area and see if it has appreciated much, if at all. The interest is tax deductible, but after factoring in closing costs, taxes, etc. your home will have to appreciate at around 1-3% just to break even if you sell it in 3 years. If its your first time in Houston, you may also want to rent somewhere just to get a feel for Houston.