Interest, schminterest.

August 17, 2011 · 30 comments

If Girl Ninja and I didn’t have a goal to buy a house, we’d be doing so much more with our cash. We’d be traveling, sleeping on a king size bed, driving nicer cars, giving more money to charity, etc. It’s crazy to think that a future expense can dictate so much of our current financial habits. Sometimes, I fantasize about being a lifelong renter. Knowing that I can immediately downsize, upsize, or move whenever I want. Not to mention that I could immediately blow half of that $50K we have saved up for a down payment on kettle corn and Dr. Pepper. Love me some D.P.

As appealing as lifelong renting can be, the better part of me resigns to the numerous perks of home ownership. I love the idea of being able to remodel, decorate, paint, tear down, and build whatever the heck I want, whenever I want. I love the idea of paying off the mortgage and not having a house payment. I love the idea of locking in a payment and never having to worry “When will rent go up?”. Ah yes, buying has some major perks.

///super awkward transition///

Personally, I don’t think home prices are increasing over the next 5-ish years (in fact I think they’ll drop further). That said, interest rates are currently at STUPID LOW levels and will likely be going up. The question is, When? Will rates stay sub 5% for another 12 months? Two years? Five years?

I’d love to have another two years of renting ahead of me, but if rates go up soon, we could be forced in to buying earlier. For now we plan to just keep on saving so that if the “right” opportunity presents itself, we will be ready. Wish I had a crystal ball :)

How long do you think interest rates will stay under 5%? What made you “ready” to buy a house? Any homeowners miss renting?

1 Kevin @ Thousandaire.com

I don’t think I’ll be a lifelong renter, but I’ll almost certainly be renting for the next 4 years while I’m in my 20’s. The flexibility of renting is just too awesome for a young, good looking guy like me.

2 Larry

True. Once you lose your looks, home ownership becomes a far more attractive proposition.

3 No Debt MBA

The fed recently announced that they’ll be keeping rates low for the next two years. So I wouldn’t feel pressure, especially if you think house prices are continuing to go down.

4 Austin

My wife and I just aren’t in love with the renting life. Owning a home will be at least DOUBLE the cost of renting, but with that comes a little more autonomy, a lot more space for opening up our home to others, and a better excuse to start a family. For a spreadsheet guy like me though, it’s hard to quantify how much we dislike renting!

5 JT

I have been a home owner since 2002. For me it is cheaper to pay a mortgage (and property tax) than to rent. In a month my wife is due with #4 so I need more space (and a yard) than you.
You would be better off to keep renting for another year. I don’t think interest rates will rise until after the election next year.

6 Larry

I own a co-op apartment in a mixed co-op-rental development in central Long Island, NY. I don’t think co-ops are as common in other areas of the country as in NY, especially NYC, but they are similar to condos in that you pay a mortgage and get the same tax deductions as a house. Right now I pay about $1000 monthly between my mortgage and co-op maintenance fees (which in my case do not include maintenance within my own four walls). Subtract 2-3 months of those fees due to property taxes and a bi-annual county adjustment. But the main point is that to rent a comparable apartment in my development, I’d be paying about $1600.

7 Momninja

As you know SisNinja is in the process of trying to buy. While Higher priced homes may not be rising the entry level market is being purchased up quickly by investment companies that are slapping paint and carpet in the marking them up 20k. So all in all it depends on your price point as well.

The interest will flucuate and we are encouraging SisNinja to move ahead now so she can enjoy the perks of investors driving up those entry level homes.

8 spiffi

I was renting one room in a 2 bedroom condo for $850 a month. With that, I had the pain/annoyance of having to find a new housemate every time the other room was vacant – plus I found that I never felt comfortable in the shared living spaces – so I spent most of my time in my bedroom. This was fine in my twenties while I was in college, living in dorms and shared situations, but now that I’ve been working full time for a long time, I’m over it.

People kept telling me, “this is how it is in this town” – rents are high, because supply is low. And specifically, supply of one bedroom apartments is low.

My choices were – a) continue with the low-ish rent and the hassle of finding new strangers to live with every couple of months, and having everything in my bedroom, b) find a new place to rent by myself – something that would be likely in the 1500-1800 per month range or c) buy a place of my own

I ended up buying, because for $1800 a month, I am paying my mortgage instead of someone else’s. Yes, it costs more than what I was paying in rent, but in order to be happy, I was going to be paying more regardless – I had to stop using the $850 per month as my baseline!

Plus, I made sure to buy a place with enough bedrooms that if I *needed* to, I could rent out a room to someone else – and still have a bedroom for me and another room for an office, so my bedroom doesn’t become my office again.

9 Tiffany

I love our house and am glad we bought. But I really miss renting right now. Verizon FIOS is destroying our neighborhood to install lines. They’re digging up our driveway and lawn and their repair is shoddy and unkempt. If I rented I wouldn’t have to worry about it! Now I have to take pictures or our property every day like a crazy lady to catalog the destruction and attempt to fight Verizon for proper repair or reimbursement of our time/labor/money spent and all they can do is transfer me from one person to another, each caring less and less.

10 Ryan

But…but…FiOS is AMAZING.

JK. Sort of. The road I live on only has 3 houses. Time Warner finally ran cable to our house (that was built in 1974) this year. Before that, they told me that it would cost $5000 to run cable from the intersection that’s maybe 300 meters away. So I understand your frustration. The cable/telecom companies are a bitch to deal with.

11 Mercedes

Buying a home made sense to me when I figured out the cost would be pretty much equal to renting in my area. I have a friend who rents a one bedroom apartment less than a mile away from my house and she pays $1000 a month plus utilities. I Bought myself a 3 bed 2 bath condo/townhouse and my mortgage is $1225 a month. For and extra $225 a month I have a place I can really call my own. And if I ever wanted to, I could rent one of the extra rooms for a few hundred dollars a month (which is a steal for my neck of the woods) and easily cut my payment expenses in half!

But I like living on my own. I went from living at home, to the dorms at college, to a year with roommates, to back at home. It’s nice not having to work around another person in the same living space! :-)

12 kim

I’m like you – like the renting, kinda want to buy, but then afraid we’d be too stuck. Buying a house in these parts would nearly double our payment too. A couple of weeks ago the Fed said something about interest rates holding steady for the next 2 years or so, but we know they’re a bit schizophrenic, so we’re stacking cash so that when the inevitable change comes so we *can* rush into buying a house if need be.

13 Colleen

I have been in my house for just over two years. I am still really happy that we bought. We
didn’t buy too much house – $105,500 and we can easily handle the costs. My dad has just retired
so lots of little things (bathroom ventilation and new floor, new fence, some paining, ceiling fans etc) have
been done by him so not a lot of extra costs. We have to paint this fall so that should be a bit of a challenge
but I love having the freedom to do what I like. My mortgage payment is less than my rent was but now I do
have heat, electricity, taxes, water & sewer, to pay for. It is still manageable. Sometimes I worry about flexibility
with moving but we live in a fairly stable market and a duplex has lots of market usually. I live in Canada so I have a 5 year mortgage term like most Canadians. That means a new rate in 3 years. Right now I am at 3.79% and really hope interest rates stay low for at least 3 more years!!!!!

14 krantcents

I think interest rates will stay low for about 2 years. Housing prices will hit bottom within the next year. If I were you I would start looking now and try to get the best possible price. Don’t wait for the absolute bottom.

15 Treii

I love, love love renting (says the kid-free 28 yr old)! I also don’t plan on living in Minnesota forever or even for the next 5 years. I love knowing the if the toilet breaks it will be taken care of right away and not on my own dime. I love knowing the I don’t have to worry about cutting grass or shoveling snow.

16 This Guy

We bought our house in March this year and its been great. We didn’t need a huge down payment because of the loan type and we have no mortgage insurance.

We bought simply to buy. Not because we needed to, not because we wanted to, just because it felt right. I don’t low renting (apartments in particular) and have no regrets (monetary, size, location) at all. We love our place and can’t wait for our first tax year as home owners with a child after a non-company paid relocation. Dolla dolla bills ya’ll!

17 Happy Homeowner

I absolutely LOVE owning my place. I bought it last year, and I have never questioned my decision. I was always ready to buy, but I waited until I had the necessary $$ in the bank for down payment, renovations, furniture, etc (and I timed this to make sure I received the first time homebuyer’s credit–hello, $8K in my pocket). I also chose to rent out my 2nd bedroom because I’m trying to payoff my student loans hella fast. I won’t always keep a roommate, but I have to admit that I love the extra income.

For me, I think the best part of owning is the satisfied feelings I have whenever I enhance/improve my property–I’m a huge fan of DIY, and I look at it as maintaining my investment whenever I need to complete a new project (and there are always things to do once you own!).

I also agree with Mom Ninja–get in within the next year to ride the wave of investor rehabs. My area has already begun a new phase of gentrification, and I know it’s only a short matter of time before my property value gets a boost because of it.

18 Emily

I knew when I was ready to buy a house when I found employment I enjoyed that had long-term growth possibilities for me. And I survived the probationary period.
Then it was putting my wish list together (down to the specific decade, bed/bath/fireplace ratios and trueness to original details) and starting to weed through the ads. I watched in neighborhoods I desired and looked and looked and looked (I burned through 4 real estate agents and close to five hundred home listings). I could rattle off the marketable values of square footage comparative to the neighborhood I was in at that moment. I knew what it would cost to do specific repairs to a home from furnace to roof.
But then I walked into the one that is now my home. It felt like home. I put in an offer and was turned down by the seller. It was still on the market a month later and I put in another offer. I ended it up getting it for less than I originally offered and still love it to this day (most of the time – nothing like discovering a roof leak in the middle of the rainy season).

19 Laura

We’re entertaining breaking our lease (our complex is at 99% occupancy most of the time so we aren’t worried about being on the hook for too much rent) and buying now. Prices where we live are going UP (central texas had a recession?)…we were going to wait until next summer, but we can afford a decent sized down payment now which is why this is even an option for us. We are both in stable careers, and we know what area we want to live in for the long run..our cost of living will go up about $400 a month, but we’re starting to feel like we should just bite the bullet NOW..

20 kd

I miss renting. We hear all the good about owning a home but I’m stuck now. Yes, yard/redecorating is great. But paying high taxes, high insurance, and the MAINTENANCE is way more then the fixed cost of rent. Either you keep moving or the house needs stuff all the time. New roof. fix dryrot, new A/C, replace appliances. carpet. Sure, not that often, but take all those costs and rent is always less. Plus, it is rare we need the space. More space=getting more stuff to put in the space. I’m looking the opposite way-I look forward to living small in an apartment or RV

21 StackingCash

I think interest rates will stay low for at least 2 more years if the Fed keeps its promise. However, I think that buying for interest rate is a weak excuse. A low interest rate allows you to buy more house than you probably need. I compare house shopping with car shopping. I don’t buy a car seeing if I can afford the monthly payments, I buy a car knowing the final price is reasonable. My advice is to buy with a 15 year mortgage only. That will really tell you if you can afford that house that you love. Applied to car shopping, a 3 year loan will determine if you can really afford that car you love. As you can tell, I hate debt too. Don’t forget ALL the costs of maintaining a home either, they tend to sneak up on you at the worst times.

Having paid off our home in 12 years, I can tell you it has become our greatest investment. The cash flow has been nice since we paid that sucker off. That end result will convince anyone owning a home is a great investment, unlike this Ponzi stock market we got today…

22 Ninja

Interest rates are a great excuse. I’m not expecting them to go down more, but if they stay steady for the next two years, that gives house prices more time to fall (which I think they will) and gives us more time to save before making the biggest purchase of our life. Just because we can afford more doesn’t mean we will buy more.

23 StackingCash

I have a crazy theory in regards to interest rates and home prices. I feel that the low interest rates keep home prices artificially high. Just a thought :)

24 Ninja

Agreed, once interest rates do rise, I think house prices will fall further. That said, rates have been dropping and so have house prices. I think they will both stay mostly flat for the next few years, so might as well save cash now :)

25 J1mbo01

If interest rates rise home prices will fall. It is much better to buy a home in a high rate/low price situation then a low rate/high price situation. You can always refinance when rates go lower, but you can never change the price you paid for a house. Home prices are still way above their historic trends in some areas of the country. It may be better to buy in some areas (such as Las Vegas) but for most people it is better to wait until home prices return to normal. I am from the Boston area, so a decent home runs from 350-400k at the moment. This is not sustainable and I am already seeing home sales plummet because prices are still unreasonable. I can afford a 400k house, but refuse to buy a 300k house for 400k.

26 Emily
27 Jen

My husband and I rent a 2 bedroom and would LOVE to buy, but would only consider purchasing a 3+ bedroom/2+ bathroom house, as we’re not interested in buying a smaller starter home. We’d like to make a home our own, and have more space to have people over, host holidays and start a family. And in terms of our personal finances, I think we’re ready. We have a downpayment of 25%, and funds for both closing costs and furnishings, plus an efund that would provide a year’s worth of expenses. But when I compare buying to our renting situation (or even renting something a bit bigger), it just doesn’t make a lot of financial sense to me. Homes are relatively affordable in the city where we live, and with the downpayment, our mortgage would be smaller than our current rent. However, once you factor in taxes and property insurance, plus maintenance costs, we’d likely be looking at a minimum of $300 a month more than we currently pay. And some months, this could run thousands of dollars more, given the unpredictability of maintenance costs, with no guarantee of home prices going up soon and a very real possibility of losing a large chunk of our downpayment if prices go down further before we decide to/need to move. Plus those taxes, property insurance and maintenance costs are forever, even if a mortgage can be paid off, and could easily go up. So I sort of see houses as potential money pits at the moment, and I’m having trouble making the decision to move forward, even though I really want to.

28 StackingCash

Sounds like you should wait to build up a 2 year efund…
It’s true after a mortgage is paid off, we pay “rent” to the government in the form of property taxes. Luckily for me it’s only $1500/year. Better than $14000/year in rent for a comparable home in my city. The worst maintenance cost I could think of would be to replace an A/C unit, about $3000 at most which my efund can easily handle. Hmm, maybe a new roof would be pretty pricey but I got a tile roof that is pretty durable and do not see a need to replace for at least another 20 years, my efund should be big enough by then :)

29 BRB

I hope that prices for houses here in Seattle drop more over the next two years, they are so ridiculous right now.

30 Summer

I actually know the guy in the Coolness picture. He’s not nearly as much of a DB as he looks in the picture (the 4 popped collars thing was a joke). I was hoping you would make fun of him in your post though, it’s fun to get other people’s impression of him from this picture, haha.

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