Hi all. I'm in a LCOL area, earn 55k a year. Average house prices around 150-200k. I have about $14,000 saved. No debt.
My apartment was recently bought and new landlord doubled rent.i was not on a lease. Its at 1200 a month now, which seems to be in line with current rent prices. It's doable but it has me feeling like I'd rather my money be going towards a mortgage, which (according to those mortgage calculators) would be cheaper than rent, but I'm also anxious about not having enough saved. My parents never owned. I see posts that say you should have an emergency fund for 6 months, funds for if anything breaks, and 20% down…..which would take me awhile to get to.
Just looking for advice. How much should I have saved? Is it overall cheaper to rent vs buying if you take into account upkeep/repairs)
Posted by show_pleasure
7 Comments
If you have credit history you can always go see what you pre-qualify for – I think I put down like 3% on my first house (not including misc closing costs). Having an emergency fund is a good general SHTF plan and probably more important (especially when you’re buying a house).
Consider this situation: a mortgage is the minimum you will pay monthly for housing. Rent is the maximum you will pay for housing. What kind of stress would you rather have?
Consider also homeowners insurance rates & taxes. You can have these wrapped up in your mortgage payment when you take out loan (usually paid annually by company via escrow acct). Lastly – PMI primary mortgage insurance. Your lender may add this on if you are a first time buyer. This is not all to scare you, but price it out. Add on that all maintenance costs are now up to you ( a/c , plumbing, appliances). Still live in my first bought home and will have it paid off in 2 years. At that point I have a lot of options. Glad I bought when I did as rent for 20+ years would have left me with nothing since my career was in the area. You have more for a down payment than i did. If you have the money, market is right and done your homework – go for it. Future you will be glad you did.
The emergency fund is what saves you from financial catastrophe, ie foreclosure. If you buy a house and the roof falls in, how are you going to get it fixed? Of you lose your job, are you able to keep paying the mortgage?
Hitting the guidelines for down payments and emergency funds shows you have the financial literacy and diligence to make it work.
100% agree w the 20% down and 6 months’ savings recs. If you don’t have that you’re not ready to buy a house IMO. PMI is a waste of $ and it’s a rule when you move into a house something will break within 90 days. So you def need cash on hand as a homeowner at all times – at least $10k for home repairs.
> Is it overall cheaper to rent vs buying if you take into account upkeep/repairs)
You will probably spend more on housing as a homeowner. Inexpensive houses can still have expensive repairs, and you might end up with a mortgage close to $1,200 plus several thousand dollars per typical year in home maintenance and repair costs.
In the long run, buying allows you to lock in most of your housing costs. Your property taxes, homeowner’s insurance premiums, and utilities will continue to increase in cost, but your payment to the bank for principal and interest will remain the same for 30 years (not factoring in the possibility of a future refinance). If you rent, your rent may more than double over the next 30 years.
Are you a young-ish adult who might end up married to someone with their own income? Are you early on in your career and expect to earn substantially more over the next decade? It doesn’t sound like you have the savings to buy now, and a $175k+ home would be a stretch, so I would wait on buying until you have a lot more cash saved, you’re earning meaningfully more (like $65k+) or you’re married and your household income is higher.
Yes, you should absolutely build up your emergency fund first. But I disagree that you need 20% down – first of all, that’s not required. Secondly, as a first time homebuyer you likely qualify for some type of down payment assistance. These programs vary state to state. And you may also qualify for an FHA loan.
It’s really important that you find a good mortgage broker and realtor who are familiar with these programs, and can show you some actual numbers as far as what your payments may be.