You might read all this and think "duh, you're so naive". Well, yeah, this is the first time I was going to buy a home and it seems like everything I heard growing up is no longer true.
Our household makes 130k/year. The number looks like a lot and I know it's more than many households make, but it doesn't feel like a lot. I can't imagine what other households are doing and that sucks.
My income was much lower before, so it's not like I was making 130k and saving for a super long time. In my area, central FL, even just ok houses in ok areas are like 350k. I always heard that I needed to put 20% down. 20% down on 350k is $70k. No way that was going to happen. But then I heard about FHA loans.
3.5% sounded like a dream. That's like 12k! Totally doable. So we go out and look for houses and we find one for 380k. It's a bit higher than we expected, but it's really nice.
Going over the numbers with the loan officer and reality starts to kick in. I was told I could also get a loan for the 3.5%. That sounded good because I didn't want to purchase a home and then have no cash left. That's like $200/mo. After we do all the math, we have like a $3,500/mo payment.
So I'm thinking "that's a lot. but FHA allows me to put 3.5% down, but get appreciation on a 380k asset. it's almost like a forced savings plan." So the 3.5k/month doesn't feel that bad because I'll be making about 10k a year in just appreciation.
But then I start looking at that number more in depth.
The area I'm looking to buy in appreciates around 3% each year. But my loan rate is 6%. So while I'm making 3% on the 380k, I'm paying 6% on like 370k!
So, I'd be paying an additional 1.5k/mo over my current rent to finally have some equity in like 7 years and I'd be on the hook for any property repairs and maintenance costs during that time! I'm getting all the negatives of home ownership with non of the positives.
That's to say, I think I'm gonna save to be able to put 20% and wait for prices and rates to hopefully drop. And if they never do, I'll just keep renting.
I always heard "buying is better than renting" and "even if you're paying a bit more, you're getting equity." Does anyone feel like that math just isn't mathing like I was always taught it would?
I've spent weeks doing the math – I'm just not going to buy at all for foreseeable future.
byu/revolutionPanda inRealEstate
Posted by revolutionPanda
4 Comments
Cool story, but Florida real estate is very dynamic.
Don’t count yourself out too soon.
Lol NJ looking at your 380 home price while I’m crunching numbers on 600k as a small home
If you’re not comfortable with the math don’t buy but a lot of people make the mistake of thinking of their house as an investment vehicle and it was never meant to be. It’s forced savings and tax advantaged but historically the s&p has had a better ROI than a house.
>buying is better than renting
This worked a lot better when rates were 3% and prices were going up 5-10% a year.
Also FL has had – and will likely continue to have – issues with insurance companies pulling out. So insurance costs are going to continue to rise. Usually when you buy a house your insurance goes up about as much as inflation over the years, but that has changed in a few states.
So between the higher interest rates and higher insurance costs, that’s impacting prices, and causing appreciation to be lower than it was in the last 20-30 years. It’s hard to really pull stats for that time because we did have a crash in there lol.
And if you are in a coastal area, there’s the looming global warming issues that might leave some areas under water. Some people get scared off of an area because that’s a big unknown. Another factor impacting demand for housing which impacts appreciation/prices.
Also for many people buying is not only about finances. It’s a quality of life choice. When you rent, you might have to move every few years, because the landlord wants you to, not because you want to. You might have to move schools for your kids. Rentals aren’t usually as nice, say if someone cooks you want nice kitchen stuff which is rare in a rental.
Rents WILL continue to go up over time, because those insurance issues I mentioned also impact landlords, and they pass costs along to renters. So you’re not immune to increasing costs as a renter.
But realistically, if you buy a house and stay there long term, you will likely be better off financially buying vs renting, because in 30 years the house is paid off. You’ll get nothing back as a renter. If you’re a disciplined smart investor maybe you do better overall based on the money you can invest, but most people are not, and if it’s not for the ‘forced savings’ a house offers, they’d have nothing saved after 30 years of renting. You see it every now again and it’s kind of heartbreaking. Someone rents for 25 years and considers the house their own. But then they have to move and it’s really upsetting and difficult, because they’re older now. And you find out they have nothing saved and can’t really even afford the market rent because their landlord was cutting them a deal for being long term tenants.
So look at the finances as well as quality of life concerns. However trying to time the market is impossible, so if you wait for prices to drop, you should be OK with the chance that the house that costs $350K now costs $400K in 5 years. No one can really say.