should i get a house payment or just save money and buy it cash?

[bogdanrauta]

Hello fellow mustachians, let me introduce myself first

I am 27 years old, finished my studies few years ago, and for around two years now started my small online design freelance business from home.
I earn around $2000 a month , but live in Romania ( costs are much lower here )
I own a 17 year old car which i rarely use, because i work from home.
My monthly expenses consist mainly of :
Rent: $250 a month
Internet , phone ( prepaid ) , gas, = $200 a month
Food: $200 a month
Gym membership - $60 / month
Travel , small trips around the country each month: $250

I have recently started saving money which i plan to use for buying a house.  I am currently saving around $650 a month.
I plan to move out of the city, in a suburb or a surrounding town around bucharest, mainly due to lower prices, lower pollution, and hey.. i work from home so i don't need to travel that much.
A decent 3-4 room house with a small bit of land ( which i plan to use as a garden ) costs around $50.000 here.
I currently have two options:
1: keep saving money , and buy the house in cash in a few years while still paying rent (5-6 years if being optimist )
2: pay bank fees, taxes,a down payment on the house ( i think around 10% ) , interest and go for a 30 year-loan , which will be around $250 a month for that amount.
I do not have any kids, any large monthly expenses, i am not interested in luxury ( i had lots of money before and i wasn't actually happy )
I am quite the handy man and fix my own car ( except major repairs that require an elevator and professional tools and such )
What are your advice?
Thank you

[Check2400]

It sounds like you can buy a house now, pay the mortgage at the same amount as your current rent, and have a percentage of that mortgage payment pay down some principal.  In other words, rent of $250 is a complete loss of the $250, while a mortgage payment of $250 has at least a nominal amount (increasing monthly) going towards principal. 

This is the part where the obvious caveats of repairs and taxes maintenance and upkeep falling on you instead of a landlord come into play, but you seem confident in your handyman skills.

The only reasons I see to not purchase, admitting I know nothing about Romania, is uncertainty about where you will live in the future, the obligation of a monthly payment with a variable income (although you seem to be saving quite a bit), and the potential of a depreciating asset.

The upsides are home ownership, with a 5 year window to no mortgage payments, renting out a room to cover costs, appreciation of the property, and the potential to begin building a rental portfolio should you move.

I say buy it, then save up a good six months of savings for all expenses, and then either invest your money elsewhere for a higher return than your interest rate, or put the extra money towards your principal amount.  If you're 5-6 years away from purchasing while losing 3000 a year paying rent, then you're looking at 5 years or less with the principal payments. 

Quick numbers says you'll probably have knocked off 4-5 grand in those five years from your mortgage payments, money you wouldn't have accumulated renting.

Sounds like I need to look at some property in Romania to retire to!

[Retired To Win]

Hi, Ramona (??)...

I pretty much agree with just about everything stated by Check2400.  However...

You really need to be covered in case of emergencies like a busted pipe, or some other failure of a major home system.  So, build up your six-month emergency reserve -- with some added for those potential repairs -- BEFORE you buy the house.

And... get yourself some credit cards NOW and just put them away in a drawer.   The available credit can stand by as an additional emergency reserve for you in case you need it.  Trust me, once you've bought the house you don't want to have it be at risk because of a blip or blurp in your cash flow.

Good luck, kiddo!

[bogdanrauta]

Thank you for your kind responses!
Your points of view did help me understand the situation better.
I did not take in considersation any emergencies that may occur, and you are right, all the money i am currently paying as rent are money that i will never see again.
So, right now, i am looking at what options i have towards buying a house, once i save enough money to pay mortgage for 1 year, and build up an emergency account ( shouldn't take that long )

Also, in the event that i will want to move elsewhere, i can rent the house and that will basically cover the mortgage.
I do not plan on leaving the country, so a rental portfolio sounds great for the future.
Thank you guys for the great advice , i really appreciate it!
Also, check2400, if you really consider buying property in Romania , i recommend searching for property in Transylvania, it's a great place to live, and property is dirt cheap compared to other countries.
Thank you,
Bogdan