Background
Recently been contemplating the idea of finally purchasing a house and I am still not sure what my best option is. My rent right now is dirt cheap but it came with the tradeoff of my landlord is a cheap skate and it doesn’t help I know the guy personally. Currently the a/c broke down and he said he won’t be replacing it if it came to that. Wouldn’t be the worst thing in the world but he told me he was not to thrilled if I would put in a window unit or two and ended the conversation with we would discuss that after the a/c unit gets checked out. That’s when I about lost my shit and here I am contemplating the idea of buying a house in the near future. Other than the recent a/c issue and a few other minor things the house is a good fit for me and it’s in a great neighborhood about 4 miles from my work. Prior to this new change of thought my plan was to continue to live with a roommate and sock away as much money as possible and of course FIRE as early as possible! I also had in my mind I wouldn’t buy a house till I knew it was something I would live in for 10+ years (House costing roughly 200-225k tops).
So here are my details, I am sorry for the length of this but I tried to be as in depth as possible. My goal is to find my best option financially. I have calculated everything as in depth as I could.
Current Info:
Just turned 27 and single male
Rent $250/m
Rent + Utilities: $365/m
Current Cash Savings: $24,000
Roth IRA: $15,000 *Note I have no intention on pulling contributions
Estimated Cash Savings in May/June 2017: $39,000k
3 year rough average of yearly expenses less renting expenses: $12,000 (*I am continuing to work on making that lower)
The Purchasing House Details:
I am looking at 3 beds 2 bath for around $110,000-$130,00 range. If I were to buy it would not be till May/June 2017 or at least I am going to try and hold out that long. Unless something pops up in the area that I would fall in love with, but that is highly unlikely. The area I am looking at would all be within 4-15 miles of my work. Property taxes depending on if I am in the city or in a township would be roughly $2100-$2300. My estimate for Home owner’s insurance would run about $600 for the year and that is probably on the high end.
Calculations:
For my calculations on purchasing a house I assumed I would buy a house at 120k and put down exactly 20% leaving the remaining funds as my emergency account. I also assumed mortgage interest rate at 4% for 30 year mortgage (I know they are lower now but no way to predict the future so went a little higher). I choose the 30yr mortgage because although I could manage a 15/yr just in case something unexpected comes up I am not in a pinch and I still plan to pay it off aggressively. I do not want to anticipate renting out any of the rooms although I am going to try and find someone to rent one of them. I am very picky when it comes to that and although my current roommate would probably rent a room I cannot bank on it. Also, I would like to note that assuming I do not rent out a room at any time, I would have the house paid off in roughly 6 years all while contributing 6% gross into Simple IRA and maxing out Roth IRA each year. So with all that into account my rough estimate of expenses would be as followed:
Mortgage: $458/m
Prop Tax: $2200/12=$184/m
Insurance: $50/m
1% Property Repairs: $100/m
Total Expense to Rent: $792/m
Conclusion:
Current living expenses plus rent $16,380
Potential living expenses plus owning a house: $21,504
Also for what it is worth, according the rent vs buy calculator link from the MMM article, it says for the current house I am renting if I can rent something similar for less than $625/m then renting is better.
So there it is, everything that I could think of. I am not sure if I covered everything to figure out my best option which is another reason why I am positing this. Maybe there is an aspect of buying I am not taking into account? Like does the potential of paying off the house in 6 years making buying more beneficial in the long run?
Any thoughts or insights would be greatly appreciated! TIA
