CASE STUDY: Buy First Home or Rent – Jacksonville, FL

[KzooKendrick]

Greetings and Happy Holidays!

First, I apologize in advance for the amount of details but I want to make sure I give you all enough information to provide an appropriate response :)


About Myself:
Age: 26
Net Monthly Salary: $3,750 (401k, HSA, and IRA fully funded – this is what’s left over)
Avg. Monthly Expenses: $1,250 excluding rent
Current Rent: $950/month for a 2 bed/2 bath (just resigned lease for 2016); approx. 1,050 sqft


Additional Facts:
I moved to Jacksonville 1 year ago and of course decided to rent 1.5 miles away from my work. However, after a number of years post-graduation I’d like to start building equity in a home instead of renting every month.

I’ve read numerous articles about renting vs buying, used Michael Bluejay’s online calculator, read forums, etc. but I’m hoping to gain more insight from you all.

I know while renting I get the “flexibility” instead of being tied down and it’s expensive to close on a house, but I have some advantages with my job that I think tip me into the buy camp.

Through my employer, if I get relocated (or decide to relocate with them) they will cover the both selling and buying closing costs. I have to stay 24 months with the employer (I’m not planning on switching employers anytime soon) and I already have to stay 36 months starting in 2017 so that I don’t have to pay them back for my MBA.


Proposal:
Given the above information, I’m looking to see if it’s beneficial to buy considering I’m looking for the following:

3+ Bed/ 2+ Bath SFH for around $175K +/- ~$25K depending on location
1600+ sqft (parents often visit from up north for 2+ months every winter – in fact, they’re here right now!)

These definitely exist in the Southside area of Jacksonville where I’m looking, I think it’s just a matter of pulling the trigger.

As of 12/31/2015 I have $0 saved for a down payment. However, throughout the duration of 2016 I have forecasted I will be able to save $18K (again while continuing to max 401k, HSA, and IRA). At this point if I decided to buy in 2016 or 2017 I would likely only be able to put 5% down. Additionally, if I need to break my lease the cost is 2 months of rent (although I could likely negotiate with the owner as he is quite flexible).

I’ve researched 30 year mortgages and with my credit score (770+) the lowest rate is ~4.25% give or take. Using usmortgagecalculator.com I’ve calculated the monthly payment (including PMI, taxes, insurance, HOA, etc.) to be approximately $1,400/mo.

Again, if I’m asked to move in the next few years both selling and buying closing costs (as well as a myriad of other costs such as house hunting, transportation and moving household items, etc. will be covered). This is the real differentiator here as the big "risk" in buying then moving in a few years is almost exclusively in this cost.


Let me know if you need any more info to give sound advice.

Thanks everyone!

[onlykelsey]

I'm 29 and bought my place right after my 27th birthday (but with 15% down).  A few thoughts

1. Do you have access to a banking relationship through your work?  I was able to bank with Citi Private bank (despite not being high net worth) and that allowed me to get a 5% purchase money heloc (so I was putting 20% down in the sellers' eyes) and close much more quickly.
2. Maybe rates have jumped in the last two weeks, but that seems VERY HIGH, especially because you'd be adding on PMI, assuming you're not participating in some government program. This relates to 5 below...
3. Closing is very expensive. Suddenly having a house to fill with furniture is very tempting.  You should resist filling the place with furniture immediately, but you really should not move without your down payment and closing costs PLUS, say, 5K saved for potential expenses.  If you move in and your plumbing bursts, it is entirely on you to fix that problem, and you don't want to have no cash lying around to do so.
4. Maybe look in to how quickly you can get rid of the PMI after you buy the place.  If you can get rid of it in a year, maybe it's less problematic, but PMI is a serious drain on your finances for no benefit.
5. What's your marginal tax rate? Do you itemize?  you probably don't, but if you do, be sure to take that in to account.  Maybe run some fake numbers through your favorite tax program.  Being a high earning resident in the very high tax NYC area (and being priced out of student loan interest deductability) definitely pushed me towards buying, but it doesn't seem like those considerations apply here.

[KzooKendrick]

onlykelsey - thanks for the quick response!

1. Do you have access to a banking relationship through your work?  I was able to bank with Citi Private bank (despite not being high net worth) and that allowed me to get a 5% purchase money heloc (so I was putting 20% down in the sellers' eyes) and close much more quickly.

Nice thought - I do work at a Fortune 50 company so I'll definitely have to look into this. I just started doing my research - will it be more difficult to secure funding if I'm only putting 5% down?

2. Maybe rates have jumped in the last two weeks, but that seems VERY HIGH, especially because you'd be adding on PMI, assuming you're not participating in some government program. This relates to 5 below...

I used Zillow's mortgage rate search to look up this rate - I put in my credit score of 770+, 30 year term, 5% down and it came up with 4.25%.

3. Closing is very expensive. Suddenly having a house to fill with furniture is very tempting.  You should resist filling the place with furniture immediately, but you really should not move without your down payment and closing costs PLUS, say, 5K saved for potential expenses.  If you move in and your plumbing bursts, it is entirely on you to fix that problem, and you don't want to have no cash lying around to do so.

This is one of my largest hurdles currently. I'm choosing to max my tax efficient investments first and anything left over is what will go to the eventual down payment/closing/initial maintenance. While I can only save $18K in 2016, I'm forecasting being able to save close to an addt'l $30K in 2017 for what it's worth..

4. Maybe look in to how quickly you can get rid of the PMI after you buy the place.  If you can get rid of it in a year, maybe it's less problematic, but PMI is a serious drain on your finances for no benefit.

Along with the closing costs, this is another concern. I could wait until mid way through 2017 to have a full down payment but that's yet another year renting :)

5. What's your marginal tax rate? Do you itemize?  you probably don't, but if you do, be sure to take that in to account.  Maybe run some fake numbers through your favorite tax program.  Being a high earning resident in the very high tax NYC area (and being priced out of student loan interest deductability) definitely pushed me towards buying, but it doesn't seem like those considerations apply here.

25% - I don't currently itemize and I have my taxes forecasted down to the penny, but I haven't yet looked at any optimizing taxes with a house. Something else to start researching!

[dandarc]

Owning a house is a lot of work.  And expensive.  Maintenance, yard work - it all takes a toll.

Basically, regardless of how the numbers work out - and I think Jacksonville is a reasonable place to buy a house, just be aware that owning is a much different experience than renting.

[Rockhound]

Owning a house is a lot of work.  And expensive.  Maintenance, yard work - it all takes a toll.

Basically, regardless of how the numbers work out - and I think Jacksonville is a reasonable place to buy a house, just be aware that owning is a much different experience than renting.

I have never owned a place (28y/o and gearing up for first home purchase though). So take this with some ignorance. But it KILLS ME when my also young, recent first time home buyer friends tell me since I am paying $950/mo for rent and they are paying $800/mo for their mortgage, thus, I should buy because it's cheaper. I instantly remind them of the A/C unit that went out in my rental house and the time the roof needed repair and the time this or that or the other broke. Then I remind them my renters insurance is $100/yr not $1000/yr and that I don't pay a dime of taxes on my rental property. Etc etc etc.

KzooKendrick, again, I am young and dumb, but I would never consider buying a place I didn't expect to be in for 5+ years and with 5% down. I am interested in what others have to say, though, subscribing to this thread.