It's possible I need some mustachian face-punches regarding real estate.
I've been putting off the "buy or not buy" decision for a long time, but come next spring, my lease is up on my apartment, I'll likely get a 10-15% rent hike, and I'm just skirting the upper income for homeownership assistance programs.
I need to make the decision soon to switch to cash savings from maxing 401K/Roth in preparation for buying a house.I'm single, 29 years old, make $49K (no debt), and live in Portland, Oregon which is having a massive rental crisis right now. Tenants have few protections and my rent has doubled in the past 3 years. I share a 465 sq foot studio apartment that rents for $1490/month altogether, plus pet rent. Rental prices are only going up, and rental vacancy is at at less than .5% so it's hard to find a place. You can get evicted no-cause with only 90 days notice. Most of my coworkers rent has gone up ~$150+ at lease renewal if they haven't gotten evicted entirely to flip the property to a new transplant for more rent.
Housing prices in Portland are also going crazy right now. It's unclear if it's a bubble or this is the beginning of us becoming the Bay Area nightmare. Right now, the bottom of the market is $160,000 for a studio condo. Obviously, even the bottom of the market defies the 2x annual income for me.
The condos I'm looking at would be around $210K-$250K for a 2-bedroom condo. My monthly mortgage would be less than the current apartment I rent. I'd rent out the second room bringing my costs including HOA down to close what I am paying currently. If I buy next summer, it's likely I can come up with the ~$42,000 in cash for a 20% down payment (without pulling anything out of my investments).
Here are some programs I qualify for being under 100% of Median Family Income:
1) Either I get a 3.25% locked rate, or a 3.75% locked rate with 3% cash towards closing costs or downpayment. On a $250K house, that would be $7500 "free".
2) In some circumstances, I could qualify for a deferred 2nd loan for up to 20% down payment which would be at ~4% interest, which will have to repaid upon sale of the property except in certain circumstances. It creates an additional lien on the property but no PMI and low out of pocket.
3) Up to 100% financing from a credit union where it would all be at a 4.25% interest rate, no additional lien, and no PMI.
For all of these there may be a recapture fee if I sell the home prior to 9 years of ownership.
I would get a Mortgage Credit Certification, which get me an additional 20% federal tax credit on any mortgage interest I pay. So in the first year if I paid $15,000 in interest, I'd get a $3,000 federal tax credit to use if I itemized. This lasts for the life of the loan, so it would be a little less each year due to amoritization.
The one I'm guaranteed to get is $6,000 of cash to spend on a down payment or closing costs, to match my $2,000 I saved. I have to use this by January 2018 or it expires.
Can you talk me out of this or into this? Major reasons to buy:
- Stabilizes housing costs in a crazy market
- Can paint the walls and do crazy things to the house
- Feeling "settled"
- Second stream of income as a landlord
- No pet rent (which is usually $30-50 month)
- Currently qualify for a lot of assistance programs
Major reasons not to:
- Not wanting to be "house poor"
- Everything on Jcollinsnh's list of why a house is a bad investment
- At some point a giant earthquake is going to destroy Portland
- Having to reduce 401K giving from 35% ($18,000) to 6%($2,900) while I save for a downpayment for a year
- Can only "afford" a condo which may have an annoying HOA
- Still have to pay property tax and HOA