Author Topic: Should we buy now or buy later?  (Read 2916 times)

ThirdTimer

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Should we buy now or buy later?
« on: June 09, 2015, 10:12:26 PM »
My husband and I currently rent a one-bedroom apartment and are trying to decide whether now is the time to buy a house or if we should continue to rent. We plan to have kids in 3-4 years, so when we buy we intend to buy a house that could accommodate a family. Here are the details:

Our lease ends in August. At that point we have the option to continue to rent for another year for $1450/month, with utilities included. Our unit is a condo, privately owned by a woman who used to live here and started renting it (to us) when she bought a house. No idea if the landlady would ever want to sell, but we're easy tenants, so she seems pretty content to have us stay there as long as we care to.

If we were to buy now, we would probably be purchasing something in the $350,000-$360,000 range. In our area, that buys a 3-br-ish, WWII era home, 1200-1600 sq ft. We would put 20% down, and at current interest rates, we could probably get a 4% interest rate loan for a 30-year mortgage, yielding a ~$1360/month mortgage payment. Property taxes here are 0.73%, so we'd owe ~$2,555 a year, or an additional $213/month. No idea what utilities or maintenance costs would be (we are not super-builders like MMM who could do re-do our own roof or anything like that, but we also wouldn't be calling in a plumber for every leaky sink) or how the mortgage tax credit would affect total costs (we make $175k combined, with $54k of that going into pre-tax retirement accounts). It seems to me from a cursory glance that we wouldn't come out ahead itemizing deductions over taking the standard deduction, but I've never itemized deductions, so I may be wrong.

If we don't buy right away, we would keep the down payment money in our Vanguard funds, which are mostly in stocks (some in bonds). We obviously have no crystal balls, so can't anticipate what will happen to the market or to interest rates, although it seems a pretty safe bet that interest rates will be moving up in the next year or so. I'd say housing costs are also more likely to move up than down in our market in the next few years, but there's nothing particularly crazy going on here housing-wise.

So: Should we buy now, or continue to rent until we need the larger space? Unless there's a huge tax benefit I'm misunderstanding, we're definitely going to be paying more per month with the house after factoring in property taxes ($213/month), utilities ($100/month??), maintenance ($300/month??), increased insurance costs ($100/month??), etc., but it seems like most of that extra would be going into principal, so essentially into a different form of savings (but one where it couldn't earn interest). And if we wait, I'm concerned that interest rates will be sufficiently higher that it will wipe out any advantages of staying in our current place (we would probably pay off our mortgage on an accelerated schedule anyway--say, in 10 years?--so we wouldn't bear the full brunt of this cost as we would on a normal schedule). Also, if all the financials are truly equal, we would probably prefer to buy the house sooner, as it's a bigger space, but we are fine where we are. I guess after writing all this out, I'm thinking we'd be slightly better off buying sooner, but I'd appreciate knowing what you more expert folk think.

wynr

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Re: Should we buy now or buy later?
« Reply #1 on: June 10, 2015, 12:26:59 AM »
I would buy now.  If interest rates go up, it would cost you a lot more in the long run to buy later.  Plus, you could fix it up to be more to your liking before the kids arrive!

Cheers,
Wyn

MDM

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Re: Should we buy now or buy later?
« Reply #2 on: June 10, 2015, 01:13:37 AM »
It seems to me from a cursory glance that we wouldn't come out ahead itemizing deductions over taking the standard deduction, but I've never itemized deductions, so I may be wrong.

One can make good arguments for either side of the larger "to buy or not to buy?" question.

As for itemization, each year your interest paid will be slightly less than (interest rate) * (balance remaining on 1-Jan of that year).  The "slightly less" comes from the fact that the balance remaining will drop over the course of the year.  For estimating purposes with a 30 year mortgage - close enough....

E.g., your first year's interest would be ~4% * 80% * $350K = $11,200.  Add your property tax and you already have more in itemized deductions than the standard $12,600.  Of course you may have to wait until your 2016 taxes because you won't have a full year's worth for 2105.  If you have state income tax your itemized will be even higher.

You could download the case study spreadsheet and look at a few scenarios....

Sibley

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Re: Should we buy now or buy later?
« Reply #3 on: June 10, 2015, 07:54:49 AM »
In your place, I'd start researching and looking now, but at a relaxed place. Really nail down where you want to be, then you have years to find the right house at the right price. If you find something in a year, great. If it takes 3 years, no problem.

kaizen soze

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Re: Should we buy now or buy later?
« Reply #4 on: June 10, 2015, 09:56:33 AM »
My wife and I bought a house thinking we'd have kids in 3-4 years.  Eight years later, still no kids.  If I had it to do over again, I'd wait to buy.  I haven't done the math to see how renting would have worked out for us, but we'd have had a lot less hassle and less stress when the economy went into the crapper, our home values took a nose dive, and I took a paycut and they started talking about layoffs. 

Poorman

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Re: Should we buy now or buy later?
« Reply #5 on: June 10, 2015, 03:47:12 PM »
I'm betting the 3-bed house is close to rental parity on a monthly cost basis, so it would make sense to buy now and start building equity.  The reason I think so is because you are paying $1,450 for a 1-bed condo, so I'm betting the 3-bed house rents for at least $2,000.  I would lock that cost in now and start paying it off since you plan to stay long term.

ThirdTimer

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Re: Should we buy now or buy later?
« Reply #6 on: June 11, 2015, 09:52:43 AM »
Thanks for the help, everyone! It sounds like the general consensus is that we'll probably come out ahead buying sooner rather than later, but to take advantage of the fact that we're not in a rush to do a leisurely search to find a house so we can really find a great deal, so I think that will be our plan! I'm sure I'll be posting more in the future to get advice on other aspects of the home-buying process!