Buying a house is great but there are other costs in owning a house that people tend to forget. Besides the list I had before, If u rent, and something in the apartment breaks, u call your landlord. If u own the house, it's on you. Once in a while, u also have to spend on a big item like your carpet, roof, painting the house, fixing the shingles ... I also doubt that a $72K house is as nice as a $700/ month apartment in the same neighborhood.
Buying a house now is like buying CSCO , AMZN, WCOM, or BRCM in March 2000. You're the 'greater fool' who is left holding the bag. In other words, remember to account for the potential for capital loss in case you don't live in the house until you die. The housing market is topping out, IMO. Rates are going up up up, which means values are going down down down. Contrary to popular belief, the best time to buy a house is when interest rates are HIGH. Then do a re-fi when rates come down. You get the best of both worlds. A low purchase price and a good interest rate on your mortgage. I recommend caution to people who don't know their way around finance!
Wow, thanks everyone for the replies. All of you have a very good points and will put them in consideration. True, that I don't know if I could afford the house or not thats why I came to you guys. It seems like my chances are kinda slim right now, but either way I will still make an appointment to talk to a loan agency and see what they think once every single factors like taxes,insurance and utility are thrown in...maybe they will cut me some slack. Even though I don't make a whole lot in salary, I thought I have enough in saving to get over the problems. I will keep you updated if anything comes up. The house is in Joliet/Plainfield area.
Have you been pre-approved yet? Really, you shouldn't even be looking until you get pre-approved. It will give you a much better picture of what you can truly afford. Even after that, you shouldn't spend as much as they tell you you can. You don't want to be "house poor". I was approved for 150K and I ended up buying for around 110K. My guess is (I closed on my first house a month ago) that if you're not sure if you can afford it or not, you should probably find something less expensive. Like I said earlier, shop with your brain, not your heart. You can't be emotional when making such a huge investment. Too bad you don't live in H-town. I know a damn good broker you could use. Good luck!
In March 2000, CSCO was at ~$80. It went down to ~10, and is ~ 20 now. Other stocks are similar. You are saying a $80K house now might go down to $20K?!! I know no one believes a word you said, but it's amazing that you yourself would!!
Traders points are good ones. Not that the price will drop as much as some tech stocks, but that they may decline given current conditions. Check what the price of that house was five years ago. THat's your downside. Not saying it will decline...but it may. Many real estate markets have shot up. And the conditions that contributed to that are changing. Each market is unique, of course...and some neighbourhoods will go up while the general market goes down. If I were buying today, however, i would be cautious. And not assume that the price cannot decline... This advise is probably worth not much more than you paid for it .
I never agree with TJ about anything but other than some hyperbole directly relating the purely speculative nature of Securities with the hard assets of real estate he is correct. Low interest rates make more people qualified to buy homes, demand outstrips supply and prices go up. When (not if) interest rates rise from the historic lows we have right now, demand will cool and prices will drop. I don't think this will happen very quickly or very dramatically in general but it could be dramatic depending upon your local conditions ie. job market, rate of new construction and desireability of your particular location etc. I think the 2 1/2 time your income rule was developed when interest rates were much higher so it could be closer to 3 times now, but why push the risk factor if you believe the asset is less likely to appreciate. Absloutely put down at least as much as it takes to avoid PMI. I have even heard of people taking second loans to add to their down payment. I don't think you can quite afford this much house as a single income household. There are so many expenses you don't expect when you own the home. Maybe you should look at a Condo for your first property where the maitenance is taken care of. All the caveats above still apply though.
There's no such thing as a $72K house in my neighborhood. The point was that given what apartments cost citywide, a person making the average income in this city won't have any place to live by the standard you listed because the apartments would be more expensive than they should be able to afford if a person with an above-average income can't afford a one-bedroom apartment on the low end of the neighborhood market. A good portion of this city should be living on the streets because all the housing options are more expensive than the equivilent of the 2x the income standard.
Most families have two incomes. Many baby-boomers have inherited at least some family assets. Many people are on their 3rd or 4th house and have upgraded using their capital gains from the previous sales. Way too many people are overloaded with debt. Even with that, it is still a mystery to me how people afford the huge numbers of very expensive housing you see across America, especially with all the cars and kids that need braces and college educations that come with them. How many $250,000 a year jobs can there be?
Of course house prices go up and down. But it's ludicrous to compare it to the internet bubble. Even the fluctuation in market such as California is an exception. If u take Houston for example, you never gonna see house price goes from 80K to 20K. What more, base on the past, it will trend upward for a long time. Sure, you don't want to buy at the highest price, but who knows what that is. It might go down 10, 20% next year but in 5 yrs and beyond, it's a good bet that it will go up. The theory that price goes up when interest is down and vice versa is an old one. There are many other factors at play, such as the economy, job market, demands ... . To suggest to buy when interest is high and wait for interest to go down to re-finance sounds good at the surface but u need to look at it realistically. 1) U can buy now, take a 100K, 6%, 30 yr loan, and pay monthly $600. 2) Or you can wait until interest goes to 8%, and use $600, to take a $82K loan. The chance for a house price to drop 18% in an average is not good. Then u have to wait for interest to drop back to 6% to refinance. Good luck with that theory.
a $700/ month 1 bed-room apartment is not at the low end of Houston market. It maybe the low end of places like River Oaks and West U. but you shouldn't be hanging around there. It's for people with a few more bucks in their pocket. If you spend more than 25% of your income on housing, u are stretching. U need to take in a room mate or a second job!
I don't live in Houston. I live in Plano. And apparently, it takes $40K to $50K per year in income to live in the low-end of Plano apartments, though I guarantee virtually no one in my apartment complex makes that much (and this: "If you spend more than 25% of your income on housing, u are stretching. U need to take in a room mate or a second job!" would be a new formula since the $72K per year limit on the $36K income would be less than $700 per month, while if $700 per month were roughly 25% of you're income, that would only be $33.6K per year). I know plenty of people who don't make $40K to $50K per year and pay rents in my complex without issue. I personally wouldn't want to attempt to get a $140K+ mortgage making $36K before taxes, but I think it's ridiculous to think that people in my neighborhood should be living on the streets or in their cars or whatever because they "can't afford" the rents they pay every month without trouble.
All's i'm saying, is that prices can (and do) go down -- sometimes dramatically. I know nothing of the Chicago market, which is why i suggested looking at the price of five years a go as a measure of volatility. Condo prices in my town (vancouver) went from approx $240,000 US in the late 80's to $145,000 US in 2002. (they've gone up a lot in the last two years...). This was a friend's place. People hooted and hollered that tech stocks were not overvalued in 2000. Some are now pimping real estate with the same furor. Not trying to scare anyone from the market...just cautioning people not to stampede in with the mistaken assumption that prices will necessarily climb. Especially if they've recently done so in that area. ANd the 2x earnings rule seems low to me....(i think i paid over 3.5x -- but that was the nature of my market --- and salary!). Figure your cash flow. And factor in what it would be if rates upped by a few points. If you can swing it....and you think you'll be there for a bit...then it may well be worth buying.
Hey Paige: Most of my friends pay way more than 25% of their incomes in rent or housing costs. If you can swing the payments, i don't see the problem .
My advice would be to look for something less expensive. Being that this is your first house, you will want to buy all sorts of new things to fill up the house as well as making it look nice. I am assuming since you have been living with your parents that you don't have a lot of household items that you would want or need. This is something you will need to remember when buying your first home. You don't want to spend every penny you have on the house and not have any money left over for furniture and appliances (and things you might not be thinking of like dishes, food, personal hygiene products, etc.). I agree though that your first plan of action would be to see how much you qualify for. Take into consideration the cash you have in savings and figure out how much you can afford to put towards a house. After you have the amount you qualify for then look for something that is $10,000 to $20,000 (at least) less then this to give yourself some breathing room. Just my 2 cents.
The lenders make the 2.5 x rule for years until recently, since house prices go up so much, they relax it a bit just so they can have the business/ Lenders aside, it's true that different people can handle their finance, expenses differently but if you pay so much in rent, you could not possibly live a comfortable life, entertain, travel ... and also save for the future!
A fact for you younger people to consider in making your financial decisions is that there may not be any social safety net for you at retirement age and with advances in medical technology you are going to live a very long time. Now granted you will probably still be healthy enough to work at 70 but you are going to need 10-15 times your annual expenses in savings to support your retirement from age 70 to 100 (depending if you want to leave anything to your heirs) That means you need to be saving and investing 2 or 3 % of your gross income now (assumes your growth rate is about the same as inyour income increases). You're all doing that, right?
