Buy or Rent (Need some advice)

[Anonymous]

I need some advice.  Rent vs Buy.

Here's my situation.  I'm single, live with my parents and drive 1 hour to work which goes up to about 2+ hours in winter.  To save time and gas I want to rent something closer to work.  I need a garage since I drive a nice car which I'm still paying off as well.

Should I rent?

Pros: Can be short term (6 months).  Will save me time and gas.  I have no pressure if I lose my job, because I don't own the house and can just move out after the lease.  Not that I would lose my job, but its less stressful

Cons:  I am just throwing 1k away each month, I don't get any tax benefits.

Buying

Pros: I start building equity in the house and get tax benefits.  Save gas and time.  Start building wealth.

Cons: More pressure to keep a job and have a job.  Have to deal with house repairs.  Must live in that house all year round (not a con, but I have to find something I like as well as just a place to live).

Am I able to buy at all in this economy?  I have about 5k in savings.  Nothing near 20% down payment.  With renting, I will be saving very little in that scenerio.

My income:

3620 (net each month)

My expenses:

660 car

300 insurance

333 ira

80 phone

I can live with a 1k per month house payment.  What do you guys think?  Is that too much?

Debt:

25k car (3 years left)

600 CC (out of $4500 available credit)  I can easily pay this 600 off prior to obtaining a loan.

Scores:

TransUnion 647

Equifax 660

Experian 679

[BrianB_The_Loan_Professor]

Well if you dont want to worry about having a JOB then no dont buy
If you rent you are paying a mortgage just not yours. You can probably qualify for something in the 100k - 115k range based on quick math of the numbers with just 3% down through FHA.
It is a matter of choice but you will likely qualify

Good Luck
Brian

[Anonymous]

There is actually a calculator you can use that is rent vs. buy. You will input the required information and you will be advised of what is better for you. See how it works out and let us know. You will have to google the rent vs. buy calculator.

[Anonymous]

Thanks guys.  I went to eloan.com (http://www.eloan.com/s/rentvsown/recal?sid=buZQPbndAXXJeyiB3N-ZtjsqVkM&user=&mcode=&vid).  For their calculator (Rent vs Buy).

I basically plugged in 5k down on a 115k house vs 1k rent.  The numbers were interesting.  I don't understand how taxes work at all.  The fact that it says "Average Monthly payment would be $473.00"  Does that mean I get all that back in taxes??  I also noticed that my monthly payments are cheaper if I bought it since all together I would pay only $859 vs $1020 to rent.  I know some of these numbers are not accurate to my location like annual property tax (I left it at 1.25 which I have no idea if thats low or high). 

PAYMENT (BEFORE TAX):
*RENT*
- Initial Rental Payment: $1,000.00
- Renters Insurance: $30.00
- Total Monthly Payment: $1,030.00
- After Tax Rent Payments: $36,907.50
- Average Monthly Payment: $1,025.21

*OWN*
- Mortgage Payment: $677.29
- Homeowners Insurance: $30.67
- Mortgage Insurance: $32.08
- Monthly Property Taxes: $119.79
- Total Monthly Payment: $859.83
- Yearly Maintenance Costs: $920.00
- After Tax Mortgage Payments: $17,060.56
- Average Monthly Payment: $473.90

Tax Considerations:
*RENT*
- None

*OWN*
- Total Interest Payments: $20,261.42
- Total Property Taxes: $4,312.50
- Deductible Closing Costs: $2,300.00
- Total Deductible Costs: $26,873.92
- Total Tax Savings: $9,540.24

Tell me if I'm wrong, but from what I'm seeing is if I qualify for the 3% down FHA loan that was suggested then wouldn't that be the better way to go all around?  cheaper monthly payments, build equity, larger tax breaks.  Am I missing something here?  The only thing would be the stress of owning a house... but we all got to do it.  Especially when it's essentially a big savings plan.

Any thoughts?

Thanks again! 

[Donna1966]

MHO:

If you think that owning a home or having to keep a job is stressful then home ownership probably isn't for you.

That's just my opinion, of course, but you don't really seem to have a "real need" or "real want".

[Anonymous]

---

@Donna1966 wrote:
MHO:

If you think that owning a home or having to keep a job is stressful then home ownership probably isn't for you.

---

With all due respect, but I'd think that if he didn't feel owning a home or having to keep his job is stressful, he'd not be mature enough to buy a home. The fact that he's stressed about the things that can very well effect his ability to make the mortgage payments would tell ME that home ownership is for him.

Frankly, buying a home, especially in this economy, means a LOT. It's a helluva of a committment. I'd worry about my job, too ... having to make sure that it's a good, viable job in this economy (not a "dot.com" type of job that could eaily be gone tomorrow), and making sure that other, better opportunities won't pop up (better job offer in another state, perhaps?).

But perhaps I missed your point?

Message Edited by Wonderin on 10-21-2008 02:06 PM

[Anonymous]

Very good points, Wonderin. We've been homeowners for 8 years and have good income and stable jobs (as stable as any can be in this economy). Yet I still lie awake at night wondering if the decision to move up from our starter home and take on a bigger mortgage payment is the right thing to do.

[Donna1966]

"But perhaps I missed your point?"

Maybe, what I meant was that the OP could find the stress too much to deal with and not have anything to keep pushing them to make those payments.

Say for example, you have a family and have nowhere else you could live if you decided the stress was too much, you'd be more inclined to keep working and providing a home for your family. In other words, you'd have more of an incentive.

The OP is living at home with their parents and from reading between the lines doesn't even know if they want the pressure of keeping a job. With the economy the way it is and the foreclosure rates, its something to think about.

But, regardless, best of luck to the OP, I was trying to get across that if you think those things are stressful, wait until you own a home.

[MattH]

---

@Anonymous wrote:

Thanks guys.  I went to eloan.com (http://www.eloan.com/s/rentvsown/recal?sid=buZQPbndAXXJeyiB3N-ZtjsqVkM&user=&mcode=&vid).  For their calculator (Rent vs Buy).

I basically plugged in 5k down on a 115k house vs 1k rent.  The numbers were interesting.  I don't understand how taxes work at all.  The fact that it says "Average Monthly payment would be $473.00"  Does that mean I get all that back in taxes??  I also noticed that my monthly payments are cheaper if I bought it since all together I would pay only $859 vs $1020 to rent.  I know some of these numbers are not accurate to my location like annual property tax (I left it at 1.25 which I have no idea if thats low or high). 

PAYMENT (BEFORE TAX):
*RENT*
- Initial Rental Payment: $1,000.00
- Renters Insurance: $30.00
- Total Monthly Payment: $1,030.00
- After Tax Rent Payments: $36,907.50
- Average Monthly Payment: $1,025.21

*OWN*
- Mortgage Payment: $677.29
- Homeowners Insurance: $30.67
- Mortgage Insurance: $32.08
- Monthly Property Taxes: $119.79
- Total Monthly Payment: $859.83
- Yearly Maintenance Costs: $920.00
- After Tax Mortgage Payments: $17,060.56
- Average Monthly Payment: $473.90

Tax Considerations:
*RENT*
- None

*OWN*
- Total Interest Payments: $20,261.42
- Total Property Taxes: $4,312.50
- Deductible Closing Costs: $2,300.00
- Total Deductible Costs: $26,873.92
- Total Tax Savings: $9,540.24

Tell me if I'm wrong, but from what I'm seeing is if I qualify for the 3% down FHA loan that was suggested then wouldn't that be the better way to go all around?  cheaper monthly payments, build equity, larger tax breaks.  Am I missing something here?  The only thing would be the stress of owning a house... but we all got to do it.  Especially when it's essentially a big savings plan.

Any thoughts?

Thanks again! 

---

The yearly maintenance costs number seems VERY optimistic, and also can vary wildly depending on the age and condition of the place.  For a relatively new place in decent shape, around 5% of the purchase price per year is a fairly decent guesstimate for AVERAGE maintenance, but along with the average one should factor in considerable year-to-year variation (you're probably not gonna need something big like a new furnace every year).  So in MOST months you should be socking away money into the rainy-day fund in preparation for when a major repair is suddenly needed.  In my own experience, about every second year something major -- furnace, air conditioning, whatever -- is required.

A suggestion: rent for now.  Do your homework and talk to friends/relatives who own homes, to learn all the likely costs.  Figure out how much more you'll need over five years of owning versus renting (and you will need more for the same space to own than to rent, other things being equal), divide by sixty, and open a savings account.  Every month without fail, deposit the amount of the differential into the savings account.  If you can do this for a full year without ever missing a deposit into the account, then you're probably ready for the responsibilities of home ownership.

[Donna1966]

I totally agree with Matt.

You need to know that you can make it renting before even attempting home ownership.