Renting vs. Buying a home

[greentea]

Thanks everyone! I completely agree that I would rather be putting the amount we pay in rent towards a mortgage, but I am scared we will never be able to afford a house! We are 20 somethings with student loans and a car payment and while we have money saved, it is definitely not a lot. Both rent (especially since we have a dog) and houses are pretty expensive where we live, so I guess I'll just have to see how it goes with the bank!

We were in that situation (young, car payment, student loans) when we bought our house. Everything cost more than we expected, from closing costs to needing new appliances, to all the little things adding up (blinds/curtains, for example). We set our max house price at something we could easily afford (and a good bit lower than what the bank approved us for), but did bump it up a bit once we'd looked around and found the houses in that range needed too much work or had other issues.

Good luck! Save up as much as you can! And figure out what you can compromise on with a house and what you don't want to settle for, especially if you plan to be there for a while. There were a few things I just could not do, like a house right up against a busy road. I knew that would be stressful every time I wanted to get out of the driveway, for example, so I didn't consider those.

 

[ronandannette]

Thanks everyone! I completely agree that I would rather be putting the amount we pay in rent towards a mortgage, but I am scared we will never be able to afford a house! We are 20 somethings with student loans and a car payment and while we have money saved, it is definitely not a lot. Both rent (especially since we have a dog) and houses are pretty expensive where we live, so I guess I'll just have to see how it goes with the bank!

Best of luck and my only advice is that you stay realistic to avoid becoming what’s known as “house poor”. It’s really easy to get carried away when you start looking at beautiful homes and not uncommon for a realtor and lender to try to put you into something more than you can comfortably afford. At your ages you’re still way ahead of the national average age for homeownership. Don’t feel too bad if you need to wait a bit longer before all your plans come together.

 

[mjkacmom]

Yup a lot depends where you live. I've seen houses going for rent for $1400-$1700 which is high to me for rent. But I understand some people can't qualify for a mortgage or don't want the responsibility of ownership.

Mortgage interest is not tax deductible in Canada. That would be cool.

You can get a one bedroom apartment for that here. We bought our house at the bottom of the housing market and interest rates were low, in a town we planned on raising our kids in. The value of our home has more than doubled.

 

[mjkacmom]

I can't even fathom paying $3250 a month in housing costs. Yikes!
No one I know took 30 years to pay off their mortgage. Most people seem to get a 25 accelerated mortgage and pay it off in 21 years unless they upgrade to a larger house and take out another mortgage.
I can't imagine renting for 17 years, paying $3000 in housing costs and no savings.
Was rent that high everywhere you lived?
We live in a lower cost housing area so $900,000 homes are not the norm. It would buy a mansion here!
No HOAs in our province. Condos do have condo fees. Not sure if they are common in other provinces.

Your situation is so vastly different from my experience I cannot even compare it.
No one I knows pays anywhere near $3000 a month in housing costs.
I know one person who owns a house close to $900,000 and they put the equity of $400,000+ from their other house into it when they bought it.

Average home here is $250,000-#300,000. I have seen ads for rental homes for $1700 a month and always think you could own for less than that.

Houses here average $350,000, but you pay $1000 a month for that average house in property taxes.

 

[Skellingtonj]

We rented for a year before we bought our house. I would have been content to keep renting. I don’t love our house. But I know we most likely won’t rent again.

 

[pigletto]

Houses here average $350,000, but you pay $1000 a month for that average house in property taxes.

Wow that’s high!

The value of the home we are in is higher than that (jumped at least 100,000 in the last two years due to a crazy run on the market) but property taxes are about $400 a month and I thought that was high!

ETA to answer the question.. I rented until we were in early 30’s. I told myself I would never rent again. It’s not bad if the landlords are good, but honestly, I want more privacy and control of my home. I want to know that someone can’t say “Oh we’ve decided to sell” and leave me scrambling to find somewhere to live. I want to be able to have a dog, or paint the way I want etc.

 

[Hikergirl]

Renting a house was never really an option for us. We wanted something that was our own, was an investment and something we could do whatever we wanted too.
I had enough apartment living before we settled here and no way would I want to spend the rest of my life dealing with landlords.

 

[ronandannette]

Yup a lot depends where you live. I've seen houses going for rent for $1400-$1700 which is high to me for rent. But I understand some people can't qualify for a mortgage or don't want the responsibility of ownership.

Mortgage interest is not tax deductible in Canada. That would be cool.

It would be amazing ($20,000 something right off the top of my gross income!!) but OTOH, we don’t pay capital gains when we sell, either.

 

[Turn the Page]

How were you even allowed to buy it? With all those things wrong, unless sold AS IS, you probably shouldn't have bought it. And if the inspector was a joke, make sure to make some phone calls and turn them in. Also, you did you have a 2nd inspector go through? Sounds like a pretty big uphill battle but hopefully everything happens one at a time and you can make it work.

All that said, I would love to own a home. I'm sick of renting, having neighbors above, below and to the sides. I'm sick of parking space games. I want a driveway where if someone parks in my driveway, well, let's just say you don't wanna park in my driveway, lol. The hard part here is... I'm looking to better my career options. This area is hospitals and food and not too much else. Needless to say I don't work in food and I'm not in the medical realm. Also, home prices keep going up, taxes are high and there's just no such thing as job security anymore. So trying to "settle" is somewhat apprehensive. Granted, I find the right house, I could maybe move away from living check to check, but who knows.

Because the inspectors report only noted that the appliances and roof were older and would need to be replaced in a few years. He didn't note anything being really wrong with it, just that the kitchen hadn't been updated, and that the roof tended to accumulate ice in the winter but he didn't know why. The roof thing was really infuriating. He inspected the house in February so it was snow covered but the house is a chalet style and the roof drops down on the back deck tot he point that you can stand on the deck and easily touch the roof. All they had to do was take a quick gander at the roof to know something wasn't right but they didn't bother. All of the problems are hidden under some nice paint so nobody really noticed and neither DH or I really know much about construction so we never would have known what to look for.

Now, the appraiser for the bank was a real winner. He didn't notice that the electrical system in the basement is screwy but what he had a problem with was the fact that in one of the bathrooms the shower head was not attached to the faucet and was just sitting on the counter. All you had to do was screw it on and the problem was solved but he refused to sign off on the mortgage until we screwed that shower head on. There were a couple other things to fix that were a bit more legitimate but it always stands out in my head that he didn't notice the electrical issues or the roof that was not done right but that shower head was going to hold up the closing.

We had the sellers disclosure saying no unpermitted work had been done on the house and consulted a lawyer about all the problems but were basically told that in order to sue we would have to able to prove that the previous owners knew about the unpermitted work which we couldn't do so we didn't get anywhere.

The house has some real positives, we like the location and it has good bones and it doesn't seem that they did any real damage to the structure itself that can't be relatively easily, albeit sometimes expensively, corrected.

 

[CdnCarrie]

Houses here average $350,000, but you pay $1000 a month for that average house in property taxes.

Taxes here would be $300 a month.
Going into home ownership you do have to look at all those types of factors.

 

[CdnCarrie]

It would be amazing ($20,000 something right off the top of my gross income!!) but OTOH, we don’t pay capital gains when we sell, either.

That is true. Are capital gains taxable on every house sold in the USA? That would be a deterrent to sell for sure.

Based on our current mortgage I think we have about $7000 a year in mortgage interest.

 

[Pea-n-Me]

Thanks everyone! I completely agree that I would rather be putting the amount we pay in rent towards a mortgage, but I am scared we will never be able to afford a house! We are 20 somethings with student loans and a car payment and while we have money saved, it is definitely not a lot. Both rent (especially since we have a dog) and houses are pretty expensive where we live, so I guess I'll just have to see how it goes with the bank!

Take your time, look around. Being motivated will help you save.

Be realistic about where you want to live. It may not be your ideal location, but should be somewhere that will work for you, where you can be relatively happy

Find a house that has good bones, is in relatively good repair, and is in a decent school district. Don't worry too much about cosmetic things, those you can change fairly easily in many cases. (Sometimes older people retire and sell, and though some of their decorating may be outdated, they've taken good care of the house and raised their families there, etc. Think good vibes!)

Ideally look for something with three bedrooms and two baths or even a bath and a half. That way if you're there longer than expected (as we were; still in first house!), you can stay even if you start a family some day. And storage. Closets and storage. Some outdoor living space is nice, too, like a deck, patio, or screened porch, which can help make a small house feel larger, at least in good weather!

I will never forget the feeling of buying our first home. I loved the house from the time I saw it! Someone else had recently done some big things (like replaced the roof, furnace and hot water heater) as well as done some bright cosmetics, and I loved what she'd done. The house was super clean and just had a really good feel to it. It was completely empty when we moved in, and I remember going straight from the lawyer's office after signing all the papers, to the house, and sitting eating a pizza on the living room floor, lol. That's actually one of my fondest memories ever.

But I also remember too, being worried about whether we could afford it. We were in a similar position to you, with student loans and paying a very high interest rate, as well as PMI for a while, too. But we made it work, month after month, year after year. (Hey, you have to live somewhere, right?) In a way, that's why we stayed put. We didn't want to go any higher (and our area is high to begin with; keeping things affordable allowed me to work part time while my kids were growing up). Later, we added an In-Law suite, a sunroom, did a major kitchen renovation, and added some great outdoor living spaces. (We have a perfect yard for dogs, too.)

One day we had a yard sale and a former owner stopped by. I knew she loved the house because previously her husband and daughter had stopped by on Halloween and pointed out a tree in the yard they'd planted together when she was a youngster. She came in and started to cry - happy tears. She said she was remembering when her three kids used to have their nightly baths, then come down and sit by the wood stove. (And I thought, hmm, I KNEW this house had good vibes! Lol.) It was so sweet; I think I got teary, too! I can't imagine being in a house you hate for any length of time. So my best advice is to take your time and find a house that you really connect with, even if it's not your ideal right now. You'll probably be there for quite a few years and there will be plenty of time to make it your own, for however long you decide to stay.

 

[tvguy]

One factor is what is your rental market like? Rents are nuts here right now. But mortgage rates are low.
DS and DDIL rented a condo for $850 a month.....they later discovered when they started looking to buy a house that if that had bought that same condo, it would have cost them $500 a month with a 30 year mortgage at current rates.
DD is choosing to save money and buy a house, and never rent, because she can afford to buy here, but she can't afford to rent.

Remember if you rent. Your rent has to cover the landlords mortgage. Your rent has to cover his property taxes. Your rent has to be enough to cover him fixing your washer and dryer and fridge and A/C and heater and roof. AND usually he is looking to get a little profit. There is no free lunch, the landlord is accepting the risk to make those repairs, but in the end the TENANT is always going to end up footing the bill, granted spread over many months rent.

 

[Lilacs4Me]

...The property owner builds money for repairs into the rent price, then sets it aside until those repairs are due. Just as a responsible owner would set aside a fund each month for house repairs...

Yes, agreed. And that's what I like - they take care of ALL of it for us. I don't have to think about it. I pay one payment every month, and my property manager takes care of the taxes, repairs, and all of the rest. New roof? They worry about it. Water heater goes out? I make a call or enter a maintenance request ticket online. They get back to me within 24 hours with the name and # of a guy, or tell me to expect a phone call, and I set up the appt directly with the contractor/repair person.

When our basement walls started looking like a waterfall every time it rained, a waterproofing company came out and installed drain tile all around the basement perimeter. A drywaller came out and replaced all the drywall. A painter came out and repainted, and the carpet guy came out and replaced all of the damaged carpet. The electrician came in and re-hooked up the wiring. I'm sure that total bill was close to $15K, and we didn't pay a single penny or do a bit of the work.

We pay about $200/month "extra" over and above what everyone else around here pays for their home ownership/taxes, etc. For what I get, it's worth it to let someone else worry about a tree falling on my roof or my basement flooding, not to mention not being stuck in an area I don't want to live in 6 years from now if the market crashes again and we can't sell. We have owned two homes in the past, and I spent so many nights awake worrying about storms, and water damage, and needing new windows, and my mortgage being underwater in the horrific economic crash of 2008, and the rest of the whole "home ownership" shebang. I have never had outrageous limits on what I can do with my current rental house - it's not like I'm going to paint my walls bright pink or anything, so the stipulation that I keep the wall colors neutral is fine with me. And my kitchen and bathrooms are already updated with granite, SS appliances, and new cabinets, so I wouldn't want to change them out anyway.

Judging from the look of some of the houses in my neighborhood where 98% of the homes are owned, just because one owns a home does not make them automatically more responsible or superior to someone who rents. And, if you are holding a mortgage (or live somewhere that requires you to pay property taxes), you don't truly OWN your home...stop making a mortgage or tax payment or two and you will find out really fast exactly who really owns the house you are paying to live in!

 

[GrnMtnMan]

For the folks calling renting ‘stupid’, congratulations on having enough money to buy a house without a mortgage. You’re financially better off than the rest of us, and we envy you.

For the folks who call renting ‘stupid’ but have a mortgage: pot meet kettle.

The interest one pays on a mortgage is rent. You might not think of it that way, but when one rents a home from a landlord, the money paid to the landlord is rent. When one borrows money to buy a home, you pay rent to the owner of that money in the form of interest.

Now, if you have a fully amortizing mortgage, the amount of money in your monthly payment that goes toward rent (AKA interest) does decline over time as you pay back the owner of that money. But you’re still paying rent.

 

[North of Mouse]

If you started renting, how/when did you decide it would be the smarter investment for you to buy? Or what made you decide to keep renting instead of purchasing? Anything you wish you knew before buying?

We are thinking of setting up a meeting soon to see what we would be pre-qualified for and how we can prepare to buy our first home, but it's a scary feeling! We do pretty well but I'm always scared we will never be able to afford anything decent.

To us, it wasn't even a 'thought' in our minds to be renters for long. We purchased our first home within a year of our marriage. Was transferred a few times in dh's career, each time we purchased new, trading up with our equity.

Now, we've owned free and clear for quite a few years, so it's basically 500k+, or, with renting zero.

Yes, we've paid taxes, maintenance, etc. but it never would come close to what we've gained. We've kept newer homes and dh always stays ahead on any 'fixes'. No way would we be renters! Have been in this home we've built for 16 years - built it to be mostly maintenance free outside - no plans to leave as of now.

The only renters we know are in older homes and are constantly needing something fixed by their landlords, but because the homes have been 'renters' no one takes care of them like their own - makes a 'huge' difference!

Also, even when we were paying interest + principal, we weren't paying any more monthly than a comparable rental would have been, so basically we were 'building' our equity and none was going down the drain.

 

[mjkacmom]

Taxes here would be $300 a month.
Going into home ownership you do have to look at all those types of factors.

You do, however, when we bought the house 20 years ago, property taxes were under $5000, they are now over $12,000 and increase every year.

 

[North of Mouse]

You do, however, when we bought the house 20 years ago, property taxes were under $5000, they are now over $12,000 and increase every year.

Wow, where do you live?? Ours are $3,300. We live outside a good sized city - 500,000 - so we pay only county taxes.

 

[mjkacmom]

Wow, where do you live?? Ours are $3,300. We live outside a good sized city - 500,000 - so we pay only county taxes.

Northeast NJ, I believe the highest property taxes in the nation. It’s a real problem here.

 

[North of Mouse]

Northeast NJ, I believe the highest property taxes in the nation. It’s a real problem here.

Yes, I remember now. Dh was offered a transfer there at one point, and we declined that state because of the high cost of homes/taxes/living.
Plus, we are deep south people and could not face the winters.