Rent vs Buy

Also to throw in from the medical student perspective. My husband and I bought in a market where the mortgage payment allowed us to have more space and room (as well as a yard) for less than renting.

Factors to consider:
1) market area value - increasing/decreasing demand, amount new construction, area infrastructure (major overhauls of the city's transit system, brand new convention center, school systems, property taxes, unemployment, etc), resale value in neighborhood

2)how much you can afford a month

Anyone else have anything please feel free to add.


Some general ideas I have on this topic:

I feel the market area is a huge considering factor. If you are in a smaller city housing market (meaning you aren't in the top 20 cities such as SF, NYC, DC, Chicago, Miami, Boston, LA) it might be to your advantage to buy rather than rent. But you have to realize when you buy there are costs that are hidden that you don't need to deal with when you rent.

If you are only staying for a few years you won't make much of a dent in your principle as you will mainly be paying interest. If you are in a growing area, resale won't be a problem especially if you build new construction. Most people do not buy their first home new construction though.

Considering resale value is another issue to consider in your market value. As I mentioned above in the last few sentences of the paragraph, growing areas will fare better in resale than already developed areas that may have stagnant home growth.

I would consider talking with someone whom you trust who might know about real estate financing such as your lawyer, accountant, or other professional. Even some of your friends. They might at least know someone you can talk to that might be able to help you decide. Especially if you have significant other involved in your life and/or know that you will be staying in the area for at least 3 years.

Another favorite resource on this topic is bankrate.com. There are some simple explainations on mortgage topics on this site which I would highly recommend you browse. They also have loan calculators (which I feel are highly conservative but that is just from personal experience in knowing how to stretch out money from living as a student for so long ) As well as you can search what average mortgage rates are currently in YOUR area.

Overall it comes down to knowing what you are getting into by doing research and knowing what you want and need from your home.

Some articles: ***note: not all information you might find in articles might be relevant to YOUR purchase as there are many factors that can come into play such the as metro housing market itself.***

Searching the internet for rent vs. buy brings up MANY great resources. Lots of good information out there on this topic.


Mortgage basics I highly recommend reading this. Its a short introduction in 7 "chapters" to get you the basics of mortgages and home ownership. Also taking into consideration renting.
Your home: Rent or Buy
List of mortgage calculators including renting vs. buying
Renting and Buyer resources: newbuyer.com
Freddie Mac rent vs. buy calculator - great comprehensive calculator

So basically, if your residency is >4 years, its more or less a no-brainer to buy rather than rent, despite the fact that your initial will be more expensive with the buy versus the rent?

What if you arent going to have a down payment until, say year 3 of your residency? Im going to graduate with 0 worth because im getting ready to use my investments instead of taking out extra loans....

Well, I don't know if its a no-brainer. If you are in an expensive housing market you might not have the down payment available (at least 5%) or it might not be cost advantaged. But if you rent the first 3 years of residency then buy because you have enough money that would work too. You have to do what is best for you though.

As for using your investments for paying off loans ... with your credit score, I really wouldn't worry about private loans. Its good to think about reducing, but those investments with compound interest might be work to take some private loans. That is my personal philosophy though.

mshheaddoc said:

If you are only staying for a few years you won't make much of a dent in your principle as you will mainly be paying interest.

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I have a simplistic question about this - what if you make more than your regular payment, or, even more simply, how can you be charged interest that has not accrued?

I am confident that this question has a clear, concise, beaten-into-the-ground answer, but I don't know it.

As an addition, what I ask in the first question, "what if you make more than your regular payment?", will this be applied to principle and have to readjust all the parameters? I ask because I have the hypothetical of making my regular house payments, then getting my year-end bonus, and having approx $45K, and applying it all to the loan - that would certainly cut down the principle, and then the interest - what happens when people do this?

Apollyon said:

I have a simplistic question about this - what if you make more than your regular payment, or, even more simply, how can you be charged interest that has not accrued?

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First, if you're going to make an extra payment, make sure you can specify that it goes entirely to principal - never underestimate the sneakiness of mortgage lenders! When you make an extra payment to principal, they re-compute everything from that point, essentially bumping you forward in the repayment schedule. I think generally your monthly payment doesn't change but each payment will now chip a little more off the principal, because your interest cost is reduced. Doing this early would give you major savings if you plan to actually own the house long enough to pay it off.

Useful also to note that any extra payments increase the amount of your own money you have invested in the house - this can probably be either a good thing or a bad thing depending on how long you own it and what the local market does.

My SO and I looked very seriously into buying a house a couple years ago. I'm a grad student, he's got a "real job" in computers, we live in the SF Bay area. Housing prices have just been skyrocketing... Houses that were $300K six years ago are now $600K (that's a 1000sq.ft. two-bedroom house with no yard). I did a lot of homework, read a lot of books, ran a lot of math, talked with several mortgage people. We had a big downpayment, great credit, really low loan rates. We were only really sure we'd be in the area for three years at the time. Still, with housing prices rising like that, we would have not only saved vs. renting but made a profit. And there was just no sign of prices slowing down. We interviewed agents, who commented on how well-informed we were for first-time buyers. Looked at a bunch of houses, made an offer, got it accepted, panicked, and backed out. Why? Neither of us has ever financed anything before. Ever. Scholarships and jobs for college, cheap cars paid for in cash. We pay off the credit card bill each month. No debt whatsoever - and no experience having any. The bay area real estate market was just way out of our league, but we didn't know that until we were faced with owing $500K when "experts" had been predicting an imminent bubble burst for the past ten years. In the end, the market didn't crash, and we'll probably pay more renting than if we had bought that house. But it was risk vs. reward on a scale we just weren't prepared to handle.

Anyway, the moral is that you can do all the math and read all the websites you want, but the most important variable in the rent vs. buy decision is your own personality, which you might not know until you try.

Didn't want to start a new thread but I think my question is a little different:

I am entertaining the age old question of buying versus renting particularly as it pertains to short term residence, i.e. 3 to 4 years maximum. Additionally, this potential purchase would be in Ann Arbor, MI where the housing market is abominable (to my understanding->

http://articles.moneycentral.msn.com/Banking/HomebuyingGuide/HomePriceReport.aspx

<-see Ann Arbor on bottom ten list of worst metro cities in the US).

I am actually looking at this first home buy as an investment opportunity. I am strongly considering buying a two to three room property (if I can afford it, still have to crunch numbers) where I can rent to roommates. I believe I’d be able to deal with the headaches of being a landlord. My main objective would be to get a decent roommate who won’t have problems paying the rent.

This would indeed be a first time buy so naturally with such a large commitment I am concerned about the possibility of losing money. Given the status of the market (especially in Ann Arbor), I am somewhat fearful that I will buy a house at $x only for it to be worth $x minus $10,000 or even worse when I am ready to sale in 3 to 4 years. I’m hoping to offset this by hopefully finding a great deal, i.e. buying something below market value. I’m not sure how hard it would be to find distressed property if that is the route I have to take to bring this to fruition. If I find a good agent, would I simply be able to tell him or her what I am looking for with the expectation that they should be able to find some properties that match my criteria (e.g. I want to buy a distressed property as opposed to just: I want a 2-3 bedroom in x to y price range).

I think what makes my question different from previous posters is the added fact that within this poor market I am looking at my first property as an investment property (live-in landlord). So, I guess I am looking for feedback as it pertains specifically towards this. Also, there is the age old thought that renting is throwing money away while with a home you are not throwing it away (only that the property may depreciate). I have done some preliminary calculations with assumed figures and if the value of my potential property were to remain the same over 3-4 years versus renting, considering taxes, agent commissions, buying appliances and the like… I could stand to lose on the order of $10,000. These are of course prelim numbers by a novice. Still, I am considering the possibility that the property value may rise in addition to my attempt to offset this by getting help with the mortgage (roommates).

Aside from ANY AND ALL input on the aforementioned I would also appreciate input on buying new versus old construction. I’ve been told the traditional thinking is that new virtually always sales faster than old construction. There is old construction available for much cheaper as one would expect. I’m wondering in an effort to sale, how much people consider a much cheaper mortgage?

BTW, great forum! I’ve read it in its entirety.

Thank you

Depend on where in aa you are looking. If you are looking for housing near the med school (white coat alley) these houses are in a bumble from ann arbor. There is constant demand coming from the university. However, I don't know if you could 1) find a house in the area and 2) be able to afford it. The house I lived in in undergrad was >500k and it was a small preWWII house in horrible condition. This was due to the outrageous rent the landloard could charge and renters were more than willing to pay. If you are looking outside of the immediate area there are more things to consider. Pfizer closing will draw alot of money out of the surrounding area. Also this will mean a commute to school and the blue pass is another added expense. I do have a friend that bought off of geddes east of 23 and seems to think it was a good idea. I believe his parents helped him significantly with it though.

http://www.realestatejournal.com/buysell/tactics/20070313-crook.html

look at the link as opposed to reading what i've pasted:

Why Your Home Is Not the Investment You Think It Is
by David Crook
Thursday, March 15, 2007

More from The Wall Street Journal Online:

• Buy a House Now, or Wait For Prices to Fall Some More?

• Mortgage Refinancing Gets Tougher

• Debating Standards for Mortgage Lenders

Mr. Crook is editor of The Wall Street Journal Sunday and author of "The Wall Street Journal Complete Real-Estate Investing Guidebook." Write to David Crook at [email protected].

Anybody willing to post their experience with buying and selling after short term (residency), 3-4 years? Good? Bad? Fair?

My SO and I are wrestling with this question right now, as I prepare to head off to Kansas, and he will stay here with our existing (first) home.

I'm leaning towards renting to avoid headaches. He thinks it's a sin to throw out money on rent, when we could buy. I'm worried about unforseen expenses, something happening, and us getting in over our head(s).

Well ... how long are you planningo n staying out in Kansas? What is housing out there? Is it cheaper to buy then rent (look from a monthly standpoint). If you are going to be maintaining two households, I would probably say rent in KS but that is just me. Because 2 houses is alot to go by. Maybe there are condos around there or something? I don't know the market area at all to comment.

CookieBear said:

My SO and I are wrestling with this question right now, as I prepare to head off to Kansas, and he will stay here with our existing (first) home.

I'm leaning towards renting to avoid headaches. He thinks it's a sin to throw out money on rent, when we could buy. I'm worried about unforseen expenses, something happening, and us getting in over our head(s).

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What's the difference in throwing out money to rent vs. mortgage interest?

Seriously, you really need to do more analysis and make a better case for buying than that (and as anyone who reads my posts knows, I'm a HUGE proponent of buying -- just not uneducated buying.)

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jota_jota said:

What's the difference in throwing out money to rent vs. mortgage interest?

Seriously, you really need to do more analysis and make a better case for buying than that (and as anyone who reads my posts knows, I'm a HUGE proponent of buying -- just not uneducated buying.)

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Whoops, sorry, hadn't checked this thread in awhile.

We are now 'synchronized' in thought that we should buy.

We have money for a down payment.

Condo's seem over-priced, when they are asking only about $5-$10k less than full 3 bed / 1+ bath homes, plus the HOA fees, etc. And I'm going for vet school, so you know I have a small zoo The squawking parrot will probably not go over well with my condo or townhome neighbors...

I will possibly start a new thread, because I'm concerned:
I'm getting notices reminding me to sign my loan promissory notes (for stafford loans, for example), and I've been putting it off week after week.

If I sign for my stafford loans now, will that affect me qualifying and closing on a mortgage in the next 30-60 days?

I am keeping my strong salary until the end of July, and I have a FICO score over 800. (So does my SO).

A mortgage broker friend doesn't think that my school loans will hit and impact the mortgage application.. but how can it not?

I just have a few hundred outstanding credit card - will be paid off by end of July. So I'm not sure how $42k of school loans are going to be perceived...

I don't know when the school loans will 'fund' and Sallie Mae wouldn't tell me on the phone when the last day is that I can sign my note.

Thoughts? Thanks in advance!

Lanieou said:

I am planning on starting medical school Fall 2008 and would like to buy a house
In terms of buy vs rent, I have sort of a different situation and am interested in what you guys think....

1. I will be doing a post-doctoral fellowship for the year prior to medical school (ie I will have a salary for a year)
2. I have a down payment (currently in an annuity right now) of about 12,000
3. Housing market where I live is pretty good and I can get a nice house for what most people could get a shack for!

I feel that it is smarter for me to buy then to rent but am a little freaked out at the thought of housing AND med school debt (and some car loan that should be paid off this next year). Thoughts? I wish I had bought a house when I was in graduate school...5 years of throwing away money on rent!

Also, the different types of housing loans is a wee overwhelming! 80:20, interest only, etc. ACK! Makes Lanieou's head hurt....
Does anyone have any housing loan recommendations for someone who will have income for a year and then start medical school???? Also, do you tell your lender that you will be starting med school later?

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I would NEVER do an interest only loan...This is a sign that you are buying more house than you can afford...if the housing market falls by even 2-3%, you will be upside down in the house because you will have no equity...an 80/20 loan means that you have 20% to make on a down payment...with your 12000 that would equate to a house valued at 240000 (this does not include closing costs).. if you are really set on buying an 80/20 or 80/15/5 is likely your best option...remember...there are many other costs associated with a house including homeowners fees, taxes, utilities, upkeep, homeowners insurance,...etc. Personally, I do not believe that I could afford all of these things when I was a medical student. However, your situation may be different. Budgeting will be very important for you.... Good luck...........

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