To Buy or Not to Buy a Home

[akaykay]

Whether you're buying a home for living or investment, is now a good time to buy a house before costs keep rising?

I'm interested in knowing about working pharmacists, when did you buy your house, how much (can give a ballpark figure if you don't feel comfortable), interest rate, and if you were satisfied/dissatisfied with the decision

Thanks

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[Dr Wario]

Whether you're buying a home for living or investment, is now a good time to buy a house before costs keep rising?

I'm interested in knowing about working pharmacists, when did you buy your house, how much (can give a ballpark figure if you don't feel comfortable), interest rate, and if you were satisfied/dissatisfied with the decision

Thanks

I just refinanced my primary home at 3% for 15 year fixed (was previously on a 3% 5/1 ARM that adjusts in early 2016). In addition, I am closing on another rental property soon with a 5/1 ARM at 2.625. I would say that now is a good time to purchase a home, however, that really depends on your local market and your individual financial situation.

I purchased my primary home in 2010 for 280k (- 8000 tax credit) and am still quite happy with my purchase as it a very nice 4 bedroom 2.5 bath 3000 sqft home with a cultured stone front and beautiful two-story family room. Oh it was also a brand new home that was only used as a builder's model so it has a pretty decent amount of upgrades.

 

[sosoo]

i got a condo unit last july 2BR 1BA built 1964 for $190,000. similar condos are now priced at $160,000. it was a wrong move.

 

[WVUPharm2007]

I bought in early 2012 and got 3.75% APR. The Zillow "Zestimate" went from $247k to $276k in that time.

I can't complain.

 

[PumpkinSmasher]

Bought within last few months.
Rate= 4.125%
Zillow Zestimate: ~900k

Happy with the decision, we bought the home we plan on living in for next 20 years or more. Don't worry about what other people spent on their homes, different areas of the country have varying real estate price points and affordability will depend on debt, savings, credit hx, spousal income and other investments. When my wife and I discussed buying a home, our goal was to keep the total monthly payment, mortgage/insurance/taxes, around 25-30% of gross income, not net income. We plan on looking for investment properties in the future.

Regardless of whether it is a good/bad time to buy, your financial portfolio needs to be in order first. Do you have all credit debt paid off, emergency savings for at least 3 months, putting ~20% of income toward retirement and are you checking your credit report/score 1-2 times annually and addressing any potential issues or mistakes.

 

[BidingMyTime]

I think the general rule is, if you plan to stay in an area for 2 or more years, you are better off buying a house. I agree with that. Once you are in an area that you intend to stay in, that is the time to buy a house. Too many people look at housing as an "investment" to make money off of....over the long term, that is unlikely to happen. Buy a house because it adds to your quality of life (and if you want an housing investment, buy a rental unit)

 

[BMBiology]

I guess it depends on where you live. I wouldn't buy a house unless I have 20% down and I am planning to live there for at least 5 years. If you don't have these two, you are not going to have much equity in your house when you move out.

Prices have been slowing down lately. Year to year, it has gone up like 5% which is not too bad but when you take inflation and cost of maintaining the house into consideration, it is not great either.

Will prices jump in the near future? No one knows. My guess is that it will continue to slow. You need to look at household income in order to predict the housing market and household income is barely keeping up to pace with inflation.

 

[rxglasshalffull]

im looking to buy in the next few months, just got a Realtor. its time for the big girl stuff =_= so the 8000 tax credit thing still true for 2014 - 2015?

 

[Corporate24]

I bought a Duplex my first year out of pharmacy school. My current mortgage is $1870 a month with taxes, insurance, and PMI (Didn't put 20% down because I didn't have that much saved yet and working on paying off student loans). The unit I rent out brings in $1400 a month so I'm pretty much paying nothing to build equity. Once I pay off 20% and get rid of PMI or buy a house and rent out both units it will pay for itself plus some. That $8000 tax credit has long since expired but you will be able to write off the interest you pay on your home loan. Because I own a rental property I can write off purchases that deal with my house i.e. lawnmower, snowblower, ect. as business expenses. There are other costs too that you really should research and talk to your realtor about. Housing inspections, appraisals etc. can usually cost as much as $1000 prior to even buying the home which is non-refundable whether you buy the house or not. If you are buying a home, not a rental property, you should wait until you have 20% to put down. FHA have changed the circumstances so now you have to pay PMI for the entire length of the loan even after you have paid 20% equity into the house. I have heard of people paying 10% down now with a conventional loan which would allow you to not have to pay PMI but have a slightly higher interest rate. Buying a home or property is a big investment/decision and you really should do your research before jumping into something like that. Maintaining the upkeep of a house could be quite the process depending on how old the house is, how large the drive way is (snow removal in northern regions), and how large the lawn is. Best of luck!

 

[Momus]

im looking to buy in the next few months, just got a Realtor. its time for the big girl stuff =_= so the 8000 tax credit thing still true for 2014 - 2015?

Use Redfin (or any discount broker) or negotiate with a realtor. I paid 2% commission for my realtor after I asked her to match Redfin (1% discount). It might not seem much but my property in 2013 was 565k ($5650 saving just by asking), 30 years fixed mortgage at 3.125%. It is now worth $715k according to Zillow. The pricier the property, the easier it is to get a discount from a realtor. I know one friend who bought close a mil house asked to pay 1/2 commission only (still a hefty payday for a realtor 1.5% of $1M ($15k) or lose a business) and saved $15k. Another one friend did not even pay any commission at all, she was his own aunt, so she refunded all the commission 3% back to homeowner.

Realtor does not bring any value to the table, they want you to close the deal and get paid, and only prepare the same paperwork irregardless the size of the transaction is, and you will most likely search the property yourself online.

 

[abcpharm]

I bought a Duplex my first year out of pharmacy school. My current mortgage is $1870 a month with taxes, insurance, and PMI (Didn't put 20% down because I didn't have that much saved yet and working on paying off student loans). The unit I rent out brings in $1400 a month so I'm pretty much paying nothing to build equity. Once I pay off 20% and get rid of PMI or buy a house and rent out both units it will pay for itself plus some. That $8000 tax credit has long since expired but you will be able to write off the interest you pay on your home loan. Because I own a rental property I can write off purchases that deal with my house i.e. lawnmower, snowblower, ect. as business expenses. There are other costs too that you really should research and talk to your realtor about. Housing inspections, appraisals etc. can usually cost as much as $1000 prior to even buying the home which is non-refundable whether you buy the house or not. If you are buying a home, not a rental property, you should wait until you have 20% to put down. FHA have changed the circumstances so now you have to pay PMI for the entire length of the loan even after you have paid 20% equity into the house. I have heard of people paying 10% down now with a conventional loan which would allow you to not have to pay PMI but have a slightly higher interest rate. Buying a home or property is a big investment/decision and you really should do your research before jumping into something like that. Maintaining the upkeep of a house could be quite the process depending on how old the house is, how large the drive way is (snow removal in northern regions), and how large the lawn is. Best of luck!

 

[Dred Pirate]

I have owned three homes
#1 paid 170k, sold it 9 months later for 175
#2 paid 160, sold it 14 months later for 170
#3 paid 330k (put in 20k worth of improvements) sold it for 305k 7 years later (ouch)
Guess what, I rent now

My philosophy? Buy IF, and only IF. You can put 20% down. Take out a 15 year mortgage (I will give a 30 year mortgage a pass now because rates are so low, if thye ever get over 5% again, 15 year only), and you mortgage payment + other debt (student loans, car, etc) is less than 35% of your TAKE HOME pay.

 

[BMBiology]

^ what year did you buy and sell those 3 houses?

 

[Dred Pirate]

^ what year did you buy and sell those 3 houses?

first bought in 03 sold 04
next bought 4, sold 05
third bought 05 sold in 13

 

[PumpkinSmasher]

My philosophy? Buy IF, and only IF. You can put 20% down. Take out a 15 year mortgage (I will give a 30 year mortgage a pass now because rates are so low, if thye ever get over 5% again, 15 year only), and you mortgage payment + other debt (student loans, car, etc) is less than 35% of your TAKE HOME pay.

Completely agree, base what you can afford on your take home pay, not gross income. You do not want to be house poor and end up in a foreclosure situation because you over extended yourself. Buy what you can afford, not what you think you "deserve". Also, make sure to think long and hard about commute times before buying. Do you really want to drive 45-60 minutes each way, every day for work when you already spending 8-12hrs away from your family at the office/pharmacy. A daily commute >20 minutes is too far in my book. I have commuted an hour each way before, never again, unless it is the only option to support my family.

 

[PumpkinSmasher]

Completely agree, base what you can afford on your take home pay, not gross income. You do not want to be house poor and potentially end up in a foreclosure situation one day because you over extended yourself. Buy what you can afford, not what you think you "deserve". Also, make sure to think long and hard about commute times before buying. Do you really want to drive 45-60 minutes each way, every day for work when you already spending 8-12hrs away from your family at the office/pharmacy. A daily commute >20 minutes is too far in my book. I have commuted an hour each way before, never again, unless it is the only option to support my family.

 

[HouTX]

Bought within last few months.
Rate= 4.125%
Zillow Zestimate: ~900k

Happy with the decision, we bought the home we plan on living in for next 20 years or more. Don't worry about what other people spent on their homes, different areas of the country have varying real estate price points and affordability will depend on debt, savings, credit hx, spousal income and other investments. When my wife and I discussed buying a home, our goal was to keep the total monthly payment, mortgage/insurance/taxes, around 25-30% of gross income, not net income. We plan on looking for investment properties in the future.

Regardless of whether it is a good/bad time to buy, your financial portfolio needs to be in order first. Do you have all credit debt paid off, emergency savings for at least 3 months, putting ~20% of income toward retirement and are you checking your credit report/score 1-2 times annually and addressing any potential issues or mistakes.

so which is it? gross or net because you contradict yourself

initially, bought a house for living but it is now an investment by luck. bought summer 2013 for ~400k and now zillow estimate it is ~700k. I have done my research and the comps are at least 650 so zillow isn't that far off. waiting to sell summer 2015 to avoid capital gains tax

 

[Momus]

so which is it? gross or net because you contradict yourself

initially, bought a house for living but it is now an investment by luck. bought summer 2013 for ~400k and now zillow estimate it is ~700k. I have done my research and the comps are at least 650 so zillow isn't that far off. waiting to sell summer 2015 to avoid capital gains tax

You can't avoid capital gain tax. Since you already turn it into investment before 2 years living in there.

You must meet all of these qualifications to exclude the gain from the sale of your home from income:
You must own the property for at least two of the previous five years.
You must live in the property for at least two of the previous five years.
You must not have excluded the gain from a home during the two-year period prior to the sale of your home.

http://www.taxact.com/tax-information/tax-topics/12-tax-tips-when-you-sell-your-home.asp

 

[All4MyDaughter]

Bought last year - 4.5% - 30 year mortgage. $265,000 - 5BD/4BA 3500 sq ft with a large lot. We put 20% down, all from the sale of our other home. Really happy with our decision. We went with the 30 year mortgage so that we could prioritize paying off the student loans. When that's done, we'll refinance for 20 or 15 years. Just looked at a 30 year refinance, but rates haven't gone low enough yet to make it worth it.

 

[W19]

I have owned three homes
#1 paid 170k, sold it 9 months later for 175
#2 paid 160, sold it 14 months later for 170
#3 paid 330k (put in 20k worth of improvements) sold it for 305k 7 years later (ouch)
Guess what, I rent now

My philosophy? Buy IF, and only IF. You can put 20% down. Take out a 15 year mortgage (I will give a 30 year mortgage a pass now because rates are so low, if thye ever get over 5% again, 15 year only), and you mortgage payment + other debt (student loans, car, etc) is less than 35% of your TAKE HOME pay.

That is unrealistic! Most pharmacist take home pay is in $6,000-$7,000/month ballpark, so it would be impossible not to exceed that 35%...unless you are planning to buy a 50k house and your student loan is less than 100k...

 

[W19]

The best thing one can do when buying a home is to buy something that is way lower than what you can afford... When we bought ours in 2010, the bank pre-qualified us for 350k. We only used 150k of it-- (3BR/2BA/2CG)--2,200 sqft under air and spent about 20k renovating-- 15 year mortgage @3.25APR. Best financial decision we ever made! Payment/tax/insurance was about 20% of our take home pay... Zillow Zestimate is 260k now, so we are sitting on 160k equity. Now that I am in med school living on a minimum wage, we still have no problem paying our mortgage even if my wife works part-time. I plan to be mortgage free by the time I am done with residency...

 

[Dred Pirate]

That is unrealistic! Most pharmacist take home pay is in $6,000-$7,000/month ballpark, so it would be impossible not to exceed that 35%...unless you are planning to buy a 50k house and you student loan is less than 100k...

I take home 6.5k a month, 35% of that is $2275. My student loans + car payments are $900 = $1375 a month. My rent is $750 a month (my share of a $1500 rent for a 1800sq ft, 3 BR, 2.5 bath townhome. Not taking into account a spouse, I could buy a 200k home with 1375 a month, throw in a spouse who is debt free (no car no student loan) and when I am married our take home pay will be $9700 x .35 = 3395 - 900 for debt payments = 2496, I can buy a hell of a home for 2500 a month - my 330k mcmansion that was 3000 sq ft on an acre of land only had a payment of 1900.

so who is wrong?????

 

[Dred Pirate]

The best thing one can do when buying a home is to buy something that is way lower than what you can afford... When we bought ours in 2010, the bank pre-qualified us for 350k. We only used 150k of it-- (3BR/2BA/2CG)--2,200 sqft under air and spent about 20k renovating-- 15 year mortgage @3.25APR. Best financial decision we ever made! Payment/tax/insurance was about 20% of our take home pay... Zillow Zestimate is 260k now, so we are sitting on 160k equity. Now that I am in med school living on a minimum wage, we still have no problem paying our mortgage even if my wife works part-time. I plan to be mortgage free by the time I am done with residency...

you just contradicted yourself saying it was impossible, but then you show how you only pay 20% for mortgage, smart financial planning and working during school (avoiding private school) and you can easily do it.

 

[pezdispenser]

For mortgages, the lenders look at two ratios:

Front-end ratio:

MONTHLY housing expenses (mortgage payment + property taxes + insurance + homeowners association)
---------------divided by----------------
MONTHLY GROSS income

Back-end ratio:

Monthly housing expenses (same as above, again) + all other monthly debt payments including STUDENT LOANS, car loans or leases, credit cards (minimum payment), child support, alimony
---------------divided by----------------
Monthly gross income

For the best deals on mortgages, the front-end ratio should be less than 28% and the back-end ratio should be less than 36%.

So for a pharmacist who GROSSES $120,000 per year, or $10,000 per month, the monthly housing expenses in the front-end ratio should not exceed $2,800 per month.

The total debt payments INCLUDING housing expenses in the back-end ratio should not exceed $3,600 per month. Be aware that if you have high NON-housing expenses, such as a $1,000/mo student loan payment and a $400/mo car payment, these will actually further reduce the allowance for housing expenses like this:

$3,600/mo - $1,000 - $400 = $2,200/mo leftover for housing expenses

So in this example, you will not be allowed the full $2,800/mo housing expenses as calculated in the FRONT-end ratio.

The next step is working out how much $2,200/mo in housing expenses can get you. I would recommend limiting your budget to a 15 year mortgage, rather than 30 year because:

- the 15 yr has a 0.75-1% lower interest rate which will save you $2,400/yr in interest on a $240k mortgage

- on a 4% 30 yr mortgage in the beginning, about 70% of your payment goes towards interest. 30% goes towards principal, so you do not build much equity in the beginning. Thus you could argue that you are not that much better off than renting where you do not have any equity at all. This is particularly true if you have to move and sell your house after only a few years, and you would not have built up much equity on a 30 yr mortgage.

On a 3% 15 yr mortgage in the beginning, about 36% of your payment goes towards interest, 64% to principal, so you build up equity much faster.

A 15 yr mortgage with 3% interest for $240,000 has a monthly payment of $1,657.40. This leaves about $500/mo under the $2,200/mo allowance in the example for property taxes and home insurance, which you will have to work out for your area. Plus a 20% down payment of $60,000 means the total house price is $300,000.

On top of the $60k down payment, you also need closing costs of 3-5%, let's say $15k, and 2-6 months of housing expenses as cash reserves in the bank, say $10k. So altogether you should save up $85k to buy a $300k house.

 

[W19]

@Dred Pirate Your student loan payment is quit low... That is why you can do it.

There should only be 15 and 20 year mortgage because I think that 30 year is a scam. All mortgage should at least require 10% downpayment IMO...

 

[IlDestriero]

You don't want to be house poor. When the market was rising with no end in sight and people flipped every few years to bigger and better places, it made more sense to push the limit. That boom ended a long time ago. Many people over extended and got crushed. Many smart and relatively wealthy people got crushed. They would not have lost their shirt if they played the game conservatively.
Just because the bank will loan you 1/3 of your gross pay, knowing you can afford to pay it, you don't want to pay that much. It will limit your investments, vacations, etc. (Unless your income is very high ~300+)
You would be wise to spend no more than 30% of your net income on a home. Don't buy into the big house dream, unless you're making the big money. Cash in hand, diverse investments, rental income, other businesses, passive income streams, etc. That is what makes you rich.
My mortgage is just under 20% of my net income. I wish it was even lower, but I wanted a big house in the burbs with trees and privacy, so that's the price I have to pay.
BTW, more important than a house is your F#@k You account. It is enough money to cover all your expenses at their current level for 6 months if you are let go or have to quit. Knowing you have the ability to move on at essentially any time will keep you from being trapped in a bad job. Jobs can change, even your own business, that is very important money to have relatively liquid. Not being trapped is very emotionally freeing. The grass may actually be greener on the other side, and you may want to jump ship even if it means being out of a job for several months.

 

[HouTX]

sorry, meant it as I view it as an investment now since prices have gone up so much. I have a residential homestead on it. will be cashing out as soon as I'm able to (2 years + 1 day)

You can't avoid capital gain tax. Since you already turn it into investment before 2 years living in there.

You must meet all of these qualifications to exclude the gain from the sale of your home from income:
You must own the property for at least two of the previous five years.
You must live in the property for at least two of the previous five years.
You must not have excluded the gain from a home during the two-year period prior to the sale of your home.

http://www.taxact.com/tax-information/tax-topics/12-tax-tips-when-you-sell-your-home.asp

 

[Dred Pirate]

@Dred Pirate Your student loan payment is quit low... That is why you can do it.

There should only be 15 and 20 year mortgage because I think that 30 year is a scam. All mortgage should at least require 10% downpayment IMO...

true - I am lucky (relatively) - I did have 115k in loans - most at a VERY LOW interest rate (pre-2004). I advocate living within your means - pay off your debt, don't get into debt, and it is amazing how much money you have. A married couple doesn't need a 3000 sq ft home (I made that mistake) - you can get a decent house in a night neighborhood where I live for 175k - save up before you get your mansion. And yes, 10% minimum, I will have 20% for our next home.

 

[W19]

true - I am lucky (relatively) - I did have 115k in loans - most at a VERY LOW interest rate (pre-2004). I advocate living within your means - pay off your debt, don't get into debt, and it is amazing how much money you have. A married couple doesn't need a 3000 sq ft home (I made that mistake) - you can get a decent house in a night neighborhood where I live for 175k - save up before you get your mansion. And yes, 10% minimum, I will have 20% for our next home.

A lot of people or couple make that mistake for reason I have never been able to comprehend. A 2,000 sqft home is big enough for a family of four to live in... To be fair, when couple make that mistake, it's usually the women who push the men into it (I know I am going to get pounded here for that statement). This what I have noticed from personal experience.

 

[87asu]

.

 

[Dred Pirate]

A lot of people or couple make that mistake for reason I have never been able to comprehend. A 2,000 sqft home is big enough for a family of four to live in... To be fair, when couple make that mistake, it's usually the women who push the men into it (I know I am going to get pounded here for that statement). This what I have noticed from personal experience.

well - in my case with WAS THE WOMAN - who is now my ex for a variety of reasons LOL. This was the same woman who HAD to have a corvette, HAD to have all of the other fancy toys of life. My new fiance makes half of what she did and we have sooooooo much more money available because we are not stretched so thin on other expenses. You know mortgage comes from the french word for death sentence.

 

[Dred Pirate]

Wondering what the thoughts are on buying before starting school.

1.) this would insure living in the home for the 4-5 year requirement stated in multiple posts.
2.) possibly help to gain instate residency in many areas

At the moment I've saved enough to either pay a full year of out of state tuition out of pocket, or buy myself a house and start the loan train early like everyone else. I of course would not be looking at the McMansions of the graduates on the boards, but more in the range of 150k so that the mortgage would be relatively around the cost of rent.

Edit: for the record I will be out of state or private as I plan to take this opportunity to move

personally - do not buy a house when you are in school. 4 years is the minimum you want to stay in a house - you will be in school 4 years, so you are pushing it. Avoid taking student loans and pay cash for as much schooling as you can. Are you moving to Tempe for school or are you currently living in AZ? You know how crazy that housing market has been in AZ over the last 10 years.

 

[pezdispenser]

Wondering what the thoughts are on buying before starting school.

1.) this would insure living in the home for the 4-5 year requirement stated in multiple posts.
2.) possibly help to gain instate residency in many areas

At the moment I've saved enough to either pay a full year of out of state tuition out of pocket, or buy myself a house and start the loan train early like everyone else. I of course would not be looking at the McMansions of the graduates on the boards, but more in the range of 150k so that the mortgage would be relatively around the cost of rent.

Edit: for the record I will be out of state or private as I plan to take this opportunity to move

I think it is a bad idea. To qualify for a mortgage you will need to show stable employment for the past 2 years with a gross income of about $40k for a $120k mortgage. I also don't know how the lenders will treat the fact that your 'income' for the next 4 years will be from student loans, which is not really income at all. In fact, you are basically borrowing and paying interest on the student loans, and then paying double interest again on the same money to the mortgage lender. That's a surefire way to send you deep into a debt death spiral.

 

[87asu]

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[87asu]

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[Dred Pirate]

I have employment/income records to qualify, and will continue to receive about 20k/yr while in school from my family business. One of the reasons I want to buy before starting is that I won't have to tell lenders my income will be dropping and that I will be taking school out loans. I'd basically have a better shot at qualifying for the amount i'm interested in.

if you even have to "worry about qualifying" you already have your answer that you shouldn't buy. If there is a question as to weather you qualify or not, you should not be buying - just my two cents worth.

learn from my mistakes.

 

[BMBiology]

I have employment/income records to qualify, and will continue to receive about 20k/yr while in school from my family business. One of the reasons I want to buy before starting is that I won't have to tell lenders my income will be dropping and that I will be taking school out loans. I'd basically have a better shot at qualifying for the amount i'm interested in.

Before you buy, I would calculate how many % does your property have to go up per year in order for you to just get your money back. Remember it costs 6% to sell a property and 4% to buy a property. Also include property taxes, maintenance cost, insurance, etc. Post it here afterward and we can analyze it for you.

 

[JamesL1585]

Awesome thread folks. Im in the pre-steps of buying a home. Saving my 20%. Im all about location. Looking to buy just south of downtown Chicago (South loop). Im about comfortable living and location so that I hopefully never take a huge loss, and at worse get great rental income from the property.