Keep renting, or buy? I''m a total newbie at this...

[HOUMedGal]

I''m a TOTAL newbie when it comes to buying a home, and so I''d like to pick your brains. OK, here''s the scenario.

I''m a med student, living entirely on my student loans. I really wish I could work, but I have no time for a job outside all my med school requirements (without seriously sacrificing grades and sanity).

My husband is a PhD student with 1, maybe 2 years left to finish. He''s in a paid position, but it''s not much. Basically enough to pay tuition and fees and live very meagerly.

Lease on the apartment ends in December...so I''m looking at options of what to do then. I was just looking at apartment complexes, but then I thought about what would happen if we tried to buy instead of renting...

I''ll be here in Houston for at least 2 years...so the absolute soonest we''d sell is 2 years from now, possibly 7-9 years, depending on where I get a residency.

Question 1: is it, indeed, a good idea for us to buy instead of renting? I feel like maybe we''re throwing money away by renting when we could be paying the same amount we''d pay for rent (900-1000) on a mortgage, and then have something to show for it when we move/sell....

Question 2: could we even get a mortgage, considering I have no income outside loans and his income is small?

Question 3:if we could get a mortgage, we''d probably have to do something like an 80/20 zero down, since we don''t have much $$$ socked away. Pros and cons to this?

A bit more info...we WILL have good income eventually, as I''ll be an MD and he''ll be a PhD. We''re just poor students for the immmediate future. So I''m not terribly concerned about getting into something that we won''t be able to get out of later, because we''ll have a lot more financial choices and flexibility in the future.

Oh, and if we did buy, we would NOT buy something huge and ridiculous....just something for which we could have a mortgage payment that would be comparable to the rent we''d pay (so we''d be looking at homes around $130-150K or so).

Thoughts? Any and all are appreciated...

 

[ladykemma]

what neighborhood? do you drive or walk to the medical center? would you consider a commute?

 

[HOUMedGal]

LK, I currently live in an apartment that''s outside the loop, so I''m accustomed to driving in a bit. I would be willing to keep driving in (it only costs $35 a month to park at the end of the line of the Metro Rail). I haven''t narrowed down to what neighborhood at all yet, but near where I live now there are lots of options (Pearland area).

 

[bookworm21]

I''ll see if I can answer any of these. Anyone please feel free to correct me if I am incorrect.

1. If you know for sure that you can find a place and obtain a mortgage and keep the payments within the range of what you''re paying for rent right now, then I''d recommend you buying. But keep in mind that there''s property tax, insurance and other little things that come with buying a home, and they really add up. I don''t know what the tax rate is in Houston, but in Lubbock and Austin, it''s around 4% for property tax alone, so you have to add that amount to the monthly budget.

2. Sure you could get a mortgage. But the terms and interest rate probably won''t be that great. The interest rate you''ll be paying may be rather high, and places who are more flexible about approving loans generally don''t allow you to refinance in less than three years. This may not be ideal for you, since you''re thinking that you might move in 2 years. I don''t know if that applies to selling your home though.

3. You''d be paying PMI, and most homeowners want to avoid that. I have no useful advice, since I have no idea about the pros and cons. But whatever you do, do NOT fall for the interest only loans, as so many people seem to be doing lately.

If you two do decide to get a home, I think it''s great! Keep in mind that looking for one and going through the whole process is very time consuming (I personally hated it, there was soooo much to read, because you have to double check everything before you sign), you have to deal with the realtor, the lender, and gathering all statements, etc. I only mention this because you said that you don''t have much time as a med student.

Good luck, and please let us know what you two decide to do.

 

[HOUMedGal]

Cinderella, thanks for the input!

One thing i have learned so far is that an 80/20 zero down loan keeps you from having to pay PMI....it finances 80% on one mortgage, and then essentially you get a second mortgage (with a slightly higher IR) for the remaining 20%. And you don''t have to get PMI.

 

[sumbride]

Beyond the financial, there are other things to consider as well... being a homeowner instead of a renter means home maintenance is completely up to you. So if you''re in the middle of exams and the pipes break, it''s all you. If your fridge stops working, you have to replace it. If your roof is leaking... if the lawn needs to be mowed.... you get where I''m going with this. If you don''t really have time for a job while being a student, make sure that if you do end up buying, that you get something that is in excellent condition or in a townhome community with a maintenance staff. And don''t mistake a "new home" for something where nothing can happen. We''re looking at water stains on our dining room ceiling, a leaking exhaust fan, a leaning fence, and mildewed window sills and our place is less than a year old. Oh, and the first month we were here we found out the hard way that the plumber missed glueing a joint in the sewer line in the basement. That happened on a holiday weekend. Fun fun!

Renting may not give you equity, but it IS easier, and in this time, where you two are so busy, it might be your best option. I''m all for buying, but realize that the mortgage= rent thing isn''t all it''s cracked up to be.

good luck to you!

 

[ladykemma]

ok, so you''re paying 35 plus rail plus gas

there are condos on holly hall that would be very handy.
rice U is too expensive. so is bellaire
lots of cute new fresh houses in pearland.
montrose would be fun! condo?

on the #2 bellaire busline there are houses in sharpstown. from the 1960s-70s that are not expensive. would you consider an "interesting" neighborhood?

on bellaire (#2 bus) across from Whole Foods is an apartment complex called Blair House Apartments. there are yucky looking on the outside but nice and huge and spacious on the inside. i had a huge 2 bedroom for $600 in 1995 dollars. That would be roughly $1000 in todays dollars. so if you had to stay in an apartmrnt get lots of space and make life easy and cheap on the bus line. The owners are very selective about WHO they let live there. Very well kept.

on the #1 busline down OST there are lots of older homes in another "interesting" neighborhood.

I lived for many happy years without a car in houston in that area.

one thig to consider - while you are exhausted during med school and residency, exactly WHO is going to mow the yard? maintain the place? do you really want this responsibility?

 

[Tacori E-ring]

We bought our house with an 80/20 (to avoid PMI) I will say it is great being a homeowner. What I would do is call some brokers (I looked in the phone book) tell them your situation and see what they had to say. Call a couple. The first one I talked to laughed at me and said there was no way. I bought our house in my name ONLY when I was 22. My broker faxed over a copy of my college degree as proof (since I did not have two years job history) so it is possible for them to see your future income. I think owning is always better than renting. Do you both have good credit?

 

[pinkflamingo]

Hi HouMedGal,
No advice except maybe buy a Condo in the Astrodome area? My friend graduated from Baylor 3 years ago, and sold her condo there- she made quite a profit. It was a teeny weeny place, she bought it for $35K in 98, sold in 2003 for over $70K. It was such a close commute, and a nice complex. it was a better investment than renting for that time. It was close to the Kroger and she could bike to the med center or drive to Rice and park in the stadium.

Another up and coming area is the museum district area/near Hermann park. DH lived in this sketch house, but we knew there was a lot of money going into that neighborhood, althought it was pretty ghetto.

I haven't been in Houston for 4 years now (miss it SO much) but I do know those areas are so convenient to the med center, and I know how hard you guys work! I think the condo idea is the best, as there is always a long line of students in the Rice/Baylor area who will snatch up the place when you move. Tons of new doctors/nurses etc, it is so busy around there!

 

[bookworm21]

Date: 7/15/2006 7:30:19 PM
Author: HOUMedGal
Cinderella, thanks for the input!


One thing i have learned so far is that an 80/20 zero down loan keeps you from having to pay PMI....it finances 80% on one mortgage, and then essentially you get a second mortgage (with a slightly higher IR) for the remaining 20%. And you don''t have to get PMI.

Okay, put that way, I realized that my bf actually has a couple of those. And all the second mortgages have a 3-year no refinancing option to them, or you pay a steep penalty. And we cannot pay more than 20% of the total balance at once either, or we face a penalty. HTH.

 

[Mara]

the best piece of advice i can give to you is to buy as soon as you can, even if that means going 80/20. on the whole 80/20 with a second or a heloc rather than PMI...you can find no penalty refinance options with relatively low or no penalties if you just shop around and do your homework. i had three lenders working for us, competing to get our business when we did our loan and it was great. we got all no-prepay penalties and didn't have to pay that much more and we refinanced our 2nd late last year and saved about $150 a month. if you think you may move in 2 years, get something with a no penalty as most of the penalties are 3 years.

anyway i say to buy as soon as you safely can, because if i had gotten into even the cheapest house i could have afforded 5 or 10 years ago, we'd be so much more ahead right now. we bought about 3 years ago and i'm glad we did, but i have a girlfriend who got into a house 5 years before that and she now is on her 2nd house and rented out the first condo and now is about to get married and will be able to sell both properties and take all her equity to get them a 'forever' home right away with a huge down payment because she planned ahead.

if you can afford to pay property taxes (whatever they are where you are), homeowners association and a mortgage (or two mortgages) then i would say to try to get into SOMETHING. i do think that rent is basically throwing away money so if you can get into something and not overextend yourself...then refinance or move in a few years to put more down, get rid of your 2nd, etc...you will be so much more ahead than if you wanted a few years to buy.

just my two cents...property ownership was the best thing we could have done and i wholeheartedly recommend it to everyone, even if you have to scrimp and save and sacrifice a bit to get into something sooner. it will reward you later IMO.

 

[Dancing Fire]

Date: 7/15/2006 7:23:10 PM
Author: Cinderella


3. You''d be paying PMI, and most homeowners want to avoid that. I have no useful advice, since I have no idea about the pros and cons. But whatever you do, do NOT fall for the interest only loans, as so many people seem to be doing lately.

Good luck, and please let us know what you two decide to do.

best advice ever.

 

[Dancing Fire]

Date: 7/15/2006 7:30:19 PM
Author: HOUMedGal
Cinderella, thanks for the input!

One thing i have learned so far is that an 80/20 zero down loan keeps you from having to pay PMI....it finances 80% on one mortgage, and then essentially you get a second mortgage (with a slightly higher IR) for the remaining 20%. And you don''t have to get PMI.

that is just a different way of paying PMI. aren''t these on adjustable rates?

 

[Dancing Fire]

Date: 7/15/2006 7:34:48 PM
Author: sumbride
Beyond the financial, there are other things to consider as well... being a homeowner instead of a renter means home maintenance is completely up to you. So if you''re in the middle of exams and the pipes break, it''s all you. If your fridge stops working, you have to replace it. If your roof is leaking... if the lawn needs to be mowed.... you get where I''m going with this. If you don''t really have time for a job while being a student, make sure that if you do end up buying, that you get something that is in excellent condition or in a townhome community with a maintenance staff. And don''t mistake a ''new home'' for something where nothing can happen. We''re looking at water stains on our dining room ceiling, a leaking exhaust fan, a leaning fence, and mildewed window sills and our place is less than a year old. Oh, and the first month we were here we found out the hard way that the plumber missed glueing a joint in the sewer line in the basement. That happened on a holiday weekend. Fun fun!

Renting may not give you equity, but it IS easier, and in this time, where you two are so busy, it might be your best option. I''m all for buying, but realize that the mortgage= rent thing isn''t all it''s cracked up to be.

good luck to you!

true but....you won''t lose any money either when the market goes down.

 

[divergrrl]

Have you guys heard the ads for the 50 year mortgages? Almost as scary as the interest only loans! No way jose!

 

[HOUMedGal]

50 years is a looooooooooong time....wow.

I see that my thread may become the beginning of continued "friendly banter" between DF and Mara....hehehehe.

Thanks for the input everyone....we''re going to discuss it with my folks tonight over dinner and see what they think. The one thing that keeps glaring out at me is that if we rent for 2 years, we''ll be $25,000 in the hole. If we buy, I think it''s very unlikely that we''d lose enough money to be that far in the hole at selling. True, untrue, thoughts???

 

[basil]

It depends where you think you want to do your residency. If you are pretty sure you want to stay where you are, then I would definitely look into buying. If you are pretty sure you want to leave Houston altogether, then I would hold off until you graduate. I guess that''s a pretty tough decision to make in your 3rd year, though.

I just went through a similar decision...I graduated med school and was trying to decide whether to buy or rent on a single resident''s salary in a place I knew I''d only stay for 4 years. I ended up buying, but the calculations I did showed that with tax deductions, increases in rent, lost investment income from the money I used as a downpayment, maintenance costs and condo fees, and real estate costs when I sell my condo, I''ll end up within $3000 over 4 years. Obviously, property appreciation isn''t easily estimated, so hopefully, I''ll end up a little more ahead than that. Over 2 years, you may be just breaking even. Especially because you won''t get to deduct the mortgage interest from your taxes since you won''t be paying any. Even if you came out a little ahead, it may not be worth the stress during med school. And it is stressful!

I don''t know if it applies to you as a med student, but some lenders do offer special "doctors'' loan" programs which are usually 5 year ARM, no PMI, no downpayment. Bank of America is the one I ended up using, but there are others too, depending on your state.

 

[Mara]

nah HOU...DF is as stubborn as a mule on what he 'knows'...

i prefer just to let experience speak to me on it's own, and it has so far been saying that choices we made have been the right ones for us!

in terms of 2 years...if you do buy and are unsure you will be there on your 3rd year, then be sure to get something that is easily rentable, aka a condo or something..where you could cover the payment with a renter if necessary. it's harder to do that on a house or similar and chances are you will not be able to get a renter who will cover your morgage and expenses etc. so that way if on year 3 you have to go elsehwere, you can keep your property, rent it out and cover yourself so that when you come back you still have your place. that would be my preferred suggestion....i like to hold onto property as long as possible for appreciation values to climb rather than selling after 2 years if there is an option for you to return.

 

[HOUMedGal]

Thanks, Basil, I''ll definitely look into that doctor''s loan thing and see if it applies to me! So even if I did just break even when I sell the house in 2-6 years, wouldn''t that be better than spending all the money on rent? When you say "break even," do you mean sell the house for what I bought it and eat what I''ve been paying on the mortgage (mostly in interest?)? Or do you mean break even as in make enough money on the house to cover what I''ve paid in mostly interest on the mortgage?

I''d say there''s at least a 50% chance we''ll stay in Houston after these 2 years are up...there are plenty of residency opportunities for me and good opportunities for him job-wise too. Unless something somewhere else falls into place for both of us at the same time, it''s quite likely we''ll stay here. Which makes me lean towards buying.

BUT if we don''t stay here and end up selling after 2 years, will we regret it? Say we sold the house for exactly what we paid for it (or just a little bit more), then we''d still be in the hole for the interest we''ve been paying, because in the first 2 years of the mortgage we wouldn''t be paying much on the principal.

So far in my research I haven''t found anything that speaks a resounding YES or a resounding NO. I guess we just have to keep researching to figure out what''s best for us.

 

[rainbowtrout]

FI's mother is a landlord, and this is what she told us:

rule of thumb: rent if you will be there less than 3-5ys. Buy if more than this. Buy the worst house in the best neighborhood you can afford. And as someone said, DO NOT fall for the interest only mortgages.

Why don't you buy in 2 ys when you know about residency? That might help eliminate the uncertainty. Out of curiosity, what specialty is your husband that he can be reasonably certain of finding an AP position in Houston?

 

[HOUMedGal]

We had already decided that we'd buy once my residency starts, wherever we are. We're just trying to decide if we should go ahead and do it now instead of renting for 2 more years, with the idea that there's at least a 50% chance we'll stay in Houston. Because if we DO stay in Houston, then we'd be in the house for at least 6 years.

I had heard that bit of advice before, to buy on the cheaper side of the neighborhood you're looking in. Sound advice!

I'm not sure what you mean by AP position, RainbowTrout...?? My husband is getting his PhD in Physics. I'm not saying he's got a position nailed down, just that as far as I know, Houston is a better place than others for a physicist to be, as far as possible opportunities goes. One of the papers he has published (on warp drive) has been noticed by a guy with NASA (I'm not sure what the guy does, just that he's with NASA), and he'll be presenting his paper at a workshop in February, so he's hoping to work those connections a bit and see what may come of it. He'd love to end up with NASA eventually, if it's in the cards!

ETA: Thanks so much for all the input, everyone!

 

[basil]

I guess what I meant by "break even" was be out the same amount of money as you would have paid in rent.

You''re right that the first 2 years you are going to be paying mostly interest. And don''t forget you will pay real estate agent commission when you sell it. I don''t know a thing about Houston, but where my condo is, there is also a 2% "transfer tax" that one pays when buying and selling. Plus the closing costs, which add up pretty fast too. Then if you buy a condo, there is always the condo fee that you don''t get back, which should be roughtly equivalent to the amount you''d spend on maintenance and upkeep if you bought a house.

When you add up the amount of principal you''ll pay over 2 years (minimal), and subtract all those expenses, you''ll see how much you''ll eat if the property doesn''t appreciate and you sell it at the same price you bought it at. Then you can calculate how much property appreciation you''ll need to come out equal to renting for 2 years. If your mortgage payment (+condo fees, +taxes) is higher than your rent, you should also calculate the lost income from any interest you''d have earned on your savings, too.

It''s complicated, and it took me days sitting in front of an excel file to figure it out. I finally came to the conclusion that I wanted my own place, loved being able to paint if I wanted, change things if I wanted, and liked the feeling that it was mine. I really liked this particular condo and decided even if I ended up a few thousand down at the end, it would be worth it to be living in a "better" place. So you have to take into account the intangibles too - whether you and your husband would be happier living in your own place rather than a rental. That has a value too.

Good luck!

 

[rainbowtrout]

AP= Assistant Prof

 

[tanuki]

I wouldn''t buy a house until after the match. If you don''t match in the same town the house is in you will be stuck making the mortgage payments until the home sell. At the same time you are trying to live on a resident''s salary (plus whatever they pay in academia these days)

When I was in residency my husband moved to the city I was living in. There wasn''t any alternative. He had a house that took us 10 months to sell. That was 10 months of making a mortgage payment on top of what it cost us to live. We took the first offer we got - didn''t even counter. We just couldn''t imagine going another 10 months pouring money down a hole if the buyer got cold feet. I think the financial stress of the situation contributed heavily to the breakup of my first marriage.

 

[Allisonfaye]

Listen to Basil. Good advice.
I too would have to say buying is a big gamble until you are sure you will be there.

I can''t say I know much about the markets specifically where you are but having been an appraiser in S. Cal in the early 90''s, I can tell you VALUES do DECLINE. Most areas have experienced a huge runup in prices over the last few years and buying with a short time horizon is very risky right now.

 

[aljdewey]

Date: 7/16/2006 2:04:34 AM
Author: Dancing Fire

Date: 7/15/2006 7:30:19 PM
Author: HOUMedGal
Cinderella, thanks for the input!

One thing i have learned so far is that an 80/20 zero down loan keeps you from having to pay PMI....it finances 80% on one mortgage, and then essentially you get a second mortgage (with a slightly higher IR) for the remaining 20%. And you don''t have to get PMI.

that is just a different way of paying PMI. aren''t these on adjustable rates?

A few things:

1) not all seconds are adjustable rates. We bought with an 80/10/10, and both the primary and the second are fixed, 30-year rates.

2) If someone is buying for SHORT-term....as in 2-3 years.....then no, it''s not just a diff way of paying PMI. Unless the interest difference amounts to at least $125-150 *per month*, it''s a better way than PMI.

3) The interest rate is more important on a longer-term loan and less of a factor on short-term solutions. I wouldn''t opt for a higher int. rate for a long-term solution, but for a short-term one? Sure.

 

[Mara]

Annie I don''t know what it''s like in Houston but when we bought, we bought on the thought we''d be here for 5 years...and the way we looked at it was like well if we even just break even and sell the house for what we paid for it (plus closing costs, resale costs etc) in 5 years, then we come out more than even vs renting, because we actually have come out WAY ahead in terms of how much of a tax writeoff we have now...so I would consider that too. Esp since Greg was getting really tagged on how much uncle sam was taking out of his income. Now if you take what we get back in taxes at the end of the year and what we pay out total etc, it''s WAY better than renting something even 1/2 as nice as what we have now. We have come out so ahead re: taxes by buying so far. And our house has appreciated an insane amount in just 2 years...that''s kind of how it is here, we were not expecting this at all. But anyway I still really recommend buying and putting your money into RE right away when it makes sense for you guys (and maybe it doesn''t now...because you are still up in the air on the next few years), because I have not really known anyone who did it who regretted it....esp if you can hold properties longer than you expected and keep adding to your portfolio. I believe in RE for long term. Anyway, definitely do the research and figure out what scenario is right for you, but my two cents!

 

[aljdewey]

Date: 7/16/2006 6:51:02 PM
Author: basil
I guess what I meant by ''break even'' was be out the same amount of money as you would have paid in rent.

You''re right that the first 2 years you are going to be paying mostly interest. And don''t forget you will pay real estate agent commission when you sell it. I don''t know a thing about Houston, but where my condo is, there is also a 2% ''transfer tax'' that one pays when buying and selling. Plus the closing costs, which add up pretty fast too. Then if you buy a condo, there is always the condo fee that you don''t get back, which should be roughtly equivalent to the amount you''d spend on maintenance and upkeep if you bought a house.

When you add up the amount of principal you''ll pay over 2 years (minimal), and subtract all those expenses, you''ll see how much you''ll eat if the property doesn''t appreciate and you sell it at the same price you bought it at. Then you can calculate how much property appreciation you''ll need to come out equal to renting for 2 years. If your mortgage payment (+condo fees, +taxes) is higher than your rent, you should also calculate the lost income from any interest you''d have earned on your savings, too.

It''s complicated, and it took me days sitting in front of an excel file to figure it out. I finally came to the conclusion that I wanted my own place, loved being able to paint if I wanted, change things if I wanted, and liked the feeling that it was mine. I really liked this particular condo and decided even if I ended up a few thousand down at the end, it would be worth it to be living in a ''better'' place. So you have to take into account the intangibles too - whether you and your husband would be happier living in your own place rather than a rental. That has a value too.

Good luck!

VERY sage advice - right on the money. Unless there is reason to think that your area may continue to appreciate at a healthy rate, you likely will be "in the hole" in one way or another.

I guess I''d look at the whole thing another way.

1) If you rent, you''ll spend $25000 with NO chance of anything to show for it later on....guaranteed.
2) If you buy and you sell two years later for approximately the same price, you haven''t really "lost" anything as long as the interest/broker commission/taxes, etc. don''t exceed what you''d have spent on rent during that same frame. It''s a gamble that doesn''t pay off, but you''re no worse for the wear.
3) If you buy and you stay (which there is a good chance you may), then it''s possible that you''ll make money on the deal over a long enough period of time.

#1 is the only option that guarantees spending money with no chance of return. On the flip side, it also offers more flexibility to leave when you want hassle-free and no maintenance, etc. You need to also consider what you''ll do if you need to leave the area to meet school requirements and the house doesn''t sell as quickly as you hope. My friends bought a home 10 years ago, and 3 months later, his position at the YMCA was cut. He ended up having to move back to CT and couldn''t turn the house in PA over for 18 months. He had to do all the maintenance (which meant driving 3.5 hours to mow the lawn), etc., pay mortgage AND rent during that period, etc. It was really a time drain and very disappointing.

While I''m normally an advocate of buying, I''m not sure I''d buy in your position unless your odds of staying locally increased to about 75%. Speaking just for me, I don''t know that it would be worth taking on the risk of all the potential hassles (maintenance, repairs, having to sell quickly, etc.) for such a short time. In your position, I think I''d wait the two years.....especially now that the market is cooling a bit.

 

[Dancing Fire]

Date: 7/16/2006 10:00:17 PM
Author: Allisonfaye
Listen to Basil. Good advice.
I too would have to say buying is a big gamble until you are sure you will be there.

I can''t say I know much about the markets specifically where you are but having been an appraiser in S. Cal in the early 90''s, I can tell you VALUES do DECLINE. Most areas have experienced a huge runup in prices over the last few years and buying with a short time horizon is very risky right now.

you tell them. most people been brain wash,thinking they can''t lose $$$ on real estate.

 

[Dancing Fire]

Date: 7/16/2006 2:17:46 AM
Author: divergrrl
Have you guys heard the ads for the 50 year mortgages? Almost as scary as the interest only loans! No way jose!

that is what you call "after death" mortgage. if you bought a house at age 40 and live til you're 80,you would need to continue paying your mortgage for 10 more yrs after you die.

interest only loans. our favorite subject. right Mara ?