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Currently living in an apartment in northern New Jersey with a lease ending October 31st. Getting married in Sep, returning from honeymoon mid October. Will definitely have a 40-50K down payment ready should we wish to buy. Combined salary of $ 175 before taxes and 401K (very little risk to lose job and have emergency fund). No option to leave north Jersey. Family realtor is giving us back the commission check. What option below would you choose?

Option 1: Buy the ideal, move-in-ready home we want for $ 400-430 (Taxes ~$ 8K). Pros: Totally happy living here and could be home for at least 10 years or more. No major renovations needed. Locked in lower home prices and interest rates Cons: Low down payment, high mortgage, PMI for at least 2 years, will need to purchase furniture

Option 2: Buy a starter home for $ 300-$ 350. Pros: Will own a home as opposed to paying rent. Will lock in lower interest rates and lower priced home while market is still down. Cons: Will not be the home we ideally want, so will be thinking of this as more of a temp/investment than anything else. Will need to purchase furniture (might be able to swing enough to avoid PMI if it’s at $ 300K). Could get hit with high maintenance/renovation bills

Option 3: Rent a place for either month to month, or at least 1-2 more years. Pros: Will not have to buy furniture or pay for the maintenance of a home. Will have savings (outside of emergency fund) to invest in mutual funds. Will be able to save more since we don’t need to pay a higher mortgage plus home maintenance costs Cons: Could get hit with a big time jump in home prices and interest rates…VERY afraid of this, although investing in mutual funds should off-set the risk some. I’m 30 and am anxious to finally get a home.

***No current debt. I have a company car but my fiance will need a new car within 2 years.

3 Thoughts on Based on my situation (3 options), would you buy a home now or wait?
  1. Reply
    Claudia
    February 4, 2014 at 1:32 am

    If I had your financial status and was just starting out as a young married couple I would go for the second option. You have the means to buy so definately buy but don’t go to your max.

  2. Reply
    KL
    February 4, 2014 at 1:54 am

    Option 3. You are newlyweds and you should live w/each other for about a year before deciding to make a big commitment on buying a house. You want to make sure this is something you both want and can handle. Housing and interest rates will not jump in a year.

  3. Reply
    Jamesww
    February 4, 2014 at 2:22 am

    Since the historic norm for the average interest rate is around 8% and rates are rising quickly. I would say you should do number one, or you should find a home in the neighborhood and area you like that needs a lot of work and use a renovation loan to package the costs to renovate the property and to purchase the property all in one loan.

    The majority of financial planners would tell you to hold onto as much in savings as you can today and lock in interest rates at todays rates on a home you would be willing to stay in for a long time. This will leave you controlling a large asset that you can be happy living in at rates that very likely will be less than the inflation rate over the coming years. This is very smart because as inflation kicks in property values will rise at or in excess of the interest rate you are paying. So, your asset will likely grow in value while you pay down the debt.

    Allowing you a rare opportunity to have your cake and eat it to. You need to remember if you are putting say 5% down then any appreciation received will have a multiplier of 20. So, if your house goes up at 4% a year you will be receiving a 4%/5% = 80% return on your money. Stocks will not come close to this sort of return.

    I would be more partial of utilizing a renovation loan where you fix up a property in the area you would be willing to live a good while in and then do a remodel in your taste that you could be very happy with. This scenario would allow you to have a home you are very happy with at a low interest rate in an area that is likely to appreciate bought at a low point in market values with a high probability that it will appreciate. There is very little down side to this scenario and a lot of up side.

    The loan products that would allow you to do such packaging almost all the cost into a loan are:

    The FHA 203K loan and the Fannie Mae Homestyle Rehab loan. I personally would be happy to answer any questions you have about these loans, as I originate them for a living.

    Whatever you do definitely keep as much of your cash on hand and purchase the most property you can afford comfortably. Whether you find a home that is already in tip top shape or use a renovation loan to build equity and personalize your home, you should definitely lock in low rates on a property in the best location you can that would make you feel like staying put for a long time. If you do this without over extending yourself you will end up coming out of it smelling like a rose and looking like a genius.

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