I'm thinking of getting Back in the Market

[4jacks]

Okay, Check the temperature in hades, your favorite doom and gloomer is thinking of buying another house.

While I am not ready to call the bottom of the market. I am thinking it may be a good time to buy. Here's the situation. While House prices were taking a major nose dive over the past two years, Heather and I got out of the market and rented a small apartment. We are a little unsure of where we will be in future. We could stay here, but eventually we would like to go down south. Either way, we are sick of the small apartment. (Saving money does have a cost)

So I'm throwing out the idea of buying an inexpensive townhome. Townhomes that in the height of the market were selling for $250k+ are now starting to list at $160k. In 2008 Heather and I almost bought a townhome on Freestone Court 21009 for $280k. We signed papers, then things fell through. Now there is one (doesn't look as nice, and of course now in 2012 it's 4 years older) but its listed for $159k.

So me renting for the past 3 years, has saved me roughly 80-90k in what could of been a disaster. However it cost me $20k in rent, out the window, nothing to show.

So while I don't think prices will really go up in another two years. I don't think they will go down another 20k. I think we are going to see them keep slowly going down until inventory and the market stabilize.

So I'm thinking we might as well buy a townhouse (bigger than our apartment) and if we sell it for $20k less in two years, it's like breaking even.

Thoughts??

[Driver]

We are a little unsure of where we will be in future. We could stay here, but eventually we would like to go down south. Either way, we are sick of the small apartment. (Saving money does have a cost)

First thing that hits me when I read this is that renting is the easiest way to gain mobility. I totally understand being unhappy with your current rental. Consider another option is to get a nicer rental. That way you still have easy mobility (when the lease is up, just move) and it's a guaranteed financial decision. Unlike buying a home where you can't guarantee what the financial impact is, a rental is guaranteed not to somehow cost you an extra $30,000 or cause you to be stuck in your rental another 18 months waiting to find the next renter. You just leave.

However it cost me $20k in rent, out the window, nothing to show.

I know many people in Phoenix who poured $20k, $30k into mortgages and had to short sell, thus pouring all that money into a mortgage and having nothing to show. Worse yet, a few have ruined credit ratings now. One of them has made something like $70K in payments and is still under water but doesn't want to sell because of the impact on his credit. Now he's basically "stuck" in his house because it's still underwater after nearly 7 years of payments. Again, doesn't happen with a rental. As long as you are on time with your payments you just walk away when you're done.

Consider: http://finance.yahoo.com/blogs/break...190758173.html

Spring of 2014 will be the time that you would start to consider to buy a home.

[4jacks]

Thanks Driver,

I fully agree with you about all the advantages of renting in this down market. As I've been holding to them for the past three years. I quasi-agree with Schoenberger's prediction that 2014 will be the optimal time to buy. I agree to the point that around that time (I predict) the market to start moving up. The point in question is: How far will the market move down from now until 2014?

I am predicting it won't go down another 13%. I also predict that Larger homes are going to continue to be hit the hardest, as they have been.

The break even point for me buying a low end (but not in the ghetto) townhome would be about 13%. If I buy $150,000 townhome, live in it for two years, then sell it for $130,500, it would be financially the same as if I continued to rent my smaller apartment for two years.

Mobility is a factor, but not a large one for me. There is not any reason we would have to move immediately, all our family is here, no military, no market based jobs, etc. If we do decide to sell and the market is still down, I have the experience of selling my previous house in a down market. And I understand that the lower the price the faster it will sell. So potentially I could lose more than renting. If I had to sell for $120,000 to sell quickly.

I am hoping/planning/praying that when 2014 comes around and we hit the bottom, I will be ready to move into a real house, and keep the small townhome as a rental/investment.

[pochax]

i say now is as good a time as any. mortgage rates are still low (and hopefully will remain so for the forseeable future). the slight downside with townhomes (and this could vary regionally) is that they do not always go up in value as quickly as detached homes. but it sounds like it will be a significant upgrade in space and that you will probably be there for at least 3-5 yrs+(???).

my take has always been that real estate is not a great investment in terms of risk/return ratio. a primary residence home is moreso a consumption item but because of the land beneath it appreciates, it MAY present as a possible investment. however, once you take into consideration property taxes, maintenance, upkeep, HOA fees, etc., those fixed costs eat away into your returns.

[Driver]

I've written and erased probably 4 replies now, but ultimately I think pochax says it well. As your primary residence owning a home is still a fairly good financial move. Historically family homes tend to move roughly in line with inflation. There's plenty of exceptions when talking about things other than family homes, but townhomes fall squarely in that category. Everybody has to live somewhere, so you're either renting or buying. I do want to point out however that you need to make sure you're considering all costs when comparing renting versus buying. Realtor commission, closing costs / title work, mortgage application, loan origination fees, prepaid points, and who knows what else greatly increase the cost of a short-term ownership. An extra 8% in commissions, fees, etc isn't a big deal if you're staying there for 10-30 years but it is a big deal if you're leaving in just 2 years. Those fees are not insignificant so keep that in mind when comparing rent vs buy.

[4jacks]

the slight downside with townhomes (and this could vary regionally) is that they do not always go up in value as quickly as detached homes.

I 100% agree. When the market begins to pick up, the higher demand houses will be single families. One upside to a townhouse is that it is more rentable. It's a lot easier to find a tenant with okay credit to pay $1000 a month for a townhome than to find a tenant with good credit who can pay $1500 to rent a small single family. (If you want to become a landlord)

but it sounds like it will be a significant upgrade in space and that you will probably be there for at least 3-5 yrs+(???).

Honestly it's really up in the air right now. I'll fill you guys in on some major job stuff later when I work out some details. But I do plan on not having to SELL the house for at least 5 years. But if I have to sell in 2 years and loose money, I would be okay, as long I get a good deal.

my take has always been that real estate is not a great investment in terms of risk/return ratio. a primary residence home is moreso a consumption item but because of the land beneath it appreciates, it MAY present as a possible investment. however, once you take into consideration property taxes, maintenance, upkeep, HOA fees, etc., those fixed costs eat away into your returns.

We have agrued about this over the past 2 years (wow long time) Where I have presented the simple rent versus buy equation purely mathmatical, and you have tried to convince me that a primary residense has more to it than the value, being where you live. I think after renting a shoebox for two years I am definitely coming around to seeing things your way. lol

I've written and erased probably 4 replies now,

I hate that, I do that all the time here, the "+ Reply to Thread" button here is very deceiving.

I do want to point out however that you need to make sure you're considering all costs when comparing renting versus buying. Realtor commission, closing costs / title work, mortgage application, loan origination fees, prepaid points, and who knows what else greatly increase the cost of a short-term ownership. An extra 8% in commissions, fees, etc isn't a big deal if you're staying there for 10-30 years but it is a big deal if you're leaving in just 2 years. Those fees are not insignificant so keep that in mind when comparing rent vs buy.

Very Good point! It's hard to judge that when emotions are involved also. Of course I know the longer you own the better, however I don't 100% know my future, and I would be wary of a long distance landlord situation, if I did have to move. To my credit, I've been around the block before, I anticipate closing costs and associated fees for a sales price that I'm looking at to be somewhere in the $6-8k range. to my advantage, I don't use a realtor, that saves me 3% and I qualify as first time home buyer, which in MD puts one funky sales tax item of 1.25% onto the seller.


*UPDATE*

So I was looking at two houses that were listed for $150k. Both are under contract. However one house has a neighboring house across the street going to Auction tommorow at noon. So the Wife and I are going to attend the Auction. Right now I don't want to delude myself with fantasies of picking up a $150k house for $30k, however I did look into the rules of the auction and contemplate what I could potentially bid (if Its a nice house). You have to immediately pay $1500. (No problem if they let me run to the bank down the street). Then within three days you have to bring the deposit up to 10% of sales prices. I believe this is my hangup. I could potentially only tap $7.5k (without hitting up the relatives) so that means I could bid $75,000 for a $150,000 home. The third requirement is that you secure financing and close in 45 days. This part I am a little ignorant on. I KNOW we both have good credit. I haven't actually talked to any lenders though. I know it's a hard time to secure financing. Do you guys think I would have trouble securing a $75,000 loan with 10% down in this economy??

[pochax]

So I was looking at two houses that were listed for $150k. Both are under contract. However one house has a neighboring house across the street going to Auction tommorow at noon. So the Wife and I are going to attend the Auction. Right now I don't want to delude myself with fantasies of picking up a $150k house for $30k, however I did look into the rules of the auction and contemplate what I could potentially bid (if Its a nice house). You have to immediately pay $1500. (No problem if they let me run to the bank down the street). Then within three days you have to bring the deposit up to 10% of sales prices. I believe this is my hangup. I could potentially only tap $7.5k (without hitting up the relatives) so that means I could bid $75,000 for a $150,000 home. The third requirement is that you secure financing and close in 45 days. This part I am a little ignorant on. I KNOW we both have good credit. I haven't actually talked to any lenders though. I know it's a hard time to secure financing. Do you guys think I would have trouble securing a $75,000 loan with 10% down in this economy??

The job situation will also be critical. i think lenders like to see stable income >1-2 yrs at a job. closing in 45 days is also tight and may be an issue (if they are truly strict with it). when i refi'ed in 2010 i had all the paperwork ready, FICO score of 810, more than enough equity in the house after appraisal, more than enough proof of assets, and it still took 45-50 days for the broker to get their act together (and i was hounding the guy almost every other day to get a status update). get a pre-approval letter from a bank for a mortgage before you even go shopping. good luck!

[pochax]

btw someone seems to think the housing bottom is here:
http://www.calculatedriskblog.com/20...m-is-here.html

[Driver]

I agree that closing in 45 days could be a problem if you're not an all-cash investor. At auction you're going up against pro's who are looking to buy homes as an investment and generally they already have the cash ready to go. I would not personally go that route but it's your call.

All over today's news is the rumor that New York and California have signed on to the 'robosigning' deal and it may close soon. Once that's settled it is expected to open the flood gates on a ton of foreclosures and dramatically boost the number of bank-owned homes put on the market. More selection, more auctions, etc. If you have truly found the right place then don't let me talk you out of it but all signs indicate a lot more homes should be coming on market in time for the spring/summer buying season.

[4jacks]

The job situation will also be critical. i think lenders like to see stable income >1-2 yrs at a job. closing in 45 days is also tight and may be an issue (if they are truly strict with it). when i refi'ed in 2010 i had all the paperwork ready, FICO score of 810, more than enough equity in the house after appraisal, more than enough proof of assets, and it still took 45-50 days for the broker to get their act together (and i was hounding the guy almost every other day to get a status update). get a pre-approval letter from a bank for a mortgage before you even go shopping. good luck!

What if it's a super good deal like $50,000? Couldn't I just go with a quicker loan at a higher rate, then trying to get a slower loan at FHA insured, first time buyer, etc. etc. ???

Also I'm still on my low paying job with 8 years in until the end of February. Then onto the high paying job in March. I think I should qualify for a small loan either way. Right?

btw someone seems to think the housing bottom is here:
http://www.calculatedriskblog.com/20...m-is-here.html

Good article, I think all the jargon is a little misleading, I agree with his prediction: "And this doesn't mean prices will increase significantly any time soon. Usually towards the end of a housing bust, nominal prices mostly move sideways for a few years, and real prices (adjusted for inflation) could even decline for another 2 or 3 years."

I agree that closing in 45 days could be a problem if you're not an all-cash investor. At auction you're going up against pro's who are looking to buy homes as an investment and generally they already have the cash ready to go. I would not personally go that route but it's your call.

Well, for this first trip to the auction, I will probably set myself a "Oh my gosh, can't pass up that deal limit" of something really low, like $50k, if we feel the house is worth $150k. Granted if one of those guys show up, they will probably pay $75-100k easily.

But more important, If I like the experience, and the feel of the auction, I will take the advice to go get preapproved.

All over today's news is the rumor that New York and California have signed on to the 'robosigning' deal and it may close soon. Once that's settled it is expected to open the flood gates on a ton of foreclosures and dramatically boost the number of bank-owned homes put on the market. More selection, more auctions, etc. If you have truly found the right place then don't let me talk you out of it but all signs indicate a lot more homes should be coming on market in time for the spring/summer buying season.

Thanks for the Article, I will read up on it, see how it may effect my area. I would be okay having a lot more foreclosures on the auction block.

[4jacks]

All over today's news is the rumor that New York and California have signed on to the 'robosigning' deal and it may close soon. Once that's settled it is expected to open the flood gates on a ton of foreclosures and dramatically boost the number of bank-owned homes put on the market. More selection, more auctions, etc. If you have truly found the right place then don't let me talk you out of it but all signs indicate a lot more homes should be coming on market in time for the spring/summer buying season.

Am I reading this wrong. It seems to be saying that the 5 big banks now have to be much more leinent with underwater home owners, meaning there will be LESS foreclosures on the market.

[pochax]

What if it's a super good deal like $50,000? Couldn't I just go with a quicker loan at a higher rate, then trying to get a slower loan at FHA insured, first time buyer, etc. etc. ???

Also I'm still on my low paying job with 8 years in until the end of February. Then onto the high paying job in March. I think I should qualify for a small loan either way. Right?

what is this "quicker/higher rate" loan you speak of? subprime? do they exist anymore? if so, how fast is the closing? my guess is that such risky loans would take even LONGER to close on. it's the underwriters that take all the time, not the brokers themselves.

anyways, it doesn't sound like you are too serious to buy right now unless the price is super-low which you better do your due diligence b/c if you can get something 60-70% below "market value" either the market is wrong or your assessment of the market is wrong. USUALLY, the latter is true.

[4jacks]

what is this "quicker/higher rate" loan you speak of? subprime? do they exist anymore? if so, how fast is the closing? my guess is that such risky loans would take even LONGER to close on. it's the underwriters that take all the time, not the brokers themselves.

I dunno, I'm claiming ignorance and asking what is out there and what the process is. I was under the general impression that if I got a basic conventional loan, my interest rate would be a little higher (say 4.0%) but there would be an easier, more automated underwriting process. Kinda like, check credit score, stamp approval (Thinking Car Loan.) But if I applied for FHA, fist time home buyer, etc. etc. then I would have to go through a long drawn out process involving third parties.

I guess I really need to speak to a loan officer, but no time for that before the auction. So more then likely I'm just spectating.

anyways, it doesn't sound like you are too serious to buy right now unless the price is super-low which you better do your due diligence b/c if you can get something 60-70% below "market value" either the market is wrong or your assessment of the market is wrong. USUALLY, the latter is true.

You're right, I'm probably a month or two away from being serious. The other option of course is that my assessment of the asset is completely off. Meaning the house is full of termites and everyone sees it but me. Or maybe God is reaching out with a serious blessing and will give all the serious real estate investors flat tires tommorow.

*Interesting Update*

So the Realtor for the house next to the Auction house calls me a minute ago. The buyer backed out becuase it was taking to long, however the Bank just approved thier bid, which he so nicely told me the exact terms. Full list price of $149,900 plus 3.5% in closing cost. He was saying becuase the bank approved the deal he could move quickly and his finance company could get things through by the end of the month. I told him I wasn't in a hurry. I'd talk to the wife and call him back.

[4jacks]

The house auction was neat. The house was immediately nixed by the wife who said "It didn't feel right". But we still stuck around to see the auction. The house was very dirty. You could tell the old owner just up and left, no effort to clean the house at all. The toilets were so disgusting it's not even funny. The water was turned off, so you couldn't test that. I thought the house was okay. The one thing that worried me is, someone had purchased a brand new dehumidifier and had that running in the basement. So I was content not to bid on the house. We didn't register to bid.

The auction was very well attended and fun to watch, the price went way out of our range pretty fast, It went for $127k plus 5%. (So $133,350, plus 100% of closing cost) It went to a family who was bidding, like a young couple and a set of parents or something. It looked to me like all the investors types stopped bidding around 70'ish.

Fun to watch, a decent deal if everything turns out all right with the house. Honestly I don't think I'll hunt down any more auctions, if sold for like 75 or lower I would think it would be worthwhile. But with as many people showing up and it going pretty high, I'll just stick to watching Zillow.

[pochax]

thx for the info - my guess is that there are deals to be had but you probably have to go to a LOT of auctions and there will always be "something" unappealing (or else others would drive up the price). you may also want to check out forsalebyowner.com for those that aren't posted by realtors.

[4jacks]

Good Point! I will check to see if any FSBOs are not on the MRIS. (Which my advice is a really bad idea, you really have to get on the MRIS if you wanna sell your house.)

[Driver]

Am I reading this wrong. It seems to be saying that the 5 big banks now have to be much more leinent with underwater home owners, meaning there will be LESS foreclosures on the market.

Well kind of. That's the story. The story behind the story is that because the banks are now going to agree to try to help some people keep their homes, this gives them permission of sorts to complete all the other foreclosures that they've been sitting on waiting to make a deal with the government(s).

[4jacks]

Well kind of. That's the story. The story behind the story is that because the banks are now going to agree to try to help some people keep their homes, this gives them permission of sorts to complete all the other foreclosures that they've been sitting on waiting to make a deal with the government(s).

Interesting! Well I will be watching!

[4jacks]

Okay,

For an update. I've been at the new job for a month and a half now and I love it here. So now we are definitely looking to stay in the area for the foreseeable future. I did some in-depth zillow research and finally called a mortgage lender. (Church Hill, the one Dave Ramsey recommends) I'm in the process of getting prequalified. And after really looking at all the listings in MLS, we've decieded to look into 3 very reasonably priced single family homes. Wish us luck

[4jacks]

Okay, So a couple months has gone by. The wife and I (well really me) made some more dumb assumptions and put a low ballish bid on a house even. That didn't pan out, but during the process I really learned something. Previously I never really understood why Dave Ramsey and Crown always highly advocated for putting 20% down on a house. I thought it didn't matter how much you put down, but the less you put down the less house you have to buy to keep the payments where you want them.

One thing blew that out of the water: Mortgage Insurance. This is my understanding of the current mortgage market right now, and it changes all the time. You absolutely can't buy a house with zero money down anymore. You need 3.5% down for FHA and 5.0 percent down for Convientional. FHA loans now require mortgage insurance! (Why do we need to insure a government insured loan?) it has an upfront portion with you roll into the loan amount AND a monthly portion, paid until loan is at 78% equity compared to initial value. The monthly portion on a loan of $200,000 is $190 a month!! That is insanely high. It makes a $1200 a month house payment (including taxes and insurance) turn into $1400. Plus if you pay minimal payments, it takes 12 years to pay it down so it goes away. That's $27,000 !!

I am not going to fall for that! It really seems to me to be another mantra of the middle class. That is too much money to spend.

There are much cheaper options when you have 5% saved up.