Thursday, June 12, 2014

THERE'S NO PLACE LIKE HOME, BUT DO YOU RENT OR BUY?


Josh and I are in full gear with everything. And it's awesome! I really love planning our life together and making intentional choices about how we want to save/invest/spend our money, where we want to live, what is most important to us about the wedding, which leisure activities we should prioritize, etc. There is something almost magical about realizing that there are two of you, and you're in this together, not just in theory anymore but (after September) by law and through vows. What a cool concept and selfless adventure we are starting!

The truth is, we are changing many things at once by getting married. Josh and I have chosen not to live together until we get married, so in addition to planning the wedding, we also have to a) figure out where we are going to live, b) move there, and c) learn to live together. 

It's a lot. But I'm just giddy about it. The wedding is one amazing day, but this home we create for ourselves will be the beginning of a lifetime. 

hahaha google photos automatically did this when i imported and i just couldn't resist!

Right now we are in the research phase since we won't need a new place until September. Josh lives in a house with two of his friends and has a third friend ready to take his place whenever he wants to move out. I live with my delightful roommate Katie in an apartment down the street and we are on a month-to-month lease. We are so lucky to have flexibility because it allows us to carefully decide where we want to live and not feel rushed or limited by leases. 

Currently, we are deciding is it financially smarter for us to rent or buy right now?

I met with our realtor and friend Nicky last night and she showed us some amazing 2 bedroom condos (that we can actually afford) and Josh is meeting with her tonight since he got stuck at work yesterday. We are also looking at potentially renting in my current building which is a great deal for our neighborhood right on the metro. One other rental property closer to Josh's place is also on our radar. 

In the past few weeks of seriously starting to look, I've been doing a lot of research and learning SO MUCH about how it works to buy a home (in our case a condo). I'm such a nerd I know listen to Suze Orman's podcast, and spend a lot of time in the evenings on Redfin. It's fascinating and I love that my brain is expanding regardless of the decision we end up making. 


Here are a few things that you need to know when weighing your options to rent or buy. These are my personal explanations, so if you're studying for a test on this, I'd check a better source. :)

Down Payment
How much money you can pay for the house up front. This is measured in percentages. So if you can put 5% down, you would take the price of the house (or condo or whatever) and multiply it by 0.05. You need to have that much money in cash (check) to give to the bank when you sign the final paperwork and buy.

Closing Costs
I've been told that this is usually around 2.5% of the total home price and is also required up front. Basically it covers all of the fees you need to pay to buy the property. You may be paying the realtor, bank, county, inspector, etc. Get your realtor/lender to itemize this for you and you can know exactly where it's going. But remember you need to have this amount up front. 

Principal and Interest (P&I)
This is the amount that is basically your mortgage payment. The principal is the amount that goes toward paying off your property and the interest is the amount you're paying to the bank for borrowing all of the money on your loan. 

Interest Rate
The rate at which the bank is charging you to borrow money. Right now in the DC area (and I believe at large in our country) the interest rates for mortgages are really low, around 3.5 - 4.5% as a rough estimate. That means that it's a fairly good deal to borrow (take out a mortgage) now because the bank is going to charge you less over the period of the loan to borrow the money. Be mindful though that this does not make it smart to buy unless you have the required down payment and that your monthly costs will be well below your monthly take-home income after you pay all of your other bills.

PMI (Private Mortgage Insurance)
For those of us who are first time home buyers, PMI is often a reality. The lender will tell you exactly how much you have to pay but the general rule is, if you put less than 20% down (your down payment) you will have to pay PMI each month. The good news is that once you own 20% of the home (after paying your P&I payments over a few years then it will go away. Note: If you do FHA, which requires you to put less money down (as your down payment), then you will have PMI for the entire 30 years (or however long) on your loan. Ask your lender and realtor how to determine if this is a smart investment for you. Sometimes if you are going to sell within a given period of time it may be worth it.

HOA (Home Owners Association) Fee
If you're buying a condo or town home there will generally be an HOA fee. This is for the building cutting the grass and taking care of the pool (if you're so lucky) and replacing the roof on the communal building in a condo, etc. This payment of a few hundred dollars (in DC) is ADDITIONAL to the P&I and PMI. So you need to factor this in to your monthly payments. It will always be there. 

Property Taxes
There is an annual property tax when you buy property. Divide it by 12 and add that monthly amount to your expected monthly payment. 

Hazard Insurance
This is homeowner's insurance. I have renter's insurance right now. It's probably going to be less than $100 a month depending on the size of your home, loan, etc. Ask about it and don't stress too much. It protects you from being sued so it's worth it. But make sure you factor it in to your monthly payment.


Phew! We are seeing a few more properties tonight - wish us luck!




Do you rent or buy? 
What do you look for when you are looking for a place to live?


4 comments

  1. Whew, housing. We closed on our new house in May and are in the process of renting/selling (hopefully selling, but we gotta get somebody in there somehow!) our condo. There is so much that goes into -- so much -- and trust me when I say that much will come down the wire, but it'll all get done. :) The loan application and subsequent process was probably the most stressful, and that amount for closing costs and down payment was a moving target (until you get your HUD-1 a few days before settlement -- which will tell you how much you really need. It legally must be accurate). So much to consider, but it's all worth it in the end!

    My husband and I didn't live together until a month before the wedding, and there was a learning curve of sharing the same space and melding two lives. But it has been really, really fun, and I know everything will work out well for you both! It's so exciting to come home to each other and make the space yours. :) Wishing you much happiness!

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  2. I bought my condo in 2011. Alone. One thing that I had to do that you didn't mention was have at least $5000 in the bank, so that I could write a check and hold the place I really wanted. The first one I wanted fell through, and I got my check back, but for my current place, yes you definitely need a downpayment. I've had some friends who were trying to buy homes without any money down, but then got blindsided by the deposit type check required to move forward with buying the house. I forgot what it was called. Anywhooooo. I rented for a while, but as I got more successful in my career, it was a better tax decision to buy a home, vs renting. So instead of having to pay income taxes, I've been getting a break as home owner. That's one thing to think about! And I love owning, because it's my own and I know I will be here for at least 5 years. So I actually moved in, and decorated and hung things on the wall, as opposed to when I was renting because I hated patching the walls back up!
    Since buying a big deal, you definitely have to depend on the "I'm home" feeling when you walk through the door! I literally saw 14 different places before I fell in love. Now we are thinking about buying a home together to start our family! But I won't be selling my current location.

    Good luck! <3

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  3. We didn't live together before we were married either and it was so much fun learning to live together after the big day. :) We had a teeny tiny apartment (400 square feet!) when we first got married because I was in grad school and we were staying in the apartments on campus. But we loved it. :) After a year we moved into a 2 bedroom apartment that we LOVED. It was cheap, it was a great location, there was a pool outside my front door, and I had access to a gym that no one else ever used. We were working hard to pay off all our debt so the idea of buying a house seemed counter-productive, but we hated the idea of throwing our "rent" money down the drain every month. Plus it was 2010 and the housing market in Memphis was still recoiling from the recession. So we bought a foreclosure (cost us less than $100k and it appraises for $160k now!) in terrible shape and spent the summer fixing it up together. It was such a fun experience. We grew so close that summer working side by side.

    When asked, we normally suggest that newly weds rent first just so they can enjoy their first year of marriage and not focus on fixing up a house. Even if a house isn't a fixer-upper, there are always things you find yourself working on (especially the yard, haha). Plus when you rent, it's SO nice to call maintenance to come fix it for free instead of paying someone to come out to your house (or doing it yourself). And it gives you something new and fun to look forward to in your 2nd, 3rd, or 4th year of marriage. :) BUT! Of course we know lots of people who prefer to buy straight away and that works out great for them too. :) Sorry this comment is crazy long - I didn't know I had so many thoughts about it until I started typing, haha!

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  4. I'm DYING with your picture! haha so cute!!!


    That's a great question, to buy or to rent? I'm moving soon and I think I'm going to rent for a few more years, but buying is definitely something I'm considering too very soon! Good luck on your hunt! :)

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