9 ms·

I bought a house 2 years ago. I bought it to "live in it" and not for "investment" (US East Coast for context). The thing is that when you start buying houses/

I bought a house 2 years ago. I bought it to "live in it" and not for "investment" (US East Coast for context). The thing is that when you start buying houses/apartments/condos/townhomes to make money, that is when you could get into trouble. Make no mistake though. Owning a home is very costly depending on the type of home and area. For example, my single family detached home costs me money for things like maintenance, repairs etc that come out of my pocket. Did I forget to mention "Property Taxes" ? In NJ, it can easily be over $1000 per month for a single family home worth 500K (yes it is not a typo. It is over $1000 per month). You are paying for all the schools and other stuff that you have access to. So don't buy a home just for financial reasons. Buy a home if : - You want your "own" place and not worry about landlord bullshit (i hated my landlord charging me bogus cleaning costs once the lease was over. fuck that) - You are not looking to use the house as an ATM or credit card. Try to refrain from Cash out refinance type of offers. Don't get fooled into getting cash for another reset of your mortgage. - You intend to live in the area hopefully for 5-7 years (ok things can go wrong but intention should be there) - If something happens for the worse, you can still sell it (hint: don't buy in an area where it is hard to sell) - Very important: Put at least 20% down. There is a reason this is preferred. It gives you instant equity which means if the price fluctuates a bit (7-10%) down, you are still positive in case you had to sell due to unforeseen circumstances. I know it is the American dream to own a home but people trying to buy with 0 down or even 5% down are inviting trouble in today's market at least. Try not to do that. Wait until you have the down payment. Some more tips for rookie buyers: Know the differences between buying say a condo vs a single family detached home. I personally don't like condos or even townhomes because of their stricter community rules/HOA crap that they charge you for. I was looking at a condo once which said that they don't allow outdoor bbqing unless you get permission. WTF. sorry, not for me. I want "feedom" to do things in my home. So for me, single family is the closest option. But for you it could be townhomes/condos for other reasons. So know the difference.

j_baker 11y ago
I don't see why living in a home and investing in it are mutually exclusive. The way I see it, my monthly housing payment is an investment in addition to a cost of living. Sure it costs more in maintenance, but you also get more customizability. You can paint the walls whatever color you like. You can tear the carpet up and replace it with hardwood or vice versa.
- codegeek 11y ago
  I agree. What I am saying is that don't buy a home just for the financial reasons. Of course, there is a value in building equity over time if you stay long enough in the house. But take that as an added bonus and not a must have requirement because this is exactly what burned a lot of people after the 2008 crash.
  - bane 11y ago
    I disagree, I think you should buy them for financial reasons, just maybe not as financial investments. Over a lifetime of providing shelter for yourself, buying your property almost always works out better financially.
fasouto 11y ago
Even if you don't plan to do "investment" it makes sense to think twice about one of the most important financial decisions in your life. Is not that easy, sometimes the house prices are decreasing more than you pay for rent. In this case it's a wise decision to wait until the market is more stable.
wheaties 11y ago
I wish they had also included a "how much per year will taxes rise %" column. 'cause in NJ it's over 5% a year. My town, for instance, has averaged 7% a year. That law that caps 2% a year in tax increases has so many exclusions that it might as well have been a suggestion.
- codegeek 11y ago
  I hear you specially if you are fellow Newjersian :). Property taxes are a big pain in this state and wondering where we are going with it. Hope you are in a good school district and you have kids. Otherwise it seems a waste to give so much money to the township.
Someone1234 11y ago
This is a great case (for and against) owning a home. I'd like to add this is also why HOAs are worth avoiding. Imagine owning your own home but losing the freedom to do whatever you want with it and now having to put up with HOA bullshit instead of landlord bullshit. They can also take your home if you get behind on your HOA dues. And fine you for rules they can create on a whim (and take your home if you fail to pay fines). The disturbing thing is that the number of HOAs and the % of cities they inhabit is growing rapidly. Many developers create HOAs during development to keep the area looking nice until all the properties are sold off (and as soon as that happens the HOA is run at the whim of whomever picked up the rains from the neighbourhood). Ultimately HOAs are anti-freedom, but nobody bats an eyelid because in the US only "freedom from government" is taken seriously, while freedom from employers/companies/organisations is all but ignored as a social issue. It is disturbing. I just hope that for anyone unfortunate enough to live in a HOA area, they have non-crazy/non-sleazy people running the HOA. I also encourage everyone to get involved in their HOA otherwise risk getting bonkers rules passed by some nutjob who moves in and wants grass within 2 cm.
- toomuchtodo 11y ago
  Part of the reason I walked away from my last home (a townhouse) was the HOA/TOA. I was deeply underwater, could not come up with the difference to sell, and the HOA threatened to fine me $100/day if I wanted to rent the place out. Tossed the keys back to the bank, have a nice day (disclaimer: this only works if you have enough income to weather a credit drought; don't take it lightly). Something interesting about the housing crisis was that so many people lost their homes, lending guidelines have been reduced to allow you to purchase another home after 3 years from a foreclosure date instead of the historical 7 years. Next time I purchase in 2-5 years, I would never again purchase in an HOA. I have yet to have someone provide evidence that an HOA maintains or increases a property's value.
  - dragontamer 11y ago
    Sounds more like, don't get deeply underwater with a house. HOAs are agreements between the tenants and each other. As I bought my house, I made sure that I agreed with the HOA. I've even looked at some neighborhood's HOA and decided to shop elsewhere because of it. Some HOAs are bad, some are good.
tinbad 11y ago
As a fairly rookie home owner I can relate to all of this. I'd like to add though that in certain markets (SF Bay Area) it's nearly impossible to buy something with 20% down for a new time home buyer. My first home I purchased with 5% down, and just purchased a second home with 10%, hopefully for the third one I'll be able to put down 20% - but with the prices here you'll be saving up forever to get to that down payment.
grecy 11y ago
> (yes it is not a typo. It is over $1000 per month). You are paying for all the schools and other stuff that you have access to. (Genuine question, not from the US) Isn't that what income tax is supposed to pay for? I'm continually amazing to hear how much tax Americans pay for how little they get.
- codegeek 11y ago
  think of it this way. In Europe etc, you pay higher income taxes but then you get these benefits. In US, you pay a bit lower income taxes but then you pay these additional taxes like property tax. Did I mention that some states in US charge property tax even to keep a car ? (looking at you Virginia :)). But then we don't have things like VAT etc. So it evens out somewhere I guess. Except healthcare situation. That is a topic for a separate discussion.
  - grecy 11y ago
    > So it evens out somewhere I guess. Except healthcare situation And higher education.
- iamstephenliu 11y ago
  Depends on what level of education; K-12 is generally funded out of property taxes.
- dragontamer 11y ago
  There are roughly 3 governments every American is part of. Maybe 4. 1. Federal Government 2. State Government 3. Local Government (usually County level) 4. City Government (sometimes) Property Taxes fund #4 and #3 typically. Sales tax (kinda like VAT) fund #4 and #2. Income tax fund #1 and #2. Obviously, it changes from location to location. Some states don't have property tax or sales tax. Schools and Police are typically a function of #3.
  - bmm6o 11y ago
    Note that schools being supported primarily by local property taxes is how you consistently get bad schools in poor areas, which tends to be a self-reinforcing cycle.
mmaunder 11y ago
Not sure I agree with the downpayment math considering growth in Seattle and Redmond where I am is between 7.5% and 9%. 20% downpayment for a $750K home (modest here) would be $150k which could take you a few years to save during which you're watching your dream home's price pull away from you. I hear you about the risk of being underwater and your proposed solution is to build up a pile of cash that you're prepared to lose if your home price drops below purchase price. But what prevents you from building up that same pile of cash after buying the house if you need to get out of the mortgage? You're going to lose it either way if you want to move and you're underwater. Incidentally if you are interested in a zero down mortgage, Navy Federal is a great option, alternatively you can look at places like the NASA credit union which is easier to become a member of (no military affiliation required, IIRC you just join the NASA society or something like that).
- nemo44x 11y ago
  You may have to pay PMI if you don't have 20% equity. This can cost you a lot of money over time - especially if it will take you years to get 20% equity. And it likely will take you a long time due to the fact that mortgages are structured such that you're mainly paying interest on the loan the first few years creating nearly no equity. So if you buy a house with 10% down if may take you many years to get to 20% equity while paying PMI all the while. And exposing yourself to more foreclosure risk. If you don't have 150k (plus another 50k for buffer) liquid then you probably can't afford the 750k home and look for something cheaper or continue to rent and invest the difference between rent and mortgage to possibly stay ahead of the property values of your area. However, YMMV.
  - kbenson 11y ago
    The same cases where you would want to go with 10% down instead of waiting to get 20% (such as increasing home prices in the area), are probably the same cases where you can refinance in a few years and take advantage of the increased assessment value to get 20% equity so you can drop PMI.
    - nemo44x 11y ago
cylinder 11y ago
I don't understand your point about property taxes. If you are renting you are still paying those taxes, it's just included in the rent. If someone buys a house without figuring the property taxes into their monthly payment, then, well they are idiots.
- bane 11y ago
  Renting often makes it easier to be uninformed about local property markets and the costs of property ownership. Many renters simply think that they are paying for the right to exist in the property and that the landlord pays for maintenance, taxes, etc. out of the kindness of their heart.
pdeuchler 11y ago
Re: 20% down... You're completely and totally right. It's 100% the prudent financial move. However there is a bit of a problem with market forces in this regard. No (or little) money down mortgages have become almost the norm. The average homeowner puts significantly less than 20% down. This inflates home prices for several reasons: 1) People can buy more expensive homes on less money, allowing land owners to increase prices 2) Mortgage rates/plans are now structured to cover for the higher risk quotient (even if you do the usual 20% down you're still paying for the idiot who bought a million dollar home with nothing down) 3) Potential first time owners are forced to buy less for their money, further inflating that specific market which has huge ripple effects into the more mature sectors (first time home owners are far more likely to sell their current home and now there is additional financial pressure to make a profit, etc. etc.) 4) People, wisely or unwisely, exploit these new conditions to "play" the real estate game 5) The market becomes less sane the larger/more expensive the home, as the higher prices (even normally) encourage people to put less down And guess what... all of this just makes it harder to put 20% down on a home, further exacerbating the cycle. Especially when you're in a bidding war and someone is willing to outbid you because they're putting less money down (which is a terrible financial move, but one that happens all too frequently). Bidding wars are low key one of the biggest reasons people go into housing debt, they get caught up in a specific house and aren't willing to walk away regardless of how the finances have changed since they first looked. There's a lot of economic intertwining here with QE, general interest rates, and the economy at large so I'm not going to profess to know what's really going on here, but the housing market is very close to "utterly f*@#ed" for the middle class with no foreseeable recovery. And that's not even getting into the pandora's box of how the new exploding rental market is also skewing the market heavily. Quick thought experiment: How many people that are buying at 100k do you think have 20k in the bank? Now how many of those do you think have 20k to drop on a down payment? Now look at what 100k gets you in a modern metro area and cry yourself to sleep.
- tinbad 11y ago
  > And guess what... all of this just makes it harder to put 20% down on a home, further exacerbating the cycle. Especially when you're in a bidding war and someone is willing to outbid you because they're putting less money down (which is a terrible financial move, but one that happens all too frequently). Bidding wars are low key one of the biggest reasons people go into housing debt, they get caught up in a specific house and aren't willing to walk away regardless of how the finances have changed since they first looked. Having gone through a 'bidding war' twice purchasing my last two homes, I can say this not really the case as in the market dynamics you describe the appraisers can't keep up with market value and usually therefor those contingencies are waived as a prerequisite by sellers. This means the buyer needs to come up with cash for whatever difference between sale and banks appraisal price. This in turn results in deals falling through because people didn't have enough liquidity so now the seller requires proof of liquidity and actually prefer offers with bigger % down payment, even if the actual offer is lower. For the same reason all cash offers often get accepted over higher mortgage backed offers, just because there's less risk for the seller of the deal falling through. But yeah, to your last point, buying a house in any hot market sucks and comes with lots of challenges, the first of which is overcoming the absurd prices.
bane 11y ago
Again it's important to understand that this site is comparing like-for-like properties. The rental rate for a property in NJ that would sell for $500k is going to include the taxes the property owner is paying. Landlords aren't going to service those taxes (or maintenance or whatever other costs there are) out of the kindness of their heart. They've built that into the per-month rent they charge.
Simulacra 11y ago
Gosh man, consider Atlanta. My taxes are $1,200 A YEAR. I put next to nothing down for an FHA loan. I was more interested in getting into a home before prices rose too high, than instant equity, but you make a good point. I specifically avoided HOA communities for the reasons you mentioned. I don't think they keep property values high, on the contrary I think they keep property values artificially high!

j_baker 11y ago

I don't see why living in a home and investing in it are mutually exclusive. The way I see it, my monthly housing payment is an investment in addition to a cost of living. Sure it costs more in maintenance, but you also get more customizability. You can paint the walls whatever color you like. You can tear the carpet up and replace it with hardwood or vice versa.

codegeek 11y ago
I agree. What I am saying is that don't buy a home just for the financial reasons. Of course, there is a value in building equity over time if you stay long enough in the house. But take that as an added bonus and not a must have requirement because this is exactly what burned a lot of people after the 2008 crash.
- bane 11y ago
  I disagree, I think you should buy them for financial reasons, just maybe not as financial investments. Over a lifetime of providing shelter for yourself, buying your property almost always works out better financially.

fasouto 11y ago

Even if you don't plan to do "investment" it makes sense to think twice about one of the most important financial decisions in your life. Is not that easy, sometimes the house prices are decreasing more than you pay for rent. In this case it's a wise decision to wait until the market is more stable.

wheaties 11y ago

I wish they had also included a "how much per year will taxes rise %" column. 'cause in NJ it's over 5% a year. My town, for instance, has averaged 7% a year. That law that caps 2% a year in tax increases has so many exclusions that it might as well have been a suggestion.

codegeek 11y ago
I hear you specially if you are fellow Newjersian :). Property taxes are a big pain in this state and wondering where we are going with it. Hope you are in a good school district and you have kids. Otherwise it seems a waste to give so much money to the township.

Someone1234 11y ago

This is a great case (for and against) owning a home. I'd like to add this is also why HOAs are worth avoiding. Imagine owning your own home but losing the freedom to do whatever you want with it and now having to put up with HOA bullshit instead of landlord bullshit. They can also take your home if you get behind on your HOA dues. And fine you for rules they can create on a whim (and take your home if you fail to pay fines). The disturbing thing is that the number of HOAs and the % of cities they inhabit is growing rapidly. Many developers create HOAs during development to keep the area looking nice until all the properties are sold off (and as soon as that happens the HOA is run at the whim of whomever picked up the rains from the neighbourhood). Ultimately HOAs are anti-freedom, but nobody bats an eyelid because in the US only "freedom from government" is taken seriously, while freedom from employers/companies/organisations is all but ignored as a social issue. It is disturbing. I just hope that for anyone unfortunate enough to live in a HOA area, they have non-crazy/non-sleazy people running the HOA. I also encourage everyone to get involved in their HOA otherwise risk getting bonkers rules passed by some nutjob who moves in and wants grass within 2 cm.

toomuchtodo 11y ago
Part of the reason I walked away from my last home (a townhouse) was the HOA/TOA. I was deeply underwater, could not come up with the difference to sell, and the HOA threatened to fine me $100/day if I wanted to rent the place out. Tossed the keys back to the bank, have a nice day (disclaimer: this only works if you have enough income to weather a credit drought; don't take it lightly). Something interesting about the housing crisis was that so many people lost their homes, lending guidelines have been reduced to allow you to purchase another home after 3 years from a foreclosure date instead of the historical 7 years. Next time I purchase in 2-5 years, I would never again purchase in an HOA. I have yet to have someone provide evidence that an HOA maintains or increases a property's value.
- dragontamer 11y ago
  Sounds more like, don't get deeply underwater with a house. HOAs are agreements between the tenants and each other. As I bought my house, I made sure that I agreed with the HOA. I've even looked at some neighborhood's HOA and decided to shop elsewhere because of it. Some HOAs are bad, some are good.

tinbad 11y ago

As a fairly rookie home owner I can relate to all of this. I'd like to add though that in certain markets (SF Bay Area) it's nearly impossible to buy something with 20% down for a new time home buyer. My first home I purchased with 5% down, and just purchased a second home with 10%, hopefully for the third one I'll be able to put down 20% - but with the prices here you'll be saving up forever to get to that down payment.

grecy 11y ago

> (yes it is not a typo. It is over $1000 per month). You are paying for all the schools and other stuff that you have access to. (Genuine question, not from the US) Isn't that what income tax is supposed to pay for? I'm continually amazing to hear how much tax Americans pay for how little they get.

codegeek 11y ago
think of it this way. In Europe etc, you pay higher income taxes but then you get these benefits. In US, you pay a bit lower income taxes but then you pay these additional taxes like property tax. Did I mention that some states in US charge property tax even to keep a car ? (looking at you Virginia :)). But then we don't have things like VAT etc. So it evens out somewhere I guess. Except healthcare situation. That is a topic for a separate discussion.
- grecy 11y ago
  > So it evens out somewhere I guess. Except healthcare situation And higher education.
iamstephenliu 11y ago
Depends on what level of education; K-12 is generally funded out of property taxes.
dragontamer 11y ago
There are roughly 3 governments every American is part of. Maybe 4. 1. Federal Government 2. State Government 3. Local Government (usually County level) 4. City Government (sometimes) Property Taxes fund #4 and #3 typically. Sales tax (kinda like VAT) fund #4 and #2. Income tax fund #1 and #2. Obviously, it changes from location to location. Some states don't have property tax or sales tax. Schools and Police are typically a function of #3.
- bmm6o 11y ago
  Note that schools being supported primarily by local property taxes is how you consistently get bad schools in poor areas, which tends to be a self-reinforcing cycle.

mmaunder 11y ago

Not sure I agree with the downpayment math considering growth in Seattle and Redmond where I am is between 7.5% and 9%. 20% downpayment for a $750K home (modest here) would be $150k which could take you a few years to save during which you're watching your dream home's price pull away from you. I hear you about the risk of being underwater and your proposed solution is to build up a pile of cash that you're prepared to lose if your home price drops below purchase price. But what prevents you from building up that same pile of cash after buying the house if you need to get out of the mortgage? You're going to lose it either way if you want to move and you're underwater. Incidentally if you are interested in a zero down mortgage, Navy Federal is a great option, alternatively you can look at places like the NASA credit union which is easier to become a member of (no military affiliation required, IIRC you just join the NASA society or something like that).

nemo44x 11y ago
You may have to pay PMI if you don't have 20% equity. This can cost you a lot of money over time - especially if it will take you years to get 20% equity. And it likely will take you a long time due to the fact that mortgages are structured such that you're mainly paying interest on the loan the first few years creating nearly no equity. So if you buy a house with 10% down if may take you many years to get to 20% equity while paying PMI all the while. And exposing yourself to more foreclosure risk. If you don't have 150k (plus another 50k for buffer) liquid then you probably can't afford the 750k home and look for something cheaper or continue to rent and invest the difference between rent and mortgage to possibly stay ahead of the property values of your area. However, YMMV.
- kbenson 11y ago
  The same cases where you would want to go with 10% down instead of waiting to get 20% (such as increasing home prices in the area), are probably the same cases where you can refinance in a few years and take advantage of the increased assessment value to get 20% equity so you can drop PMI.
  - nemo44x 11y ago

cylinder 11y ago

I don't understand your point about property taxes. If you are renting you are still paying those taxes, it's just included in the rent. If someone buys a house without figuring the property taxes into their monthly payment, then, well they are idiots.

bane 11y ago
Renting often makes it easier to be uninformed about local property markets and the costs of property ownership. Many renters simply think that they are paying for the right to exist in the property and that the landlord pays for maintenance, taxes, etc. out of the kindness of their heart.

pdeuchler 11y ago

Re: 20% down... You're completely and totally right. It's 100% the prudent financial move. However there is a bit of a problem with market forces in this regard. No (or little) money down mortgages have become almost the norm. The average homeowner puts significantly less than 20% down. This inflates home prices for several reasons: 1) People can buy more expensive homes on less money, allowing land owners to increase prices 2) Mortgage rates/plans are now structured to cover for the higher risk quotient (even if you do the usual 20% down you're still paying for the idiot who bought a million dollar home with nothing down) 3) Potential first time owners are forced to buy less for their money, further inflating that specific market which has huge ripple effects into the more mature sectors (first time home owners are far more likely to sell their current home and now there is additional financial pressure to make a profit, etc. etc.) 4) People, wisely or unwisely, exploit these new conditions to "play" the real estate game 5) The market becomes less sane the larger/more expensive the home, as the higher prices (even normally) encourage people to put less down And guess what... all of this just makes it harder to put 20% down on a home, further exacerbating the cycle. Especially when you're in a bidding war and someone is willing to outbid you because they're putting less money down (which is a terrible financial move, but one that happens all too frequently). Bidding wars are low key one of the biggest reasons people go into housing debt, they get caught up in a specific house and aren't willing to walk away regardless of how the finances have changed since they first looked. There's a lot of economic intertwining here with QE, general interest rates, and the economy at large so I'm not going to profess to know what's really going on here, but the housing market is very close to "utterly f*@#ed" for the middle class with no foreseeable recovery. And that's not even getting into the pandora's box of how the new exploding rental market is also skewing the market heavily. Quick thought experiment: How many people that are buying at 100k do you think have 20k in the bank? Now how many of those do you think have 20k to drop on a down payment? Now look at what 100k gets you in a modern metro area and cry yourself to sleep.

tinbad 11y ago
> And guess what... all of this just makes it harder to put 20% down on a home, further exacerbating the cycle. Especially when you're in a bidding war and someone is willing to outbid you because they're putting less money down (which is a terrible financial move, but one that happens all too frequently). Bidding wars are low key one of the biggest reasons people go into housing debt, they get caught up in a specific house and aren't willing to walk away regardless of how the finances have changed since they first looked. Having gone through a 'bidding war' twice purchasing my last two homes, I can say this not really the case as in the market dynamics you describe the appraisers can't keep up with market value and usually therefor those contingencies are waived as a prerequisite by sellers. This means the buyer needs to come up with cash for whatever difference between sale and banks appraisal price. This in turn results in deals falling through because people didn't have enough liquidity so now the seller requires proof of liquidity and actually prefer offers with bigger % down payment, even if the actual offer is lower. For the same reason all cash offers often get accepted over higher mortgage backed offers, just because there's less risk for the seller of the deal falling through. But yeah, to your last point, buying a house in any hot market sucks and comes with lots of challenges, the first of which is overcoming the absurd prices.

bane 11y ago

Again it's important to understand that this site is comparing like-for-like properties. The rental rate for a property in NJ that would sell for $500k is going to include the taxes the property owner is paying. Landlords aren't going to service those taxes (or maintenance or whatever other costs there are) out of the kindness of their heart. They've built that into the per-month rent they charge.

Simulacra 11y ago

Gosh man, consider Atlanta. My taxes are $1,200 A YEAR. I put next to nothing down for an FHA loan. I was more interested in getting into a home before prices rose too high, than instant equity, but you make a good point. I specifically avoided HOA communities for the reasons you mentioned. I don't think they keep property values high, on the contrary I think they keep property values artificially high!