Question: My daddy taught me that rent is a waste of money, and my family has been renting for a year after relocating from NC. I’m ready to buy a house by September 1st at the latest. I think I’ll be happy with the balance between falling prices and favorable interest rates (before they head up even more) by September. My husband thinks we should wait another year and continue to rent. Our price range is low in this market, between 450,000 and 550,000 and we’ve seen some homes in which we’d be comfortable with our two boys, 2 and 4 years old. Also, I want to move close to the school I’ve chosen for my oldest for kindergarten. I’d hate to move to another apartment. Is it too soon to buy? Will I regret jumping into the market in September, possibly before the prices hit rock bottom? One more thing–we can put down between 10 and 20%. Does it matter if we put down 10%? Thanks for any input you can provide. Jeri, North Hollywood, CA
Answer: Here’s the safe forecast: You know once you buy a house prices will come down some more. Hitting bottom is a matter of luck. I also don’t think you should feel any financial pressure to move. My own guess is that that the downward pressure on home prices isn’t over, and there won’t be any financial penalty for any potential homeowner that waits. (But that’s a guess, of course.)
Lifestyle reasons may push you toward moving sooner. For instance, you already know what neighborhood you want to live in, and the kind of house you’d like to own. So, I would work with a real estate agent to really dig into the neighborhood. I would talk with a banker to see what kind of loan and rate you will get in this environment. I would be choosy and tough in any negotiation. In other words, be willing to walk away. But even if you miss bottom–which is highly likely–that may be okay for lifestyle reasons and assuming this is a long term investment. Put somewhat differently, both you and your husband are right, so use that knowledge in your favor when looking to buy a home.
The 20% vs. the 10% is really a number crunching exercise. You’ll get the best rate on a 30-year fixed-rate mortgage with 20% down in the current environment. And, if you can do it, 20% is usually preferable. The reason to put in less than 20% is not to tie up all your savings in one asset. I’d run the numbers, look at the trade-offs, and then decide what works best for your family finances. You will pay PMI or private mortgage insurance with less than a 20% downpayment.
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