I know this question has been asked lots of times before. I read this question which tells me at some point it is best to buy instead of continue renting forever. My situation is that I have a sizeable chunk of money saved up already and continue to save a lot.
Houses that interest us in our area are $400,000-$550,000. Preferably we could get a home closer to $400,000. If we wanted a $550,000 home we’d definitely wait to save more, so for the purposes of this question assume a home cost of up to $450,000.
My wife and I are currently renting an apartment for a great deal - only $775 per month for 2 bedrooms and one bathroom! And we pay month to month, so we can leave the apartment at any time. Also, we’ve lived here for 1.5 years and rent has not increased, and our landlord said she does not want to increase rent for tenants that she likes (she likes us).
We were originally planning to save for the next 3 years so that we could put down 20% on a house. However, I just found out that my credit union does not require personal mortgage insurance for loans under 20%. They also offer fixed interest rates of 2.5% for 30-year mortgages. So now I’m wondering would it be better for us to buy a house sooner? I figure that the cost of interest would be more if we spent 10%, but we would be putting everything toward the house (which we will own) instead of paying rent.
We have a detailed budget in google sheets, and we changed some numbers in it to see what it might be like. Wild guesses at per month spending:
$1800 for the mortgage payment - we want the required mortgage payment to be less than this but we would want to put more money than required so we pay it off faster (and therefore pay less interest) $180 on home insurance (I have no idea if this is accurate) $150 on utilities
then we would still save $1500 per month. We could put this $1500 towards emergency savings, investing, the mortgage, whatever.
- At what point would it be smarter to buy a house than to continue paying rent?
- What additional costs of owning a home should we consider? Higher insurance (our renters insurance is incredibly cheap) Higher utilities (we only pay for electricity and gas right now) Property tax Home maintenance Other costs?
Another consideration is that we’re planning on having children, so that would obviously increase our expenses.
Of course the longer we wait to buy a house, the more money we can save towards a downpayment (over $3000 per month).
Location: mountain west, United States. Specifically, Utah. Housing prices here are crazy and keep going higher, and houses and really hard to buy right now. Of course we can't predict the future but we are concerned about housing prices going up to where we'll never be able to afford them. Or they could go down - who knows?
Additional financial details:
- We currently rent for $775 per month
- We have renters insurance but it’s extremely cheap (I think $30 per year)
- We spend about $50 on utilities - electricity and gas. Our landlord pays for water and sewage.
- We have $45,000 saved up for a house right now
- We have an additional $21,000 that we want to keep for emergency savings
- We spend about $3700 per month (after taxes, including charitable donations)
- We save about $3300 per month (after taxes) towards the house
- We contribute $500 per month to a roth 401k that is matched by my employer
- We max out our HSA each month (and about half of that comes from my employer)
- We have $11,000 in our HSA right now
- My wife is in grad school for the next 2 years and we’ll spend $18,000 over the next 2 years to finish her grad school