Save up more money than necessary for house purchase or borrow more?

Question

I live with my parents and thus have very little expenses and believe I am saving quite well, even have some money in shares. Have a stable job (albeit relatively low paying as I am a junior, just out of uni).

I would like to look at buying a house in the next few (1?-5?) years but I already have enough to afford a deposit for a reasonably priced house.

However I am wondering if it would make more sense to buy now and take a larger loan out or if I should wait a bit longer saving up more money so that I don't have to borrow as much money and thus pay less interest.

Another important consideration is the fact that I will now be paying for other expenses, such as food/water/electricity/internet/etc. But having a property is an investment as house and land prices constantly increase.

How do I know when it is best financially for me to buy the house? or does it just come down to; whenever I want to move out?

Answer 1

I am wondering if it would make more sense to buy now and take a larger loan out or if I should wait a bit longer saving up more money so that I don't have to borrow as much money and thus pay less interest.

I will now be paying for other expenses, such as food/water/electricity/internet/etc.

Look at all the stuff (from the furniture to the pots and pans to the bed sheets and towels) in your parents house, and realize that you're going to have to buy stuff for your own home. You might also have to buy new appliances, too. A lawn mower, etc.

You won't need top line expensive stuff, and much can be bought used, but you're still going to have to buy it.

And repairs/upgrades. Those cost money, too.

Thus, two inviolable rules:

1. save as much as you can, for as long as you reasonably can, and
2. don't over-buy.

The mortgage broker, real estate broker, and friends will tell you to buy as much as possible. Remember though: IT'S NOT THEIR MONEY!! They won't go bankrupt if you fall on hard times; you will.

having a property is an investment as house

Only when you're a landlord. Otherwise, it's definitely an expense (which, secondarily, becomes an asset).

land prices constantly increase.

No, they don't.

does it just come down to; whenever I want and can reasonably afford to move out?

Unless your parents are beating you... yes, move out when you want and can reasonably afford to.

Answer 2

A 30 year mortgage for $200k at 5% will cost you ~$187,000. If you can save $25,000, a 30 year at 5% on $175k will cost you $163,000. And for 150k, it will cost you $140,000. Staying and saving will save you a chunk, even more if you take a shorter term loan on a lower loan amount. OTOH, were it to occur, rising rates might cost you a chunk.

If the present living arrangement is satisfactory to all and if you can save enough to lower the payments significantly, I'd stay where you are.

What I would suggest is that you regularly to scour the housing market, looking for a must sell house that you can pick up well below the market. Unfortunately, that is often death, divorce, out of state relocation, etc. For our first house (way back when), my significant other and I purchased a trashed house in a nice neighborhood and fixed it up, saving about 15% of the cost of similar models in good shape. The bonus is that we got to pick our appliances, carpets, etc. For the right deal, buy the house, assuming that you can carry it.