Starter Homes

[talisyn]

Why?

Seriously, why? If you know you'll be moving in 10-15 years then why not just buy a home you think you'll need for that time? Maybe you won't have 5 kids, but you can always use extra bedrooms a lot easier than you can fit 4 kids into a 2 bedroom house you can't sell cause the market tanked in your area.

My husband and I are looking into home ownership so the question came up with no real answer yet

[Gwen]

LOL I agree with you.

My husband bought a "starter home" before we were married. It doesn't always take 10 yrs to fill them up. lol We spent at least 7ys overcrowded while we tried to get the money together to find a new house we could afford without having to first sell the one we were in (because nothing was selling). And now that we have that new home we are having to rent out the one we had because we'd like to get some of the value out of it and .... nothing is selling. It's quite the headache. On the other hand given the fact that we were not married when he purchased it gave me the opportunity to help pick our "real home". That is an important couple thing to do. lol

If you know you want a big family then go ahead and plan for that. A home is a "long term" purchase, buy with "long term" in mind. Buying and selling aren't as easy as the realtor wants you to think. Remember that's how they make money, of course they want you to buy/sell often.

Another thing to keep in mind is if you are getting a special rate loan as a first time home buyer... use that opportunity up on a "starter home" you won't get that great rate next go around. Keep that in mind as you save/plan for your "real home's" down payment and mortgage.

[talisyn]

Gwen, that was perfect, thank you.

[Guest]

We bought what we could afford at the time.

[mnn727]

In the October 1998 general conference, President Gordon B. Hinckley encouraged Latter-day Saints to get out of debt and live within their means:

I am suggesting that the time has come to get our houses in order. So many of our people are living on the very edge of their income. In fact, some are living on borrowings. The economy is a fragile thing. . . There is a portent of stormy weather ahead to which we had better give heed. I hope we will never again see such a depression (as in 1932). But I am troubled by the huge consumer installment debt which hangs over the people of the nation, including our own people. I recognize that it may be necessary to borrow for a home, of course. But let us buy a home that we can afford and thus ease the payments which will constantly hang over our heads without mercy or respite for as long as 30 years. No one knows when emergencies will strike (and we could be) helpless before creditors. We are carrying a message of self-reliance throughout the Church. Self-reliance cannot be obtained when there is serious debt hanging over a household. One has neither independence nor freedom from bondage when he is obligated to others. . . I urge you to look to the condition of your finances. I urge you to be modest in your expenditures; discipline yourselves in your purchases to avoid debt to the extent possible. Pay off debt as quickly as you can, and free yourselves from bondage. (Gordon B. Hinckley, Ensign, Nov. 1998.)

[mirkwood]

I bought what I could afford in my first home. I doubled it's value and moved into my current home. Any profit you make above your first cost is a good reason. You make some money to put towards a new home instead of wasting money renting.

[Gwen]

I don't advocate buying more than you can afford. You definitely have to consider how you will make the payments if life gets harder instead of better. But I think you can consider long term and be reasonable at the same time. If after considering all options you plan to buy knowing you will have to move in 5-10 yrs that's fine. Just know the risks going in.

Talk to the banks and be in control of your home buying experience. Don't let the banks or realtor tell you what your family can afford or should have. Home buying is a big decision, make sure you are in charge of the experience.

One of the things we did that made home buying much less stressful is before house shopping we did our bank shopping. We picked the bank that was going to offer us the best rate based on who we were. But instead of letting them tell us how much they would loan we told them... this is our down payment amt and this is the max mortgage payment we'll accept. How much of a house can we buy with that? The loan officer did a lot of work but sent us an email with about 5 different home prices and what the mortgage payment would be with the numbers we gave her. Once we knew where we stood and had pre approval in hand it was easy to house shop. I called a realtor and said "I'm buying a house. Here's what I'm looking for...... Can you help me?" I was serious and she knew it. The next day we were looking at about 6 houses. If I said no we walked away, no questions or pressure. If I wanted to come back and look 5 times she entertained that too. We made offers on about 4 houses inside of a couple months. lol If the seller wasn't willing to talk business I figured they didn't want to sell and we walked away. We ended up buying a foreclosure (this week will be 1 yr) and it's been great.

[Guest]

A house is a good investment. Regardless of the economy. But, like any other investment, you have to know how to invest in it wisely.

For example, the house that you buy for you to live in should not be put on the asset column of your ledger regardless of how much equity is in it. It belongs in the liability column. Because, equity is useless if you have to become homeless to cash it in.

[Backroads]

We've just been renting. I used to feel bad about not owning a home at age 28, but at my high school reunion last year home owners were the minority. Most were still renting.

I think of the home my friends recently bought. It's their first home (aside from a tiny apartment) but should last for years. Affordable (it was actually a foreclosed horder house) but roomy. They can put a family into it.

[Guest]

We are about to buy our third (and maybe last) home. We can afford it because of the equity and/or rent income from the first two houses.

[skippy740]

A house is a good investment. Regardless of the economy. But, like any other investment, you have to know how to invest in it wisely.

For example, the house that you buy for you to live in should not be put on the asset column of your ledger regardless of how much equity is in it. It belongs in the liability column. Because, equity is useless if you have to become homeless to cash it in.

A house is a good tax-shelter for your cash flow... based on your tax-bracket and amount of home mortgage interest you are paying.

But until it generates cash flow for you, it's a liability.

Liabilities include:

- Property Taxes (Don't pay? Can't live there anymore)

- Maintenance (unless you have lifetime service on it, things will break down)

- Planned Obsolescence (What's that? That's when stuff wears out or becomes outdated. Remember, modern houses sell for more than the houses that were designed 20+ years ago. That takes capital to keep your house 'marketable'.)

- Technological Change (What's that? That's updating your home for latest and greatest energy efficiencies and appliances.)

- Mortgage... well, it depends on how you structure it and take maximum advantage of home mortgage interest for your tax bracket (Hint: a 30 year mortgage is CHEAPER than a 15-year mortgage over the long-term when considering tax consequences and the later time of life when you'll WANT and NEED tax deductions.)

For more information on this, I'd check out the Rich Dad/Poor Dad series of books - particularly the Cash Flow Quadrant book.

[talisyn]

I totally agree about houses being in the 'liability column'. You're living in it, it's not easy to sell, you can't pawn it, it's not a part of your cash flow lol.

[zuko725]

My husband and I are currently looking around for our first house.

We're both in our early to mid twenties and he just recently landed a stable, good paying job. We were approved for a loan for up to $250,000, which is way way more than we could ever want to spend.

At first we were kind of looking for a starter home.. but like you, the more I thought about it the less sense it made. We could easily afford a decent 3-4 bedroom house and chances are we'll have a kid or two before we would be moving into house #2, so why not just go ahead and buy a bigger house to grow into?

I'll agree with what everyone else has been saying, don't buy more than you can afford. If you and your husband both work, I'd also advise to not put both incomes towards the house. I have a friend whose parents did that and when her dad lost his job, they couldn't afford to keep the house. I'm in school right now but I should be graduating in about a year and a half. If my husband were to lose his job for any reason, than the money I would be making should take care of the house payments.

Something to think about :-)

I hope you guys are having better luck finding a house than we are!

[Smeagums]

Why?

Seriously, why? If you know you'll be moving in 10-15 years then why not just buy a home you think you'll need for that time? Maybe you won't have 5 kids, but you can always use extra bedrooms a lot easier than you can fit 4 kids into a 2 bedroom house you can't sell cause the market tanked in your area.

My husband and I are looking into home ownership so the question came up with no real answer yet

I think the most obvious answer is because you can't afford it.

The Millionaire Next Door book, I think that's what the book is entitled, did a long study of real millionaires and not people who just made lots of money. They suggested that whatever your income is you should multiple by two and this amount should be the amount you mortgage. Sounds like sound advice.

Edited May 21, 2013 by Smeagums

[talisyn]

My opinion still is, if you're going to be paying 30 years on a house then make it a house you can live in for 30 years

[Guest]

My opinion still is, if you're going to be paying 30 years on a house then make it a house you can live in for 30 years

This is not always sound advice. This is sound advice for things like shoes or refrigerators... if you're going to swipe those shoes on your credit card, make sure you can pay the thing off before your shoes wear off, if not sooner. Better yet, don't swipe shoes on your credit card.

But for houses - most people don't stay stagnant for 30 years. Life changes occur so that things like - 1.) income levels (income increases or you lose your cushy job), 2.) household needs change (family expansion, family death, having to care for elderly parents, getting disabled, etc.) , 3.) location change (job relocation, your house location that used to be a good part of town turns into murder capital of the USA, etc.)

These are just some reasons. Most people get their first house not knowing what the future holds. Therefore, as houses are sound investments in any economy, they buy the house that fits their current situation (income level, household needs, and location) and move to another house if the house does not match their situation anymore.

[derblitzenator]

There's nothing wrong with buying a starter home. Starter homes generally cost less and are much easier to liquidate than homes in higher price ranges. You also can save a lot of money in mortgage payments that can be applied towards savings/investments. You can keep it as a rental property after you upgrade and let it be a source of cash flow through retirement. Of course, I am an advocate of buying as many properties as possible when the market is down and to sell off when the market is up like it is now and take advantage of the last 2 out of 5 rule as many times as possible in your lifetime.

[yjacket]

I totally agree about houses being in the 'liability column'. You're living in it, it's not easy to sell, you can't pawn it, it's not a part of your cash flow lol.

I'll add my 2 cents.

Rule #1) If you haven't saved enough money for a 20% downpayment you have no business buying a home.

Rule #2) If you don't plan on staying there at least 3 years you have no business buying a home.

Rule #3) A house is an expense. Unless you plan on renting it out, it is an expense. Period!

Rule #4) Get out of debt and out from under a mortgage ASAP!!! you either rent from somebody or you rent from the bank, either way until you own outright you're still blowing money.

Rule #5) Don't feel "pressured" by the market, there is always another one out there.

I have a more "traditional" view on housing as compared to the last 10 years and I'm not that old (30s).

I have my own thoughts on the housing system (basically the only way a 30 year mortgage makes any fiscal sense is through the "magic" of inflation-and more specifically wage inflation, and mortgages aren't paths to freedom but a path to death). Mortgage means "death pledge", i.e. you pay it until you are either dead or it is paid off.

I would say before one buys a house one must think about their long-term goals, what exactly do you want in life? What is the end goal? If you don't know where you want to be fiscally in 30/40 years you'll never get there.

I personally believe that for a 1st home, it is very, very good to have a "starter" home, especially if one is going from an apartment complex/condo to owning. There is stuff that needs to be fixed and done all the time. It is entirely possible to bite of more than one can chew in housing.

I came very, very close to doing that for my 1st house; starting out you don't need a 5 bdr/3 bath 3500sqft. I thank my lucky stars all the time I didn't buy that house (everything was signed, I just walked on it). More house to take care of, more to heat, more things to go wrong. I know for me (and I think this is probably true for a lot of starter outers), I subconsciously wanted a house like my parents. I wanted the end result but not all the pain and sacrifice they went through to get it, I was being very selfish. I'd forgotten we didn't have carpet for over 5 years, that the house was half-finished for 10, etc. . . . silly me.

I personally dislike the term starter home, though, buy a home that is comfortable for 3-5 years-or I should say for an appropriate time frame-trying to forecast longer than 5 years can get very tricky-especially starting out. In today's economy, one of the key drivers in staying employed is mobility, one must be able to go where the jobs are; it is much easier to sell lower end homes than higher end homes if one needs to move quickly.

My own personal story, I used to live in one of the highest COL areas in the country and with my wife and 2 kids we rented the absolute bare minimum that we could to lower the rent payments and save as much money as humanly possible -- Those were some xtremely difficult years. We finally moved (after about 5 years) to a much lower cost of living area. I took all that savings and bought outright, nothing fancy, old brick home with good bones, sufficient for our needs.

Now with no mortgage payment, I can save like nobody's business, in 24 months I've been able to save what took me 5 years to do (pay is equivalent) with rent. Best of all is if something happens to me, wife is taken care of kids taken care of- no worries about payments or other junk. Now with more kids, I'm looking at moving on up. Best of all is b/c I own my house outright and I've saved money I have at least a 20% downpayment for the bigger house without needing to sell this one. So now I have maximum flexibility, sell this one + cash and buy bigger house for cash or rent this house and use the rent to pay my mortgage for the next house while still saving tons of money for the house after that - which will hopefully be the end house goal. If something happens with my job, I can sell at a moments notice without worrying about the mortgage and go buy somewhere else.

The peace of mind is priceless. If you can't tell I really hate mortgages. I think the average time that people move is every 7 years; With a 30 year mortgage one really hasn't paid off much of the loan after 7 years. So if one is continually moving every 7 years one will never pay of the loan (i.e. every 7 years get a new 30 year mortgage).

Debt can be used wisely. For example, if one KNEW that you were living in a particular house for 30 years; with interest rates insanely low I could see that side; or if the loan payment is extremely low compared to monthly income (i.e. < 10%). Or for example in my case, I'd probably get a 30 year on a new house and let the rental income pay the mortgage.

However, if one is relatively young, starting out in a career one wants maximum flexibilty. . .

But that is just my 2 cents from some random internet dude who probably doesn't know what he's talking about; oh and please no one take offense, none was intended.

Edited May 23, 2013 by yjacket

[Guest]

Excellent post yjacket...

Except that, if you're well versed in the field of financial planning, you don't have to follow any of those rules. Other than that, the rules are good to follow.

[bytor2112]

You could buy a Starter home to match your Starter jacket.