Expert: liznarr - 12/20/2010

Question
So here is my dilemma.  My husband stays home with our two young children while he works on his dissertation for his Ph.D program.  I work outside the home and my job is the only source of income.  We are in an apartment right now and need to renew our lease within the next few weeks.  We are wondering if it is best to keep throwing away $1000 a month on rent or if it would be a good idea to buy a house. We can afford to buy a house (I think- I don’t know much about the process), but am wondering if it is a good idea when we don’t know how long we will be living in this area.  Once my husband finishes his dissertation, he will start looking for a teaching job and we could end of up anywhere in the country.  The problem is we don’t know how long this will take.  He could finish up in the next 3-4 years or it could be 10 years (he is progressing very slowly since he has to watch the children).  I would like to have a house for the kids and our money in an investment like a house.  I hate the idea of wasting money on rent for the next few years, but a few people have told me that buying a house would not be a good investment if you are going to turn around and sell within a few years.  Is this correct?  Money is very tight and we don’t want to get into a situation where we are going to be losing money.  Would you buy a house knowing that you may have to move in a few years, or is it best to keep paying rent.

Answer
Hi Lisa,

Hope you and your family had a Merry Christmas.  I apologize for responding late, but the Holidays have been especially hectic this year.  All the family visitors have gone home now, and I have some time to myself to catch up on email.

Congratulations to you and your husband for toughing it out now in order for him to get his PhD and be rewarded later with higher income.

I, personally, would not hesitate to purchase a house if I were in your situation and had funds for a down payment that would not “take” from something else; but that is just a decision that I would make.  You will have to weigh all your options and make the best decision for your family.

However …

(1)  If you will be in your present location for another 3-4 years,
(2)  So long as you buy a house in an area with good resale (and also a neighborhood that is not declining),
(3)  If you buy at a good price and don’t pay top dollar, and
(4)  If you buy a house that will not require you to spend a lot of money for repairs since you say money is tight…

… a house purchase could be a good idea and investment for you.  Do investigate resale values in the area you consider purchasing, because at a point in the future, you will be reselling, also.

I have clients who buy and sell frequently, so the advice a few people have given you is not necessarily true.  Interest rates have recently reached all-time lows, but are beginning to climb a little bit now.  If you do decide to go forward with a purchase, I would do so before rates climb much more to take advantage of a lower mortgage payment.

If you are currently paying $1,000 a month rent and are comfortable with that, unless your finances allow more, maybe try to find a house with a mortgage payment in this same price range if possible.  You know your finances and what you can afford, even if a lender tells you that you qualify for much more.

You can check with any good lender to see how much you qualify for, but do shop several lenders for the best rate and minimal fees to you by the lender.  Always ask each lender what their “junk” fees are.  Junk fees are additional profit to a lender and can include, among other fees, an underwriting fee and a fee for document prep.  

You did not mention any savings that you might have, so remember that there will be expenses in connection with a mortgage loan.  Again, a good lender can compute how much down payment you will need, along with other expenses to you at closing, depending on the type loan you were to get.  

If you do go forward with a home purchase, make sure you have any house thoroughly inspected by a professional inspector, with language in your Contract of Sale that if the results of the inspection are unacceptable to YOU --or if you and Seller cannot agree on repairs, if any, you request as a result of a home inspection that Seller will make by licensed contractors -- that you will be able to terminate the Contract and receive a full refund of your earnest money, immediately, with no further obligation to the Seller.  And put up as little earnest money as possible.

Make sure you get a copy of a recent survey if Seller has one and a copy of any Restrictions of record.

In my area, termite and pest control companies perform an inspection and issue a report that is known as a CL100:  It reports on any wood-destroying insects present (termites and/or wood-boring beetles) and any damage done by these insects, and also any water issues in a crawl space, along with any water damage, say, at sinks, toilets, etc.  The Seller agrees up front at Contract signing that he/she will pay to correct any of the preceding defects at Seller’s expense in order for purchaser to obtain a clear letter at closing; ditto for a heating and air conditioning inspection.  It does not matter who pays for the CL100 and HVAC inspections, but YOU should have the right to choose the inspecting companies.

Good luck to you, and feel free to write again if you have additional questions.

Regards,
Elizabeth