Renting vs. Buying a Property at 24?

Submitted by Eating_thesevensins t3_10oe33j in personalfinance

Hi all, I'm trying to determine the merits of renting vs. buying a lower-level property at my age. Being 24 (not to mention single) seems very young to me to be owning a house, especially when most people enjoy the freedom of renting, but I'm having some doubts based on my circumstances:

  • I'm in my first year of teaching making 50k
  • Loving it, and love the community I'm teaching in (same one as I went to college in). I like my coworkers and boss. I would be happy living here for at least 10-15 years
  • I am debt-free with 10k in savings
  • Have separate existing 6 month emergency fund
  • Currently renting a place for $1500 a month, which feels way too high to me

I'm thinking I am already paying a lot of money for my rent that is going down the drain and would like to move at the end of this year regardless - why not invest that money in a property instead? 1500 a month in a mortgage seems a lot better than rent to me. However, I know houses (especially the ones I'd be able to afford) are time and money pits, and my teacher salary is not exactly luxurious. Then again, having no debt, car payments, etc. would help quite a bit.

Has anyone else invested in a house around my age and found it a good idea? Or am I jumping the gun and should save a little more before investing?

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thewitchof-el t1_j6e1fx8 wrote

$1,500 in rent is too much for your income, there's no way you can afford that as a mortgage + the monetary responsibilities that come along with owning a home.

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radalicious123 t1_j6e1gwt wrote

Sounds like you're seeing it pretty clearly. (Except, drop this "rent is going down the drain" idea, that's nonsense, renting is fine.) In your case there are good arguments either way and I think you've got a good sense of what they are. You'll know in 5 or 10 years whether you made the right decision, haha

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Citryphus t1_j6e1lf5 wrote

Rent money does not go "down the drain." What house are you going to buy with less than $10k down payment?

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YankeesJunkie t1_j6e75rm wrote

Based on the interest rates right now you are probably looking at a budge of 185K which I do not know where you live so I guess you can compare houses in that range with what you are paying in rent.

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the_whole_arsenal t1_j6e7te1 wrote

You will need 10-12% of the home value at a minimum to buy a house, pay closing costs, move and fund insurance and taxes. Second, mortgage companies will, at best, approve you for 36% of debt to income, so if your making $50k, that is $18k in payments/ 12 months to cover principal, interest, insurance and taxes, or $1500/ month. A mortgage that includes insurance and tax will allow you to buy a $185,000 house at today's rates. So you would need $20k saved for closing. Can you even find a house for $185k?

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InvestigativeHuman t1_j6gj3gi wrote

Worked in the industry for a while, but did not buy property at that age since I left to live in the EU for fun for a few years and to get my MA (no house but have friends who settled around your age). Real estate is a great investment, but you will not be making stonk returns (5-10% ROI yoy) think of it like an anti-inflation vehicle and if you rent it then it will be a self paying savings account with random fees associated with it (repairs).

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  1. If you are 100% on living there for 5-10yrs in that district and etc read on.
  2. You know the pitfalls of a home (they have random fu expenses). At 24 I would 100% recommend looking into a condo or something along those lines instead of a house house. It would function the same as your current renting but now you own it without worry of maintenance outside of your own appliances. Just look into the HOA for pending litigation or etc.
  3. As others have noted your income would be an issue and lacking cash for a downpayment/closing cost. You can often negotiate sellers pay closing cost so keep that in mind (at least here in MI that is generally standard practice for sellers to pay but not all the time).

What no one has mentioned is Teachers, EMT/paramedics, Police and Fire generally have access to programs through HUD or often your state GOV that help with a downpayment that can be forgiven (so no pay obligation). For the good neighbor program (through HUD) for example you need to agree to live in the property for 3yrs, it must be on their list of areas, and you cannot refinance out of your terms early or sell the property without penalty due to the lien HUD places on the property during that window of time. It will also be a FHA loan which you will want to generally refinance out of once at 80% loan to value to get rid of the PMI since it sticks to FHA even after you cross that threshold unlike a conventional loan where it drops off. Good thing is rates are trash so there will be a time to refi down the line (5-10yrs realistically). Link to HUD - https://www.hud.gov/program_offices/housing/sfh/nsc/gnndserv

Just be sure you budget accordingly, and I would play out some scenarios (like your car dies tomorrow can you still afford your mortgage and etc with a new car payment?) Then be sure to get an inspection no matter what anyone says. Also I advise only working with real estate agents associated with the board of realtors when you decide to make the move. They have higher ethical obligations even in buyer beware states.

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