The recent record low mortgage interest rates have lured us into the All American Dream of becoming homeowners. Six-and-a-half years ago I bought a little (crazy little) duplex. It was in the midst of the greedy market and I remember getting approved for a huge amount of money… with a sizable amount of debt, no down-payment, and not much credit. My real-estate agent at the time told me, “A lot of people are buying the biggest house possible and are then getting a lot of roommates!” While I wasn’t super money savvy then (not at all) I do remember thinking, “Um, no! Bad idea brah!” And I am so happy that I listened to that voice in my head saying that that was such a bad idea. Because it was.
I did some basic calculations and figured out what I could afford per month and then I got hooked up with a place in town called Colorado Housing and Finance Authority (CHFA). They’re all about getting 1st time home-buyers into homes, and they loaned me the money for the down-payment on the place that was to then be paid back if I sold the house.
Long story short: I found a place, lived in it for a few years, got married, decided the place was nutty small for two people to live in (I always reasoned that if people in New York City could make super small places work we could do it too). We then decided I’d sell the house, and we would move to Spain (crazy kids!) with the profit from the sale of the house. In the meantime we decided to get a cheap month-to-month apartment while we got all the details sorted out.
Another long story short: ended up not moving to Spain (visited instead), and here we are in our temporary month-to-month apartment years later.
We decided recently that we’re going buy some real estate here in town. I’ve heard that Denver is “house-poor” where the houses are more expensive then what most people who live here can afford so they end up spending most of their income on their homes. I haven’t done research on it myself, just heard it on the streets. It also makes me think of another thing people in town say it’s, “You pay for pretty.” And Denver is very pretty.
image woodleywonderworks
With the decision to go from renting to buying it brings to mind the very controversial topic of: is it better to rent or own? There is no doubt that there are strong arguments for each side (I’ve known people that are adamant about each), and I have experience on both sides. While I had done the basic calculations to see what I could afford I was being super optimistic and hoping that I wouldn’t continue to spend excessively the way I had before the house purchase. Once I was in the duplex I was getting myself deeper and deeper into debt because I continued to spend the way I wanted to even though it was only a line of credit. Since the mortgage was the very 1st thing to get paid every month I felt good about that but there’s no doubt that it was an extremley bad cycle to be in.
When we started renting I didn’t have the upkeep of the house to pay for anymore and I didn’t have to pay for all of the other things that go into home-ownership. We pay our rent and call the landlord if something needs fixing. There’s definitely some relief and freedom in that. But… I also know that every month we’re paying for someone else’s mortgage and when we leave this place we have no equity, no chance of making any kind of profit, and no option of keeping it as an investment and getting renters of our own.
The properties in town are going quick and if you like something you’ve got to pounce on it (this is what I’m hearing on Facebook anyway, and we all know that is completely official and trust-worthy;). It’s so easy to scour the real-estate sites for houses and start dreaming of living in them.
There are some houses that are so cheap and it doesn’t make sense. I can’t help but think, “Yeah, someone definitely got killed there for them to list it at that price!” And then my frugal brain instantly thinks, “Nothing a little bleach won’t fix!”
So we’re looking for something that’s not too fancy or too expensive (can’t afford that anyway), and nothing that is too much of a fixer-upper. We need something that the little girl in Goldilocks would approve of: something just right.
Do you think the American dream of homeownership still exists? Do you believe in it yourself? Why or why not? Would love to hear what you think about this topic.
photo credit: house 1 by hill.josh, 2 by wonderlane, 3 by mrkumm
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I have to mention that I love your blog!! I've been reading through your archives and I love your posts along with a great sense of humor and honesty! I actually tried trimming my own hair this weekend and it looks great:)
There are definitely extreme opinions on each side of the renting vs buying. My husband and I have decided to rent rather than buy. I can see pros and cons to each side and for us, renting works best. For us the pros are: we don't have the stress of paying for upkeep or fixing things in the house, no property tax, we don't to spend money on things like painting/renovating (in a new house I know I would want to repaint and redecorate). In this economic climate with job insecurity, I find a lot of relief to know that we could always find a cheaper place to rent rather than being faced with the possibility of selling a house (and probably losing a lot of money).
Those are my thoughts…
A
I own a flat at the moment and rent it out. I got myself into terrible debt getting it (loan plus mortgage plus credit cards = OMG).
I am gradually crawling my way out of this pit and I must admit – if I could go back and buy or not buy I think I still would. I wouldn't do the loan and credit card thing though. No way.
I think of my flat as my pension. I may be struggling now but when I am a pensioner I will be sitting pretty!!
Sarah
http://acatlikecuriosity.blogspot.co.uk/
Hey Anna, I think you live in Denver and real estate did not crumble like it tumbled in other U.S. locales. The area is pretty dependable and you are a smart cookie. This time try to find a property with 2 to 4 units and see if you can't get some renters to way offset your housing costs. If you get an FHA mortgage you bring 3.5% for your down payment and you can get a property that is up to 4 units. Good luck!
Girl, bleach doesn't fix ghosts! Better get some sage for that. ;)
Good luckw itht he property market.
Here in NZ it was such a natural thing to do to go get a home and a mortgage 20 odd years ago – but now – prices are riduculous the banks are lending young people way to much and they are ending up loosing there homes as they can't afford to be paying the mortgage on one wage when they want to start a family.
But hopefully things will settle down and get back to owing the kiwi dream!
What an apropos post! My husband and I are in the process of buying our first home together. We rent an apartment in downtown Phoenix for about $800 a month. It's a one bed, one bath and the price is RIDICULOUS. We've lived here for a year and a half and are looking to be out by the time our lease is up in February – it just seems asinine to throw that much money away when we can have a mortgage on a very comfortable house not too far from us for less than what we're paying.
That said, we know we want to stay in Phoenix, we have very reasonable expectations and we're taking it really slow. We're starting 6 months early to give ourselves plenty of time and we've been getting our finances in order for several months now. For us, it's time!
ahhhh the joys of home ownership/vs. rent! well, i have been on both sides of the fence. when i was married (i am divorced) we owned a piece of the american dream. we sold it during the divorce and made a small amount of money on it…..fast forward about 12 yrs later and i am still renting. i just feel that there are good/bad to both. with rent, you simply call the landlord to come fix. when you are the homeowner, you do need to have the extra money (or credit) available, if the furnace goes, or the hotwater tank, (which, coincidentally enough, happened the first week in my new rental)……i feel as a single girl, it is easier to rent then own. purely a personal opinion. and i know there are financial savy people that will argue that til i am blue! best place for me currently is a rental….if i win the lottery or come into a lot of money, maybe i will change my mind….i like calling someone to do my 'dirty work'. thanks for a great blog! it is always so fun to read! xo
Hi Anna,
I can't wholeheartedly endorse homeownership because it is expensive and stressful and oh-so-very adult. That being said, I have to admit that since we became homeowners 2 + years ago, my priorities have shifted away from shopping (well, except for home improvement and garden things) and moved toward DIY. I've gotten way more into cooking and canning since I have space to call my own. I just feel like staying home and tinkering, which has saved gobs of money.
Oh–and interest rates are crazy low right now. Bonus!
Anna, it's a buyer's market and you'll get a great tax deduction (one of the only ones left)! Do it. If you purchase a home warranty plan (which in California they offer on all home purchases), that will help with problems that may come up. Most plans cover things already in place like water heaters, dishwashers, washer/dryer, plumbing – things like that. Our plan is $395/year and it's helped us tremendously. When we have a plumber come out it's a $35 deductible and the rest is paid for. They can get obnoxious on big ticket items, but if you stand your ground, they cave. A few years ago we had to replace our heating and air unit. They didn't want to pay for it – there was a lot of back and forth but we did get them to pay for it and that saved us over $8,000. And never buy as much as the bank says you can!! Drop their amount by about 25% and you'll be okay. They are going off your gross income, not net. Being house poor is no fun and not worth it. xx-Linda
So true Erin. So true. Touché.
I hadn't heard of a home warranty plan before Linda. That's good to know about.
Having a place to tinker sounds awesome Brenda. Man, just to have some extra space would be amazing!
As a relatively new Denver-ite, I absolutely agree with you on the cost of housing here. It's outrageous. And yes, Denver is very pretty :) I share a house with four roomates (ughhhh) and pay for rent what I would pay for an entire apartment back home (in PA). Craziness!
What we pay for rent or mortgage is so relative huh. I have a friend who moved here from San Francisco. They bought a house and she says, "it's practically FREE to live here!"
The American dream definitely still exists! It may be more difficult to obtain in some areas that are more expensive, but in most areas prices are much more reasonable than they once were, and mortgage rates are at an all time low.
I do think owning is better than renting for the long haul, as you saw in my article that you linked to. THANKS!!!
House ownership is a big part of the NZ culture, too, and because prices are high (and wages low) many people are definitely house poor. Good luck with your house search!
The House Poor thing is rampant here in Denver too (not sure how it compares to NZ). It’s really too bad.
We found a place, a foreclosure, thank goodness the search is over!