<p>My oldest is slated to graduate this spring and has been renting (apartment) for his senior year. He’s telling me that when he finds a job after graduation, he intends to purchase a townhouse/condo, rather than renting. His rationale is that renting is “throwing your money out the window, when he could be building equity with similar payments”. I honestly don’t know… Anybody more knowlegeable in this area have input?</p>
<p>If he can afford it (possibly by having roommates who will pay him rent), he is very forward thinking. He will have to have sufficient income to qualify for a loan, and he may need to have a track record of such an income - at least to get the best rates. So he may or may not be able to do it right away. If he will be living in a healthy real estate market, you may want to partner with him. He will also get a tax deduction for his mortgage payments which is never a bad thing; how good it is depends on what tax bracket he will be in.</p>
<p>This depends on so many variables (where they’d be buying, how long they think they’ll live there, income and tax bracket) I think it is difficult to give useful advice without more information. There are calculators (google rent vs. own) that would provide some guidance. He also needs to be aware that buying a home involves a lot more than the mortgage payment (maintenance, taxes, insurance, possibly PMI and all those other joys of home ownership).</p>
<p>My first impression was that with all the “extras” you mentioned (taxes, insurance, etc), that it’s more trouble and financial weight than it’s worth at such a young age. But, since he loves a good argument, he counters with “But, if I don’t purchase now, I’ll probably purchase within 5 years anyway. Isn’t it better to jump in early?” I know he’ll need to see what his salary will be, what part of the country he’ll be considering, etc. I’m glad he’s thinking about it early, but it kinda scares you to think about your son committing to such a debt-load!</p>
<p>He should also to be sure to educate himself about the loan options that are available and the risks associated with each. For example, the idea of buying a house with essentially no down payment (and the expectation that the value will increase rapidly enough to CYA) is scary to me. (I should add that DH and I got ourselves into a house by the time we were 25 and that has always served as the foundation (pardon the pun) of our financial security.)</p>
<p>In the early years of an amortized mortgage, you are mainly paying interest and very little principal, so the “throwing money out the window rather than building equity” analogy doesn’t always fly. In an appreciating market, it could be great. however, many insiders now feel that the real estate bubble may be about to burst (or at least slow down). If it does, condos will get hit the hardest. What if he decides to switch jobs (and cities) in a year or so and can’t sell?</p>
<p>Someone once told me that in regard to PMI, you can request a larger mortgage and pay 5 years’ PMI up front. This is cheaper in the long run, because an extra $10K on a mortgage is better than having to pay the extra % in PMI every month. True? This is making my head hurt…</p>
<p>audiophile - good point. Especially just starting a career, I guess you don’t know you long you’ll want to stay at your first job. I’ve always been told that if you can’t plan to stay at your house for 5 years, it’s not worth purchasing.</p>
<p>It is all a matter of the specific market, what it would cost renting vs buying. If you can get close to the rental costs it is not a bad idea, esp as it is a forced savings acct. OTOH, if mkt drops, you down payment will go further.</p>
<p>He needs to be careful. He needs to evaluate if his first job will be a stepping stone to somewhere else, or if he intends to be there for awhile. Also, be careful, a friend of mine bought a beautiful townhouse, but lost 60,000 on the resale years ago. She could not get her money out bcs although it was beautifully decorated ppl could buy new townhouses in the area for the same price as she paid and then they could pick their own tiles, cabinets, etc. Her townhouse was 5 years old when she sold it. On the other hand, one of my relatives bought a one bedroom coop in a down market and the sellars lost quite a bit of money. My relative sold recently in the up market and doubled his money after a few years.</p>
<p>So many variables… the “wait-and-see” regarding his future employment and subsequent financial situation sounds like the best plan. Seems hard to plan for anything now-a-days. I find myself wishing for my parents’ world, when many people could plan on working for the same company for 30 years! When I was little, I seem to remember my parents’ friends all drinking an awful lot at parties… maybe life wasn’t any easier then after all!</p>