house-buying 101

[quantumleap]

Help me out? We live in an area with exorbitant rental costs. We're currently paying 1250$, plus utilities, for a ~250 square foot 1 bedroom appartment. We've found a little house that we like, but we're completely oblivious to any and all implications of buying a house. I know there are closing costs, and we have an appointment with the bank to see what sort of mortgage we would qualify for. But, what kind of mortgage do we want? Is it completely unrealistic to think that we could pay roughly our rent payments as a mortgage on a house valued around 100,000-140,000$ I seriously know nothing. Please don't laugh at that last question! We'd like to be putting our money into something that will provide some sort of return when we leave here. We also don't really know how long we'll be here, but do not plan to be here long-term. We've got at least two years to go here though. Is it worth it to buy a house given the fact that we plan to leave in the fairly near future? I do know that our housing market is only supposed to improve (or whatever the term is - property values are supposed to increase over the next few years).
So, teach me! Please?
Katia

[straighthaircurly]

I am not a professional so I am only speaking from my experiences. For the price range you are looking, you should end up paying less (mortgage + taxes + insurance) than you are right now for rent (but remember that you will have to plan for maintenance costs). My current house I purchased for 115,000 and even with insurance and taxes we have never paid over $1000 a month. Generally for qualifying for a mortgage they will look at your credit score (if you have any credit problems that can be cleared up do it before your appt), your income (generally you will qualify for a monthly payment equal to 1/3 of your income). Stay away from interest only loans and adjustable rate mortgages (ARMs) as these are generally bad investments except in special circumstances. You will generally be expected to provide a down payment on the house and it is usually a percentage. Personally I like to do a 20% down payment (10-20% is typical) although I think there are some first time home buyer loans available that have lower requirements.

I'm sure other people will add more info.

Okay, I just reread my post and I used the word generally WAY to much Time for some sleep.

[mightymoo]

In order to compare your rent to owning a house, you need to make sure you account for everything that is included in your rent. The mortgage payment is one thing (and there are lots of calculators on the net to help you determine what that payment would be given an interest rate and amount). But you also have to factor in real estate taxes and homeowner's insurance. If your rent includes any electric, heat, cooling, water or other amenities, you need to include that as well in comparing.

As for whether it is worth if you are only going to be there two years, it really is a gamble on the housing market. We owned a home in WA for two years from 2003 to 2005 and did extremely well. We bought for $375K and sold for $500K, so even with real estate costs and other things, we made a very nice profit even after home improvements, etc taken into account (we had replaced the roof and windows). However, we bought the house we are in now for $375K in 2006 and if we sold it now we'd probably only get $350-360K, then with commission on top of that, it would be a loss. (We don't plan to sell though)

So, I would do some research on your area and find out whether housing prices are rising, stable or falling. I wouldn't buy knowing you are leaving in less than 2 years unless you felt confident that the market was rising enough to make sure you didn't lose any money (the costs involved in selling, commisions, lawyers fees, etc mean even selling for the price you paid will lose money). I don't know how the canadian market is doing, but many areas of the US are in decline.

I think personally if I knew for sure I was leaving in 2 years, I would just rent. When we bought our house in WA we didn't know we would be selling so soon, otherwise we would have stayed in our condo.