angst over land buying and building/homebuying

[jackson'smama]

My dh and I are in our 30s with 2 young kids. We are currently renting for SUPER CHEAP in a great place. We came to this position after selling our home in the "sellers market" a while back in an affluent community. Now, we have alot of money sitting in the bank making money for us and we've been waiting for the perfect spot of land or house to come upon us. I am a sahm but I do work a little every month as a nurse.
My big question is how do you really know what you can swing when looking into buying a home. We will keep a minimum of 25k in the bank regardless of the route we choose.
We live in an area that is still pretty pricey, IMO in terms of real estate. I feel like what we can afford would be total crap around here (i'd love to see something for less than 150k that appears livable). It's come down, but not drastically. Who knows what will happen over the next few months?!?!?!
Also, we put about 35% of our takehome pay into savings or investments. I have a hard time deciding if that's stuff that could really be put on hold for a while while we are getting starting in the new home (i.e. is it more important to contribute to my IRA when i'm 32 or putting that money into home ownership for a few years until i'm working more and can afford home AND retirement).
also, if you have any knowledge or experience in the area - is it generally better to build or buy a home, financially speaking. I want a nice home and I have specific requirements for what it looks like, but I want it to be rather small and efficient. The houses that look like what I want were generally built in the early 1900's - bungalows - and i'd love to buy an old one but wonder if we could even fit our furniture into one or afford the modifications to make one work for us.
I know i'm rambling, but i'm really trying to sort this all out in my head and if you have any pointers for me or could give me any direction, i'd love to hear it!

[xekomaya]

I don't have answers for everything, but just a couple thoughts:

How much do you have in retirement savings? What's your overall goal? Do you need to put 35% in to reach it? Could you do 15% retirement, 20% Home?

I would consider owning a home part of my retirement. I'm going to need a place to live and I don't want to *have* to move once I'm older (although I may want to) So could/do you consider equity in your home comparable to some of your investments?

I don't know your area. I think buying vs. building could go either way depending on what you're looking for and what's available. Some companies do pretty cool prefab type stuff that you might want to look into.

[Sharlla]

Well we paid cash for our house and are fixing it up for cash as we go along. I don't trust that I will always be financially secure. I would really hate to have a mortgage and then lose a job, then foreclosure. I like the fact that I will never lose my house. I really like this house for a fixer upper http://www.caroljones.com/Listing/Li...ColorBar=false

[amyamanda]

You're in a great position. I wish I was in your shoes. Wait it out.

Here is why: http://drmss.com/newsletters-blog/index.php

Chris (the author) is a friend of mine. He believes the market will hit rock bottom in about 2011-12. That is not too long to wait. Both housing and land will likely be super cheap at that time - he's estimating that real estate values all over the country will go down 34% before they start slowly rising again.

We are in the much more precarious position of needing to sell our house before we can buy our land. I will give more thought to the possibility of renting in the interim. You are in an absolutely awesome position for someone wanting to buy.

About land vs. house, I can't say what is right for you. We want to build our own house ourselves, so we want land. If that isn't right for you, I'd buy something old instead of paying someone to build new. Jm2c.

[SNRPMom]

Removed

[2busy2clean]

You are in a great position to get what ever house you want, if you wait a little longer. The credit crunch is just starting, so house/land prices will continue to drop and your cash in hand will benefit you greatly.

A good idea to know where housing costs will stop at is to know what the median household income for your area is, multiply that by 3.5 and that number will be able to buy a moderate house someday in the future.

or, take the average cost of rent and multiply it by 120 to get a future house price.

My thought would be to wait 6 mos and then begin to look around at what is available, but be prepared to wait another 2 to 3 years, if prices aren't dropping fast enough.

[Belleweather]

The main metrics of housing affordability, as far as borrowing money and from before the market went completely off the deep end, is 3x your household income.That's what is considered affordable for the majority of families with normal bills to make.

Another important metric is that your housing costs should be between 25% and 33% of your take home pay. So you might want to look at what you could afford with whatever downpayment you're likely to make to bring the payments into that range.

I'm not sure how much that helps you if you're planning on buying raw land and building, though... it's a different way of financing. Would you buy the land outright and then build? Are you thinking of building yourself, or hiring a company? And do you want to build the house all in one go, or a bit at a time? Those are all important questions.

[jackson'smama]

Originally Posted by Belleweather

I'm not sure how much that helps you if you're planning on buying raw land and building, though... it's a different way of financing. Would you buy the land outright and then build? Are you thinking of building yourself, or hiring a company? And do you want to build the house all in one go, or a bit at a time? Those are all important questions.

depending on the land...if we were to go with the lot, we'd pay cash. the more and more land we want (i.e. dh wants!), the greater likelihood we'd just have a down payment. we'll have to hire a contractor to build and we'd do the majority in one go (maybe wait on garage and basement finishing and some interior trimwork, if it would make a big enough difference).

2busy2clean wrote..."A good idea to know where housing costs will stop at is to know what the median household income for your area is, multiply that by 3.5 and that number will be able to buy a moderate house someday in the future." Problem with this is that we live in a subsubsubsuburb of Northern Virginia, Washington DC. If these people would stop moving here and making us a bedroom community, the prices would go down - LOL! I mean, we live about 1.5 hours away but more and more people are coming in with their big money and wanting gobs of land and fancy houses and it's driving everything else thru the roof. So, if I could multiply the "local" median income by 3.5, we'd be fine but when you factor in the income of people who live here but don't want to work locally, it's a totally different ballgame. I heard one time that DC and surrounding areas had an essentially "recession-proof" economy, so I don't know how much lower things will really go around here.

[Free Thinker]

For us buying wasn't an option. We live on a family owned farm and don't intend to ever move off of it. DH will inherit the parts we don't already own, and we plan to pass it down to our children. We decided to build several years ago and have been saving as much as we can toward our house. Around here it takes about 18 months from the time you pick a builder to the time your house starts, then another 6-9 months of building. We chose our builder and got on his list, and it's finally our turn!!! YAY!!! But, things are currently going UP in building materials, so this house is costing as much or more than we had planned to spend. Case in point, hot water heater: called last week to price them, the price was good for ONE week, they went up $30 on Monday! So of course I went ahead and bought ours. They told me faucets were scheduled to go up 20% in the next 4 months! Same for all the other supplies we are using, the cost of fuel is driving the prices up! Freight is just plain more than it was a few months ago! We are getting as much as we can locked in right now even though we don't need it for a few more months.

Also, we are doing a very custom house built to our specifications. We are using ICF construction (insulated concrete forms, ice block house, ect.), we wanted energy eff. windows, attic insulation, ect. stuff that you won't get in a contract home but we feel will pay off in the long run. I wanted specifically a large laundry room and kitchen b/c those things are important to me, we have a lot of other custom things in the home we designed, too.

I think you are in a great position to ride this out. If you find a perfect piece of land I"d buy it, or if you find a great house, buy it. Keep your options open and keep saving! Research building materials, ect. and decide what exactly it is you want and price it all out. Good Luck!

[Piglet68]

We are going to be in your position probably early next year (though we are older and I think you are better off than us, lol). Anyways, I've been researching buying land, building vs. renovating, etc.

How much you can afford depends on so many things. For us we're making good money now but want to downsize our lives so DH only has to work part time. So we're looking at a budget that is much lower than our current income would dictate we spend. For that reason we are also looking at doing it in stages - buy land first, save up and build in stages. This requires a good architect and we'll likely go with one if we build b/c we know exactly what we want in a house and the architect can design it so it's easier to add on in the future as money allows (or as needs change). By doing it this way we hope to keep our debt way down. We don't mind waiting and doing it a bit slower if it means paying mostly cash for stuff.

They say it is cheaper to buy than build. This is usually true, but with the caveat that most people when they build want their "dream house" and will add on many luxuries and niceties that they may not get in a built house. For us, we want a small house that is simple and functional. It's hard to find small houses around here, or if so they need major reno work which still wont' be exactly what we want. So for us it may be cheaper to build because we want simple and small...also keep in mind that the cost of construction and materials varies considerably. You can also find some really good pre-fab homes (these are not the same thing as mobile homes) and they can be a good deal b/c the manufacturer builds the pieces and it requires little labour and only a few days to put up your home...

Of course the market here in Canada is very different from yours in the US. Housing and land are very expensive, still going up, and sadly it is not a buyers market. But we're hoping your bad housing economy will rub off on us, just enough for us to get some land cheap!

[Belleweather]

Piglet, that's what we're doing as well. We're waiting until it looks like prices have fallen off, but then we'll buy land with a 50% down payment and pay off the mortgage completely while saving for the initial expense of the house. Once we've got enough to pay outright for the 'bones' of the house (framed strawbale, so the frame, straw, roof, outside plaster, stairs and masonry heater) and then do the interior work ourselves as we can afford to pay cash for it and find the time to do it.

Which in no way keeps me from drooling over marmoleum floors or Ikea Kitchens, even though we haven't even selected a site yet. :eyeroll: