Once in a while I like to feature individual requests for advice from readers. The following was posted on the forums by a reader going by the name “Novice.”
I am a long time resident of Seattle and a renter. I am currently spending $700 / month to live on a tiny boat – I have to move out on June 1. I am 40 years old, I made the mistake of NOT buying in Seattle 15 years ago and now I feel that the bursting bubble has given me another opportunity to buy a home in this city. (where there are still homes and not condos that is)
My questions are: Should I buy? When should I buy?
Here is some more information:
I can afford to pay $2k / month – but I would prefer to pay less.
I can put 20% down on a $300K home (let’s say this is my max price)
I can qualify for a 30 yr fixed rate mortgage.
This would be my first home.
I would intend to hold the property for at least 5 – 10 yrs and rent it out it if I am not living in it.
I am in no rush to buy – I do need to live somewhere but I work from “home” and I can find temporary living quarters / sublet / leave town for some time etc…
I would buy the small / dumpy house on the nice street in the nice neighborhood – this is what i am looking for…
So, Do I buy? When do I buy? How will I know when the time is right?
Another question – I saw a beautiful cottage in a fantastic neighborhood that I would love to live in – it was priced at $280K – price lowered 10K from 6 weeks ago when it was first listed. The same property sold for $255K in 2005 and for only $150K in 2000. How can one determine the “real” value of the property?
Any advice would be much appreciated.
At the risk of sounding like a broken record, I’m going to reiterate my five self-examination questions that I think everyone should be able to answer affirmatively before deciding to buy a home:
- Do you like the home well enough to stay there for at least 5-10 years?
- Do you feel that the home is priced fairly?
- Can you afford it using a conventional 30-year fixed-rate loan?
- Do you have a minimum 3-month emergency fund that is not part of your down payment?
- Would you be able to handle it both financially and emotionally if the value of your home dropped considerably after purchase?
If you can answer yes to all of these questions, then I would say the answer to “should I buy” could be yes. Note of course that these are the minimum requirements.
Novice, it sounds like you are already thinking along these lines, so you’re already ahead of the game in that department.
As far as whether an individual home is priced fairly, a good starting point would be the rough pricing calculator we posted here, or a site like EstiMike. You should also compare the asking price to what similar properties in the neighborhood have sold for recently. Redfin is a good tool for this (uncheck all current listings and check only past sales).
In the end, the “real” value of a property is simply what someone is willing to pay for it, right? So if after studying the market you think a property is priced fairly, and you believe it strongly enough to commit $464,000 (the full cost of a $240,000 loan at 5% over 30 years), then I say go for it.
What advice do you, the readers, have for Novice? Have I missed something that needs to be considered? Let’s hear it.