First time buying a house, which is financially the smartest?

Question

I'm looking into buying my first house and I have a whole bunch of questions regarding that... I thought I'd throw a post out there to see if I can get any feedback or advice. My three main questions are...
1. New or Used house?
2. Small or big house?
3. 15 or 30 year loan?

I live in SLC, UT if that means anything.


When it comes down to buying a new house or used house I think they're even. If anything I'd might get a newer house. I read on some new rule starting in 2009 that they require the houses to be so efficient, so I think the oldest house I'd buy is 2009. With older houses you'll have smaller closets (could care less) and newer houses usually have the kitchen connected with the family room (to make it feel more open, since we spend the most time in the kitchen area). I'd honestly buy a new house with an unfinished basement. I'd tell myself I would finish the basement myself because I like working with my hands, but I dunno
.
The real question is big house, or small house. closing fees in Salt Lake City are around 2-4%, thats the only expense from selling a house to buy a different one right? Meaning a small house makes sense as long as the savings exceeds the 4% closing cost on your future bigger house.
4% * 300,000 = $12,000 (this would be the closing cost for a new house)

Looking around the internet I found these guestimates...

.55% homeowners insurance
3.5% 30 year loan (or 2.6% for a 15 year loan)
1% property tax
and like 500 dollar mortgage insurance a year, or something like that.
so basically 5%.
so small house that cost 200,000 *.05 = $10,000 year compared to 300,000 * .05 = $15,000... Meaning you're saving $5,000 to live in a smaller house. This doesn't include utilities, but houses are so efficient you'll save what, $25 a month from a big house to a small house?
So buying a small house will pay for the cost of closing fees on your future bigger house in (12000/5000) = 2.4 years. After that you're paying yourself $5,000 to live in a smaller house.

Lets pretend that small and big houses appreciate at the same rate. The big house obviously makes more money (or loses more money) since it cost more. Obviously. Heres a cool site that shows the average appreciation rate for houses depending on location

http://www.neighborhoodscout.com/ut/farmington/shepard-ln/#rates

farmington had 3 different locations, all with different rates, I chose the smallest one which is 4.7% (being conservative, which I still think 4.7% seems too high). If you think about it you pay 5% in insurance and other expenses while your house appreciates 4.7%, meaning you almost break even. Wouldn't say houses are investments, but a good way to.. save and sit on your money.
$200,000 dollar house in 15 years will be worth $398318,
$300,000 dollar house in 15 years will be worth $597477

The $5,000 would increase as the house increase. meaning you'd pay 105,488 in 15 years. Still showing the bigger house wins at $93671...

5000 is the difference between the 2. Since estimated appreciation is 4.7 and expense is 5% youre technically losing .3%. The 200,000 house youd lose 8813 total. Long story short i think youre appreciation of your house will break even with your expense of the house with a 30 year loan at 3.5...


With the 300,000 house youd lose 13220. Meaning it would cost you that much to live. The rest of the your money all youre doing is tucking it into a house.

So if you did a 15 year loan youd make .6 percent. Making 18,000 on a 200,000 house. If you sold after the 15 years (house is now worth 392650) 392650 * 6 percent for sellers agent is 23559. Youd lose money buying a small house on a 15 year loan and then selling to upgrade.


I guess with the small house problem i only calculated your position in the first 15 years. Once your house is paid off youre making 2.5 percent more. So 2.9 percent for 15 years is .... My brain is fried. an extra $213272 profit. But a dollar today is worth more than a dollar tomorrow, did I calculate the time value of money? FML


So basically, is it financially smarter to buy new or used? small or big (I plan to have a fairly large family so I know if I bought I small house I'd end up in a big house in 15ish years)? 15 year or 30 year loan?

Answer 1

STOP. You are over thinking this!



You purchase the home that you can afford and USE. There is NO reason to purchase a home larger then you need. Think about the size you will need in 10 years and buy that size today.



If you can afford the 15 year mortgage, then do this. However, the TOTAL payment shouldn't be more then 25% of your GROSS income each month. This total payment includes the loan, taxes, insurance, PMI and HOA.



YOu should be able to save at least 10% of your gross income each month.



You are assuming that the house will increase in value in 15 years. Maybe yes, maybe no.

Answer 2

Wow, no wonder you are confused. Your reference for appreciation rates couldn't be a worse example. And it doesn't take rocket science to see that a larger investment would result in a larger yield at the same rate.



When buying a house the most important issue is to find a house you like. It could be new or old, expensive or inexpensive and increase in value at a fast rate or not at all.



Generally speaking New houses are not necessarily more "efficient" than older houses. The things that make a house efficient include how much insulation it has and the quality of furnace/AC, water heater and major appliances it contains. New houses can be built poorly too. And some would say they built houses better 30+ years ago than the do today.



If you want some harder numbers about what kind of monthly and closing costs you will be looking at, you need to speak to a lender. And no one has a crystal ball offering information on how much the property in question will increase in value, if at all.



Ultimately you want to use the loan that will cost you as the smallest amount towards interest and closing costs. For example the shorter the term, the smaller the interest liability. And paying 20% down with allow you to avoid paying pmi. And don't forget about the interest tax deduction.

Answer 3

Suggest you get a few books on buying real estate. Your information is wrong as to age of home.

Your closing costs estimation is too low

You fail to mention how much CASH you have for a down payment.

What your annual salary is and how much of a mortgage you qualify for .

You need to figure the basics FIRST.

Not be worrying about resale

Answer 4

love your simple math. doesn't work in real world.



do some history reading of real estate especially

the last 5 yrs never mind the last 20.



your number are missing reality.



do read these , least our folks visit.



house buying kit for dummies, Tynsen.

Total money make over, Dave Ramsey.

so u can learn from others hard pain filled

costly life lessons/mistakes, not your own.

Answer 5

Pay in complete with funds (or cashier's examine) in case you extremely have it. whether that's invested in shares or mutual funds returning a a techniques better fee than your loan %, save you funds the place that's and function the fund pay your abode fee. you're making greater funds that way. while the overall performance of your investments drops below the loan %, sell them and pay off the abode. while getting a loan, be careful of outcomes for early and greater suitable funds. call for a loan which you would be able to pay off in complete whenever you like earlier the final calculated fee is due.