Buying a Home Without the Money
Buying your first place is stressful enough, but trying to buy it when you don't have the money is even worse. (See also: What It Really Costs to Own a Home)
I recently confessed that I don't have the 20% down payment for the place M and I want to buy. Coming from someone that writes about personal finance every day and tries to get other people to be more responsible with their money, it makes me feel like a hypocrite.
In my "confession," I justified my decision to buy by acting like a child: "because I want to." Upon further review, I actually have some decent reasons.
The Case to Buy
Mortgage rates are low. We're talking historically low. Less than ten years ago, people were buying homes and paying up near 10% in interest. Which is crazy compared to the 5-6% you can get right now.
And only a few months ago, people were refinancing left and right at rates below 5%. Over the life of a 30-year, $250,000 mortgage, you'd pay $261,000 in interest at 5.5% vs. $410,000 at 8%. So the rate matters quite a bit.
Prices are low. The housing bubble has popped and prices are coming down all over the country. You've probably read all about it on the news, but I've actually seen prices come down over the past year.
Listings M and I looked at a year ago have come down quite a bit, and they're still coming down as some people are desperate to sell.
The Obama tax credit. Until the end of November, first-time home buyers will get an $8,000 tax credit that they don't have to pay back. Pretty sweet, right?
I asked for advice on this a few weeks ago, and most of my readers pointed out that $8,000 is peanuts compared to the amount of money you're going to pay over the life of your mortgage. And I agree. But it's hard not to see this credit and pretend you're just knocking off almost $10,000 off the purchase price. The credit might get extended so that might buy people some extra time.
Equity building. The sooner you start building equity, the better. Although we like the place we're renting right now, it does feel a little wasteful giving all that money up every month knowing you'll never see any of it again.
I like the flexibility and safety of renting (I don't care if an appliance breaks), but I want to start building equity as soon as possible.
Bottom Line: To Wait or Not to Wait
Buying a home without having the 20% down payment is not a financially sound decision—I know that. The thing is, these are not financially sound times. If it takes M and I another year and a half to save up the money to go from 13% to 20%, we could miss the boat on the low prices, low interest rates, and the time to build up our equity.
By then we might not be able to afford the places we can afford today.
Are these good enough reasons to break the 20% rule or am I just another home buyer getting in over his head?