For the first time in our lives we're in a position to purchase a home. We're not sure it's worth it. We're planning for a 10 or 15 year mortgage, staying in our current job situation for 7 more years and then retiring elsewhere. Is there a way of calculating whether our selling price would net us a profit? 

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Its good that you are weighing the costs. If you Google "renting vs buying" you will find lots of calculators. I like the stuff on buying isnt always right,  especially at such a short time frame. Closing costs are thousands of dollars, and selling when realtors are involves costs thousands of dollars. 

If you are disciplined in paying your bills and financial obligations, I believe a 30 year mortgage is the way to go instead of 15.  The secret is to pay additional principal payments every chance you get.  Your interest rate will be slightly higher on a 30 year mortgage, but your payments will be lower which can take the pain out of making that mortgage payment if you run into some financial downturns along the way.  You are obligated to that mortgage payment no matter what the rest of your financial life is doing and you can up in foreclosure if a time comes you cannot make a payment. 

I understand the theory about as little interest as possible in the banks coffers, and I understand the norm advice is to take out a 15 year mortgage over a 30 year.  However, unlike a car payment, your mortgage payment is going towards an asset that, in most cases, appreciates as you own it.  If you can make those additional principal payments to pay down the loan as you go, consider your options on having your money work best for you. 

This is great news but please look at all angles, including the cost of maintaining a house and the property around it. Please make sure that any home you purchase, you have a home inspection, maybe 2. Because you are a 1st time buyer, you may find help with closing cost and home inspections. It can cost thousands for closing cost, any repairs still needed to the home if it a fixer upper, etc. There are several sites that can assist with calculating net profit, you may check this Penny Hoarder for info on calculating a mortgage payment. Also, just fyi, I could be incorrect, but if you check real estate sites on the house you're interested in buying and compare it to the cost of like properties, you can determine if you are buying with equity or not.

The reason we're going with a shorter term loan is we're older and would like to see an actual return on our investment. We plan on being in this area for about ten more years, then resell the home and retire. A fifteen year loan, (over a ten year), would allow us the wiggle room you encourage. We hope to throw any extra funds towards the principle, thus effectively shortening the loan's term a bit without the pressure. 

If you're planning on retiring in 7 years and moving, personally I would go with the unencumbered life of rental, avoiding maintenance and upkeep.  Unless you want your own space with land.  If so then purchase, but do so in an are with great resale potential.

I agree with the above response, due to the short timeframe, you might not have enough equity to make a profit. If your 7 year plan is definite, I might suggest you put your house buying money to better use, like a Roth account, for a more comfortable retirement. Good luck!

Olivia posted:

For the first time in our lives we're in a position to purchase a home. We're not sure it's worth it. We're planning for a 10 or 15 year mortgage, staying in our current job situation for 7 more years and then retiring elsewhere. Is there a way of calculating whether our selling price would net us a profit? 

I would rent and place the extra money in a place that it can grow.  By the time you figure in closing costs, maintenance (dishwasher needs a tune-up), repairs (crap, we have a leak in the roof), upkeep on the property, and then realtor fees when you sell the house (6%), you may barely break even.  Also, if we have a market downturn around the time of sale, you may have to bring earnest money to the table just to get out of the loan.  

You are paying homeowner's insurance, usually one year upfront, on a mortgage loan.  You have property taxes.  You have escrow and the possibility of escrow shortages.    There are a lot of factors to consider.  Don't make the decision lightly.

I think it would be easier to save the money and invest it, pull the money out when you get to the place of your dreams, and get the forever home you want.

I think buying a good home with a 15 year mortgage is definitely the way to go as long as you have checked a few boxes first:

-3-6 months of expenses saved

- No debt

-Staying in the home at least 3-5 years

-Mortgage is less than 25% of your take home pay

My wife and I are 34, and recently built our 3rd home.  Our first home was purchased in 2007 at the peak.  It took 7 years to get back to where we had some equity in it using a 30 year mortgage.  Our second home was on a 15 and we were in the home 4 years.  It is amazing how much more principal you pay using a 15 year mortgage.  We hope to have our current home paid off before we turn 41.  If we didn't own a home, and have a 15 year loan, we would be putting so much less each month into principal, which is basically just a big piggy bank.

I think it depends upon where you live and how the rental market is at present.  I live in southern CA and it’s a landlord’s market—the rents go up considerably every year.  Landlords also decide to sell the house quite often—people are forced to move almost every year it seems.  I was lucky to be able to rent for 3yrs straight without rent going up, but then the owner wanted to sell the house so we had to move out.  I decided to look for permanent housing (buy a house) and in the long run, this was a better deal.  The house literally next door to this one, which isn’t as nice or fixed up/new, was renting at the same amount my mortgage is at present.  I was going to rent, not buy, that same house (was considering/deciding last year)  but I’m glad I bought, because the neighbors next door had to move out a year later—the rent went up too high for them—and then the owners have now decided to just sell the house.  I wanted to provide stability to my son since we had moved often during renting, and prevent having to keep paying more each year for the same accommodations, so I decided to buy, within my area—it made sense.  You need to weigh all the variables of the market in your area, and then decide what’s best for you and yours.

Someone suggested we save the "extra" cash above what we pay in rent and invest it. There is no extra. It's either rent/or pay a mortgage.  Someone else suggested we have a 3-6 mos. cushion saved in addition to the down payment. That was very helpful. We have the other ducks lined up, but we'd be pretty much putting the whole shebang into a down payment. Thank you all for giving your different perspectives. A good bit to mull over. 

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