Should You Buy A House?5.051

Now is the Time to Buy!

How many times have you heard that crappy slogan before? I think it should be changed to, “Now is the time to buy something well below your means if you can afford it.” Can we at least learn something valuable from our stupidity?

Buy Something Cheap

I haven’t made all of the best financial decisions in the world, but I have made a few good ones for an average guy. This time I looked at my rent cost of $1040/month and decided that now was the time to buy a bank owned home well below market value.

I am not talking about a foreclosure either. I am talking about an REO (real estate owned) home. These have already been through the foreclosure process and the banks are just sitting on them waiting for someone with average credit and a job to make an offer. There are tons of these homes out there and more get listed every day!

A Government Home Program

I purchased my home through the Fannie Mae Homepath program. I was short cash so I pulled a few thousand dollars out of my IRA (you can pull 10K out for a first time home purchase). I put 3% down and Fannie Mae paid 3.5% of the purchase price toward my closing costs.

I would like to say thanks for the deal Uncle Sam, but this doesn’t mean I will stop complaining about my taxes

Is it Cheaper than Renting?

The monthly payment for the 117K town home I purchased including the HOA is $1095. I’m in the 28% tax bracket so I get to write off $8,000 to $9,000 in interest payments at the end of the year bringing my payment down a couple hundred dollars to about $885/month at least for the first few years when interest is most of the payment.

You can find a good mortgage calculator and a rent vs buy comparison tool on Trulia’s website.

I also got a stellar deal. The asking price for the property was $125K and it will be worth that once I fix some of the cosmetic defects. The last person in the home paid about $330K! I can’t believe that the bank even took my offer on the property, but things are pretty ugly out here in Nevada.

Worth the Risk?

Like anything there is some risk involved with this (mainly I am confined to work in one job market and it could stay bad), but you have to have a place to live and there are not too many investments that Uncle Sam will heavily subsidize like this.

I got a low interest, low down payment loan with NO private mortgage insurance (PMI) from the government (via Fannie Mae). They also paid my closing costs and I am also getting a huge tax write off! This is an example of everything wrong and stupid with America and I am proud to take full advantage of it!

Most importantly, it is substantially cheaper than renting a decent place in my area.

We will see how this venture works out, but now is probably a really good the time to buy. You can find out more about the Homepath Program at homepath.com to see what is available in your area.