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Comment by vsskanth | Hacker News Reader

Rents have risen so much even outside big cities that in some cases it's cheaper to just buy a Single Family Home (SFH), especially with low mortgage rates. In my area, it costs around $1600 to rent a 2BR2BA apartment in a good complex (no garage). 3BRs easily $1700+. SFH $1800+.

A basic 1800 sqft 3BR 20 year old SFH with a 2 car garage is like $365K in the same area with 8+ rated schools. Its even lower if you don't care about schools. This brings your monthly PITI+HOA ex-utilities to like $1600 a month at 20% down (slightly higher now with interest rates going above 3.5%). Nice 2500 sqft ones at $450K.

This is all in the past year. It wasn't this expensive to rent compared to buying pre-pandemic. My apartment rent went up like 15% when I renewed.

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I wouldn't discount the cost of maintenance, utilities, and taxes on a home, particularly for houses on the more affordable end of the spectrum. If you buy a house at a price point where you can't regularly absorb multi-thousand dollar surprises, you're going to be in a world of pain. Utilities are also much more than you'd expect when you live in a detached unit. Sure you can pay $1,600/month on a mortgage, but between insurance, utilities, and amortized maintenance, you'll be spending closer to the $2,500-$3,000/month range depending on where you live.

Completely agree with this. I bought last April and have already needed a new roof and a new water heater. These were not expected expenses based on the age of the home. For me it was an unpleasant surprise but not a big deal, but people who overextend to buy can end up in a very serious situation.

It's crazy what is gotten away with in CA real estate. Homes that were dirt cheap when they were built 100 years ago on rotting posts and piers that will just slide off with the next quake. Whenever we get the winter rains about half the neighborhood just throws a tarp on the roof; not much pressure to have a solid roof in CA it seems, or insulation, or a noleaky basement because there is no basement. People have no idea how terrible most of the housing stock is that they are paying north of $1m for here in CA, because its so competitive buyers are waiving inspectors.

That’s a self inflicted wound for most CA though due to difficulty permitting and building and lack of knowledge in how to do so. It doesn’t cost much more to build a house in a city or in the middle of nowhere and if it wasn’t so difficult in a city you would replace those houses right away.

So my calculation of 1600 a month includes everything except maintenance and utilities, assuming a $60 HOA.

Maintenance even if you assume $150 a month average still skews towards buying.

Average utilities accross the US are $170 a month.

And general rule of thumb for maintenance (which includes budgeting for only occasional but large expenses like roofs, furnances, water heathers...) are between 1% of 4% of the purchase price per year. At the very low end, that's at least $300 bucks a month, at the high end that's $1200 or more per month.

So you'd be looking at $1600 + (somewhere between $500 and $1300).

At least in NYC the HOA fees can be crazy. I have seen as high as 3k/ko for a 1.25M condo

insurance is included in the mortgage for 99% of people getting one. the rule.of thumb is about 1% of the home value in maintenance. and untils are usually combined 25-33% of the mortgage. I just don't see 2500-3000 on a 1600/m

Most people need a down payment to buy a home. Most renters don't have enough to make a down payment, I imagine.

edit: Wow, I'm probably pretty wrong about this. 3% loans are really quite affordable. Why aren't more people buying homes? Being a renter is total hell

I think that's the tragedy. It's expensive to be poor.

If you don’t have $50-$100k for a 20% down payment you’re poor?

No.

Your comment does not negate the claim that it is expensive to be poor.

That wasn’t my point.

EDIT: forgot the link: https://www.hud.gov/buying/loans

FHA loans can be 3.5% down ($14k on a $400k loan) and closing costs can often be financed (most of them, but usually not all).

There are also first-time buyer programs and other specialized lending options like VA (if you served/active), etc.

It’s also not always a good idea to start with an SFD where you are responsible for everything (roof, plumbing, etc). It’s easier to do a condo first and get the hang of it/build some equity. If you can do SFD in a given area for $400k, condos are likely half that or cheaper. Beats renting unless you need the ability to move quickly as selling can take a bit of waiting (unless market turns, and then you could be waiting a few years or have to sell at a loss).

In this market sellers will prefer all cash or a traditional loan over these.

Sellers will prefer cash or a stronger borrower in all markets when given the choice - that’s very relational to seek to reduce risk.

There are other ways to help craft an offer that could be stronger, including offering better other terms (usually not just the offering price).

Everyone is waiving contigencies and inspections and anything else they can offer already with their cash offer. IDK if you even have any cards left you could play in your hand with a weaker offer that won't also be played by the person with the stronger offer if they really want the house. It's almost like you have to luck out that no one is driving harder than you on the property.

What’s wrong with renting?

Aside from having to move if the owner sells, it’s pretty nice not have to think about maintaining the house.

Here in the sf bay (Marin sfh with two kids) our landlords just decided to sell. It’s been stressful, but we found a place that we like better for about the same rent.

The owners offered the place to us at a reasonable price, but our monthly payments would have been about double what we pay now, and we would have had to put 20% down. Prices have gone up 40% since we last moved three years ago but rents haven’t budged.

If you purchased 3 years ago your property would be worth 40% more. In SF you probably left a million on table.

I rented for 9 years in Beijing. An apartment that was technically worth $1 million for sale was renting for $1200/month, buying didn’t make sense at all in that market. Given the American market where rents are much closer to a mortgage payment, it makes much more sense to buy.

Because a seller is not going to take a 3% offer in this market.

Not really. You can get an FHA loan with only 3% down.

From reaching up to a 3% down payment, one owes and pays interest on 32 times their former net worth, for a home they are highly committed to. Paying it off may require an entire lifetime of work and obedience. Attempting to move will require the expensive and/or time consuming effort to find a buyer. I don't want to just be a complainer about it, sometimes life simply is that difficult, but it bears cognizance that this is an exceptionally tough spot to be in with or without access to debt.

but your offer will never be accepted. someone will offer more down, conventional, or even multiple cash offers. especially for homes in the starter price range.

The seller doesn't care about how much you put down. Cash offers will beat a comparable offer with a mortgage contingency. At the margin, sellers may compare equivelent offers based on how likely they think the mortgage is to be approved; but most buyers are pre-approved regardless of down payment or mortgage type, so this wouldn't be that significant of a factor.

The bigger factor sellers look at is how much money you offer them. At 20% on a conventional, you may be able to get your lender to wave the appraisal requirement, which would be a help if you try offering much over the list price (unless you also have the cash to make up the difference, which if you need the 3% down payment, you probably dont).

FHA loans are less attractive to a seller than an equal conventional loan because they have stricter inspection and appraisal requirements.

Sellers care about down payments in so much as they can gauge how serious you are about closing successfully. Everything else being equal (if the bids are the same, if not it doesn’t matter).

You can get a conventional mortgage for 3.5%

you can do conventional with only 3% too. your down payment has no affect on the offer chosen, the seller doesn't even get to know.

That's for sure not accurate. Sorry friend. The seller both sees your down payment and it also affects which offer is chosen.

Let me give an example to explain why they see it and why it's important. let's say that the agreed contract says that the buyer and seller agree to pay $600,000 for the house. Let's pretend that you have 10% down or $60,000 down. You need a loan for $540,000

The loan requires an appraisal to make sure that the bank (the loan) is a safe investment. The bank/loan only agrees to lend you the amount the house appraises at.

Back to the example and the appraiser comes out and says that the house is worth $500,000. In this case, again the signed offer says $600,000 with a $60,000 deposit.

The buyer either has to bring $100,000 to the table or the seller has to agree to make less money than the original offer (or some combination of the two) , but the bank will only give $500,000.

So if a buyer had a $100,000 downpayment and offered $600,000 and a second buyer offered $600,000 as well but only had $60,000, the seller would most likely choose the offer with more money down. it would be more likely to close.

Hope that helps

I sold a house last year in Washington and I saw the down payment amounts in the offers I received.

Some markets have home buyers picked based on earnest and Diligence monies. Usually these are applied to closing / down payment. In those instances it’s clearer.

How do loans help when desirable properties are selling for 10-15% above asking price in cash?

While technically possibly, it's harder in practice. And while talked about less, there are many other upfront costs than just the down payment; there are so many fees to actually close on a home.

And in warm markets (for get about hot markets like NY and SF), even an offer with 20% down is not pleasing to the seller. 20% or less down means that if the bank under appriases for whatever reason would cause a massive delay and/or cause the deal to fail.

For the buyer, many costs at this point or unrecoverable. Inspecting, lawyers, etc. This is a huge hit to a low income person.

It's not technically possible, it's pretty readily available. A real estate lawyer for a simple transaction is like 500 dollars, same with a basic inspection. You don't need the lawyer unless your offer is accepted.

In a warm/hot market, anyone with a mortgage is going to lose to someone with cash, so not really an issue.

Anecdotally from friends buying their first homes, very few to zero of them put down anywhere near 20%.

Exactly - where is that $60k-$80k coming from other than maybe the bank of mum and dad?

Everybody on HN makes $500K per year as a Senior Software Engineer with three years of experience.

only need 3% down for most conventional mortgages. I might be out of the loop, but are 2mil+ houses for first time home buyers normal outside of places like Manhattan or the bay area?

People usually save for their first mortgage. I worked for 15 years before buying my first house.

It's even more skewed than that because $600 of that is principal, so you're just effectively paying $1,000 interest net if you assume the house appreciates at $0. However we know long term it's at least the long term targeted inflation rate of 2% (and could be 7-10% for some periods).

There's got to be a catch, right? Otherwise people would be buying these homes and renting them out

Are there that many people sitting on $75K like that are renting?

I'm buying a similarly priced home via FHA in Texas, and my monthly payment on an FHA loan will be closer to $2800 (PITI + HOA + PMI) (only 3.5% down, the FHA minimum)

Texas has high property taxes isn't it ? My calculations are for NC. Taxes are like 2300 a year

Yes, most areas in Texas (each county sets their own) have well over double that of NC.

You're acting like down payments aren't a thing.

Consider the neighborhood. Cheap SFH are likely to be in ugly areas with poor walkability.

Walkability? Lol that doesn’t exist in 99% of the country

If you have money you can live in a walkable city. I can afford rent in a walkable area but not a condo/house.

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