Dear MarketWatch,
I’m a 31-year-old woman living in Austin, Texas, who loves traveling and seeing the world but I want to begin my wealth-building journey after spending so much time abroad as an expat in my 20s.
I have a decent income making over $ 80,000 before taxes, have great credit, have enough for a down payment, and got pre-approved for a mortgage loan. I’m also in the midst of applying for another with a lower interest rate.
I’m nervous about closing costs and would like to try and have the seller pay that, if possible. I’m currently house hunting and looking to get the best deal for my first home, which will either be a condo or a single family unit, then “house hack” by renting the rooms. I know the interest rates are high, but house-price inflation is slowing down in Texas.
I’m putting 5% down and going with a conventional loan because the interest rate is usually lower. I have a good credit score so I don’t feel the need to apply for a Federal Housing Authority loan.
I also looked into down-payment assistance and would qualify in my state if I get an FHA loan with an interest rate at 7.5% with 2% assistance (1% assistance and 1% fee). My budget is $ 330,000, but I’m looking to go much lower than that with some of the new builds surrounding Austin.
My question: should I wait to get a house and stay in an apartment at the end of the year — or should I move forward and get my first property now then refinance when interest rates decrease?
Anxious in Austin
‘The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Aarthi Swaminathan at TheBigMove@marketwatch.com.
Dear Anxious,
It’s so great to hear that you’re investing in a home to build wealth.
First off, a cautionary note: If you put down less than 20% as a down payment, you will likely have to pay private mortgage insurance. You can stop paying it after your equity passes that 20% mark. Take that into account when you are making your calculations, especially given that you are nervous about closing costs.
Your main question, however, relates to whether you should wait and rent, or buy a home now and then refinance later. Prepare to spend anything from 2% to 6% in closing costs. The average closing costs in Texas is approximately $ 4,548, according to the personal finance website Bankrate.com. And, according to CoreLogic, refinancing costs in Texas are among the highest in the nation ($ 3,588) after Hawaii, New York and Florida.
If you are comfortable with that: do you have any other reasons to wait? If you see a home that you think is great, doesn’t need substantial repairs, is as big as you like, and has a great price — then go for it.
There are two big reasons why people are waiting: 1. Home prices may drop further, and they may get a deal or 2. mortgage rates prohibitively high, so they can’t afford to buy right now.
Home prices in Austin in January fell month-over-month by 6.3% to $ 450,000. That’s the biggest drop since July 2011, according to the Austin Board of Realtors. That’s good news (for buyers).
Plus, the market has shifted, according to Emily Chenevert, chief executive of the Austin Board of Realtors. “We see a market now where there’s more opportunity for buyers to negotiate a little bit [and] take their time to find the right home,” she told MarketWatch.
You hinted at not being concerned about mortgage rates, given that you plan to refinance later. Have a look at some of the promotions mortgage lenders are running that offer free refinancing down the line. For instance, Guild Mortgage is offering an opportunity to refinance without lender fees if rates drop in the future.
But read the fine print before you make a decision on these promotions.
You mentioned that you’re concerned about closing costs and want to try to have the seller pay that. Back in January, a report from Redfin RDFN, -3.72% said that a record share of home sellers were giving concessions to buyers — which includes covering closing costs. Have a chat with your agent (or homeowner if you’re dealing with them directly) and see how much room you have to bargain.
The idea you have to “house hack” by renting out the rooms is a smart one. It provides you with a steady-ish income stream (not sure if you’re short-term or long-term renting), which you can use to pay your mortgage. Plus, you get a little bit of relief while building your savings for your next home perhaps.
Just choose your roommates wisely, ask for professional and personal references, and prepare yourself: there are no perfect roommates.
Happy house hunting, and all the best for your search.
Additional note: This buyer ended up putting in an offer on the home between the time she wrote to MarketWatch and the time of publication.
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