When I was young I never gave this event much thought. I should have, but it was really my father who made me realize it was time.

Let's see, I bought my first house in 1979, so I would have been about 28. I had rented various apartments since the summer after my sophomore year in college and at the time renting made sense. After graduating from college I spent two years working for CMU's Computer Science Dept., then moved to Massachusetts and worked for a computer company, DEC, for four years in two different facilities. I left there in 1978 and moved to New Hampshire to work for a small company. When I started I knew they were planning to move to Amherst NH the next year so I planned to move when my lease ran out.

Dad suggested I consider buying a house, and came up with calculations to show why it was a good idea financially. We'll get back to that later, but the more interesting topic is why it was the right time to buy a house. Here's a list of indicators that suggest it's time to buy.

• Stable employment
  My time in Pittsburgh at CMU was always intended to be temporary. One of the reasons I went there was to see what living in a city was like. I never intended to like urban living (I prefer stars, bicycling on rural roads, and clean air) but it was a worthwhile experience. The extra years there were well worthwhile, but I was really ready to leave the steel mills and coal fires behind. My time at DEC was my first job in private industry, and I could have stayed there much longer than I did. When it was time to move to Amherst, I know I was going to stay with the job for a while and that the area offered other work if I needed it.

  My stable employment meant that I could expect to live in one place for several years.

• Money for a downpayment
  I had saved money to buy a car a few years before and had been saving since then for, well, whatever I would need money for. I had enough saved to make a sizable downpayment, over 20%.

• Steady income
  Lenders really want you to pay off your mortgage loan one way or another. They really don't want to foreclose and have to sell it themselves. One of the key things they'll be looking at is your current income. It used to be that if the mortgage takes about a quarter of your annual income they would be happy with that. These days they'll settle for a significantly higher fraction and some of the recent problems with mortgage foreclosures are due to that.

• A growing family
  This didn't apply in my case, it was just me. And a cat. Families with babies and small kids have trouble finding apartments, especially in areas that cater to the "mature" (read that as old fogey) market. However, as a family grows a house makes more and more sense.

• Marriage
  This didn't apply either, but many brides and grooms have found that moving into their spouse's home leaves them as a second-tier member of the household. Getting married and moving soon thereafter helps put the relationship on a more even keel.

• Location, location, location
  This old chant of real estate brokers refers more to sellers than buyers, but to me location is partially common sense and partially personal choice. If you find a house you really like, or perhaps just really like the spot, that may be enough to get you to stay put for a while. There's nothing wrong with snapping up an affordable place you really like, though you're more likely to find the spot after you start looking.

Dad's math looked at my projected income over the next six years and calculated what I would have supposing no investing, investing 20% of my salary in various stock and bond scenarios, buying a house, and buying a house of the same size but with an apartment to rent out. I responded by focusing on the math behind investments and mortgages and how the different terms would affect the total costs, but concluded I could afford a house and it made a lot of sense to buy. The house and apartment combination had the best return, but I settled on the house alone route. At the time, things like IRAs hadn't been invented, however, over the fairly short time scale they wouldn't affect the analysis much.

I still have Dad's papers, in large because I kept them with the papers were I saved some of the financial formulae I had to derive. (The derivations were quicker than running to the library or bookstore, today, I'd Google it or use a spreadsheet.) Economic conditions are so different today that there isn't much point in including them here.

"But, wait, a house is, like, forever!"

No it's not. It may seem that way now, but every year you get older, that year represents less and less of the percentage of your life. Those years will start speeding up, you have noticed they're doing that already. On average, people move every five years or so, so if you can see holding your job or being in the area for more than five years, buying may make sense.

By the way, you'll find that just the process of buying a house takes nearly forever. You'll be amazed at the fees and amount of paperwork to be signed and passed around at "closing," the meeting between buyer, seller, broker, and lenders to finalize the transaction. You really don't want to go through that often. Further, when you move from an apartment to a house you'll have place for more stuff and that will make the next move harder. You may want to stay in your house forever.

"Mortgage interest is a tax deduction - yay?"

Yeah, go ahead and say "Yay." However, don't get too excited. You're still paying interest and the tax savings will be much less than that. Property taxes are deductible too, but no one is excited about paying them. While you don't get deductions for rent, your rent would be higher if your landlord didn't get deductitions for some of his costs.

You'll also be paying utilities, maintenance and lots of other stuff. In fact, it's pretty easy to build a case against buying houses as an investment. You're much better off buying a house for the shelter and quality-of-life issues than as an investment. You'll probably sell the house at a profit, and that's very good, but think of it as shelter first and investment second.

One reason to use a substantial down payment is that if you do need to sell the house at a loss, you'll have a better chance of getting money from the deal. If you're such a "motivated seller" you probably need some money back at the closing.

"What sort of house should I buy?"

That's largely up to you. There are a few choices to consider.

• Small conventional house ("Starter home" in Real Estate lingo)
  I bought a smallish three bedroom house and kept one room as a spare bedroom and made the other an office. Nice, practical choice, pretty easy to sell when it's time to.

• Condominium
  If you don't have time to keep up with yardwork and related stuff that "just happened" at the apartment, consider a condo. Buying one essentially gives you rights to everything inside the paint on the walls and the condo association dictates how the rest is maintained by a property management business. The condo association is comprised of owners, frequently by people who have a strong idea of how you should be living your life. Learn what the monthly "Condo fee" is and try to get a sense of well the board coexists with the rest of the owners.

• Duplex house
  A duplex is a building with two residences, pretty much split down the middle. The idea is the owner lives in one half and rents out the other half to help pay the mortgage. The transition of going from renter to landlord can be rather interesting, but sometimes these work out well.

• Trailer, err, prefab home
  These can be surprisingly nice for a (usually) inexpensive choice. There are often problems with arranging loans, as most trailer owners don't own the land the trailer is on. Worse, in the lender's view at least, is that the trailer is mobile and they might have trouble foreclosing on it. I just noticed a web page describing trailers in Malibu that have sold for over a million dollars. Perhaps that's still inexpensive there!

"Before I buy a house, when should I expect to sell it?"

It depends on lots of things. Nothing is as stable as it used to be. One great stabilizer is having kids, as it tends to make you put down roots in the community so the kids can go to the same school system. Even then, as the family grows or begins to shrink when leave home for work or college, people can change homes within the town. About the only thing you can expect is that you'll sell it before you pay off the mortgage.

Contact Ric Werme or return to his home page.

Last updated 2007 August 1.