I am in a rather unique situation.  I would like to buy a house, I am sick of throwing my money away in rent for a little apartment, I need the space of a house.

My story:
I am currently a 1st year Electrician Apprentice, I make 40% of top rate ($43/hr).  It comes to $500 take home a week right now.  I am 6 months into my first year.  One of the problems is that school is one day a week for half the year (starting next week!) so the next 6 months I will only be taking home $400 per week.  Of course next September I get a raise to 50% plus the normal yearly raise on top of that, but then 6 months later when I start school I will be losing 8 hours a week which will hurt again.  This will go on for the next 5 years until I become a journeyman and max out, which will probably be at about $50/hr.

Couple of important facts:
We have a rather large pension plus a very good annuity plan, so retirement savings isn't my current concern, I think getting a house should come first right now.
Work isn't guaranteed, buildings get built, jobs end, layoffs are part of the game.  Sometimes you go back to work the next day, sometimes you go back to work 8 months later.  Some residential side work is possible, but not to be replied upon.
I have no credit card debt or any other debt other than a truck lease of $420/month (more than a weeks pay for the next 6 months have
Knowing my situation, that I won't be making any real money now but I will in 5 years, wouldn't an interest only mortgage work out better for me?  My plan would be to pay whatever I can over the top, as the years go by and I make more money I would put that into the payment so it would work out like a normal mortgage.  BUT, if I was out of work for a long period of time, I could go back to paying the lower interest only rate.

What are the expert's thoughts?

rent.

You can lose everything and you are in a bad situation and honeslty getting a loan isn't going to be easy.
There's no reason you have to BUY RIGHT NOW.  sometimes renting is best, sometimes housing is best.
If you really can't afford to comfortably pay a regular 80/20 30 year mortgage, you probably can't afford it.
You have no idea where you are going to be working etc.  After a couple years and you are making more money, it won't be any kind of big deal.
Take that 30k and invest it somewhere and then you have a much better down payment, etc

Brian

renting's good advice, when you buy a house you'll spend $10,000 at least on new appliances like fridge, washer/dryer; furniture, etc etc.   You also have to consider yearly property taxes, insurance, PMI for your 0% equity loan.  If you live in a place with HOA you'll have HOA fees

In a good housing market (what city?) you can almost never lose buying a house.  Interest only?  So what, in many markets the housing prices are climbing at a steep rate,  you will make money, even if you cannot afford the house and have to dump it in the future.  Stop paying rent.  My first house tripled in price, my second one has doubled.  Even with interest only, you can't beat that with a stick.

In some housing markets, this would probably not be sound advice.

I'm getting advice from both directions here! hing

Quoted: You also have to consider yearly property taxes, insurance, PMI for your 0% equity loan.

I thought PMI would only be if I put less than 20% down?  I plan on putting 20% down so would I have to worry about that?

Something else:

Quoted: If you really can't afford to comfortably pay a regular 80/20 30 year mortgage, you probably can't afford it.

That's the thing, I can't afford it right now, but I will be able to afford it easier each year.  

I got screwed, I could have bought a house I really liked 5 years ago for $150K, but I decided to wait.  That house is now worth over $300K, as most houses in my town now are.  I don't want to wait and have houses continue to go up while leaving me behind, again.

If and I mean if you did what you said which is pay extra on top of the minimum for the interest only loan then it is not a bad idea. The problem will come when in 5 or 10 years it ceases to be interest only and it is interest plus principal. Will you be able to swing that? I know you say in that time you will be a journeyman but will you be employed??? That is the gamble. Personaly, I would wait but I am conservative with my money. Another thing, will you want to stay where you are at when you get your journeyman's license? Will you want to marry a girl that lives in Arizona? Hell you never know. If you decide on the interest only loan get a fixed rate and pay as much as you can on the principle, I mean make pay till it hurts. Good luck brother and I hope it works out.

I would wait another year or two at least, but if you find something you have to have now go with a conventional loan.  I would conserveatively invest that $30,000 until you are ready to buy.

Quoted: The problem will come when in 5 or 10 years it ceases to be interest only and it is interest plus principal. Will you be able to swing that? I know you say in that time you will be a journeyman but will you be employed??? That is the gamble.

Is that any different than any other person in any other line of work?  Can you guarantee you will be employed in 10 years?  
I understand where you are coming from and certainly appreciate the information.  I just don't see it as being different than anyone else, it's always a gamble.

One thing I never mentioned is that I was a journeyman carpenter before I switched trades to become an electrician.  I still hold my carpenter's book and can switch back if I had too, so I might even have more security than many other careers.  Of course I never plan on switching back, but it's there for security if needed, plus the extra skills could help with side work in the slow seasons.

I would conserveatively invest that $30,000 until you are ready to buy.

Take that 30k and invest it somewhere and then you have a much better down payment, etc

If I was to wait, where do you guys suggest I invest this down payment money?  This is NOT money that I want to gamble with, so right now it's sitting in an ING normal savings account at 3.80, I didn't want to lock it up in a CD cause I planned on using it.  So where should I invest the money?

Quoted: One thing especially stood out: Quoted: You also have to consider yearly property taxes, insurance, PMI for your 0% equity loan.   I thought PMI would only be if I put less than 20% down?  I plan on putting 20% down so would I have to worry about that?

You're correct, sorry, I tend to read stuff fast, glance over it, chime in, sometimes I screw up.  If you have 20% down you're good to go!

Can you build a house?  Is there property available?

Renting is ok. Invest in a high yield instrument of some kind until you are ready to buy.

Be smart....your work is going to introduce you to alot of people in the home building trades...look for forclosures. NJ muni bonds might fit the bill dependent on the interest rates.[shrug]

Quoted: Quoted: The problem will come when in 5 or 10 years it ceases to be interest only and it is interest plus principal. Will you be able to swing that? I know you say in that time you will be a journeyman but will you be employed??? That is the gamble. Is that any different than any other person in any other line of work?  Can you guarantee you will be employed in 10 years?   I understand where you are coming from and certainly appreciate the information.  I just don't see it as being different than anyone else, it's always a gamble. One thing I never mentioned is that I was a journeyman carpenter before I switched trades to become an electrician.  I still hold my carpenter's book and can switch back if I had too, so I might even have more security than many other careers.  Of course I never plan on switching back, but it's there for security if needed, plus the extra skills could help with side work in the slow seasons.

   I'd wait and save some more and rent.  Take a look at the BLS (Bureau of Labor Stastics), the amount of union labor has steadily declined over the last 30 years.  It is down to about 8% of total work.  I'm leaving the Ironworkers union, making $83/hour, because I don't want to go through life working and then being unemployed, collecting unemployment, and also supporting a union that financially supports liberal anti-gun politicians.
      Make journeyman pay, then once you get with a good company, and seem sure of future work, then buy.  Atleast thats how it works in the Ironworkers.  I started making journeyman scale after 6 months as an apprentice.  Can you get to top pay before the end of apprenticeship?

Quoted: Quoted: Quoted: The problem will come when in 5 or 10 years it ceases to be interest only and it is interest plus principal. Will you be able to swing that? I know you say in that time you will be a journeyman but will you be employed??? That is the gamble. Is that any different than any other person in any other line of work?  Can you guarantee you will be employed in 10 years?   I understand where you are coming from and certainly appreciate the information.  I just don't see it as being different than anyone else, it's always a gamble. One thing I never mentioned is that I was a journeyman carpenter before I switched trades to become an electrician.  I still hold my carpenter's book and can switch back if I had too, so I might even have more security than many other careers.  Of course I never plan on switching back, but it's there for security if needed, plus the extra skills could help with side work in the slow seasons.    I'd wait and save some more and rent.  Take a look at the BLS (Bureau of Labor Stastics), the amount of union labor has steadily declined over the last 30 years.  It is down to about 8% of total work.  I'm leaving the Ironworkers union, making $83/hour, because I don't want to go through life working and then being unemployed, collecting unemployment, and also supporting a union that financially supports liberal anti-gun politicians.       Make journeyman pay, then once you get with a good company, and seem sure of future work, then buy.  Atleast thats how it works in the Ironworkers.  I started making journeyman scale after 6 months as an apprentice.  Can you get to top pay before the end of apprenticeship?

$83??  Is that the whole package or just what's in the envelope?

We are stuck at the payscale set for us, we can't make any more than that until we come out of our time.  

I don't know if I'll stay with the union or not, but learning a trade is the main thing and the union will do a fine job of teaching me.

Try to invest in real estate at the same time.....you said you had 30k and 30k more from your parents. Put 10% down on a multi-unit apt building, say at least a 3flat and the other 2 tenants, pay for the majority of your loan, Dont put all the money down though have some extra lying around in case the are late. Also if you get in trouble you just refinance and skip a month. There are alot of options with real estate to make you alot of money, im trying to rent condos now i'll buy 2 sell 1 in a year, buy 2 more 9irs cant tax if you reinvest it and continue the cycle. check out realtor.com and do a search for your area.  Let me know !

also if this is your primary residence, you only need 3% down, most states, but look into that first.
Your money should work for you.

Stay FAR away from interest only loans!!!!!!!!  They are not in your favor and make it very difficult to build wealth.  

I'm no expert but when I read about interest only loans I was horrified at how bad they are for most people.  There may be a time and place to use them but I have no idea how.

YMMV.

The housing market has/will plateau this year.

If an Interest Only mortgage is the only way you can afford a house right now, then renting is the best choice at this time, in your situation.

House prices will not double over the next 5 years, they will likely be roughly the same.

Quoted: You can't be sure about the housing market.   I'm sure there are places where it will level out,  other places where values will drop, and still others where it will continue to rise. I'm hoping the values take a huge dive in my area, and soon.    Because I want to buy for myself. CJ

Shit, you guys would need a tsunami to slow that RE maket down in Fla, especially in So Fla.

Quoted: I despise renting in any way, shape, or form. Why rent when your rental payment can be toward ownership,  and building equity? Rent for three years at 1K a month, and that's 36K GONE. Make payments at 1K a month, and in three years you have 36K in equity.

BZZZZZZZZZZZZZTTTTTTTTT
WRONG
After 36k in payments you have about 3k in principal reduction.  most of your money went to interest.  And it's not necessarily true (although it has been for the last 10 years or so) that princiapl reduction automatically equals equity.  It is very possible (and probably a lot more possible than it was a while ago) for the value of your home to go down.  You could risk all this money and lose.  Ask people in Denver or Dallas in the mid 1980's. Ask people in Washington DC who bought in 1980 and tried to sell in 1990.
It can go down.
and it's not "different this time"

Brian

Happy to add my thoughts on the subject.

First, with the union electrician subject:  Please do not assume that you have a solid retirement.  Ask some of the union people at United, US Air, and soon GM, etc, about it.
 
My brother-in-law is an electrician in NJ.  He has been layed off every year for as long as I can remember.
One thing about the electricians union that I can commend them on is that they spread the pain around.  Even the senior members get laid off for some time.  That is good when you are junior, but bad when you are older and more senior.

Also, with the vast amount of immigration that is happening, I believe that the high paid union jobs will continue to diminish.  I'm not knocking the union, or the profession, just pointing out that you should not count on any of the forcast income or retirement projections.

Personally, I'm in the 5 year of furlough from perhaps the strongest union in the country.  Believe their promises at your own peril.  

As far as the interest only loan, I was against, but was converted and now have one.  My loan is interest only for 10 years, and then converts to a 20 year standard loan.  The interst is fixed at 6.25 for the whole 30 years.
Pros: The interest is low enough that it is barely above inflation.  You can use the saved money for other investments.  HOWEVER, you have to be very disciplined with your finances to stay out of trouble.

Cons:  You are most likely buying at the top of the market.  I know people have been saying that for years, but I know the NJ market, and I'm convinced.  Something like 90% of people are getting 80/20 loans these days.  Meaning that they are putting down virtually nothing on their houses.  That works as long as you can eventually sell it for more, but eventually the music stops and many people will be left standing.  Right now you are lamenting the gains that you missed out on by being late to the party.  "Better late than never" is an axiom that DOES NOT apply to real estate.  It may be smarter to sit it out until the inevitable "correction"  You could pick up a good house for 30% less then todays asking price.


Do not under any circumstances get a variable rate loan.

Do NOT count on future income projections.

Renting is much more cost effective right now.  Especially in the hyper-inflated markets. (NJ, CA, FL, etc)
Do your own research on this.  Compare the rent vs. mortgage on comparable properties.  
The reason is that everybody has seen the huge gains in the past 10 years and has forgotten about the corrections of the past (the late 80's was the latest one)


If you want some income stability, marry someone who works for the government, or in health care.  
No, I'm not joking.

Hope it helps.


eta- I just read the part about your parents offering matching funds.  If that is the case, then buy before they change their minds.

You should buy!!!

I am not sure "What if you get laid off?" is relevant.  You are going to have come up with rent money or mortgage money regardless or you will be homeless.  If you buy property in an area that people want to live, history shows that you always make money.

An interest only loan 10-year adjustable rate mortgage makes sense for you.

FYI:  I bought my condo in Downtown Dallas in 1994 for 52,000.  I sold it in 2000 for 105,000.  At the same time my stocks were tumbling in the .com meltdown.  I am sure most people on this board have had positive gains in their real estate transactions.

Quoted: You should buy!!! I am not sure "What if you get laid off?" is relevant.  You are going to have come up with rent money or mortgage money regardless or you will be homeless.  If you buy property in an area that people want to live, history shows that you always make money.

It is relevant in the sense that it is much easier to get out from under a rental contract, then a mortgage.  Especially when it is upside down.

Also, renting is 20-50% cheaper than even an interest free mortgage in that part of the country.

However, with as much money as he is looking to get out of Mom and Pop, I agree, it's a "Buy" all the way.  

I f you can buy a small clean house with maybe some cosmetic damage or things you can fix (since you are a carpenter)  that is probably your best bet.   small to family size housesare not as volatile in price  AS much as the mansions (or just plain extravagant) houses are.     You could get into a house for 300,000 (if your parents chip in their 30k) and you won't have to throw money down a hole (pmi).    Your house will appreciate if the regional market does well, and you will be reducing the debt on the house since it won't be to bad of a loan (240kish)   5 years ago out here 300,000 would buy a very nice 3 bed 2 bath house, now it won't touch it.   i mention that to say that i don't know what things sell for in your are (NJ?).    Since you like guns you should look for quiet neighborhoods with low crime rates and solid working class neighbors (this will also help your house hunting- they are good investment guidelines as well).  

garden state-    maybe you should have a little garden you can call your own, along with that nice house


edit- i agree you should only get a fixed rate loan and have at LEAST 20% down for anything you want to buy.

I have a home I live in, plus 2 income properties, and am getting ready to buy my third/fourth income property. So I know a little about it.


I would definitely buy now. You want to cap off the price of the house and stop it from rising on you, and keeping you from buying that same home in a couple of years. You want to start gaining equity through appreciation. If you can, you can also gain equity through paying down the mortgage, but an interest-only can work if you structure it correctly.

You say your parents are willing to give you 30k, and you have 30k? What I would suggest is that you let them give you 30k and you take your 60k and either keep it in a money market account, or use very little of it as a down payment if you can (only 10%).

You do not have to worry about PMI. PMI is for people who have no idea how to creatively structure financing. The way to avoid pmi is to get 2 mortgages.

I would try to go little or no money down. Get an 80/20 on your property (at most an 80/10/10). Keep the cash in the bank and live comfortably using the 60k as payments while finishing school and advancing as an electrician - and god forbid do not get happy and spend that money on frivilous stuff.

Like I said, I buy my properties with little or no money down and it works. You don't need to spend cash up front.

You do have to run the numbers and make sure the bills work vs what you can afford monthly. But with that 60 grand in the bank you shouldnt have any problems. And there is no way in hell a fridge and stove will cost 10 grand unless you are buying Sub-Zero and Wolf.

Tagging this trainwreck-to-be.

Good points have been made on both sides.  

I am personally leery of those interest-only loans.  If you can commit to putting a couple hundred in principal each month, then I wouldn't be as concerned.  But then you probably wouldn't need an interest-only.  Sounds like you have a good chunck of money to put down, but then again I don't know what houses cost in NJ.  You can buy a nice new house in the Dallas suburbs for $175,000.  Dallas hasn't seen a big run-up in the suburbs.  I expect NJ to cost a lot more.

I like owning a house compared to renting, but selling a house is a pain.  Historically, it has taken 3-5 years to break even.  With the recent increase in home values, I would guess it will take longer.  Many people take a big hit.  And you can't guarantee a price increase.  

The biggest problem I see over and over again is people maxing out their loans.  Then someone gets sick, loses a job, thinks they'll make more and they don't, or takes a lower paying job and they lost their down payment and sometimes still owe a lot of money.  Real estate generally isn't a very liquid investment.  I was pleased as punch when we started paying more in principal last year than interest on our primary 15-year loan and have enough to pay off the second loan (we did an 80/15/5).  Just some thoughts.  Oh, the safe investments are'nt making much now.  The short-term investment grade bond funds are barely pulling 2%.  I would expect that rate to increase since it appears that interest rate hikes are over or almost over, but who knows.  

You'll have to analyze your likelihood of making more, cost of homes, the recent increases, etc. and see what you are comfortable with.