Getting cold feet on my purchase. Advice?

Question

Hi all, we won an offer on a 335K townhome in Houston close to the heights area (Airline Drive so not exactly heights but nearby). It has been my goal to purchase for a long time and I am of the camp that I’d rather purchase in a high interest rate climate than run out of options during low interest rate bidding wars climate. HOWEVER, I cannot ignore the fact that the majority of your initial payments go towards interest rate and don’t help to build as much equity.

I can afford my monthly payments of course, but it does make my budget very tight of course (I was renting at 1.2K and monthly payment will now be 3K). I still have the option to back out, but I’m here posting so someone can knock some sense into me or give perspective that buying is still a smart financial choice because it will ultimately help build equity.

My second concern is that although location is great, it is a townhome at the end of the day. With loads of townhome supply coming, I wonder how smart this decision really is. I’m back tracking on all my reasoning that ultimately made me decide to buy but I wonder if I’m thinking out of fear. Any thoughts?

property address is on redwing ridge street FYI.

Bryan Johnson · Answer

As a lender, I'm having these conversations every week. You are not alone in feeling cold feet, so hopefully that makes you feel a little better. Now with that said, I think it's important to get back to your personal budget, and make sure you are doing what's right for you. The tricky part is you will be getting opinions from all types of people right now.. including myself. lol So again I'd take a hard look at your budget and ensure you're ok. Yes, the rates are higher and it's not always ideal, but like you said, the silver lining is your able to go secure a house right now without a massive bidding war. Hopefully rates come down in the next few years, and those that haven't bought will be battling again, and you will be able to knock out a refinance with no hassle. I do believe owning real estate is a massive win compared to renting, but again you have to feel good about it at the end of the day. Congrats on the house!

Dan Nelson · Answer

@Amna Khan Amna, this happens a lot.  Taking this first step is terrifying.  I waited 10 years to buy my first property.  And when I finally did, I eventually got a loan on that property And bought two more. While I cannot know exact details on your financing, you are in a strong market and it is highly unlikely you will regret it.  It is much more likely that you will be like me and wishing you did not buy more earlier.

Amna Khan · Answer

I'm so pleasantly surprised by the number of people who responded. This community is amazing! I genuinely appreciate all these opinions. As a first-time buyer it can feel daunting, to say the least.

A theme I'm seeing in the responses is that I need to be comfortable with the monthly payment. It's a big jump, and that's because I was living in a 1 bedroom and my townhome is a much bigger two bedroom property. Am I COMPLETELY comfortable with the payment? My honest answer is no, because I would much rather have that extra $1,800 to spend on travel and to be able to buy nice things and to live a bit more relaxed. But I can afford it with some monthly savings leftover. I've already budgeted for it. I think it's just a bit uncomfortable to go from saving a lot monthly to saving a bit less. Having said that, I want to start my journey towards building equity through real estate. Could I fall face first? Always a possibility, but I really genuinely hope this is a first step to an amazing real estate journey.

PS: I am expecting a promotion soon. I am not basing any decisions on that, but it would definitely be a perk until I can refinance, assuming rates come down within the next two years.

Thanks again, all!

Lee Hampton · Answer

@Amna Khan

You seem to have a good handle on the situation.   I can’t disagree with anything you have articulated, you are on the right track and going in the right direction.   My perspective:  I am a builder/developer. I recently built and sold two homes 1 block north of the property that you are considering purchasing, Idylwild St. They are the only two new houses on that street and back up directly to your town-home community.   The area is rapidly changing for the better, I started buying there in 2019. Bottom line, the area has positive momentum, so the downside is low and there is upside to your purchase. However, there are properties in the area with much higher upside. The single-story older homes just off airline are a great buy. They have huge upside because land values will continue to trend higher in the area. You also don’t have to deal with escalating HOA/Maintenance fees. And you obtain something that is becoming increasingly rare, land inside the 610 loop.  They have now branded the area as Greater Heights, a major hint as to the direction of the area.   Good Luck!

JD Martin · Answer

Well, you have a couple of things to make sure you understand:

1. Can you afford the extra payment? Just because the bank says you can afford it doesn't make it necessarily so. You're going from $1200 to $3000 which is a pretty big jump for most people AND you are now responsible for all repairs and maintenance instead of your landlord. A lot of new property owners disregard that second part. Earlier this year I was talking to a former tenant of mine who finally bought a house last year and she told me she ended up having to put a roof on her new purchase and just about fell over dead when she needed to come up with almost $10k for the roof.

2. Is your new home in an area that has the hallmarks of appreciation? Do townhomes appreciate where you live? Do you plan on owning it long enough for the purchase to make sense (usually at least 6-7 years for a typical owner-occupy, maybe less if you plan on renting it out)?

3. Why do you want to buy in the first place? If it's because you've been told "renting is just throwing away your money" I suggest re-reading #1 above. Renting is not just throwing away your money. For some people in some situations renting is the only financially logical course of action. If it's because you've been told that owning real estate leads to wealth, well that is true when it comes to investment properties (that you rent to others) and may or may not be true when it comes to a house that you live in yourself.

4. What do you currently do with the extra money that you don't spend on the mortgage ($1800)? If you spend it on strippers and blow, as the old saying goes, then you're probably best off buying the townhouse. But what if you were putting that money towards an investment property that you then rented out to someone else? Or investing it in 5% treasury bonds? ETC. There's always an opportunity cost with money.

If you can think through those questions and answer them honestly you'll have your answer on what you should do. I should say it's normal to get afraid when you are buying your first house - it's a massive financial decision - but it's also normal that you should probe that fear and understand if it's just the fear of the unknown or your instincts telling you that you're making a mistake. I've made the mistake of ignoring my instincts before, much to my detriment.

David M. · Answer

@Amna Khan

Yes, its a big purchase...  Yes, per the amortization table most of your payments will go towards interest, first.  For better or worse, thats the system unless you want to be contrarian about how much the "system" "cheats" you since you will be paying more interest per payment for I think the first 19years  -- omg...  But, its this or the alternative of actually having a very large pile of cash on hand.

In general, buying is "good" to build equity.  Honestly, buying now may not be well timed since its the relative height of the market right now.  But, nobody knows if the market will continue to go up or down... (shrug)  So, you do the best you can.

Potentially some time in the future, you could refi to a lower rate...  You might even just move...

Perhaps because its part of the "American dream," at least homeownership will lets you do whatever you want in your own home.  What's that worth to you??

Make sure you really are good with that big jump in payment...

I do NOT know your market.  So, the townhouse could be either way...  If another covid-type event comes around, the townhouse community won't be going as well...  But, with the aging society and its reported so many are moving to TX, townhomes are usually where people downsize... (who knows..)

Hope this food for thought helps.  Be happy to chat.  Good luck.

Ray Hage · Answer

If it makes you feel better, 100% of you $1200 rent payments go nowhere so at least the money you are paying now will go to build equity. I am assuming that the $1200 was for a 1 bedroom apt? And now you are paying more because your place is much bigger or a much better location. I am not familiar with your market but if you are in a great location and demand stays high, I wouldn't worry much. If you plan to live in the TH for the long term (let's say 7-10 years), I definitely wouldn't worry much.

Every property I have ever bought, I have had cold feet and/or regrets about....and guess what, I am doing amazingly well so it could just be you are overthinking/overworrying like I was. Try to think objectively about it and I bet you will be happy with your decision. When you refinance after the rates goes, your interest portion of the mortgage will do down a lot as well so cheer up!

Wilson Auyeung · Answer

Is it an equivalent size? same number of bedroom? It is a huge difference in monthly expenses, at least you have control of your living space. Landlords can increase the price and maybe in the future that 1200 rent would become 3000 rent. Being a homeowner does come with a few set of responsibilities but for majority of people, we need to know how to care for a home and how to repair or who to call. Its your place to live and you can sell it if you don't want it in the future. Best of luck!

Taj Akinbode · Answer

@Amna Khan

Experiencing cold feet is a common feeling in real estate investing, especially in a high interest rate environment such as the current market cycle when the numbers / deal analysis can be tight. It's essential to take action when your analysis makes sense provided you’ve done proper due diligence.

The increase in debt obligations to more than twice your current rent may be a concern. Have you asked your agent to provide market appreciation data for the past few years? While not exact, this data can offer valuable insights to inform your decision.

Hope this helps.

If you need further assistance, feel free to reach out.

Getting cold feet on my purchase. Advice?

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