Starter home or Forever Home

M

mary garry

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Myself and my partner are mortgage approved for 320,000.

We are considering buying a forever home (325,000) putting and extra 5 grand down ourselves. Will need 42 grand deposit for and hoping to borrow 278. Cost of interest would be 182,000 and 1270 per month in mortgage repayments for 30 year mortgage.


Other option would be to buy a house for 170,000. Pay off 900 per month over 20 years and save 400 per month. Reckon that in 5 years we would have 24,000 saved in addition to what we would have paid off mortgage, and we would hope that the price would have increased in value. At this stage we would hope to trade up to a forever home current market value of 350,000 type houses currently for sale.

In a complete fizz! If anyone has any insight into the best way to approach this i would really appreciate it. We are so confused!
 
In my view, one should always opt for the forever home. The property crash taught me that. If you're in a suitable property and its value collapses, it should recover over time and you're not too fussed. If you're in an unsuitable property and its value collapses, you have a problem.
 
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How long do you think it would take to save the €5k? you're so close to option A that option B seems very risky when lets be honest its not something you really want. There are a lot of potential moving parts here.

Remember with CBI rules as a FTB your deposit goes further than whatever money you have as a second and subsequent purchaser. You'll need 20% of a deposit when you come to purchase the home you actually want (compared to 13% on a €325K house as a FTB).

Given a modest rise in house prices option B might work. But have you factored in that your planned savings might get hit
  • when interest rates rise? 4 years down the line interest rates could be much higher and have eroded your ability to save €400 per month - in that situation you might not have enough in terms of a deposit for your new home. its going to be equally expensive for anyone who wants to buy your starter home. So property values might be negatively.
  • Your own personal circumstances change? kids might appear this could dent your ability to save. (or on the positive side promotions on the horizon?)
  • running costs of the starter home? property tax, house insurance, the cost of maintaining etc. over the 4 years, . Again your future savings could take a hit.
  • transactions costs (stamp duty and solicitors fees X2) and estate agents fees when you sell.

All of the above could lead to a situation where you are in a house you never really wanted for a lot longer than you had envisaged.


Its a mugs game trying to predict what will happen in a years time let alone four years.
 
Have you the €42k deposit?

Personally I'm of the view that you should buy the forever house as you are close to affording it.

Don't forget this is your home, uprooting you family in 5 years has to be given significant.

We bought on the edge of what we could get approval for and its a good choice.
 
How much are the legal fees, stamp duty, estate agent fees, etc., for buying two houses and selling one going to set you back for a 5 year term? That'll eat into your savings. Also if, as you're assuming, the current house will increase in value, then it follows the next one will two, and the gap in price will likely widen, meaning further cost. You'll likely spend more decorating the temp place, and so losing more in the short term.

If the current house you're looking at is a compromise, and you think with all those outlays you'll be upgrading in 5 years, it makes sense to hold off until you can afford it.
 
mary garry said:
Other option would be to buy a house for 170,000. Pay off 900 per month over 20 years and save 400 per month.
Click to expand...

Planning to save 400 per month for 20 years and actually being able to do it are two different things. I would definitely opt for the Forever home and even better, to use all / most of your money getting the location as good as you can and worrying about the decor etc later on.
 
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