Housing purchase -- a factor to consider

[new faculty homebuying]

This won't apply to everyone, but many new hires will be looking to purchase a home after securing tenure track positions for obvious reasons: the income is guaranteed, the cost of property is absurdly low, mortgage rates have probably never been lower, and the cost of a mortgage is even lower than cost of rent in some cities now. One thing that people need to be aware of, however, is that lenders have gone so far away from practices that preceded the housing crash that they are now insisting that people who are fresh out of grad school must be on the job for 30 days before a loan is approved, even if one has the resources for a conventional loan (20% down payment and such). They no longer care to see signed offer letters indicating what salary will be, are obviously unimpressed by our current stipend salaries, and are suggesting that new hires should actually rent first and then buy a home and move afterward.

The one exception that I have found to this current policy was offered from my own bank, which agreed to allow me to close as long as I could put down 20% and still have two months of payments saved for every one month of elapsed time between closing and receipt of the first paycheck. If in position to take advantage of such an arrangement (and how many grad students truly are?), then it is worth it to find out if a lender is willing to do something like that.

Note that some universities may be running interference on stuff like this, and that some privates are even able to finance loans themselves at preferable rates, so maybe this becomes another way that well-connected public schools as well as private schools with high endowments are able to win recruiting battles.

[anon]

I am starting a TT position this fall and planning to buy a home. I'm going in May to look. I had all of these concerns, and was eager to talk to a real estate agent and lender in the area. I was told that the offer letter and accompanying verification from the university would be sufficient, and that I'd be able to close without having received my first paycheck or two.

And while putting down 20% would be fantastic, it's just not realistic in my situation. There are FHA loans and homebuyer programs that make it possible to put down far less. Yes, you end up paying for mortgage insurance as a result. But it makes buying a home possible for me and my family.

I just wanted to offer a slightly different viewpoint. I realize that everyone's situation will be different.

[maybe]

Feb 2, 2012 12:03:55 GMT -5 anon said:

I am starting a TT position this fall and planning to buy a home. I'm going in May to look. I had all of these concerns, and was eager to talk to a real estate agent and lender in the area. I was told that the offer letter and accompanying verification from the university would be sufficient, and that I'd be able to close without having received my first paycheck or two.

And while putting down 20% would be fantastic, it's just not realistic in my situation. There are FHA loans and homebuyer programs that make it possible to put down far less. Yes, you end up paying for mortgage insurance as a result. But it makes buying a home possible for me and my family.

I just wanted to offer a slightly different viewpoint. I realize that everyone's situation will be different.

For many grad students, I suspect that an FHA loan will be what most will have to go with in order to buy a decent home. Some universities (apparently, the ones that were quickest to emerge from hiring freezes and therefore note the changed landscape of mortgage lending) have preferred lenders who are more open to accommodating these situations than are others; the tradeoff is that they are likely to secure lots of business at a time when others are getting nothing if a university is hiring 150 new faculty members throughout its many departments. A friend of mine who was in medical school also told me that they have special arrangements that allow for favorable conditions for doctors who are moving in order to begin residency, e.g. the ability to not have outstanding student loan debt counted in the debt-to-income ratio for loan purposes, but I don't know if something like that exists on a broader scale.

Have you gotten preapproved yet? I suppose that would be the real test of how accurate the information you were given is.

[gkr]

I cannot imagine purchasing a home for a job that isn't actually permanent until after tenure (and thus, not really guaranteed income as the OP suggested), no matter what the market conditions are.

Maybe I'm extreme, but it just seems very presumptuous to me...not to mention the hassle it will cause if/when one were to decide they don't like it somewhere and/or they don't get tenure.

[drbearjew]

Keep in mind, with FHA loans you need to keep the house for a period of 3 years (maybe 5, can't remember off the top of my head).

[anon]

Feb 2, 2012 12:49:14 GMT -5 @gkr said:

I cannot imagine purchasing a home for a job that isn't actually permanent until after tenure (and thus, not really guaranteed income as the OP suggested), no matter what the market conditions are.

Maybe I'm extreme, but it just seems very presumptuous to me...not to mention the hassle it will cause if/when one were to decide they don't like it somewhere and/or they don't get tenure.

Maybe, but 1) I'm tired of renting, 2) I have a family, and 3) I'm moving to an area where home prices are very low.

[gkr]

I can certainly understand being tired of renting, but a "family" does not require a house, and there are many irresponsible purchases that are made because things are cheap.

I also appreciate that buying a house (or not) is a personal choice, and someone else's reasons for doing it do not have to make sense to me. I'm merely pointing out that none the reasons you listed point to the logical conclusion that buying a home is the only way to go.

[anon]

Feb 2, 2012 13:31:48 GMT -5 @gkr said:

I can certainly understand being tired of renting, but a "family" does not require a house, and there are many irresponsible purchases that are made because things are cheap.

I also appreciate that buying a house (or not) is a personal choice, and someone else's reasons for doing it do not have to make sense to me. I'm merely pointing out that none the reasons you listed point to the logical conclusion that buying a home is the only way to go.

I never said it is the only way to go. Nor did I say it had to make sense to you.

[ok]

Just think about the time frames and costs - buying a house makes a lot of sense if you will stay in it for over 7 years, or if property prices are going up steadily over time. Since condition 2 was violated in the recent crisis, and could be again, you want to be more cautious about that kind of bet. So if you're pre-tenure, don't buy the big ol' dream house where you have to stretch hard to lay out for it, buy a sensible smaller house that you can afford, and ideally, rent until you can afford a big down payment to reduce costs.

Also think about how easy it would be to sell if you ended up wanting to move or having to move. Will you have to take a major cut on the price in order to sell in a few years? Are properties moving well in the area, or could you be stuck with two mortgages (!!!!) if you get a newer, better job in 3-5 years? Will your mortgage terms or condo board allow you to even rent it out if it isn't selling? If you can rent it out, will the rent cover the mortgage? Will you even get good renters or will you have to constantly worry about them trashing the place? How much are you going to have to pay a management company to deal with the property, since you'll be away at the new job?

That issue of not being able to sell (or sometimes rent) is what I think about for the risk of buying when the market is volatile, as you would have to be offered a couple thousand dollars more a month to make a new job worthwhile if you aren't able to sell the old house. There are plenty of good reasons to buy a house, but the points I make above should make you question whether buying a house is a "safe" investment.

[renter]

I can see why owning is appealing. I find it appealing. But it's also completely nonsensical for most junior faculty. Not only is there the income/mortgage issue, but there's the mobility issue as ok points out.

If you might move again in less than 10-15 years, to take another job or if denied tenure or reappointment, then renting really makes more sense. Particularly as rents are fairly low in most places right now. Committing to being house poor before you even know if your new job is going to work out seems like lunacy to me. Wait at least a year and see if you like your job.

[not bad for juniors]

Feb 2, 2012 19:23:48 GMT -5 @renter said:

I can see why owning is appealing. I find it appealing. But it's also completely nonsensical for most junior faculty. Not only is there the income/mortgage issue, but there's the mobility issue as ok points out.

If you might move again in less than 10-15 years, to take another job or if denied tenure or reappointment, then renting really makes more sense. Particularly as rents are fairly low in most places right now. Committing to being house poor before you even know if your new job is going to work out seems like lunacy to me. Wait at least a year and see if you like your job.

There are a lot of variables involved, but home ownership is not nonsensical for most junior faculty. The income/mortgage issue isn't really an issue unless the housing market is expensive, and a mortgage payment on a nice house in a cheap market would be less than what I have paid in rent at points during grad school; I don't get why you assume that people would be house poor. If you are one who accepted a position because it was the best available and you are waiting to jump ship as soon as a better offer comes along, then renting is the obvious choice, but if you landed a good job and can see yourself there for some time, then this is definitely the time to buy. You NEVER know if your new job is going to "work out", even if you are a senior faculty member who was heavily recruited by a highly-ranked place, so academics would never own a home if such certainty was required.

On a related note, I do believe that buying a home does make more sense for someone who has a family than for single men and women, especially if the kids are school age. I have a family and am not at all interested in chasing rankings at the expense of stability, so if they adjust to my new location and are happy there, it will take a lot to get me to move.

Finally, if you are taking a job and planning for the eventuality of HAVING to move rather than wanting to, both you and the department did a terrible job of evaluating the match. There are a handful of departments at which earning tenure is incredibly difficult, but most schools hire with the intent of protecting their tenure lines and getting those new hires to tenure. Of course, you should prepare for success and adjust to shortcoming, not the other way around.

[just buy]

Feb 2, 2012 19:23:48 GMT -5 @renter said:

I can see why owning is appealing. I find it appealing. But it's also completely nonsensical for most junior faculty. Not only is there the income/mortgage issue, but there's the mobility issue as ok points out.

If you might move again in less than 10-15 years, to take another job or if denied tenure or reappointment, then renting really makes more sense. Particularly as rents are fairly low in most places right now. Committing to being house poor before you even know if your new job is going to work out seems like lunacy to me. Wait at least a year and see if you like your job.

Renting for 10 years is clearly a waste of money if one can afford to buy a house; even lost equity is better than paying someone else's mortgage with rent, and rent prices are higher than many mortgages in a number of places. The mobility issue is the bigger concern, but this is just another factor to consider; if you are looking to move, then you aren't worried about buying a house anyway, and if you are planning a long career in a place, then there's nothing terrible about saying "Thanks, but the offer doesn't make financial sense for my family" if another place comes calling. As the previous poster states, there is no sense in planning to be denied tenure, so assume that any move is voluntary and, therefore, optional and contingent on the strength of the competing offer.

[depends]

Sound advice if you're in a low cost area. But that doesn't describe most desirable (and academic institutions concentrated) urban areas of the country, e.g. Boston, Los Angeles, New York, Philadelphia, San Francisco, Seattle, Washington, DC.

Certainly, everyone should do the cost/benefit analysis and look at a rent or buy calculator (http://www.nytimes.com/interactive/business/buy-rent-calculator.html). But don't rush to buy for the sake of buying. All of the assistant profs I know are underwater on their mortgage, even if they bought in the last two years.

But again, you're screwy if you're taking financial advice from a sociology jobs rumor mill. Do your homework and your math (which should be easy if you didn't graduate from Berkeley).

[zing]

Feb 3, 2012 0:53:17 GMT -5 @depends said:

Do your homework and your math (which should be easy if you didn't graduate from Berkeley).

Zing! Well played, sir! *clap clap clap*

[financial advisor]

Feb 3, 2012 0:53:17 GMT -5 @depends said:

Sound advice if you're in a low cost area. But that doesn't describe most desirable (and academic institutions concentrated) urban areas of the country, e.g. Boston, Los Angeles, New York, Philadelphia, San Francisco, Seattle, Washington, DC.

Certainly, everyone should do the cost/benefit analysis and look at a rent or buy calculator (http://www.nytimes.com/interactive/business/buy-rent-calculator.html). But don't rush to buy for the sake of buying. All of the assistant profs I know are underwater on their mortgage, even if they bought in the last two years.

But again, you're screwy if you're taking financial advice from a sociology jobs rumor mill. Do your homework and your math (which should be easy if you didn't graduate from Berkeley).

I'd suggest consulting with a financial advisor on such a decision as this if possible; at the very least, one can get some smart advise about how much it should really cost to get a home, since banks often preapprove for more than people should actually want to spend. In our case, we were told that our finances were healthy enough that buying a house is what we should be considering (I have school-aged kids, so I am not going to hop from place to place destabilizing them just for department prestige, especially since we are well-compensated here), but that the amount that we were thinking of spending was actually too high if we wanted to have flexibility to do some other things financially that could benefit us in the long run. We have our own financial advisor, but a number of universities actually have this service available at a discount or free to faculty, so look into it.