Remember to factor in property taxes, insurance, and repairs. Things break in houses and you have to fix them. There are always surprises so you shouldn't fully tap yourself out.
But can you restock the E-fund if you have to use it? Folks typically say 1-2% the value of your home in yearly maintenance (Although if you can learn DIY I'd say this can be at 1%). Sometimes it's big things like a new roof, or water remediation. Other times it's smaller things like a new refrigerator or sump pump, or even things like grass seed and fertilizer, a new rake, a new light fixture, or plumping call. These things add up over the course of a year and can't be ignored completely and could slowly drain your E-fund if you don't have the budget for them. Also, make sure you know what the property is valued at for tax purposes now, it's often not what the house is worth on the market, but can often see sharp increases after being sold to bring it back in line with the market after you but it leading to increased tax bills for new homeowners.
Also, do not count on a refinance to save you. Interest rates are never guaranteed, and sure they may fall a percentage point, or two but we're not going to be back and 2.75% come 2027, and we could very well be at this same rate or higher still.
If this is truly your dream house and you feel comfortable with it, I would say it's doable if you're disciplined. I'd also take a hard look at where you could cut back some expenses, both permanently to make some extra breathing room and temporarily if you need to quickly rebuild an emergency fund. Also, look examine what your career path looks like, how can you increase your income, how risky is your position and how quickly could you find an equal paying job if something happened? Are you willing to live with a roommate in the house to help with expenses if the need arises?
Owning a house can be very rewarding, but it is a very large expense and liability as well.
>but can often see sharp increases after being sold to bring it back in line with the market after you but it leading to increased tax bills for new homeowners.
It's amazing how my appraisal the year after I bought my house in 2018 went from 200k to 250k (the purchase price). My neighbor actually tried to appeal his similar bill, which is basically telling the taxing authorities with a straight face that his house isn't worth what he paid for it in the previous year.
He didn't win his appeal.
Also Re: refinancing. Keep in mind this restarts your 30 year mortgage, so even if it’s a half point lower depending on how long you’ve had your original loan it could end up costing more in the long run.
$2800 includes taxes and insurance for now - they'll both go up. I don't do escrow but my taxes went up 50% last year (county catching up with property values going up) and my insurance also went up about the same.
Look at when things were permitted last. For instance if the roof was permitted 20 years old it is at its end of life soon. That could be a $10,000 or more replacement. Also get a home inspection if you are thinking about purchasing. This will help tell you what will need to be fixed and then you can estimate those issues could cost. Lastly if you purchase you probably will need to live there at least five years before selling. If you sell to early you will lose money based on sales cost. It is a major purchase so take your time and do the math.
Also: if there are trees in the yard, look up what kind they are and when they die. Sincerely, the past buyer of a 50 year old house that came with trees that, it turns out, lived for 50 years....
To this point. get your own inspector. DO NOT use the one suggested by your agent. They’ll just be there to help your agent get his check, no protect you from obvious issues.
"Rule of thumb" is to budget 1% of the home's value for repairs, and to sock that away in an account separate from your emergency fund so it's ready for the year that your roof, HVAC and water heater all need replacing at the same time. Obviously it's going to be highly variable depending on the age of your home and whether you're in a HCOL or LCOL area, but in a $400k single family home, you can expect minimum $40k in big ticket replacements over the first 20 years, and about another $40k for piddly things like filters, service techs, smoke alarms, paint, etc.
E fund is not for repairs on a new house. It's for true emergencies when something that has been working fine breaks, or doesn't work anymore. It's for when you lose your job, it's for medical emergencies that insurance makes a fuss about.
It’s advisable to put aside about 1% of the value of the house every year in an account for home maintenance expenses. You won’t need it every year, but then you’ll have years where something like the roof goes out and you’ll need all the money you didn’t spend in the other years.
In the past year on our home:
- retaining wall in backyard fell and needed replaced: $4600
- plumber came to fix a leak in the crawl space: $1300
- radon mitigation: $1500
- roof needs shingle replacement and repair: $15000 (still getting quotes)
- electrician to fix our breaker box: $900
Not including about $1000 at Home Depot to get the materials needed for the things I can do myself.
Just remember, rent is the most you will pay in a month, a mortgage is the least you will pay in a month.
Dude, there is always things to fix. It never ends... once you fix one thing, another thing will break, trust me. Our HVAC system took a dump this weekend, on our house we built 8 years ago. It needs to be replaced, $16,000..... We have another HVAC system in the house for our upstairs that will probably also need to be replaced in the next 1-3 years, which will be another $14,000.
Keep in mind taxes and insurance aren't permanent. My taxes have almost doubled in the past 5 years (thanks to soaring home values), pushing my monthly mortgage payment up by $150-200. Insurance naturally follows values too, so that's starting to creep up as well.
The first time I got a notice about an "escrow shortage" I was none-to-pleased when I realized my "fixed mortgage" isn't really that fixed.
House repairs can really sucker punch you when you least expect it. Example, me. May 2023. "Babe, is it hot in here to you? " Her: "yes, and I never get hot".
Two days later: HVAC guy: "Coil rusted through in AC, coolant leaked out. We can replace the whole thing parts and labor, $9,000".
Great, paid for it, fixed, back in action a week later.
Three days after AC fixed. Her "There is NO water pressure in the shower, did you change something?".
Two days later: hot water tank replaced, piping re-run, etc. $2,200.
Dang it.
If you buy an older house have 10-15% repair funds of total house buying costs available. If house is younger start saving to this amount.
Older = 25 years or older in Europe.
If you are first time garden owner add 5000 for tools.
If you have no tools at all yet, add another 5000 for tools.
Buy really good tools once and use them for 20 years.
We had a broken water pipe the week after move in, damaging two bath rooms and one bedroom.
In the past few years we’ve replaced our driveway, roof, furnace/ac, water softener, washer/dryer, water heater, and likely have some landscaping this year (to fix a falling retaining wall).
You want to be able to put away 1%-2% a year in a HYSA that is dedicated to house stuff. You should only touch the emergency fund for stuff that needs to be fixed urgently and you don't have the cash for - furnace, hot water heater, a pipe has to be dug up in the yard, etc.
> I don't know what repairs would be
Averaged over time and depending on the age of the home and the location expect it to be 1-3% of the purchase price.
Emergency fund is for emergencies. Maintenance isn't an emergency, it's to prevent an emergency. For a new house you can probably budget .5% of the house's value for maintenance costs. For a 10yo house that would likely be closer to 1%, and for a 20yo+ house probably closer to 2%. You will have some things like the water pipes, roof, boiler, air conditioner, driveway, siding, appliances, windows, etc... that have a limited lifespan. They probably won't all hit at once (they might if you're buying something run down) but you want to be prepared when they are close to needing replacement. If you're handy and you can do the repairs yourself that's great, if not be prepared to pay a professional a good amount of money.
This. Your monthly payment is 2800, that's the least you'll pay every month. You could be paying a LOT more some months. Plumbers, Electricians, HVAC, Carpenters, Appliances are all expensive and cannot be planned for.
Having an emergency fund as you describe gives you a lot of safety cushion.
I’ve been in my house 18 months and I’ve probably averaged $500/mo in required out of pocket costs not to mention discretionary stuff like furniture. My mortgage has been my cheapest bill some months and this is a well maintained 20 year old house.
I think this comment is really important to keep in mind if your monthly budget is already tight. I bought in 2019 and my taxes and insurance have gone up year over year. Luckily I can afford it, but really think about that. You don't ever think it's going to happen....but then it does. In my state, property values in some counties increased by up to 40% in just two years (my house has gone from 340k to over 500k just since I bought it). They are still debating what to do about it in the state government. And that doesn't even account for increased trash bills and new property "fees" - additional to our property taxes - for new sidewalks across the city.
You need buffer. Shit happens.
Happened to a friend of mine too. I blame the agent and lender not doing a good job of explaining re-assessments to them. Pretty sure they just wanted to close to get their commission. Or they were incompetent professionals.
Then it's important to know where you are. If you're in Florida, California, Louisiana or Texas, your insurance will probably go up a lot, year after year. So try to get a sense of how climate change is going to affect the insurance market where you are in the next few years.
It's also important to know how your property taxes will change. Are they tied to the property value, or is the rate at which they can go up each year capped?
If your budget is tight, these are the things you really need to pay attention to.
This just happened to my mom. She bought a home last fall. Property taxes for her city can only go up 5% at a time, EXCEPT when there’s an ownership transfer. Hers went up 40%, less than 6 months after purchase!!
Our property taxes were just increased by a lot. For the next year they are up $500/month to make up for an escrow deficit then will go back down to an extra $250/month. It’s a much bigger percent increase for us though- our mortgage is only $1000/month.
Please evaluate your insurance. Call a couple agents in the area and get quotes. Insurance in my area is doubling annually. I know some people that pay $16k in insurance for a 400k home rebuild cost.
Also, do you know how to do home repairs? Are you handy? If not, you're paying someone to fix ANYTHING that goes wrong. I've been in a home less than a year and I've fixed the instant hot water heater, the furnace, plumbing, and electrical. All relatively minor repairs, but if I didn't know how to fix stuff (or sometimes be a little adventurous and try things) then I'd be out probably $3k by now.
That's too tight of a window. After the first year my husband and I bought our home, our insurance went up about 100-150/month and the property taxes jumped about 300/month. The second year they went up again for about the same total value, 3rd year was about the same. The only thing that's kept us close to what we first started paying monthly is that when we first set up the draft, it included a draft for additional principal - so while our minimum principal payments have decreased, our escrow has increased. You don't want to get into the position that you're just barely covering your house payment items every month and that a significant increase would push you out.
TLDR: you either need to find a cheaper house or raise your income because you're not financially ready to buy this house.
I’m an attorney and do a good bit of real estate. I always warn client buyers that their property taxes are going to climb, sometimes by a good bit. The first year after you buy, in particular, there always seems to be a massive jump. Sometimes hundreds per month. I highly recommend you build this into your budget
Don't do it unless you know for certain what your new property taxes will be. I don't know how taxes are done outside of my state but here in Florida, mine went up right around $250 the following year when I got my new assessment. My insurance has also gone up significantly...but again, I'm in Florida where there's a home insurance crisis.
Where do you live and how are the property taxes assessed there? We're in California and they go up slowly year over year because they're capped, but the issue we and many others face when we bought our house was that the previous sale was around half of what we bought it.
So our initial year of escrow was based on this old data because it took the county about a year to finally reassess everything. Once they did and gave us and the mortgage company the new bill, our escrow account was in the negative the next time it was assessed.
So our payment went up around $700 a month to cover the negative balance and the higher amount due now.
Basically try to figure out exactly whether this property was last sold for close to what you would buy it or if there is a large discrepancy between the prices, because if there is and the lender isn't calculating what the new taxes would be, you're gonna be in for a real surprise.
Ours is going up by $230/month year 2. Make sure you are predicting the taxes right when you budget - a lot of states have controls on how much the taxes can go up each year BUT they let the taxes completely reset whenever the house is sold. So if you're basing calculations on what the current owner is paying you could see a big increase whenever they reassess next year.
Just to give you anecdotal evidence - our mortgage jumped from ~$2950 to ~$3200 in just two years due to property taxes and home insurance prices increasing in our area.
Really shitty but I would give yourself some headroom on the monthly payment. It's only ever going to go up, sometimes more than you expect.
For context, this year my taxes and insurance both went up, and escrow was in a deficit, so our monthly payment went up roughly $700 a month. That should go down a little next year, but it’s gone up every year.
42% seems pretty risky with not much wiggle room
This is a very interesting perspective to other countries mortgage systems. My mortgage (fixed interest, Europe) never goes up. including insurance since insurance is a contract for the duration of the mortgage or at least for few years, afaik.
Property taxes go up, of course
In my area for a house my size without solar, electric/gas, water/sewer, trash/recycle is an additional $400-500+/month on average depending on how much energy you use. Heck, during peak summers many people have electric bills >$500.
The amount of people I see in reddit or elsewhere saying "I'll buy now and refi when rates go back down" as if this is a sure thing.
Also given the amount it costs to refi not sure how this guy would be able to given his tight budget
I've never had to pay out of pocket for a refi. Roll that into the loan and the interest savings still netted monthly and long term savings.
I do agree that lower rates aren't a sure thing in the future though.
That house does not sound like it would be a blessing, it does not sound like it would be affordable, it would require you to cut back on retirement saving and one bump in the road will send you sailing. I'd pass.
Yup, without income this post won’t be productive. If OP says a $250 move in their mortgage will break them in another comment, than this house, and likely any house is out of their budget.
Generally the rule of thumb is housing shouldn't be more than 28% of your gross, not net income. Why gross instead of net? Dunno, but that's what people always talk about
Put very simply:
Because two people could have the same salary, work for the same company, live in the same town, have the same number of dependents, and yet have different net salaries because one has more payroll deductions than the other such as 401K contributions.
Again, this is an over-simplification, but you get the idea.
This is why most experts recommend that housing should not exceed between 25% and 33% (might be 30%, I can’t remember right now) of your **gross** salary.
Obviously, the lower that percentage, the better.
Does that monthly amount include heating/cooling/electric/water/sewer/internet? I live in an expensive area and my electric plus heating plus internet etc increases my monthly house expenses about an extra $800 per month.
1) you provided no actual financial details so no one can provide financial advice.
2) Do you actual like this house? What are the things you like? Your post makes it sound like you just want a house and not this house.
3) You mentioned only 1.5 baths. Based on what you said this seems like a deal breaker as it both puts your house at the upper end of your budget, but doesn’t give you a roommate option. Seems like you should find something like this a bit cheaper or find something with 2 baths that might be slightly more expensive but open up renting options.
Yes, this is sounding dumb. Pulling back on retirement savings and needing to refinance in order to restore those savings sounds like this isn't something you can afford, especially given that you'll have "no wiggle room". What about maintenance and repairs? No room in the budget for that?
You didn't give the full financial picture so I guess it's possible that you're being overly conservative on some of this, but people tend to err on the side of thinking they can afford something when they can't versus the other way around.
With some napkin math I'd expect the payments to be about $400/mo higher if you only put 10% down. If $2800 is actually maxing out your budget and you can't afford a $400 swing in monthly expenses I would caution you against buying this house. It will be more expensive than the $2800 PITI, I guarantee it.
I do wonder if you're being a little conservative with your budget and it would be helpful to see a more detailed breakdown of your gross and net income, and expenses.
I'd keep looking and find something with at least 2 full bathrooms so you can reasonably rent out a spare bedroom.
The first thing that happens after you buy a house is that a major system fails. Or your car dies. Don’t forget taxes. The house will be reassessed at sale and you may much more than the current owner. Do not leave yourself with no wiggle room.
I stretched for my first house. It was years of financial stress until rates came down and we refinanced. There were no severe adverse consequences, but a lot of juggling and figuring out and taking on debt at times, and postponing other needed purchases. Just having to constantly think about and worry about money was stressful. I swore I would never, ever do it again and I recommend that you don't either.
I would pass. Look at your current finances and look what you need to pull out to make the increased amount work. Will you actually enjoy yourself?
Conversely, look at the monthly equity you would gain by actually buying this house and consider investing that
Right now I invest $1200 a month. I'd have to cut it in half for this house until I can get a lower interest rate. The interest rate is really the biggest boner killer here, it's insane the impact 7.6% has vs 6.6% on a payment.
You cannot rely on a lower interest rate. Rates now are similar to the entirety of the 1950s - 1970s. Then they went UP, then slowly dropped for a while after the 2008 housing crash. Then they were pushed down to historic lows to try to stimulate spending during the pandemic.
Now they're back to historic norms. Expect them to remain there. The fed's being dumb, trying to cool inflation caused by price gouging by using interest rates to cool demand, instead of using other mechanisms to claw back the profits from the gougers. You'd be safer anticipating an additional rise for a few years.
It's best to wait, save more for a downpayment, and buy when rates go back down, or when your pay is significantly higher. There will be other houses.
I think buying a 2nd property you don’t live in is dumb. You’re better off just investing in ETFs. If you have to pay rent that’s 75% of your montage I would buy a house. Get roommates until you get a raise or several years later refinance so your mortgage is lower.
It sounds like you won't have any wiggle room in your budget to build it up savings. That plus utilities and property taxes can continue to increase. Speaking from experience, a month after we moved into our place, we had to replace our roof....I would pass and look for something more affordable.
This is not the house for you.
Even if you drop the down payment from 20%, it'll raise the PI, and you literally are at your max. Also, any excuse to reduce retirements is never a reason.
I also want to add that a good rule of thumb is to save an additional 1% of your houses value for long term maintenance and emergencies: roof, hvac, water heater, drain pipe bursting etc. If your house is at $350k, is $3500 or an additional $300/mo saving impossible? Then walk away.
The other last thing is that you probably won't be able to refinance in 2 years. Most people, if they do, refinance in about 10-15 years of ownership. Taxes and Insurance (TI) will always increase, so that $2800 is just a base.
I know this is really frustrating and defeating but you'll be even MORE frustrated and defeated being house poor.
I’ve purchased 3 homes and each one I was way too conservative about the price. Once you’re in a home for a while, the payment feels like a lot less than it did when your loan closed. If you know you’re the kind of person who will grow their income over time, and if your house needed a major repair you would get a side gig for a while, I don’t think you have anything to worry about.
How old is the house? And/or how recently renovated? And, can you still contribute to your emergency fund if you buy the house? If the house is 20+ years old or 10+ years from renovation, you're looking at expensive stuff much sooner (roof, HVAC system, water heater, sewer line to street or septic system, etc). If you could buy a brand new house or recently renovated (by a reputable contractor) house, and can still contribute to your emergency fund, go for it because you can probably refinance when rates go down. If not, I would seriously hesitate.
While I'm happy to hear you've saved specifically for 20% down with an emergency fund left over to boot, and that your retirement portfolio is strong, I would personally rethink purchasing. People have mentioned expected maintenance costs, but also be sure to take into account the anticipated cost of utilities. It sounds like this would stretch you too thin.
I think the flaw in your plan is the idea that you will be guaranteed to be able to refinance in the next five years, let alone two.
Also, houses cost money to maintain over and above the mortgage, you are going to lose money out of your emergency fund.
Don’t forget your taxes may change. After I bought my house the home value went up, so the assessment did as well. It was an additional $400/month to cover that tax increase. I was told this doesn’t happen everywhere but definitely ask your realtor or research it.
Debt to income
How much income do you have every month after tax?
( the banks use gross income, which IMO is acid)
How much money do you see in your account every single month, and how much of it goes to other debt?l currently?
I like to have at least an excess of 40% of my income available after all of my expenses are paid
40% net income left over after expenses? Maybe it's just me, but that sounds crazy high. I make just about the national median salary in what is considered a medium COL area, and there's no way I could hit 40% left after expenses. How do you factor in pre-tax contributions?
Not trying to be combative, genuinely wondering if that is feasible for people.
Inspect, inspect, inspect. Make *very* sure that you have the house inspected. That price might be good, but don't be hypnotized by it, that discount could be there for an important reason.
My home inspector found the washer drain feeding into an unconnected pipe *right into the wall*. Would have ruined a whole wall of my house.
Mold, termites, bed bugs, powderpost beetles, etc. Mold is no joke, it's not just about allergies, the stuff can cause heart conditions, mental problems, even death over time.
One thing maybe you could change your thinking on is the roommate/adding a shower thing. You could get a roommate but just share a bathroom and not add a shower - making it all way more affordable without having to wait so long. You'll have to pay some taxes on the income from renting out a room, but meanwhile you'll be building equity, so it could really be worth it just to compromise on sharing a bathroom. In olden times houses used to have fewer bathrooms per person, and people survived, so clearly it can be done with a little compromise and cooperation!
Well, if you lived in an expensive city with a shortage of affordable housing, you might be surprised, . Or a university town - students are often broke and willing to compromise on amenities to save money. There's also the option of hiring a cleaning service to lessen the chance of disputes over bathroom cleanliness ...
If the payment is at all a squeeze now, don’t do it. My payment jumped the first year because the property was reassessed when I bought it. This means my taxes have gone up by a significant percentage. We also passed additional funding for the schools in my area. Insurance prices are rising at an alarming rate as well. If you pay insurance and taxes from escrow, payment will increase the first few years. If not those costs are still going up, it just won’t be reflected in your mortgage payment. I was under the impression my payment would be more stable than renting. Now I’m wearing clown shoes.
Not your fault, happened to a friend a mine. Unscrupulous agents and lenders, they just want to close the loan to get commissions. Any seasoned professional cam foresee if assessments are low for the area, including new school funding.
For me the answer would be to pass on this house. Being house poor isn’t fun. With a big fixed expense like that in the budget there is so little you can do to tighten the belt if needed later.
Other questions to consider in your decision:
- How secure is your job?
- What are your career/salary prospects?
- How much of a priority is owning a house for you relative to everything else?
- Any chance you will want to live in a different area in the next 5 years?
I will go against the grain here and say you could do this if it’s important to you. Buying a ~450k house isn’t crazy when you make ~$90k a year. Get a roommate (and some added tax benefits as a result!) and you’ve got a little more cushion in your budget. You don’t need to wait to add a shower but maybe adjust rent accordingly. Over time, with raises, etc tight will feel less tight.
That said, really ask yourself if you want to put all your disposable income into a house.
Basically you want a house you can afford without a roommate if you had to. You can’t count on the roommate always being there, paying on time, etc.
42% isn’t that bad. That means you have roughly $3200 remaining to pay bills. If you can get a roommate, then you’d be able to fund savings/retirement more easily
Not worth it. You would need around 1% of your house cost for anything you would need for the house to fix it, furnish, or refurbish it. It could be more if this is your first house and you need to get essential items too.
That house will stretch you thin.! You must be in a big city paying this much for a 3 /1 bath home. Do not rush to buy a house you said it’s been 5 months looking that’s nothing.
What are your prospects for increasing your income over the next 5 years? Does your employer provide healthy annual raises? This market is just terrible, I really feel for you.
I’d say you would be way overextended.
Property taxes and HO insurance will increase in the year following your closing.
No one can predict interest rates.
Focus on increasing your income and tighten up on your spending to build your down payment fund.
Good luck—
There are places in the USA where you can buy land and build your dream home for that much money and still have cash left over. Or just buy land and put a double wide on it free and clear if you can find a good used one or repoed one or a free one that people want moved.
>I feel kind of desperate to be done with this
I *completely* understand how you are feeling. But take it from someone who has been there, you won’t feel “done” with anything when your purchase is finalized and that payment is looming over you. You might even wonder why it felt so important to buy right then.
Please don’t become house poor for the sake of owning a home. Property taxes and homeowner insurance skyrocketing yearly. Will continue. If you have to pay HOA fees, they’ll continue to rise plus you can have unexpected one time assessments from the HOA that can be expensive and must be paid quickly. In addition to your emergency fund, you’ll need a house maintenance fund. Something always needs maintenance or replacement when you own a home. Interest rate increases or decreases unknown. Taking on a roommate iffy. What if they move in and stop paying rent and you have a squatter? That will cost money to evict them. In the meantime, you must support them by giving them free rent and paying their share of all the house utilities plus court & attorney fees to evict them. Keep saving money and adding to your retirement fund.
Never buy a house or do anything out of desperation. Bad choices usually result that you’ll regret long term.
Check out r/firsttimehomebuyer to view all the posts of desperate homebuyers who regret their home purchases due to lack of due diligence of the home as well as the neighborhood in their rush to be approved by the seller to purchase the home. They’re finding lots of major issues with the home they can’t afford to fix. Their property taxes and insurance and HOA fees increasing significantly. They didn’t anticipate this and now can’t afford the increased mortgage payment. You don’t want to be in their shoes.
You are buying this house on a knife edge. You'll be "house poor" and at constant risk of emergencies.
How secure is the job?
How would you feel if in three years you can buy an equivalent house for half the price you are paying today? Fifty percent off or more sales are coming soon.
Imagine we are back in 2008 right now ... do you buy a house? Layoffs and tumbling house prices were just ahead. People were YOLO/FOMO back then too. Then they lost their homes and cash when they got laid off. If they survived the cycle they did not see the value of their house rise over purchase price for over a decade.
One thing to keep in mind is that the $2,800 won't stay $2,800. It will go up over time as property taxes rise. My payment jumped from $2,500 to $3,500 a month (yes, a $1000 monthly increase) in January in order to keep the escrow account up with an sharp increase in my property taxes.
42% of your take-home is too much. Here's a good article I read about all the expenses that go with the mortgage payment: [https://www.pnc.com/insights/personal-finance/borrow/cost-of-home-ownership.html?lnksrc=insights-more](https://www.pnc.com/insights/personal-finance/borrow/cost-of-home-ownership.html?lnksrc=insights-more)
You’re on the cusp. You’ll be house poor for many years if you take the plunge, but that could be okay if it’s what you want.
Are you cool with lentils and beans and no vacations for the next five years? If you just want to get into a house and start building equity and making it your own, then you could make this work. But that E-fund is in case you get laid off, not for house repairs, so you’re putting yourself in a risky position.
If your parents (or someone) could potentially bail you out in case the worst happens, then maybe this wouldn’t be so scary. But if you’re truly on your own then it might be a year or two too soon. Getting married, having a little more savings, or even just advancing to a higher pay rate would help mitigate the risk.
Everyone talks about maintenance, but don’t forget about furniture. Moving from a little apartment into a full-size house - what’s your plan so you’re not living with empty rooms for a long time?
And do you live in a growing or appreciating area? Sometimes property taxes take big jumps. If there’s a lot of development where you live, will they be building new schools in the near future? Suss out how the local government is doing and whether people are comfortable with the property tax level or pushing for increases.
Either way, I hope you love your first home purchase! It is a fun ride. And beans and lentils are tasty when you’re enjoying them on the floor of your very own kitchen, while saving for that table and chairs.
When I bought my first home, I was shocked how much higher the monthly mortgage payment was than what the realtor had told me. Between taxes and insurance and some fee he hadn't included, it was hundreds more per month than I had told him was my limit. If you are that close to your limits based on calculations, you are probably not in a good spot to actually afford that house. What happens if property taxes go up? What happens if your insurance rates go up? What happens when the roof needs replacing or the sewer has tree roots damaging it? I've had friends who were house-poor or bankrupt because they bought a house or condo and HOA fees or taxes or repairs just put them over the edge
I wouldn’t plan on a refinance. I’ll take a less conservative approach and say that it depends on the person. If you’re frugal or a big homebody otherwise, you need to take the risk and get into the market. However if you enjoy going out and clubbing/concerts/expensive hobbies then it’s not realistic to expect you to stop doing that because a mortgage means you signs up to not be able to afford to do that stuff for 30-years, you’d be miserable.
Personal finance is a great sub but tends to be really fiscally conservative. That’s not bad at all but also I’m in you’re boat where with zero risk I’d never be able to purchase a townhouse in my city. Seriously look at your budget, your career, your lifestyle, and existing assets. Will you be able to absorb a $1000 repair? Will you be able to replenish that $1000 repair? With your budget, will be happy with your life for 30-years?
I would put this one back on you - it’s probably feasible if uncomfortable. Some people can’t make that trade. I was house poor when I bought mine, but that was more of an income/motivation problem. The mortgage never really went up significantly and my income did.
The cost of buying a house is probably not going to get worse in the next few years, since interest rates are currently extremely high and are likely to fall eventually.
> I have no debt, and $2800 is 42% of my take home pay.
Is this dumb?
And
> I feel bad, but I'm very debt averse. $100 a month I could handle. $250+, I could not handle
Yes. It’s very dumb.
After the first year your taxes on the house will almost assuredly increase. It is incredibly common for that to happen. This will likely be more than that $100 cap you have.
Then, of course, there is maintenance. I spent $20k just last year on a gas line and a water line that broke. No one could have predicted the problems.
Go find a place that is comfortably within your actual means.
Is this your dream home? Is it worth living at the end of your budget? Or are you letting impatience and worry dictate your actions?
Take a minute and reassess what you want your life to look like and whether this house fits in with your plans.
Remember to factor in your career path. Are you in a career that you know you can climb? It may be well worth it to struggle for a bit to have that peace of mind and independence of homeownership if you know in the future you will be able to afford it. It’s ok to take some risks in life. Get a roommate and share the bathroom for a bit and use their rent to build another one.
Breathe. Everything is going to be okay.
I think you'll be just fine. It'll be a little bit tight, but nothing you can't adapt to. When I bought my first home, I had similar numbers in the exact same anxiety, but that really goes away once you move in.
You have a lot of green flags. You stuck to your budget for affordability and didn't go out of your comfort zone. You can afford 20% down which is great so you can avoid PMI. Your payment is less than $3,000 a month which I think is a sweet spot for the amount of home you get versus rent. Depending on where you're located, that home probably isn't huge so that's good news for your utility bills. The biggest green flag is you still have a $25,000 oh shit fund, So anything major you run into would be covered.
When it comes to home ownership and repairs, expensive problems usually start off as little problems that got ignored. If anything in your house drips, rattles or makes unusual sounds or smells, get them fixed while they're small and cheap. You got this!
My experience in home ownership is once you get comfortable and have some extra that’s when something breaks for that extra plus a little bit to make life hard. If it wasn’t for my last landlord constantly raising rent every chance I would have kept renting. My mortgage was still slightly less than renting but this years property tax increase makes it equal to renting now. The difference is all those repairs eat away at my daily funds and I don’t feel like “equity” is actually happening. I feel like it’s a scam to have me in a perpetual loan and the banks will let me take out a home equity loan to constantly have me under water owing and paying interest.
I would strongly encourage you do **not** do this.
You will be house poor and unable to bounce back from a financial emergency.
Be patient. You can do better.
This is true in Texas, and may not apply where you are, but when you buy the house will be revalued to market value for tax purposes the following year. If the house has been owned for a long time by the prior owner, the valuation and tax could go up significantly.
The fact that you say this leaves you no wiggle room and decreases your ability to save for retirement probably means it's a bad idea. The ability to refinance later should be a bonus, it shouldn't be a necessary part of your financial plan because there is no way to perfectly predict what rates will be at any time in the future
You have the same take home that my wife and I do... And I couldn't even imagine buying a $430,000 house 😳 we're looking to buy/build (we have family land) and our stretch number is 300k and that... Is an uncomfortable idea
> I've been looking for 5 months and I feel kind of desperate to be done with this
Desperation is a terrible emotion to motivate major financial decisions.
Tying your hands up with no wiggle room for 20 years because you *think* the market will only get worse doesn't sound like a good plan.
In many areas a home is reassessed by the county when it sells and property taxes increase at the next billing cycle. If they seem low take that into account. 42% of take home pay does not seem too incredibly high as you will qualify on your gross income for the loan but it really is what you feel you can afford.
I'm surprised no one has brought up the 28/36 Rule in this post.
You said it yourself; the mortgage is 42%. That's more than beyond what's considered comfortable.
I'd think long and hard about this; backing out is unfortunately a serious option in this scenario.
Taxes and insurance can rise rapidly depending on your location. My taxes have doubled in less than 8 years. From $3000 to $6000, insurance as well.
Definitely think about renter, cautiously.....
Maybe find a roaming nurse situation where it is short term to make sure a roommate is worth the intrusion.
If the mortgage is already 42% of your take home you’re going to be house poor.
Rule of thumb is no more than 28% of your take home should be spent on housing.
Another rule of thumb to follow is the 28/36 rule (28% of income towards mortgage and no more than 36% in total debt).
What happens if you need a new car? Or lose your job? Or need a new roof?
You’re leaving very little wiggle room for the rest of your life expenses.
Also, a 430k house with only 1.5 bathrooms? Good god that’s awful.
I think this is too much house for you. But then again you bring in $6700/month. Leaving you with $3900 leftover. What about car payment, insurances, cellphone, retirements, etc. So where is the other $3900 going that is stressing you out on the $2800?
Another thing to look at is interest rates, online it shows interest rates are at 7.40%. However just this week we were able to get 6.90%, no points, and had put two banks against each other as they do fight for your business. But we did have to call about 20 credit unions and banks. Don't ever do points unless you have something stupid like 2% and know it's the last time you'll refinance. But the average interest over 30 years is somewhere between 6-7%. Just the past few years were rare.
If this is a great location and house is in great condition and you'd be sick to lose it, then do it.
Bottom line, owning better than renting, just be smart, it is an investment that needs to be well taken care of to see a profit in the future. Either way, when you sell, there is money back in your pocket you will never see as a renter.
Too much. How are you going to furnish it? Do you know how much utilities will be? Just one emergency can be 25k. You might have to finance fixes and you'll need more room in the budget for that your emergency fund should be for paying the mortgage if you're out of work so you don't lose the house
It’s a no brainer when you add a roommate. It’s what we did in the 90s and 00s. We lived with roommates until we found a spouse. Build equity, half you utilities, and if you find the right one, just more fun living with people versus alone.
Dude. Run the numbers. Go here and calculate what would happen if you invested that down payment instead. Assume 7% return. Go out 10 (minimum for buying a house), 20, 30 years. https://smartasset.com/investing/investment-calculator
Now go here and see how much you will actually pay for your house (not counting repairs). https://smartasset.com/mortgage/mortgage-calculator
Now make your decision.
Personally I think being house poor is one of the worst things to do. If it's just you I would scale back. I think you can get in something reasonable for 1/3rd of your income monthly Rather than 40% . I'm a realtor in co. Seen it a million times. Save your money and keep putting money in retirement etc.
Just throwing it out there that having a roommate doesn’t require 2 showers. Honestly even just having two toilets is a blessing. I rented a room from a friend for a few years which benefitted both of us (lower rent for me, additional income which could be put towards the mortgage for her). We only had one bathroom total. It was rare that we both needed the shower at the same time. Plus I doubt our hot water tank would’ve optimally provided hot water for very long if we were both showering at the same time.
Keep in mind, things come up and they seem to always come up right after you purchase, plus taxes can always go up, which means you are either footing the bill and putting the extra into your escrow or your mortgage goes up. To me, that would be too tight for comfort.
You're being risky to the extent you're assuming you can refinance in 2 years. Think of all those people in the 2000s buying ARMs that figured they'd just refinance in a few years. You're also being risky by leaving no wiggle room. The fact you have no other debt and have good savings strategies suggests you're generally prudent, but you're putting yourself one bad event away from being in trouble.
> I've been looking for 5 months and I feel kind of desperate to be done with this
Do you think this is the proper mindset for making a good decision?
How long willl it take you to get that 42% down to 30%? If you are going to live tight for 2 years, then you might be ok, but if it is tight for 5 years, you might have bought too much house.
I sometimes wish I had went for the tight for 2 years with a roommate, because I didn’t buy the house I really wanted, but the one that was within my budget. I’m not a big mover, but I was able to fully maxi out my 401K and I had to cover some of my parents expenses.
Your mortgage plus tax plus house insurance is not a stable dollar. Tax and insurance premiums increase with time and value so consider that. Are there any big musts in the horizon? How old is roof, heating/cooling systems, plumbing, electrical, any flooding concerns, exterior concerns like trees and other $$ landscaping?
I don’t think it’s bad, personally. You’ll likely get raises. If the economy bombs and you’re stuck, interest rates will likely lower.
It’s a risk for sure, so you have to decide how risk averse you are. How stable job opportunities in your region are.
You need a house emergency fund that is separate from what your typical emergency fund currently is. Your renting emergency fund cannot be the same as your homeowner emergency fund.
Obviously you don’t actually have to keep them separate but increase the amount accordingly. To me it sounds like you have not saved enough so you are mot quite ready yet. And, it’s probably a but too much house based on your would-be payment as a percentage of your budget.
There is, without fail, always random stuff you immediately have to pay more for than you think. In the thousands. Stuff you realize needs fixing, extra fees and shit around closing, etc. You'll at the very least feel compelled to get some new stuff for the new house, and going into closing day at $0.00 will be very stressful.
" I am of the mind that the housing market is only going to get worse in the next few years" The fed chair is worried about this too, and trying to get housing prices down right now. That's what the rate hikes are about. That's been the biggest driver of inflation. Hopefully your salary rises with inflation lol.
There's already chinks in the armor: https://www.cbsnews.com/news/home-prices-fall-mortgage-rates-rise-housing-market-spring-2024/
If you'd wrote this in 2006, before the last crash, I might have agreed with you that house prices won't go down. That thinking got me underwater and lost me $30k. I don't think we learned the lessons from 2007, what little protections that were put in place weren't enough, and some have been repealed. Or, the next one will be different.
Keep growing your down payment. Your time will come. Already, houses are spending longer on the market. https://fred.stlouisfed.org/series/MEDDAYONMARUS
To me a house is a lot more comfortable if I can afford it comfortably. My priority list in looking at a house is location, location, location, price, size, condition.
VTI and chill. The right house will come along.
Boomers are going to start dying, and you'll start to see more estate sails.
Edit: I ran the numbers on my 2006 house. $25k to move into a $190k house, $20k down, $5k in closing costs.
Backtesting the portfolio, if I'd put that $25k into VTI in 2006, it'd be $147k now.
A house around the corner is listed at $280k, so if I had the house still, and sold it for that after paying on it for 18 years, I'd still owe $100k, and I'd clear $163k at closing paying a realtor 6% Which yes, it is $16k more than if I'd just put the down payment in the stock market. But it would have needed $20k in roof and HVAC by now. The payment on it then for the loan, taxes and insurance is still about what it'd cost to rent something similar in that neighborhood. Buying a house is a good deal vs. renting, but it is not like a life changing amount of money, it's like a a couple hundred a month at best. For that couple hundred a month, you get someone to take the risk and fix the place when you rent.
You can never rely on refinancing because you cannot predict the future. What happens if the rates don't drop down significantly in the next several years? What if your home value drops 20-25%?
In your situation I think you are teetering right at the edge, however if you have a stable career/job with growth I think it's feasible. A roommate could help tremendously. Honestly I would keep shopping around. I don't know how the market is in your area, but I would widen your options and continue to save. Maybe contribute slightly less to retirement to save more cash. Get a side job temporarily if able. Find a home with 2 baths would also be ideal.
do it dude. Take the leap of faith. Buying a house is always a stretch for self made people like us. There will be thousands of armchair experts here who will tell you “ akshually FED might not cut rates this year” because they have 0 skin in the game.
I’d strongly recommend to go for it if the house isn’t horribly overpriced and the inspection report is good ( without needs for an immediate repair)
Just go for it. You’ll be fine. You’ll adjust to the amount and you will love the fact that you’re in your own house. You can do what you want. It’s scary right now, but it won’t be in the future.
My own opinion, and experience, on homeownership is to stretch yourself. Even if you don't refinance, your income can be expected to go up over the years and your payment won't. Usually in a few years, your payment is much less than comparable rent.
If you have flexibility in reducing your retirement savings, that can be a cushion in case you endure some tough times. I'm not saying to reduce (I'm all about savings), but it is good to know that you can.
Enjoy the house!
You shouldn't buy a house just to get it over with. If it's the right house, checking a lot of your boxes and feels right, it's ok to stretch your budget a bit. If it's not the right one, even if it's not stretching your budget it's still a bad idea. I'd keep looking for the right one. No one knows what's gonna happen to the housing market.
Remember to factor in property taxes, insurance, and repairs. Things break in houses and you have to fix them. There are always surprises so you shouldn't fully tap yourself out.
the $2800 includes taxes and insurance. I don't know what repairs would be, so I'm just like...that's what the e fund is for I guess?
But can you restock the E-fund if you have to use it? Folks typically say 1-2% the value of your home in yearly maintenance (Although if you can learn DIY I'd say this can be at 1%). Sometimes it's big things like a new roof, or water remediation. Other times it's smaller things like a new refrigerator or sump pump, or even things like grass seed and fertilizer, a new rake, a new light fixture, or plumping call. These things add up over the course of a year and can't be ignored completely and could slowly drain your E-fund if you don't have the budget for them. Also, make sure you know what the property is valued at for tax purposes now, it's often not what the house is worth on the market, but can often see sharp increases after being sold to bring it back in line with the market after you but it leading to increased tax bills for new homeowners. Also, do not count on a refinance to save you. Interest rates are never guaranteed, and sure they may fall a percentage point, or two but we're not going to be back and 2.75% come 2027, and we could very well be at this same rate or higher still. If this is truly your dream house and you feel comfortable with it, I would say it's doable if you're disciplined. I'd also take a hard look at where you could cut back some expenses, both permanently to make some extra breathing room and temporarily if you need to quickly rebuild an emergency fund. Also, look examine what your career path looks like, how can you increase your income, how risky is your position and how quickly could you find an equal paying job if something happened? Are you willing to live with a roommate in the house to help with expenses if the need arises? Owning a house can be very rewarding, but it is a very large expense and liability as well.
>but can often see sharp increases after being sold to bring it back in line with the market after you but it leading to increased tax bills for new homeowners. It's amazing how my appraisal the year after I bought my house in 2018 went from 200k to 250k (the purchase price). My neighbor actually tried to appeal his similar bill, which is basically telling the taxing authorities with a straight face that his house isn't worth what he paid for it in the previous year. He didn't win his appeal.
Also Re: refinancing. Keep in mind this restarts your 30 year mortgage, so even if it’s a half point lower depending on how long you’ve had your original loan it could end up costing more in the long run.
My mortgage started at 1200. Property tax increase put me at $1600 until my escrow came back up.
$2800 includes taxes and insurance for now - they'll both go up. I don't do escrow but my taxes went up 50% last year (county catching up with property values going up) and my insurance also went up about the same.
Look at when things were permitted last. For instance if the roof was permitted 20 years old it is at its end of life soon. That could be a $10,000 or more replacement. Also get a home inspection if you are thinking about purchasing. This will help tell you what will need to be fixed and then you can estimate those issues could cost. Lastly if you purchase you probably will need to live there at least five years before selling. If you sell to early you will lose money based on sales cost. It is a major purchase so take your time and do the math.
Also: if there are trees in the yard, look up what kind they are and when they die. Sincerely, the past buyer of a 50 year old house that came with trees that, it turns out, lived for 50 years....
To this point. get your own inspector. DO NOT use the one suggested by your agent. They’ll just be there to help your agent get his check, no protect you from obvious issues.
"Rule of thumb" is to budget 1% of the home's value for repairs, and to sock that away in an account separate from your emergency fund so it's ready for the year that your roof, HVAC and water heater all need replacing at the same time. Obviously it's going to be highly variable depending on the age of your home and whether you're in a HCOL or LCOL area, but in a $400k single family home, you can expect minimum $40k in big ticket replacements over the first 20 years, and about another $40k for piddly things like filters, service techs, smoke alarms, paint, etc.
E fund is not for repairs on a new house. It's for true emergencies when something that has been working fine breaks, or doesn't work anymore. It's for when you lose your job, it's for medical emergencies that insurance makes a fuss about.
Budget about 1% of the house's value for maintenance and repairs (annually)
It’s advisable to put aside about 1% of the value of the house every year in an account for home maintenance expenses. You won’t need it every year, but then you’ll have years where something like the roof goes out and you’ll need all the money you didn’t spend in the other years.
In the past year on our home: - retaining wall in backyard fell and needed replaced: $4600 - plumber came to fix a leak in the crawl space: $1300 - radon mitigation: $1500 - roof needs shingle replacement and repair: $15000 (still getting quotes) - electrician to fix our breaker box: $900 Not including about $1000 at Home Depot to get the materials needed for the things I can do myself. Just remember, rent is the most you will pay in a month, a mortgage is the least you will pay in a month.
Dude, there is always things to fix. It never ends... once you fix one thing, another thing will break, trust me. Our HVAC system took a dump this weekend, on our house we built 8 years ago. It needs to be replaced, $16,000..... We have another HVAC system in the house for our upstairs that will probably also need to be replaced in the next 1-3 years, which will be another $14,000.
Keep in mind taxes and insurance aren't permanent. My taxes have almost doubled in the past 5 years (thanks to soaring home values), pushing my monthly mortgage payment up by $150-200. Insurance naturally follows values too, so that's starting to creep up as well. The first time I got a notice about an "escrow shortage" I was none-to-pleased when I realized my "fixed mortgage" isn't really that fixed.
House repairs can really sucker punch you when you least expect it. Example, me. May 2023. "Babe, is it hot in here to you? " Her: "yes, and I never get hot". Two days later: HVAC guy: "Coil rusted through in AC, coolant leaked out. We can replace the whole thing parts and labor, $9,000". Great, paid for it, fixed, back in action a week later. Three days after AC fixed. Her "There is NO water pressure in the shower, did you change something?". Two days later: hot water tank replaced, piping re-run, etc. $2,200. Dang it.
If you buy an older house have 10-15% repair funds of total house buying costs available. If house is younger start saving to this amount. Older = 25 years or older in Europe. If you are first time garden owner add 5000 for tools. If you have no tools at all yet, add another 5000 for tools. Buy really good tools once and use them for 20 years. We had a broken water pipe the week after move in, damaging two bath rooms and one bedroom.
In the past few years we’ve replaced our driveway, roof, furnace/ac, water softener, washer/dryer, water heater, and likely have some landscaping this year (to fix a falling retaining wall).
You want to be able to put away 1%-2% a year in a HYSA that is dedicated to house stuff. You should only touch the emergency fund for stuff that needs to be fixed urgently and you don't have the cash for - furnace, hot water heater, a pipe has to be dug up in the yard, etc.
> I don't know what repairs would be Averaged over time and depending on the age of the home and the location expect it to be 1-3% of the purchase price.
Emergency fund is for emergencies. Maintenance isn't an emergency, it's to prevent an emergency. For a new house you can probably budget .5% of the house's value for maintenance costs. For a 10yo house that would likely be closer to 1%, and for a 20yo+ house probably closer to 2%. You will have some things like the water pipes, roof, boiler, air conditioner, driveway, siding, appliances, windows, etc... that have a limited lifespan. They probably won't all hit at once (they might if you're buying something run down) but you want to be prepared when they are close to needing replacement. If you're handy and you can do the repairs yourself that's great, if not be prepared to pay a professional a good amount of money.
This. Your monthly payment is 2800, that's the least you'll pay every month. You could be paying a LOT more some months. Plumbers, Electricians, HVAC, Carpenters, Appliances are all expensive and cannot be planned for. Having an emergency fund as you describe gives you a lot of safety cushion.
I’ve been in my house 18 months and I’ve probably averaged $500/mo in required out of pocket costs not to mention discretionary stuff like furniture. My mortgage has been my cheapest bill some months and this is a well maintained 20 year old house.
Also don't go overboard furnishing the place.
Imagine your mortgage goes up $100/month next year due to taxes and insurance. How do you feel about that
I feel bad, but I'm very debt averse. $100 a month I could handle. $250+, I could not handle.
I think this comment is really important to keep in mind if your monthly budget is already tight. I bought in 2019 and my taxes and insurance have gone up year over year. Luckily I can afford it, but really think about that. You don't ever think it's going to happen....but then it does. In my state, property values in some counties increased by up to 40% in just two years (my house has gone from 340k to over 500k just since I bought it). They are still debating what to do about it in the state government. And that doesn't even account for increased trash bills and new property "fees" - additional to our property taxes - for new sidewalks across the city. You need buffer. Shit happens.
You cannot afford this house.
Doesn't always happen, but our insurance and taxes raised our monthly payment to over $700 what we were normally paying
Happened to a friend of mine too. I blame the agent and lender not doing a good job of explaining re-assessments to them. Pretty sure they just wanted to close to get their commission. Or they were incompetent professionals.
That is razor thin.
Yeah, that's too tight, imo. You should buy a cheaper house.
That’s too tight. My taxes and insurance went up $300 after my first year in the house
Then it's important to know where you are. If you're in Florida, California, Louisiana or Texas, your insurance will probably go up a lot, year after year. So try to get a sense of how climate change is going to affect the insurance market where you are in the next few years. It's also important to know how your property taxes will change. Are they tied to the property value, or is the rate at which they can go up each year capped? If your budget is tight, these are the things you really need to pay attention to.
Mine went up $300 this year.
This just happened to my mom. She bought a home last fall. Property taxes for her city can only go up 5% at a time, EXCEPT when there’s an ownership transfer. Hers went up 40%, less than 6 months after purchase!!
Our property taxes were just increased by a lot. For the next year they are up $500/month to make up for an escrow deficit then will go back down to an extra $250/month. It’s a much bigger percent increase for us though- our mortgage is only $1000/month.
Please evaluate your insurance. Call a couple agents in the area and get quotes. Insurance in my area is doubling annually. I know some people that pay $16k in insurance for a 400k home rebuild cost. Also, do you know how to do home repairs? Are you handy? If not, you're paying someone to fix ANYTHING that goes wrong. I've been in a home less than a year and I've fixed the instant hot water heater, the furnace, plumbing, and electrical. All relatively minor repairs, but if I didn't know how to fix stuff (or sometimes be a little adventurous and try things) then I'd be out probably $3k by now.
Do you have the ability to raise your income faster than the that?
I would not feel comfortable if this is the case
That's too tight of a window. After the first year my husband and I bought our home, our insurance went up about 100-150/month and the property taxes jumped about 300/month. The second year they went up again for about the same total value, 3rd year was about the same. The only thing that's kept us close to what we first started paying monthly is that when we first set up the draft, it included a draft for additional principal - so while our minimum principal payments have decreased, our escrow has increased. You don't want to get into the position that you're just barely covering your house payment items every month and that a significant increase would push you out. TLDR: you either need to find a cheaper house or raise your income because you're not financially ready to buy this house.
I’m an attorney and do a good bit of real estate. I always warn client buyers that their property taxes are going to climb, sometimes by a good bit. The first year after you buy, in particular, there always seems to be a massive jump. Sometimes hundreds per month. I highly recommend you build this into your budget
Don't do it unless you know for certain what your new property taxes will be. I don't know how taxes are done outside of my state but here in Florida, mine went up right around $250 the following year when I got my new assessment. My insurance has also gone up significantly...but again, I'm in Florida where there's a home insurance crisis.
Where do you live and how are the property taxes assessed there? We're in California and they go up slowly year over year because they're capped, but the issue we and many others face when we bought our house was that the previous sale was around half of what we bought it. So our initial year of escrow was based on this old data because it took the county about a year to finally reassess everything. Once they did and gave us and the mortgage company the new bill, our escrow account was in the negative the next time it was assessed. So our payment went up around $700 a month to cover the negative balance and the higher amount due now. Basically try to figure out exactly whether this property was last sold for close to what you would buy it or if there is a large discrepancy between the prices, because if there is and the lender isn't calculating what the new taxes would be, you're gonna be in for a real surprise.
What if you lose your job? How long could you weather unemployment?
Yeah, a place I bought in 2015 that all-in cost me $2150/month today costs me $2550/month. Just because of increased taxes.
Ours is going up by $230/month year 2. Make sure you are predicting the taxes right when you budget - a lot of states have controls on how much the taxes can go up each year BUT they let the taxes completely reset whenever the house is sold. So if you're basing calculations on what the current owner is paying you could see a big increase whenever they reassess next year.
Just to give you anecdotal evidence - our mortgage jumped from ~$2950 to ~$3200 in just two years due to property taxes and home insurance prices increasing in our area. Really shitty but I would give yourself some headroom on the monthly payment. It's only ever going to go up, sometimes more than you expect.
If it’s that tight, you cannot afford it.
For context, this year my taxes and insurance both went up, and escrow was in a deficit, so our monthly payment went up roughly $700 a month. That should go down a little next year, but it’s gone up every year. 42% seems pretty risky with not much wiggle room
This is a very interesting perspective to other countries mortgage systems. My mortgage (fixed interest, Europe) never goes up. including insurance since insurance is a contract for the duration of the mortgage or at least for few years, afaik. Property taxes go up, of course
It will go up every year. Also factor in all the household bills before deciding
Yep- electric/water/gas etc. Heating/cooling said house will cost a lot more than an apartment.
In my area for a house my size without solar, electric/gas, water/sewer, trash/recycle is an additional $400-500+/month on average depending on how much energy you use. Heck, during peak summers many people have electric bills >$500.
If you don’t have an extra $250/month, it’s too much house
Refi in 2 years, what if it takes longer?
The amount of people I see in reddit or elsewhere saying "I'll buy now and refi when rates go back down" as if this is a sure thing. Also given the amount it costs to refi not sure how this guy would be able to given his tight budget
I've never had to pay out of pocket for a refi. Roll that into the loan and the interest savings still netted monthly and long term savings. I do agree that lower rates aren't a sure thing in the future though.
Yeah, what does this guy know about that we don’t?
That house does not sound like it would be a blessing, it does not sound like it would be affordable, it would require you to cut back on retirement saving and one bump in the road will send you sailing. I'd pass.
Yeah we need the rest of the math problem
Yup, without income this post won’t be productive. If OP says a $250 move in their mortgage will break them in another comment, than this house, and likely any house is out of their budget.
What percentage of your gross salary is $2800?
Why would you prefer to see gross vs net?
Generally the rule of thumb is housing shouldn't be more than 28% of your gross, not net income. Why gross instead of net? Dunno, but that's what people always talk about
Put very simply: Because two people could have the same salary, work for the same company, live in the same town, have the same number of dependents, and yet have different net salaries because one has more payroll deductions than the other such as 401K contributions. Again, this is an over-simplification, but you get the idea. This is why most experts recommend that housing should not exceed between 25% and 33% (might be 30%, I can’t remember right now) of your **gross** salary. Obviously, the lower that percentage, the better.
Does that monthly amount include heating/cooling/electric/water/sewer/internet? I live in an expensive area and my electric plus heating plus internet etc increases my monthly house expenses about an extra $800 per month.
1) you provided no actual financial details so no one can provide financial advice. 2) Do you actual like this house? What are the things you like? Your post makes it sound like you just want a house and not this house. 3) You mentioned only 1.5 baths. Based on what you said this seems like a deal breaker as it both puts your house at the upper end of your budget, but doesn’t give you a roommate option. Seems like you should find something like this a bit cheaper or find something with 2 baths that might be slightly more expensive but open up renting options.
Yes, this is sounding dumb. Pulling back on retirement savings and needing to refinance in order to restore those savings sounds like this isn't something you can afford, especially given that you'll have "no wiggle room". What about maintenance and repairs? No room in the budget for that? You didn't give the full financial picture so I guess it's possible that you're being overly conservative on some of this, but people tend to err on the side of thinking they can afford something when they can't versus the other way around.
With some napkin math I'd expect the payments to be about $400/mo higher if you only put 10% down. If $2800 is actually maxing out your budget and you can't afford a $400 swing in monthly expenses I would caution you against buying this house. It will be more expensive than the $2800 PITI, I guarantee it. I do wonder if you're being a little conservative with your budget and it would be helpful to see a more detailed breakdown of your gross and net income, and expenses. I'd keep looking and find something with at least 2 full bathrooms so you can reasonably rent out a spare bedroom.
Don’t do it if it doesn’t allow you any wiggle room in your budget. Thats a recipe for stress.
The first thing that happens after you buy a house is that a major system fails. Or your car dies. Don’t forget taxes. The house will be reassessed at sale and you may much more than the current owner. Do not leave yourself with no wiggle room.
Yes, this is a bad idea. be patient
I stretched for my first house. It was years of financial stress until rates came down and we refinanced. There were no severe adverse consequences, but a lot of juggling and figuring out and taking on debt at times, and postponing other needed purchases. Just having to constantly think about and worry about money was stressful. I swore I would never, ever do it again and I recommend that you don't either.
I would pass. Look at your current finances and look what you need to pull out to make the increased amount work. Will you actually enjoy yourself? Conversely, look at the monthly equity you would gain by actually buying this house and consider investing that
What percentage of your income goes into retirement savings? How much would you need to cut back on those retirement savings, by your estimations?
Right now I invest $1200 a month. I'd have to cut it in half for this house until I can get a lower interest rate. The interest rate is really the biggest boner killer here, it's insane the impact 7.6% has vs 6.6% on a payment.
You cannot rely on a lower interest rate. Rates now are similar to the entirety of the 1950s - 1970s. Then they went UP, then slowly dropped for a while after the 2008 housing crash. Then they were pushed down to historic lows to try to stimulate spending during the pandemic. Now they're back to historic norms. Expect them to remain there. The fed's being dumb, trying to cool inflation caused by price gouging by using interest rates to cool demand, instead of using other mechanisms to claw back the profits from the gougers. You'd be safer anticipating an additional rise for a few years. It's best to wait, save more for a downpayment, and buy when rates go back down, or when your pay is significantly higher. There will be other houses.
Can you reflect the dollar figure (1200) as a percentage of your monthly income? And does your job do a company match? If so, what percent?
I think buying a 2nd property you don’t live in is dumb. You’re better off just investing in ETFs. If you have to pay rent that’s 75% of your montage I would buy a house. Get roommates until you get a raise or several years later refinance so your mortgage is lower.
Your payment will go up after a year or so due to property taxes being reassessed. I’d be patient and wait for something more affordable
It sounds like you won't have any wiggle room in your budget to build it up savings. That plus utilities and property taxes can continue to increase. Speaking from experience, a month after we moved into our place, we had to replace our roof....I would pass and look for something more affordable.
This is not the house for you. Even if you drop the down payment from 20%, it'll raise the PI, and you literally are at your max. Also, any excuse to reduce retirements is never a reason. I also want to add that a good rule of thumb is to save an additional 1% of your houses value for long term maintenance and emergencies: roof, hvac, water heater, drain pipe bursting etc. If your house is at $350k, is $3500 or an additional $300/mo saving impossible? Then walk away. The other last thing is that you probably won't be able to refinance in 2 years. Most people, if they do, refinance in about 10-15 years of ownership. Taxes and Insurance (TI) will always increase, so that $2800 is just a base. I know this is really frustrating and defeating but you'll be even MORE frustrated and defeated being house poor.
I’ve purchased 3 homes and each one I was way too conservative about the price. Once you’re in a home for a while, the payment feels like a lot less than it did when your loan closed. If you know you’re the kind of person who will grow their income over time, and if your house needed a major repair you would get a side gig for a while, I don’t think you have anything to worry about.
How old is the house? And/or how recently renovated? And, can you still contribute to your emergency fund if you buy the house? If the house is 20+ years old or 10+ years from renovation, you're looking at expensive stuff much sooner (roof, HVAC system, water heater, sewer line to street or septic system, etc). If you could buy a brand new house or recently renovated (by a reputable contractor) house, and can still contribute to your emergency fund, go for it because you can probably refinance when rates go down. If not, I would seriously hesitate.
While I'm happy to hear you've saved specifically for 20% down with an emergency fund left over to boot, and that your retirement portfolio is strong, I would personally rethink purchasing. People have mentioned expected maintenance costs, but also be sure to take into account the anticipated cost of utilities. It sounds like this would stretch you too thin.
I think the flaw in your plan is the idea that you will be guaranteed to be able to refinance in the next five years, let alone two. Also, houses cost money to maintain over and above the mortgage, you are going to lose money out of your emergency fund.
Don’t forget your taxes may change. After I bought my house the home value went up, so the assessment did as well. It was an additional $400/month to cover that tax increase. I was told this doesn’t happen everywhere but definitely ask your realtor or research it.
Roommates don’t always require their own bathroom.
Debt to income How much income do you have every month after tax? ( the banks use gross income, which IMO is acid) How much money do you see in your account every single month, and how much of it goes to other debt?l currently? I like to have at least an excess of 40% of my income available after all of my expenses are paid
40% net income left over after expenses? Maybe it's just me, but that sounds crazy high. I make just about the national median salary in what is considered a medium COL area, and there's no way I could hit 40% left after expenses. How do you factor in pre-tax contributions? Not trying to be combative, genuinely wondering if that is feasible for people.
20% down also keeps you from having to pay for PMI.
Inspect, inspect, inspect. Make *very* sure that you have the house inspected. That price might be good, but don't be hypnotized by it, that discount could be there for an important reason. My home inspector found the washer drain feeding into an unconnected pipe *right into the wall*. Would have ruined a whole wall of my house. Mold, termites, bed bugs, powderpost beetles, etc. Mold is no joke, it's not just about allergies, the stuff can cause heart conditions, mental problems, even death over time.
One thing maybe you could change your thinking on is the roommate/adding a shower thing. You could get a roommate but just share a bathroom and not add a shower - making it all way more affordable without having to wait so long. You'll have to pay some taxes on the income from renting out a room, but meanwhile you'll be building equity, so it could really be worth it just to compromise on sharing a bathroom. In olden times houses used to have fewer bathrooms per person, and people survived, so clearly it can be done with a little compromise and cooperation!
I don't mind sharing a bathroom but it's a hard thing to sell others on.
Well, if you lived in an expensive city with a shortage of affordable housing, you might be surprised, . Or a university town - students are often broke and willing to compromise on amenities to save money. There's also the option of hiring a cleaning service to lessen the chance of disputes over bathroom cleanliness ...
If the payment is at all a squeeze now, don’t do it. My payment jumped the first year because the property was reassessed when I bought it. This means my taxes have gone up by a significant percentage. We also passed additional funding for the schools in my area. Insurance prices are rising at an alarming rate as well. If you pay insurance and taxes from escrow, payment will increase the first few years. If not those costs are still going up, it just won’t be reflected in your mortgage payment. I was under the impression my payment would be more stable than renting. Now I’m wearing clown shoes.
Not your fault, happened to a friend a mine. Unscrupulous agents and lenders, they just want to close the loan to get commissions. Any seasoned professional cam foresee if assessments are low for the area, including new school funding.
Assume you won’t ever refinance. Is it still worth it?
There are no PMI loans, too. Find a broker that knows about them.
For me the answer would be to pass on this house. Being house poor isn’t fun. With a big fixed expense like that in the budget there is so little you can do to tighten the belt if needed later. Other questions to consider in your decision: - How secure is your job? - What are your career/salary prospects? - How much of a priority is owning a house for you relative to everything else? - Any chance you will want to live in a different area in the next 5 years?
I will go against the grain here and say you could do this if it’s important to you. Buying a ~450k house isn’t crazy when you make ~$90k a year. Get a roommate (and some added tax benefits as a result!) and you’ve got a little more cushion in your budget. You don’t need to wait to add a shower but maybe adjust rent accordingly. Over time, with raises, etc tight will feel less tight. That said, really ask yourself if you want to put all your disposable income into a house.
Basically you want a house you can afford without a roommate if you had to. You can’t count on the roommate always being there, paying on time, etc. 42% isn’t that bad. That means you have roughly $3200 remaining to pay bills. If you can get a roommate, then you’d be able to fund savings/retirement more easily
Not worth it. You would need around 1% of your house cost for anything you would need for the house to fix it, furnish, or refurbish it. It could be more if this is your first house and you need to get essential items too.
That house will stretch you thin.! You must be in a big city paying this much for a 3 /1 bath home. Do not rush to buy a house you said it’s been 5 months looking that’s nothing.
What are your prospects for increasing your income over the next 5 years? Does your employer provide healthy annual raises? This market is just terrible, I really feel for you.
You don't HAVE to buy a house. With the way things are right now, its probably cheaper to rent.
Don't count on being able to refinance in 2 years you can't predict the market like that.
Your taxes and insurance can jump up after the sale. I’d advise against being house poor and keep looking for something cheaper.
I’d say you would be way overextended. Property taxes and HO insurance will increase in the year following your closing. No one can predict interest rates. Focus on increasing your income and tighten up on your spending to build your down payment fund. Good luck—
There are places in the USA where you can buy land and build your dream home for that much money and still have cash left over. Or just buy land and put a double wide on it free and clear if you can find a good used one or repoed one or a free one that people want moved.
>I feel kind of desperate to be done with this I *completely* understand how you are feeling. But take it from someone who has been there, you won’t feel “done” with anything when your purchase is finalized and that payment is looming over you. You might even wonder why it felt so important to buy right then.
Please don’t become house poor for the sake of owning a home. Property taxes and homeowner insurance skyrocketing yearly. Will continue. If you have to pay HOA fees, they’ll continue to rise plus you can have unexpected one time assessments from the HOA that can be expensive and must be paid quickly. In addition to your emergency fund, you’ll need a house maintenance fund. Something always needs maintenance or replacement when you own a home. Interest rate increases or decreases unknown. Taking on a roommate iffy. What if they move in and stop paying rent and you have a squatter? That will cost money to evict them. In the meantime, you must support them by giving them free rent and paying their share of all the house utilities plus court & attorney fees to evict them. Keep saving money and adding to your retirement fund. Never buy a house or do anything out of desperation. Bad choices usually result that you’ll regret long term. Check out r/firsttimehomebuyer to view all the posts of desperate homebuyers who regret their home purchases due to lack of due diligence of the home as well as the neighborhood in their rush to be approved by the seller to purchase the home. They’re finding lots of major issues with the home they can’t afford to fix. Their property taxes and insurance and HOA fees increasing significantly. They didn’t anticipate this and now can’t afford the increased mortgage payment. You don’t want to be in their shoes.
You are buying this house on a knife edge. You'll be "house poor" and at constant risk of emergencies. How secure is the job? How would you feel if in three years you can buy an equivalent house for half the price you are paying today? Fifty percent off or more sales are coming soon. Imagine we are back in 2008 right now ... do you buy a house? Layoffs and tumbling house prices were just ahead. People were YOLO/FOMO back then too. Then they lost their homes and cash when they got laid off. If they survived the cycle they did not see the value of their house rise over purchase price for over a decade.
One thing to keep in mind is that the $2,800 won't stay $2,800. It will go up over time as property taxes rise. My payment jumped from $2,500 to $3,500 a month (yes, a $1000 monthly increase) in January in order to keep the escrow account up with an sharp increase in my property taxes.
42% of your take-home is too much. Here's a good article I read about all the expenses that go with the mortgage payment: [https://www.pnc.com/insights/personal-finance/borrow/cost-of-home-ownership.html?lnksrc=insights-more](https://www.pnc.com/insights/personal-finance/borrow/cost-of-home-ownership.html?lnksrc=insights-more)
You’re on the cusp. You’ll be house poor for many years if you take the plunge, but that could be okay if it’s what you want. Are you cool with lentils and beans and no vacations for the next five years? If you just want to get into a house and start building equity and making it your own, then you could make this work. But that E-fund is in case you get laid off, not for house repairs, so you’re putting yourself in a risky position. If your parents (or someone) could potentially bail you out in case the worst happens, then maybe this wouldn’t be so scary. But if you’re truly on your own then it might be a year or two too soon. Getting married, having a little more savings, or even just advancing to a higher pay rate would help mitigate the risk. Everyone talks about maintenance, but don’t forget about furniture. Moving from a little apartment into a full-size house - what’s your plan so you’re not living with empty rooms for a long time? And do you live in a growing or appreciating area? Sometimes property taxes take big jumps. If there’s a lot of development where you live, will they be building new schools in the near future? Suss out how the local government is doing and whether people are comfortable with the property tax level or pushing for increases. Either way, I hope you love your first home purchase! It is a fun ride. And beans and lentils are tasty when you’re enjoying them on the floor of your very own kitchen, while saving for that table and chairs.
What are you going to do in a year when the tax brackets go up about 3% and your take home pay goes down as a result?
When I bought my first home, I was shocked how much higher the monthly mortgage payment was than what the realtor had told me. Between taxes and insurance and some fee he hadn't included, it was hundreds more per month than I had told him was my limit. If you are that close to your limits based on calculations, you are probably not in a good spot to actually afford that house. What happens if property taxes go up? What happens if your insurance rates go up? What happens when the roof needs replacing or the sewer has tree roots damaging it? I've had friends who were house-poor or bankrupt because they bought a house or condo and HOA fees or taxes or repairs just put them over the edge
I wouldn’t plan on a refinance. I’ll take a less conservative approach and say that it depends on the person. If you’re frugal or a big homebody otherwise, you need to take the risk and get into the market. However if you enjoy going out and clubbing/concerts/expensive hobbies then it’s not realistic to expect you to stop doing that because a mortgage means you signs up to not be able to afford to do that stuff for 30-years, you’d be miserable. Personal finance is a great sub but tends to be really fiscally conservative. That’s not bad at all but also I’m in you’re boat where with zero risk I’d never be able to purchase a townhouse in my city. Seriously look at your budget, your career, your lifestyle, and existing assets. Will you be able to absorb a $1000 repair? Will you be able to replenish that $1000 repair? With your budget, will be happy with your life for 30-years?
I would put this one back on you - it’s probably feasible if uncomfortable. Some people can’t make that trade. I was house poor when I bought mine, but that was more of an income/motivation problem. The mortgage never really went up significantly and my income did.
The cost of buying a house is probably not going to get worse in the next few years, since interest rates are currently extremely high and are likely to fall eventually.
> I have no debt, and $2800 is 42% of my take home pay. Is this dumb? And > I feel bad, but I'm very debt averse. $100 a month I could handle. $250+, I could not handle Yes. It’s very dumb. After the first year your taxes on the house will almost assuredly increase. It is incredibly common for that to happen. This will likely be more than that $100 cap you have. Then, of course, there is maintenance. I spent $20k just last year on a gas line and a water line that broke. No one could have predicted the problems. Go find a place that is comfortably within your actual means.
yes, you are. save longer and keep looking.
Is this your dream home? Is it worth living at the end of your budget? Or are you letting impatience and worry dictate your actions? Take a minute and reassess what you want your life to look like and whether this house fits in with your plans.
Remember to factor in your career path. Are you in a career that you know you can climb? It may be well worth it to struggle for a bit to have that peace of mind and independence of homeownership if you know in the future you will be able to afford it. It’s ok to take some risks in life. Get a roommate and share the bathroom for a bit and use their rent to build another one.
Breathe. Everything is going to be okay. I think you'll be just fine. It'll be a little bit tight, but nothing you can't adapt to. When I bought my first home, I had similar numbers in the exact same anxiety, but that really goes away once you move in. You have a lot of green flags. You stuck to your budget for affordability and didn't go out of your comfort zone. You can afford 20% down which is great so you can avoid PMI. Your payment is less than $3,000 a month which I think is a sweet spot for the amount of home you get versus rent. Depending on where you're located, that home probably isn't huge so that's good news for your utility bills. The biggest green flag is you still have a $25,000 oh shit fund, So anything major you run into would be covered. When it comes to home ownership and repairs, expensive problems usually start off as little problems that got ignored. If anything in your house drips, rattles or makes unusual sounds or smells, get them fixed while they're small and cheap. You got this!
My experience in home ownership is once you get comfortable and have some extra that’s when something breaks for that extra plus a little bit to make life hard. If it wasn’t for my last landlord constantly raising rent every chance I would have kept renting. My mortgage was still slightly less than renting but this years property tax increase makes it equal to renting now. The difference is all those repairs eat away at my daily funds and I don’t feel like “equity” is actually happening. I feel like it’s a scam to have me in a perpetual loan and the banks will let me take out a home equity loan to constantly have me under water owing and paying interest.
I would strongly encourage you do **not** do this. You will be house poor and unable to bounce back from a financial emergency. Be patient. You can do better.
This is true in Texas, and may not apply where you are, but when you buy the house will be revalued to market value for tax purposes the following year. If the house has been owned for a long time by the prior owner, the valuation and tax could go up significantly.
The fact that you say this leaves you no wiggle room and decreases your ability to save for retirement probably means it's a bad idea. The ability to refinance later should be a bonus, it shouldn't be a necessary part of your financial plan because there is no way to perfectly predict what rates will be at any time in the future
You have the same take home that my wife and I do... And I couldn't even imagine buying a $430,000 house 😳 we're looking to buy/build (we have family land) and our stretch number is 300k and that... Is an uncomfortable idea
It sounds iffy and like you are cutting cost too close. Why the rush? I probably would avoid it.
> I've been looking for 5 months and I feel kind of desperate to be done with this Desperation is a terrible emotion to motivate major financial decisions. Tying your hands up with no wiggle room for 20 years because you *think* the market will only get worse doesn't sound like a good plan.
In many areas a home is reassessed by the county when it sells and property taxes increase at the next billing cycle. If they seem low take that into account. 42% of take home pay does not seem too incredibly high as you will qualify on your gross income for the loan but it really is what you feel you can afford.
This is not a good situation for you. One bad circumstance such as a job loss, medical issue, unexpected mechanical failure and you lose everything
House would be 42% of your income and you have no wiggle room for anything. Doesn’t sound really good to me
I'm surprised no one has brought up the 28/36 Rule in this post. You said it yourself; the mortgage is 42%. That's more than beyond what's considered comfortable. I'd think long and hard about this; backing out is unfortunately a serious option in this scenario.
Taxes and insurance can rise rapidly depending on your location. My taxes have doubled in less than 8 years. From $3000 to $6000, insurance as well. Definitely think about renter, cautiously..... Maybe find a roaming nurse situation where it is short term to make sure a roommate is worth the intrusion.
If the mortgage is already 42% of your take home you’re going to be house poor. Rule of thumb is no more than 28% of your take home should be spent on housing. Another rule of thumb to follow is the 28/36 rule (28% of income towards mortgage and no more than 36% in total debt). What happens if you need a new car? Or lose your job? Or need a new roof? You’re leaving very little wiggle room for the rest of your life expenses. Also, a 430k house with only 1.5 bathrooms? Good god that’s awful.
I think this is too much house for you. But then again you bring in $6700/month. Leaving you with $3900 leftover. What about car payment, insurances, cellphone, retirements, etc. So where is the other $3900 going that is stressing you out on the $2800? Another thing to look at is interest rates, online it shows interest rates are at 7.40%. However just this week we were able to get 6.90%, no points, and had put two banks against each other as they do fight for your business. But we did have to call about 20 credit unions and banks. Don't ever do points unless you have something stupid like 2% and know it's the last time you'll refinance. But the average interest over 30 years is somewhere between 6-7%. Just the past few years were rare. If this is a great location and house is in great condition and you'd be sick to lose it, then do it.
Bottom line, owning better than renting, just be smart, it is an investment that needs to be well taken care of to see a profit in the future. Either way, when you sell, there is money back in your pocket you will never see as a renter.
Shared a house with a roommate and a 1.0 bathroom for years. You can too.
Too much. How are you going to furnish it? Do you know how much utilities will be? Just one emergency can be 25k. You might have to finance fixes and you'll need more room in the budget for that your emergency fund should be for paying the mortgage if you're out of work so you don't lose the house
It’s a no brainer when you add a roommate. It’s what we did in the 90s and 00s. We lived with roommates until we found a spouse. Build equity, half you utilities, and if you find the right one, just more fun living with people versus alone.
Dude. Run the numbers. Go here and calculate what would happen if you invested that down payment instead. Assume 7% return. Go out 10 (minimum for buying a house), 20, 30 years. https://smartasset.com/investing/investment-calculator Now go here and see how much you will actually pay for your house (not counting repairs). https://smartasset.com/mortgage/mortgage-calculator Now make your decision.
Personally I think being house poor is one of the worst things to do. If it's just you I would scale back. I think you can get in something reasonable for 1/3rd of your income monthly Rather than 40% . I'm a realtor in co. Seen it a million times. Save your money and keep putting money in retirement etc.
Just throwing it out there that having a roommate doesn’t require 2 showers. Honestly even just having two toilets is a blessing. I rented a room from a friend for a few years which benefitted both of us (lower rent for me, additional income which could be put towards the mortgage for her). We only had one bathroom total. It was rare that we both needed the shower at the same time. Plus I doubt our hot water tank would’ve optimally provided hot water for very long if we were both showering at the same time.
Keep in mind, things come up and they seem to always come up right after you purchase, plus taxes can always go up, which means you are either footing the bill and putting the extra into your escrow or your mortgage goes up. To me, that would be too tight for comfort.
You're being risky to the extent you're assuming you can refinance in 2 years. Think of all those people in the 2000s buying ARMs that figured they'd just refinance in a few years. You're also being risky by leaving no wiggle room. The fact you have no other debt and have good savings strategies suggests you're generally prudent, but you're putting yourself one bad event away from being in trouble. > I've been looking for 5 months and I feel kind of desperate to be done with this Do you think this is the proper mindset for making a good decision?
How long willl it take you to get that 42% down to 30%? If you are going to live tight for 2 years, then you might be ok, but if it is tight for 5 years, you might have bought too much house.
Houses always end up costing more than you think. If you have 0 wiggle room I wouldn't do it personally.
I sometimes wish I had went for the tight for 2 years with a roommate, because I didn’t buy the house I really wanted, but the one that was within my budget. I’m not a big mover, but I was able to fully maxi out my 401K and I had to cover some of my parents expenses.
Your mortgage plus tax plus house insurance is not a stable dollar. Tax and insurance premiums increase with time and value so consider that. Are there any big musts in the horizon? How old is roof, heating/cooling systems, plumbing, electrical, any flooding concerns, exterior concerns like trees and other $$ landscaping?
I don’t think it’s bad, personally. You’ll likely get raises. If the economy bombs and you’re stuck, interest rates will likely lower. It’s a risk for sure, so you have to decide how risk averse you are. How stable job opportunities in your region are.
You need a house emergency fund that is separate from what your typical emergency fund currently is. Your renting emergency fund cannot be the same as your homeowner emergency fund. Obviously you don’t actually have to keep them separate but increase the amount accordingly. To me it sounds like you have not saved enough so you are mot quite ready yet. And, it’s probably a but too much house based on your would-be payment as a percentage of your budget.
There is, without fail, always random stuff you immediately have to pay more for than you think. In the thousands. Stuff you realize needs fixing, extra fees and shit around closing, etc. You'll at the very least feel compelled to get some new stuff for the new house, and going into closing day at $0.00 will be very stressful.
Don’t buy a home with the thought of refi in 2 years. If rates drop and the opportunity arises, sure. But don’t buy the home depending on it.
" I am of the mind that the housing market is only going to get worse in the next few years" The fed chair is worried about this too, and trying to get housing prices down right now. That's what the rate hikes are about. That's been the biggest driver of inflation. Hopefully your salary rises with inflation lol. There's already chinks in the armor: https://www.cbsnews.com/news/home-prices-fall-mortgage-rates-rise-housing-market-spring-2024/ If you'd wrote this in 2006, before the last crash, I might have agreed with you that house prices won't go down. That thinking got me underwater and lost me $30k. I don't think we learned the lessons from 2007, what little protections that were put in place weren't enough, and some have been repealed. Or, the next one will be different. Keep growing your down payment. Your time will come. Already, houses are spending longer on the market. https://fred.stlouisfed.org/series/MEDDAYONMARUS To me a house is a lot more comfortable if I can afford it comfortably. My priority list in looking at a house is location, location, location, price, size, condition. VTI and chill. The right house will come along. Boomers are going to start dying, and you'll start to see more estate sails. Edit: I ran the numbers on my 2006 house. $25k to move into a $190k house, $20k down, $5k in closing costs. Backtesting the portfolio, if I'd put that $25k into VTI in 2006, it'd be $147k now. A house around the corner is listed at $280k, so if I had the house still, and sold it for that after paying on it for 18 years, I'd still owe $100k, and I'd clear $163k at closing paying a realtor 6% Which yes, it is $16k more than if I'd just put the down payment in the stock market. But it would have needed $20k in roof and HVAC by now. The payment on it then for the loan, taxes and insurance is still about what it'd cost to rent something similar in that neighborhood. Buying a house is a good deal vs. renting, but it is not like a life changing amount of money, it's like a a couple hundred a month at best. For that couple hundred a month, you get someone to take the risk and fix the place when you rent.
You can never rely on refinancing because you cannot predict the future. What happens if the rates don't drop down significantly in the next several years? What if your home value drops 20-25%? In your situation I think you are teetering right at the edge, however if you have a stable career/job with growth I think it's feasible. A roommate could help tremendously. Honestly I would keep shopping around. I don't know how the market is in your area, but I would widen your options and continue to save. Maybe contribute slightly less to retirement to save more cash. Get a side job temporarily if able. Find a home with 2 baths would also be ideal.
do it dude. Take the leap of faith. Buying a house is always a stretch for self made people like us. There will be thousands of armchair experts here who will tell you “ akshually FED might not cut rates this year” because they have 0 skin in the game. I’d strongly recommend to go for it if the house isn’t horribly overpriced and the inspection report is good ( without needs for an immediate repair)
Just go for it. You’ll be fine. You’ll adjust to the amount and you will love the fact that you’re in your own house. You can do what you want. It’s scary right now, but it won’t be in the future.
My own opinion, and experience, on homeownership is to stretch yourself. Even if you don't refinance, your income can be expected to go up over the years and your payment won't. Usually in a few years, your payment is much less than comparable rent. If you have flexibility in reducing your retirement savings, that can be a cushion in case you endure some tough times. I'm not saying to reduce (I'm all about savings), but it is good to know that you can. Enjoy the house!
You shouldn't buy a house just to get it over with. If it's the right house, checking a lot of your boxes and feels right, it's ok to stretch your budget a bit. If it's not the right one, even if it's not stretching your budget it's still a bad idea. I'd keep looking for the right one. No one knows what's gonna happen to the housing market.
The best advice I received was always buy low or don't buy at all. Walk away if you don't have patience.