Author Topic: Guidance for (first-time) home buyer w/ substantial down-payment  (Read 1484 times)

Vana360

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This forum has been immensely helpful, thank you in-advance. We are looking to buy our first home, however, are struggling with if we should purchase a home this year, and how much to put down. It does appear (in my opinion) that the present real-estate market is overvalued (this may be more of a geographically specific statement, than in general - please correct me if I am wrong).

Relevant Background Information:

Recently Married (I am 30, she is 28)
Zero Debt - school loans paid off, no CC loans and no car debt (cars will last another 5-7 years, they are newer cars)
Total Gross Income ~ 140k (me), 85k (wife) + bonus (around 20-25k - combined)

We are looking for a home in the $400k with taxes in the range of 6-10k (depending on the area). The area we live is a low cost of living area (think Cleveland, Indianapolis, Cincinnati, Detroit type of cities). Currently, we have $135k in down payment. We are living off her income, and saving mine (about $100-110k/year after taxes). If we wait another 2 years, we could probably save up another $200-220k for a down-payment, which would give us a total down-payment around $350k. The goal is to be done with paying the house before I turn 34-35.

Question: Is it better to wait and save for 2 more years, or get a house now and put down the $135k in down payment, and make a higher mortgage payment on a 15 year APR fixed loan? As mentioned above, I do think the housing market is overvalued. But, that is my opinion, and what I think does not really matter as it is what the market dictates. Another drawback of waiting 2 more years is that we will need to continue to pay rent, which right now is $1,150/month and over 2 years that will be about $27k (assuming no increase in rental price, which is unlikely). If it is assumed that property taxes will be about $8k and interest paid over 2 years is $4-6k, and house maintenance costs, very likely that $27k in rental costs is what we would have paid on related housing expenses.

Thanks for the help. Please feel free to ask any questions that would help.

L2

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #1 on: June 10, 2019, 11:00:36 AM »
Posting to follow as I'm in a similar situation to yours (but smaller dollar figures) in one of the cities you mentioned below.

I'm looking to buy in the $250-275k range and have my 20% down payment saved. However, I really don't want to buy while the market is at or near its peak. I feel confident in my job security, so I'd really like to take advantage of lower prices in an economic downturn if I can.

Zamboni

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #2 on: June 10, 2019, 11:04:31 AM »
markets are different in different locations, but it's definitely a white hot seller's market where I am. Personally, I am banking on the Republican triggered deregulation downturn, but it's sort of equivalent to trying to time the stock market.

Watchmaker

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #3 on: June 10, 2019, 12:31:31 PM »
We are looking for a home in the $400k with taxes in the range of 6-10k (depending on the area). The area we live is a low cost of living area (think Cleveland, Indianapolis, Cincinnati, Detroit type of cities). Currently, we have $135k in down payment. We are living off her income, and saving mine (about $100-110k/year after taxes). If we wait another 2 years, we could probably save up another $200-220k for a down-payment, which would give us a total down-payment around $350k. The goal is to be done with paying the house before I turn 34-35.

Question: Is it better to wait and save for 2 more years, or get a house now and put down the $135k in down payment, and make a higher mortgage payment on a 15 year APR fixed loan? As mentioned above, I do think the housing market is overvalued. But, that is my opinion, and what I think does not really matter as it is what the market dictates. Another drawback of waiting 2 more years is that we will need to continue to pay rent, which right now is $1,150/month and over 2 years that will be about $27k (assuming no increase in rental price, which is unlikely). If it is assumed that property taxes will be about $8k and interest paid over 2 years is $4-6k, and house maintenance costs, very likely that $27k in rental costs is what we would have paid on related housing expenses.

If you're planning on paying off the house by the time you are 35, then it doesn't matter very much whether you save up a big down payment, or buy with 20% and then make extra payments to pay it off.

I'd keep looking until you find the house you want, and then buy it with whatever sized down payment you have saved at that point.

RWD

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #4 on: June 10, 2019, 01:14:14 PM »
Put down 20% and invest the rest.

Investment order
Club

honeybbq

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #5 on: June 10, 2019, 01:14:42 PM »
We are looking for a home in the $400k with taxes in the range of 6-10k (depending on the area). The area we live is a low cost of living area (think Cleveland, Indianapolis, Cincinnati, Detroit type of cities). Currently, we have $135k in down payment. We are living off her income, and saving mine (about $100-110k/year after taxes). If we wait another 2 years, we could probably save up another $200-220k for a down-payment, which would give us a total down-payment around $350k. The goal is to be done with paying the house before I turn 34-35.

Question: Is it better to wait and save for 2 more years, or get a house now and put down the $135k in down payment, and make a higher mortgage payment on a 15 year APR fixed loan? As mentioned above, I do think the housing market is overvalued. But, that is my opinion, and what I think does not really matter as it is what the market dictates. Another drawback of waiting 2 more years is that we will need to continue to pay rent, which right now is $1,150/month and over 2 years that will be about $27k (assuming no increase in rental price, which is unlikely). If it is assumed that property taxes will be about $8k and interest paid over 2 years is $4-6k, and house maintenance costs, very likely that $27k in rental costs is what we would have paid on related housing expenses.

If you're planning on paying off the house by the time you are 35, then it doesn't matter very much whether you save up a big down payment, or buy with 20% and then make extra payments to pay it off.

I'd keep looking until you find the house you want, and then buy it with whatever sized down payment you have saved at that point.

+1

And feel free to walk away at any point from a purchase.

Malkynn

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #6 on: June 11, 2019, 05:27:11 AM »
I wouldn't worry about 27K in rent when you could end up paying upwards of 20K in property taxes in that time anyway.

Right now, your monthly rent is lower than the expense of owning might be, so don't worry about it.

Waiting certainly won't actually cost you anything.


iris lily

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #7 on: June 11, 2019, 07:23:48 AM »
Cleveland isnt nearly as inexpensive as I would have thought. My victorian 2,000 sq ft house here in a St. Louis historic district would be twice  as much in German Village, Cleveland.
« Last Edit: June 11, 2019, 08:02:22 AM by iris lily »

2Cent

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #8 on: June 11, 2019, 07:38:55 AM »
Put down 20% and invest the rest.

Investment order
Club
+1
Why put all your savings into your house? With your income it seems you can afford to take a bit of risk. In your calculation you seem to forget the money your savings would earn in investments.

terran

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #9 on: June 11, 2019, 07:47:04 AM »
If you buy a $400k house a put $350k down you're not going to get a very good rate on the mortgage. It's just not worth the banks time. We bought a very cheap house (under $100k) and we ran into that a bit. If you want to put that much towards the house you'd probably be better off just getting a larger mortgage and paying much of it off right away. Do the math of course. Or just wait a little longer and buy cash.

No matter how you cut it, I have to believe the longer you stay in a $1150/month rental the more you'll save as compared to buying a $400k house even though renting is "throwing money away." A $400k house is a lifestyle inflation compared to that rental rate. That's fine if that's what you want and you can afford it, but the longer you wait to inflate your lifestyle the more money you'll have in the end.

iris lily

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #10 on: June 11, 2019, 08:03:18 AM »
If you buy a $400k house a put $350k down you're not going to get a very good rate on the mortgage. It's just not worth the banks time. We bought a very cheap house (under $100k) and we ran into that a bit. If you want to put that much towards the house you'd probably be better off just getting a larger mortgage and paying much of it off right away. Do the math of course. Or just wait a little longer and buy cash.

No matter how you cut it, I have to believe the longer you stay in a $1150/month rental the more you'll save as compared to buying a $400k house even though renting is "throwing money away." A $400k house is a lifestyle inflation compared to that rental rate. That's fine if that's what you want and you can afford it, but the longer you wait to inflate your lifestyle the more money you'll have in the end.

 Think this is very good information especially about the lifestyle inflation

formerlydivorcedmom

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #11 on: June 11, 2019, 08:19:57 AM »
How much house does $400k buy in your area?  I live in an area with a higher cost of living than, say, Cleveland, and $400k is a very nice, large 4-bedroom home.  Versus my $300k house, which is an 8-year-old 3k sq ft home in a smaller neighborhood that doesn't have its own lake.

As newlyweds, I'd question the necessity of getting a large house right now.  My husband and I bought our first home when we'd been married 2 years.  It was supposed to be our "forever" home, so we got a nice 2500 sq ft home.  Three years later, we had to change cities due to a job change.  The new city had the exact same builder with the exact same floor plan as our house...and we decided we didn't really like that floor plan enough to buy it a second time.  Now I have 3 kids, and the 3k sq foot home is way too big for us.  (I'm now on my 4th house.)

Besides the costs of taxes, insurance, and maintenance, consider that a home also will mean potentially significantly higher utility costs, expense for the lawn (either buying a lawn mower, etc or hiring someone...plus the cost of mulch and plants every year if you have flower beds), expense for pest control, potentially expenses for a gym or pool membership (if your apartment provides those and your new home isn't in an HOA with those perks), plus the cost of redecorating and any furniture you need to buy to fill the space. 


affordablehousing

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #12 on: June 11, 2019, 10:59:32 AM »
You've gotten good advice. Only you can decide if you like having no debt, or believe you can make more than 4% return on your money. In your situation, since you save more money per year than a house can appreciate in your market, I think the most important thing is to focus on finding a home that gives you pleasure.

frugaliknowit

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #13 on: June 11, 2019, 01:52:22 PM »
Firstly, you guys are "KILLING IT", keep it up!

Since you're in a relatively low cost market, why not just save up and pay all cash for the house?  Financially speaking, there is no hurry:)


Ann

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #14 on: June 11, 2019, 03:28:50 PM »
Do you know what you want in a house?  Since you donít have time pressure that can give you the luxury of familiarizing yourself with the houses for sale and neighborhoods you want.  Maybe look at what you like and go to some open houses?  That way you can be looking and if a great house & location are available you can snatch it up.  Until then, you are getting a feel for the market, what floor plans you both like and size minimums and maximums.

Trying to time the real estate market seems risky.  It seems more beneficial to find a place that you really enjoy living in day after day.
« Last Edit: June 11, 2019, 05:05:12 PM by Ann »

MrThatsDifferent

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #15 on: June 11, 2019, 04:25:52 PM »
What is driving your urge to buy? Do you need the added expenses that come with owning? You both have great salaries and are doing an incredible job saving, invest that money and watch it grow. Keep your expenses low and then, when you get to FI, decide where you want to live and what you want to be doing. You can always move to anywhere thatís low to medium COL and continue to rent or consider buying if you find your forever home. Donít be pressured to buy because thatís what ďadultsĒ do, your money will go so much further invested.

Blue Skies

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #16 on: June 13, 2019, 10:00:04 AM »
I agree with the advice to start looking at real estate.  When we bought our first house we looked at quite a few before we really figured out what we wanted in a house and what we didn't.  And then we kept looking until we found a house we liked, in a location we liked.  Planning to find the perfect house at any specific time is tough.  I would look around, figure out what you want, and then be ready to jump on it when you find it, whenever that happens to be.

Lady SA

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #17 on: June 13, 2019, 10:48:11 AM »
question for ya'll suggesting OP casually look around long-term and be ready when a great house pops up (this is coming from someone who has never purchased a home!). Aren't mortgage approvals/applications only good for a certain amount of time (say, 6 months?). So if OP is casually looking for the next 2 years, how would that work? Is it free and relatively uncomplicated to renew your mortgage application every few months?

Again, never done this before so I'm probably confused about something simple or maybe using wrong terminology. We are thinking of doing something similar (casually look for the next few years) and this mortgage time restriction seemed like an impediment to buying on our timeline, not the bank's. How have other people done this?

SemiChemE

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #18 on: June 15, 2019, 09:33:16 PM »
@Lady SA assuming you are reasonably well qualified, the banks are competing for your mortgage business, so they make it relatively painless to apply and get pre-approved, so while such a pre-approval may expire, it shouldn't be a problem to renew it if needed.  The one caution I'd give is that sometimes, the credit check from the pre-approval can show up on  your credit report, leading to a worse score (and higher interest rate), when you actually pull the trigger and apply for the loan.  Probably, it won't be a big deal, but don't go crazy and get pre-approved by several banks.

less4success

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #19 on: June 16, 2019, 08:36:50 AM »
Setting aside whether or not you should buy a house at all, if you plan to pay the mortgage down quickly, should you look at a 5/1 adjustable rate mortgage instead of a 15 year fixed rate mortgage?

Back when I was looking at mortgages and planned to pay one down quickly, ARMs had lower rates, thus saving me in interest payments. Additionally, with at least some ARMs, if you made extra principal payments, your future monthly payments would shrink (instead of the loan term shrinking, as with a fixed rate mortgage). This all assumes you will pay the mortgage off before the rate adjusts.

SemiChemE

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #20 on: June 16, 2019, 12:42:10 PM »
Setting aside whether or not you should buy a house at all, if you plan to pay the mortgage down quickly, should you look at a 5/1 adjustable rate mortgage instead of a 15 year fixed rate mortgage?

Back when I was looking at mortgages and planned to pay one down quickly, ARMs had lower rates, thus saving me in interest payments. Additionally, with at least some ARMs, if you made extra principal payments, your future monthly payments would shrink (instead of the loan term shrinking, as with a fixed rate mortgage). This all assumes you will pay the mortgage off before the rate adjusts.

I agree that ARM Loans can make a lot of sense.  When my company transferred me to a new location for a temporary assignment in 2007, my wife and I took out a 5/1 ARM, figuring we'd probably be moving again anyway.  We got a great interest rate, that was about 0.5% better than a conventional loan.   Five years later, in 2012, we were still in the house, but our rate actually dropped.  The Rate has climbed a bit the last couple years, but is still below the original rate.  We're now in a position where we could pay off the loan if rates do climb higher, but so far it has made more sense to keep our money in other investments.

ARMs can be dangerous when used to extend purchasing power and maximize the loan amount, so be careful how you use them.  But, they are  a great tool when used wisely, espcially as a short-term instrument, when one plans to move again in a few years or to pay off early.

Buffalo Chip

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Re: Guidance for (first-time) home buyer w/ substantial down-payment
« Reply #21 on: June 16, 2019, 06:01:33 PM »
My advice for a first time homeowner from a long-time homeowner: rent as long as you can! There is something to be said about having an HVAC unit conk out and calling the LANDLORD to deal with it.  If it's your house, it's your problem.  And homes seem to attract expensive maintenance problems like a dog attracts fleas. Yeah, I like my house.  But it's an expensive luxury, not an investment.