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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: MrsSavingSpree on February 04, 2018, 05:06:37 PM

Title: Buying our first house
Post by: MrsSavingSpree on February 04, 2018, 05:06:37 PM
Hello everyone!

In about 2 years (yes I plan ahead perhaps too much) we will be buying our first house. We will also be relocating to literally wherever we want in the U.S. Right now, we have our sights set on Peoria, AZ area, although that could change. The cost of living is average there and housing costs are slightly above average. Job wise, we both work in health care and can find a job wherever there are nearby hospitals/clinics. Our take home pay is currently $9400 although this could change depending on the job market when we relocate. Hopefully not too drastic a change.

Anyway, since buying a house will tie up an enormous amount of our income for the foreseeable future, I am seeking general advice about house buying. For now, buying seems more attractive than renting despite the constant drain on finances a house seems to be. Most of the houses in the area we've been considering seem to be about $350k for 2,000 square feet in a decent school district. We plan to have two children, so 2,000 square feet seems reasonable for four people. We can use a VA home loan if we choose to, which will require no down payment or PMI. This makes buying more attractive to us, since we won't have to tie up so much money upfront that we would otherwise be saving/investing.

And I would plan on doing a 30 year loan, as with interest rates 4%-5% (by then, just guessing) I would rather put extra money towards investments rather than trying to pay off the mortgage quickly. Being optimistic about interest rates, $350k at 4% for 30 years is about $1700/mo. With HOI, property tax, possible HOA, and saving for maintenance, that easily puts us close to $2k a month for housing expenses. Right now we are paying $1k (renting a 1200 sq ft place in a cheap area - terrible schools), so this extra $1k a month makes me altogether nervous.

I hate the idea of so much of my monthly income being tied up in housing, but outside of just moving somewhere completely different, I'm not sure I can avoid it. Just about any modest sized home in a good school district seem as though it's going to eat up at least $1500 a month, whether you buy or rent.

Anyway, am I missing any grand Mustachian insights? I don't want a gigantic, luxurious home by any means, but even a modest-sized one seems a bit too pricy for my liking. I would be more inclined to wait and rent a cheap place for as long as possible, but again, concern about mortgage interest increase makes me feel we might as well just buy and get it over with.

How much are others paying for their homes, in regards to percent of your net pay? What suggestions do you have? Am I being too paranoid? $2k isn't the worst, I suppose, but it does seem expensive to me.

As a side note, we're currently living off roughly $3k a month and the other $6k is going towards debt/savings. So we're no stranger to living somewhat frugally, although we could certainly do a lot more to cut expenses. Eliminating at least most of our debt is our first priority, then we would like to still maintain a high savings rate. Kids and a high housing payment might just kill that. As far as our goals go, we aren't in any hurry to retire at 40 or something, we're fine working for the next 20 years or so at least. So having a huge savings rate isn't vital, but we value a high savings rate because we like the freedom having extra money gives us.

Advice? Thanks in advance!
Title: Re: Buying our first house
Post by: englishteacheralex on February 04, 2018, 05:31:19 PM
We live in Honolulu. We have a three year old and a one year old. Combined income is around $150k/year.

Before we had kids, we thought we'd just rent forever, because the median home price in Honolulu is around $750k. No way.

After our first child was born, we realized that once we had two kids we'd want a three bedroom place. Hard to find a 3 bedroom in Honolulu to rent for less than $2k/month. We also realized we never wanted to move again, and that we wanted as short a commute as possible.

For our situation, buying a condo made sense. We found one for $364k in 2015 in a neighborhood about two miles away from my husband's job. It is an 850 square foot 3 bedroom, 2 bath, 2 parking. It has a washer/dryer and a dishwasher. Condo fees are now $630/month (it has two pools, a play structure, and two workout rooms). All together, our housing comes to $2200/month. Since we bought the place, it has appreciated to around $400k, so that's nice.

Renting an apartment in our building is around $1800/month for a really crappy one with only one parking to around $2200 for a nice one with two parking. Seems to us that we made the right choice. It's small, for sure. But anything we could rent for a comparable price would also be small.

I've read many, many articles on both sides of the rent vs. own debate. As far as I can tell, if you're going to stay in one place for a long time, the most efficient thing to do in general, depending on the market and yada yada yada is to buy. Especially with kids...renting with kids can really suck. We don't see our condo as an investment. As far as we can tell, it's just the most efficient/optimized way to solve the housing cost problem.

Title: Re: Buying our first house
Post by: Sibley on February 04, 2018, 07:30:24 PM
I really think you're jumping ahead too far here. A lot can change in 2 years.

Don't buy a house just because you're "supposed" to. That's the worst possible reason. Owning is a lot more maintenance and repair, and that isn't for everyone. Renting is NOT throwing your money away, and for many people and in many situations it's the smartest option.

Also, if you're going to move somewhere else, you should not buy immediately anyway. It takes some time to figure out if you like an area enough to want to be there long term, and also to figure out exactly where you'd want to buy.

In terms of figuring out if you should rent or buy, the NYT Rent vs. Buy calculator is very helpful.
Title: Re: Buying our first house
Post by: Greystache on February 04, 2018, 08:50:45 PM
Home ownership isn't for everyone but I think it worked out ok for us. We have been in the same house for 23 years. We paid it off before we retired. It is now worth more than 3x what we paid for it. We now pay about $500 a month for taxes, insurance, utilities and maintenance. A comparable rental in our neighborhood would be around $2500 per month. We are able to do nearly all the maintenance and repairs ourselves and that helps keep costs low. So I guess my advice is that home ownership can make sense if you are in it for the long haul and you can keep your costs low. When we first bought our house it was a bit tight financially but we were still able to max out our 401Ks. Buying a house may have set our FIRE date back a few years, but I really like the low cost of housing now that I am retired.
Title: Re: Buying our first house
Post by: boarder42 on February 04, 2018, 08:57:38 PM
2 years is an insane amount of time to plan for a house. Interest rates are up over a percent in the last year and a half. With the trend being to continue to rise. You could be looking at a rate much over 5% it could easily be 6%. Which greatly changes all the math around mortgages. You can never buy too early from a rate stand point.
Title: Re: Buying our first house
Post by: frugaliknowit on February 05, 2018, 09:09:43 AM
It's fine to plan, but I would caution you on 2 things:

1.  You PLAN to have 2 children (wonderful!), but don't buy on the basis of that plan (wait until they are born).
2.  I have read VA is the MOST expensive kind of mortgage to have (no down payment, but riddled with fees and insurance costs).
Title: Re: Buying our first house
Post by: boarder42 on February 05, 2018, 10:38:49 AM
It's fine to plan, but I would caution you on 2 things:

1.  You PLAN to have 2 children (wonderful!), but don't buy on the basis of that plan (wait until they are born).
2.  I have read VA is the MOST expensive kind of mortgage to have (no down payment, but riddled with fees and insurance costs).

i disagree with number 1.  if i plan to have children in the short term why would i buy a house with 1 bed 1 bath - then have children 12 months later and have to change living conditions.