Author Topic: First House Purchase Timing Advice - Please Help!  (Read 1636 times)

cysewr

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First House Purchase Timing Advice - Please Help!
« on: June 10, 2018, 02:20:17 PM »
Hello all,

This is my first post, but I have been following this community (and the blog) for a while now, and have learned and implemented much from what I have read. I am hoping you can give me some perspective, and perhaps a punch in the face if needed. Here is my situation:

Location: Spokane, Valley, WA
Income: $65k (new engineer, graduated <2 years ago)

Retirement accounts: $34k, currently maxing out my Roth IRA, and putting another $100 from each paycheck into my 401(k) to get the company match. I am currently putting such a small amount into my retirement accounts so that I can fund my house down-payment fund.

House down-payment fund: $14k, putting $900 from every paycheck into this account since I payed off my student loans.

Credit Score: 797

I am also putting $250 from every paycheck into a fund to eventually buy a car, as I currently drive a 1998 Honda Civic with 230k miles (so far I only have $2000 saved).

Here is the rest of my situation: I am currently living with my parents, in order to pay off my student loans (done, no other debt), and save up to buy a house. The arrangement is working pretty well, but friction is slowly building, and they would definitely like to see me move on to the next phase in my life before long. Iím getting a lot of pressure from them to buy a house, new(er) car, etcÖ

I realize that my down payment fund is currently very small. To make matters worse, the price range of houses I am looking at in Spokane Valley ($170k) are generally pretty low quality. One I looked at yesterday was about 3br/1ba, 800 sq ft, had very cheap updates, and there were already multiple offers in excess of the $165k asking price. It just didnít feel solid at all, and a lot of the other local listings in that range look very similar. Just for kicks, I went to look at a 4br/1ba (with potential to easily add a second bathroom) house listed for $225k, and it was not only much higher quality, but over twice the size. I am also frustrated at the apparent fact that there is very little discount for buying a smaller house (say 1100-1400 sq ft), as those are generally in the $200k range. It seems there is a huge premium on small homes, or they are lacking in quality.

Iím having trouble deciphering the market here in the Spokane Valley area. Like a lot of other places, house prices have gone up significantly in the last 1-2 years. My gut instinct was that the market was due to come back down, but there seems to be a large influx of people moving here from HCOL areas such as California, and I wonder if this will continue, and drive prices up. Additionally, it appears that Amazon is building a new location in nearby Airway Heights, which I worry will continue to push housing prices upward.

So all that being said, Iím wondering if you can give me some advice for how to proceed. Obviously Iím in the very early stages financially, but I want to make sure I make a good decision here. The way I see it, I can either 1) continue living at home, saving aggressively until I have a larger down payment, 2) move out and rent an apartment (looking at the rental market, this would likely cost $1000/month, slowing my down payment savings way down), 3) buy in the near future, either spending more than Iím comfortable with, buying a place of low quality, or buying a fixer-upper and learning to remodel as I go.

Hopefully that was enough detail, but please let me know if I am missing anything. I really appreciate any insight that you all could give on any aspect of my situation. Thank you in advance!

Sibley

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Re: First House Purchase Timing Advice - Please Help!
« Reply #1 on: June 10, 2018, 02:39:45 PM »
Have you run the NYT Rent vs. Buy calculator and determined that it actually makes financial sense to buy in your area? Because if it doesn't make sense for you to buy, then you shouldn't.

Also, you're not ready to buy yet. Houses are expensive. Just because you have a down payment (barely), doesn't mean that you can then turn around and handle the associated repair/maintenance expenses. Can you handle paying for a new roof? Replacing the fence because it's too far gone to repair?

If there's tension building with your parents, but you're not actually ready to buy a house for a couple more years, then you need to seriously consider moving out and getting roommate(s) to keep expenses low.

You DON'T buy a house because:
1. Your parents want you to
2. You think you're supposed to
3. Everyone else is
4. Renting is just throwing money away
5. You want to buy a house before you're financially ready to

You DO buy a house because:
1. You want to buy a house AND
2. You can afford to buy a house

Also, all houses require repairs/maintenance. It's just a question of how much and when. Learning to DIY will grow your skills, give you a sense of accomplishment, and save you a ton of money. Even if the project is something that you aren't going to do yourself, having the knowledge of HOW it should be done is going to help you immensely when you're paying someone else to do it for you.

You've got a good start. Don't screw yourself by jumping into a house you're not ready for yet.

cysewr

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Re: First House Purchase Timing Advice - Please Help!
« Reply #2 on: June 10, 2018, 02:48:33 PM »
Thanks for the frank advice. It definitely makes sense.

I have been playing with the NYT calculator, and it generally comes out in favor of buying, even for nicer houses. I guess that's where I get a little hazy, since I don't have much of a down payment to speak of. I like the idea of renting and getting roommates once living at home is no longer feasible - that would be a way to continue putting a lot towards my eventual down payment.

ixtap

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Re: First House Purchase Timing Advice - Please Help!
« Reply #3 on: June 10, 2018, 03:03:05 PM »
Personally, in a similar financial situation I chose a condo. I HATE the very idea of lawn care. In the market I was looking in, new or newly renovated condos were available for slightly less than the smallest houses, most of which needed new roofs and other delayed maintenance.

Yes, I understand all of the financial concerns regarding condos, but they exist because they fill a niche for some people.

From Zillow, it looks like the homes in your area come with quite a bit of land, as well. Do any of them have accessory buildings that could be rented out, either as storage or to a tenant?

Imma

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Re: First House Purchase Timing Advice - Please Help!
« Reply #4 on: June 10, 2018, 03:11:08 PM »
Thanks for the frank advice. It definitely makes sense.

I have been playing with the NYT calculator, and it generally comes out in favor of buying, even for nicer houses. I guess that's where I get a little hazy, since I don't have much of a down payment to speak of. I like the idea of renting and getting roommates once living at home is no longer feasible - that would be a way to continue putting a lot towards my eventual down payment.

You could, of course, also have roommates in a house you own. Especially since you're looking at 3/4 bedroom properties and you seem to be young and single. When we bought our place we were young and poor we took our roommate from a previous rental with us and he paid half the mortgage for the first year.

Kwill

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Re: First House Purchase Timing Advice - Please Help!
« Reply #5 on: June 10, 2018, 03:17:17 PM »
What do you mean when you say the houses are low quality? Do you mean that the interiors seem dated, the doors and hardware are cheap, there's wall-to-wall carpet, and the kitchens have boring cabinets? Or do you mean that there are structural problems that will be expensive to set right? It might be worth exploring questions like what issues would be easy or hard to fix and figuring out what you can and cannot live without.

It does seem a little soon for you to buy a house, overall.

Another thought: You could potentially get a three-bedroom with roommates whether you buy or rent.

cysewr

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Re: First House Purchase Timing Advice - Please Help!
« Reply #6 on: June 10, 2018, 05:02:42 PM »
Well, I haven't looked at very many homes so far, but from what I have seen, these $165-175k houses have thin walls, cheap flooring and cabinets, etc. And those are the recent updates.

I like the idea of having 1-2 roommates, but how much should any potential rent from them factor in to what I can afford? Obviously I need to be able to make the mortgage payment regardless...

I agree that it seems early for me to buy a house, but it will be extremely frustrating if housing prices go up another 10% in the next year, negating much of what I save for a down payment (obviously it could also work in the reverse).

CindyBS

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Re: First House Purchase Timing Advice - Please Help!
« Reply #7 on: June 10, 2018, 06:08:38 PM »
You say that you live with your parents.  Have you ever lived anywhere else?  At college, did you live at home, in a dorm, an apartment you paid for, apartment parents paid for ?

If you have never lived in an apartment (or condo/house rental situation) that you paid for, I think that is a very valuable first step, regardless of whether or not you have a down payment to buy a house.  Living independently and being a home owner are 2 totally different skills.  I think the majority of people should live independently (fully supporting themselves) and rent before buying.  It is a good experience.   My $.02 would be to move out of mom and dad's, get an apartment or other rental, and the re-assess the housing market in a year.   

I also agree with silbey - mom and dad wanting you to buy a house is not a reason to buy.  The nice thing about becoming fully independent and moving out is that you are free to just disregard their opinion.

lhamo

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Re: First House Purchase Timing Advice - Please Help!
« Reply #8 on: June 10, 2018, 06:29:48 PM »
Be thankful you aren't looking in the greater Seattle area -- here the type of low-end house you described is going for 500k, minimum. And that's in my comparatively cheap/farther out neighborhood.

I don't think you are ready to buy yet.  How much student loan debt do you have left?  I would get that off your back ASAP, then save aggressively for a house.  Should be doable on a 65k salary in lower cost E WA.  If living with parents becomes untenable find a room in somebody else's apartment to keep costs down/flexibility up.  Easier to move out if your name isn't on the lease.

Posting a case study with more details of your budget would help you get more detailed feedback on how to ramp up savings.

Once you do have the down payment, you can probably house hack your way to a very low or no housing cost situation by renting out 2-3 rooms in your first house.  That is the sweet spot to be in when you are young and single -- can pay off your mortgage quickly and save for another investment property, etc.

cysewr

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Re: First House Purchase Timing Advice - Please Help!
« Reply #9 on: June 10, 2018, 07:07:14 PM »
Great replies, thank you all so much!

So just to clarify, I have lived away from home for several stretches. Most recently, I was renting an apartment in Michigan while working my first year out of college (my employer since transferred me back to WA as part of the agreement when I was hired). I think I was actually pretty good at living on my own, cooking 100% of my meals, etc... I definitely agree about living independently being an important skill.

Also, in response to lhamo, I paid off my student loans several months back. Since then, I have been saving aggressively for a down payment (just not for very long).


wawot1

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Re: First House Purchase Timing Advice - Please Help!
« Reply #10 on: June 10, 2018, 07:42:36 PM »
Have you run the NYT Rent vs. Buy calculator and determined that it actually makes financial sense to buy in your area? Because if it doesn't make sense for you to buy, then you shouldn't.

Also, you're not ready to buy yet. Houses are expensive. Just because you have a down payment (barely), doesn't mean that you can then turn around and handle the associated repair/maintenance expenses. Can you handle paying for a new roof? Replacing the fence because it's too far gone to repair?

If there's tension building with your parents, but you're not actually ready to buy a house for a couple more years, then you need to seriously consider moving out and getting roommate(s) to keep expenses low.

You DON'T buy a house because:
1. Your parents want you to
2. You think you're supposed to
3. Everyone else is
4. Renting is just throwing money away
5. You want to buy a house before you're financially ready to

You DO buy a house because:
1. You want to buy a house AND
2. You can afford to buy a house

Also, all houses require repairs/maintenance. It's just a question of how much and when. Learning to DIY will grow your skills, give you a sense of accomplishment, and save you a ton of money. Even if the project is something that you aren't going to do yourself, having the knowledge of HOW it should be done is going to help you immensely when you're paying someone else to do it for you.

You've got a good start. Don't screw yourself by jumping into a house you're not ready for yet.

Agree with all of this.

Why don't you rent a place with a roommate or 2 for a while?  You don't have to fork over the whole rent, so you can still save up for a good down payment, and you'll have more time to look and think about what you really want?


Good luck

jeroly

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Re: First House Purchase Timing Advice - Please Help!
« Reply #11 on: June 10, 2018, 07:49:34 PM »
You could also find someone that's looking for a roommate and just rent a room - on Craigslist or elsewhere .

That would allow you to continue to save for a down payment for a house/condo at a faster rate than renting your own place, while still getting out of your parents' place.

ShoulderThingThatGoesUp

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Re: First House Purchase Timing Advice - Please Help!
« Reply #12 on: June 10, 2018, 08:44:54 PM »
Rent, even if the calculator says not to. Youíre early in your career and an opportunity could take you far away. Start looking at apartments.

cysewr

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Re: First House Purchase Timing Advice - Please Help!
« Reply #13 on: June 10, 2018, 08:57:11 PM »
Definitely see the logic to renting in my situation, due to my down payment situation. However, I have lived in multiple other places (Minnesota, Michigan, Seattle), and I know that this is where I want to be long-term. That could certainly change with potential job opportunities (especially if I end up eventually getting an MBA and getting out of engineering), but I am willing to pay a premium to live in this area.

skeptic

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Re: First House Purchase Timing Advice - Please Help!
« Reply #14 on: June 10, 2018, 10:12:07 PM »
Congrats on all the progress you've made and thinking this through.

Can you say more about why you want to buy a house? It may be that you want to buy a house because it seems like a financially advantageous thing to do. It might be... or might not. You probably already know why it might be good (since you're leaning that way), let me just touch on some reasons it might be bad:

(1) It gets in the way of you moving around for the best career prospects in the next 5 or so years. You'll be less inclined to apply and less inclined to accept if you have this obligation. The opportunity cost could be HUGE. And if you do move in less than 5 years, the transaction costs will make this a huge financial negative unless there is big appreciation, which you can hardly count on. Or if you try to hang on to the house and move anyway, then you get to deal with paying for housing you aren't using and/or being an absentee landlord (not fun) and/or dealing with and paying a property management company. None of that is at all fun and is not likely to put you ahead financially. In short: freedom and flexibility have significant value; don't sell yours for less than they are worth.

(2) I second the NYTimes rent vs buy calculator: use it! Also, using the back of an envelope I will say that if you have a choice between a 1000/month apartment and a 170,000 house, you'll almost certainly come out ahead with the apartment UNLESS there is quite good appreciation in the house. Once you factor in MAINTENANCE in addition to the PITI payment, the house starts looking a lot more expensive, even after you account for the principal you pay off each month.

(3) In my experience, I find that there is so much competition for the lowest-priced real estate in a particular market, that you end up getting less "value" than if you waited until you could pay 30-50% more than those lowest-priced properties. This is kind of hard to explain because one might say value is essentially what someone will pay for it, but other ways of measuring value might be the price you'd get if you tried to rent the place out, or the likelihood of it holding its value through a recession, or the total return over time including capital expenditures (i.e. maintenance).

(4) Especially at this point in your career, you might get a much higher ROI by spending your time improving your job skills or putting in some extra hours than on learning how to caulk a tub or going to landlord-tenant court to evict your non-paying roommate.

(5) Buying out of fear that the market is going to appreciate beyond your reach is kind of setting yourself up to make a purchasing mistake. Because of this emotion (fear), you're much more likely to pay more than you should and to buy a place that you don't truly want to hold long-term instead of being patient until you find the right place that meets your needs at the right price. Even if it takes 3-5 years. I'm worried you're going to jump at the first semi-suitable home as soon as you have a sufficient down payment. Both with real estate and other investing, sometimes you can make a lot of money by just doing nothing... until the time is right.

------

I tried to speak to your actual question, but the relationship with your parents is super important and probably deserves far more attention than the buying a house question. My guess is if you are getting a hint of tension, then they are probably completely over having you in the house. It sounds like it is time to move out, or at the very least to make a clear transition plan with them that they truly are happy with. Paying $1000/month in rent [or as little as you can get away with] is a very small problem compared to relationship problems... at least when you have the money. I don't know the details, but since they also want you to have a nicer car, it sounds like they want you to look successful, which makes them look successful. I hope you will find a way to fully reject these kinds of material pressures while still showing that you care in other ways that don't involve them weighing down your future with unnecessary conspicuous consumption.

----

p.s. I personally think owning a house is awesome. I bought one with my spouse at 29. If I'd bought one sooner it almost certainly wouldn't have been right for our needs. I'm grateful that I didn't buy a house until my life felt settled.

p.p.s. I wouldn't expect the housing market to drop. It could happen... but housing prices are very sticky and don't jump up and down quickly like stocks. And who knows if they will appreciate quickly, slowly, or not at all in the next few years. Far more important than timing the market is timing your own life... buying the right house for you at the right time in your life that you are ready to own it.

Good luck!

cysewr

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Re: First House Purchase Timing Advice - Please Help!
« Reply #15 on: June 10, 2018, 10:42:57 PM »
Wow, that was a really thoughtful and helpful response. Thank you, skeptic!

As for why I want to buy a house, let me try and articulate the reasons. First, it seems as if the market here is more favorable to buyers, in general (but perhaps I havenít researched this deeply enough). Also, I would like to have my own place where I can entertain, have a backyard to barbecue and garden in, have friends over for a bonfire, etc. Some of this I could do in an apartment, but when I rented an apartment last year in MI, there were some of those things I could not do (like use a smoker, obviously). I should also add for context  that I am 29, and my late start was due to a few years spent in a religious house (I say this purely as an explanation that I wasnít partying away my first years out of high school, not to solicit input on that choice).

Now, if the math is in favor of renting, that would certainly be compelling. I have watched videos and seen the calculations on renting vs. buying, so I have at least some awareness that renting can be a better option at times.

As for my relationship with my parents, they were very happy to have me move home, after I had been living in different locations for school and work for a number of years. We generally have an awesome relationship, but I think the tension I am sensing is from them thinking that ďitís timeĒ for me to make the big decision to buy a house, newer car, etc. It doesnít help that my muffler came detached on my Honda Civic today, but I digress. They are definitely from the old school ďrenting is throwing money away,Ē ďreal estate always goes upĒ schools of thought, unfortunately. So I donít think itís so much them wanting me gone, as them wanting to see me in my own house... In fact, a couple months ago, my mom found a house that she was certain would be an awesome fixer-upper for me to get into, and the next thing I knew, I was making an offer on the place that was accepted. I ended up using one of my contingencies to get out of it, and I was so relieved, as I really donít think it would have been a good situation for me at all. That was the point when really started to do research on the housing market.

I LOVE your point about the lowest priced real estate in a market. That clarifies what I have been trying to understand based on what I had been seeing.

Thank you also for pointing out that I am coming at this in large part from a position of fear. That also clarifies why this whole thing isnít sitting right with me.

Again, thank you so much for the awesome response. Itís really helping me understand my own motivations here.

Linea_Norway

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Re: First House Purchase Timing Advice - Please Help!
« Reply #16 on: June 11, 2018, 02:12:27 AM »
You need to move out as soon as you can to become independent again. Don't have your parents make financial decisions for you. If you live somewhere else, there won't be so much pressure on you to give an offer on a house.

Your parents probably want you to behave in a certain way, which according to them is the right way. Your mother will likely send you other advertisements for houses. Ignore your parents and do your own math. Calculate every cost you can think of in renting versus buying. It could be that the NYT calculator does not include all costs. For example, does it include longer commuting cost and - time for living in your own house far away from your job versus renting a place close to your work?
Listen to podcasts on the subject, I have heard several good ones. But do all this after you have moved into your own rental place ASAP.

Driving a beater car is almost always a good financial choice. Don't let your parents decide otherwise for you for vanity reasons. You need to not be living in a house where people all the time put pressure on you to behave in an unmustachian way.

Villanelle

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Re: First House Purchase Timing Advice - Please Help!
« Reply #17 on: June 11, 2018, 03:17:19 AM »
In your shoes, I would probably suck it up and rent a room from someone for one year, using that time to save every friggin penny possible.  Then, I would likely look to buy, possibly a 2/2, 3/2 or 3/2.5 (most roomates are going to prefer not to have to share their bath with any visitors, so that half bath might make a big difference, unless you are willing to rent the master and live in the smaller bedroom and have your bath be the "public" bath) with a good set up for a roommate.  I would get something that I could afford without rent, even if that meant some austerity, just so that if it came to that for a while, I'd be okay.

Similarly, you could look for a place that has a rental unit of some kind, or perhaps a duplex.  Those might me more of a stretch for your budget, but could also offer more offsetting income, and for the most part, it is going to be pretty unlikely that you are unable to rent a place for months on end. 

economist

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Re: First House Purchase Timing Advice - Please Help!
« Reply #18 on: June 11, 2018, 09:32:52 AM »
I'll make a couple points:

1. You could withdraw from your Roth IRA to fund your house down payment. With a Roth you can withdraw contributions (not earnings) penalty free. I withdrew 10k to supplement my house down payment a year ago, so I could put 20% down. Nothing wrong with prioritizing buying a home, if it makes financial sense. If you have 14k in your house down payment fund and have maxed your Roth for the past 2 years, you could have as much as $25k available for a house down payment.

2. One or two roommates could dramatically change the math here. A $200k, 30 year mortgage at 4.5% has a payment of $1,013, and you've indicated rent is around $1,000 for an apartment in that area. You could buy one of the larger, nicer homes in the $225k range, rent two bedrooms for $600-$800 each, and more than pay for your mortgage (make sure you get a house with 2 full bathrooms if you do this). The extra could go to insurance, utilities, and a maintenance fund. You probably don't want to do this forever, but for a year or two while you build up savings? Could be doable.

3. In regards to your parents wanting you out of the house, could this be alleviated by either paying rent or making a greater effort to do some chores they don't like? Don't know what you are doing now so this may not be applicable. However, it's also possible that this could be alleviated if you presented a concrete plan. If you commit to start making offers on homes within six months they might be less anxious about your situation, because they'd know it was coming to an end.

cysewr

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Re: First House Purchase Timing Advice - Please Help!
« Reply #19 on: June 12, 2018, 01:46:32 PM »
Quick update:

Thank you all so much for the input, especially with regard to the relationship with my parents. I sat down with my parents, and explained that I would like to wait at least another 6 months before making an offer on a house. I gave numbers behind my reasoning, explaining that I want to have at least 10% down with at least $5k left over for unforeseen expenses. We also worked out a (minimal) rent agreement, in addition to the help around the house that I already do. I think this will ease most of the tension, now that I have come up with a defined transition plan.

Really thankful for all your responses. I was expecting to be dressed down a bit with my question, but you were all awesome and helpful!