Author Topic: Just bought a house how am I doing overall?  (Read 7320 times)

MrD

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Just bought a house how am I doing overall?
« on: July 17, 2012, 07:12:38 AM »
Just want to see if you guys think I am doing well or if I made a mistake.

Main Stats:

Age - 23
Income - 61k (not including bonus which is about 4-7.5k a year)
401k - 16k
Roth IRA - 5k
Checking - 1.4k
Savings (used for emergency and down payment on house) - 16k (will now be 6k after downpayment for 10k)

What I have been doing:

I have been contributing 10% pre-tax to my 401k since being hired out of college, which leaves me about 2900 a month (not counting bonus). My old rent was 850 and my total monthly expenses came to about ~1400 (including rent and over paying my car loan).  I then saved around 1400 a moth and put that either in emergency or ROTH IRA until it was maxed. My only debt is now a 3.49% car loan that has 2900 left on it. I have a live in gf of 5 years that will one day be MrsD. She makes 39k a year so typically we split all expenses 60/40 except rent. I do more heavy lifting on this because she has about 34k in debt and I want her to pay it down aggresively.

What I will be doing:

I bought a brand new 201k house with a 10k down payment at 3.75% interest and 3.879% APR. My monthly payment with EVERYTHING included is about $1180 a month. I bought this by myself with out my gf on the mortgage or anything. I paid absolutely 0 closing costs, the only thing that came out of my pocket is the 10k downpayment, that is it. So in the rent vs buy calculator I am profiting the very first year I live here.

My mom/stepdad are also moving near were I live from far away, they will be building a house a bit away from me. This is where the plan all started. They told me if I bought a house in time for them to move in while their new house was being built they would live with me and my gf and pay us rent as well as help around the house (my step dad used to build houses when he was young). They will pay us around 1100-1200/month to live with us until their house is built (8-12 months). This is the only reason why I bought this house right now. During this time I will be saving close to 80% of my income and rebuild my emergency fund to at least 6 months expenses. My GF during this time will build a small emergency fund and pay off her highest interest loans. Them living with us will save us on the mortgage, food, help painting, ect.

New breakdown once I start paying mortgage:

Income after tax/insurance/10% 401k contribution - 2900/month
Total Expenses - ~1700
Savings - 750

The rest will go to things for the house like paint/lawn mower etc.


So how am I doing?

velocistar237

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Re: Just bought a house how am I doing overall?
« Reply #1 on: July 17, 2012, 07:57:04 AM »
I bought a brand new 201k house with a 10k down payment

So you're paying PMI? You might want to deal with that soon.

http://www.westga.edu/~bquest/1997/costof.html

MrD

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Re: Just bought a house how am I doing overall?
« Reply #2 on: July 17, 2012, 08:03:46 AM »
I bought a brand new 201k house with a 10k down payment

So you're paying PMI? You might want to deal with that soon.

http://www.westga.edu/~bquest/1997/costof.html

They bought out a portion of my PMI with closing costs since I used their lender. The rest is rolled into the value of the home and the overall payments. After speaking with multiple mortgage brokers and a financial advisor, by doing this it will cost me $1500 more over 30 years to do what I did versus paying the actual PMI payments until I hit 20% equity. My PMI payment is essentially like $29/month over 30 years.

kolorado

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Re: Just bought a house how am I doing overall?
« Reply #3 on: July 17, 2012, 08:05:07 AM »

 My monthly payment with EVERYTHING included is about $1180 a month.
....

New breakdown once I start paying mortgage:

Income after tax/insurance/10% 401k contribution - 2900/month
Total Expenses - ~1700
Savings - 750

So how am I doing?

What is "EVERYTHING"? Including different items in you rent total than you did in your owning total makes it difficult to compare the two, especially since you use a a third total in the bottom equation. I'm 99% sure you're doing better owning even without the numbers though.
Extra curious if you subtracted your GF's contribution from your total expenses in the final equation? If so, at $1700 a month, I think you could do better.
Be sure to inform your car insurance company of your home purchase. Your rates should go down significantly.
I think you have a great plan for paying off debts and boosting your savings. It's nice to see people getting themselves started right in their adult lives.
I don't think buying house was a mistake. It usually isn't for financially responsible people. My hubby and I bought at ages 20 & 26. We held that house for 11.5 years, investing about $10K into it over the years in maintenance and improvements(about 1% home value yearly and that includes replacing all the windows and roof and flooring and appliances)and sold it in just 6 weeks when we moved here to CO this year. We now have a sizable nest egg for our next home purchase and are familiar with what it takes to own and maintain a home. The benefits of home ownership roll in year after year as you notice your payments stay the same(or even go down  with refinancing)and your pay goes up. Rent just goes up and up, sometimes at higher rates than pay increases.

grantmeaname

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Re: Just bought a house how am I doing overall?
« Reply #4 on: July 17, 2012, 08:32:41 AM »
So you're paying a PMI-equivalent across the entire life of the mortgage, no matter how quickly you pay down your balance to 80%?

velocistar237

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Re: Just bought a house how am I doing overall?
« Reply #5 on: July 17, 2012, 08:37:05 AM »
So you're paying a PMI-equivalent across the entire life of the mortgage, no matter how quickly you pay down your balance to 80%?

Looks like it's water under the bridge, then.

After you build up your emergency fund, will you increase your 401k contribution?

You're doing very well. I like the live-in arrangement.

grantmeaname

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Re: Just bought a house how am I doing overall?
« Reply #6 on: July 17, 2012, 08:44:33 AM »
Is the 3.879%APR low enough that you want to keep the mortgage around for the entire 30 years? If not, you could try to pay down the house to 80%LTV quickly to qualify for a HELOC, and then you wouldn't need to keep your emergency fund in cash-- you could keep it in home equity.

There are plenty of people around here who aren't comfortable with that, though. If you're not comfortable with it, it's not a good idea even if it looks good mathematically. And if you're keeping the mortgage the whole time, that's obviously not a great idea for now, but it's something you could come back to in a few years when you reach 80%LTV.

Another Reader

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Re: Just bought a house how am I doing overall?
« Reply #7 on: July 17, 2012, 09:09:18 AM »
Happy birthday to "grantmeaname" who apparently just turned 20!

With regard to a HELOC as an emergency fund, that only works when the economy is strong, house prices are stable or rising, and banks are flush.  In 2008-2009, pretty much everyone I know got their HELOCs frozen, reduced or eliminated.  Banks were cutting risk exposure and a lot of folks had their HELOC emergency funds disappear just when they needed them.  So while it's helpful to have a HELOC available to cover your needs in a personal emergency, it does not replace an emergency fund.

Not sure if you would benefit much by paying down the mortgage principal and refinancing.  In your shoes, I would bulk up the savings and start on fully funding retirement ASAP.  GF needs to do the same.

I think buying a new house is smart from the maintenance perspective.  You may have to install some landscaping and fencing, but you do NOT need to paint for awhile.  Interior decorating is a want, not a need.  The two problems with new houses is they tend to be located on the outer edges of cities, away from work and shopping, and they often command a premium over older homes that may not be recovered in a quick resale.  Buying any house is smart only if your employment is stable and you are sure you will live there for several years.

MrD

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Re: Just bought a house how am I doing overall?
« Reply #8 on: July 17, 2012, 09:10:55 AM »

 My monthly payment with EVERYTHING included is about $1180 a month.
....

New breakdown once I start paying mortgage:

Income after tax/insurance/10% 401k contribution - 2900/month
Total Expenses - ~1700
Savings - 750

So how am I doing?

What is "EVERYTHING"? Including different items in you rent total than you did in your owning total makes it difficult to compare the two, especially since you use a a third total in the bottom equation. I'm 99% sure you're doing better owning even without the numbers though.
Extra curious if you subtracted your GF's contribution from your total expenses in the final equation? If so, at $1700 a month, I think you could do better.
Be sure to inform your car insurance company of your home purchase. Your rates should go down significantly.
I think you have a great plan for paying off debts and boosting your savings. It's nice to see people getting themselves started right in their adult lives.
I don't think buying house was a mistake. It usually isn't for financially responsible people. My hubby and I bought at ages 20 & 26. We held that house for 11.5 years, investing about $10K into it over the years in maintenance and improvements(about 1% home value yearly and that includes replacing all the windows and roof and flooring and appliances)and sold it in just 6 weeks when we moved here to CO this year. We now have a sizable nest egg for our next home purchase and are familiar with what it takes to own and maintain a home. The benefits of home ownership roll in year after year as you notice your payments stay the same(or even go down  with refinancing)and your pay goes up. Rent just goes up and up, sometimes at higher rates than pay increases.

Thanks for the input!

The $1180 EVERYTHING is for the mortgage/insurance/tax/HOA all rolled into one payment. Yes I did factor in my GF paying her portion of rent. That is were the confusion came from I believe. I will look into combining my insurance to hopefully get a better deal.

MrD

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Re: Just bought a house how am I doing overall?
« Reply #9 on: July 17, 2012, 09:13:08 AM »
So you're paying a PMI-equivalent across the entire life of the mortgage, no matter how quickly you pay down your balance to 80%?

It would take around 90 months for us to get to 20% equity at $106 a month PMI - 9540
Or we could do what we did and have it be around $29/month for 360 months - 10440

grantmeaname

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Re: Just bought a house how am I doing overall?
« Reply #10 on: July 17, 2012, 09:20:18 AM »
Happy birthday to "grantmeaname" who apparently just turned 20!
That I did! Thanks!
Quote
With regard to a HELOC as an emergency fund, that only works when the economy is strong, house prices are stable or rising, and banks are flush.  In 2008-2009, pretty much everyone I know got their HELOCs frozen, reduced or eliminated.  Banks were cutting risk exposure and a lot of folks had their HELOC emergency funds disappear just when they needed them.  So while it's helpful to have a HELOC available to cover your needs in a personal emergency, it does not replace an emergency fund.
We've heard recession rescissions (I crack myself up) mentioned elsewhere on the forum, but at this point, it's really a battle of anecdotes because none of us has been able to find good statistics on the matter. If your experience has been that the rate of rescission is high in downturns, it absolutely makes sense for you to stay away from them as an emergency fund replacement. Unfortunately, since nobody can seem to find real data on the matter, it's hard to say whether it's generally an unsafe choice with any statistical certainty.
Quote
Not sure if you would benefit much by paying down the mortgage principal and refinancing.  In your shoes, I would bulk up the savings and start on fully funding retirement ASAP.  GF needs to do the same.
As would I in his shoes. I just wanted to point out that it was an option in case he was one of the debt-averse members of the forum.

Another Reader

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Re: Just bought a house how am I doing overall?
« Reply #11 on: July 17, 2012, 09:52:52 AM »
Not sure you will ever get any good stats on this.  The anecdotal evidence is pretty strong, strong enough for me not to use a HELOC as my main emergency fund.  JP Morgan Chase eliminated or froze HELOCs for everyone I know that had one with them and there were a number of articles at the time about them doing this across the board.  Wells Fargo also reduced or froze HELOCs for people I know, as did at least one credit union.  In some cases, the underlying mortgage balance plus the HELOC were substantially less than the reduced market value of the property.  The reduction in credit availability had more to do with the bank's unwillingness to lend to anyone rather than the borrower or the collateral.

Bottom line for me is I want the emergency fund to be there when there's an emergency.  That doesn't mean in a box under the bed, just my cash available to me from my bank when I need it.


MrD

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Re: Just bought a house how am I doing overall?
« Reply #12 on: July 17, 2012, 10:51:04 AM »
Another question I had was -- did I buy a too expensive house?

I have ready a lot of the MMM suggested books and I remember in the "Millionaire Next Door" it said never to have a mortgage more than double your realized income, which I have obviously done.

The house is 2900 sqft, 5br, 3ba, and I plan on living here for at least 7 years. That is how I justified it, was I correct or just in love with the house?

Another Reader

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Re: Just bought a house how am I doing overall?
« Reply #13 on: July 17, 2012, 11:02:47 AM »
You may have bought too much house for your long term space needs.  Once the folks move out, that will be a lot of space for two people.

From a financial perspective, it would probably made more sense to wait until you had a 20 percent down payment saved and bought less house with an eye on location relative to commute costs.  The income multiplier is somewhat skewed by the absurdly low interest rates.  With the family consideration and the short term help with payments, the effect of overbuying is not as bad.  Your incomes should grow as well.  Just make sure the house does not become an albatross around you and GF's necks.

MrD

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Re: Just bought a house how am I doing overall?
« Reply #14 on: July 17, 2012, 11:22:28 AM »
You may have bought too much house for your long term space needs.  Once the folks move out, that will be a lot of space for two people.

From a financial perspective, it would probably made more sense to wait until you had a 20 percent down payment saved and bought less house with an eye on location relative to commute costs.  The income multiplier is somewhat skewed by the absurdly low interest rates.  With the family consideration and the short term help with payments, the effect of overbuying is not as bad.  Your incomes should grow as well.  Just make sure the house does not become an albatross around you and GF's necks.

We actually got the size because we plan on having kids in the future. Also I commute by plain every week for work and our house is about 7 miles from the airport and its about 8 miles from my gf's job. With these considerations you think we made the right choice?

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Re: Just bought a house how am I doing overall?
« Reply #15 on: July 17, 2012, 11:29:27 AM »
Seek advise, not approval from strangers on the internet. You already bought a great house at a great interest rate, it is all water under the bridge.

MrD

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Re: Just bought a house how am I doing overall?
« Reply #16 on: July 17, 2012, 11:31:07 AM »
Seek advise, not approval from strangers on the internet. You already bought a great house at a great interest rate, it is all water under the bridge.

Good point, I guess I was just trying to feel out if I was being very mustachian with this purchase.

velocistar237

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Re: Just bought a house how am I doing overall?
« Reply #17 on: July 17, 2012, 11:38:34 AM »
At this point, you certainly shouldn't sell it and downsize. Transaction costs would swamp any benefits. The price/income multiple is fine.

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Re: Just bought a house how am I doing overall?
« Reply #18 on: July 17, 2012, 12:08:59 PM »
Commute by plane????  Are you flying somewhere every week and living on the company dime, like a sales or consulting job?  If your job is permanently located somewhere else, buying a house and buying where you did makes a lot less sense, even with the family involvement.

Your purchase was not the most frugal, but the transaction costs of changing houses are not insignificant.  Buying a starter home after saving 20 percent down would have made more financial sense in the short run, but if you are sure you are not leaving the area and you will need the space, then your plan is fine.  Turn your attention to saving money and living frugally and don't get caught up in spending on the house.

MrD

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Re: Just bought a house how am I doing overall?
« Reply #19 on: July 17, 2012, 12:12:07 PM »
Commute by plane????  Are you flying somewhere every week and living on the company dime, like a sales or consulting job?  If your job is permanently located somewhere else, buying a house and buying where you did makes a lot less sense, even with the family involvement.

Your purchase was not the most frugal, but the transaction costs of changing houses are not insignificant.  Buying a starter home after saving 20 percent down would have made more financial sense in the short run, but if you are sure you are not leaving the area and you will need the space, then your plan is fine.  Turn your attention to saving money and living frugally and don't get caught up in spending on the house.

Thanks for the advice, yes I am a consultant so I travel on the company dime. I do not pay for airfare, hotel, food, gas, etc. So this allows me to save a good % of my income.

Jamesqf

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Re: Just bought a house how am I doing overall?
« Reply #20 on: July 17, 2012, 12:16:13 PM »
You may have bought too much house for your long term space needs.  Once the folks move out, that will be a lot of space for two people.

Depending on how the living with parents thing works out, you could always get a roommate or two.  I mean, if you can live with parents as an adult, you should be able to get along ok with just about anyone.

If I understood your numbers, you're paying about $330/month more to own rather than rent.  (And a portion of that will come back as a tax deduction.)  Much of that should be going to increasing your equity rather than paying off interest, so it seems like a reasonable deal.  Only thing I have reservations about is having bought in a place where there's an HOA, but it's too late now.

MrD

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Re: Just bought a house how am I doing overall?
« Reply #21 on: July 17, 2012, 12:19:57 PM »
You may have bought too much house for your long term space needs.  Once the folks move out, that will be a lot of space for two people.

Depending on how the living with parents thing works out, you could always get a roommate or two.  I mean, if you can live with parents as an adult, you should be able to get along ok with just about anyone.

If I understood your numbers, you're paying about $330/month more to own rather than rent.  (And a portion of that will come back as a tax deduction.)  Much of that should be going to increasing your equity rather than paying off interest, so it seems like a reasonable deal.  Only thing I have reservations about is having bought in a place where there's an HOA, but it's too late now.

We had the choice of living here where the tax is more expensive as well as having an HOA versus living somewhere about 10-15 miles away where tax is much lower and no HOA. I chose the higher tax and HOA because we will save money on gas, have less stress as our new commutes are short and against traffic, and we live in a great community.

Jamesqf

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Re: Just bought a house how am I doing overall?
« Reply #22 on: July 17, 2012, 12:50:22 PM »
...I chose the higher tax and HOA because we will save money on gas, have less stress as our new commutes are short and against traffic, and we live in a great community.

I suppose it depends on a lot of things, but from what I've seen & read, a bad HOA can easily be the source of a lot more stress than any commute.

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Re: Just bought a house how am I doing overall?
« Reply #23 on: July 17, 2012, 12:58:37 PM »
It's already bought, so don't stress about the house.  Do what you can starting now to make the best decisions, and live with what you've done.
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