Author Topic: Reader Case Study -- Can I afford to buy a house?  (Read 7645 times)

renter4evah?

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Reader Case Study -- Can I afford to buy a house?
« on: February 16, 2015, 01:05:44 PM »
Current Income: $52,900 annually (But I got a raise that goes into effect today! It amounts to approx  $300/month for $56,000 annually)

EDIT: My monthly take-home pay after deductions for insurance, taxes, and 401(k) is $3,064. Of that, I have $400 directly deposited into a Roth IRA, so I see $2664/month. The property tax rate in Austin proper is 2.38%.

Current expenses: $800 rent (sharing a rental house in Austin, TX), utilities average $150/month (I pay half), phone $50/month, groceries & eating out averaging $490/month (include personal care and household products), Internet $40/month, $30/month hair care, $12/month rental insurance, $100/month average for fuel and car maintenance, $58/month car insurance, $125/month clothes, $14.50/month gym (reimbursed by my insurance at year end), $15.00 Netflix, $18.00/month lawn care, $35/month medical, $150 gifts, $464/month retirement savings, $167/mo. travel home to visit family  Total: $2,643.17

Assets: $11,500 cash in MMA, $1,000 in checking, $48,000 in retirement savings (When I get the raise, I expect to increase retirement savings, so I want the mortgage or rent to be based on the old $52,900 salary.) Total: $60,500

Liabilities: no debts (I use a credit card for above regular expenses, but I pay it off every month.)

Specific question: Roomie and I are going our separate ways. Option 1 is to stay in this house and find another roommate, which scares me. Option 2 is to get an apartment by myself. Option 3 is to buy a house. I can find an apartment for $800 by moving further out of town, but that means longer commute, longer travel to see friends, etc. Rent is increasing quickly in Austin now (some estimates said 5-7% each year between 2012 and 2014), but so are home prices. One estimate said that home prices in Austin are overvalued by 16%! Should I rent or buy?! Rent calculators say I break even in 5 to 7 years when I check with conservative numbers. I feel okay with a 3-year commitment (I want to believe I could move out and rent out the property if I needed to); this calculator at the NY Times says I should rent if I can find something for less than $897/month (http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0&abt=0002&abg=1), which is more than I pay now but less than many of the apartment complexes in the area.

I know I don't have enough money for a down payment--I'm thinking of taking some of the $11,500 cash savings (my emergency savings) and combining it with $7,500 down-payment assistance I can get from the state of TX to get a loan. This interest-free loan has to be paid back if I move in fewer than five years; after five years I would have to pay a prorated amount. After 10 years, it's entirely forgiven.



« Last Edit: February 16, 2015, 01:50:55 PM by renter4evah? »

lauren_knows

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Re: Reader Case Study -- Can I afford to buy a house?
« Reply #1 on: February 16, 2015, 01:10:47 PM »
What's your actual take-home salary? What are typical house prices that you'd want? What are the property taxes like? How sure are you that you'll be living in the area for 10 years? How sure are you about the industry that your job is in?

Without that information, I'd say that if you don't directly have the money for a downpayment, to stay away from homebuying until you do... but that's just me.

KD

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Re: Reader Case Study -- Can I afford to buy a house?
« Reply #2 on: February 16, 2015, 01:14:21 PM »
Do you plan to marry in that time frame?  have kids?  buying/renting space for that to happen? 

If you buy are you planning for these possibilities in the future?

Ricky

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Re: Reader Case Study -- Can I afford to buy a house?
« Reply #3 on: February 16, 2015, 01:18:08 PM »
Since it sounds like you're early in your career, have you had time to travel the states and see everything before you make a decision on where to settle for the next 5-10 years? Austin is as good of a choice as any in my opinion but just curious.

$800 for a room in Austin sounds too steep to me. You could have your own place for just a few hundred bucks more. Just perusing Craigslist, I see many sub $600 options. Take one of those, save up $100k and then decide where to put your money.

renter4evah?

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Re: Reader Case Study -- Can I afford to buy a house?
« Reply #4 on: February 16, 2015, 01:32:37 PM »
Hi! Thanks for the responses. Sorry I left out so much info!

My credit union, where I prequalified, said I'd be approved for $175,000 at 3.675%, but I am targeting $150,000 or less. I'm told that it will be difficult to find a house at this price point in Austin. Inventory is low right now and the market is hot. My take-home pay after deductions for insurance, taxes, and 401(k) is $3,064. Of that, I have $400 directly deposited into a Roth IRA, so I see $2664/month. The property tax rate in Austin proper is 2.38%.

I work in publishing, so I'm never really sure of my job. I've been working in this industry for 7.5 years.

I am not married and not planning to have kids, but I do hope to get married in the next few years. (This is why I expect my position to change in approx 3 years, and I'm thinking about this in terms of investment as much as I am in terms of a home.)

Finally, I'm not really interested in renting a room in someone else's house. My rent now is $800 because there are two of us sharing a house rental for $1600. If I could afford to rent my own house, I would do that, but that's way too much money.

JLee

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Re: Reader Case Study -- Can I afford to buy a house?
« Reply #5 on: February 16, 2015, 01:35:09 PM »
Hi! Thanks for the responses. Sorry I left out so much info!

My credit union, where I prequalified, said I'd be approved for $175,000 at 3.675%, but I am targeting $150,000 or less. I'm told that it will be difficult to find a house at this price point in Austin. Inventory is low right now and the market is hot. My take-home pay after deductions for insurance, taxes, and 401(k) is $3,064. Of that, I have $400 directly deposited into a Roth IRA, so I see $2664/month. The property tax rate in Austin proper is 2.38%.

I work in publishing, so I'm never really sure of my job. I've been working in this industry for 7.5 years.

I am not married and not planning to have kids, but I do hope to get married in the next few years. (This is why I expect my position to change in approx 3 years, and I'm thinking about this in terms of investment as much as I am in terms of a home.)

Finally, I'm not really interested in renting a room in someone else's house. My rent now is $800 because there are two of us sharing a house rental for $1600. If I could afford to rent my own house, I would do that, but that's way too much money.
Are you open to renting a room in a house that you buy? If that's the case, and if you can get $800 + 1/2 utilities from a roommate (that sounds incredibly high to me but I'm in Phoenix, houses are cheap here), it may be cheaper to buy (excepting down payment).

renter4evah?

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Re: Reader Case Study -- Can I afford to buy a house?
« Reply #6 on: February 16, 2015, 01:39:16 PM »
I would be willing to have a roommate, but I want to make sure I'm not in a position where I have to have one just to make ends meet.

Check2400

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Re: Reader Case Study -- Can I afford to buy a house?
« Reply #7 on: February 16, 2015, 02:31:33 PM »
I would be very surprised to find a place in Austin for under 150,000, and if you do, I would highly recommend having funds to deal with the near certain repairs that value of a home would entail.  Perhaps a Round Rock or Leander or Kyle would have what you want, but that is not Austin. 

I would also recommend avoiding any high cost HOA's for a condo, as that is the route that Austin real estate is moving down.  I enjoy my place, but realized in hindsight that the 230/month in HOA could have gotten me about 40,000 more in house (albeit with higher taxes). 

The reality to me is that you're going to be house poor to the extreme trying to get a house with that budget.  It sounds terrible not building equity and throwing 9,600 away, but at a minimum of 150,000, you're already paying 3,500 in taxes-so the true differential is 6,000.  What is that worth?  Less stress, less worry, less unforeseen expenses and more savings for when you are in a better situation to make a purchase. 

I've been in your shoes on wanting to own, and for me it has worked out, but I also will be the first to admit that the first 6 months were more stressful for me than I liked while I was clawing back up to a comfortable cushion on finances. 

renter4evah?

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Re: Reader Case Study -- Can I afford to buy a house?
« Reply #8 on: February 16, 2015, 02:40:50 PM »
Thanks, Check2400. You've pinpointed my main fear--my budget means a house that would need some work, and I wouldn't have enough savings to get all the work done.

2Birds1Stone

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Re: Reader Case Study -- Can I afford to buy a house?
« Reply #9 on: February 16, 2015, 03:06:45 PM »
Considering your budget is basically 100% of your take home after the Roth contribution I wouldn't buy.

With limited job security and very little wiggle room for maintenance costs on a home, I would look for a better rental situation. $800 sounds very  high. I live in very HCOL Long Island New York and you can find 2-3 bedroom apartments utilities included for $1100-1400/month. WIth a room mate thats substantially cheaper than you are paying right now.

The only way I would purchase in your situation is if you had 2 solid house mates in a 3 bedroom 2 bathroom type setup where they pretty much cover your mortgage, property tax, and a chunk of the utility bill.

If a SO comes along then you can split costs with them.

slugline

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Re: Reader Case Study -- Can I afford to buy a house?
« Reply #10 on: February 16, 2015, 03:14:18 PM »
To be honest I think your finances would not enjoy taking on the burden of being a solo homeowner. Homeowner insurance rates in Texas are some of the highest in the country; don't forget to factor that in. With such a small down payment, would you also going to be stuck paying PMI to your lender too?

And yes, if you deplete your savings too much, you would be in a real tight squeeze if something major actually needs to be fixed. I feel like you'd be better off continuing to save up and put yourself in a position of better financial strength before buying.

beanlady

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Re: Reader Case Study -- Can I afford to buy a house?
« Reply #11 on: February 16, 2015, 03:24:38 PM »
You can't answer this question without figuring out what your actual costs of homeownership would be. What would mortgage, taxes, and maintenance be on a house in a neighborhood you would like? Would you have the financial cushion to deal with unexpected expenses? Would it tie you down more than you would like?

EconDiva

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Re: Reader Case Study -- Can I afford to buy a house?
« Reply #12 on: February 16, 2015, 04:55:39 PM »
Just curious...what is the minimum amount of money left over after paying bills monthly that people think the OP should have in order to make it 'safe' for them to purchase?

PatStab

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Re: Reader Case Study -- Can I afford to buy a house?
« Reply #13 on: February 16, 2015, 05:11:51 PM »
I wouldn't buy yet, save more up for a down payment.  I think you would have a hard time affording it.  Also if you might move for jobs then selling it can be a big problem.  Wait.

renter4evah?

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Re: Reader Case Study -- Can I afford to buy a house?
« Reply #14 on: February 16, 2015, 05:52:47 PM »
You can't answer this question without figuring out what your actual costs of homeownership would be. What would mortgage, taxes, and maintenance be on a house in a neighborhood you would like? Would you have the financial cushion to deal with unexpected expenses? Would it tie you down more than you would like?


I've done this with several mortgage calculators, and they say I would pay about 30% of my gross monthly income toward the mortgage, insurance, taxes, and maintenance if I found a house around $150,000. But I would deplete my savings a lot during the transaction. Also, I wouldn't be able to stay in central Austin; I'd have to go to a neighboring town, I think.

Ricky

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Re: Reader Case Study -- Can I afford to buy a house?
« Reply #15 on: February 16, 2015, 06:44:22 PM »
Just curious...what is the minimum amount of money left over after paying bills monthly that people think the OP should have in order to make it 'safe' for them to purchase?

1/3 of income is the general rule of thumb. That depends on savings and a bunch else.

mozar

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Re: Reader Case Study -- Can I afford to buy a house?
« Reply #16 on: February 16, 2015, 08:56:28 PM »
How important is it to you to stay in central Austin?
« Last Edit: May 10, 2018, 12:49:29 PM by mozar »

Goldielocks

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Re: Reader Case Study -- Can I afford to buy a house?
« Reply #17 on: February 16, 2015, 09:14:37 PM »
How much would a 2 BDRM condo in a 'walk everywhere' area cost to buy?  Are apts just not for sale in Austin? 

GuitarBrian

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Re: Reader Case Study -- Can I afford to buy a house?
« Reply #18 on: February 16, 2015, 09:56:19 PM »
Just poking around for a half hour, and you are going to be hard pressed to find anything for $150,000 in Austin. Everything already had offers, and there were no FSBO in that price range.

As far as apartments, there are a lot of listings for 800 or less.. You have to click through the garbage, but these seemed legit.

$525 http://austin.craigslist.org/apa/4888935279.html
$700 http://austin.craigslist.org/apa/4851348578.html
$500 room http://austin.craigslist.org/apa/4866732194.html

OPs 28% of your gross income is $840 per month, which by that definition would make a 150k house well within reach. You really need the the downpayment. Maybe move to a small apartment and build savings for a while.

If not, there are some properties listed in the 160's that might warrant looking at... a few are

http://www.realtor.com/realestateandhomes-detail/7601-Crystalbrook-Cv_Austin_TX_78724_M77686-61001
http://www.realtor.com/realestateandhomes-detail/2320-Elara-Dr_Austin_TX_78725_M75291-30470
http://www.realtor.com/realestateandhomes-detail/5724-Levenwood-Ln_Austin_TX_78724_M73941-00889 (is this a model? new? strange listing)

It looks like things do come available for sale... but are quick to be sold. Hard to get stuff like that without cash or private financing.

renter4evah?

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Re: Reader Case Study -- Can I afford to buy a house?
« Reply #19 on: February 17, 2015, 01:54:16 PM »
How much would a 2 BDRM condo in a 'walk everywhere' area cost to buy?  Are apts just not for sale in Austin?

There are very few "walk everywhere" areas here. In those neighborhoods, condos are usually at or above my price range, but with high HOA fees to boot.

 

Wow, a phone plan for fifteen bucks!