Author Topic: How to Prepare for First Home Purchase, aka Are We Ready?  (Read 949 times)

haflander

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How to Prepare for First Home Purchase, aka Are We Ready?
« on: March 03, 2021, 01:42:57 PM »
My fiancee and I are in the very early stages of looking for our first home to buy. I'll add as much info as I can, and I look forward to the scrutiny and facepunches.

CURRENT LIVING: We are currently renting a small 1-bed apt in the outskirts of Dallas for 1100. Living expenses only, including utilities, add up to about 1350. I am working from home; not just for now, but in the long term as well. Yes, I work in a little desk in the bedroom all day, every day. SO lives here also and works in the inner city in a bad neighborhood for her first teaching gig. Yes, this year of all years to start your teaching career. We also have a medium-sized dog. Space and sanity are running quite thin. When we moved here 2 years ago, it was to be close to both of our jobs in the office. At that time, I probably would have splurged for a bigger apt, had I known what would happen. Last summer, we knew full well our situation, but decided to stay. We like our apt and decided it was a OMY situation for me putting up with a crappy work-from-home setup, before buying a house. We hate moving, and don't want to move to a bigger apt or rental house only to move again; we don't want to move until we're moving into a house that we're buying. Our lease is up in late August.

WANTS: We want to find an older home to buy this summer (summer off for SO) during the busy buying/selling season. We want a 3/2 or a 4/3 in the suburbs. The biggest thing we want is a BIG yard, preferably with big mature trees. This rules out new developments with tiny lots; we hate new cookie-cutter houses anyway. We want a 1/4 acre lot, at least. We both value room outside, had it in spades in our childhood homes, and want the same for our kids. A flexible space (or 4th bedroom) that could be my office is a must also. We are ok with older homes and neighborhoods and even prefer them. We are fine with buying something with an ugly/outdated interior and DIYing renovation. After researching, it looks like an outdated 3/2 would be around 275; an updated 4/3 would be around 350. We don't need the best public schools, but they need to be at least mediocre. We like open concept designs. A multifamily home could be an option; we like the idea of living in one part and renting the other. We have a couple landlords in the family and are comfortable with the pros and cons. However, most multifamily homes I've seen so far are in crappy areas where we wouldn't want to live.

LIFE: Most of the family is in the area, and we want to be close to them. I love my job and don't see myself working in the office for several years. She doesn't love her job, and will likely be looking and possibly finding a new one before summer starts. We are flexible on geography in terms of work, but restricted in terms of family and avoiding the crappy school districts. We are getting married later this year and want to have kids in the near future, 3-5 years. I believe we'd be in this new home at least 10 years.

EARNINGS: We make about 135k combined. Per month, we are netting about 8500 after taxes, retirement, health insurance. I used to put a lot into my retirement, but have lowered it to the minimum to get the full employer match, in order to add to house savings. I don't want to do a full case study right now, but I do save about 2-3k per month.

SAVINGS: I currently have 24k in one savings account; another 20 in an EF/FU fund. I think I'd be comfortable taking 10 from the latter, so that would make 34k in low-interest savings accounts. Another 12k are in stable stocks/investments in taxable accounts. I stopped contributing to those when getting serious with house savings. After some research, I learned I could take 10 from my IRA penalty-free (taxed, of course). I'm not sure if the latter is a great idea, but it is penalty-free for a first-time home buyer. Adding all of this together, it comes to 45 without the IRA money, or 55 with it. I contribute about 2-3k per month to the first savings account.

DEBT:I have had no debt since January 2019. SO has about 10k in CC loans plus about 2-3k in a private loan for teaching certification. The latter is 0%, but the catch with that is the aggressive payment schedule, about 500 per month. That will be paid off in late summer, and hopefully her CC will be paid off late this year or early next year, after snowballing the other 500 into already aggressively paying off the CC.

MORTGAGE: I've done some research, and if using 50k for a down payment on a 315k home, a 30-year mortgage around 3.0% comes to about 1600; a 15-year around 2.25% is 2200. If we can find a home under 300k, I would be getting close to a 20% down payment. To those clamoring to wait until 20% down payment...I'd point you to my crappy work situation and ask how you'd resolve that. I need to do some more research on closing costs. A 10k estimate may be a little high (?), and I'm not sure how much of that is negotiable, and whether it's added to the mortgage or paid up front. If it's an added expense at the beginning, it would come out of the 45-55k of savings. If doing the 30-year and adding taxes, insurance, and maintenance (normal year, not year 1), I'm estimating about 2500 per month. FWIW, my credit score is about 715. I believe hers is in the high 600s, but improving every month while paying off the CC.

WEDDING: It feels disingenuous not to mention wedding costs. We are estimating the costs at about 10k total: not mustachian, but not quite a consumer sucka level either. We've paid about 3k so far in deposits. Very recently, in-laws declared they were sending us the whole 10k and it's in the middle of transferring. We already decided we would make all the same decisions as previously, when we were expecting to pay everything ourselves. So far we've cash flowed everything, and haven't needed anything from my savings account. I expect this to continue. I'm not counting the added 10k to our numbers, but it is a little wiggle room in wedding expenses, debt, and she wants some cosmetic work done on her car.

PLAN: As of right now, I'm doing tons of research on the home buying process online both around the forum and elsewhere. I asked for a "Home Buying for Dummies" book for Xmas and have been digging into it. We're also starting to visit open houses to see what we like, hate, learn about neighborhoods, etc. I'm pretty knowledgeable about the whole area, but it's taking some work and driving to educate the SO on different areas. My plan for the next few months is as follows...March/April: Continue what we're doing now, and SO figure out her job situation. April: Start applying for loans and going through the lender approval process. May: Interview a few or several realtors and pick one who knows the houses we would like, plus would be patient for first-timers. May/June: Actually start making offers if we feel comfortable. We don't mind taking our time to find the right place and/or getting offers rejected several times. It's more important to us to end up with a house we love and try to avoid as many mistakes as possible. If we don't find something in the summer, getting a new (shorter, but much more expensive) lease is an easy option. I'd much rather do that than make a poor and rushed home buying decision. By the end of the year, I may be able to reach a 20% down payment.

Thanks for reading through, if you made it this far. My main 2 questions are: What should we be doing now that I haven't considered? Are we in a reasonable position to buy a home, or am I crazy? I'll state again: To those clamoring to wait until 20% DP...I'd point you to my crappy work situation and ask how you'd resolve that.

Mustachians, do your worst.

Morning Glory

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Re: How to Prepare for First Home Purchase, aka Are We Ready?
« Reply #1 on: March 03, 2021, 02:17:29 PM »
Do you want to buy my house? I have 18 acres and hundreds of mature trees....  Not exactly close to your family though.

You mentioned that your SO has cc debt. Is that at 0% too? If not then WHY THE HELL ARE YOU PAYING OFF THE 0% LOAN FIRST? That's my only face punch for you. Since you two are getting married, it makes more sense to take your cash and pay off any interest-bearing loans.  This will give you a smaller down payment but it's not that big of a deal, since mortgage interest is so low right now.

More house stuff:
Don't sweat the 20%. With the conventional loans the PMI goes away as soon as you get your 20% paid down.  Just pay a little extra on your payments until you achieve that, then switch to investing instead of paying the rest of it early.  Sometimes you have to write to them and other times it happens automatically.

I like having two bathrooms but I wouldn't want to clean a third one. We've had as many as ten people staying with us at once and two bathrooms was enough (ok two of them were in diapers and we told the rest of the boys to go outside to pee).

Do you plan to have children? How many and how soon? Having a big yard for your kids is a nice goal, however if it's too big you won't have time to maintain it if you are also looking after your children.  Maintaining my property is almost a full-time job. My DH doesn't work and we've still had to let a lot go since kids came along since there just isn't enough time to do it all.  We have enjoyed the property but I want to sell it and get something smaller so that we have more time and energy for travel and fun (I will be able to retire a lot sooner too, if we sell it).

Make sure you get those renovations done before kids come too. There was so much we planned to do with the house that we just didn't have time for after the first kid came. He's almost six now and we haven't even painted all the rooms. 

mozar

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Re: How to Prepare for First Home Purchase, aka Are We Ready?
« Reply #2 on: March 03, 2021, 02:25:54 PM »
Why is your credit score so low? I wouldn't feel comfortable with buying with a score less than 740.

SunnyDays

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Re: How to Prepare for First Home Purchase, aka Are We Ready?
« Reply #3 on: March 03, 2021, 02:56:50 PM »
Have you accounted for all the extra expenses that come with a house?  There are LOTS.  Things like:  exterior maintenance (house and yard) and all the tools that go along with that, furnishing a larger space, taxes, insurance, fixing all the things associated with an older house (think tree roots in the sewer system, out of date code enforcement, fence replacement etc.)?  If you want an open floor plan, then wall removal, rewiring, floor patching etc.  Thatís just the start of the list.  Make sure you have an adequate buffer to afford all these odds and ends.

That said, thereís nothing like owning your own home where you can do whatever you please and have pride of ownership.  I too much prefer solid, older homes that can be renovated to your own tastes.  I bought just such a one almost 30 years ago as my first house and have done lots of things to it over the years.  Obviously I still enjoy it because Iím still there.  The neighbourhood, the structure, and the lot size are the most important considerations, as everything else can be changed.  It took me 2 years of hunting to find it, but as soon as I walked in the door, I knew it was the one.  Iím glad I didnít settle for houses that were okay, but didnít speak to me.  Moving is expensive and a hassle, so take your time.

nessness

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Re: How to Prepare for First Home Purchase, aka Are We Ready?
« Reply #4 on: March 03, 2021, 03:03:25 PM »
One thing to consider: If your 3-5 year timeline of having kids goes according to plan, you have 8-10 years before you'll have a kid in school. That means 8-10 years of paying a premium to be in a good school district before you get any benefit of it. Depending on what the price difference is, it might make more sense to buy in non-preferred school district and move again when your kid(s) are school-age.

Morning Glory

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Re: How to Prepare for First Home Purchase, aka Are We Ready?
« Reply #5 on: March 03, 2021, 03:30:18 PM »
Why is your credit score so low? I wouldn't feel comfortable with buying with a score less than 740.

Paying off the credit cards should help with the SO's score.

haflander

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Re: How to Prepare for First Home Purchase, aka Are We Ready?
« Reply #6 on: March 04, 2021, 08:20:59 AM »
Answering ?s...

The private school loan that's 0%...We don't really have a choice on that. She basically agreed to get the training and certification on a loan from the same teaching certification institution, or a partner lender maybe. The deal was pay nothing now, then pay 100% of the 5k or so during your first teaching year in monthly payments, 0% interest. So the payments are high, but it's at 0% and will go away in the late summer when it's paid off. I'd consider paying off her CC debt after marriage, but tbh I have reservations about doing it either now or afterwards. It's her personal debt that has nothing to do with me. If anything, I was heavily subsidizing her with rent, bills, etc, when she was in a difficult time and not working. I feel like she should pay it herself, especially now before marriage. Of course this isn't financially optimal, but it is a principle kinda thing for me. Plus she's doing great on killing it by herself. She may even want to finish it on her own; she's that kinda person and would get great personal satisfaction from that.

Credit score...I've paid off debt and loans down to nothing, which dinged my score to the low 700s. The credit score formula always frustrates me. It doesn't measure your financial health or acumen, but is instead a measure of how good you are at having debt. No debt, so my score has declined. At this point, I'm afraid to get a new CC, which would lower my average credit age even more than it already is. SO's score is in the high 600s due to having a high CC balance. She's told me that her score is improving greatly every month while she aggressively pays off the CC debt, as MG mentioned.

Maintenance...Yes, I've thought a lot about this, including talking to all the homeowners in the family. We're in Texas, and each pair of parents had no power for days, resulting in damage to the water heater for one (frozen small parts) and busted pipes and water damage for the other. Additionally, there are a few landlords in the family who have educated us on all of the costs. Tools and furniture will be big costs for us at the beginning, even after buying used or cheaply. I have seen older homes that are open concept already, whether originally or after renovation. I think we'd be ok with one big project, such as removing one wall, but wouldn't want to completely redesign a floor plan.

Schools...That's a good point, and one to consider. I guess my reasons against it would be the hassle of moving again (with kids now and more stuff) and the expenses of closing costs, fees, etc. The other big reason is the neighborhood. Some bad school areas are places I would be ok living; others are downright crappy or shady. I don't want to live somewhere that my wife is afraid to walk around in the dark alone or with small kids.

haflander

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Re: How to Prepare for First Home Purchase, aka Are We Ready?
« Reply #7 on: March 11, 2021, 08:18:56 AM »
Another question I'm considering is the timing for the lease. We definitely want to take our time finding the right house, past the end of our lease if necessary. But then, what to do for the next lease? A short (much higher) lease until the holidays? A regular year lease, then break it (expensive) if we find something before the year is up? I'd be ok with paying for a lease and a mortgage for a short time for an easier move, or spending a month fixing up the new place. But anything more than a couple months would be wasting money, in my opinion.

I've enjoyed following this other thread. OP asked a lot of the same questions I was wondering. Maybe the high numbers and California location are an easy explanation for all of the posts on this one.
https://forum.mrmoneymustache.com/real-estate-and-landlording/sweat-equity-time-money-considerations-shopping-for-primary-home/

haflander

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Re: How to Prepare for First Home Purchase, aka Are We Ready?
« Reply #8 on: June 09, 2021, 01:02:04 PM »
I wanted to come back to make an update on this. We moved forward in the buying process and have lost out on 5 solid offers so far. Lease is up at the end of August, and they want to know what we're doing 60 days prior, or at the end of June. Of course, they're raising rent on us. The shorter lease we sign, the higher it is per month...up to double our current rent if we choose month to month! We're getting squeezed by a lot of different forces and are getting pretty frustrated with the market and at each other.

I had no idea that the thing that would be the most difficult about the home buying process was anxiety and stress and impatience of SO, which is in turn stressing me out. The "be patient, the right thing will happen" does not work with her. She'll listen if family offers her that, but if I do when we're alone, it's usually "I can't be in this little apt any longer!!!"

Meanwhile, I'm still working from home and ready to buy a house, but it has to be the right one. 3 of the homes we've offered on were turnkey, 2 required work. I'm ok with a fixer, but it has to be at the right price. Also we still have to have a big yard, and will not compromise on that.

I just talked to our realtor, who reassured me that we've come in #2 or #3 every time, and is sure that we can cross the finish line within the 60 days. If that's the case, I feel confident telling the apartment office that we'll be moving out at the end of our lease without an accepted offer yet in hand. I'm not sure what SO will think of this plan, however. She is mentioning moving to a bigger apt or renting a house if we don't find something soon...but I'm not ready to give up on finding the right house yet. The thing I hate about renting a bigger apt or house is that we'll no longer be adding to house savings if we do that, plus we would just have to move again when we are ready to buy in a year or however long. We've been at this for 5 weeks (she thinks this is a long time, I think it's short). She thinks that if what we're doing hasn't worked yet, then it won't work ever, and that we should drastically lower our expectations or offer way more money, and I'm not comfortable with either of those.

Mostly a rant and venting session about our situation, but open to any opinions if there are some out there. I'm leaving for a hiking vacation tomorrow, which is great timing. I need a break!!

chemistk

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Re: How to Prepare for First Home Purchase, aka Are We Ready?
« Reply #9 on: June 09, 2021, 01:19:25 PM »
Nothing meaningful to add other than to say that you've just got to stick to it!

We're closing next month on what was our 3rd offer, but easily the 15th+ house that we'd done a private showing on. On our first offer, we were top 1/3 of about a dozen offers (lost out to all cash, 5% higher than our offer). Second house, we were second - ha! (lost out to another offer $10k higher).

I can completely feel you about the intra-family pressure - my wife has been itching to get out of our current place for over 2 years, and a lot of that has turned into anxiety about finding something in our desired area. Thank goodness the house we're buying meets those criteria but it absolutely doesn't help things along the way.