The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: ccole on October 12, 2016, 07:39:38 PM
-
Hello all! Been reading the blog for a few years now but this is my first time writing in the forum. My husband and I are trying to buy our first home but having a few hiccups and I needed to reach out to financially sane people.
The monthly mortgage payment, including taxes, will be just under 1/3 of our take home pay. It is slightly higher than we were anticipating, however (taxes are a bit higher than we thought initially, but personally I think it is worth it to live "in town" and not have the commutes, especially as we live in an area with harsh winters). The mortgage plus utilities will be less than half of the take home. I should note that we are on the lower income side. This, and the fact that this house will need some work down the road- a new roof within the next five years and some other updates that can be done over time, the house is completely livable as is- has seriously freaked out my husband. He's starting to question if we should go through with buying it or not. And it's contagious- I'm now questioning it, as well.
I guess what I'm asking is, do you think this sounds reasonable for a first time home buying situation?
(Btw, we want to get into having rental properties within the next few years for more income. We already live pretty frugally but there is one area in particular we are working on bringing down costs).
Thank you!
-
With no numbers about your rental/commuting costs, it's pretty hard to offer useful advice.
-W
-
Check out the NYTIMES Rent vs Buy calculator to help you out here: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
-
It is tough to buy your first home and you will have jitters. I still sometimes have jitters when I buy new property. There will be hundreds of variables and you will have to weigh them all.
A good calculator that compares renting and owning is a good start. Good luck in your endeavor
-
How much does it cost you to rent vs buy?
How much shorter will the commute be?
When you say take home pay, are you contributing a significant amount to your workplace retirement plans?
You say you're low income - are you going to remain low income?
Is this a single family home? Is a duplex an option? I ask because you've said you want to get into rental property in the future.
-
With no numbers about your rental/commuting costs, it's pretty hard to offer useful advice.
+1. I'd also like to know about how you expect your income to change in the future.
(For example, when my wife and I bought our first home I had just graduated college and was not employed yet. We bought at 1/3 of her take-home pay, but were okay with that knowing that once my take-home pay was added to it later our income would triple.)
PITI (Principal, Interest, Taxes, Insurance) payment at slightly less than 1/3 your take-home pay is right in line with the "normal" (as opposed to mustachian) guidelines for affordability. From that (normal) perspective, you should be "fine" -- but that's measured only by avoiding the disaster of foreclosure, not proverbially "getting ahead."
From a mustachian perspective, rather than the maximum amount/quality of house you can afford, you should get the minimum amount/quality of house you need. If that minimum need really costs 1/3 your take-home pay that isn't ideal, but it's IMO acceptable... if you're really damned sure it's actually the minimum.
You should also read this article (https://www.biggerpockets.com/renewsblog/2016/07/02/first-time-home-buying/) about different first-time home buyer "strategies," listed from worst to best. IMO, you should try very hard to get down in the strategy #4 or #5 range.
-
Hello all! Been reading the blog for a few years now but this is my first time writing in the forum. My husband and I are trying to buy our first home but having a few hiccups and I needed to reach out to financially sane people.
The monthly mortgage payment, including taxes, will be just under 1/3 of our take home pay. It is slightly higher than we were anticipating, however (taxes are a bit higher than we thought initially, but personally I think it is worth it to live "in town" and not have the commutes, especially as we live in an area with harsh winters). The mortgage plus utilities will be less than half of the take home. I should note that we are on the lower income side. This, and the fact that this house will need some work down the road- a new roof within the next five years and some other updates that can be done over time, the house is completely livable as is- has seriously freaked out my husband. He's starting to question if we should go through with buying it or not. And it's contagious- I'm now questioning it, as well.
I guess what I'm asking is, do you think this sounds reasonable for a first time home buying situation?
(Btw, we want to get into having rental properties within the next few years for more income. We already live pretty frugally but there is one area in particular we are working on bringing down costs).
Thank you!
My general advise is to hold off as long as possible. I wish we had held off a few more years, as our house soaked up a lot of our free time and money in our early 30's compared to staying in rentals.
Job: Make sure your job is pretty stable or that you can easily change employers within a short commute of your new house. Stable sure fire jobs are an increasing rarity these days. If you are just getting started in life you won't have much of a cushion leftover. Having to sell a house in a couple years to chase a new job can leave you upside down in the transaction and without a good cushion you can be stuck between a rock and a hard place. You would likely have to replace the roof and do other work found at inspection on top of 6% realtor fees. I did not have as much flexibility to leave the area when one of my jobs became seriously un-fun, beware of becoming trapped.
Maintenance: Make sure the bones are good. If the roof is due within 5 years, require it get replaced before you buy. In fact, your bank or insurance company is likely to require it be replaced if the inspection says the roof is at the end of its life. Do a gut check on the furnace, AC, appliances, flooring/carpet, and paint. The house can easily become a money hole when you could be saving like mad. If nothing else have the discipline to set aside at least a few thousand a year to handle the usual big ticket items (roof, paint, fence, tree trimming/removal, furnace, etc). Maintenance can easily add 15-25% of your payment to your average annual cost, often when you least expect it. Our roof this year cost $14k, our friends spent over $25k.
Timing: Mostly the housing market is a sellers market right now. Expect to have all cash buyers competing with you for good properties. Things are still crazy enough that it feels frothy to me. We messed up and bought near the peak in 2006, and it took 7 years before were were no longer upside down. Thankfully we didn't need to leave the area and bought within our means, but it is worth doing a gut check and renting for another year or three if your area feels overly exuberant.
Time: Keeping a house maintained and nice can be a major time sink depending on the details of the house, HOA, and climate. If you really enjoy mowing the lawn, pulling weeds, spreading bark dust, removing roof moss, cleaning gutters, fixing plumbing, painting walls, and general tinkering then you are set. If you prefer relaxing on the couch after work and spending your weekends playing with the kids, well, consider renting.
-
Hey Cole, I live in the Bay Area and my first house cost well more than 1/3 of my take-home pay. More like 50%. I used a liar's loan and never missed a payment*, but it was hard. I was determined to own real estate and wasn't going to take no for an answer. I'm proof that it can be done, but should it be?
Without actual numbers, any responses you receive are worth the paper they're written on. So, please sir, may we have some more?
*It doubled in value in less than four years, so my determination paid off, but your mileage surely will vary.
-
Hey Cole, I live in the Bay Area and my first house cost well more than 1/3 of my take-home pay. More like 50%. I used a liar's loan and never missed a payment*, but it was hard. I was determined to own real estate and wasn't going to take no for an answer. I'm proof that it can be done, but should it be?
Without actual numbers, any responses you receive are worth the paper they're written on. So, please sir, may we have some more?
*It doubled in value in less than four years, so my determination paid off, but your mileage surely will vary.
Agree, it can be done. My initial mortgage payments were 57% of my take home pay.
It's not the end of the world. I turned out all right. Income has almost doubled since then, value has gone up 50%, mortgage is gone, and I've leveraged it into more properties.