Author Topic: ROAST ME: Can we afford a house?  (Read 1952 times)

Tacopwr

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ROAST ME: Can we afford a house?
« on: July 30, 2020, 07:54:47 AM »
Howdy!

My partner and I live in Michigan and are currently shopping around for houses in this totally bonkers market where everything we look at has multiple offers in the first day, and it has been a frustrating process.

Recently my partner is starting to think we cannot even afford a house without having tons of cash available to offer way over asking price. This is evident by our previous offers being rejected even asking $5k-10k over.

We are wanting a house as we rent a duplex on a busy street and crave more space and privacy. The owner is also trying to sell the property which brings an unknown future rent price and landlord relationship into the equation.

We have a larger boat that we store in the backyard because we got a citation from the city for parking it in the driveway, which made us feel unwelcome. I also spend a lot of time in our 1 car garage working on jet skis, cars, lawn mowers, and other mechanical projects, some which I end up selling for a profit.

My partner desires a home we can make our own inside, that is mostly move-in ready with a nice layout and interior features. I prioritize land and privacy.

We have been looking at places in the $200k to $300K range, and are pre-approved for $350k.

Our rent is currently $1100 a month.
We collectively have around $25K saved up in liquid assets.
We have about $90k in retirements accounts and we each put away 15% currently.
No debt except my partner's $500 car payment.
Gross income is $125k and we have COVID stable careers.


Do you Mustachians think it's feasible to purchase a home currently? Or should we wait until we have a ton of savings or if the market changes?



« Last Edit: July 30, 2020, 07:56:33 AM by Tacopwr »

v8rx7guy

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Re: ROAST ME: Can we afford a house?
« Reply #1 on: July 30, 2020, 08:36:40 AM »
Howdy!

My partner and I live in Michigan and are currently shopping around for houses in this totally bonkers market where everything we look at has multiple offers in the first day, and it has been a frustrating process.

Recently my partner is starting to think we cannot even afford a house without having tons of cash available to offer way over asking price. This is evident by our previous offers being rejected even asking $5k-10k over.

We are wanting a house as we rent a duplex on a busy street and crave more space and privacy. The owner is also trying to sell the property which brings an unknown future rent price and landlord relationship into the equation.

We have a larger boat that we store in the backyard because we got a citation from the city for parking it in the driveway, which made us feel unwelcome. I also spend a lot of time in our 1 car garage working on jet skis, cars, lawn mowers, and other mechanical projects, some which I end up selling for a profit.

My partner desires a home we can make our own inside, that is mostly move-in ready with a nice layout and interior features. I prioritize land and privacy.

We have been looking at places in the $200k to $300K range, and are pre-approved for $350k.

Our rent is currently $1100 a month.
We collectively have around $25K saved up in liquid assets.
We have about $90k in retirements accounts and we each put away 15% currently.
No debt except my partner's $500 car payment.
Gross income is $125k and we have COVID stable careers.


Do you Mustachians think it's feasible to purchase a home currently? Or should we wait until we have a ton of savings or if the market changes?

Tons of cash available to offer over asking price?  I am not sure what is meant by that, but cash on hand does not equal how much you can offer unless you are paying for the entire house in cash, which it doesn't sound like you are?  I personally think you can absolutely afford a house in the $200-$300K range.  That is 1.6-2.4X your gross annual income, and you have low debt, which is very conservative situation.  You will need enough for a down payment, do you have that?  It's either time to save up for the DP as fast as you can or do what you need to do to get that $25K in liquid assets into cash.  With interest rates where they are at right now, you should definitely pull the trigger in my opinion.

theoverlook

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Re: ROAST ME: Can we afford a house?
« Reply #2 on: July 30, 2020, 08:39:21 AM »
You are in the top 25% of household incomes in the US while living in a low cost of living state. I sure hope you can afford to buy a house otherwise nobody can!!

RWD

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Re: ROAST ME: Can we afford a house?
« Reply #3 on: July 30, 2020, 08:40:34 AM »
You may want to consider an 80/10/10 mortgage. A $200k-300k house on $125k income is not going to be a problem.

Laserjet3051

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Re: ROAST ME: Can we afford a house?
« Reply #4 on: July 30, 2020, 08:44:37 AM »
Im also in MI, just bought a house and have the same numbers you do. Yes, the market is insanely tight! Yes, you have enough to buy a house. Pmi usnt the end of the world. U have to race to every home THE MINUTE IT GETS LISTED. no joke.

v8rx7guy

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Re: ROAST ME: Can we afford a house?
« Reply #5 on: July 30, 2020, 08:48:24 AM »
I have a question.  How has your situation changed so drastically in the last year?

https://forum.mrmoneymustache.com/case-studies/winfall-advice/

I am assuming you got married and now you are reporting your dual income status and your combined 401K savings?

Tacopwr

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Re: ROAST ME: Can we afford a house?
« Reply #6 on: July 30, 2020, 09:00:07 AM »
I have a question.  How has your situation changed so drastically in the last year?

https://forum.mrmoneymustache.com/case-studies/winfall-advice/

I am assuming you got married and now you are reporting your dual income status and your combined 401K savings?

Yup the numbers in this thread are for our combined income. She makes much more than I do, obviously. The other thread was for my personal finances.

We have both been saving for a long time and keeping our expenses down. We've been together for over 4 years if that counts for anything.

In regards to our assets, $19k is cash and $6.5K are in index funds in a brokerage. I figured I would liquidate that brokerage account if we get an accepted offer.

OFFTOPIC: I miss my RX7. It is now racing on the west coast.
« Last Edit: July 30, 2020, 09:05:27 AM by Tacopwr »

v8rx7guy

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Re: ROAST ME: Can we afford a house?
« Reply #7 on: July 30, 2020, 09:04:52 AM »
I have a question.  How has your situation changed so drastically in the last year?

https://forum.mrmoneymustache.com/case-studies/winfall-advice/

I am assuming you got married and now you are reporting your dual income status and your combined 401K savings?

Yup the numbers in this thread are for our combined income. She makes much more than I do, obviously. The other thread was for my personal finances.

We have both been saving for a long time and keeping our expenses down. We've been together for over 4 years if that counts for anything.

Gotcha.  OK cool.   So that's why your were only pre-approved for $350K, that's probably based solely on your GF's income because the bank is likely not going to look at your income as combined.  Honestly, I kind of retract my statement above, although you can absolutely afford a house in the range you're looking at wit your combined forces, I would not buy a house together until you are married.  Just get it done in the courthouse if you want, no need for a big ceremony, etc... just blame it on COVID if you're friends and family are disappointed that there's not a big party.  It just makes SO much more sense to be married and buy the house together.  Plus she's into motorsports, so she's a keeper!  (kidding...)
« Last Edit: July 30, 2020, 09:09:50 AM by v8rx7guy »

Tacopwr

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Re: ROAST ME: Can we afford a house?
« Reply #8 on: July 30, 2020, 12:58:19 PM »
She is a keeper for sure!

Thanks for the responses everyone. Feeling a bit of relief. Just gonna keep on course and see if we can get lucky with an offer.

sammybiker

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Re: ROAST ME: Can we afford a house?
« Reply #9 on: July 31, 2020, 04:00:22 AM »
@Tacopwr  As others said, you're more than good. 

Personally, I would utilize your mechanical inclinations to buy something on the lower end of that $200k budget, possibly this Winter when prices drop off a bit and put some sweat equity into the place.

rothwem

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Re: ROAST ME: Can we afford a house?
« Reply #10 on: July 31, 2020, 04:38:27 AM »
Howdy!

My partner and I live in Michigan and are currently shopping around for houses in this totally bonkers market where everything we look at has multiple offers in the first day, and it has been a frustrating process.

Recently my partner is starting to think we cannot even afford a house without having tons of cash available to offer way over asking price. This is evident by our previous offers being rejected even asking $5k-10k over.

We are wanting a house as we rent a duplex on a busy street and crave more space and privacy. The owner is also trying to sell the property which brings an unknown future rent price and landlord relationship into the equation.

We have a larger boat that we store in the backyard because we got a citation from the city for parking it in the driveway, which made us feel unwelcome. I also spend a lot of time in our 1 car garage working on jet skis, cars, lawn mowers, and other mechanical projects, some which I end up selling for a profit.

My partner desires a home we can make our own inside, that is mostly move-in ready with a nice layout and interior features. I prioritize land and privacy.

We have been looking at places in the $200k to $300K range, and are pre-approved for $350k.

Our rent is currently $1100 a month.
We collectively have around $25K saved up in liquid assets.
We have about $90k in retirements accounts and we each put away 15% currently.
No debt except my partner's $500 car payment.
Gross income is $125k and we have COVID stable careers.


Do you Mustachians think it's feasible to purchase a home currently? Or should we wait until we have a ton of savings or if the market changes?

Tons of cash available to offer over asking price?  I am not sure what is meant by that, but cash on hand does not equal how much you can offer unless you are paying for the entire house in cash, which it doesn't sound like you are?  I personally think you can absolutely afford a house in the $200-$300K range.  That is 1.6-2.4X your gross annual income, and you have low debt, which is very conservative situation.  You will need enough for a down payment, do you have that?  It's either time to save up for the DP as fast as you can or do what you need to do to get that $25K in liquid assets into cash.  With interest rates where they are at right now, you should definitely pull the trigger in my opinion.

The main caveat I can think of related to buying over asking price is the appraisal. If the house doesnít appraise at the agreed upon price, the bank wonít lend the extra and youíve got to make up the difference in cash.

Example:

You offer 210 on a house, offer is accepted, but the bank appraises it for 200. The bank will typically lend 95% ltv, so you need 10 down, plus an additional 10 to cover the extra over the appraised value. Plus another ~3-5ish in closing costs.

Tacopwr

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Re: ROAST ME: Can we afford a house?
« Reply #11 on: July 31, 2020, 02:05:33 PM »

The main caveat I can think of related to buying over asking price is the appraisal. If the house doesnít appraise at the agreed upon price, the bank wonít lend the extra and youíve got to make up the difference in cash.

Example:

You offer 210 on a house, offer is accepted, but the bank appraises it for 200. The bank will typically lend 95% ltv, so you need 10 down, plus an additional 10 to cover the extra over the appraised value. Plus another ~3-5ish in closing costs.

My offer agreements have always had a stipulation for appraisal to combat this issue. I would hope that covers me if the appraisal comes back lower. I guess we shall see. I just put another offer in this morning on the "perfect" fixer upper for $10k over asking. Every 30 minute viewing slot was taken for two days and it had been listed for a couple hours!




Dicey

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Re: ROAST ME: Can we afford a house?
« Reply #12 on: August 01, 2020, 09:36:08 AM »
Wow, if you feel "unwelcome" because you were violating municipal code, you might be in for a much bigger surprise once you're a homeowner, especially if you're within city limits. Someone could even call you out for running a business out of your home without a license. It happens, so educate yourself as to the codes before you buy anything anywhere.

You can up your DP cash by temporarily lowering your 401k contributions to just the percentage that gets matched.

I believe we are nearing the end of a Real Estate bubble. People who have lost their jobs are going to start losing/selling their houses. More inventory = lower prices. Use this time to learn your market intimately and pile up some more cash. Consider going on an austerity diet to further up your cash. The Frugalwoods have a good Uber Frugal Month plan that you can start any time and do for as long as you want.

https://www.frugalwoods.com/category/uberfrugalmonth/

If you are not at the point in your relationship where you are confident enough to marry, don't buy a house together. Not saying you have to actually wed, but buying property with a non-spouse is riskier.
« Last Edit: August 01, 2020, 10:49:20 AM by Dicey »

StashingAway

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Re: ROAST ME: Can we afford a house?
« Reply #13 on: August 01, 2020, 10:12:48 AM »
If you are not at the point in your relationship where you are confident enough to marry, don't buy a house together. Not saying you have to actually wed, but buying property with a non-spouse is riskier.

+1.

One person buy it and the other "rent" from them.

Tacopwr

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Re: ROAST ME: Can we afford a house?
« Reply #14 on: August 06, 2020, 09:17:05 AM »
Wow, if you feel "unwelcome" because you were violating municipal code, you might be in for a much bigger surprise once you're a homeowner, especially if you're within city limits. Someone could even call you out for running a business out of your home without a license. It happens, so educate yourself as to the codes before you buy anything anywhere.

You can up your DP cash by temporarily lowering your 401k contributions to just the percentage that gets matched.

I believe we are nearing the end of a Real Estate bubble. People who have lost their jobs are going to start losing/selling their houses. More inventory = lower prices. Use this time to learn your market intimately and pile up some more cash. Consider going on an austerity diet to further up your cash. The Frugalwoods have a good Uber Frugal Month plan that you can start any time and do for as long as you want.

https://www.frugalwoods.com/category/uberfrugalmonth/

If you are not at the point in your relationship where you are confident enough to marry, don't buy a house together. Not saying you have to actually wed, but buying property with a non-spouse is riskier.

Hi Dicey,

While we did violate an incredibly vaguely worded code, we were singled out by a neighbor complaint. I spoke with the City Planner and he confirmed as such. There are over a dozen boats, travel trailers, cars on blocks, etc. breaking the same ordinance in my neighborhood alone, and we were the only ones who were asked to move. That is the source of the unwelcome feeling.

The house were are in the process of purchasing is on 12 acres in the middle of nowhere, so no more pesky ordinances to worry about.

I agree with you on the housing bubble, but we have been working towards a house for a long time, and the quality of life increase is worth the possible short term housing value drop. I remember 2008 vividly and thankfully we are able to purchase a home that could feasibly be paid for with one salary should one of us lose our job.

In regards to marriage, while we both have not taken it off the table, we both have been impacted by awful divorces and are not thrilled about letting the government into our relationship. While I appreciate the marriage advice (It is a popular opinion), it's a personal decision and we are comfortable where we are.

On the house front:

We did find alternate financing and a going forward with a 3% down, 3.25% interest Fannie May backed mortgage, freeing up a bunch of cash for some updates. The home inspection process went well and we are going with the flow. The sellers are even including a nice zero turn mower in the deal! lol

StashingAway

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Re: ROAST ME: Can we afford a house?
« Reply #15 on: August 06, 2020, 04:28:30 PM »
In regards to marriage, while we both have not taken it off the table, we both have been impacted by awful divorces and are not thrilled about letting the government into our relationship. While I appreciate the marriage advice (It is a popular opinion), it's a personal decision and we are comfortable where we are.

It's always hard to gauge over the internet if it's something that one has thought a lot about or not at all. Sounds like you've thought a lot about it, so I withdraw my comment ;)

Dicey

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Re: ROAST ME: Can we afford a house?
« Reply #16 on: August 06, 2020, 04:50:25 PM »
Wow, if you feel "unwelcome" because you were violating municipal code, you might be in for a much bigger surprise once you're a homeowner, especially if you're within city limits. Someone could even call you out for running a business out of your home without a license. It happens, so educate yourself as to the codes before you buy anything anywhere.

You can up your DP cash by temporarily lowering your 401k contributions to just the percentage that gets matched.

I believe we are nearing the end of a Real Estate bubble. People who have lost their jobs are going to start losing/selling their houses. More inventory = lower prices. Use this time to learn your market intimately and pile up some more cash. Consider going on an austerity diet to further up your cash. The Frugalwoods have a good Uber Frugal Month plan that you can start any time and do for as long as you want.

https://www.frugalwoods.com/category/uberfrugalmonth/

If you are not at the point in your relationship where you are confident enough to marry, don't buy a house together. Not saying you have to actually wed, but buying property with a non-spouse is riskier.

Hi Dicey,

While we did violate an incredibly vaguely worded code, we were singled out by a neighbor complaint. I spoke with the City Planner and he confirmed as such. There are over a dozen boats, travel trailers, cars on blocks, etc. breaking the same ordinance in my neighborhood alone, and we were the only ones who were asked to move. That is the source of the unwelcome feeling.

The house were are in the process of purchasing is on 12 acres in the middle of nowhere, so no more pesky ordinances to worry about.

I agree with you on the housing bubble, but we have been working towards a house for a long time, and the quality of life increase is worth the possible short term housing value drop. I remember 2008 vividly and thankfully we are able to purchase a home that could feasibly be paid for with one salary should one of us lose our job.

In regards to marriage, while we both have not taken it off the table, we both have been impacted by awful divorces and are not thrilled about letting the government into our relationship. While I appreciate the marriage advice (It is a popular opinion), it's a personal decision and we are comfortable where we are.

On the house front:

We did find alternate financing and a going forward with a 3% down, 3.25% interest Fannie May backed mortgage, freeing up a bunch of cash for some updates. The home inspection process went well and we are going with the flow. The sellers are even including a nice zero turn mower in the deal! lol
Hmmm, I wonder if said neighbor has a problem with renters? That totally blows.

It sounds like you've given it a lot of thought. I wish you all the best!

Here's a patch I just ordered to fix my DSS's new shirt that I accidentally put a teeny, tiny hole in. (Don't worry, DSS chose it.) Something tells me you might like it too...

Tacopwr

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Re: ROAST ME: Can we afford a house?
« Reply #17 on: August 06, 2020, 05:16:58 PM »
OMG that patch is awesome!
Thanks everyone for the advice and stuff.
We are getting the appraisal scheduled shortly and that should be exciting!

Tacopwr

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Re: ROAST ME: Can we afford a house?
« Reply #18 on: August 20, 2020, 08:26:15 AM »
Update:
The appraisal came back $3k over purchase price so we are all good there. Now we wait for the title company to do their thing! So stoked!

clarkfan1979

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Re: ROAST ME: Can we afford a house?
« Reply #19 on: August 22, 2020, 06:26:13 AM »
My only concern is that it seems like you should have more than 25K in cash based on 125K of income over 4 years. Did you just get done paying off some debt?

My wife and I only had one year in which we cracked 100K and that was in 2015. We grossed 105K. We put 15% in retirement accounts to avoid the 25% tax bracket. With the remaining 90K gross, we were able to save an additional 20K in cash that year. 

My wife now works part-time and we gross around 85K-90K. I put 14K into my employer retirement account and another 12K into our Roth IRA's.

We bought a primary home for 280K last year. Our mortgage is $1275/month, including taxes and insurance. I will probably re-fi in the fall and our payment will go down to $1150/month. The taxes are pretty low at $1375/year and the utilities are surprisingly low for such a large house. The house was renovated by a house flipper. Zero repairs are needed inside. I might spend $500 on landscaping.

Tacopwr

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Re: ROAST ME: Can we afford a house?
« Reply #20 on: August 25, 2020, 09:28:22 AM »
My only concern is that it seems like you should have more than 25K in cash based on 125K of income over 4 years. Did you just get done paying off some debt?

My wife and I only had one year in which we cracked 100K and that was in 2015. We grossed 105K. We put 15% in retirement accounts to avoid the 25% tax bracket. With the remaining 90K gross, we were able to save an additional 20K in cash that year. 

My wife now works part-time and we gross around 85K-90K. I put 14K into my employer retirement account and another 12K into our Roth IRA's.

We bought a primary home for 280K last year. Our mortgage is $1275/month, including taxes and insurance. I will probably re-fi in the fall and our payment will go down to $1150/month. The taxes are pretty low at $1375/year and the utilities are surprisingly low for such a large house. The house was renovated by a house flipper. Zero repairs are needed inside. I might spend $500 on landscaping.

Yes I became debt-free last year and my partner is paying her last student loan payment next month.

Congrats on that affordable house! Michigan property taxes are on the high side. Our home is around $2300 a year and homeowners insurance is high at $1600 due to being over 6 miles from the two closest fire stations and they were recently downgraded. I plan on purchasing a handful of huge fire extinguishers after we close. lol

Our final numbers are 3.25% interest and total mortgage payment with PMI will be around $1430.

We are paying extra for a lot of personal "luxury". The house sits on 12 acres and has two large outbuildings so we were focused on different priorities than the typical suburban home.

Since it is a newer build with an insulated basement and modern insulation throughout, we are hoping that utilities will be cheaper. The house has not been lived in for over two years so we didn't get an estimate from the previous owner.

Chris Pascale

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Re: ROAST ME: Can we afford a house?
« Reply #21 on: August 30, 2020, 11:07:21 PM »
U have to race to every home THE MINUTE IT GETS LISTED. no joke.

That's what we were doing - checking twice a day and making a list.

It was also what people did when we listed our home. In fact, at just the rumor that we might sell, a friend called and said, "Can I buy your house?" It wasn't the right house for her in the end, but the very next person we let walk through (place full of boxes, painters at work) asked if I offer you the full price in cash, will you not show it to anyone else? I agreed.

We're waiting for the title search to wrap up, and he's worried I might use his offer against other buyers, and given that I just lost a home in that way, I can understand.

Tacopwr

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Re: ROAST ME: Can we afford a house?
« Reply #22 on: September 01, 2020, 09:58:15 AM »
Final update!

We closed on the house yesterday and its finally ours. It was a pretty quick process as we closed within 31 days of our offer.

Since we finally had some time alone in the house, we found a few more things to work on, but we are excited to start the remodeling process.

We ended up only requiring $9000 on top of the $2500 we spent for deposit and appraisal. A lot less money than we initially estimated, so we have plenty remaining for all the fixes and updates.

Thanks for the advice and knowledge everyone.

MrThatsDifferent

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Re: ROAST ME: Can we afford a house?
« Reply #23 on: September 02, 2020, 12:05:40 PM »
Congrats! And you donít have to liquidate your brokerage account. Score! Hopefully you can keep some of that money in your account, donít go crazy all at once. Make sure you have a emergency account of money. All the best!

Chris Pascale

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Re: ROAST ME: Can we afford a house?
« Reply #24 on: September 04, 2020, 06:54:41 AM »
Congratulations. I hope you have a lot of happy years there.