Approach to take for my first house?

[boilermaker27]

Hi Everyone,

I'm 27/m, engaged from Northwest Indiana. I graduated with a degree in mechanical engineering last December, and have been employed since January. I am currently living at home, saving up money for my wedding and a new home.

Some basics:

My base salary is currently $59,000. My lowest credit score (TransUnion) is 746. At my one year mark (January 9,2013) I'm due for a 10% pay raise as part of job, I should also get a cost of living raise, but not sure if I'll end up with both. I also get some form of overtime or premium pay every month. My base is 59,000, but for the year I've already taken home $63,000. I get paid monthly and still have a November and December paycheck. Overall, I would expect to average per month someone making no less than $65,000 next year (although I'd expect closer to $75,000, I want to be conservative.)

I contribute 6% into my 401K with a 6% match and a 4.75% company contribution for retirement. So I have $6700 in there now and 16.75% goes in every month

I've paid off a few expenses already (engagement ring, bedroom set for my home) and have averaged savings $2000-$2500 per month while living at home. My Current Savings is about $26,000.

I bought a new car in January, 5 year, no interest loan. My monthly payment is $444

My monthly student loan obligation for the next 10 years is $160/month.

My only other fixed expense right now is my phone bill for $120/month.

My car insurance is $85/month

I have no credit card debt and pay the balance off every month.

I currently give my dad $500/month toward a loan he gave me for other school expenses. But he is forgiving the rest of the debt when I move out.

My fiance's parents and my own are contributing to the wedding. I should be on the hook for $5000-$6000 of wedding expenses. Wedding date: September 21, 2013.

I should also be on the hook for a $4000-$4500 honeymoon.

We plan to have children in 2-3 years.

My fiance has medicore credit, and is set to graduate next month. She has about 40K is school debt. I plan to go alone on the mortgage and add her later. I anticipate her getting a job, but I will put her whole salary toward student loan repayment. So I'm trying to budget based SOLELY on my salary. Eventually I'd like her to be able to be a stay at home mother and the mortgage will obviously be 30 years.

My question is, how much house can I confortably afford? How much of a downpayment should I consider? What kind of interest rate for a mortgage am I looking at?

Right now, decent houses in my area are about $150,000. Pretty Good houses are $180,000 and AMAZING houses (at least in my opinion) are around $200,000-$220,000. I feel I can afford the amazing if we budget well, but I feel like I might be missing something.


Does anyone have any useful advice?

[snafu]

You have a lot of change and expenses to balance in the next few years. How secure do you feel about current employment? What work does you fiancee expect and what is the typical annual salary range? What are fiancee's views about money management? What can you do to increase your credit rating?

2013 Wedding & Honeymoon = $ 10,500. Your $ 26K saving can disappear quickly once Wedding & Honeymoon costs are subtracted and Emergency Fund is established. It would be very beneficial to increase the sum contributed for retirement as monies benefit most from compounding for a l-o-n-g time.

2016 Car loan $ 444. x 60 = $ 26,640.
2023 Stu loan $ 160. x 120 = $ 19,200.
Fiancee Loan $ 40,000.

There are lots of expenses closing costs involved in buying a home over and above mortgage. Home ownership likewise comes with extra expenses in maintenance, equipment, utilities, HOA, insurance, repair. The recommended down payment is 20%. The mortgage no more than 25% of net income.

[boilermaker27]

You have a lot of change and expenses to balance in the next few years. How secure do you feel about current employment? What work does you fiancee expect and what is the typical annual salary range? What are fiancee's views about money management? What can you do to increase your credit rating?

2013 Wedding & Honeymoon = $ 10,500. Your $ 26K saving can disappear quickly once Wedding & Honeymoon costs are subtracted and Emergency Fund is established. It would be very beneficial to increase the sum contributed for retirement as monies benefit most from compounding for a l-o-n-g time.

2016 Car loan $ 444. x 60 = $ 26,640.
2023 Stu loan $ 160. x 120 = $ 19,200.
Fiancee Loan $ 40,000.

There are lots of expenses closing costs involved in buying a home over and above mortgage. Home ownership likewise comes with extra expenses in maintenance, equipment, utilities, HOA, insurance, repair. The recommended down payment is 20%. The mortgage no more than 25% of net income.

I feel very secure in my job. Student loan is closer to 14000. I don't think I'll have a 20% payment regardless, unless I get a home not worth having, which in that case I'd rather rent a few years. I'll also be savings $2000 minimum per month until house. Her salary range is likely 20-25K. So all I'm expecting is for her to pay down as much loans as possible...I want to have a household budget based ONLY on my salary, and forgetting her loans.

[phantom]

At the rate you're currently saving, I don't understand why you think 20% down on a house "worth having" is beyond your means. In the $150,000-$220,000 range, 20% is $30,000-$44,000. At your current savings rate, you should be able to save that much in a year or two without trouble. If you have to rent for a little while so that you can live with your wife once you're married, I know that will slow down your savings a bit. But, I would definitely recommend waiting to buy a house till you have 20% down plus an emergency fund. It's the safe way to go, and I think it's well within your reach.

My husband and I were in a similar situation to you when we got married 3 years ago. Some of our numbers were a little different, but we basically decided to go for a house in our awesome range. I love our house, and we can afford it, but I do sometimes question whether or not we made the right choice. In order to have our awesome house, we've had to sacrifice having some other awesome things, and it's going to make things tighter than they otherwise would be if I decide to be a stay at home mom.

My biggest piece of advice when deciding how much to spend on your house is to keep in mind that your decision will impact how much you have to spend on everything else for many years to come. You've already mentioned spending $26,000+ on a car and $4,000+ on a honeymoon. Both of those numbers sound high to me, so I'm assuming that having a nice car and going on nice trips are pretty important to you. Therefore, I would suggest keeping in mind that spending more money on a house means spending less money on cars and travel in the future. When you compare the cost of your mortgage in different scenarios, remind yourself that $100 extra per month, means $1200 less to spend on a yearly vacation.

Also consider planning for a 15 or 20 year mortgage instead of a 30 year one. I think it's perfectly reasonable to get a 30 year mortgage if you're afraid of committing to the higher minimum payments that come with a shorter term. But, if you think you might like to be done paying your mortgage by the time you have kids in college or at least well before you're in your late fifties, consider taking on a mortgage that you could conceivably pay off in less than 30 years.

I recommend playing around with the Bankrate Mortgage Calculator a bit. Throw in some numbers and see how things like the cost of the house and length of your term impact your numbers. Once you see some actual numbers, it might help you get a better feel for the difference between buying a $180,000 house and a $200,000 house.

[thesimplemoneyblog]

Great job so far on your savings habits and planning for your future!

The 'standard' rule of thumb for purchasing a home is to not spend more than 2.5 times your salary. An even better rule if you want to ensure some extra savings and spare money for incidentals, trips, etc. is to not spend more than 1.5 times your salary. At $75,000 that would be around $115,000, but if your fiancee works and has an income, that could add to your overall household's ability to afford a larger house in your area to get closer to that $150,000-$200,000 figure.

My recommendation regarding the 15/20/30 year mortgage decision is to get a 30 year mortgage and to pay it as if you are making the 15 year payment. The benefit to this approach is that you pay off the mortgage quite a bit quicker than the 30 years, but you are also not contractually obligated to make the higher payment each month like you would be under the 15 year method. Depending on your loan qualifications, you might be able to put down less than 20%, but you will have to pay PMI (private mortgage insurance). While many people recommend steering clear of anything less than a 20% downpayment, given your age, current savings, wedding, and need for a sizable emergency fund, it may be worthwhile to have less of a downpayment and keep some of the cash for more flexibility in case something catastrophic were to happen, so you didn't have too much savings stuck in your house equity that you may not be able to access (as it could happen that the equity could dry up in a poor market environment like people have seen the past four years). Plus, once you do build up 20% equity, you will not have to pay PMI anymore.

[bjl584]

20% down with a 6 month emergency fund in place and making sure that the house doesn't cost more than 3 times your annual salary is standard advice for purchasing a house.