Thinking of buying first house. Kind of scary.

[graceful]

Let me preface by saying I am a property manager by trade. I manage a family owned real estate portfolio. So, I am actually use to mortgages, re-finances, real estate taxes, property insurance, maintenance, etc. - all the "headaches" and responsibilities of home ownership.

Thinking of buying our first real house now because our oldest child will be starting 5th grade this fall. We have 2 children. The public elementary they go to is ok to pretty good. I think it is only rated maybe a 6 on greatschools.net. But they are getting a good education. The quality of the middle school drops substantially and private school near us will run $20K+ per child and this is when I checked kindergarten prices years ago.

So, now that prices are a tiny bit more reasonable than they were a few years ago, DH is making more $$ than a few years ago and we are in a time crunch of about 14 months to find a better school district for when older child starts middle school, we thought now would be a good time to start looking at our first house.

It is still a scary prospect. Taxes are extremely high because of the excellent school districts. We are talking $16K-$20K. No point in moving at all if the school districts are not great. I can send the kids to a crappy school right here.

We have saved about $390K in liquidity savings in our "house" fund, not including about $40k+ as our "emergency fund." Zippo debt of any kind. Car paid in cash, no student loans. We do put anywhere between $200 to $3000 on our CC a month but it gets paid off in full every month. It is at a high of around $3000 right now because the final payment on a August cruise just came due. Our credit limits on all our cards are over $40K in total, I think but we NEVER ever come close to it.

Scary is that it is not really "enough." Houses where we are looking even with the drops are around $650-$750K. And these are just the ok ones.

The thought of having a mortgage is scary for me even though I pay million dollar mortgages in my line of work. The difference is that those mortgages are on INCOME producing property.

It's time for me to buckle down and examine all my numbers - gross and net income, assets, cash, etc. to figure out what I can afford and what I WANT to spend.

NEVER had to really worry about money before - we could literally spend what we wanted - but we were natural savers and we are in general frugal about some/most things. I will be honest and admit I spend quite a lot on travel though. We had enough in savings and our monthly expenses are low enough that DH could literally quit his job if he wanted to and we would be ok for a while. He hasn't ever done that but it is a big stress reliever to know he CAN. He has changed jobs twice since we have been married, with a step up this last time.

But the public schools in our district for middle schools is also causing lots of different stress right now, thus we are re-visiting the financial burdens for a house...

Sorry that this is kind of turning into a vent more than a request for advice.

Please talk to me about the BENEFITS of home ownership as long as someone is careful NOT to get in over their heads.

Thanks!

[disneysteve]

Houses where we are looking even with the drops are around $650-$750K. And these are just the ok ones.

You left out one very important piece of information - your income. Seeing as you've got a 40K EF and 390K in your house fund, I'm guessing you earn a decent amount.

[zetta]

Would you be putting down the full $390k toward the house? Do you have other retirement savings?

How much do you pay in rent today? How much would your house payment be in your target school district? How much would renting be in that school district?

One advantage of home ownership is that if you choose a place you can afford and get a fixed rate mortgage, over the long run it can be a great inflation hedge. If inflation goes crazy, landlords will raise the rent every year, where a homeowner's mortgage payment will stay the same.

[graceful]

You left out one very important piece of information - your income. Seeing as you've got a 40K EF and 390K in your house fund, I'm guessing you earn a decent amount.

Sorry about that. Figured giving out ALL that info at once would be information overload.

DH's annual salary this year after minimum pay raise due to a promotion not including bonus is $90,599. His bonuses have been about $10,000 in 2007 and $5000 in 2008 (the company cut back event though it was their most profitable year because they needed more $$ in reserve due to the "downturn") so I don't want to count on any bonuses at all in the future. His pay has increased dramatically in the last 3 years after he switched to this new job. He worked at a much smaller company and his pay was almost half.

I actually pay myself from the family business. I always thought why pay myself too much $$ and have to pay income taxes on it. Note that while I am the manager, I don't own the business. So, in 2008 my annual pay was $10,800 plus bonuses was $25,800 for the year. Because we are thinking of a house purchase, I just increased my annual base pay to $32,400.

Most of the time, I usually like to keep the monthly expenses that I can control of the BUSINESS low in order to maximum cash flow. Mortgage, taxes, oil, insurance, maintenance, etc. constitute a LARGE portion of the monthly expenses already. In the past, I set my own salary low. But if there is a larger surplus at the end of the year or I need more money (I never really do), I get a bonus. But I will usually pay the bonuses out to my Mom before myself... She retires next year, so my income should naturally get a bump up.

Our monthly expenses are actually quite low. My "rent" is outrageously, ridiculously low. We "pay" the difference between our rent and what we really pay into our housing fund. In the last year or so, I actually doubled that amount - because DH made almost double and also because a house mortgage would be more than double our market rent anyways - so as to more realistically reflex that monthly housing expense.

THAT is why we have such a large house fund. It is actually partly due to the fact that we saved about $18000/year in rent and put that directly into the house fund from the day we got married. It's scary that that rental amount about equals just the property taxes of a house.

I'm actually sorry that I didn't save more.

[graceful]

Would you be putting down the full $390k toward the house? Do you have other retirement savings?

How much do you pay in rent today? How much would your house payment be in your target school district? How much would renting be in that school district?

One advantage of home ownership is that if you choose a place you can afford and get a fixed rate mortgage, over the long run it can be a great inflation hedge. If inflation goes crazy, landlords will raise the rent every year, where a homeowner's mortgage payment will stay the same.

I'm thinking of putting at least $300-$350K down in order to keep the monthly mortgage down.

I would like to have a larger emergency fund. In addition, most of the homes we have seen need work so we need to account for that.

It looks like our target areas are in the $650-$750K range. The LARGEST monthly payment I am remotely comfortable with is under $4000/mth. So, for a $700K house, 50% down, 50% mortgage. Approx $2000+ P&I. If taxes are $1800 then another $1500. So round up to $4000/mth for house payment and utilities? Will that be enough? Will probably not get cable in order to cut back.

NOT interested in renting, if we can buy instead. It is something DH and I wanted to do since we got married but didn't think we could remotely afford in this city.

We don't really pay any rent now. I have a preferential rent of $100/mth. But we have been putting away $3000/mth towards our house fund as pretend "rent or mortgage." This is with NOT really cutting back. I go to Disney at least 2x a year plus other vacations, etc.

I think we can manage if I cut out the vacations and we are more budget conscious.

It is just scary because it will be about 50% or more of our net income after I increase my base salary. That is against what is "suggested."

[graceful]

You left out one very important piece of information - your income. Seeing as you've got a 40K EF and 390K in your house fund, I'm guessing you earn a decent amount.

Oh I forgot to mention, that since DH maxes out his 401K, and puts $$ into the FSA and TSA, his net is actually just going to cover the house payments. We will have to "live" off my income.

I think once we actually purchase a place, we might have to lower the 401K contribution a bit.

[Seeker]

Graceful,

You don't really have enough numbers here for us to make a recommendation.

Sounds like you're a family of 4; you, your husband, and two children.

Sounds like his net is $4000 per month; and that's what your comfortable (at max) spending on housing related costs.

What's your net income?

Do you have a budget?

Do you know how much you spend on food and other necessities?

Your utilities will probably go up.

Maintenance may go up.

You have no debt, but do you have viable cars for the next several years?

Is your living arrangement on a military base of sorts and are the other prices (food, etc) at bases comperable to what you'd be paying outside? Sorry, I don't really understand how else you'd be paying as little as $100/month rent.

You have to look at every dollar currently spent and know how that will differ with a place of your own.

If your income can cover all expenses, while his goes toward the new house, and since your pretty much manager and can determine your own "salary," then it might be okay.... but really we cannot tell much more from the info provided.

[zetta]

So you're looking at a mortgage of $300k-$400k on a combined income of $132k. (Many companies are cutting out all bonuses in this economy, so I wouldn't count on having it.) If you can get a loan for $400k at 5.5%, that's $2271.16 per month. We've had a similar income and mortgage for a few years now without feeling pinched, but our property taxes are only a third of yours.

If property taxes are $20k per year (Yikes!), that's another $1,666 per month, so that's almost $4k per month total.

What is your take-home after taxes and maxing the 401k? What is your age and 401k balance?

[kork13]

Oh I forgot to mention, that since DH maxes out his 401K, and puts $$ into the FSA and TSA, his net is actually just going to cover the house payments. We will have to "live" off my income.

I think once we actually purchase a place, we might have to lower the 401K contribution a bit.

I'm not sure if I'm reading your posts correctly, but this (bolded above) seems rather disconcerting.... Exactly how much (%) of your reliable (non-bonus, since it's not guaranteed) household income would your housing expenses be (Mortgage+taxes+insurance)? Just from some rough number-slinging, it seems that it would be 35-40% of your monthly income! Even to include the bonuses, that still would be 30-35%. The standard rule of thumb is to spend no more than ~25% of your income on housing. Can your family really "live off of [your] income"?

Where do you live? It sounds like you must live in a very high cost of living area (which would only compound the problem of "living off your income")... Are you certain there are no suitable homes for less than $650k?

While you're crunching percentages, what % of your total income is being saved for retirement? That should be at least 15%, preferably more. If you were to decrease the 401k savings, how would that impact?

[graceful]

Graceful,

You don't really have enough numbers here for us to make a recommendation.

You know, I think I need to work out ALL those numbers myself on paper. Part of the fear is the unknown. I need the numbers in black and white to know where I am headed. I have most of the numbers but not ALL yet - such as what my NEW budget will be.

Sounds like you're a family of 4; you, your husband, and two children.

Yes

Sounds like his net is $4000 per month; and that's what your comfortable (at max) spending on housing related costs.

What's your net income?

It will about $2150, not including income from bonuses and other sources (personal investment property, etc)

Do you have a budget?

YES - for all the regular or big monthly expenses such as tithing, life & car & life ins, auto-monthly savings, house fund savings. travel, food, retirement savings, etc. However, I didn't really budget for the small stuff. Basically, as long as all the different savings accts were funded and I had a cushion (about $8K) in my "working" account, I didn't really budget for the miscellaneous spending. If I noticed that our account seemed to have fallen below the cushion I felt comfortable with, we cut back. I think we will have to re-work our entire budget - not only with the new situation would mean a totally different budget, but to have a better budget that keeps track of where our fun money has been going - I admit that that amount has gotten much bigger since DH has been making more money.

Do you know how much you spend on food and other necessities?

Yes and no. Grocery - yes. The odd Duncun Donuts just got lumped into the misc/fun money that has ballooned lately.

Your utilities will probably go up.

Without a doubt. What are average utilities for an older 2000 sq.ft. house in the NE? Utilities for an apartment are a whole different ball game.

Maintenance may go up.

Yes - no more Superintendent.

You have no debt, but do you have viable cars for the next several years?

One paid for car, well-maintained, low mileage. May or may not need a second depending on the house and distance from train.

Is your living arrangement on a military base of sorts and are the other prices (food, etc) at bases comperable to what you'd be paying outside? Sorry, I don't really understand how else you'd be paying as little as $100/month rent.

I am a property manager for a residential complex. I am technically on-call 24/7 so my housing is heavily subsidized. I DON'T have to live in the building. We have a live-in Super but I coordinate everything. Tenants don't contact the Super directly. So, as long as my cell phone is attached to my hip, I can handle all emergencies. I have quite a nice apartment. If we move, I will probably give it up completely (more income for the building). The office is in the building, so I will still be commuting to work.

You have to look at every dollar currently spent and know how that will differ with a place of your own.

Thanks I will have to work on that asap.

If your income can cover all expenses, while his goes toward the new house, and since your pretty much manager and can determine your own "salary," then it might be okay.... but really we cannot tell much more from the info provided.

The more I think about it, the more I think I need to over haul how I've been budgeting. In fact, I think that I may need to consult a fee-only personal financial adviser in the NYC tri-state area - hopefully one that is familiar with the dynamics of family businesses. I'm probably going to start another post for recommendations - is that allowed here?

[tripods68]

What's the possibility of renting for a couple of years, saving all the cash toward paying OUTRIGHT on a home worth around $500K - $600K? I think that's were you heading now if you stayed course for a little bit longer.

[feh]

Have you considered moving to a non-HCOL area? Is that an option? With the money you've saved, you could live in a great school district and buy a great house for cash in most areas of the country.

[graceful]

So you're looking at a mortgage of $300k-$400k on a combined income of $132k. (Many companies are cutting out all bonuses in this economy, so I wouldn't count on having it.) If you can get a loan for $400k at 5.5%, that's $2271.16 per month. We've had a similar income and mortgage for a few years now without feeling pinched, but our property taxes are only a third of yours.

If property taxes are $20k per year (Yikes!), that's another $1,666 per month, so that's almost $4k per month total.

What is your take-home after taxes and maxing the 401k? What is your age and 401k balance?

DH takes home $1060/week AFTER maxing out his 401K (what is it? $15500/yr?), paying for medical insurance, buying train tickets, and funding $1200/yr in a FSA.

Mine is now $2150 net.

We are 41 and 39.

I'm ashamed to admit I don't know what the exact balances in our 401K or investment portfolio balance is right now. But it is approximately $50K+ in IRAs, $25K in 401K, and $100K in other investments, I guess after losses.

I think we will try to limit the loan amount to $350K so as to max the housing payment to no more than $4K with the RE taxes & utilities, etc.

We will need to re-work DH's 401K contribution lower and maybe change his exemptions to increase his net. We currently claim 5 exemptions/allowances on his W-4. HATE having to file and pay quarterly estimated taxes so we rather overpay Uncle Sam than pay penalties because the IRS says we need to pay quarterly estimated. This happens because I get varying amounts of investment income - I don't count it because it varies a LOT.

As for retirement - what is that? Lol. My parents are retirement age - their retirement portfolio is real estate. They will never "truly retire" - there will always be headaches to be had. They are not the types to sit back and do nothing - they will probably be sticking their fingers into some pie until the end.

I guess I am their pension administrator. I hope they have decades of happy "retirement" ahead of them. But as an only child, one day, their retirement portfolio will be my retirement portfolio. It will be farmed out to outside management at a much lower profit margin though - I don't want to be doing this for the rest of my life.

[graceful]

I'm not sure if I'm reading your posts correctly, but this (bolded above) seems rather disconcerting.... Exactly how much (%) of your reliable (non-bonus, since it's not guaranteed) household income would your housing expenses be (Mortgage+taxes+insurance)? Just from some rough number-slinging, it seems that it would be 35-40% of your monthly income! Even to include the bonuses, that still would be 30-35%. The standard rule of thumb is to spend no more than ~25% of your income on housing. Can your family really "live off of [your] income"?

Where do you live? It sounds like you must live in a very high cost of living area (which would only compound the problem of "living off your income")... Are you certain there are no suitable homes for less than $650k?

While you're crunching percentages, what % of your total income is being saved for retirement? That should be at least 15%, preferably more. If you were to decrease the 401k savings, how would that impact?

Convention wisdom all says to keep the %age of housing costs to less the 30 to 40%. That's what I want to do. But the numbers doesn't seem to work out that way.

We live in upper NYC and want to buy in Westchester. Ideally, I would like to be within a 30 minute drive to work in case of emergencies. I am on call 24/7.

The numbers are keeping me up at night. LOL. I have a lot I need to really work out. I need to get myself to professional help.

I think the problem is I am trying to work everything out based on static numbers - on set base pay - but in reality, my own pay is all over the place - like the Lottery.

[graceful]

What's the possibility of renting for a couple of years, saving all the cash toward paying OUTRIGHT on a home worth around $500K - $600K? I think that's were you heading now if you stayed course for a little bit longer.

Prices are the most affordable that it has been in a while.

We had actually never planned on buying in the NE at all. We thought it was a unattainable dream. We were just going to make due with our situation and were (sounds horrible) just waiting for the day my family no longer needed me and we could move anywhere.

Now that our oldest is going into middle school in Fall 2010, we need to make the decision now. Even to send her to the best of the worst public middle school in our area, we will have to either buy or rent the cheapest condo/coop/apt we can find to get her into that zoned school. The schools now need more stringent proof of address for the kids to get in.

Where we live, we are zoned for a middle school that was FAILING a few years ago. It has improved slightly - it is just above passing. DH refuses to send the kids there. The other middle school in the next zoned area is much better but still not that great - like I said the best of the worst.

If we rent in that school district, I would spend a minimum of $1000/mth on a place I wouldn't live in. I would still live where we are - I work in the building, the train is 2 blocks away and our apartment is huge. To rent an apartment in the other district that is comparable would be over $3000/mth.

Our original plans were to maybe buy a studio apartment in that district to get the kids into the school and then rent it out after the 8 year old is registered into the school.

But honestly, I'm trying to get out of the Landlord business not add to it.

At the end of the day, we are still not happy with the schools there. With the housing price drops, we feel that we can finally get the kids into some excellent blue ribbon school districts.


So, we can't do nothing. Either we buy in Westchester a home we live in or we have to buy an eventual investment something (probably outright for under $150K + coop/condo fees) in order to get the kids OUT of the middle school they are zoned for. Other option would be to rent something for around $800/mth for at least 3 years. We would NOT actually live there.