Buying our first home?

[Starry436]

No we don't have 20% down and I know this is a big red flag already but we qualify for the 0 and 3-5% down loans, we're 24 and I've just started working after graduating college. In our area, houses are very expensive for something basic. So we've found a house for $219k. We've estimated our payment to be about $1,260 with roughly $7k down.

Our annual combined income is about: $70-75k
Our current monthly bills total about: $1,900 (1000 of this is rent and 300 of this is car that will be paid off in a year or 1.5 years)

I have no idea what electric bills run on a 1,900 sq ft house when we currently live in about 1,200 sq ft. Are there any other unknown costs besides the usual ..break it you have to fix it, no landlord to run to, homeowner's stuff?


Does this sound like a good move to make? We're tired of renting for the price we're renting for. and honestly this rent is among the cheapest around, this area is getting more and more expensive. People keep saying well you can pay $1,260 for 30 years or an ever increasing rent payment for 30 years. Advice?

[snafu]

Starry, it's really difficult to offer ideas without knowing income, employment stability/plans and budget. 1st, a house is an illiquid asset. Not as easily to sell if one of life's challenges causes you to move. 2nd, a mortgage is not like the traditional loan you're familiar with. Interest is front loaded. For the 1st 10 years or so you will be primarily paying interest with a teeny amount applied to the principal sum month in - month out, year in, year out. 3rd, property or municipal/school taxes are forever and the increases as your district value goes up + increases to the mill rate.

Add in very expensive mortgage insurance and the picture isn't good. That only benefits the lender, it offers you nothing, nadda, zero value. You also must buy regular homeowner insurance. You can check utilities [heat, electric, water, trash, HOA fees if applicable] by calling the different providers and asking for averages/median cost for that address or that square footage [size].

I suggest you check on line for typical 'closing costs' in your community since there are variable and often you can make that part of your offer to some extent. Never skip the Home Inspector and make yourselves available to go through the process in person. A house requires maintenance and care indoors and out. Equipment for landscaping, and tools for all the fix-its. The rule of thumb is to set aside 1% of value each year for maintenance, repairs, updates etc. Notice I haven't mentioned decor, furniture, appliances, those are discretionary.

[kork13]

There's alot more to home ownership costs than your monthly mortgage payment. There's taxes, insurance, and in your case (worth next to no down-payment), PMI, plus closing costs, and realtor fees upon sale... It goes on.

And then, there's repairs & maintenance. Seriously, the most crazy & unpredictable stuff will happen, and you've gotta pay for it. Here's a sampling of the nutty stuff my house has thrown at me in 3 years of ownership. The sewer backs up because of a lazy inspector & floods your house? That plumber's on your dime. Oh, the backyard floods in the springtime? Leveling that out will cost a pretty penny. Wait, your brother got trapped in the (apparently defective) tornado shelter all alone & the fire department had to break in the garage door to get him out? (happened yesterday, actually) Yeah, enjoy those repair bills... Gratefully it wasn't my very pregnant wife! And I haven't even had a major appliance go out on me yet (though I did have to buy most of those when I bought the house... $$$)!

Realistically, in very few instances will home ownership be significantly less costly (or less worrisome) than renting, especially over a period less than 5-10 years. Starting out with only 3-5% equity only makes that tougher.

Bottom line: bad idea. Just because the bank approves you for it doesn't mean you can actually afford it.

[kork13]

One more thought.... This house that has thrown monkey wrenches at me at an astonishing rate? I love it. Like you, it's my first house, and I bought it when I was 26. However, I was only able to do that because I had saved every dime I could in order to truly be ready for such a purchase. I put 25% (~$45k) down on my home, because I truly was financially prepared to buy. Spend another few years saving up. It really doesn't take long if you're motivated & focused on your goals. Once you're truly ready, THEN you can find a home, and you too can enjoy the daily surprises of homeownership.

[Fishindude77]

My opinion for what it's worth.
Plain and simple, you can't afford a $219,000 house at the $70,000 income level regardless if you have 20% down or not. You should be looking at something half that price or less, or just rent and save for a while.

[bjl584]

No we don't have 20% down and I know this is a big red flag already but we qualify for the 0 and 3-5% down loans, we're 24 and I've just started working after graduating college. In our area, houses are very expensive for something basic. So we've found a house for $219k. We've estimated our payment to be about $1,260 with roughly $7k down.

Our annual combined income is about: $70-75k
Our current monthly bills total about: $1,900 (1000 of this is rent and 300 of this is car that will be paid off in a year or 1.5 years)

I have no idea what electric bills run on a 1,900 sq ft house when we currently live in about 1,200 sq ft. Are there any other unknown costs besides the usual ..break it you have to fix it, no landlord to run to, homeowner's stuff?


Does this sound like a good move to make? We're tired of renting for the price we're renting for. and honestly this rent is among the cheapest around, this area is getting more and more expensive. People keep saying well you can pay $1,260 for 30 years or an ever increasing rent payment for 30 years. Advice?

I think you're buying way too much house given your income and the fact that you don't have a substantial down payment. I'd lay low and keep saving. Pay down as much debt as you can as well.

I'm guessing your mortgage payment will be $1260? Add in taxes and PMI and you are probably closer to $2000. Then there are your utilities, upkeep, etc. Plus you'll probably need to do some work around the place. Buy furniture, paint, carpet, probably a lawn mower.

[ua_guy]

I'll bite. I don't believe in the steadfast 20% down rule. I think it's important to be financially secure before buying a house--where I think some of the standard rules DO apply. Things like being able to contribute to retirement AND afford the house. And having 6-8 months of expenses saved up, calculated as though you were living in that house, before you move in. Have vehicles paid off, and a plan to replace them. Be on top of your student debt, if you have any, etc. Have no consumer/credit card debt, etc.

[Starry436]

1260 is the total payment with everything added in supposedly. It's a new construction, all appliances included. No HOA fee. We have no credit card debt. I have student loans with a payment of less than 100 per month. Our car is a year from being paid off. That's all the debt we have. No kids. We're already saving for retirement. We're looking at buying now only because either way $1000 is spent on housing. Rent currently ranges from 850-1400 in our area for 2-3 bedrooms. 850 being in the not so great part of town. The salary of 70-75k I listed is basing it off of our lowest we could expect to earn.

I agree with having a nice down payment and we've been chipping away at trying but it will take a long time to reach 20%. By then our rent will be up to 1200.

[ua_guy]

1260 is the total payment with everything added in supposedly. It's a new construction, all appliances included. No HOA fee. We have no credit card debt. I have student loans with a payment of less than 100 per month. Our car is a year from being paid off. That's all the debt we have. No kids. We're already saving for retirement. We're looking at buying now only because either way $1000 is spent on housing. Rent currently ranges from 850-1400 in our area for 2-3 bedrooms. 850 being in the not so great part of town. The salary of 70-75k I listed is basing it off of our lowest we could expect to earn.

I agree with having a nice down payment and we've been chipping away at trying but it will take a long time to reach 20%. By then our rent will be up to 1200.

Maybe provide more details about the payment and loan structure. If it's anything other than a fixed rate loan 30 years or less, I wouldn't recommend it.

The big issue with <20% down is your lender will likely require you to carry PMI / Primary Mortgage Insurance. That can be another couple hundred bucks every month added on to your payment, and it generally is required until you reach 80% LTV. In the case of an FHA loan, it's required for the LIFE of the loan.

[Fishindude77]

If you think it will take a long time to save the 20% down, strap yourself to a 30 year mortgage and you'll get a real feel for what "a long time" is.

Sounds like you're in a pretty decent situation right now, but for one reason or another are getting emotional thinking you "need" this brand new home. New homes are not only expensive to buy, they are expensive to maintain. Taxes, lawn care, snow removal, utilities, more furniture, appliances, routine repairs, etc.

I see lots of young folks at work in similar situations. They are putting on a good front, have good credit scores, but are house and car poor, have almost zero cash on hand, minimal equity, and little to no net worth. Several of them are taking their families to distant destinations for fancy spring break vacations this week that they can't afford, likely going on the credit card.

Cash is king. It's a whole lot better feeling to live a bit more frugally and have cash in your pocket. Took me a few years of stupidity to figure it out.

[Starry436]

We're not looking to be flashy in a new home. 219 is a deal for our area. Because at 180 we'll be buying an older house..roughly from the 70's that will need updating that we don't really want to do right now, but the cost is higher because we're basically paying a premium for more land (1 acre or more) that these new homes can't offer. At $150k, ...you'll get a double wide on 10 acres of land, a totally outdated small house, or a townhouse. We've been looking for over 2 years so it's not a spur of the moment thing.

Neither of us had parents who helped pay for anything. I had to completely put myself through 4 years of college while living on my own since 18 because of my family situation. I've had no significant help hence why I couldn't save very much up until I got a job out of college. We're paying off our car 2.5 years early, and it's been our only debt until my approx 12k in student loans. We don't go on extravagant vacations...maybe we'll splurge and spend $600 on a tiny beach trip each year but that's it and the only thing we've splurged on is a new washer/dryer and of course our car. I feel like I've been rather responsible this far.

No we don't want to be house poor AT ALL, it's my biggest fear, but we're tired of being rent poor too. I'm tired of moving to new places trying to find somewhere where the neighbors on the other side of the wall aren't blaring their sound or beating on walls at 3:00am, or running around drunk through the parking lots banging on windows, having no yard space for my dogs, no parking, the feeling of always being watched or glared at, and just no peace and quiet. We come home to stress living in a cubicle basically. And this is VERY upscale compared to where we used to rent for $850.

The loan we're looking at is, 0% down but we have $0-10,000 we could put down and still have savings leftover. The rate is around 3.65% and it carries no PMI even with no down payment. Our closing costs would be asked for the Seller to pay and our realtor fees are also paid for by the seller. We're trying to be smart by researching every little surprise so we can be more prepared to buy a house.

[isaac]

My wife and I too ignored the advice of the great people here and bought a home with no 20% down payment. Long/Sad story short; listen to these EXPERTS. They're not going to tell you what you want to hear, they don't care that you 'didn't have parents to help you out' or you 'don't go on grand vacations'. They'll give you precise advice based on the numbers you provide and you will live happier and financially healthier if you follow.

Ohh if I could go back to being 24

[LivingAlmostLarge]

I am not stuck either with 20% DP. BUT a lot depends on budget and cost of what you are buying.

$1k rent is not equivalent of $1200/month mortgage. There are lot of extra costs associated with buying a home. If it were less I'd say fine. Can you afford say $1500/month? That's probably closer to what it will cost? How will it affect the budget?

[snafu]

You'd asked for our advise based on limited information and numbers offered. You're determined to buy a new build at $ 219,000. plus closing costs without a 20% DP with potential to pay PMI for 30 years + municipal tax, homeowners insurance, heat, electric, water, trash, cable, internet, phone, 1% of value as maintenance. Even a new build demands an inspection by a qualified Home Inspector as new is not exempt from stupid construction mistakes.

The rule of thumb says home costs should never exceed 28% - 30% of net income. You understand being house poor is illiquid debt which adds stress, frustration and restricts choices. There is no guarantee that neighbours will not have social behavioural issues or noisy, annoying teenagers. Add in current debt from car and student loans along with transportation costs [operations/maintenance /insurance, food, entertainment, clothes, grooming, holiday extras [Christmas], gifts, vacation, moving costs and spends in your household that I've missed..

I suggest starting by tracking [writing down] every dollar spent for the entire month of April to identify any leakage. If you are willing to list your budget, we may be able to identify small reductions to help increase your downpayment. The 1st step sets aside $ 1,000. as an Emergency Fund which is built to at least 3 months of basic monthly expenses for life's nasty challenges.

Wish you luck as you move to another milestone.

[autoxer]

The loan we're looking at is, 0% down but we have $0-10,000 we could put down and still have savings leftover. The rate is around 3.65% and it carries no PMI even with no down payment. Our closing costs would be asked for the Seller to pay and our realtor fees are also paid for by the seller. We're trying to be smart by researching every little surprise so we can be more prepared to buy a house.

When you get a loan with no down payment and no PMI, they are just rolling the cost of the PMI into the interest rate. This is probably worse than paying PMI separately, because with PMI you have a chance at getting it stopped early. With a higher interest rate, it's with you for the life of the loan. I made this mistake.