Paycheck to paycheck

[phantom]

I'd argue that new construction housing isn't geared or intended for the first time homebuyer. The houses are too big and expensive. They are usually a house that people "trade-up" to.

First time homebuyers (if they don't want to be saddled with a huge debt load) should be looking at older smaller homes or fixer-uppers. But, we all know that doesn't really happen. Banks give the loans, and consumers take them on.

I don't know of any, but it would be interesting to see if there are any builders out there that build smaller less expensive homes. It would be more interesting to see if there is a sustainable market for that type of home.

My husband and I bought a new construction house as our first home. I wouldn't try to argue that our house is something that any young couple could have afforded. (We had higher than average salaries, and were in our late 20s/early 30s when we bought, which helped.) But, I think it was a reasonable first house for a couple like us. It's only 1750 SqFt., which is small relative to a lot of new houses, but still awfully big.

When we bought our house, the more affordable new construction houses were mostly townhouses.

[bjl584]

My husband and I bought a new construction house as our first home. I wouldn't try to argue that our house is something that any young couple could have afforded. (We had higher than average salaries, and were in our late 20s/early 30s when we bought, which helped.) But, I think it was a reasonable first house for a couple like us. It's only 1750 SqFt., which is small relative to a lot of new houses, but still awfully big.

When we bought our house, the more affordable new construction houses were mostly townhouses.

I just heard on the radio this morning that the average size new construction home in the USA is 2700 sqft, so your 1750 sqft home is small compared to what's being built today.

[phantom]

I just heard on the radio this morning that the average size new construction home in the USA is 2700 sqft, so your 1750 sqft home is small compared to what's being built today.

Houses in our plan range from 1,600 SqFt. to 3,400 SqFt., with most in the 1,800-2,200 range, and they were built between 2007 and 2012. Our builder has stopped building houses, so you can't get a house exactly like ours today. But, it hasn't been that long since you could! There are two similar builders remaining the our area. One has a couple floor plans that start at 1,700 SqFt. The other doesn't list sizes, but has a selection of floor plans it says are in the 1,000 - 2,000 SqFt. range.

[creditcardfree]

3 bedroom 2 bath is an unattainable dream reserved for multi-millionaires. But you guys see is as an entry level.
Around here, there is no size inflation. The trend is to take a studio and make it into 1br by putting in a wall, make 1br into 2 br. Square footage is tiny. And pricing increases for all housing across the board. There is nothing being build but "luxury" because this is the most per square foot profit for developer, why would they build anything else?

You are in a completely different situation than a majority of the United States, Nika. I just drove by a new housing development in the southeast where entry level homes, probably 1500 sq ft plus were starting at $140K. However, it is true that nearly all developers of housing are going to go where the profit and demand are.

[tonyb3]

This is super judgmental. If you want to know about their circumstances then ask them. You might be surprised by people's personal struggles.

So very true!!! ......I've been there.

Agreed that any one with a lick of sense and a period of financial stability should have some amount of emergency funds stashed, but the stage in someones life plays a role here. Just starting out, new to the work force, post divorce, career change, previous layoff, etc.........a lot of things could be a factor there.

[scfr]

There definitely is a "feast or famine" mentality that many have. One of my co-workers talked about wanting to see Star Wars on opening day but didn't have any money. When she got her paycheck she went on-line and purchased two tickets for a luxury theater where she could get the biggest screen and dine-in. I guess that with dinner it ended up costing around $50? And maybe there was a service charge for purchasing on-line? I will give her credit for waiting until she had money instead of going ahead on opening night and charging it, but I do feel kind of sad for her. She is a lovely and smart woman; I like her and respect her work. I feel sad that she will likely go through the rest of her life in "feast or famine" mode.

P.S. - I'm a huge Star Wars fan myself, so rather than waiting for it to come out on DVD, DH & I went to the theater on "discount day" and spent $10 total for the 2 of us.

[scfr]

This also reminds me of something my mother-in-law told us years ago. Where she worked, they were paid weekly. The owners wanted to shift to paying every other week, which is a pretty normal thing, as it would cut down on payroll costs. So many employees complained that they wouldn't be able to live with no money for a week during the one week transition to the new schedule that they were forced to not do it.

My first job out of college was one that paid monthly. At the time my money management skills were super minimal. I'm grateful that I was forced by my circumstances to learn a few rudimentary budgeting skills.

[disneysteve]

There definitely is a "feast or famine" mentality that many have. One of my co-workers talked about wanting to see Star Wars on opening day but didn't have any money. When she got her paycheck she went on-line and purchased two tickets for a luxury theater where she could get the biggest screen and dine-in.

"Feast or famine" is a good way to describe this mindset. There seems to be no thoughts of the future, no planning ahead. Spend the money when you have it because you don't know when you'll have it again. If you can afford it right now, you buy it, even if that means you won't be able to afford something more important tomorrow.

[LivingAlmostLarge]

Part of it is that people can't get ahead when they put themselves in situations that are too expensive for their means. I'm not say thing aren't wrong but the truth is that they are just spending money on cars, houses, etc they can't afford period. But they still get loaned the money.

I have a friend I made recently and she often says they don't have money. I don't get how they bought a house for $460k and her husband makes $85k. Her parents gave her the 20% DP and they are paying for preschool for her kids. She told me because she was complaining about wanting a 3rd kid but her parents said they won't help again financially.

But seriously? The issue is the house is too much but she loves the house she said. But how did they ever get approval from a bank in 2013? They had a gifted DP and too small income.

[ua_guy]

Part of it is that people can't get ahead when they put themselves in situations that are too expensive for their means. I'm not say thing aren't wrong but the truth is that they are just spending money on cars, houses, etc they can't afford period. But they still get loaned the money.

I have a friend I made recently and she often says they don't have money. I don't get how they bought a house for $460k and her husband makes $85k. Her parents gave her the 20% DP and they are paying for preschool for her kids. She told me because she was complaining about wanting a 3rd kid but her parents said they won't help again financially.

But seriously? The issue is the house is too much but she loves the house she said. But how did they ever get approval from a bank in 2013? They had a gifted DP and too small income.

Cocktail napkin math...

They borrowed $368k after a $92k down payment (20% of 460k).
Financed it for 30 years.
DH's income of 85k/year works out to be $7k/month gross.

The mortgage payment would probably land between 1700-2200/month depending on taxes, interest rate. On the high side of $2200/month that's 31% of his gross income, which is still less than 36% which is the debt max rule of thumb for lending.

Worse, they might have put it on an ARM.

I don't think the financing is as obscure as you're imagining, but it definitely seems risky, especially if the wife doesn't work.

[disneysteve]

Cocktail napkin math...

Let me get out another napkin.

They earn 85K. You shouldn't spend more than 3 times your annual income on a house. That would be a max of 255K. They overspent that by 205K!

It's no wonder that they're always broke. They have a house they can't possibly afford, or at least not if they want to be able to do anything else in their lives.

[wvhillbilly]

They earn 85K. You shouldn't spend more than 3 times your annual income on a house. That would be a max of 255K. They overspent that by 205K!

WHY Is this not taught in school? They beat into my brain how to find the circumference of a circle or the length of a hypotenuse in a right triangle, I'm 28 and I've still never used that. Why have I never heard basic things like; don't spend more than 3 times my income on a house? Put away 12% for retirement. etc, etc...

I'm just now learning these things, just by random chance I happened to come across these forums.

[ua_guy]

Let me get out another napkin.

They earn 85K. You shouldn't spend more than 3 times your annual income on a house. That would be a max of 255K. They overspent that by 205K!

It's no wonder that they're always broke. They have a house they can't possibly afford, or at least not if they want to be able to do anything else in their lives.

I don't disagree--just showing how the loan was probably approved within the bank's guidelines.

It should be noted that the bank uses different napkins than homeowners should use when drawing up acceptable borrowing guidelines.

[LivingAlmostLarge]

I couldn't understand how the bank could approve it with a gifted down payment. I would think that in itself would be a red flag. And we've usually bought homes where we've borrowed 30% DTL ratio having lived in such expensive areas and we've always made it work out. I'm not sure why they are struggling so much.

I know we have friends where we used to live around the same price point but they got a 2 bd condo for $460k instead of a 4 bd house and around the same income also struggling and the wife says she needs to go back to work since they are living off savings. I shake my head. We've always eeked it out but it's not been pretty.

ua_guy an arm isn't the worse thing out there.

[disneysteve]

I don't disagree--just showing how the loan was probably approved within the bank's guidelines.

It should be noted that the bank uses different napkins than homeowners should use when drawing up acceptable borrowing guidelines.

Definitely. I think a big part of the problem is people who don't know any better go to the lender and get pre-approved for a certain amount and figure if the bank says it's okay, they must be able to afford it. They never bother (or don't know how) to run the numbers themselves.

When we were house hunting, we were pre-approved for way more than we knew we could actually afford. Had we spent what the bank was willing to lend us, we would have been living in an empty house eating rice and beans.