How do I know if I can afford a house when I’m single?

[SilverJK]

I am 34 and looking to purchase my first home and need some advice. I am single with no kids. So it’s a little scarier taking on a huge payment by myself. I don’t want to bite off more than I can chew. I gross about $3700/month and take home about $2000/month after taxes, healthcare and retirement are taken out. Homes in my area are cheaper than average due to lower costs of living. You can get a really nice 3br/2ba rancher for $150k-$200k. I have been saving for a while and currently have about $25k to use for down payment/closing costs. I’ll still have about $15k leftover in savings after that. My credit is excellent and I have no debt - Car is paid off, student loans are paid off. I have very little on my CC which I pay off every month. I also want to take into consideration things like monthly utilities, food, maintenance, furniture. Even if a mortgage is around $1000/month add on utilities and everything else mentioned and I would be up around $1500/month just to live there. Which is really close to my take home income. It just leaved me a little uneasy and seems like too much for one person. I could wait another year and keep saving more. There are even cheaper homes around, but they are all dumps and are smack up against the next house, which I just don’t like. Any advice? Thanks!

[disneysteve]

Rules of thumb for buying a house:

Purchase price shouldn't exceed 3 times your income, so that puts you up to about $133,000. The less the better obviously so that's where you should be looking.

You should have a 20% down payment.

You should also have an emergency fund equal to 6 months of living expenses.

The house payment (PITI) shouldn't exceed 28% of your income.

If you can do all of that, then you're probably ready to buy a house.

[MooseBucks]

I agree with what Steve said and would add that depending on your current situation I’d stay where you are vs buying something that you aren’t 100% happy with.

[~bs]

follow the general guidelines, and assuming you dont have extravagant spending habits, you should be ok. And you're right in that after factoring in other costs with the mortgage payment, it's likely your payments will be MORE than if you just rented a comparable property. BUT just from the numbers you presented, I think it would be really tough to afford 150-200k unless you're coming in with a large down payment. Grossing 45k/year doesn't leave you much to work with.

I'd like to point out that the tax rules are changing for the foreseeable future, so dont' expect extra tax benefits of deducting mortgage interest/state taxes unless you crunch the numbers and determine you will realize some benefit.

[snafu]

I wondered what is driving your desire to buy a house. How seriously have you examined your specific real estate market? How much do you know about Real Estate? Have you discussed market possibilities with an experienced mortgage broker or loans officer? Personal RE is a truly capitalists market, Sellers can list at whatever they want and buyer can offer whatever they feel is reasonable. You need to know the actual selling price of the last 10 houses of similar size and features in your preferred area. There are negotiating opportunities with financing as well and every quarter point makes a difference because of how mortgages are amortized.

If you feel the risk is too high for yourself as an individual, look for a house with a 'mother-in-law' suite in the basement to rent to a college student in a graduate program. The amount of privacy you give up is modest.

If you have any 'fix it' skills or family with know how, you might look at a house in need of updating and up grading in a decent area. The improvements can be spread out as income allows and of course the improvements can lead to selling and using equity gained for a nicer home.

I think I read most people end up buying at least 3 homes over time. The workforce has been forced to be much more flexible and career mobility is now the norm.

We're certainly willing to listen to your concerns and offer ideas and suggestions for you to consider.

[Gailete]

Some random thoughts in no particular order. Do you know how to do the minor maintenance on a home including plunging toilets? Do you like to do yard work and do you have the time and patience to do it? Houses that come with yards also come with work and depending on where you live, you may also end up with snow to shovel as well as walks to shovel.

As someone else asked, why do you want to buy a house? Is this a long term desire that you feel you are finally in the position to do so? Do you really need a 3bedroom/2bath house for just you? What is the chance you might get married in the foreseeable future which can make a bigger house more of a good reason to get a bigger house?

If you are not a digging in the dirt kind of person, you might find it a nicer idea to get a condo where you have to pay a homeowner fee, but they do all the outside work for you. You still have your own place, but no need to buy a lawn mower, snow blower, shovels, rakes, wheelbarrow, and the list keeps getting longer.

The other guys have mentioned the money part so I'm not really wanting to get into that as I agree with them. But depending on the kind of house you get, will you need to get it wired for wifi/internet access? If you move into new construction, you generally get the fun of hanging towel racks, and curtain roads as well as blinds, etc. which runs into money if you aren't ready for those things that can nickel and dime you to death.

As a newly single person I had no trouble buying my own house. It was exciting and it was exactly in my price range. Used to be if a single person, especially a woman bought a house on their own people looked at them as if they were weird, those days thankfully are gone. I also suggest that you read up on everything you can about buying real estate including the types of scams that can be played on a person. My younger brother who is especially gifted in math, went to buy a house a few years back and most of it was happening via phone and email. as it was several states away. He got an email that he needed to pay $38K and so he did. That money is gone forever. I had heard of the scam, but did the brother ever think to ask the one person in the family that has bought and sold homes way too many times for advice (yes, me) no he didn't. He has never seen a penny of that money since. So protect yourself and find a sensible friend who has bought and sold property at least once (you don't want someone that it is all theoretical) to discuss things with them. And of course you can come here.

[Smallsteps]

I understand that many with incomes in our range as I too make along the same amount look to buy a home. Rents keep going up and up in many areas it is nice to think that at least some of the mortgage is building something vs rent that is just building money for others.

I know it can bring on all kinds of other hassles if it is not clearly spelled out, but many of my single friends have rented out an extra bedroom for the first year or two to build equity or to just help cover any expenses until they settled into the new payments etc.

[~bs]

I live in a extremely high cost of living area. When I bought my place, my total housing related expenses was something like 60% of net income, which pretty much blows all the metrics out of the water. But stuff like that is kinda normal around here. Just putting this out there because it IS possible to stretch to buy a place and still end up ok. But you better have a good handle on your expenses.

Initially, I lived on a tight budget and started a business to supplement my income. But guess what, as the years passed, it got A LOT easier. I was able to refinance the interest rate way down, to drop my monthly payments down by 30%, I started making much more money over the years. Rental rates skyrocketed while my mortgage payments stayed the same. For example, I have a cheap rental property I started charging market rates at $1100/month around 4 years ago i think? market rents are now at $1400/month. That's a 27% increase that renters are subject to.

Long story short, the initial pain of buying a place is really tough, but if you can make it through that and ride out any unpleasant surprises (such as job loss or high repair costs), you generally will start to be come better off maybe 5 years down the road. 10, 15, 20, 30 years down the road, owning can really start to pay off. Especially when you get rid of that mortgage note. And especially when you're retired. I can't imagine being retired and on fixed income and be subject to the whims of a landlord and the overall rental market. The issue with spiraling cost of medical is bad enough already.

[Gailete]

But guess what, as the years passed, it got A LOT easier. I was able to refinance the interest rate way down, to drop my monthly payments down by 30%, I started making much more money over the years. Rental rates skyrocketed while my mortgage payments stayed the same. For example, I have a rental property I started charging market rates at $1100/month around 4 years ago i think? market rents are now at $1400/month. That's a 27% increase that renters are subject to.

Long story short, the initial pain of buying a place is really tough, but if you can make it through that and ride out any unpleasant surprises (such as job loss or high repair costs), you generally will start to be come better off maybe 5 years down the road. 10, 15, 20, 30 years down the road, owning can really start to pay off. Especially when you get rid of that mortgage note.

Eventually all those that buy a house, as long as they stay within their salary/budget will start to find that those house payments aren't nearly so bad unless your property taxes are sky rocketing. That is one of the good side effects of staying in one place for a while. I don't understand the families where hubby gets transfer every couple years and they go through the buy a house sell a house routine unless their company is chipping in a chunk of money for those moves.

[disneysteve]

Eventually all those that buy a house, as long as they stay within their salary/budget will start to find that those house payments aren't nearly so bad unless your property taxes are sky rocketing.

I think it's dangerous to assume that your income will rise faster than inflation. For a great many people, that simply hasn't been the case over the past couple of decades. Sure you might get a 2 or 3% raise each year but it's instantly swallowed up by rising taxes, higher health insurance premiums, climbing food prices, etc.

You all know I'm fairly conservative. I think you should buy based on what you can afford at the time of the purchase, not based on what you think you'll be making 5 or 10 years down the line.

When my wife and I bought our house, our income was about $85,000. We paid $142,000 for our house. We could comfortably afford it then and even if my income hadn't gone up, we could handle it just fine, including when my wife stopped working to be a SAHM.

So yes, you can stretch a little but especially as a single person, I think you need to be extra careful because there's no second income to help buffer your costs if anything goes wrong.

[~bs]

I think it's dangerous to assume that your income will rise faster than inflation. For a great many people, that simply hasn't been the case over the past couple of decades. Sure you might get a 2 or 3% raise each year but it's instantly swallowed up by rising taxes, higher health insurance premiums, climbing food prices, etc.

You all know I'm fairly conservative. I think you should buy based on what you can afford at the time of the purchase, not based on what you think you'll be making 5 or 10 years down the line.

When my wife and I bought our house, our income was about $85,000. We paid $142,000 for our house. We could comfortably afford it then and even if my income hadn't gone up, we could handle it just fine, including when my wife stopped working to be a SAHM.

So yes, you can stretch a little but especially as a single person, I think you need to be extra careful because there's no second income to help buffer your costs if anything goes wrong.

Agreed overall, hence my first post in this thread.

Another flip side risk is that the home prices rise faster than your income can afford, which has been the general trend for decades around here. The housing price to median income ratio has slowly grown over time.

If one lives in a very high HOL area, buying conservatively may not be feasible, and other alternatives are needed to be used to afford the property such as multiple jobs, more people living in the property etc. For example, the median condo price here is $425k, median single family home is $750k. $145k would get you a leasehold studio. It would not even get you a fee simple 250sqft studio in the suburb areas.

And as far as single versus couple, note that if a couple needs to factor both incomes in to afford the place, they're in the same boat as the single individual regarding affordability, and perhaps a higher chance of potentially defaulting, as either spouse losing a job puts you in the red.

[Gailete]

I think it's dangerous to assume that your income will rise faster than inflation. For a great many people, that simply hasn't been the case over the past couple of decades. Sure you might get a 2 or 3% raise each year but it's instantly swallowed up by rising taxes, higher health insurance premiums, climbing food prices, etc.

You all know I'm fairly conservative. I think you should buy based on what you can afford at the time of the purchase, not based on what you think you'll be making 5 or 10 years down the line.

When my wife and I bought our house, our income was about $85,000. We paid $142,000 for our house. We could comfortably afford it then and even if my income hadn't gone up, we could handle it just fine, including when my wife stopped working to be a SAHM.

So yes, you can stretch a little but especially as a single person, I think you need to be extra careful because there's no second income to help buffer your costs if anything goes wrong.

I wasn't even thinking so much about your income going up so fast, especially as someone on SSD where we have essentially not had a raise in over three years. Yeah we got a 2% this year which all but $2 was sucked up into our MC premium! I got my check today and sure didn't notice the spare $2 made any easing of income. Maybe it is because when working I jumped jobs more often than houses, and always for more income. Someone that stays in their home paying the same mortgage for 10-15 years, in general should find that things are a bit easier than when you first buy the house. Once you have curtains, lawn equipment, painted all the rooms, all that stuff that people tend to do when they move in, the pressure can go off a bit. It depends a lot on how people handle their money. When I bought a house 17 years ago, my payments were about the same as what we make now. That first year was tight even though I was working at the time. Now our mortgage $648 doesn't seem that bad, especially compared to a lot of the ones I see here. Maybe I am just used to it. I know why things are tight in our budget and I am working on that. One of the reasons that I'm working so hard to get the rental paid off so we have that income to use as needed since neither hubby or I can really deal physically with getting more work.

The best example was when I was young I got married and we moved into a new construction 3bed/1ba ranch house that cost $38K. 7 years later we sold it for $42K as we were having trouble paying the less than $400 mortgage! 40 years later house in that neighborhood are going for $110K+! last I looked a few years ago. That is what we could have had if we kept the house, and the marriage had lasted. A paid for house that even 10 years ago to buy would have run about $520 a month plus insurance and taxes. I wish over the last 15 years that I had a mortgage that small.

[snafu]

You mention a desire to 'build equity' in a home instead of renting. I suggest you begin to create a 'scenario' with your next pay cycle, printing out a typical mortgage payment schedule using your current income, with mortgage sum subdivided to clearly identify principal & interest, Escrow, subdivided by taxes, general insurance & PMI.

Add a column for utilities, heat, electric, water, trash, cable/internet. Add a further column [about 1%] for repairs and maintenance. There is a lot of equipment needed for house maintenance, lawn mower, garden equipments, snow removal etc. Of course you'll need to include your current expenses for transportation, food, entertainment, CC etc.

Continue to save for the downpayment and all important Emergency Fund to experience the financial part of home ownership as you continue to watch the properties of interest and how long they stay on the market.

[~bs]

I wasn't even thinking so much about your income going up so fast, especially as someone on SSD where we have essentially not had a raise in over three years. Yeah we got a 2% this year which all but $2 was sucked up into our MC premium! I got my check today and sure didn't notice the spare $2 made any easing of income. Maybe it is because when working I jumped jobs more often than houses, and always for more income. Someone that stays in their home paying the same mortgage for 10-15 years, in general should find that things are a bit easier than when you first buy the house. Once you have curtains, lawn equipment, painted all the rooms, all that stuff that people tend to do when they move in, the pressure can go off a bit. It depends a lot on how people handle their money. When I bought a house 17 years ago, my payments were about the same as what we make now. That first year was tight even though I was working at the time. Now our mortgage $648 doesn't seem that bad, especially compared to a lot of the ones I see here. Maybe I am just used to it. I know why things are tight in our budget and I am working on that. One of the reasons that I'm working so hard to get the rental paid off so we have that income to use as needed since neither hubby or I can really deal physically with getting more work.

The best example was when I was young I got married and we moved into a new construction 3bed/1ba ranch house that cost $38K. 7 years later we sold it for $42K as we were having trouble paying the less than $400 mortgage! 40 years later house in that neighborhood are going for $110K+! last I looked a few years ago. That is what we could have had if we kept the house, and the marriage had lasted. A paid for house that even 10 years ago to buy would have run about $520 a month plus insurance and taxes. I wish over the last 15 years that I had a mortgage that small.

My parents bought their primary home in the 80s. Their mortgage payments were something like $400, which was A LOT of money back then! Their house is now paid off, and nowadays their house would rent for $2600 at a minimum, and the house itself is worth $700-800k. Owning a primary residence is a long term play, the cost and benefit of owning is largely inversely related. The initial cost is higher than renting, but over time that relationship changes and flips the other way around. That's the cost/benefit of entering into the 30 year contract. If one is thinking of "flipping" properties and moving every 5 years, it doesn't make much sense unless you can offset the transaction cost and can buy the property at discount and fix up yourself.

[scfr]

SilverJK, Do you anticipate staying single, or is it likely that marriage is in your future? If likely that marriage is in you future, I'd recommend waiting a bit. Your future spouse may already own a home, or may want to have a say in house selection. In addition, if you are married and the 2 of you have relatively steady incomes, it might be easier to stretch your finances a bit on the first home purchase.