Seeking advice

[Djg06]

Currently my wife and I live in Orange County, CA, as you know housing costs are are insane to say the least. (Originally from Chicago). Currently we have 45k saved up, plus I am able to receive a 10k loan from my job at 0 interest to go towards the house. Currently our mortgage will be around 3200-3400 a month. That alone will have us saving around $150 a month which I feel anxious about. We are thinking of using 10k of that to pay off my car which will give us an extra $313 a month. Would you pay off the car? Also after the House is bought we plan to keep atleast 10k in the bank for emergency and build upon that. Thanks!

Just super nervous about buying houses at this price compared to where I lived in Illinois.

[james.hendrickson]

Why not buy some houses in Illinois?

[Djg06]

We want to stay here in CA, we really enjoy it here, obviously paying for that, but seeking advice on the situation - not buying a house in IL - thanks.

Just saw you say some houses lol

[james.hendrickson]

We want to stay here in CA, we really enjoy it here, obviously paying for that, but seeking advice on the situation - not buying a house in IL - thanks.

Dig - I was thinking as an investment property. If you like the prices, and you see the longer term value of owning real estate in Illinois - you could you always invest your money there as well as California.

Yes, paying off the car loan isn't a bad idea. Interest on car loans isn't usually deductible and it would free up some cash to improve your saving situation.

Dealing with the monthly payments is a bit of a tougher nut.

1. Can you put 20% down? That usually gets you out of paying PMI.

2. You could also pay the lender points if you wanted to buy down the interest rate.

In terms of your worry level - home ownership has historically been one of the major drivers of household wealth. Yes, you have more risk, but if your assets & savings rates are strong, you'll be able to mitigate it.

[Djg06]

I see what your saying, with houses in the 500k we don’t have that amount due 20%. I know the pmi will be around 200-300 I’m here. I think we might go with the car payoff and hopefully with my company bonus next year pay off my wife’s car just makes me nervous saving that little for a year

[Jluke]

Can’t you find a suitable place to rent? At those home prices why are you are anxious to go deep in debt?

In HCOLA areas renting sometimes make sense.

[Djg06]

We rent currently but rent is $2600 so to be honest I’d rather pay more knowing I’m building equity - and prices are just rising and rising.

[disneysteve]

Currently we have 45k saved up, plus I am able to receive a 10k loan from my job at 0 interest to go towards the house. Currently our mortgage will be around 3200-3400 a month. That alone will have us saving around $150 a month which I feel anxious about. We are thinking of using 10k of that to pay off my car which will give us an extra $313 a month. Would you pay off the car? Also after the House is bought we plan to keep atleast 10k in the bank for emergency and build upon that.

You haven't given one vital piece of information needed in this discussion: how much do you earn?

When buying a home, you should:
a) have a 20% down payment
b) have an emergency fund equal to 6 months of living expenses
c) spend no more than 2-3 times your annual income on the home.

A $3,400/month payment would get you roughly a $700,000 loan. If you do the recommended 20% down, that means you'd be buying an $875,000 home which is fine as long as you earn at least $292,000/year.

And remember, you also need to be saving 15%/year for retirement and another 5% or so for other needs.

It sounds to me like you aren't anywhere near ready to buy a home, at least not in the price range you are thinking about, but I could be wrong since we don't know how much you earn.

[scfr]

How long do you anticipate staying in Orange County? Indefinitely?

[Djg06]

We plan to stay here indefinitely.

Currently my wife and I together make 150k.

Prices are just rising so fast it’s almost more than what we would save that given year. I would love 20% because that would mean no PMI.

Currently my job does a deferred profit sharing program where I’m at around $60k (the report comes out very soon for the update) and I also have a old 401k from my old job that has 30k which I plan to transfer to a traditional ira.

My wife currently has a 401k where she been putting 9% in with 5% being matched.

I am 29 and my wife is 25.

Thanks for the feedback everyone, I really appreciate it.

[corn18]

You haven't given one vital piece of information needed in this discussion: how much do you earn?

When buying a home, you should:
a) have a 20% down payment
b) have an emergency fund equal to 6 months of living expenses
c) spend no more than 2-3 times your annual income on the home.

A $3,400/month payment would get you roughly a $700,000 loan. If you do the recommended 20% down, that means you'd be buying an $875,000 home which is fine as long as you earn at least $292,000/year.

And remember, you also need to be saving 15%/year for retirement and another 5% or so for other needs.

It sounds to me like you aren't anywhere near ready to buy a home, at least not in the price range you are thinking about, but I could be wrong since we don't know how much you earn.

^^^This x 100.

For reference, I might be moving next year for my job. I plan to use Steve's rules of thumb (ROT) to determine how much to spend on a house:

When buying a home, you should:
a) have a 20% down payment - not check
b) have an emergency fund equal to 6 months of living expenses - check
c) spend no more than 2-3 times your annual income on the home. - $1.8M max

I am struggling with a) because I have not planned for this move. I have nothing saved for a down payment. I should get $90k of equity out of my current home, so that will go towards a down payment. That puts me in a $450k house per the 20% rule. I could get a 0% down VA loan, but I am going to stick with DS's ROT's. If I can't find a house I want to buy for $450k, we will rent until we have more for a down payment.

[Djg06]

Corn that is amazing! Congratulations that’s a huge accomplishment

[corn18]

Corn that is amazing! Congratulations that’s a huge accomplishment

The important takeaway is I make a lot more than $150k / year and should not buy a house worth more than $450k. The online calculators say I can afford a $2M house.

Follow DS ROT's to determine what you can afford. If you don't have all checks, rent and save until you do have all checks.

[Gailete]

Currently my wife and I live in Orange County, CA, as you know housing costs are are insane to say the least. (Originally from Chicago). Currently we have 45k saved up, plus I am able to receive a 10k loan from my job at 0 interest to go towards the house. Currently our mortgage will be around 3200-3400 a month. That alone will have us saving around $150 a month which I feel anxious about. We are thinking of using 10k of that to pay off my car which will give us an extra $313 a month. Would you pay off the car? Also after the House is bought we plan to keep atleast 10k in the bank for emergency and build upon that. Thanks!

Just super nervous about buying houses at this price compared to where I lived in Illinois.

Okay my advice comes as the Saving Advice Granny....

I don't know when your latest house pricing venture was, but in light of the fact of the horrible wildfires that have been going on in Southern CA to this day, and all the houses, businesses, etc. that have been destroyed, I would expect housing prices to really go up as there are currently way to many people burned out, all competing for available homes/business sites. I would expect banks to be more lenient in arranging loans for those burned out and needing a place to live as well as businesses. In other words, you are going to see even more insane housing prices. While you may not like the rent you are paying, I would hate to see you getting into a mortgage that you can't handle. You have every right to feel anxious at this point, as you are trying to buy a house that you can't afford. What happens to that $10K/0% interest loan from your employer if you lose your job? Will it require immediate payback? It sounds like you are wanting to tap retirement funds as well to get into this house, but I may be reading it wrong. Don't tap retirement funds for a house like this, since the mortgage plus taxes, etc. aren't going to allow you to pay those funds back. What happens when you move in and find out the next day that your wife is pregnant and a few months later that it is twins or triplets? Is your wife still going to be able to work? There are cheap ways to raise a baby, but most folks don't follow those routes anymore, such as cloth diapers, breast feeding, etc. But what will happen if your wife must take a couple of months off for maternity leave and then what is the going cost of daycare/nannies in your area?

I have found that when buying a new home and moving, there are extra expenses that you forgot to budget for, so you will need more money that what is set aside for the down payment and monthly payments. My son and DIL bought a house last year and since then have had to replace the water heater and I believe a fridge and they had to buy a stove right from the get go – none of those anticipated except for the stove. You will also need to be doing landscaping, and if you are buying in a HOA neighborhood, you must follow their rules.

I look back over 62 years when I'm on this forum. You and your wife are literally almost young enough to be my grandchildren, and with your best interests in mind now, don’t buy a house that you can't afford! No banker in his right mind should be considering a granting you a mortgage for more than $450K and an even more honest banker wouldn't let you have a mortgage for more than $300K. If you can't come up with a 20% down payment by saving over the next year or two, where are you going to come up with that extra that you must be paying monthly? And with this huge amount if you ignore everything else, PLEASE do not sign for an ARM with a balloon payment in 5 years. Then you will more personally see what the real estate bubble was all about when you and your wife were in your late teens, early 20's.

[TexasHusker]

You haven't given one vital piece of information needed in this discussion: how much do you earn?

When buying a home, you should:
a) have a 20% down payment
b) have an emergency fund equal to 6 months of living expenses
c) spend no more than 2-3 times your annual income on the home.

A $3,400/month payment would get you roughly a $700,000 loan. If you do the recommended 20% down, that means you'd be buying an $875,000 home which is fine as long as you earn at least $292,000/year.

And remember, you also need to be saving 15%/year for retirement and another 5% or so for other needs.

It sounds to me like you aren't anywhere near ready to buy a home, at least not in the price range you are thinking about, but I could be wrong since we don't know how much you earn.

Your home price - to - earnings ratio is the same one experts were recommending back when mortgage rates were 12-15%.

With interest rates at 4%, you could go with a significantly higher ratio and be just fine.

And as your income increases, the ratio can obviously increase as well:

If I earn $1 million per year, I can quite afford say a $7 million house: The monthly payment on that mortgage would be around $33K a month. Well, I’m earning $83K a month. I’m pretty sure I could make do with my measly $50K per month that is left over.