please help...am I overextended - first home

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Topic Author
jezo
Posts: 47
Joined: Thu Jun 08, 2017 5:45 pm

please help...am I overextended - first home

Post by jezo »

I put an offer on a house and I am in a 10 day period where I am still allowed to back out of contract....
My lender says that my ratios are good but I need your input.
I will be using an FHA loan

Gross Pay - $6,000 (will be receiving a raise at the end of the year so this number should bump up a little)
Net - $3,849.63
12% going into 401K
$106 to ESPP

Debt
$452.98 for a 401K loan

House payment will be $1584 (includes HoA)

I have $13,000 in an individual account
which hold shares of my ESPP
and $5,000 in cash



Thank you all for your feedback...
Last edited by jezo on Tue Aug 15, 2017 2:22 pm, edited 2 times in total.
KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: please help...am I overextended - first home

Post by KlangFool »

jezo wrote: Tue Aug 15, 2017 11:17 am I put an offer on a house and I am in a 10 day period where I am still allowed to back out of contract....
My lender says that my ratios are good but I need your input.
I will be using an FHA loan

Gross Pay - $6,000
Net - $3,849.63
12% going into 401K
$106 to ESPP

Debt
$452.98 for a 401K loan


House payment will be $1584 (includes HoA)

Thank you all for your feedback...
jezo,

<< Debt
$452.98 for a 401K loan
>>

Yes, you are over-extended. You have a 401K loan that will come due any time that you lose your job. Then, you add on a mortgage.

KlangFool
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rec7
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Re: please help...am I overextended - first home

Post by rec7 »

I would try to get that number down $400 a month.
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Snowjob
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Re: please help...am I overextended - first home

Post by Snowjob »

how many years left on the 401k loan?

also please define net pay -- is this after all taxes, 401k contributions and loan payments?
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climber2020
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Re: please help...am I overextended - first home

Post by climber2020 »

15 year mortgage or 30 year?

As it stands, you'd be spending 41% of your take home pay on your house payment. That seems like a lot.
bubbadog
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Location: Cincinnati,Ohio

Re: please help...am I overextended - first home

Post by bubbadog »

I would not feel comfortable with those numbers. Put me down for a yes, you are over extended.
Topic Author
jezo
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Joined: Thu Jun 08, 2017 5:45 pm

Re: please help...am I overextended - first home

Post by jezo »

Snowjob wrote: Tue Aug 15, 2017 11:29 am how many years left on the 401k loan?

also please define net pay -- is this after all taxes, 401k contributions and loan payments?

2 years left on 401K loan
Net pay is after taxes, contributions, and loan payment as well as union dues

I am expected to receive a raise in December
bigred77
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Re: please help...am I overextended - first home

Post by bigred77 »

Your ratios are fine for getting approved for the mortgage.

Your monthly PITI + HOA fee is 26% of your gross. That seems fine.

Are you young and expecting career growth in the near term? If so things will be tight until the 401k loan (which let me guess, was used for the down payment?) is finished and/or you get a couple of raises but this seems pretty standard for first time homebuyers. It's tight at first but not everyone is a boglehead who has 20% down and can get all their needs met by spending less than 2X base salary. If you have good reasons for buying the property (plan to stay there for a long time, maybe you need extra space, the school district, etc.) then I'd say it's probably still a good move. If you are buying just to buy or think your throwing away money on rent, the numbers are tight enough where I'd tell you maybe to re-evaluate.
LEB1230
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Re: please help...am I overextended - first home

Post by LEB1230 »

Your overextending yourself. Save up and put down a larger down payment or find a less costly house to purchase.
Quickfoot
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Re: please help...am I overextended - first home

Post by Quickfoot »

What are you presently paying for housing? If you are renting and your rent is close to the mortgage amount that shows you can manage that monthly payment but you do need to get rid of the 401K loan.

If the 401K loan isn't for the down payment you should get rid of it before you buy, I'd consider renting a room to get housing as low as possible and knocking the 401K loan out THEN buying if you still want to.
Last edited by Quickfoot on Tue Aug 15, 2017 11:47 am, edited 1 time in total.
KlangFool
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Re: please help...am I overextended - first home

Post by KlangFool »

jezo wrote: Tue Aug 15, 2017 11:42 am
Snowjob wrote: Tue Aug 15, 2017 11:29 am how many years left on the 401k loan?

also please define net pay -- is this after all taxes, 401k contributions and loan payments?

2 years left on 401K loan
Net pay is after taxes, contributions, and loan payment as well as union dues

I am expected to receive a raise in December
jezo,

It is never a good idea to spend your future income before you get it. Listen to your heart. It is telling you that you are overextended. You are passing the threshold of SWAN ( Sleep Well At Night).

KlangFool
Last edited by KlangFool on Tue Aug 15, 2017 11:53 am, edited 1 time in total.
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Grt2bOutdoors
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Re: please help...am I overextended - first home

Post by Grt2bOutdoors »

Need more information: you've told us about the income statement, now tell us about what your balance sheet looks like:
How much is in your saving account/taxable account investments, if any?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
tj218
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Re: please help...am I overextended - first home

Post by tj218 »

jezo wrote: Tue Aug 15, 2017 11:17 am I put an offer on a house and I am in a 10 day period where I am still allowed to back out of contract....
My lender says that my ratios are good but I need your input.
I will be using an FHA loan

Gross Pay - $6,000
Net - $3,849.63
12% going into 401K
$106 to ESPP

Debt
$452.98 for a 401K loan

House payment will be $1584 (includes HoA)

Thank you all for your feedback...
What a lender will lend you vs. what you can afford with your lifestyle, debts, family situation are different animals. They want you to take the loan the higher amount means more interest the lender gets (not to mention the fees for getting you into a loan). Lenders do not have a fiduciary responsibility.

I was approved for a loan up $400,000 but bought a home for $230,000. I live pretty frugally but I couldn't imagine keeping my head above water if I went for a home closer to the $400,000 that I was approved for.

Does the house payment include property taxes? Also don't forget normal home expenses: heat, air conditioning, electricity, water, sewer, etc.
KlangFool
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Re: please help...am I overextended - first home

Post by KlangFool »

http://www.conferencesthatwork.com/inde ... d-my-life/

<< Clients always know how to solve their problems, and always tell you the solution in the first five minutes. (The Five-Minute Rule.) Unbelievably, this is true—the hard part is listening well enough to notice.>>

Read the rest of this article at: http://www.conferencesthatwork.com/inde ... d-my-life/

OP,

If you are comfortable with your decision, you would not start this topic. Since you start this topic, you should listen to your heart.

KlangFool
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bottlecap
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Re: please help...am I overextended - first home

Post by bottlecap »

Seems tight to me, but depends on your other expenses.

You will be living on about $20k per year, and have more expenses with a home.

Can you do that?

JT
2Birds1Stone
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Re: please help...am I overextended - first home

Post by 2Birds1Stone »

Yes, you are overextended.
mmcmonster
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Re: please help...am I overextended - first home

Post by mmcmonster »

tj218 wrote: Tue Aug 15, 2017 11:59 amI was approved for a loan up $400,000 but bought a home for $230,000. I live pretty frugally but I couldn't imagine keeping my head above water if I went for a home closer to the $400,000 that I was approved for.
Agree 100%.

The bank and YOUR real estate agent both profit from you buying a more expensive house and taking a bigger loan.

Buy a smaller house and save more and then decide 5-10 years from now if you want to move into a bigger house or you're fine where you are.

When I bought my previous house I was approved for a $800k loan. I knew that was crazy and eventually bought a $425k house.
Liberty1100
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Re: please help...am I overextended - first home

Post by Liberty1100 »

Do you have a car payment?

A lot of people assume there is when they consider how much a house payment should be. If you have no car, then this house payment may be more acceptable.
wilked
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Re: please help...am I overextended - first home

Post by wilked »

What is the 401K loan for?
chevca
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Re: please help...am I overextended - first home

Post by chevca »

That's much tighter than most any boglehead is going to give the okay on. But, probably not too far out there or possibly better than most average joe folks. After taxes and the one bill and 401k contributions, sounds like you $2300/month left once the mortgage is paid. Are you single, young, and just caring for yourself? That could be livable in the right situation. It could be really tight in another situation though.

Just a quick look at the numbers and not knowing the whole picture, it looks pretty tight to me.
Topic Author
jezo
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Re: please help...am I overextended - first home

Post by jezo »

chevca wrote: Tue Aug 15, 2017 12:37 pm That's much tighter than most any boglehead is going to give the okay on. But, probably not too far out there or possibly better than most average joe folks. After taxes and the one bill and 401k contributions, sounds like you $2300/month left once the mortgage is paid. Are you single, young, and just caring for yourself? That could be livable in the right situation. It could be really tight in another situation though.

Just a quick look at the numbers and not knowing the whole picture, it looks pretty tight to me.
I am 42, single
Contributing 12% to 401K
My only debt is the 452 401K which will be paid in 2 years
I have $13,000 an individual account
Grt2bOutdoors
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Re: please help...am I overextended - first home

Post by Grt2bOutdoors »

jezo wrote: Tue Aug 15, 2017 1:16 pm
chevca wrote: Tue Aug 15, 2017 12:37 pm That's much tighter than most any boglehead is going to give the okay on. But, probably not too far out there or possibly better than most average joe folks. After taxes and the one bill and 401k contributions, sounds like you $2300/month left once the mortgage is paid. Are you single, young, and just caring for yourself? That could be livable in the right situation. It could be really tight in another situation though.

Just a quick look at the numbers and not knowing the whole picture, it looks pretty tight to me.
I am 42, single
Contributing 12% to 401K
My only debt is the 452 401K which will be paid in 2 years
I have $13,000 an individual account
You can't afford it, get out of the contract, now!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Topic Author
jezo
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Re: please help...am I overextended - first home

Post by jezo »

Liberty1100 wrote: Tue Aug 15, 2017 12:16 pm Do you have a car payment?

A lot of people assume there is when they consider how much a house payment should be. If you have no car, then this house payment may be more acceptable.
No car payment but a 401K loan that is payroll deducted $226 per pay period
runner540
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Re: please help...am I overextended - first home

Post by runner540 »

Seems too tight to me, especially since you don't have many other assets at 42. Will you have a pension? How will you pay for a home repair when needed?
What is your current rent expense?
Topic Author
jezo
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Re: please help...am I overextended - first home

Post by jezo »

runner540 wrote: Tue Aug 15, 2017 1:26 pm Seems too tight to me, especially since you don't have many other assets at 42. Will you have a pension? How will you pay for a home repair when needed?
What is your current rent expense?
I have a 401K & profit sharing currently its at $180
My rent is currently $860 but my lease is coming up and I don't know if they will increase the rent.
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Watty
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Re: please help...am I overextended - first home

Post by Watty »

Quickfoot wrote: Tue Aug 15, 2017 11:46 am What are you presently paying for housing? If you are renting and your rent is close to the mortgage amount that shows you can manage that monthly payment but you do need to get rid of the 401K loan.

If the 401K loan isn't for the down payment you should get rid of it before you buy, I'd consider renting a room to get housing as low as possible and knocking the 401K loan out THEN buying if you still want to.
+1

It would be good to do a dummy tax return, including your state taxes, to see what the after tax impact will be on your disposable income. You also have to budget for property taxes, maintenance, lawn care, and furnishing the place.

That said it will be tight but doable. As a totally wild guess I would think that it might cost in the ballpark of $1,000 a month more than rent or $12,000 a year. You are making $72,000 a year so in effect you would have to ratchet back the rest of your lifestyle and and live as if you were making $60,000 a year, or maybe a bit less when you consider taxes. Lots of people live on that so it is really a matter of deciding if the tradeoffs will be worth it to you. I doubt that you could afford it without making a lot of tradeoffs.
runner540
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Re: please help...am I overextended - first home

Post by runner540 »

jezo wrote: Tue Aug 15, 2017 1:33 pm
runner540 wrote: Tue Aug 15, 2017 1:26 pm Seems too tight to me, especially since you don't have many other assets at 42. Will you have a pension? How will you pay for a home repair when needed?
What is your current rent expense?
I have a 401K & profit sharing currently its at $180
My rent is currently $860 but my lease is coming up and I don't know if they will increase the rent.
So rent might go up $50 or $100, but you want to double your housing cost and take on the responsibility for repairs/taxes/maintenance??Please read this thread. The numbers are different but the principles are the same: viewtopic.php?f=11&t=222233
bloom2708
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Re: please help...am I overextended - first home

Post by bloom2708 »

I don't think there is any reason to panic. You probably just can't do everything want for a while.

$106 to ESPP? Probably not. Get the 401k loan paid up. Do you have to only pay the minimum? Can you lump sum and stomp on it faster?

Maybe you have to do 8% instead of 12% for a year or two and up the % with each raise to the 401k.

If you like the house and are staying long term, you will just have to make some adjustments. Most don't get to do everything they want when buying that first house.
Topic Author
jezo
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Re: please help...am I overextended - first home

Post by jezo »

runner540 wrote: Tue Aug 15, 2017 1:57 pm
jezo wrote: Tue Aug 15, 2017 1:33 pm
runner540 wrote: Tue Aug 15, 2017 1:26 pm Seems too tight to me, especially since you don't have many other assets at 42. Will you have a pension? How will you pay for a home repair when needed?
What is your current rent expense?
I have a 401K & profit sharing currently its at $180
My rent is currently $860 but my lease is coming up and I don't know if they will increase the rent.
So rent might go up $50 or $100, but you want to double your housing cost and take on the responsibility for repairs/taxes/maintenance??Please read this thread. The numbers are different but the principles are the same: viewtopic.php?f=11&t=222233
The place where I currently live is very small one bedroom. I have been here 6 years and have outgrown it. I thought I would check to see what is on the market before it comes time to sign my lease. My place is so small I just feel like I have outgrown it. It depresses me to be here but for what I am paying in rent I can't find anything better so I would have to stay here if I don't buy a place. My friend is the realtor and is giving me her commission so I will end up getting a $5000 credit. I will also be getting a raise at the end of the year. I came here to ask for feedback b/c of your life experiences and you are neutral. I am so grateful for your time and the feedback
KlangFool
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Re: please help...am I overextended - first home

Post by KlangFool »

jezo wrote: Tue Aug 15, 2017 2:20 pm
runner540 wrote: Tue Aug 15, 2017 1:57 pm
jezo wrote: Tue Aug 15, 2017 1:33 pm
runner540 wrote: Tue Aug 15, 2017 1:26 pm Seems too tight to me, especially since you don't have many other assets at 42. Will you have a pension? How will you pay for a home repair when needed?
What is your current rent expense?
I have a 401K & profit sharing currently its at $180
My rent is currently $860 but my lease is coming up and I don't know if they will increase the rent.
So rent might go up $50 or $100, but you want to double your housing cost and take on the responsibility for repairs/taxes/maintenance??Please read this thread. The numbers are different but the principles are the same: viewtopic.php?f=11&t=222233
The place where I currently live is very small one bedroom. I have been here 6 years and have outgrown it. I thought I would check to see what is on the market before it comes time to sign my lease. My place is so small I just feel like I have outgrown it. It depresses me to be here but for what I am paying in rent I can't find anything better so I would have to stay here if I don't buy a place. My friend is the realtor and is giving me her commission so I will end up getting a $5000 credit. I will also be getting a raise at the end of the year. I came here to ask for feedback b/c of your life experiences and you are neutral. I am so grateful for your time and the feedback
jezo,

You could rent a bigger place instead of buying a whole house. For example, a 2 bedrooms apartment.
You do not need to more than double your housing expense.

KlangFool
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deskjockey
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Re: please help...am I overextended - first home

Post by deskjockey »

I agree with others who've said you will be overextended. The budget you cite will be very, very tight--just a little bit of extra stress will break it. In effect, you would be one or two unexpected expenses away from getting into a debt spiral (or worse). Think about it that way: If your car dies on you, will you be able to afford the repairs or, worse yet, a replacement? What if a storm blows through town and you need to repair or replace the roof? What if your HoA decides to levy a special assessment for capital expenses?

Don't think it can't happen. First house we bought, a few months in we discovered an issue with the drainage that was causing excess moisture. $4,000 to fix. My aunt moved into a brand new home, but found out a year later that it was settling improperly and the foundation slab was cracking. Lots of $$ later (lessened by a home warranty, thankfully), she fixed it. When we built our second house, the county came back and told us (after we had already signed a contract to build the house and vacated it) that we needed to put $14,000 in escrow for environmental remediation and spend an equal amount on new plantings. This stuff happens with homes, both old and new (but especially older ones).
Topic Author
jezo
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Joined: Thu Jun 08, 2017 5:45 pm

Re: please help...am I overextended - first home

Post by jezo »

bigred77 wrote: Tue Aug 15, 2017 11:44 am Your ratios are fine for getting approved for the mortgage.

Your monthly PITI + HOA fee is 26% of your gross. That seems fine.

Are you young and expecting career growth in the near term? If so things will be tight until the 401k loan (which let me guess, was used for the down payment?) is finished and/or you get a couple of raises but this seems pretty standard for first time homebuyers. It's tight at first but not everyone is a boglehead who has 20% down and can get all their needs met by spending less than 2X base salary. If you have good reasons for buying the property (plan to stay there for a long time, maybe you need extra space, the school district, etc.) then I'd say it's probably still a good move. If you are buying just to buy or think your throwing away money on rent, the numbers are tight enough where I'd tell you maybe to re-evaluate.
I am expecting a raise at the end of this year so I will see it take effect in Jan 2018.
I admit I careless with my finances in the past so I don't have the 20%
I have an amazing deal on my rent currently but it is so small that I don't look forward to coming home. The way it faces I get minimal sunlight so its really dark and its a small place. But I have an amazing deal, great location, so grateful for that.
The place I saw has light and more space. I would plan on staying there a while.
Topic Author
jezo
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Re: please help...am I overextended - first home

Post by jezo »

deskjockey wrote: Tue Aug 15, 2017 2:28 pm I agree with others who've said you will be overextended. The budget you cite will be very, very tight--just a little bit of extra stress will break it. In effect, you would be one or two unexpected expenses away from getting into a debt spiral (or worse). Think about it that way: If your car dies on you, will you be able to afford the repairs or, worse yet, a replacement? What if a storm blows through town and you need to repair or replace the roof? What if your HoA decides to levy a special assessment for capital expenses?

Don't think it can't happen. First house we bought, a few months in we discovered an issue with the drainage that was causing excess moisture. $4,000 to fix. My aunt moved into a brand new home, but found out a year later that it was settling improperly and the foundation slab was cracking. Lots of $$ later (lessened by a home warranty, thankfully), she fixed it. When we built our second house, the county came back and told us (after we had already signed a contract to build the house and vacated it) that we needed to put $14,000 in escrow for environmental remediation and spend an equal amount on new plantings. This stuff happens with homes, both old and new (but especially older ones).
Wow, thank you for sharing that
Topic Author
jezo
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Joined: Thu Jun 08, 2017 5:45 pm

Re: please help...am I overextended - first home

Post by jezo »

deskjockey wrote: Tue Aug 15, 2017 2:28 pm I agree with others who've said you will be overextended. The budget you cite will be very, very tight--just a little bit of extra stress will break it. In effect, you would be one or two unexpected expenses away from getting into a debt spiral (or worse). Think about it that way: If your car dies on you, will you be able to afford the repairs or, worse yet, a replacement? What if a storm blows through town and you need to repair or replace the roof? What if your HoA decides to levy a special assessment for capital expenses?

Don't think it can't happen. First house we bought, a few months in we discovered an issue with the drainage that was causing excess moisture. $4,000 to fix. My aunt moved into a brand new home, but found out a year later that it was settling improperly and the foundation slab was cracking. Lots of $$ later (lessened by a home warranty, thankfully), she fixed it. When we built our second house, the county came back and told us (after we had already signed a contract to build the house and vacated it) that we needed to put $14,000 in escrow for environmental remediation and spend an equal amount on new plantings. This stuff happens with homes, both old and new (but especially older ones).
KlangFool wrote: Tue Aug 15, 2017 2:24 pm
jezo wrote: Tue Aug 15, 2017 2:20 pm
runner540 wrote: Tue Aug 15, 2017 1:57 pm
jezo wrote: Tue Aug 15, 2017 1:33 pm
runner540 wrote: Tue Aug 15, 2017 1:26 pm Seems too tight to me, especially since you don't have many other assets at 42. Will you have a pension? How will you pay for a home repair when needed?
What is your current rent expense?
I have a 401K & profit sharing currently its at $180
My rent is currently $860 but my lease is coming up and I don't know if they will increase the rent.
So rent might go up $50 or $100, but you want to double your housing cost and take on the responsibility for repairs/taxes/maintenance??Please read this thread. The numbers are different but the principles are the same: viewtopic.php?f=11&t=222233
The place where I currently live is very small one bedroom. I have been here 6 years and have outgrown it. I thought I would check to see what is on the market before it comes time to sign my lease. My place is so small I just feel like I have outgrown it. It depresses me to be here but for what I am paying in rent I can't find anything better so I would have to stay here if I don't buy a place. My friend is the realtor and is giving me her commission so I will end up getting a $5000 credit. I will also be getting a raise at the end of the year. I came here to ask for feedback b/c of your life experiences and you are neutral. I am so grateful for your time and the feedback
jezo,

You could rent a bigger place instead of buying a whole house. For example, a 2 bedrooms apartment.
You do not need to more than double your housing expense.

KlangFool
I looked into that last year before I signed and just looked again...the rent in my area where I am no is about $1450;
Topic Author
jezo
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Joined: Thu Jun 08, 2017 5:45 pm

Re: please help...am I overextended - first home

Post by jezo »

bloom2708 wrote: Tue Aug 15, 2017 2:06 pm I don't think there is any reason to panic. You probably just can't do everything want for a while.

$106 to ESPP? Probably not. Get the 401k loan paid up. Do you have to only pay the minimum? Can you lump sum and stomp on it faster?

Maybe you have to do 8% instead of 12% for a year or two and up the % with each raise to the 401k.

If you like the house and are staying long term, you will just have to make some adjustments. Most don't get to do everything they want when buying that first house.
I could stop the ESPP
The 401K loan has to be paid all at once you can't make separate payments
I could drop my 401K
but a lot of the other BH are thinking I am overextended
I would like to make a decision before Thursday before I pay for an inspection
deskjockey
Posts: 368
Joined: Sat Dec 03, 2016 10:15 am

Re: please help...am I overextended - first home

Post by deskjockey »

jezo wrote: Tue Aug 15, 2017 2:33 pm
Wow, thank you for sharing that
Happy to help. You may want to go ahead and make a rough estimate of your home maintenance expenses before deciding to take the plunge. Here's one idea for how to do so: https://www.thebalance.com/home-mainten ... get-453820

It's your call, ultimately, and you'll have have to decide if you want to take the risk. That said, if I were in your shoes, I'd pass and wait until I got the raise before looking for a place to buy.
DSInvestor
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Joined: Sat Oct 04, 2008 11:42 am

Re: please help...am I overextended - first home

Post by DSInvestor »

jezo wrote: Tue Aug 15, 2017 11:17 am House payment will be $1584 (includes HoA)
Does the house payment include property tax? This could be substantial in some locations (Texas, NJ, NY) even for modestly priced homes. What about homeowner insurance?

With HOA, you must be careful to review the books of the association to make sure there is ample capital reserves. If reserves are under funded, there may higher risk of special assessments above and beyond your standard monthly HOA fee.
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evilityb
Posts: 238
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Location: The District of Columbia

Re: please help...am I overextended - first home

Post by evilityb »

I'm responding to this because I was in your shoes a year ago. I bought a house knowing I would be overextended. In my case, I have been okay financially, but I have encountered some of the highest levels of stress of my life. If I could do it over, I would have waited a year.

Here are a few things I've learned:
1) The house will cost you more than you think. I had no idea the seller was hiding a giant crack in the main plumbing stack. There goes $1,000. I also had no idea the bathroom leaked into my kitchen. There goes another $3,000. I knew there would be maintenance costs to the house so I was reasonably prepared, but they didn't always come at times that I was prepared to handle them and they often blew my monthly budget. I had used averages, not realizing that a lot of those costs would be within the first 2 years when I was already overextended and it was harder to smooth my consumption than I expected. This was very stressful. I've lost sleep over this; I even woke up and threw up one morning because I was so stressed out. I don't want to go back to that.

2) There are two parts to debt: the math and the emotions. I'm an economist -- numbers are my game. I crunched those numbers like crazy and knew exactly what kind of debt I would be taking on at what interest rates and I knew exactly what my opportunity cost would be financially. My cost-benefit analysis was spot on. ... What I did NOT understand was the emotional toll it takes on you to have debt. You don't know how risk averse you are until you're actually facing the risk. I used to think I was a risk taker and couldn't wait to leverage all of this debt for future gains. Turns out, I really hate debt and my desire to "leverage" my debt as decreased considerably since buying this house.

3) Having a house has caused me to forgo life opportunities. I have had to sacrifice SO MANY WEEKENDS to fix something when all of my friends are out to brunch, or at museums, or enjoying that beautiful weather. I also have to mow a lawn now. That sucks. Also, I am constantly worried about things breaking and I struggle to go out of town, even for just a few short days, because I'm afraid of what might break.

Also, FHA loans are pretty crappy in comparison to other loans. If you can get another kind of loan, do. If you can't, then you're definitely not in a place to buy a house.

I strongly agree with others who have said to pay of the 401k loan before buying a house. It will minimize your risk immensely AND put you at ease emotionally.
She/her | Make sure the fortune that you seek is the fortune that you need - Ben Harper
qiora
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Re: please help...am I overextended - first home

Post by qiora »

I am sure OP has invested a lot of his time into the whole house hunting process. So hate to just shoot it down without knowing all info. It depends on,

- where you live,
- your expected monthly expenses other than mortgage/HOA (food, car/transportation, entertainment, home repair/maintenance, etc),
- job security,
- discipline to stick with your defined budget,
- general spending habits (ie, do you make impulse purchases, vacation, etc)

If you dont mind sharing all of the above in details, it will help us (and you as well) better answer your original question.
Iliketoridemybike
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Re: please help...am I overextended - first home

Post by Iliketoridemybike »

What kind of RE contract allows you to back out within 10 days?
Is it contingent on financing or inspection? You might not be able to back out for other reasons.
abner kravitz
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Location: East Coast

Re: please help...am I overextended - first home

Post by abner kravitz »

I don't think that house payment is too much for your income (if it includes taxes and insurance). I think the bigger issue is you only have $5000 in cash. As others have mentioned, you could blow through that pretty quickly if you have problems in the new home.
Topic Author
jezo
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Re: please help...am I overextended - first home

Post by jezo »

Iliketoridemybike wrote: Tue Aug 15, 2017 3:29 pm What kind of RE contract allows you to back out within 10 days?
Is it contingent on financing or inspection? You might not be able to back out for other reasons.
My realtor said that the ball is my court, I have 10 days to back out and it could be for something as simply as the dog next door barks too much. The inspection is on Thursday.
indexonlyplease
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Location: Florida

Re: please help...am I overextended - first home

Post by indexonlyplease »

The bigger problem is now you own the home. When you rent you know what your monthly expenses are. When you own you have no idea. When the ac breaks there is a problem you did not budget for. An you have a small emergency fund.

Not sure your age but if young why rush. Save more for a larger deposit. Don't put yourself in debt that you will not be able to get out of. Also, you already have a 401k loan. I don't think someone should buy a house when you are barrowing your retirment fund.

Also, if you have a bad feeling in your gut, there is a good reason for it.

Another thought you now own a home big deal. Ask home owners. I think you are putting youself in a bad situation. It's like buying the corvettee but you can't afford the gas when it goes to $4.00 gallon.
stm
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Re: please help...am I overextended - first home

Post by stm »

OP - you are really overextended. You recognized above that you might be a little careless with finances, recognizing is the first step. Don't put yourself in a situation where you might do some lasting financial harm.
Topic Author
jezo
Posts: 47
Joined: Thu Jun 08, 2017 5:45 pm

Re: please help...am I overextended - first home

Post by jezo »

evilityb wrote: Tue Aug 15, 2017 3:13 pm I'm responding to this because I was in your shoes a year ago. I bought a house knowing I would be overextended. In my case, I have been okay financially, but I have encountered some of the highest levels of stress of my life. If I could do it over, I would have waited a year.

Here are a few things I've learned:
1) The house will cost you more than you think. I had no idea the seller was hiding a giant crack in the main plumbing stack. There goes $1,000. I also had no idea the bathroom leaked into my kitchen. There goes another $3,000. I knew there would be maintenance costs to the house so I was reasonably prepared, but they didn't always come at times that I was prepared to handle them and they often blew my monthly budget. I had used averages, not realizing that a lot of those costs would be within the first 2 years when I was already overextended and it was harder to smooth my consumption than I expected. This was very stressful. I've lost sleep over this; I even woke up and threw up one morning because I was so stressed out. I don't want to go back to that.

2) There are two parts to debt: the math and the emotions. I'm an economist -- numbers are my game. I crunched those numbers like crazy and knew exactly what kind of debt I would be taking on at what interest rates and I knew exactly what my opportunity cost would be financially. My cost-benefit analysis was spot on. ... What I did NOT understand was the emotional toll it takes on you to have debt. You don't know how risk averse you are until you're actually facing the risk. I used to think I was a risk taker and couldn't wait to leverage all of this debt for future gains. Turns out, I really hate debt and my desire to "leverage" my debt as decreased considerably since buying this house.

3) Having a house has caused me to forgo life opportunities. I have had to sacrifice SO MANY WEEKENDS to fix something when all of my friends are out to brunch, or at museums, or enjoying that beautiful weather. I also have to mow a lawn now. That sucks. Also, I am constantly worried about things breaking and I struggle to go out of town, even for just a few short days, because I'm afraid of what might break.

Also, FHA loans are pretty crappy in comparison to other loans. If you can get another kind of loan, do. If you can't, then you're definitely not in a place to buy a house.

I strongly agree with others who have said to pay of the 401k loan before buying a house. It will minimize your risk immensely AND put you at ease emotionally.
Thank you for sharing this...
Topic Author
jezo
Posts: 47
Joined: Thu Jun 08, 2017 5:45 pm

Re: please help...am I overextended - first home

Post by jezo »

DSInvestor wrote: Tue Aug 15, 2017 3:02 pm
jezo wrote: Tue Aug 15, 2017 11:17 am House payment will be $1584 (includes HoA)
Does the house payment include property tax? This could be substantial in some locations (Texas, NJ, NY) even for modestly priced homes. What about homeowner insurance?

With HOA, you must be careful to review the books of the association to make sure there is ample capital reserves. If reserves are under funded, there may higher risk of special assessments above and beyond your standard monthly HOA fee.
The payment includes taxes and insurance. I will check with my realtor about the capital reserves for the HOA.
Lynette
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Re: please help...am I overextended - first home

Post by Lynette »

.....
Last edited by Lynette on Sun Jan 13, 2019 12:32 am, edited 2 times in total.
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G12
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Re: please help...am I overextended - first home

Post by G12 »

How big is the house? Many who come on here that are reaching to get into houses bring up getting roommates to help offset the increased cost of a mortgage compared to current rent. If you did that for 2 years it could bridge you to having the 401k loan paid off and lessen the impact of the mortgage. If you were going to proceed I would cease the ESPP if you haven't and assume what you hold in it currently could be cashed out? Might consider lowering your 401k contributions to just capture the employer matching and build up some more cash. One thing you may want to consider is a home warranty through a reputable company, replacing HVAC with new high efficiency systems can be very expensive as are other repairs, having that could give you some peace of mind. Are you going to have to furnish the house entirely or are appliances and other included? That can be a significant upfront cost. I lived in a basement apartment with little light for 18 months and did not like it, but that would not be the ultimate push to buy a house for me. I think you are on the borderline and would be concerned about potential job loss, etc. If you are confident you have job security and would take on a roommate for awhile it could work.
hightower
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Re: please help...am I overextended - first home

Post by hightower »

It's important not to just look at the size of your monthly payments but the actual dollar amount you're making vs spending on a house. 6k/month means 72k per year. I like the 2x salary rule for figuring out how much house you can afford. It says that your mortgage shouldn't be more than 2x your annual salary. So a mortgage of 144k is as big as I would go. That means if you want a 200k house, you need a 56k down payment, for example.
You can not afford that house in my opinion and that's just based on the fact that the payments will cost you nearly half of your monthly income. That's going to make it very difficult to save and to afford repairs/upgrades etc. I would go back to the drawing board and rethink this if I were you. Best of luck
Iliketoridemybike
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Re: please help...am I overextended - first home

Post by Iliketoridemybike »

jezo wrote: Tue Aug 15, 2017 4:10 pm
Iliketoridemybike wrote: Tue Aug 15, 2017 3:29 pm What kind of RE contract allows you to back out within 10 days?
Is it contingent on financing or inspection? You might not be able to back out for other reasons.
My realtor said that the ball is my court, I have 10 days to back out and it could be for something as simply as the dog next door barks too much. The inspection is on Thursday.
I honestly have never heard of such a contract and I've bought/sold 7 homes. There was always earnest money at risk for walking, ususally thousands of dollars.
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