Buying house - Very important decision

Questions on how we spend our money and our time - consumer goods and services, home and vehicle, leisure and recreational activities
thangngo
Posts: 60
Joined: Sun Feb 26, 2017 2:08 pm

Re: Buying house - Very important decision

Postby thangngo » Thu Jun 29, 2017 5:07 pm

prettybogle wrote:We are a family of 3, husband, myself and a daughter. We are now paying monthly rent $1300. This may go up atleast 100 for the next year. So i am debating to buy (or not buy) this house in middle tennessee. It is $535000 for 3600 sqft house. Lot size is 0.25 acres. I really appreciate any input, suggestions to help me decide to buy or just keep renting. My husband and I are both 35. Single income 130k. After 20% downpayment, we will be using all the cash we got so no emergency fund. Net worth is 450k.


You should buy house when the housing market is down and avoid buying when price is racing up. It appears that you're afraid if you don't buy a house now, price will continue to go higher. It's a classic example of buying high. The right question to ask is when will the housing cycle reach its trough? I would continue to save/invest and wait until the right time to buy.

You can also think outside of the box. Have you considered different locations? Different states/cities have their own economic cycle, which could affect house price. Take Houston for example, oil&gas industry is hibernating and house price is going down. This is your opportunity to buy. I'm seeing several people are taking a big hit because they were buying when the price kept rising just more than a year ago.

User avatar
Pajamas
Posts: 1777
Joined: Sun Jun 03, 2012 6:32 pm

Re: Buying house - Very important decision

Postby Pajamas » Thu Jun 29, 2017 5:15 pm

It's quite a step up in lifestyle to go from renting at $1,300 a month to buying a $535,000 house.

If you bought a house for only $400,000 and put 20% down, your payments with taxes and insurance would be something like $1,800 a month. Just doesn't make any sense to me to do that because your rent will go up from $1,300. Taxes and insurance go up, too, and you will have maintenance costs. The longer you can put off buying a house, the better you will be able to afford one.

Maybe take a deep breath and really look at your overall financial picture and set some realistic goals for where you want to be in five, ten, twenty years.

junior
Posts: 649
Joined: Wed Sep 10, 2008 6:14 pm
Contact:

Re: Buying house - Very important decision

Postby junior » Thu Jun 29, 2017 6:42 pm

prettybogle wrote:We are a family of 3, husband, myself and a daughter. We are now paying monthly rent $1300. This may go up atleast 100 for the next year. So i am debating to buy (or not buy) this house in middle tennessee. It is $535000 for 3600 sqft house. Lot size is 0.25 acres. I really appreciate any input, suggestions to help me decide to buy or just keep renting. My husband and I are both 35. Single income 130k. After 20% downpayment, we will be using all the cash we got so no emergency fund. Net worth is 450k.


Start looking for a house or condo that's equivalent to where you live now. There's a good possibility that you can find one around 200,000 or so to 250,000 depending on your local real estate market. I say this because usually buying a house often costs between 12.5 and 15 years rent of an equivalent property.

Then if you want to splurge a bit you can probably go a little higher.

If you want to consider buying a place exactly like where you live now I like the Michael Bluejay rent vs buy calculator here: http://michaelbluejay.com/house/rentvsbuy.html

You can also rent a nicer place or a big house instead of buying, and can use the calculator to look into your options.
Last edited by junior on Thu Jun 29, 2017 6:49 pm, edited 1 time in total.

prettybogle
Posts: 166
Joined: Sun Mar 01, 2015 10:44 am

Re: Buying house - Very important decision

Postby prettybogle » Thu Jun 29, 2017 6:45 pm

Thanks again everyone. We are first time home buyers and we do not know what costs are involved in home ownership. Whatever knowledge we have is what we read online in places like zillow etc. I assume most of y'all are home owners. Part of the reason we were thinking this 535k house is we may be missing some costs. We will be grateful if anyone can post all the costs with realistic numbers.

Dottie57
Posts: 1642
Joined: Thu May 19, 2016 5:43 pm

Re: Buying house - Very important decision

Postby Dottie57 » Thu Jun 29, 2017 6:49 pm

prettybogle wrote:Thanks again everyone. We are first time home buyers and we do not know what costs are involved in home ownership. Whatever knowledge we have is what we read online in places like zillow etc. I assume most of y'all are home owners. Part of the reason we were thinking this 535k house is we may be missing some costs. We will be grateful if anyone can post all the costs with realistic numbers.



I think this is research you have to do for the location you are looking at. Costs may be different in regions of the country.

Gufomel
Posts: 189
Joined: Sat Feb 14, 2015 9:52 pm

Re: Buying house - Very important decision

Postby Gufomel » Thu Jun 29, 2017 7:46 pm

prettybogle wrote:Thanks again everyone. We are first time home buyers and we do not know what costs are involved in home ownership. Whatever knowledge we have is what we read online in places like zillow etc. I assume most of y'all are home owners. Part of the reason we were thinking this 535k house is we may be missing some costs. We will be grateful if anyone can post all the costs with realistic numbers.


1) Mortgage - It looks like 30 year interest rates are about 4% right now. Could be more, could be less, but it's probably in that ballpark right now. If you put 20% down on $535k, that would be a $428k loan. The calculator below shows that the monthly payment (principal plus interest) would be $2,043. You'll also have closing costs that maybe would be around $5-10k. The amount really could vary. But whatever the amount, you'd need to roll it into your mortgage if you don't have cash beyond the 20% down payment, so that would increase this monthly payment amount.

http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx?loanAmount=428000&years=30&terms=360&interestRate=4&loanStartDate=29+Jun+2017&show=false&showRt=true&market=84&loan=165000&perc=20&points=Zero&fico=740&prods=216&monthlyAdditionalAmount=0&yearlyAdditionalAmount=0&yearlyPaymentMonth=&oneTimeAdditionalPayment=0&oneTimeAdditionalPaymentInMY=&ic_id=mtg_calc_calculate_btn

2) Property taxes - I found a random house on Zillow in Franklin that's priced at $529k, and looked up their property tax records. $3,792 last year per below, so $316 per month.

https://www.williamsonpropertytax.com/taxes.html#/Record/9C44E0D4ADB7D2B15CD6926C1E6EB363

3) Home insurance - It's hard to find home insurance rates without going through the quote application process. Will probably vary between $100-200 per month. This site says $1500 on average in Tennessee, so $125 per month.

http://www.thesimpledollar.com/best-homeowners-insurance-in-tennessee/

4) HOA fee - You're almost certainly going to have an HOA if you're in a neighborhood. Likely about $50/month.

5) Utilities - Going to vary a ton based on location, energy efficiency of the home, your energy usage habits, whether you need to water your lawn, etc. With hot summers and fairly cold winters, I'm sure your total utilities bill on a 3600 sqft house would be at least $200, if not $300.

6) Maintenance/repairs - Obviously if this is a new home, this piece "should" be lower than average. But even new homes still have issues with the original construction. You'll need to maintain a yard (lawn mower, weed eater, etc). Faucets will need to be fixed, pipes can burst, siding needs to be repaired. Eventually the A/C and roof need to be replaced or have maintenance issues, but not much of a short-term issue with a brand new house. Misc monthly expenses like pest control and home security. General rule of thumb is 1% of the house value for maintenance and repairs( which would be about $5000 per year in the case of this house), but that's a highly faulty rule of thumb. I would guesstimate about $200 per month over the first 5 years of ownership in a house like you're considering.

So we have:
Mortgage - $2043
Property taxes - $316
Home insurance - $125
HOA - $50
Utilities - $200
Maintenance/repairs - $200

Total - $2,934

I don't believe I'm being unreasonable in any of these estimates, but anyone is welcome to point out if there needs to be corrections to this based on their knowledge/experience.
Last edited by Gufomel on Thu Jun 29, 2017 7:55 pm, edited 3 times in total.

wrongfunds
Posts: 432
Joined: Tue Dec 21, 2010 3:55 pm

Re: Buying house - Very important decision

Postby wrongfunds » Thu Jun 29, 2017 7:49 pm

I am getting the feeling that OP *really* wants the house, has already made the decision to go for it and is looking for validation of her decision on this forum.

ERISA Stone
Posts: 1203
Joined: Tue Jun 24, 2014 8:54 am

Re: Buying house - Very important decision

Postby ERISA Stone » Thu Jun 29, 2017 8:34 pm

I hate to go against the board, but personally, 3500 sqft is right where I would aim. My wife and I lived in a 2200 sqft house with one child and we always felt cramped. To be fair, we both worked from home at the time so that might have had something to do with it, but we both felt the same way. We have about 4500 now. It feels a little too big. I think 3500 would fit us just right (family of 4 now). But I would miss my basement if we ever moved to a smaller house.

But I do agree that a house for $535k is a bit high for the salary.

katnok
Posts: 133
Joined: Fri Nov 11, 2011 8:36 pm

Re: Buying house - Very important decision

Postby katnok » Thu Jun 29, 2017 8:43 pm

prettybogle,

Do not rush to buy a house. As a single income (~200k/yr) family with 2 kids, we rented for 6 years before buying a house. Finally, we bought one last year after my wife also started working taking our HHI to 300K/year. We saved a lot while renting, taking our net worth from nearly zero to close to 1mil now.

Since buying our house, I have remarked to many that life was much easier before we did it. The past year has been quite stressful with all that comes with buying a house (landscaping, lawn mowing, house maintenance, furnishing the house etc).

As for friends and their recommendations, we had a lot of people making similar suggestions along the way, but who was going to pay the mortgage and bills? Us. So, we did not listen to anyone until were ready, at least financially.

I don't think you truly appreciate what it takes to be a home owner until you become one.
Last edited by katnok on Thu Jun 29, 2017 8:44 pm, edited 1 time in total.

Atilla
Posts: 1126
Joined: Tue Feb 09, 2010 7:44 pm

Re: Buying house - Very important decision

Postby Atilla » Thu Jun 29, 2017 8:43 pm

The very idea of spending this much on a house on a single income that low boggles my mind. Pure insanity - with all due respect. [OT comment removed by moderator prudent]
The Village Idiot - here for your entertainment.

MoonOrb
Posts: 824
Joined: Thu Jan 24, 2013 6:58 pm

Re: Buying house - Very important decision

Postby MoonOrb » Thu Jun 29, 2017 8:46 pm

One of the principles that has led me to financial security and success has been living beneath my means. If you want to live beneath your means, don't buy a house twice as big as you need.

Franklin is a really nice town and I understand why you'd want to live there. It's also likely you can live there for something in the $350k-400k range.

Don't let your coworkers make financial decisions for you.

prettybogle
Posts: 166
Joined: Sun Mar 01, 2015 10:44 am

Re: Buying house - Very important decision

Postby prettybogle » Thu Jun 29, 2017 9:06 pm

Gufomel wrote:
prettybogle wrote:Thanks again everyone. We are first time home buyers and we do not know what costs are involved in home ownership. Whatever knowledge we have is what we read online in places like zillow etc. I assume most of y'all are home owners. Part of the reason we were thinking this 535k house is we may be missing some costs. We will be grateful if anyone can post all the costs with realistic numbers.


1) Mortgage - It looks like 30 year interest rates are about 4% right now. Could be more, could be less, but it's probably in that ballpark right now. If you put 20% down on $535k, that would be a $428k loan. The calculator below shows that the monthly payment (principal plus interest) would be $2,043. You'll also have closing costs that maybe would be around $5-10k. The amount really could vary. But whatever the amount, you'd need to roll it into your mortgage if you don't have cash beyond the 20% down payment, so that would increase this monthly payment amount.

http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx?loanAmount=428000&years=30&terms=360&interestRate=4&loanStartDate=29+Jun+2017&show=false&showRt=true&market=84&loan=165000&perc=20&points=Zero&fico=740&prods=216&monthlyAdditionalAmount=0&yearlyAdditionalAmount=0&yearlyPaymentMonth=&oneTimeAdditionalPayment=0&oneTimeAdditionalPaymentInMY=&ic_id=mtg_calc_calculate_btn

2) Property taxes - I found a random house on Zillow in Franklin that's priced at $529k, and looked up their property tax records. $3,792 last year per below, so $316 per month.

https://www.williamsonpropertytax.com/taxes.html#/Record/9C44E0D4ADB7D2B15CD6926C1E6EB363

3) Home insurance - It's hard to find home insurance rates without going through the quote application process. Will probably vary between $100-200 per month. This site says $1500 on average in Tennessee, so $125 per month.

http://www.thesimpledollar.com/best-homeowners-insurance-in-tennessee/

4) HOA fee - You're almost certainly going to have an HOA if you're in a neighborhood. Likely about $50/month.

5) Utilities - Going to vary a ton based on location, energy efficiency of the home, your energy usage habits, whether you need to water your lawn, etc. With hot summers and fairly cold winters, I'm sure your total utilities bill on a 3600 sqft house would be at least $200, if not $300.

6) Maintenance/repairs - Obviously if this is a new home, this piece "should" be lower than average. But even new homes still have issues with the original construction. You'll need to maintain a yard (lawn mower, weed eater, etc). Faucets will need to be fixed, pipes can burst, siding needs to be repaired. Eventually the A/C and roof need to be replaced or have maintenance issues, but not much of a short-term issue with a brand new house. Misc monthly expenses like pest control and home security. General rule of thumb is 1% of the house value for maintenance and repairs( which would be about $5000 per year in the case of this house), but that's a highly faulty rule of thumb. I would guesstimate about $200 per month over the first 5 years of ownership in a house like you're considering.

So we have:
Mortgage - $2043
Property taxes - $316
Home insurance - $125
HOA - $50
Utilities - $200
Maintenance/repairs - $200

Total - $2,934

I don't believe I'm being unreasonable in any of these estimates, but anyone is welcome to point out if there needs to be corrections to this based on their knowledge/experience.


Gufomel, I do not have words to thank you enough. You are helping me so much with all the detailed information. I am going through it now and will post shortly.

Dottie57
Posts: 1642
Joined: Thu May 19, 2016 5:43 pm

Re: Buying house - Very important decision

Postby Dottie57 » Thu Jun 29, 2017 9:45 pm

Atilla wrote:The very idea of spending this much on a house on a single income that low boggles my mind. Pure insanity - with all due respect. [OT comment removed by moderator prudent]


+1

User avatar
jharkin
Posts: 1194
Joined: Mon Mar 28, 2016 7:14 am
Location: Boston suburbs

Re: Buying house - Very important decision

Postby jharkin » Fri Jun 30, 2017 6:37 am

sketchy9 wrote:
lightheir wrote:I in definitely agree with the posters above about the house being expensive relative to income, but I will differ in that I do think you can make it work if you want it badly enough. A $535k house on a $130k income is not outrageous when you're used to living in California where multiples upwards up of 5x annual income are almost the norm. It's a stretch, but people make it work.

I do still agree with the folks above though - in Tennessee, there's no real reason to put yourself in such a cash-strapped situation when the housing market is reasonable enough there that you can get a 2000+ft square house on its own lot for less than $500k.


Yeah the blanket "house should cost <= 3x income" just doesn't fly in HCOL areas. FWIW I make the around the same as OP and bought a condo (not house) for $750k. I had to put 40% down to get the monthly payment reasonable, which I was able to do without compromising my EF or other investments. But that still left me with a mortgage of $450k on an income of ~ $130k. It's doable (and being single is certainly in my favor in my case compared to OP).


Silicon Valley and Manhattan aside, why not? I live in metro Boston and bought a house under 400k. You just have to accept a smaller space or longer commute.

Housing sizes are out of control. Our parents and grandparents lived just fine in 1500sq and 1-2BA. Even condos are massive now. Why 3 people need 5 bathrooms is beyond me......

Luke Duke
Posts: 540
Joined: Tue Jun 18, 2013 11:44 am
Location: Texas

Re: Buying house - Very important decision

Postby Luke Duke » Fri Jun 30, 2017 6:47 am

ERISA Stone wrote:My wife and I lived in a 2200 sqft house with one child and we always felt cramped.


I don't understand how this is possible.

User avatar
StevieG72
Posts: 479
Joined: Wed Feb 05, 2014 9:00 pm

Re: Buying house - Very important decision

Postby StevieG72 » Fri Jun 30, 2017 6:53 am

Wowie wow!

Why do you want to be house poor?

That is way too much house for your family size and income. Heating and cooling a house that size alone is a budget buster.

I recommend reading The Millionaire Next Door.
Fools think their own way is right, but the wise listen to others.

User avatar
bottlecap
Posts: 4636
Joined: Tue Mar 06, 2007 11:21 pm
Location: Tennessee

Re: Buying house - Very important decision

Postby bottlecap » Fri Jun 30, 2017 7:00 am



I agree that $535 is going to be really tight. The OP will be under a lot of stress each month to make that payment unless they have extremely low expenses everywhere else.

But I understand the OP's dilemma. The market in this area is extremely tight. Most of these houses have been on the market for 30 days - that's longer than average (according to the agent my wife met with yesterday). So, they are worth looking into, but perhaps there's a reason they haven't been snapped up?

Honestly, the OP's rent is great. How much more will it go up? Unless it goes to mortgage payment territory, I might be tempted to lock in something now with the landlord, if the houses like these did not work out for some reason.

JT

why3not
Posts: 182
Joined: Wed Aug 10, 2016 12:07 pm

Re: Buying house - Very important decision

Postby why3not » Fri Jun 30, 2017 7:25 am

Gufomel wrote:3) Home insurance - It's hard to find home insurance rates without going through the quote application process. Will probably vary between $100-200 per month. This site says $1500 on average in Tennessee, so $125 per month.

5) Utilities - Going to vary a ton based on location, energy efficiency of the home, your energy usage habits, whether you need to water your lawn, etc. With hot summers and fairly cold winters, I'm sure your total utilities bill on a 3600 sqft house would be at least $200, if not $300.

I don't believe I'm being unreasonable in any of these estimates, but anyone is welcome to point out if there needs to be corrections to this based on their knowledge/experience.

On insurance: I suspect the "average" TN home is not valued at $500k+ so I suspect using the average insurance rate is much too low.

On utilities: again this will vary, but I have a 1000 sq ft smaller home than the OP also in the south & we do not water the lawn & have a new high SEER AC and we average about $400/month. I know my next door neighbors bills average around $750/month for a similarly sized house (they also don't water the lawn). The biggest difference we have been able to find is that they have vaulted ceilings in the family room & keep their AC at 76 vs our 78. Neighbor across the road waters the lawn & have about $100-150+ higher water/sewer bill than we do.

User avatar
JDCarpenter
Posts: 1318
Joined: Tue Sep 09, 2014 2:42 pm

Re: Buying house - Very important decision

Postby JDCarpenter » Fri Jun 30, 2017 7:43 am

why3not wrote:...

On utilities: again this will vary, but I have a 1000 sq ft smaller home than the OP also in the south & we do not water the lawn & have a new high SEER AC and we average about $400/month. I know my next door neighbors bills average around $750/month for a similarly sized house (they also don't water the lawn). The biggest difference we have been able to find is that they have vaulted ceilings in the family room & keep their AC at 76 vs our 78. Neighbor across the road waters the lawn & have about $100-150+ higher water/sewer bill than we do.


Definitely will vary. We have a bit north of 4000 square in Nashville suburb, with what might be a lot of power drains: three 10+ year HVAC units, wine cellar, hot tub, heated bathroom floors, theater, etc. Our average is slightly above 300 per month when combining both electrical meters. But, we live on wooded acreage, I installed ceiling fans in every room, and we love to have our windows and exterior doors open as long as it gets into the low 70s at night (and isn't too far below freezing). And we don't water lawn. With OP's new construction, even if they never open the windows, it might not be bad?

OP--don't forget the cost of furniture for all the new space. That is another thing that can range all over the place. We still have stuff we bought in 1980s, some stuff from second hand shops, guest beds from Amazon, and a couple of couches we bought new at Pier one. Most people in houses like ours and the one you are looking at aren't happy with furniture of this nature...
Edit Signature

researcher
Posts: 318
Joined: Thu Mar 12, 2015 7:05 pm

Re: Buying house - Very important decision

Postby researcher » Fri Jun 30, 2017 7:58 am

prettybogle wrote:Gufomel, I do not have words to thank you enough. You are helping me so much with all the detailed information. I am going through it now and will post shortly.

It seems that Prettybogle is not taking this decision-making process very seriously.

The information Gufomel provided could have & should have been pulled together by the OP before even considering buying such a house. All of the points, except maybe #6, could have easily been calculated/estimated with some basic research.

You need to spend a lot more time analyzing and researching on your own, to fully understand what you are getting yourself into.
I personally think it would be a complete disaster if you moved forward with this purchase.

You still haven't addressed the question multiple people have asked...
If you are currently paying $1300/mo for presumably modest housing, why are you looking at a $535K home with 3600 sq ft?
What is wrong with a 2000 sq ft home that costs $250K?

Gufomel
Posts: 189
Joined: Sat Feb 14, 2015 9:52 pm

Re: Buying house - Very important decision

Postby Gufomel » Fri Jun 30, 2017 8:24 am

researcher wrote:
prettybogle wrote:Gufomel, I do not have words to thank you enough. You are helping me so much with all the detailed information. I am going through it now and will post shortly.

It seems that Prettybogle is not taking this decision-making process very seriously.

The information Gufomel provided could have & should have been pulled together by the OP before even considering buying such a house. All of the points, except maybe #6, could have easily been calculated/estimated with some basic research.

You need to spend a lot more time analyzing and researching on your own, to fully understand what you are getting yourself into.
I personally think it would be a complete disaster if you moved forward with this purchase.

You still haven't addressed the question multiple people have asked...
If you are currently paying $1300/mo for presumably modest housing, why are you looking at a $535K home with 3600 sq ft?
What is wrong with a 2000 sq ft home that costs $250K?


A 2000 sq ft house for $250k that's younger than 50 years old will likely be difficult to find in that area. However, a townhouse/condo, as another poster recommended, seems to be a smart move. I think the fact that the OP is currently paying $1300 rent (presumably for a small apartment), makes a townhouse/condo purchase seem like absolutely the best course of action. It puts them more in control of future housing cost increases (although putting them at risk of losing if the market crashes, but nowhere near the risk compared to if they buy this $535k house), while not drastically changing their standard of living in a matter of days or taking on a financial burden that IMHO will be financial ruin for them.

Best of luck OP. Please don't buy this house. At least not without doing significantly more research and analyzing your budget thoroughly.
Last edited by Gufomel on Fri Jun 30, 2017 8:37 am, edited 1 time in total.

lightheir
Posts: 2054
Joined: Mon Oct 03, 2011 11:43 pm

Re: Buying house - Very important decision

Postby lightheir » Fri Jun 30, 2017 8:25 am

thangngo wrote:
prettybogle wrote:We are a family of 3, husband, myself and a daughter. We are now paying monthly rent $1300. This may go up atleast 100 for the next year. So i am debating to buy (or not buy) this house in middle tennessee. It is $535000 for 3600 sqft house. Lot size is 0.25 acres. I really appreciate any input, suggestions to help me decide to buy or just keep renting. My husband and I are both 35. Single income 130k. After 20% downpayment, we will be using all the cash we got so no emergency fund. Net worth is 450k.


You should buy house when the housing market is down and avoid buying when price is racing up. It appears that you're afraid if you don't buy a house now, price will continue to go higher. It's a classic example of buying high. The right question to ask is when will the housing cycle reach its trough? I would continue to save/invest and wait until the right time to buy.

You can also think outside of the box. Have you considered different locations? Different states/cities have their own economic cycle, which could affect house price. Take Houston for example, oil&gas industry is hibernating and house price is going down. This is your opportunity to buy. I'm seeing several people are taking a big hit because they were buying when the price kept rising just more than a year ago.


I will give counteradvice - trying to 'time' the housing market is fraught with risk. It's not that different than trying to time the stock market. You may think you''re doing the right thing by sitting out the hot market, but more often than not, you'll be surprised that you sit out too long and end up paying more for the house that you thought you were timing for the dip.

Unless you're a savvy real-estate investor who really knows the ins and outs of your market to the point that you're confident you have an inside edge on what's going on, you're better off planning for the long-term, and looking at your finances as a whole as to whether buying the house will fit YOUR long-term needs at the price the house is currently selling for.

If you're so good at real estate timing that you can successfully time the dip more often than not, you have a very lucrative career path as a successful real estate investor. If that's not you, you're probably better off not relying on timing the dip and planning for a long-term strategy that will work regardless of the timing.


I will also add that there is NO perfect way to figure this out. There WILL be risk, and a fair amount of it, like it or not, whether it's overbuying or underbuying, etc. We were lucky enough (and I emphasize LUCKY) to buy our house during the 2010 downturn in CA, and from a practical and financial standpoint in retrospect, it makes my wife (who pushed the purchase hard) look like an investing genius. The cold hard reality is that it was a deep dive into an unknown where we had very limited control and predictive ability. That 'genius' investing move we made was completely counter to all the 'expert' advice out there, including on these very forums whom everyone said we should wait, and including all the pundits from NYT and other well-regarded experts who said it was a different housing world, and prices would no longer appreciate significantly even in the next 10 years. We doubled our house value in 12 months and would have been completely priced out had we waited the 2 years I was expecting. A very sobering reality on the limitations of analysis compared to the the unpredictability of human decisions in finance.

Gufomel
Posts: 189
Joined: Sat Feb 14, 2015 9:52 pm

Re: Buying house - Very important decision

Postby Gufomel » Fri Jun 30, 2017 8:34 am

lightheir wrote:
thangngo wrote:
prettybogle wrote:We are a family of 3, husband, myself and a daughter. We are now paying monthly rent $1300. This may go up atleast 100 for the next year. So i am debating to buy (or not buy) this house in middle tennessee. It is $535000 for 3600 sqft house. Lot size is 0.25 acres. I really appreciate any input, suggestions to help me decide to buy or just keep renting. My husband and I are both 35. Single income 130k. After 20% downpayment, we will be using all the cash we got so no emergency fund. Net worth is 450k.


You should buy house when the housing market is down and avoid buying when price is racing up. It appears that you're afraid if you don't buy a house now, price will continue to go higher. It's a classic example of buying high. The right question to ask is when will the housing cycle reach its trough? I would continue to save/invest and wait until the right time to buy.

You can also think outside of the box. Have you considered different locations? Different states/cities have their own economic cycle, which could affect house price. Take Houston for example, oil&gas industry is hibernating and house price is going down. This is your opportunity to buy. I'm seeing several people are taking a big hit because they were buying when the price kept rising just more than a year ago.


I will give counteradvice - trying to 'time' the housing market is fraught with risk. It's not that different than trying to time the stock market. You may think you''re doing the right thing by sitting out the hot market, but more often than not, you'll be surprised that you sit out too long and end up paying more for the house that you thought you were timing for the dip.

Unless you're a savvy real-estate investor who really knows the ins and outs of your market to the point that you're confident you have an inside edge on what's going on, you're better off planning for the long-term, and looking at your finances as a whole as to whether buying the house will fit YOUR long-term needs at the price the house is currently selling for.

If you're so good at real estate timing that you can successfully time the dip more often than not, you have a very lucrative career path as a successful real estate investor. If that's not you, you're probably better off not relying on timing the dip and planning for a long-term strategy that will work regardless of the timing.


All the more reason to NOT buy this house. I have absolutely nothing against someone buying a 3600 sq ft house. Or a $535k house. I do have something against someone making $130k who is accustomed to living in a $1300/month rental buying a 3600 sq ft house for $535k because they're afraid of housing costs rising. That is timing the market at it's worst.

User avatar
jharkin
Posts: 1194
Joined: Mon Mar 28, 2016 7:14 am
Location: Boston suburbs

Re: Buying house - Very important decision

Postby jharkin » Fri Jun 30, 2017 8:56 am

Luke Duke wrote:
ERISA Stone wrote:My wife and I lived in a 2200 sqft house with one child and we always felt cramped.


I don't understand how this is possible.


Ive thought about this a bit lately and I have a theory... the mods may delete this as waay off topic (aplogies if so) but here goes....


Reading though all the threads in the last year about:
* I have xx million dollars but I'm afraid I cant retire!!
* I have to buy a new car every year to get the latest safety features or something horrible will happen!!
* I have to buy a new iPhone/tablet/PC every year to get the latest security or my identity will get stolen tomorrow!!

... and then on the counterpoint look at the threads:
* Discussing Money mustache
* saying everyone should drive a 30 year old beater

I've come to the conclusion that a lot of it comes down to a subconscious risk tolerance/aversion that is a product of our upbringing. I suspect that high income members who had high income upper-middle to upper class parents have never known anything but such a lifestyle and have a lot of downside fear of the unknown, fear of what they would do if they lost it.

On the other hand, those of us with blue collar parents have experience living with far less and know from first hand experience that life wont end if you don't have a million in the bank.


To give a personal perspective - I had closer to the latter upbringing. My parents had white collar jobs at times but had no college or only got college late in life and there where many years they worked blue collar/odd jobs and we just got by. I experienced my parents being laid off, having our house foreclosed, having to drive around a 15 year old junker running on 3 cylinders and one headlight cause it was all we could afford. But you know what ?we always had a roof over our head and food on the table, somehow. We didn't eat junkfood and McDonalds. I went to a private college. Yeah I had to get scholarships, take out loans and work study - driving a car with the bumper held on with tie wraps along the way. But I did it.

Because of that perspective I often give heated opinionated responses in threads questioning if people really need to save up enough money to live on 1% SWR to age 120, or really have to buy that brand new Tesla self drive car, or really have to buy that mansion NOW... because I know from experience that life will go on and you will find a way to make due on far less.

fishmonger
Posts: 373
Joined: Fri Jan 31, 2014 2:20 pm

Re: Buying house - Very important decision

Postby fishmonger » Fri Jun 30, 2017 8:58 am

prettybogle, a good rule of thumb for annual maintenance/property costs is around 1% of FMV. So on a $500k house, you should plan on around $5k a year in upkeep.

Obviously that figure can vary depending on if you are handy or hire everything out. I live in the Northeast where the housing stock is older in general. If you're buying new, you can most likely go out 20+ years with a roof, etc. But I've found the 1% rule is a good place to start.

bloom2708
Posts: 2233
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Buying house - Very important decision

Postby bloom2708 » Fri Jun 30, 2017 9:07 am

The value of this place comes from the variety of responses.

If the OP just wanted confirmation to purchase a $500k+ house, then I give confirmation. No more discussion needed. What is the worst that can happen? Foreclosure, bankruptcy. Sell the house after 1 year.

Assuming the OP is doing something into the 401k, my guess would be their net paycheck on $130k income is ~$6,500 per month.

Approaching $3k in house related expenses would terrify me. That means if you get paid on the 15th and 30th of each month, nearly one entire paycheck is going to "house". Then you wait 2+ weeks for the second check.

That requires a large cushion in your checkbook, having a large Emergency Fund and other cash savings. Your paycheck has no cushion. Other savings or credit will make up the difference.

Is that what the OP asked? Nope. Experience and the ability to go from A to B gets many of us to that point.

The only way for the OP to know is to buy the $530k house and see what happens. That is not a very good way to make huge decisions.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead | | Want to buy something? Watch this first: https://vimeo.com/41152287

NorCalDad
Posts: 683
Joined: Sun Mar 25, 2012 11:14 pm
Location: Northern California

Re: Buying house - Very important decision

Postby NorCalDad » Fri Jun 30, 2017 9:17 am

I agree with almost everything that's been said. Additional thoughts:

1) Cleaning: Who's going to clean this 3,600 sf home? Our home is about half that size and we pay to get it cleaned every other week because we just don't have the time. With kids, it gets filthy faster than you realize. It's either going to cost you in time or money to keep a home that large clean. As you're probably aware, time and money are particularly scarce when you have children.

2) Yard/landscape: Who's going to tend to this quarter-acre lot? Since it's new construction, will you landscape or build a pool? Again, time or money.

3) Stuff: For whatever reason, most families I know find ways to fill their homes with stuff (I can think of other words, but this is the most family-friendly). You go to Costco and reason that since you have the space, you can buy things you couldn't justify when you had a smaller home/apartment. Anything from furniture to books to toys, etc. One benefit of living in a more modest-sized home is that you either have to throw away stuff to acquire more - or you just don't buy it to begin with. More stuff costs more money, more time to organize/put away and more mental energy.

aceoperations
Posts: 142
Joined: Fri Aug 03, 2012 9:04 am
Location: Southern California

Re: Buying house - Very important decision

Postby aceoperations » Fri Jun 30, 2017 9:32 am

I have a friend here in southern CA who is also single income around the OPs salary with one child and wife. They recently bought a house around $500k, and mind you this is CA; it really does not get you too much. Probably around half of the sq footage of the OPs house . He moved in and the first thing he realized is that he needed blinds! It ended up costing him $5k just for that, part of which problem might be my friends expensive taste. It's been a year now, and I hear that mortgage payments are becoming tough and he is living basically paycheck to paycheck. Home related expenses will be much more for the OPs size of home.

We still rent for $2100 a month, and it wasn't until recently that my spouse started working, taking our household income from $150k to $225k. It still is not obvious to us that we will come out ahead financially by buying a house. We are not worried about being priced out. We will rent for longer if we have to.

stoptothink
Posts: 3511
Joined: Fri Dec 31, 2010 9:53 am

Re: Buying house - Very important decision

Postby stoptothink » Fri Jun 30, 2017 10:46 am

ERISA Stone wrote:I hate to go against the board, but personally, 3500 sqft is right where I would aim. My wife and I lived in a 2200 sqft house with one child and we always felt cramped. To be fair, we both worked from home at the time so that might have had something to do with it, but we both felt the same way. We have about 4500 now. It feels a little too big. I think 3500 would fit us just right (family of 4 now). But I would miss my basement if we ever moved to a smaller house.

But I do agree that a house for $535k is a bit high for the salary.


A 50,000 sq. ft house is about right where I would aim...if I was a billionaire. The home size is almost completely irrelevant to the discussion, it's that the OP can't really afford that level of home, but they certainly can afford something that will meet their needs and will even be a considerable step up from what they are currently renting.

fishmonger
Posts: 373
Joined: Fri Jan 31, 2014 2:20 pm

Re: Buying house - Very important decision

Postby fishmonger » Fri Jun 30, 2017 11:15 am

aceoperations wrote:I have a friend here in southern CA who is also single income around the OPs salary with one child and wife. They recently bought a house around $500k, and mind you this is CA; it really does not get you too much. Probably around half of the sq footage of the OPs house . He moved in and the first thing he realized is that he needed blinds! It ended up costing him $5k just for that, part of which problem might be my friends expensive taste. It's been a year now, and I hear that mortgage payments are becoming tough and he is living basically paycheck to paycheck. Home related expenses will be much more for the OPs size of home.

We still rent for $2100 a month, and it wasn't until recently that my spouse started working, taking our household income from $150k to $225k. It still is not obvious to us that we will come out ahead financially by buying a house. We are not worried about being priced out. We will rent for longer if we have to.


I try not to judge most spending decisions, but dropping $5k on blinds for someone living paycheck to paycheck is flat out stupid. No other word comes to mind

thangngo
Posts: 60
Joined: Sun Feb 26, 2017 2:08 pm

Re: Buying house - Very important decision

Postby thangngo » Fri Jun 30, 2017 11:49 am

lightheir wrote:
thangngo wrote:You should buy house when the housing market is down and avoid buying when price is racing up. It appears that you're afraid if you don't buy a house now, price will continue to go higher. It's a classic example of buying high. The right question to ask is when will the housing cycle reach its trough? I would continue to save/invest and wait until the right time to buy.

You can also think outside of the box. Have you considered different locations? Different states/cities have their own economic cycle, which could affect house price. Take Houston for example, oil&gas industry is hibernating and house price is going down. This is your opportunity to buy. I'm seeing several people are taking a big hit because they were buying when the price kept rising just more than a year ago.


I will give counteradvice - trying to 'time' the housing market is fraught with risk. It's not that different than trying to time the stock market. You may think you''re doing the right thing by sitting out the hot market, but more often than not, you'll be surprised that you sit out too long and end up paying more for the house that you thought you were timing for the dip.

Unless you're a savvy real-estate investor who really knows the ins and outs of your market to the point that you're confident you have an inside edge on what's going on, you're better off planning for the long-term, and looking at your finances as a whole as to whether buying the house will fit YOUR long-term needs at the price the house is currently selling for.

If you're so good at real estate timing that you can successfully time the dip more often than not, you have a very lucrative career path as a successful real estate investor. If that's not you, you're probably better off not relying on timing the dip and planning for a long-term strategy that will work regardless of the timing.



There is difference between saving/investing and taking on a big mortgage. With investing, you don't time the market - you save every time you get your paycheck. Whereas taking on a big mortgage like OP's about to do, you just don't do it without a long term plan. Keep in mind that everyone's plan is different. However, the principle is still the same: live below your mean.

If I were OP, I would keep saving/investing while waiting for an opportunity to buy (i.e. local economy/housing market is in a downturn and federal interest rate is low to lock in a decent 30 year fix rate). If I were to buy a 500k house, I would make sure that I have at least 30% down payment and my monthly cash flow consistently yields an extra $2500 after savings and living expenses.

sketchy9
Posts: 102
Joined: Mon Oct 25, 2010 2:10 pm

Re: Buying house - Very important decision

Postby sketchy9 » Fri Jun 30, 2017 12:40 pm

jharkin wrote:
sketchy9 wrote:
lightheir wrote:I in definitely agree with the posters above about the house being expensive relative to income, but I will differ in that I do think you can make it work if you want it badly enough. A $535k house on a $130k income is not outrageous when you're used to living in California where multiples upwards up of 5x annual income are almost the norm. It's a stretch, but people make it work.

I do still agree with the folks above though - in Tennessee, there's no real reason to put yourself in such a cash-strapped situation when the housing market is reasonable enough there that you can get a 2000+ft square house on its own lot for less than $500k.


Yeah the blanket "house should cost <= 3x income" just doesn't fly in HCOL areas. FWIW I make the around the same as OP and bought a condo (not house) for $750k. I had to put 40% down to get the monthly payment reasonable, which I was able to do without compromising my EF or other investments. But that still left me with a mortgage of $450k on an income of ~ $130k. It's doable (and being single is certainly in my favor in my case compared to OP).


Silicon Valley and Manhattan aside, why not? I live in metro Boston and bought a house under 400k. You just have to accept a smaller space or longer commute.

Housing sizes are out of control. Our parents and grandparents lived just fine in 1500sq and 1-2BA. Even condos are massive now. Why 3 people need 5 bathrooms is beyond me......


Well, the only answer I can give you is that your money just doesn't go as far in HCOL areas. You're not getting McMansions or luxury penthouse condos with 5 bathrooms for these kinds of prices. I'm not in Silicon Valley or Manhattan, but I'm in West Los Angeles/Silicon Beach which is almost as expensive. And you're right, I could have saved money by buying in the San Fernando or San Gabriel Valleys and commuting in stressful traffic for one hour each way, but I'd rather spend that money and have the extra time.

My only point is that there should be some acknowledgment that the usual income:house value rules don't really apply in HCOL areas. (Of course you can't get around math, but if you can make the numbers work then the guidelines don't mean much).

ERISA Stone
Posts: 1203
Joined: Tue Jun 24, 2014 8:54 am

Re: Buying house - Very important decision

Postby ERISA Stone » Fri Jun 30, 2017 12:42 pm

stoptothink wrote:
ERISA Stone wrote:I hate to go against the board, but personally, 3500 sqft is right where I would aim. My wife and I lived in a 2200 sqft house with one child and we always felt cramped. To be fair, we both worked from home at the time so that might have had something to do with it, but we both felt the same way. We have about 4500 now. It feels a little too big. I think 3500 would fit us just right (family of 4 now). But I would miss my basement if we ever moved to a smaller house.

But I do agree that a house for $535k is a bit high for the salary.


A 50,000 sq. ft house is about right where I would aim...if I was a billionaire. The home size is almost completely irrelevant to the discussion, it's that the OP can't really afford that level of home, but they certainly can afford something that will meet their needs and will even be a considerable step up from what they are currently renting.


I appreciate you setting me straight but the size of the house does matter since the OP brought it up, and it has been compared to her currently renting, presumably, a much smaller space. I encourage you to go back and re-read the post if you don't think it matters.

User avatar
jharkin
Posts: 1194
Joined: Mon Mar 28, 2016 7:14 am
Location: Boston suburbs

Re: Buying house - Very important decision

Postby jharkin » Fri Jun 30, 2017 12:46 pm

sketchy9 wrote:[
Well, the only answer I can give you is that your money just doesn't go as far in HCOL areas. You're not getting McMansions or luxury penthouse condos with 5 bathrooms for these kinds of prices. I'm not in Silicon Valley or Manhattan, but I'm in West Los Angeles/Silicon Beach which is almost as expensive. And you're right, I could have saved money by buying in the San Fernando or San Gabriel Valleys and commuting in stressful traffic for one hour each way, but I'd rather spend that money and have the extra time.

My only point is that there should be some acknowledgment that the usual income:house value rules don't really apply in HCOL areas. (Of course you can't get around math, but if you can make the numbers work then the guidelines don't mean much).


I think that we need more categories. Sounds like all of California is VHCOL, like Manhattan and Jersey. Boston and similar cities would be a tier down from that at HCOL.

psteinx
Posts: 2518
Joined: Tue Mar 13, 2007 2:24 pm

Re: Buying house - Very important decision

Postby psteinx » Fri Jun 30, 2017 1:03 pm

[deleted]
Last edited by psteinx on Sat Jul 01, 2017 12:14 am, edited 2 times in total.

stoptothink
Posts: 3511
Joined: Fri Dec 31, 2010 9:53 am

Re: Buying house - Very important decision

Postby stoptothink » Fri Jun 30, 2017 1:15 pm

ERISA Stone wrote:
stoptothink wrote:
ERISA Stone wrote:I hate to go against the board, but personally, 3500 sqft is right where I would aim. My wife and I lived in a 2200 sqft house with one child and we always felt cramped. To be fair, we both worked from home at the time so that might have had something to do with it, but we both felt the same way. We have about 4500 now. It feels a little too big. I think 3500 would fit us just right (family of 4 now). But I would miss my basement if we ever moved to a smaller house.

But I do agree that a house for $535k is a bit high for the salary.


A 50,000 sq. ft house is about right where I would aim...if I was a billionaire. The home size is almost completely irrelevant to the discussion, it's that the OP can't really afford that level of home, but they certainly can afford something that will meet their needs and will even be a considerable step up from what they are currently renting.


I appreciate you setting me straight but the size of the house does matter since the OP brought it up, and it has been compared to her currently renting, presumably, a much smaller space. I encourage you to go back and re-read the post if you don't think it matters.


Sorry for the tangent, but no, despite the numerous comments about the size of the home, the OP has never actually stated that size was a factor at all. This is the only statement the OP has shared that is any way related:

"It seems average decent house in this area is $450k. Our thinking behind 535k is it is "only" 80k higher than that and we get brand new house."

We don't know that the OP is concerned about the size at all. They do apparently value "decent" and "new". We also know that this particular home would be a very significant step up from what they are currently renting and a major financial stretch.

runner540
Posts: 191
Joined: Sun Feb 26, 2017 5:43 pm

Re: Buying house - Very important decision

Postby runner540 » Fri Jun 30, 2017 1:39 pm

Prettybogle, please read this very relevant thread about someone else who wants to buy a $520k house
viewtopic.php?f=2&t=222339&newpost=3429853

Can you spot the differences that make other posters supportive of the other situation but not yours?

High down payment
Double the income
A good grasp of their monthly budget
Large emergency fund will remain after closing
Specific rationale for wanting to move and picking this property.

There is no rush (except peer pressure) to buy.

ERISA Stone
Posts: 1203
Joined: Tue Jun 24, 2014 8:54 am

Re: Buying house - Very important decision

Postby ERISA Stone » Fri Jun 30, 2017 3:39 pm

stoptothink wrote:
ERISA Stone wrote:
stoptothink wrote:
ERISA Stone wrote:I hate to go against the board, but personally, 3500 sqft is right where I would aim. My wife and I lived in a 2200 sqft house with one child and we always felt cramped. To be fair, we both worked from home at the time so that might have had something to do with it, but we both felt the same way. We have about 4500 now. It feels a little too big. I think 3500 would fit us just right (family of 4 now). But I would miss my basement if we ever moved to a smaller house.

But I do agree that a house for $535k is a bit high for the salary.


A 50,000 sq. ft house is about right where I would aim...if I was a billionaire. The home size is almost completely irrelevant to the discussion, it's that the OP can't really afford that level of home, but they certainly can afford something that will meet their needs and will even be a considerable step up from what they are currently renting.


I appreciate you setting me straight but the size of the house does matter since the OP brought it up, and it has been compared to her currently renting, presumably, a much smaller space. I encourage you to go back and re-read the post if you don't think it matters.


Sorry for the tangent, but no, despite the numerous comments about the size of the home, the OP has never actually stated that size was a factor at all. This is the only statement the OP has shared that is any way related:

"It seems average decent house in this area is $450k. Our thinking behind 535k is it is "only" 80k higher than that and we get brand new house."

We don't know that the OP is concerned about the size at all. They do apparently value "decent" and "new". We also know that this particular home would be a very significant step up from what they are currently renting and a major financial stretch.


You mean except for this comment?

We are a family of 3, husband, myself and a daughter. We are now paying monthly rent $1300. This may go up atleast 100 for the next year. So i am debating to buy (or not buy) this house in middle tennessee. It is $535000 for 3600 sqft house. Lot size is 0.25 acres. I really appreciate any input, suggestions to help me decide to buy or just keep renting. My husband and I are both 35. Single income 130k. After 20% downpayment, we will be using all the cash we got so no emergency fund. Net worth is 450k.


It mattered enough to put it in the original post. It's relevant, IMO.

ny_knicks
Posts: 23
Joined: Wed Jan 04, 2017 11:20 pm

Re: Buying house - Very important decision

Postby ny_knicks » Fri Jun 30, 2017 4:23 pm

Know a real estate developer in Nashville market. Was talking to him the other day and he mentioned there is a lot of concern regarding too much new inventory for multi-family properties. This is reflected in the higher end units especially which are offering steep discounts/first x months free. Keep this in mind when you worry about rent going up. News articles seem to support what he was saying. While you live outside the city there is definitely overlap.

Williamson county has great schools but one thing it isn't really limit by is space. There is tons of room for new development and a lot of it going on. I am not sure Nashville salaries are keeping pace with what these McMansions are asking and it is not a HCOL area. I am not a real estate expert but I would be quite concerned buying at the peak. While a lot of people are moving to Nashville I am not sure that the support is there from a jobs/limited inventory standpoint.

You should be able to find something in Williamson county that fits your budget. It might not be a brand new 3600 sqrft house in a gate community but it also won't bankrupt you. Check out Nolensville if you want to save a bit. Don't over extend because you feel pressured to buy. There is a ton of affordable property that can commute to Nashville with good schools.

prettybogle
Posts: 166
Joined: Sun Mar 01, 2015 10:44 am

Re: Buying house - Very important decision

Postby prettybogle » Fri Jun 30, 2017 5:11 pm

wrongfunds wrote:I am getting the feeling that OP *really* wants the house, has already made the decision to go for it and is looking for validation of her decision on this forum.


Wrongfunds, we are actually quite okay living in a 2 bed room apartment. As I said in earlier post, our worries are 1. Rents will go even higher and higher every year 2. House prices will go higher and we may be priced out of the housing market

prettybogle
Posts: 166
Joined: Sun Mar 01, 2015 10:44 am

Re: Buying house - Very important decision

Postby prettybogle » Fri Jun 30, 2017 5:14 pm

stoptothink wrote:
ERISA Stone wrote:
stoptothink wrote:
ERISA Stone wrote:I hate to go against the board, but personally, 3500 sqft is right where I would aim. My wife and I lived in a 2200 sqft house with one child and we always felt cramped. To be fair, we both worked from home at the time so that might have had something to do with it, but we both felt the same way. We have about 4500 now. It feels a little too big. I think 3500 would fit us just right (family of 4 now). But I would miss my basement if we ever moved to a smaller house.

But I do agree that a house for $535k is a bit high for the salary.


A 50,000 sq. ft house is about right where I would aim...if I was a billionaire. The home size is almost completely irrelevant to the discussion, it's that the OP can't really afford that level of home, but they certainly can afford something that will meet their needs and will even be a considerable step up from what they are currently renting.


I appreciate you setting me straight but the size of the house does matter since the OP brought it up, and it has been compared to her currently renting, presumably, a much smaller space. I encourage you to go back and re-read the post if you don't think it matters.


Sorry for the tangent, but no, despite the numerous comments about the size of the home, the OP has never actually stated that size was a factor at all. This is the only statement the OP has shared that is any way related:

"It seems average decent house in this area is $450k. Our thinking behind 535k is it is "only" 80k higher than that and we get brand new house."

We don't know that the OP is concerned about the size at all. They do apparently value "decent" and "new". We also know that this particular home would be a very significant step up from what they are currently renting and a major financial stretch.


We are quite okay with smaller house but it appears the difference between smaller houses and this is "only" around 80k to 100k. Our realtor says for a 30 year loan, that 100k is not huge deal.

alshayed
Posts: 52
Joined: Fri Aug 19, 2016 1:34 pm

Re: Buying house - Very important decision

Postby alshayed » Fri Jun 30, 2017 5:25 pm

prettybogle wrote:Our realtor says for a 30 year loan, that 100k is not huge deal.


This throws up a huge red flag for me, I would seriously wonder if your realtor has your best interests in mind. You're the one who has to come up with the extra ~20% more in mortgage payments every month.

ERISA Stone
Posts: 1203
Joined: Tue Jun 24, 2014 8:54 am

Re: Buying house - Very important decision

Postby ERISA Stone » Fri Jun 30, 2017 5:27 pm

prettybogle wrote:
stoptothink wrote:
ERISA Stone wrote:
stoptothink wrote:
ERISA Stone wrote:I hate to go against the board, but personally, 3500 sqft is right where I would aim. My wife and I lived in a 2200 sqft house with one child and we always felt cramped. To be fair, we both worked from home at the time so that might have had something to do with it, but we both felt the same way. We have about 4500 now. It feels a little too big. I think 3500 would fit us just right (family of 4 now). But I would miss my basement if we ever moved to a smaller house.

But I do agree that a house for $535k is a bit high for the salary.


A 50,000 sq. ft house is about right where I would aim...if I was a billionaire. The home size is almost completely irrelevant to the discussion, it's that the OP can't really afford that level of home, but they certainly can afford something that will meet their needs and will even be a considerable step up from what they are currently renting.


I appreciate you setting me straight but the size of the house does matter since the OP brought it up, and it has been compared to her currently renting, presumably, a much smaller space. I encourage you to go back and re-read the post if you don't think it matters.


Sorry for the tangent, but no, despite the numerous comments about the size of the home, the OP has never actually stated that size was a factor at all. This is the only statement the OP has shared that is any way related:

"It seems average decent house in this area is $450k. Our thinking behind 535k is it is "only" 80k higher than that and we get brand new house."

We don't know that the OP is concerned about the size at all. They do apparently value "decent" and "new". We also know that this particular home would be a very significant step up from what they are currently renting and a major financial stretch.


We are quite okay with smaller house but it appears the difference between smaller houses and this is "only" around 80k to 100k. Our realtor says for a 30 year loan, that 100k is not huge deal.



It's approximately $500 for every $100k. But the problem with that statement is it doesn't consider that everything else goes up - property taxes, insurance, utilities (assuming it's a bigger space). I'm not a fan of that comment from your realtor.

MoonOrb
Posts: 824
Joined: Thu Jan 24, 2013 6:58 pm

Re: Buying house - Very important decision

Postby MoonOrb » Fri Jun 30, 2017 6:16 pm

The more you pay for your house, the more your realtor makes. Your realtor should help you find a suitable house that matches your budget; your realtor should not be shaping what that budget is, really.*

*except in cases where your budget is unreasonable for what you're hoping to buy.

junior
Posts: 649
Joined: Wed Sep 10, 2008 6:14 pm
Contact:

Re: Buying house - Very important decision

Postby junior » Fri Jun 30, 2017 6:17 pm

Surely you must realize your realtor is a sales person who does not have your best interests in mind? They only get paid when you buy a house, and get paid more when you buy a more expensive one.

User avatar
unclescrooge
Posts: 1304
Joined: Thu Jun 07, 2012 7:00 pm

Re: Buying house - Very important decision

Postby unclescrooge » Fri Jun 30, 2017 8:20 pm

lightheir wrote:I in definitely agree with the posters above about the house being expensive relative to income, but I will differ in that I do think you can make it work if you want it badly enough. A $535k house on a $130k income is not outrageous when you're used to living in California where multiples upwards up of 5x annual income are almost the norm. It's a stretch, but people make it work.

I do still agree with the folks above though - in Tennessee, there's no real reason to put yourself in such a cash-strapped situation when the housing market is reasonable enough there that you can get a 2000+ft square house on its own lot for less than $500k.


I live in a HCOL city, and officially owned 18 rentals across the U.S. I will offer a differing opinion.

$500k will get you a starter condo in a decent neighborhood in Los Angeles. This is the entry point for the market, and the liquidity is high. If you lose your job, it will be easy to sell or rent out to cover your mortgage.

On the other hand, a $500k home in a LCOL will likely be towards the upper end of the market. There are less buyers, and thus there is less liquidity. In case of job loss it will be hard to rent out or sell.

If you lived in Los Angeles, I would say go for it. In fact, maybe stretch yourself another $50k! But in a LCOL city, I would strongly caution you against this course of action.

User avatar
unclescrooge
Posts: 1304
Joined: Thu Jun 07, 2012 7:00 pm

Re: Buying house - Very important decision

Postby unclescrooge » Fri Jun 30, 2017 8:31 pm

ERISA Stone wrote:
prettybogle wrote:
stoptothink wrote:
ERISA Stone wrote:
stoptothink wrote:
A 50,000 sq. ft house is about right where I would aim...if I was a billionaire. The home size is almost completely irrelevant to the discussion, it's that the OP can't really afford that level of home, but they certainly can afford something that will meet their needs and will even be a considerable step up from what they are currently renting.


I appreciate you setting me straight but the size of the house does matter since the OP brought it up, and it has been compared to her currently renting, presumably, a much smaller space. I encourage you to go back and re-read the post if you don't think it matters.


Sorry for the tangent, but no, despite the numerous comments about the size of the home, the OP has never actually stated that size was a factor at all. This is the only statement the OP has shared that is any way related:

"It seems average decent house in this area is $450k. Our thinking behind 535k is it is "only" 80k higher than that and we get brand new house."

We don't know that the OP is concerned about the size at all. They do apparently value "decent" and "new". We also know that this particular home would be a very significant step up from what they are currently renting and a major financial stretch.


We are quite okay with smaller house but it appears the difference between smaller houses and this is "only" around 80k to 100k. Our realtor says for a 30 year loan, that 100k is not huge deal.



It's approximately $500 for every $100k. But the problem with that statement is it doesn't consider that everything else goes up - property taxes, insurance, utilities (assuming it's a bigger space). I'm not a fan of that comment from your realtor.


So true.

Home maintenance is roughly 1.5% a year, over the long run. For a bigger house, you pay more for everything. Also in a nicer area, contractors charge higher rates!

And half the house will probably sit vacant.

Buy a copy of "the not so big house" by Sarah Susanka. It's from the 80s, so definitely dated. But the idea is to create warm inviting spaces and spend money on high quality interiors. Just buying a McMansion with excessive square footage will actually detract from the usabilty of the home. You don't want a cold, sterile home and no money left over for interiors, do you?

prettybogle
Posts: 166
Joined: Sun Mar 01, 2015 10:44 am

Re: Buying house - Very important decision

Postby prettybogle » Fri Jun 30, 2017 10:03 pm

After reading almost every response, I feel fortunate to get self-less guidance and elderly advise from such a wonderful people. I would like to sincerely thank each one of you. I used zillow's mortgage calculator and below are the numbers-

Home ownership expenses
--------------------------------
House cost $520k
30 year fixed rate 3.828%
If I pay 20% down payment ie $104k, then monthly expenses are:

Mortgage (principal + interest) $1945
Property tax $250
Home insurance $100
HOA $75
Gas $100
Water + Sewer $100
Electric bill $150
Maintenance/repairs $100

Total monthly expense = 2790

Apartment renting expenses
-----------------------------------
Rent $1300
Rental insurance $10
Water + Sewer $50
Gas + electric $120

Total monthly expense = $1480

From next month, our apartment rent may go up, I am guessing here, atleast $100 per month. Scared to death to even guess how much it will go up the year after etc.
Please correct if I missed anything or if I put in wrong numbers.
Last edited by prettybogle on Fri Jun 30, 2017 10:14 pm, edited 1 time in total.

MoonOrb
Posts: 824
Joined: Thu Jan 24, 2013 6:58 pm

Re: Buying house - Very important decision

Postby MoonOrb » Fri Jun 30, 2017 10:10 pm

On the positive side, if it goes up $100/mo for the next 15 years, you'll only then start to pay about the same for housing as you'd pay if you buy this enormous house you're contemplating.

MoonOrb
Posts: 824
Joined: Thu Jan 24, 2013 6:58 pm

Re: Buying house - Very important decision

Postby MoonOrb » Fri Jun 30, 2017 10:15 pm

And I mean this as nicely as I can, but your fear of rising rents is unreasonable and is driving you to make a colossal error in judgment.

If this exercise forces you to confront that fear and find more constructive ways to deal with it than "buy a house that will derail plans to be financially secure," you will learn something valuable indeed.

It is unfortunate that the perceived (but not real, not very realistic) threat of financial insecurity posed by rent increases would lead you to conclude that the most logical path forward is to make a financial decision that actually poses a real and present threat to your financial wellbeing.


Return to “Personal Consumer Issues”