Please assess my situation/If I can afford my first house

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Topic Author
nptit
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Joined: Sun Mar 29, 2015 5:51 pm

Please assess my situation/If I can afford my first house

Post by nptit »

Below I have tried to give the most information I can in hopes of getting the most accurate answers. Thank you for taking the time to look this over, I really appreciate it!

Personal: 25
Financial Stats:
Gross income 95K (salaried employee pretty stable).
ROTH 401k - 59K Fidelity s&p 500 fund; ROTH IRA - 40K (VTI/VXUS), Brokerage - 100K (65K BSV, 5K money market, 30K VTI/VXUS). The 65K BSV will be used for the down payment. HSA - 10K (9K Fidelity s&p 500 fund, 1K money market). Plan to move to traditional 401k contributions to free up money for mortgage.
No debt, own reliable car, and rent with a roommate for around 700 a month in total per person. Live in an up and coming area that is becoming a high cost of living area or already is in parts of the city.

The houses I am interested in are in the low 300's. Specifically one I was really interested in recently was 320K. My plan was to get a 15 year mortgage with 20% down. The prices in my area have significantly increased in the past years. The location is about average and this will get you a 1500 sqft house from ~1980. I have already qualified for a 15 year mortgage at this price range, but feel like that doesn't really mean much given how easy going their process seemed to be.

I save fairly aggressively with moderate expenses, but still feel like this kind of house will be right on the boarder of what I can afford. I am also somewhat weary of buying at a high point now/into a sellers market. Although, I am aware of the response of not trying to time it and it wouldn't matter in 10 years...maybe. I also really want to leave renter style living and get my own place as a "lifestyle" change.

I guess I am seeking some form of validation or unbiased second opinion, so please don't hold back! Thanks.
mcraepat9
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Re: Please assess my situation/If I can afford my first house

Post by mcraepat9 »

What is the PITI on this new house?

Why were you using a Roth 401k?
Amateur investors are not cool-headed logicians.
Topic Author
nptit
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Re: Please assess my situation/If I can afford my first house

Post by nptit »

mcraepat9 wrote:What is the PITI on this new house?

Why were you using a Roth 401k?
The PITI estimate is around $2,500.

I am using a ROTH 401k on the basis that I was young 22-25 during that time and my income has been increasing. I plan on next year transitioning to a traditional account. I would hope this thread stays on my ability to afford a house in this price range, and not on traditional vs roth
jjface
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Re: Please assess my situation/If I can afford my first house

Post by jjface »

nptit wrote:
mcraepat9 wrote:What is the PITI on this new house?

Why were you using a Roth 401k?
The PITI estimate is around $2,500.

I am using a ROTH 401k on the basis that I was young 22-25 during that time and my income has been increasing. I plan on next year transitioning to a traditional account. I would hope this thread stays on my ability to afford a house in this price range, and not on traditional vs roth
You'll just have to run the numbers against your expenses and how much you want to put into retirement accounts.

Right now you are paying $700 rent and want to buy a house costing $2500 a month plus all the extra costs for a house. Add in maintenance, yard expenses, security etc and you'll probably need another $300+ on top of that. So is there room in your budget for an extra $2100 a month? That is a big jump but you are young and single and it might be fine.

You no longer want to rent but perhaps your current room mate would be interested in renting part of your new house?

Nothing wrong with a 30yr mortgage either. Rates are currently low.
Topic Author
nptit
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Re: Please assess my situation/If I can afford my first house

Post by nptit »

jjface wrote:
nptit wrote:
mcraepat9 wrote:What is the PITI on this new house?

Why were you using a Roth 401k?
The PITI estimate is around $2,500.

I am using a ROTH 401k on the basis that I was young 22-25 during that time and my income has been increasing. I plan on next year transitioning to a traditional account. I would hope this thread stays on my ability to afford a house in this price range, and not on traditional vs roth
You'll just have to run the numbers against your expenses and how much you want to put into retirement accounts.

Right now you are paying $700 rent and want to buy a house costing $2500 a month plus all the extra costs for a house. Add in maintenance, yard expenses, security etc and you'll probably need another $300+ on top of that. So is there room in your budget for an extra $2100 a month? That is a big jump but you are young and single and it might be fine.

You no longer want to rent but perhaps your current room mate would be interested in renting part of your new house?

Nothing wrong with a 30yr mortgage either. Rates are currently low.
Yes, I am young and single. My expenses outside housing are around 1K a month. I will not be young/single/cheap forever though...When running the numbers it literally puts me at the boarder when maxing/contributing what I want in retirement accounts.

I have asked my current roommate about that and his response was maybe. In addition I want to make sure I can fully afford it irrespective of a roommate.

I want a 15 yr mortgage on the basis/idea of being more secure quicker/getting it out of the way. I believe it also helps by limiting how much house I can afford.
Last edited by nptit on Sat Sep 17, 2016 3:04 pm, edited 1 time in total.
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slayed
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Re: Please assess my situation/If I can afford my first house

Post by slayed »

I would consider a 30 year rather than 15 year mortgage, it seems like a 15 year would be a bit tight from a cash flow perspective.
mcraepat9
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Re: Please assess my situation/If I can afford my first house

Post by mcraepat9 »

nptit wrote:
jjface wrote:
nptit wrote:
mcraepat9 wrote:What is the PITI on this new house?

Why were you using a Roth 401k?
The PITI estimate is around $2,500.

I am using a ROTH 401k on the basis that I was young 22-25 during that time and my income has been increasing. I plan on next year transitioning to a traditional account. I would hope this thread stays on my ability to afford a house in this price range, and not on traditional vs roth
You'll just have to run the numbers against your expenses and how much you want to put into retirement accounts.

Right now you are paying $700 rent and want to buy a house costing $2500 a month plus all the extra costs for a house. Add in maintenance, yard expenses, security etc and you'll probably need another $300+ on top of that. So is there room in your budget for an extra $2100 a month? That is a big jump but you are young and single and it might be fine.

You no longer want to rent but perhaps your current room mate would be interested in renting part of your new house?

Nothing wrong with a 30yr mortgage either. Rates are currently low.
Yes, I am young and single. My expenses outside housing are around 1K a month. I will not be young/single/cheap forever though...When running the numbers it literally puts me at the boarder when maxing/contributing what I want in retirement accounts.

I have asked my current roommate about that and his response was maybe. In addition I want to make sure I can fully afford it irrespective of a roommate.

I want a 15 yr mortgage on the basis/idea of being more secure quicker/getting it out of the way. I believe it also helps by limiting how much house I can afford.
I don't think the house purchase makes sense now - might want to live it up while you are single and young and wait until a new phase in your life (getting engaged, thinking about a permanent landing spot for your family) before going in on owning a house. Keep saving though.
Amateur investors are not cool-headed logicians.
Dottie57
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Re: Please assess my situation/If I can afford my first house

Post by Dottie57 »

nptit wrote:
jjface wrote:
nptit wrote:
mcraepat9 wrote:What is the PITI on this new house?

Why were you using a Roth 401k?
The PITI estimate is around $2,500.

I am using a ROTH 401k on the basis that I was young 22-25 during that time and my income has been increasing. I plan on next year transitioning to a traditional account. I would hope this thread stays on my ability to afford a house in this price range, and not on traditional vs roth
You'll just have to run the numbers against your expenses and how much you want to put into retirement accounts.

Right now you are paying $700 rent and want to buy a house costing $2500 a month plus all the extra costs for a house. Add in maintenance, yard expenses, security etc and you'll probably need another $300+ on top of that. So is there room in your budget for an extra $2100 a month? That is a big jump but you are young and single and it might be fine.

You no longer want to rent but perhaps your current room mate would be interested in renting part of your new house?

Nothing wrong with a 30yr mortgage either. Rates are currently low.
Yes, I am young and single. My expenses outside housing are around 1K a month. I will not be young/single/cheap forever though...When running the numbers it literally puts me at the boarder when maxing/contributing what I want in retirement accounts.

I have asked my current roommate about that and his response was maybe. In addition I want to make sure I can fully afford it irrespective of a roommate.

I want a 15 yr mortgage on the basis/idea of being more secure quicker/getting it out of the way. I believe it also helps by limiting how much house I can afford.
You can maker higher payments on a 30 yr mortgage. Brings down the freedom date significantly.
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goingup
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Re: Please assess my situation/If I can afford my first house

Post by goingup »

Obviously you're a great saver for your age. Sounds like you're ready for the joys and heartbreaks of home ownership!

Many people who are unsure about affordability opt for the 30yr, with the intent to make extra principle payments. If you're stretched thin, you can just pay the regular payment. If you have a house in a great area you have the option of finding a boarder.

So...start with a 30 yr, use a traditional 401K to lower taxable income, find a boarder if needed, and take out a mortgage that is only 2-3X your income.
Good luck with this new adventure!
LarryAllen
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Re: Please assess my situation/If I can afford my first house

Post by LarryAllen »

I would definitely go 30 years to give yourself more flexibility on payments. You can always pay extra if you want.
fpr4
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Re: Please assess my situation/If I can afford my first house

Post by fpr4 »

Considering you've apparently been able to save $200k+ in 2-3 years, I would personally just rent for the next 4-5 years and pay cash for a $300k house. Amazing feat.
Leemiller
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Re: Please assess my situation/If I can afford my first house

Post by Leemiller »

A 15 year looks too expensive, but I'm not sure what your net income is. Perhaps save a bit longer if you really want a 15 year. Filling up retirement accounts is great and then at some point you may realize, ok retirement is set but you can't really get at the money until later without paying hefty penalties.
randomguy
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Re: Please assess my situation/If I can afford my first house

Post by randomguy »

nptit wrote:
Yes, I am young and single. My expenses outside housing are around 1K a month. I will not be young/single/cheap forever though...When running the numbers it literally puts me at the boarder when maxing/contributing what I want in retirement accounts.

I have asked my current roommate about that and his response was maybe. In addition I want to make sure I can fully afford it irrespective of a roommate.

I want a 15 yr mortgage on the basis/idea of being more secure quicker/getting it out of the way. I believe it also helps by limiting how much house I can afford.
You should limit how much you want to spend on a house not some 3rd party. If the 15 year causes cash flow issue, it isn't a good idea. If you compare a 15 year to a 30 year, the interest penalty is small. For example imagine you can get a 3.5% 30 year or a 2.77% 15 years.
100k 15 year mortage: 678.62
debt on a 100k 30 year mortage with 678.62 payment after 15 years: 7696.94 or an extra 13 months of payments. That is pretty minimal. Obviously use your own numbers about the spread between 15 and 30 years. And of course if you actually want to pay off the mortgage early, the difference is even smallr.

Personally I would vote for waiting 5-10 years til you have a SO to buy a house but that is pretty personal. There is a lot to be said for getting the house, pick up a couple of room mates and hope things work out.
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nptit
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Re: Please assess my situation/If I can afford my first house

Post by nptit »

Thanks for the responses everybody!

I am still deciding, but am leaning towards waiting it out a few more years to save more/mature personally as well.

Hopefully the market in my area will cool down a bit as this is a significant factor as well.
scubacat
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Re: Please assess my situation/If I can afford my first house

Post by scubacat »

I think you can afford a house in the 300s but I agree that a 15 year mortgage may be pushing it.

I would offer two suggestions. Figure out what your monthly costs for the new house would be (PITI + utilities and any other recurring expenses) minus the expenses you already pay (rent + utilities) and put that amount each month into a bank account each month for 3-6 months and see how you feel. Do you feel comfortable or stretched? The other thing you might want to consider is a 20 year mortgage. Even though it is only 5 years longer the payment can be quite a bit lower than a 15 year mortgage.
Danzangdc
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Re: Please assess my situation/If I can afford my first house

Post by Danzangdc »

nptit wrote:Thanks for the responses everybody!

I am still deciding, but am leaning towards waiting it out a few more years to save more/mature personally as well.

Hopefully the market in my area will cool down a bit as this is a significant factor as well.
I agree on waiting. It is hard to do that, but your rent is so low, you will be ahead of the game financially by saving instead of getting in the housing market. Plus the non-financial factor that, once you couple with someone, you may find that you no longer want the house you buy -- it's not in a mutually good location or not in a good school district, etc. And the fact that [[improper market timing alert]] the housing market has been on a tear for a while and may look better for buyers in a couple years. So just forget about houses for 2-3 years and revisit.
czr
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Re: Please assess my situation/If I can afford my first house

Post by czr »

Yeah, I wouldn't rush into buying at this point unless you know you are going to stay put for at least 3-5 years. When you buy you are out the anticipated Selling commission fees (not now but when you eventually sell) of about 5% so right of the bat along with closing costs you are in a $20k hole which you have to count on appreciation to offset. This usually takes a few years to recoup. Interest rates are low and are sure to rise which means the property prices should go down. This bodes well for the people who have lots of cash. Property Prices are frothy right now and are back at their 2007 peak in most areas and we heard the story in the past of 'buy now or forever be priced out' and we all know how that turned out. Also, it is a positive thing to be mobile and a better job opportunity could pop up in a different state. Keep up the saving.

Side note- How do you have so much in your ROTH IRA if contribution limits have been $5,500 per annum the last several years?
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bottlecap
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Re: Please assess my situation/If I can afford my first house

Post by bottlecap »

You're 25. You will be stretching your income. You'll miss out on travel and other fun stuff when you do that. You'll have to do maintenance and pay taxes and insurance.

If you end up getting married, your spouse will likely want to get a house that is yours "together." So if that's in the anywhere-near-future, this house will not likely be long term. You'll pay realtor fees again.

Now there are some exceptions, but most 25 year-olds have better things to do than sit around home, do chores, and scrimp pennies to make the next house payment. Unless there is some legitimate reason you need to buy, I would probably wait a few more years.

Get a little older and get a bit more of a monetary cushion.

Good luck,

JT
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jabberwockOG
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Re: Please assess my situation/If I can afford my first house

Post by jabberwockOG »

Buy the house only if you are sure you want to live in your current town and neighborhood for at least 5-7 years. Get a 30 instead of 15 year loan and make extra principle payments when you are able. Make sure you have a minimum of 9-12 months of total living expenses in an emergency fund (not in Ira, Roth, or 401k accounts) before you buy a house.
Chadnudj
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Re: Please assess my situation/If I can afford my first house

Post by Chadnudj »

nptit wrote:Thanks for the responses everybody!

I am still deciding, but am leaning towards waiting it out a few more years to save more/mature personally as well.

Hopefully the market in my area will cool down a bit as this is a significant factor as well.
Good call. I'm not sure where your area is, but given your age and single status, I don't think a full house purchase makes sense (maybe under the right circumstances a condo....but not a house).
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nptit
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Re: Please assess my situation/If I can afford my first house

Post by nptit »

czr wrote:Side note- How do you have so much in your ROTH IRA if contribution limits have been $5,500 per annum the last several years?
I had two summer internships in college and maxed the ROTH IRA then. So I have been maxing it each year starting when I was 20. I also utilize the back door method. Meaning I contribute 10% of my salary to the after tax portion of my 401k and then do a fiduciary to fiduciary transfer to my ROTH IRA. I have been lucky to have had interest in the field I was in and to have good/supporting parents :)
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nptit
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Re: Please assess my situation/If I can afford my first house

Post by nptit »

Thanks again everyone for all the advice. This forum is truly an awesome place to get a real unbiased second opinion. I have decided to continue renting for at least the next year and reassess later.
Radjob4me
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Re: Please assess my situation/If I can afford my first house

Post by Radjob4me »

nptit wrote:Thanks again everyone for all the advice. This forum is truly an awesome place to get a real unbiased second opinion. I have decided to continue renting for at least the next year and reassess later.
Good choice. As someone who has owned 5 different homes, you spend a lot of time and effort on them, and they always cost more in the first few years than you realize with fixing up things the way you like them, getting more furniture, etc... I wish my wife and I had rented longer before buying (and didn't move as much)

At your age and savings rate, just keep socking it away and renting. If you really just want more space or freedom, perhaps find your own place without a roommate for a bit of a splurge? But I agree with the majority on not buying yet. It is not all it's cracked up to be.
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