First time home buyer - gut check

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runner23
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First time home buyer - gut check

Post by runner23 »

Hello,

My wife and I are in the early stages of potentially buying our first home. We are both 27 (28 later in the year). The early stages include getting pre-approved for a loan, meeting with a realtor and looking at a few houses. I listed a few stats on us below and wanted to run by the boglehead community for us to see if we are ready to make a purchase.

We currently rent and live within 3 and 5 miles away from work. We value this lack of commute. We are pretty set on buying in the area even though the houses are more expensive than the surrounding suburbs. Looking at 3/2 bed / bath with 1200 - 1700 sq ft. We live in an overall LCOL area compared to other parts of the country, Atlanta.

We are looking for houses in the $500 - $575k range. We are thinking of putting down 10% and financing the rest through an 80-10 piggyback loan to avoid PMI, understanding that the APR may be a little higher.

Our household income was $240k gross last year. It is trending the same for the current year. We currently max our HSAs, ROTH IRAs and 401ks each. We do not have a taxable account on top of this. We have been saving additional funds at Ally to the tune of $80k for down payment. Building up another $5k each month. Monthly expenses including rent are currently around $5k. We have 1 car loan of $18k @ .9% and no other debt. Our net worth is $300k.

We currently rent for $1,500 a month. Some math shows a PITI of $2500 - $3000 on the upper end of our $575k range.

We have family thinking that we need to buy a house and that we are throwing money away renting. I do not see it as throwing away money because it is flexible and we have a roof over our heads, but that is neither here nor there.

Main reasons for getting into a house are yard (dog and I enjoy yardwork) and build equity. With those numbers above, do you think that we are there or are there any red flags of getting into a house in the next 6 months? Is continuing to rent the right answer from a value perspective?

Excited to hear your thoughts and happy to provide any other additional details.

Cheers,
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ray.james
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Re: First time home buyer - gut check

Post by ray.james »

Not sure how long you have been making 240K but putting 10% down seems to be on low end. It might due to maxing everything. Take a breather for couple of years to save up to 20%/payoff 10% loan early if you chose to buy. 10% of 500K is 50K which should be easy to do in 1- 1.5 year at that income level.

Have 6 months of emergency fund at the new requirements. (3K mortgage + living expenses) * 6m before buying would be my strong recommendation.

Regarding renting as throwing away money, you know a bogleheads answer.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939
asif408
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Re: First time home buyer - gut check

Post by asif408 »

One thing you didn't mention that I think is a big factor is how long you plan to be in Atlanta, since you are both fairly young. I would continue to rent unless you see yourself staying in Atlanta for at least 5-10 years (or more). You won't build much equity if you're there for just a few years, and you might lose out after buying and selling costs. I wouldn't let you family influence your decision, as that argument is an old one and there really is no consensus on buying being better than renting in general. You could simply invest the difference you save by renting and continue renting if you so desire, since home ownership costs would be more than you currently pay for rent.

As far as homeownership goes, remember homeownership comes with maintenance, property taxes, etc. that you don't necessarily have with renting, and those costs aren't fixed. If you are looking at older homes expect your maintenance costs and utilities to be higher than a newer home. There are lots of conveniences that are nice when renting, especially if your jobs are demanding and you don't want to be doing maintenance on a regular basis. Just some food for thought.

You probably have a high enough income currently to buy, but you haven't indicated how stable that income is, either. So consider the stability of that income as well.
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Meg77
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Re: First time home buyer - gut check

Post by Meg77 »

It sounds like you are doing great and can afford to buy, but we don't have enough info to know for sure. If your wife is the breadwinner and plans to stay home with kids at some point, then that's something to consider. If your income is super volatile, if you have 6 figures of student loan debt, or if you aren't sure you want to stay in the area long term - all are good reasons to keep renting happily.

There are other good reasons to rent, such as lifestyle and disposable income. Owning a home does give you some tax breaks and builds equity over time, but for most people it's more expensive than renting by a long shot (especially if you put a price on the time you'll spend maintaining it and wandering the aisles of Home Depot on the weekends). This is because people usually buy more of a home than they are willing to rent, for starters. Then there is the sudden need for "real" furniture and art for the walls and that bedding set you saw on Pinterest and holiday decorations and other things that as renters you may not care about. And you're paying for a nice home so you want to entertain more. Also you may have new neighbors to compare yourselves to, neighbors with newer SUVs and club memberships and housekeepers.

In general though, you are certainly on the right track with that income at your ages. Definitely save 10% down at least. It might pay to do an 80/10/10 mortgage which is what I'd planned when we bought a few years ago. But when I bought several years ago, it was actually cheaper to get a 90% first mortgage and pay PMI, which was only $97 a month on a $415K mortgage (this may have changed though). That was less than the interest on the second mortgage would have been, not to mention the second mortgage payments in total would have been several hundred bucks a month (they are usually on shorter amortizations). So we got the PMI but paid the loan down and got it removed after the first year.

My husband and I weren't ready to pick a suburb when we got married, so we bought a townhome close to our jobs and really love the short commutes we still have. Plus now we don't know if we want kids after all, so I'm really glad we aren't saddled with a 4 bedroom house and a 40 minute commute. But we've spent an insane amount on our home in just 3 years. I love it, but we could have saved a lot by renting instead. In general I think too many young couples buy the big home in the good school district YEARS before they even sort of "need" it (aka have multiple school aged kids). Don't be too quick to give up the carefree life of having your landlord on speed dial and weekends/income free to travel instead of deal with contractors, yard work, repairs, etc.
"An investment in knowledge pays the best interest." - Benjamin Franklin
cornellmoore
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Re: First time home buyer - gut check

Post by cornellmoore »

20% better than 10% down if you can afford it, and from the #'s, you can.

I support buying close to work and reduce commute even if this means you pay more. The "cost" of commute over time on your/family's overall health/quality of life adds up and dare I say - compounds over time.
runner540
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Re: First time home buyer - gut check

Post by runner540 »

Meg77 wrote: Wed Oct 04, 2017 1:07 pm It sounds like you are doing great and can afford to buy, but we don't have enough info to know for sure. If your wife is the breadwinner and plans to stay home with kids at some point, then that's something to consider. If your income is super volatile, if you have 6 figures of student loan debt, or if you aren't sure you want to stay in the area long term - all are good reasons to keep renting happily.

There are other good reasons to rent, such as lifestyle and disposable income. Owning a home does give you some tax breaks and builds equity over time, but for most people it's more expensive than renting by a long shot (especially if you put a price on the time you'll spend maintaining it and wandering the aisles of Home Depot on the weekends). This is because people usually buy more of a home than they are willing to rent, for starters. Then there is the sudden need for "real" furniture and art for the walls and that bedding set you saw on Pinterest and holiday decorations and other things that as renters you may not care about. And you're paying for a nice home so you want to entertain more. Also you may have new neighbors to compare yourselves to, neighbors with newer SUVs and club memberships and housekeepers.

In general though, you are certainly on the right track with that income at your ages. Definitely save 10% down at least. It might pay to do an 80/10/10 mortgage which is what I'd planned when we bought a few years ago. But when I bought several years ago, it was actually cheaper to get a 90% first mortgage and pay PMI, which was only $97 a month on a $415K mortgage (this may have changed though). That was less than the interest on the second mortgage would have been, not to mention the second mortgage payments in total would have been several hundred bucks a month (they are usually on shorter amortizations). So we got the PMI but paid the loan down and got it removed after the first year.

My husband and I weren't ready to pick a suburb when we got married, so we bought a townhome close to our jobs and really love the short commutes we still have. Plus now we don't know if we want kids after all, so I'm really glad we aren't saddled with a 4 bedroom house and a 40 minute commute. But we've spent an insane amount on our home in just 3 years. I love it, but we could have saved a lot by renting instead. In general I think too many young couples buy the big home in the good school district YEARS before they even sort of "need" it (aka have multiple school aged kids). Don't be too quick to give up the carefree life of having your landlord on speed dial and weekends/income free to travel instead of deal with contractors, yard work, repairs, etc.
Runner23, lots of wisdom here! (And based on her other posts, I believe Meg77 is a mortgage banker and landlord, so she knows what she's talking about).
JBTX
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Re: First time home buyer - gut check

Post by JBTX »

Agree with everything Meg said. Excellent post.

Homeownership is a lifestyle choice, not so much as an investment. Based on your finances on the surface you can definitely afford what you are contemplating but is it the optimal financial play? That is less clear. I tend to think if you are at least content renting I'd do so a few years longer and continue to save. However if you are miserable renting and are longing for a house then go for it.

I will say I would not consider a $575k house with 1500 feet LCOL.

Totally agree with Meg and others that when you buy a house you will spend more money on things to fill up the house such as furniture and decor. Landscaping equipment. Maybe new appliances. General home maintenance. Frequent Weekend trips to Home Depot. Depending on the condition you may want to renovate or remodel. It all adds up.
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hand
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Re: First time home buyer - gut check

Post by hand »

runner23 wrote: Wed Oct 04, 2017 12:36 pm
We currently rent for $1,500 a month. Some math shows a PITI of $2500 - $3000 on the upper end of our $575k range.

We have family thinking that we need to buy a house and that we are throwing money away renting. I do not see it as throwing away money because it is flexible and we have a roof over our heads, but that is neither here nor there.

Main reasons for getting into a house are yard (dog and I enjoy yardwork) and build equity. With those numbers above, do you think that we are there or are there any red flags of getting into a house in the next 6 months? Is continuing to rent the right answer from a value perspective?
Your situation doesn't scream buy a house to me.

To simplify, you're thinking of putting down $50+k, committing to an additional ~$30k of transaction fees related to buying/selling a house and spending an extra $1,000 - $1,500 / month on PITI + maintenance and other expenses, so your dog can have more space, you can do yard work and you "build equity"?

Unless you're reasonably sure that your jobs / commutes will stay the same for the next ~5 years, and you've figured out the whole kids / school district thing and are certain this is a long term home for your family, the flexibility of renting has real value and building equity can be better done by renting and investing rather than paying interest.

Spending significantly more to live in a bigger house is a valid lifestyle choice, but don't kid yourself that it is anything other than discretionary expense with high transaction costs. Realtors and family members are great at spending your money and justifying a house as an "investment," but in many cases the numbers don't pencil out especially in the short term.

Personally, I'd rent and keep your costs low at least until you have 20% saved and possibly until the next housing crash or you want to make a long term commit to an area because of kids or other.
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runner23
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Re: First time home buyer - gut check

Post by runner23 »

All great pieces of information to chew on. Will respond back when off work later tonight. Thanks everyone.
mega317
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Re: First time home buyer - gut check

Post by mega317 »

I always get nervous when a post has a separate paragraph on what the extended family wants. I'm sure their hearts are in the right place but who cares what they think.

Run the numbers of buying now vs. waiting and putting 20% down. If you're saving 5k a month it will only be a year. Then decide if the opportunity to do yard work for one year is worth the difference.
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stoptothink
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Re: First time home buyer - gut check

Post by stoptothink »

mega317 wrote: Wed Oct 04, 2017 2:05 pm I always get nervous when a post has a separate paragraph on what the extended family wants. I'm sure their hearts are in the right place but who cares what they think.
+1. Family, friends, real estate agents; do not listen to anybody when deciding what/when/where to purchase a home.
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Meg77
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Re: First time home buyer - gut check

Post by Meg77 »

runner540 wrote: Wed Oct 04, 2017 1:17 pm
Runner23, lots of wisdom here! (And based on her other posts, I believe Meg77 is a mortgage banker and landlord, so she knows what she's talking about).
JBTX wrote: Wed Oct 04, 2017 1:32 pm Agree with everything Meg said. Excellent post.
Aw, thanks guys. :)

Now I'm feeling like a sucker for being a homeowner myself! Haha. It has pros and cons for sure, but a lot depends on the type of property you want and also on your preferences and skills. Some people enjoy rescuing pitbulls or running a home business or other activity landlords don't allow. Many love DIY projects and gardening and the pride that comes from using something they built/repaired. I personally prefer to fork over wheelbarrows full of cash to the first repairperson or retailer who can make my problem go away and everything look pretty. Over the long term though, owning real estate certainly can be effective way to build wealth via use of cheap leverage and forced savings.
"An investment in knowledge pays the best interest." - Benjamin Franklin
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rcjchicity
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Re: First time home buyer - gut check

Post by rcjchicity »

In 2004, because I was tired of "throwing money away by renting", I bought a condo for $220,000. In 2011, I sold it for $172,000. If I had only known I was going to be throwing away money by buying.

Buying a primary residence because you think it's an "investment" isn't in itself a good reason if it's the primary reason for buying.
kjvmartin
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Re: First time home buyer - gut check

Post by kjvmartin »

runner23 wrote: Wed Oct 04, 2017 2:05 pm All great pieces of information to chew on. Will respond back when off work later tonight. Thanks everyone.
I'd do whatever it takes to get that 20% down payment. It's an option for you, some will never afford, but you most certainly can.

Better APR, no PMI, and more equity if you need/want to move.
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Pajamas
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Re: First time home buyer - gut check

Post by Pajamas »

Atlanta housing prices went from a median of $135k in 2007 to $85k in 2012 (yes, it took that long for them to bottom out) and only in 2017 have they recovered to the 2007 highs. So it is certainly not guaranteed that you will build equity any time soon if you buy now.

On the other hand, you certainly get a lot for your $500k in Atlanta compared to other areas with higher housing costs:

https://www.virgentrealty.com/blog/2017 ... hborhoods/

Have you compared the overall costs of renting vs. buying a house?

https://www.nytimes.com/2014/05/22/upsh ... nging.html

Seems like you have a good thing going now, stashing away $5k each month. If you buckle down and pay off your debt and keep renting and investing, you could be financially independent in a decade. Or you could buy a house. It just depends on what your priorities are.
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Re: First time home buyer - gut check

Post by bloom2708 »

kjvmartin wrote: Wed Oct 04, 2017 3:04 pm
I'd do whatever it takes to get that 20% down payment. It's an option for you, some will never afford, but you most certainly can.

Better APR, no PMI, and more equity if you need/want to move.
+1

If you have PMI, about 3 months after you buy, you will be posting a thread named "Help, how do I get rid of PMI".

Do some DETAILED budgeting. You could be really underestimating the total cost of the new house. It is well beyond rent going from $1,500 to $2,500. Property taxes, PMI, special assessments, homeowners insurance, furniture, painting, fixtures, higher electric, heat/cooling, garbage/sewer/water, mowing, etc.

You should have good estimates of all these and see the effect on your budget. Can you do all that and max 401k, Roth, HSA? I would highly doubt you will be able to do it all with a $550k+ house and only 10% down.

Go in with eyes open, budgets as good as possible and 20% down. Your first house doesn't have to be your "dream house". HGTV shows will skew reality.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
ebrasmus21
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Re: First time home buyer - gut check

Post by ebrasmus21 »

bloom2708 wrote: Wed Oct 04, 2017 4:06 pm
kjvmartin wrote: Wed Oct 04, 2017 3:04 pm
I'd do whatever it takes to get that 20% down payment. It's an option for you, some will never afford, but you most certainly can.

Better APR, no PMI, and more equity if you need/want to move.
+1

If you have PMI, about 3 months after you buy, you will be posting a thread named "Help, how do I get rid of PMI".

Do some DETAILED budgeting. You could be really underestimating the total cost of the new house. It is well beyond rent going from $1,500 to $2,500. Property taxes, PMI, special assessments, homeowners insurance, furniture, painting, fixtures, higher electric, heat/cooling, garbage/sewer/water, mowing, etc.

You should have good estimates of all these and see the effect on your budget. Can you do all that and max 401k, Roth, HSA? I would highly doubt you will be able to do it all with a $550k+ house and only 10% down.

Go in with eyes open, budgets as good as possible and 20% down. Your first house doesn't have to be your "dream house". HGTV shows will skew reality.
What's the dealio with those SoFi 10% down + No PMI mortgage loans? Are those any good?
Topic Author
runner23
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Re: First time home buyer - gut check

Post by runner23 »

OP here,

Thank you again for all of the replies. My wife and read them all together. This was helpful from my perspective, but more so for her as I am more of the boglehead and keep up with our finances. It is reassuring that we are in the drivers seat and not forced to do anything quickly. Buying a house is an emotional event, so it is nice to step back and get others opinions. I think we will at least rent for another year and reassess then.
Bacchus01
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Re: First time home buyer - gut check

Post by Bacchus01 »

Get an apartment near a park

I wouldn't buy based on your scenario
Olemiss540
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Re: First time home buyer - gut check

Post by Olemiss540 »

No way would I buy. Your rent is allowing you both extreme flexibility to setup your future finances.

I would save and invest as much as possible while splurging on travel in preperation to how much your lives could change in your 30s. This will allow you to get a supercharged head start and pull the reins back in your 30s in case one of you decides to stay at home, etc.

Keep in mind a majority of divorce is over finances, why not rule that possibility out for the rest of your lives by spending as much time enjoying eachother, and little time concerned over a stretched budget and little savings in case of a career/market downturn.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
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runner23
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Re: First time home buyer - gut check

Post by runner23 »

OP here. Just wanted to provide an update that we decided to renew our apartment lease for another year. This will allow us to save away for another year and reassess next year. In an effort to not have too much cash on hand, we decided to start a taxable account with an initial investment of $5k. We will still save for the house down payment as well as save $1k per month additional in a taxable account that is considered retirement account. Thanks for the insight.
runner540
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Re: First time home buyer - gut check

Post by runner540 »

runner23 wrote: Tue Oct 31, 2017 5:47 am OP here. Just wanted to provide an update that we decided to renew our apartment lease for another year. This will allow us to save away for another year and reassess next year. In an effort to not have too much cash on hand, we decided to start a taxable account with an initial investment of $5k. We will still save for the house down payment as well as save $1k per month additional in a taxable account that is considered retirement account. Thanks for the insight.
Thanks for the update and good luck!
Olemiss540
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Re: First time home buyer - gut check

Post by Olemiss540 »

runner23 wrote: Tue Oct 31, 2017 5:47 am OP here. Just wanted to provide an update that we decided to renew our apartment lease for another year. This will allow us to save away for another year and reassess next year. In an effort to not have too much cash on hand, we decided to start a taxable account with an initial investment of $5k. We will still save for the house down payment as well as save $1k per month additional in a taxable account that is considered retirement account. Thanks for the insight.
Good choice! Good! luck
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
student
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Re: First time home buyer - gut check

Post by student »

runner23 wrote: Tue Oct 31, 2017 5:47 am OP here. Just wanted to provide an update that we decided to renew our apartment lease for another year. This will allow us to save away for another year and reassess next year. In an effort to not have too much cash on hand, we decided to start a taxable account with an initial investment of $5k. We will still save for the house down payment as well as save $1k per month additional in a taxable account that is considered retirement account. Thanks for the insight.
Thanks for the update. You are young and are making good money. You will have your house at the right time.
Slacker
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Re: First time home buyer - gut check

Post by Slacker »

Meg77 wrote: Wed Oct 04, 2017 1:07 pm Don't be too quick to give up the carefree life of having your landlord on speed dial and weekends/income free to travel instead of deal with contractors, yard work, repairs, etc.
Renting is not a panacea for all your home worries. We have to do all our own yardwork.

Every time there is a major maintenance issue I have to type up legal notices reminding the landlord of their duties because they'll let us go 10+ days without hot water while they mull over whether or not they want to spend money to fix the water heater, or the lawn sprinkler system, or the pool pump, or the AC. They've let the pool go green several times as well despite our repeated warnings that they are not doing the maintenance they agreed to in the lease.

Ever have no AC in the middle of a Phoenix summer? I have and not by choice. We give a 5day notice (or 10 day notice as appropriate) up front immediately upon having a maintenance item and they arrange things to get fixed on day 5 or day 10 (as required). I can't wait for the certified letter to get to the property management company (because that is a few extra days without repairs) so instead I make the 1hr drive to their offices and drop off the letter in person and make the 1hr drive back.

Renting is a crapshoot and has not been carefree for us in the least bit. Our rent covers maintenance items, so we don't escape those costs by being renters but if I were the owner I could get things fixed immediately and by reputable companies. (the owners purchased the home for $140K according to zillow and our rent is $1450 - should be plenty of profits for the landlord after PITI + prop mgmt + maintenance reserves).
mopman78
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Re: First time home buyer - gut check

Post by mopman78 »

I’m late to the party but wanted to share our perspective. My wife and I had spent several years moving around due to careers and up the corporate ladder. We found ourselves in stable jobs with rapidly growing salaries but had only saved enough for 10% down. We were saving about th same as you on a monthly basis and took out an 80/10/10 loan. Our reasoning was as follows:

1-Interest rates were low and while you can’t predict the future, the fed has repeatedly said that they are planning to raise the fed funds rate, which will impact mortgage interest rates

2-we were planning to divert a big chunk of that high monthly savings to the 10% loan to have it paid off in one year

3-the landlords of two of the last three places we had rented had decided to not pay their mortgage, pocket our rent, and walk away. While legislation passed during the crisis offers some protection for tenants, this is a very uncomfortable feeling.

4-renting can be terrible. landlords may be slow to respond to problems. they may do sub par repairs to save money. they may try to fix the problem themselves without any competence. They may be away on vacation when the power to half your apartment goes out the night before your family is scheduled to come for Thanksgiving (true story). owning a home is expensive but counting on somebody else to be accountable for doing repairs can cost an immense amount of time and stress.

I would say you are not being financially reckless. you seem to have things in order. don’t worry about throwing away money by renting or your family’s advice but dont feel like buying would be a huge mistake either. some of the comments here imply that if you buy now, you’ll be doomed to a battle to keep up with the Joneses as well as a short marriage full of discord, but that’s just somebody else’s attempt to predict the future.

lastly, making this decision is much easier and wiser with a nice fat emergency fund to relieve stress.
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dogagility
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Re: First time home buyer - gut check

Post by dogagility »

Here's a rent vs buy calculator that may provide some more financial clarity on the choice. https://www.nytimes.com/interactive/201 ... lator.html
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runner23
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Re: First time home buyer - gut check

Post by runner23 »

OP Here - What a difference a year makes. Since originally posting in this thread, we have made great financial progress. We are back in the housing hunt and have the following financials to support. We are looking at the same sort of houses, $500 - $600k range.

Both approaching 29 years of age, our net worth just clipped $450k ($150k increase since last October). Our liquid taxable account is $160k. We now have enough for 20% down, closing costs and emergency fund.

My only concern now is we are at some sort of housing peak and a recession looming. This does not sway my equity allocations, but am having a hard time not trying to time the housing market. Alas, there is no perfect time and it is hard to predict the future. Nonetheless, we feel more prepared than this time last year. Thanks all. Will keep you updated.
Dottie57
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Re: First time home buyer - gut check

Post by Dottie57 »

runner23 wrote: Sun Aug 12, 2018 8:06 am OP Here - What a difference a year makes. Since originally posting in this thread, we have made great financial progress. We are back in the housing hunt and have the following financials to support. We are looking at the same sort of houses, $500 - $600k range.

Both approaching 29 years of age, our net worth just clipped $450k ($150k increase since last October). Our liquid taxable account is $160k. We now have enough for 20% down, closing costs and emergency fund.

My only concern now is we are at some sort of housing peak and a recession looming. This does not sway my equity allocations, but am having a hard time not trying to time the housing market. Alas, there is no perfect time and it is hard to predict the future. Nonetheless, we feel more prepared than this time last year. Thanks all. Will keep you updated.
Please make sure your taxable money is not in a fund which can lose money. Don’t lose your down payment to a really bad day in the market.
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runner23
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Re: First time home buyer - gut check

Post by runner23 »

OP here and I want to provide a quick update to my original post. We have put an offer down on a house and I am having cold feet as the buyer, which may be normal for a first time home buyer, but it is still causing me angst. A few of the details are below.

We put an offer down on a $635k house that is 5 minutes away from both our jobs. We are putting 20% down and paying for closing costs. After that, we will have $40k liquid reserves as an emergency fund. Additional $300k in retirement accounts not counting the $40k. PITI will run about $3,500 for this house.

DW and I are projected to make around $250 - $300k this year. DW is in sales, so income fluctuates monthly. Her income makes up $150 - 200k of the range. We are both 28 and have stable jobs. My fear is that we are going into a recession and that we have bought at the top of the housing market. We are past the home inspection and have been approved for the mortgage with a closing date of 11/16.

I am not sure if my fears are normal, but I am having extreme anxiety from the magnitude of the mortgage. The only other debt we have is a $15k auto loan. My family still thinks of homes as an investment, but I know that they are not. Renting is the right answer from a financial perspective. I am getting anxiety about the interest that will be paid over the course of the loan. We did a 30 year with the intention of paying it as a 15 year.

I guess it do not have a specific question other than I am wanting to back out, but my wife and family think my fears are unfounded.
AnonJohn
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Re: First time home buyer - gut check

Post by AnonJohn »

FWIW, I felt the same thing when we bought our house. Though I was less worried about recession and more about job loss.

Key question: How long do you anticipate living there? "Peak of the housing market" means little if your answer is 30 years.

5 minutes from both jobs would be worth a lot to me.

Next question: What are your planned monthly expenses, including house? Can't evaluate sufficiency of EF without that info ...
be217
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Re: First time home buyer - gut check

Post by be217 »

Advice I was given when I had cold feet (about a career move): if you aren't at least nervous you're not paying attention. So the fact that you're nervous isn't, in an of itself, a reason to back out.

Nobody here will support your real estate market timing :wink:

As was said to you a year ago, buying vs renting is much more than a financial decision. If it's the right thing for you lifestyle wise, then it's the right thing for you lifestyle wise.

Happy wife, ...

Keep plugging away. You are far ahead of most people your age in terms of financial planning. Is it possible this home purchase doesn't work out as an investment? Sure. So what? Lots of things are "possible."
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tyrion
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Re: First time home buyer - gut check

Post by tyrion »

I felt a lot of anxiety on my first home purchase. It's normal. You can 'what if' yourself into many sleepless nights, but you both have strong jobs and are presumably employable should something happen to your specific jobs.

Make sure you both have term life insurance. It should be really cheap at your age.

Then once you get the house, go slow on spending for everything that comes up. You don't need to furnish every room immediately. Take your time, shop wisely. Enjoy the process.

Finally, if you still feel anxious after paying the mortgage for a few months, come up with a plan to pay it down substantially when your wife has good income months.

Oh, and it's great that you have a 30 year mortgage and plan to pay it off on a 15 year schedule. That gives you flexibility if you need to go with the lower monthly payment for any reason.
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sergeant
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Re: First time home buyer - gut check

Post by sergeant »

It is normal to worry in your situation. These worries should start to diminish once you move in and the deal is done.

You are right in that homes are not an investment and you would be better off financially continuing to rent. Buying a home is a lifestyle choice.

Save and pay cash for new furnishings and home improvements. Go slow, it gets real expensive. Good luck.
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Re: First time home buyer - gut check

Post by Grt2bOutdoors »

runner23 wrote: Fri Oct 26, 2018 9:28 am OP here and I want to provide a quick update to my original post. We have put an offer down on a house and I am having cold feet as the buyer, which may be normal for a first time home buyer, but it is still causing me angst. A few of the details are below.

We put an offer down on a $635k house that is 5 minutes away from both our jobs. We are putting 20% down and paying for closing costs. After that, we will have $40k liquid reserves as an emergency fund. Additional $300k in retirement accounts not counting the $40k. PITI will run about $3,500 for this house.

DW and I are projected to make around $250 - $300k this year. DW is in sales, so income fluctuates monthly. Her income makes up $150 - 200k of the range. We are both 28 and have stable jobs. My fear is that we are going into a recession and that we have bought at the top of the housing market. We are past the home inspection and have been approved for the mortgage with a closing date of 11/16.

I am not sure if my fears are normal, but I am having extreme anxiety from the magnitude of the mortgage. The only other debt we have is a $15k auto loan. My family still thinks of homes as an investment, but I know that they are not. Renting is the right answer from a financial perspective. I am getting anxiety about the interest that will be paid over the course of the loan. We did a 30 year with the intention of paying it as a 15 year.

I guess it do not have a specific question other than I am wanting to back out, but my wife and family think my fears are unfounded.
Are you prepared to lose your deposit? How much did you plunk down when you signed offer to buy? Assuming seller accepted your offer, if you back out for any reason except there is a problem with the home (failed inspection) or you are unable to obtain financing then you will lose that deposit. I hope you did not put 20% down on your offer. When I bought my home, I put 10k down, then upon completion of home inspection put down rest of deposit, my closing was subject to obtaining financing. No financing, I get all of my money back. What does your offer letter say?

These are all normal fears you are having. It really gets real when you sign the mortgage note - I promise to pay x.x dollars each month no later than y date. If I’m late I will pay an additional late fee of z. Once you sign and finish signing, take a deep breath, smile at your wife and say let’s go “home”. The stuff you may want, that takes a back seat until you make a clear budget if you haven’t already. Pay cash for the stuff you want, no cash, no buy.
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gougou
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Re: First time home buyer - gut check

Post by gougou »

Not sure why you are going over your original budget of $575K. However, since you guys make over $250K per year, $635K is definitely affordable.

No one can predict whether we are going into a recession. If you are really worried, you could reduce your equity holdings and increase your bond holdings, since a house behaves more like equity and you just bought a lot of it.
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jabberwockOG
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Re: First time home buyer - gut check

Post by jabberwockOG »

35 years after buying my first of several houses I was able to retire a little early after having lived all my life in very nice houses located in high end neighborhoods. And selling that last house (mortgage previously paid off) for cash and walking away from the closing with a giant check that covered 1) our move, 2) purchase of a nice downsize retirement house, 3) apprx 3-4 years living expenses made it all worth it.
sp0704
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Re: First time home buyer - gut check

Post by sp0704 »

I live in the Atlanta area. If you're buying in-town, I wouldn't exactly call it LCOL. Home prices have increased quite a bit, there are bidding wars, and yet the in-town school system still has a long way to go for improvement. It's only been a few years since the City of Atlanta public school system was in the national headlines for widespread corruption. It sounds like you are going to pay quite the premium for an easy commute, which is understandable given our awful traffic, but your needs could change within a few years. It looks like others have made these comments as well, but they are very true for this area. In summary, the price range you're looking at is affordable for you if you if both keep working, but consider if the home you're buying is a good long-term decision and will meet potential future needs.
jwfrazier
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Re: First time home buyer - gut check

Post by jwfrazier »

I am not exactly a Boglehead, but I greatly respect the people here and enjoy this site. I'm in a good mood tonight, so you are going to get the full lecture. I apologize in advance.

I say with your income, go for it. There is nothing more satisfying and fun for me than owning my own home. I have made money on every piece of real estate I have ever owned. Atlanta is a great market for the most part. I am a landlord, not a renter. Most wealthy people don't pay rent, they collect it. At age 57 you will own it!

Sacrifice and save enough to pay off the mortgage as fast as possible, and then don't, unless you have a bunch of bonds or CD's paying less than 5%. Regardless of what the people on here may tell you, there is no point in having more than about 10% bonds at your age and income. You are better off in equities and real estate, IMO. Your home mortgage is usually the cheapest money you can borrow.

Your payment will probably be around $3,000 a month with taxes and insurance. Sure, you could keep renting and invest the difference in that payment and the rent you pay now. $1,500 a month difference invested @ 7% for 30 years is around $1.8 million. But your $600,000 house will be worth way over a million in 30 years as well. And you will have gotten the enjoyment that whole time. I'll bet the house you are buying is 3 times nicer than what you are renting for $1,500 a month.

What would it cost you to rent what you are buying? Way more than $1,500 per month, I would bet.

With the numbers you have provided, even if you buy, you should be able to save around $12,000 per month. Awesome! Put all the money you can in an index fund like clockwork every month, and don't look at it or sell anything in it until you retire. Don't watch or listen to anyone on CNBC. And never pay someone 1% of your return to manage your money for you. That is your job, and it's not that hard.

I don't know if you have calculated what $12,000 a month in savings invested at 7% is for 30 years. Hint, it is a big number. That should get you motivated!

Sure, there is maintenance on a house, but my Dad sold his Decatur home for $400,000 in 2001. He paid about $45,000 for it in 1970. If my math is right, that's about a 7.5% return. And it had tons of rotten wood and old carpet, and needed paint, with a swimming pool that didn't work, etc. He didn't put much money into that house at all like he should have, and it still sold. Atlanta is great.

Although I have thrown a bunch of numbers at you, don't make it all about the numbers. Do what will make you happy if you can afford it, and you certainly can. You will still be able to fund a great retirement, as well.

Regarding your anxiety: one caveat: Be certain that your jobs are stable and that your relationship is stable. If that's the case, with all seriousness. Dude, you got this. $600,000 is not too big a house for people of your income level. I make half that and live in a $600K house. You can always sell it if you end up unhappy for some reason.

Try to get a relatively new house unless you enjoy fixing things yourself.

FWIW, this is the advice I will give my son and daughter. Congrats on a great life ahead!
prettybogle
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Re: First time home buyer - gut check

Post by prettybogle »

runner23 wrote: Fri Oct 26, 2018 9:28 am OP here and I want to provide a quick update to my original post. We have put an offer down on a house and I am having cold feet as the buyer, which may be normal for a first time home buyer, but it is still causing me angst. A few of the details are below.

We put an offer down on a $635k house that is 5 minutes away from both our jobs. We are putting 20% down and paying for closing costs. After that, we will have $40k liquid reserves as an emergency fund. Additional $300k in retirement accounts not counting the $40k. PITI will run about $3,500 for this house.

DW and I are projected to make around $250 - $300k this year. DW is in sales, so income fluctuates monthly. Her income makes up $150 - 200k of the range. We are both 28 and have stable jobs. My fear is that we are going into a recession and that we have bought at the top of the housing market. We are past the home inspection and have been approved for the mortgage with a closing date of 11/16.

I am not sure if my fears are normal, but I am having extreme anxiety from the magnitude of the mortgage. The only other debt we have is a $15k auto loan. My family still thinks of homes as an investment, but I know that they are not. Renting is the right answer from a financial perspective. I am getting anxiety about the interest that will be paid over the course of the loan. We did a 30 year with the intention of paying it as a 15 year.

I guess it do not have a specific question other than I am wanting to back out, but my wife and family think my fears are unfounded.
OP are you pushing ahead with the buy or backing out ?
justsomeguy2018
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Re: First time home buyer - gut check

Post by justsomeguy2018 »

jwfrazier wrote: Sat Oct 27, 2018 12:22 am With the numbers you have provided, even if you buy, you should be able to save around $12,000 per month. Awesome! Put all the money you can in an index fund like clockwork every month, and don't look at it or sell anything in it until you retire. Don't watch or listen to anyone on CNBC. And never pay someone 1% of your return to manage your money for you. That is your job, and it's not that hard.
$12,000 per month?
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runner23
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Re: First time home buyer - gut check

Post by runner23 »

We are pressing forward. Thanks to all for the reassurance and guidance. Really appreciated. It will be a lifestyle change and just take some time to get used to the new budget. Everything that was suggested has really helped.
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8foot7
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Re: First time home buyer - gut check

Post by 8foot7 »

justsomeguy2018 wrote: Sat Oct 27, 2018 9:38 am
jwfrazier wrote: Sat Oct 27, 2018 12:22 am With the numbers you have provided, even if you buy, you should be able to save around $12,000 per month. Awesome! Put all the money you can in an index fund like clockwork every month, and don't look at it or sell anything in it until you retire. Don't watch or listen to anyone on CNBC. And never pay someone 1% of your return to manage your money for you. That is your job, and it's not that hard.
$12,000 per month?
That’s probably what they pull in after tax on 240 gross but they still have to pay the mortgage and living expenses out of that. That’s a very misleading number.
justsomeguy2018
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Re: First time home buyer - gut check

Post by justsomeguy2018 »

8foot7 wrote: Sat Oct 27, 2018 11:37 am
justsomeguy2018 wrote: Sat Oct 27, 2018 9:38 am
jwfrazier wrote: Sat Oct 27, 2018 12:22 am With the numbers you have provided, even if you buy, you should be able to save around $12,000 per month. Awesome! Put all the money you can in an index fund like clockwork every month, and don't look at it or sell anything in it until you retire. Don't watch or listen to anyone on CNBC. And never pay someone 1% of your return to manage your money for you. That is your job, and it's not that hard.
$12,000 per month?
That’s probably what they pull in after tax on 240 gross but they still have to pay the mortgage and living expenses out of that. That’s a very misleading number.
Right, but the poster was saying they should be able to SAVE around $12,000 per month. Was wondering how they got to that number.
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8foot7
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Re: First time home buyer - gut check

Post by 8foot7 »

justsomeguy2018 wrote: Sat Oct 27, 2018 11:39 am
8foot7 wrote: Sat Oct 27, 2018 11:37 am
justsomeguy2018 wrote: Sat Oct 27, 2018 9:38 am
jwfrazier wrote: Sat Oct 27, 2018 12:22 am With the numbers you have provided, even if you buy, you should be able to save around $12,000 per month. Awesome! Put all the money you can in an index fund like clockwork every month, and don't look at it or sell anything in it until you retire. Don't watch or listen to anyone on CNBC. And never pay someone 1% of your return to manage your money for you. That is your job, and it's not that hard.
$12,000 per month?
That’s probably what they pull in after tax on 240 gross but they still have to pay the mortgage and living expenses out of that. That’s a very misleading number.
Right, but the poster was saying they should be able to SAVE around $12,000 per month. Was wondering how they got to that number.
Yeah, not sure.
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Re: First time home buyer - gut check

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (buying a home - financial aspects).
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mega317
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Re: First time home buyer - gut check

Post by mega317 »

runner23 wrote: Fri Oct 26, 2018 9:28 am We are putting 20% down and paying for closing costs. After that, we will have $40k liquid reserves as an emergency fund. Additional $300k in retirement accounts not counting the $40k.
Like, all of your savings that's not in retirement accounts is down payment + 40k? That doesn't leave much for furniture, initial upgrades or work done on the house, furniture, etc. plus emergency fund.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
Topic Author
runner23
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Re: First time home buyer - gut check

Post by runner23 »

mega317 wrote: Mon Oct 29, 2018 6:12 pm
runner23 wrote: Fri Oct 26, 2018 9:28 am We are putting 20% down and paying for closing costs. After that, we will have $40k liquid reserves as an emergency fund. Additional $300k in retirement accounts not counting the $40k.
Like, all of your savings that's not in retirement accounts is down payment + 40k? That doesn't leave much for furniture, initial upgrades or work done on the house, furniture, etc. plus emergency fund.
I am aware of this and this is why I am so anxious and having cold feet. I am still flip flopping and wanting to back out. Our earnest money was $6,300 and I am fine walking away from that for my well being. I know that this house will be a terrible decision with rent being 1650 va 3500 PITI. We don’t have kids yet and don’t see how we could with what will be leftover. I know realize how debt averse I am and this is causing me extreme angst with the idea of a $500k mortgage.
cherijoh
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Re: First time home buyer - gut check

Post by cherijoh »

Slacker wrote: Tue Oct 31, 2017 10:17 am
Meg77 wrote: Wed Oct 04, 2017 1:07 pm Don't be too quick to give up the carefree life of having your landlord on speed dial and weekends/income free to travel instead of deal with contractors, yard work, repairs, etc.
Renting is not a panacea for all your home worries. We have to do all our own yardwork.

Every time there is a major maintenance issue I have to type up legal notices reminding the landlord of their duties because they'll let us go 10+ days without hot water while they mull over whether or not they want to spend money to fix the water heater, or the lawn sprinkler system, or the pool pump, or the AC. They've let the pool go green several times as well despite our repeated warnings that they are not doing the maintenance they agreed to in the lease.

Ever have no AC in the middle of a Phoenix summer? I have and not by choice. We give a 5day notice (or 10 day notice as appropriate) up front immediately upon having a maintenance item and they arrange things to get fixed on day 5 or day 10 (as required). I can't wait for the certified letter to get to the property management company (because that is a few extra days without repairs) so instead I make the 1hr drive to their offices and drop off the letter in person and make the 1hr drive back.

Renting is a crapshoot and has not been carefree for us in the least bit. Our rent covers maintenance items, so we don't escape those costs by being renters but if I were the owner I could get things fixed immediately and by reputable companies. (the owners purchased the home for $140K according to zillow and our rent is $1450 - should be plenty of profits for the landlord after PITI + prop mgmt + maintenance reserves).
It sounds like you are renting a SFH from a real estate investor who has employed a really crappy property management company - who is probably charging the owner's an arm and a leg. Hopefully, you'll find a better landlord the next time around.

That is totally different from renting an apartment in a large apartment complex that caters to professionals and has an on-site maintenance crew. They would never be able to get away with behavior such as you describe without tanking their reputation.
prettybogle
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Re: First time home buyer - gut check

Post by prettybogle »

runner23 wrote: Tue Oct 30, 2018 2:16 pm
mega317 wrote: Mon Oct 29, 2018 6:12 pm
runner23 wrote: Fri Oct 26, 2018 9:28 am We are putting 20% down and paying for closing costs. After that, we will have $40k liquid reserves as an emergency fund. Additional $300k in retirement accounts not counting the $40k.
Like, all of your savings that's not in retirement accounts is down payment + 40k? That doesn't leave much for furniture, initial upgrades or work done on the house, furniture, etc. plus emergency fund.
I am aware of this and this is why I am so anxious and having cold feet. I am still flip flopping and wanting to back out. Our earnest money was $6,300 and I am fine walking away from that for my well being. I know that this house will be a terrible decision with rent being 1650 va 3500 PITI. We don’t have kids yet and don’t see how we could with what will be leftover. I know realize how debt averse I am and this is causing me extreme angst with the idea of a $500k mortgage.
runner23, I think we both are in very very similar predicament. You posted words right off my mouth ! Your earlier post sounded like you were going ahead.
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