Can I Buy A House?

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POLO
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Can I Buy A House?

Post by POLO » Fri May 11, 2018 6:36 pm

Hi everyone, I'm a 25 year old guy and I'd like to buy a smaller two bedroom home instead of renting. I moved back in with my parents for a few years and I don't see the point in moving out just so I can blow $1000/month for no other reason but to move out. I'm in Kansas City, and I don't think I will leave the area; all my friends and family are here. I could get a place to rent for $725 at best, the house I think would be somewhere between $150k-200k. Emergency fund is in place. I would do 20% down on 15 year, but looking at the interest paid over the life of the loan makes me cringe so I would try to prepay it (all tax advantaged space is full). Yes with tax and insurance the payment would be significantly higher than rent, but the goal would be to eliminate housing from the budget as quickly as I can.

Every month my free and clear income is just under $2800, I don't really get the reasoning behind "rules of thumb", especially when you have an emergency fund in place. Do you all think I could manage? I don't want to be a live-in landlord and I don't want roommates (ever again).

michaeljc70
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Re: Can I Buy A House?

Post by michaeljc70 » Fri May 11, 2018 7:06 pm

Is your free and clear income after contributions to tax advantaged accounts? If so, you can afford the house if it is a little above the rent you quoted (kind of vague on what the total cost would be for principal, interest and taxes).

An emergency fund does little to alleviate some of the "rules of thumb" as having 3-6 months expenses saved doesn't allow someone with a 50k income to buy a $500k house. And some of those "rules of thumb", speaking generically, are used by the people giving the mortgage. If you are talking about some rules of thumb created by some people on this board that I view as silly, then I hear you. I would stick to lenders rules (and maybe go a little more conservatively) rather than random rules of thumb.

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Watty
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Re: Can I Buy A House?

Post by Watty » Fri May 11, 2018 9:59 pm

POLO wrote:
Fri May 11, 2018 6:36 pm
Every month my free and clear income is just under $2800......
It sounds like you can handle the payment OK, and I would consider going with a 30 year mortgage instead of the 15 year mortgage. It sounds like you have great cash flow now but in five years you could be married and have kids so your numbers might be a lot different then.

On the "should" side I would be cautious about buying a house since you are only 25. You may stay in KC but your next job could be on the other side of town from where you might buy the house and you could end up with a terrible commute. It is likely that you will get into a relationship and maybe have kids so the house might not a good fit for you in a few years.

Even if there are not major problems owning a home takes a lot of your time. Being in your 20's and single gives you a lot of freedom that you likely will not have later in life so I would be cautious about giving that up. Everyone is different and there can be cultural differences but at 25 moving out to an apartment would allow learn a lot about what you like in your living environment before you buy a home so that when you do buy a house you can get one that is a great fit for your.

Here is a "rent vs buy" calculator where you can check to see if buying or renting is financially better in your area. Be sure to do an "apples to apples" comparison since comparing renting an apartment to buying a single family home is not a fair comparison.

https://www.nytimes.com/interactive/201 ... lator.html

gotester2000
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Re: Can I Buy A House?

Post by gotester2000 » Fri May 11, 2018 11:38 pm

Take a mortgage and buy a reasonable home where you can stay when you are married with kids.
Rent it out while staying with your parents in the meanwhile.
You will create an asset/home equity. Not taking a mortgage while buying a house at your age and income is a mistake.

POLO
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Re: Can I Buy A House?

Post by POLO » Fri May 11, 2018 11:56 pm

michaeljc70 wrote:
Fri May 11, 2018 7:06 pm
Is your free and clear income after contributions to tax advantaged accounts? If so, you can afford the house if it is a little above the rent you quoted (kind of vague on what the total cost would be for principal, interest and taxes).

An emergency fund does little to alleviate some of the "rules of thumb" as having 3-6 months expenses saved doesn't allow someone with a 50k income to buy a $500k house. And some of those "rules of thumb", speaking generically, are used by the people giving the mortgage. If you are talking about some rules of thumb created by some people on this board that I view as silly, then I hear you. I would stick to lenders rules (and maybe go a little more conservatively) rather than random rules of thumb.
Yes it's what I guess is "take-home" so after all deductions and taxes. The lender will see paystubs higher than that and my credit is really good, but a $150k mortgage at 15 years, combined with insurance, property taxes, and overpayment will result in a monthly payment nearly double rent on a 1 BR. I just don't want to end up housepoor by doing so. I'd take a 30 year but again, in absolute terms the amount in interest paid to the bank is just terrifying. I'd much rather pay off the mortgage ASAP than continuing taxable contributions. It's going to take a few more months to save up the remainder of a down payment. As for a case where lifestyle changes significantly, I think I would most likely try to rent out the house rather than sell it.

TropikThunder
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Re: Can I Buy A House?

Post by TropikThunder » Sat May 12, 2018 12:23 am

gotester2000 wrote:
Fri May 11, 2018 11:38 pm
Take a mortgage and buy a reasonable home where you can stay when you are married with kids.
Rent it out while staying with your parents in the meanwhile.
You will create an asset/home equity. Not taking a mortgage while buying a house at your age and income is a mistake.
Buy a house that he may live in some time in the nebulous future but rent it out in the meantime? Seems like a lot of effort only to end up back at his parent's house (which he clearly stated he wanted to leave). And not everyone is cut out to be a landlord.

gotester2000
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Re: Can I Buy A House?

Post by gotester2000 » Sat May 12, 2018 12:54 am

TropikThunder wrote:
Sat May 12, 2018 12:23 am
gotester2000 wrote:
Fri May 11, 2018 11:38 pm
Take a mortgage and buy a reasonable home where you can stay when you are married with kids.
Rent it out while staying with your parents in the meanwhile.
You will create an asset/home equity. Not taking a mortgage while buying a house at your age and income is a mistake.
Buy a house that he may live in some time in the nebulous future but rent it out in the meantime? Seems like a lot of effort only to end up back at his parent's house (which he clearly stated he wanted to leave). And not everyone is cut out to be a landlord.
I'd like to buy a smaller two bedroom home instead of renting. I moved back in with my parents for a few years and I don't see the point in moving out just so I can blow $1000/month for no other reason but to move out.
OP needs a house someday. Even if he moves or stays,he has options to rent partially fully/sell to upgrade. It gives diverisification and fulfills a need. Rest he can max in tax free/taxable.

mortfree
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Re: Can I Buy A House?

Post by mortfree » Sat May 12, 2018 1:08 am

gotester2000 wrote:
Sat May 12, 2018 12:54 am
TropikThunder wrote:
Sat May 12, 2018 12:23 am
gotester2000 wrote:
Fri May 11, 2018 11:38 pm
Take a mortgage and buy a reasonable home where you can stay when you are married with kids.
Rent it out while staying with your parents in the meanwhile.
You will create an asset/home equity. Not taking a mortgage while buying a house at your age and income is a mistake.
Buy a house that he may live in some time in the nebulous future but rent it out in the meantime? Seems like a lot of effort only to end up back at his parent's house (which he clearly stated he wanted to leave). And not everyone is cut out to be a landlord.
I'd like to buy a smaller two bedroom home instead of renting. I moved back in with my parents for a few years and I don't see the point in moving out just so I can blow $1000/month for no other reason but to move out.
OP needs a house someday. Even if he moves or stays,he has options to rent partially fully/sell to upgrade. It gives diverisification and fulfills a need. Rest he can max in tax free/taxable.
I dont believe there is any interest in being a landlord based on the last line of the OP's first post:

"I don't want to be a live-in landlord and I don't want roommates (ever again)."

POLO
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Re: Can I Buy A House?

Post by POLO » Sat May 12, 2018 7:09 am

mortfree wrote:
Sat May 12, 2018 1:08 am
I dont believe there is any interest in being a landlord based on the last line of the OP's first post:

"I don't want to be a live-in landlord and I don't want roommates (ever again)."
I just don't want to live with the people that owe me rent. It'd be like having roommates except they owe you rent.

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Watty
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Re: Can I Buy A House?

Post by Watty » Sat May 12, 2018 7:23 am

POLO wrote:
Fri May 11, 2018 11:56 pm
As for a case where lifestyle changes significantly, I think I would most likely try to rent out the house rather than sell it.
While people do get into situations where that makes sense it is more likely that selling it would be a better choice. For example.

1) You would need to come up with another 20% down payment on your next place.

2) Without several years of good rental history a lender may discount most or all of the rental income on you loan application. You might not be able to qualify for two mortgages at once.

3) If the house price goes up you can usually sell the house you lived in and not pay any federal capital gains taxes because of a "homeowners capital gains exemption". If you rent the house for more than a few years you will likely lose that.
POLO wrote:
Fri May 11, 2018 11:56 pm
I'd take a 30 year but again, in absolute terms the amount in interest paid to the bank is just terrifying.
That can be a lot so it is good to be cautious but a couple of things to keep in mind are;

1) It will likely be tax deductible so that you will effectively pay less.

2) If you stay in the house for 30 years then even with 2 or 3 percent inflation the interest that is paid in 20+ years will be paid with inflated dollars.

3) With a 30 year loan your payment might be $400 a month lower. That $400 would be invested and have earnings that would at least somewhat offset the interest you pay. In 15 years(180 months) when the 15 year loan would be paid off 180*$400= $72,000 even if the invested money earned 0%. You can play with the numbers but with even a modest investment return it would be worth a lot more than that.

4) You can always make extra payments on the 30 year loan and it paid off early.

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Cycle
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Re: Can I Buy A House?

Post by Cycle » Sat May 12, 2018 7:42 am

Don't think about what you want but what your 40 year old self wants. Roommates will really help increase your savings in your 20s when it matters most.

michaeljc70
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Re: Can I Buy A House?

Post by michaeljc70 » Sat May 12, 2018 8:46 am

POLO wrote:
Fri May 11, 2018 11:56 pm
michaeljc70 wrote:
Fri May 11, 2018 7:06 pm
Is your free and clear income after contributions to tax advantaged accounts? If so, you can afford the house if it is a little above the rent you quoted (kind of vague on what the total cost would be for principal, interest and taxes).

An emergency fund does little to alleviate some of the "rules of thumb" as having 3-6 months expenses saved doesn't allow someone with a 50k income to buy a $500k house. And some of those "rules of thumb", speaking generically, are used by the people giving the mortgage. If you are talking about some rules of thumb created by some people on this board that I view as silly, then I hear you. I would stick to lenders rules (and maybe go a little more conservatively) rather than random rules of thumb.
Yes it's what I guess is "take-home" so after all deductions and taxes. The lender will see paystubs higher than that and my credit is really good, but a $150k mortgage at 15 years, combined with insurance, property taxes, and overpayment will result in a monthly payment nearly double rent on a 1 BR. I just don't want to end up housepoor by doing so. I'd take a 30 year but again, in absolute terms the amount in interest paid to the bank is just terrifying. I'd much rather pay off the mortgage ASAP than continuing taxable contributions. It's going to take a few more months to save up the remainder of a down payment. As for a case where lifestyle changes significantly, I think I would most likely try to rent out the house rather than sell it.
Well, you can live with your parents forever or rent forever but those would be terrifying to me. You can get a 15 year mortgage for around 4% and inflation is 2% so I don't find that terrifying at all. Yes, if you look at all the interest paid over the years, it is a lot. But what is the alternative? You can live with your parents for 10 years more or whatever it would take and save up to pay cash I guess.

If you are worried about being house poor, take out a 30 year mortgage and just make extra payments when you can.

If the cost to buy is really 2x what the cost to rent a comparable place is, I wouldn't buy. People often don't compare apples to apples though.

Flyer24
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Re: Can I Buy A House?

Post by Flyer24 » Sat May 12, 2018 9:35 am

Find an affordable house that fits your budget. It sounds like you are doing well and can easily afford it. Renting seems more like throwing money away because you are not building equity. Interest rates are still affordable plus in most cases you can take the tax deduction. I kept my first house for 5 years then sold it for $20k more. There is no reason to live with your parents unless you are under extreme hardship.

POLO
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Re: Can I Buy A House?

Post by POLO » Sat May 12, 2018 10:13 am

michaeljc70 wrote:
Sat May 12, 2018 8:46 am
Well, you can live with your parents forever or rent forever but those would be terrifying to me. You can get a 15 year mortgage for around 4% and inflation is 2% so I don't find that terrifying at all. Yes, if you look at all the interest paid over the years, it is a lot. But what is the alternative? You can live with your parents for 10 years more or whatever it would take and save up to pay cash I guess.

If you are worried about being house poor, take out a 30 year mortgage and just make extra payments when you can.

If the cost to buy is really 2x what the cost to rent a comparable place is, I wouldn't buy. People often don't compare apples to apples though.
These comments also address some of Watty's:
It's definitely not comparable, it's the price of rent of a decent (ugly) 1 BR apartment close to work vs an entire 2 BR house, they don't make 1 BR houses and townhomes/condos association fees blows up any chance of those being competitive. As for favorable taxation, I doubt it. The value of the home probably won't be enough to itemize. Also if I had to sell a house on short notice, wouldn't the rush to sell coupled with the selling costs bite into whatever capital gains I may have had?

The alternative as I see it is to overpay the mortgage at the most favorable rate I can get, especially up front to at least mitigate the amortization. I could maybe even save up more for a larger down payment. I don't want to be in debt. I would rather pay the opportunity cost of not leveraging the mortgage on taxable investments than pay tens or hundreds of thousand of dollars to my local credit union, whether it's 2018 dollars or 2048 dollars. On a 30 year the payment appears to be equal to renting cheaper apartments around town, but my point is I don't think that's a reasonable comparison. It's a three decade long financial obligation with an even higher interest. Paying that off in 15 years is already worse than just paying a 15 without overpayment.

My main question to Bogleheads is if I can just survive given the constraints and income. I don't want my quality of life to suddenly become miserable either. I've only ever rented, I don't really have the experience to understand if this is going to seriously upset my finances. Not just the mortgage but furnishing and maintaining a house, alone.

@Cycle I would guess my 40 year old self would probably not wanted me to live with my parents for so long, but roommates is just not happening. I want to live alone for a change, I never have. I already have roommates, they're called mom and dad but they do a lot less drugs.

michaeljc70
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Re: Can I Buy A House?

Post by michaeljc70 » Sat May 12, 2018 10:26 am

You have to look at your other expenses (including estimates for utilities and maintaining the home), add in the mortgage (and property taxes if they aren't included in the mortgage) and see how much you'll have left at the end of each month.

The thing with buying is, you generally make more money as the years go on yet your mortgage stays the same (if you don't move). Rents keep going up. Obviously some costs associated with a home like property taxes will go up. I remember when my parents mortgage was $110 and the neighbors were paying rents and mortgages around $900.

I don't know Kansas City, but I would also consider the type of house. Where I live, there are not many 2 bedroom houses and I think ones that do exist are a tough sell. That may be different in other markets.

Flyer24
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Re: Can I Buy A House?

Post by Flyer24 » Sat May 12, 2018 10:42 am

Keep in mind one thing. You are only 25. Life is going to change so much. Your first house as a single person is not going to be your forever house in most cases. Jobs can change and families grow. I am on my 4th house in 18 years. I would find something under $150k. My first house was a three bedroom for $90k. You have to start somewhere learning how to maintain a house. Don’t focus so much about trying to quickly pay it off. Slow down and just learn your budget the first few years. You need to learn about maintenance and upkeep costs first.

uclalien
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Re: Can I Buy A House?

Post by uclalien » Sat May 12, 2018 11:07 am

Watty wrote:
Sat May 12, 2018 7:23 am
POLO wrote:
Fri May 11, 2018 11:56 pm
I'd take a 30 year but again, in absolute terms the amount in interest paid to the bank is just terrifying.
That can be a lot so it is good to be cautious but a couple of things to keep in mind are;

1) It will likely be tax deductible so that you will effectively pay less.
Under current tax law, it's highly likely that all our most of the mortgage interest on a $150k-$200k home would not be deductible. Even under prior tax laws, that would not have been a foregone conclusion.

Charon
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Re: Can I Buy A House?

Post by Charon » Sat May 12, 2018 1:05 pm

You need to keep in mind that the cost of owning a house isn't just the mortgage. You also need to pay property taxes, home insurance, and pay for any upkeep and repairs. Make reasonable estimates for those, and then see what you can realistically afford. Owning a house is a big commitment and a lot of work, but since you know the area well and realistically plan to be there a while, buying could be a good idea. I would plan on buying something modest (as it sounds like you were), and don't be surprised if you sell it in 5 years due to a job/family status/etc.

This might be an unpopular opinion on bogleheads, but if you're truly maxing out your tax-advantaged space, you have a lot of income that could be redirected should you have difficulty. Just don't divert it to pay off your mortgage early - that's not a sensible investment.

I went with 15 year for the same reason you're thinking to, but I wouldn't obsess over paying off too early. Debt is intimidating, but rates are still historically pretty low right now, and paying off the house on schedule will let you have enough money to fix and improve things. Also it will let you build up enough money that you'll be able to sell if/when you want a bigger house in a different part of town. If you've focused entirely on paying off your mortgage, all your assets will be in the house and you won't be able to move.

Don't expect to deduct any of your mortgage interest, not with current tax law and home values like that.

Charon
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Re: Can I Buy A House?

Post by Charon » Sat May 12, 2018 1:09 pm

Oh, and make sure you decide on your home price upper limit based on your own conservative calculations, and ask your lender to pre-approve you only for that amount. Do not let the lender decide that you can afford twice as much, based on your income.

michaeljc70
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Re: Can I Buy A House?

Post by michaeljc70 » Sat May 12, 2018 3:23 pm

uclalien wrote:
Sat May 12, 2018 11:07 am
Watty wrote:
Sat May 12, 2018 7:23 am
POLO wrote:
Fri May 11, 2018 11:56 pm
I'd take a 30 year but again, in absolute terms the amount in interest paid to the bank is just terrifying.
That can be a lot so it is good to be cautious but a couple of things to keep in mind are;

1) It will likely be tax deductible so that you will effectively pay less.
Under current tax law, it's highly likely that all our most of the mortgage interest on a $150k-$200k home would not be deductible. Even under prior tax laws, that would not have been a foregone conclusion.
Why wouldn't it be deductible? Generally, interest on mortgages up to $750k is deductible. I think the issue is if it is worthwhile to do so as the standard deduction may now be higher than the interest and property taxes unless they have other deductions. At 4%, in the first year, the interest on a $150k house is 6k. The standard deduction for someone single is now $12k.

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Alexa9
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Re: Can I Buy A House?

Post by Alexa9 » Sat May 12, 2018 4:38 pm

Renting is better than buying a home when you're young and single. Homes have a lot of hidden costs. Don't think of renting as throwing money away. The total cost of renting is less than owning a home usually. There are drawbacks and advantages to both obviously. When you are married with dual income (and kids?) then a house makes sense.

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Watty
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Re: Can I Buy A House?

Post by Watty » Sat May 12, 2018 5:02 pm

POLO wrote:
Sat May 12, 2018 10:13 am
My main question to Bogleheads is if I can just survive given the constraints and income.
Part of the lack of clarity in the answers is that you have not actually given any numbers about what your income actually is along with more information about the rest of your financial situation. Unless I missed something all I saw was some vague "free and clear" disposable income number. I can understand not wanting to post personal information like that on the internet but that will impact the quality of the answers your get.
uclalien wrote:
Sat May 12, 2018 11:07 am
Under current tax law, it's highly likely that all our most of the mortgage interest on a $150k-$200k home would not be deductible. Even under prior tax laws, that would not have been a foregone conclusion.
That is a good point that the OP would need to check his numbers on that. With property tax and state income tax it would take some analysis to figure out how much of it would be deductible.

POLO
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Re: Can I Buy A House?

Post by POLO » Sat May 12, 2018 5:16 pm

Alexa9 wrote:
Sat May 12, 2018 4:38 pm
Renting is better than buying a home when you're young and single. Homes have a lot of hidden costs. Don't think of renting as throwing money away. The total cost of renting is less than owning a home usually. There are drawbacks and advantages to both obviously. When you are married with dual income (and kids?) then a house makes sense.
I want a garage to work on my car, a basement for a home gym and workbench, a backyard to sit in and keep a smoker, and the ability to make the interior and exterior whatever I want it to be. I'm interested in the typical benefits of home ownership with the exception of housing a family.

Honestly I'd rather just not move out vs. rent. I get nothing out of it except a hole where my monthly savings used to be.

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Cycle
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Re: Can I Buy A House?

Post by Cycle » Sat May 12, 2018 5:52 pm

POLO wrote:
Sat May 12, 2018 10:13 am

@Cycle I would guess my 40 year old self would probably not wanted me to live with my parents for so long, but roommates is just not happening. I want to live alone for a change, I never have. I already have roommates, they're called mom and dad but they do a lot less drugs.
I was referring more to the financial side. Reducing your housing costs will allow you to reach FI much earlier and be free to pursue whatever your heart desires without worry about financial security. A good way to reduce your costs is to have roommates or owner occupy a mutifamily unit. I have a duplex and could retire now at 34 if I so desired.

uclalien
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Re: Can I Buy A House?

Post by uclalien » Sat May 12, 2018 5:58 pm

michaeljc70 wrote:
Sat May 12, 2018 3:23 pm
uclalien wrote:
Sat May 12, 2018 11:07 am
Watty wrote:
Sat May 12, 2018 7:23 am
POLO wrote:
Fri May 11, 2018 11:56 pm
I'd take a 30 year but again, in absolute terms the amount in interest paid to the bank is just terrifying.
That can be a lot so it is good to be cautious but a couple of things to keep in mind are;

1) It will likely be tax deductible so that you will effectively pay less.
Under current tax law, it's highly likely that all our most of the mortgage interest on a $150k-$200k home would not be deductible. Even under prior tax laws, that would not have been a foregone conclusion.
Why wouldn't it be deductible? Generally, interest on mortgages up to $750k is deductible. I think the issue is if it is worthwhile to do so as the standard deduction may now be higher than the interest and property taxes unless they have other deductions. At 4%, in the first year, the interest on a $150k house is 6k. The standard deduction for someone single is now $12k.
That was exactly my point (and I think you know that). None of the mortgage interest would be deductible if the OP claims the standard deduction (which is extremely likely given the information provided). Even if the OP managed to push his itemized deductions above $12k, he would only see a net benefit on the amount exceeding $12k. Either way, the mortgage interest deduction is too insignificant to consider it a benefit in this particular situation.

Most people don't understand how taxes work, and therefore, mistakenly believe that they will receive the full benefit of deducting mortgage interest. When in fact, they will only see a net benefit on the amount exceeding the standard deduction. Let's try to not confuse the OP (and others) by saying, "Of course the interest is deductible!" Then in the next breath saying, "But it may not benefit you at all or in any meaningful way."

In addition, given the OP's distaste for paying interest, I suspect he will either take out a 15-year mortgage or make accelerated principal payments on a 30-year mortgage. Either way, the interest component of his mortgage payments will decline rather quickly, making the interest deduction even less relevant.

And just as a point of clarification, "At 4%, in the first year, the interest on a 30-year $150k house mortgage is 6k." The OP seems to prefer a 20%+ down payment (and a 15-year mortgage). Even with a home value approaching $200k, it's plausible that the OP could end up with a mortgage less than $150k.

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Cycle
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Re: Can I Buy A House?

Post by Cycle » Sat May 12, 2018 6:04 pm

POLO wrote:
Sat May 12, 2018 5:16 pm
Alexa9 wrote:
Sat May 12, 2018 4:38 pm
Renting is better than buying a home when you're young and single. Homes have a lot of hidden costs. Don't think of renting as throwing money away. The total cost of renting is less than owning a home usually. There are drawbacks and advantages to both obviously. When you are married with dual income (and kids?) then a house makes sense.
I want a garage to work on my car, a basement for a home gym and workbench, a backyard to sit in and keep a smoker, and the ability to make the interior and exterior whatever I want it to be. I'm interested in the typical benefits of home ownership with the exception of housing a family.

Honestly I'd rather just not move out vs. rent. I get nothing out of it except a hole where my monthly savings used to be.
Your needs will change as you age. I used to have a shop (mill, lathe, 3d printer), all the tools to maintain our vehicles and do major home rennovations. I get to play with that stuff at work (engineer), so I sold most of my tools, sold my car, snowblower, lawn mower... Owning lots of stuff was exhausting

chevca
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Re: Can I Buy A House?

Post by chevca » Sun May 13, 2018 6:24 am

I didn't see it brought up, but, the PITI monthly mortgage payment will be about 50% of the OP's take home or "free and clear" pay. Especially if they go with a 15 year mortgage. Granted the OP is young and income is likely to go up over the years. But, that ratio is high of what income goes to the mortgage each month!

I would have to vote, no, on this one.

OP, what can you find in the $100k house range? That's likely where you should be looking. And remember, this is your first house, or a starter house... it's not likely you would spend a whole lot of years in this house.

POLO
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Re: Can I Buy A House?

Post by POLO » Sun May 13, 2018 10:15 am

It really is very unlikely that even as a single filer, itemized deductions would exceed a $12,000 standard deduction. However this doubling in standard deduction probably means I should revisit my W-4, maybe my monthly income is higher than I thought. You're right to say I don't want to disclose much, but I wanted to at least say the area I'm in to give a better idea of the local housing market. The $2800 however is what I've got to work with, I'd say the rest is non-negotiable. The prospect of even having to disclose anything to a realtor makes me nervous.
Charon wrote:
Sat May 12, 2018 1:09 pm
Oh, and make sure you decide on your home price upper limit based on your own conservative calculations, and ask your lender to pre-approve you only for that amount. Do not let the lender decide that you can afford twice as much, based on your income.
Why is this? Will the lender then not allow me to take a mortgage half the size or mess with the rate?
chevca wrote:
Sun May 13, 2018 6:24 am
I didn't see it brought up, but, the PITI monthly mortgage payment will be about 50% of the OP's take home or "free and clear" pay. Especially if they go with a 15 year mortgage. Granted the OP is young and income is likely to go up over the years. But, that ratio is high of what income goes to the mortgage each month!
That's what I meant in the first post. You seem to be the first explicit "no", which is kind of what I was looking for.
This is that rule of thumb I was alluding to. Yeah, it's 50%, but so what? My monthly budget now consists mainly of gasoline, car insurance, groceries, and some months bigger one-time expenses. Altogether this has never exceeded $1000 in any one month, even when I was renting.
chevca wrote:
Sun May 13, 2018 6:24 am
OP, what can you find in the $100k house range? That's likely where you should be looking. And remember, this is your first house, or a starter house... it's not likely you would spend a whole lot of years in this house.
I don't think there's much there, for that kind of money I could probably find either a studio condo with $300 in association fees for a crappy gym or a foreclosure in a bad part of town. I think that's really silly, to take such a massive hit in my quality of life just to say I don't live with my parents anymore. Also the city proper has a 1% income tax so I don't intend to cross that border.

The big thing is I absolutely intend to spend a lot of years in this house, it doesn't come out in my favor under any other circumstance, at literally any pricepoint. I can't debate you guys on how my lifestyle will or won't change but I can say that in any case I need a roof over my head, and that I need to get something close to the highway to get around town quickly.

michaeljc70
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Re: Can I Buy A House?

Post by michaeljc70 » Sun May 13, 2018 10:33 am

What would the PITI be as a % of your total income?

POLO
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Re: Can I Buy A House?

Post by POLO » Sun May 13, 2018 11:43 am

michaeljc70 wrote:
Sun May 13, 2018 10:33 am
What would the PITI be as a % of your total income?
Worst case would be less than 25%

michaeljc70
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Joined: Thu Oct 15, 2015 3:53 pm

Re: Can I Buy A House?

Post by michaeljc70 » Sun May 13, 2018 11:56 am

POLO wrote:
Sun May 13, 2018 11:43 am
michaeljc70 wrote:
Sun May 13, 2018 10:33 am
What would the PITI be as a % of your total income?
Worst case would be less than 25%
Then you can afford, assuming your other expenses aren't high which it sounds like they aren't.

chevca
Posts: 1557
Joined: Wed Jul 26, 2017 11:22 am

Re: Can I Buy A House?

Post by chevca » Sun May 13, 2018 12:13 pm

POLO wrote:
Sun May 13, 2018 10:15 am
chevca wrote:
Sun May 13, 2018 6:24 am
I didn't see it brought up, but, the PITI monthly mortgage payment will be about 50% of the OP's take home or "free and clear" pay. Especially if they go with a 15 year mortgage. Granted the OP is young and income is likely to go up over the years. But, that ratio is high of what income goes to the mortgage each month!
That's what I meant in the first post. You seem to be the first explicit "no", which is kind of what I was looking for.
This is that rule of thumb I was alluding to. Yeah, it's 50%, but so what? My monthly budget now consists mainly of gasoline, car insurance, groceries, and some months bigger one-time expenses. Altogether this has never exceeded $1000 in any one month, even when I was renting.
chevca wrote:
Sun May 13, 2018 6:24 am
OP, what can you find in the $100k house range? That's likely where you should be looking. And remember, this is your first house, or a starter house... it's not likely you would spend a whole lot of years in this house.
I don't think there's much there, for that kind of money I could probably find either a studio condo with $300 in association fees for a crappy gym or a foreclosure in a bad part of town. I think that's really silly, to take such a massive hit in my quality of life just to say I don't live with my parents anymore. Also the city proper has a 1% income tax so I don't intend to cross that border.

The big thing is I absolutely intend to spend a lot of years in this house, it doesn't come out in my favor under any other circumstance, at literally any pricepoint. I can't debate you guys on how my lifestyle will or won't change but I can say that in any case I need a roof over my head, and that I need to get something close to the highway to get around town quickly.
I'm not really one for rules of thumb either. I brought that up as it sets off an alarm for me. If you take home $2800/month, have a $1400-1500/month mortgage payment, and spend $1000/month on utilities/groceries/gas/misc., that doesn't leave much cushion... just a few hundred extra a month. That's cutting it close to me. Remember, you will be a homeowner also. There is "always something" as a homeowner. Not even bad like a new roof or fridge. Just that you always seem to need this or that, and those things should be cash flowed, IMO. And, do you date or go out with friends or want to vacation sometimes? You are 25 after all.

Again, not basing my, no, on any rule of thumb out there. Just doing the math makes it seem really close each month. Considering a 30 year mortgage would give more room or cushion each month. Yes, it makes the interest total that much scarier. But, unless you have a couple hundred thousand $$ laying around, it's kind of the price of doing business. If you want to live on your own and be a homeowner bad enough, the interest paid is worth it in the end. Leaving yourself some monthly cushion would be more important at this point than looking at total interest paid. You may get some nice salary bumps along the way and you can pay it down aggressively then if you choose? You may make 4%/year in a savings account in a few years? We just don't know.

I agree that if going down to $100k would lower the lifestyle to an unbearable level, that would not be worth the drop. Stick with the price range that has all you want and need then. But, I still say, no, unless you make some adjustments to your thinking on the mortgage part of things.

chevca
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Re: Can I Buy A House?

Post by chevca » Sun May 13, 2018 12:17 pm

POLO wrote:
Sun May 13, 2018 11:43 am
michaeljc70 wrote:
Sun May 13, 2018 10:33 am
What would the PITI be as a % of your total income?
Worst case would be less than 25%
This is why it's difficult to give you a good answer without the full picture. That is easily affordable. But, your free and clear $2800/month income makes it seem very tight.

If you give more info, we can give better answers. You can likely afford it though knowing the above info. If things got too tight, it sounds like there's room elsewhere to adjust things and make it comfortable again.

Charon
Posts: 25
Joined: Thu May 03, 2018 12:08 pm

Re: Can I Buy A House?

Post by Charon » Sat May 19, 2018 1:07 pm

POLO wrote:
Sun May 13, 2018 10:15 am
Charon wrote:
Sat May 12, 2018 1:09 pm
Oh, and make sure you decide on your home price upper limit based on your own conservative calculations, and ask your lender to pre-approve you only for that amount. Do not let the lender decide that you can afford twice as much, based on your income.
Why is this? Will the lender then not allow me to take a mortgage half the size or mess with the rate?
The lender will let you get any mortgage up to the pre-approval limit. If you don't give them a limit, they will pick one for you - and it may be a lot higher than you'd reasonably choose for yourself. If you're anything like me, choosing the limit yourself will make you feel good that you can really afford it, and will reduce the temptation to look at houses above that limit (but which the bank thinks you could afford). I also used it as a negotiating tactic, as I found a house $5k over my limit and could show them the letter saying that the loan wouldn't work at their asking price. (This was a couple years ago - the housing market is tighter now, and this won't work in a competitive bidding war.)

The rate is unrelated to your pre-approval limit, as long as you can put 20% down and aren't hitting a jumbo loan.

JoeRetire
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Joined: Tue Jan 16, 2018 2:44 pm

Re: Can I Buy A House?

Post by JoeRetire » Sat May 19, 2018 1:19 pm

POLO wrote:
Fri May 11, 2018 6:36 pm
Hi everyone, I'm a 25 year old guy and I'd like to buy a smaller two bedroom home instead of renting.

I want a garage to work on my car, a basement for a home gym and workbench, a backyard to sit in and keep a smoker, and the ability to make the interior and exterior whatever I want it to be.

Do you all think I could manage?
It appears that you can indeed manage if that is your goal.

Remember that you will have a lot more expenses and responsibilities than you did as a renter. In addition to the mortgage, real estate taxes, insurance, utilities, furnishings, maintenance, upkeep, landscaping, etc, etc - all will be higher. And when something goes awry, it's all on you to get it fixed. Are you very handy around the house? Are you looking for a fixer-upper?

I don't know what the housing market looks like in your locale. In my neck of the woods, it's extremely competitive. You would be paying top dollar right now and you would have to bid above the asking price to land almost anything worth having.

At 25, are you settled down enough to know where you want to be for a while (10 years or so)? If not, I'd suggest not buying yet. And if you still feel compelled to buy, I'd suggest 20% down on a 30-year mortgage. Keep your payments low, your money liquid, and all of your options in play.

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