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To give readers an idea; Here are some of the unexpected problems I ran into in the 5 years since buying my house:
(long list of expensive repairs snipped for brevity)
In hindsight - which does you no good now - did you ever consider getting a home warranty as part of the closing costs when you bought it?
I had one included as part of my contract - paid for by the sellers for the first year. I think the cost at the time was around $400. Got a lot of things fixed that first year (My house was about 14 years old when I bought it) The only thing I didn't like is the hard sell tactics used at the end of that year to get me to sign up for another year. They called and called and called and called ...
Something to think about for anyone buying a house. Just make sure the seller pays for it, LOL
In this market I would max out with the most expensive house you can afford at a low fixed rate.
This really depends on the area. I would say that in much if not most of the country the housing market has rebounded to a very healthy level. Now two years ago you would have a good point, although as others have already said, it's always a good idea to leave yourself some breathing room.
When we bought our first house, my parents gave us the advice to buy the biggest house that we could afford. Since we would be building a family there and it would provide us with more time before we would need to (if ever) move up in size. The rationale was that we would get raises every year and promotions as time went by, and each year it would get easier and easier to pay for the mortgage and expenses. So we would have a few very lean years in the beginning, but it would pay off in the long run.
It sounded like good advice at the time, so that is what we did. During the housing boom when you could get a mortgage with virtually no documentation for just about any amount. We thought we were smart about it. We bought what we could afford (at the very top of what we could afford, but less than what the mortgage company said they'd give us), and set up a reasonable but tight budget. And then insurance rates went up. And our property taxes went up from $3,500 to over $8,000 in less than 5 years. And gas kept going up, up, up. And then the economy went south and none of those raises materialized. So instead of it getting easier and easier each year, things just got tighter and tighter.
So while my parent's mentality was probably sound 30 years ago, I would not recommend that anyone stretch themselves so thin today. To do it over again, we should have bought something smaller and cheaper. We would have been able to live a bit more comfortably on our income, and enjoy our lives more in general. Nothing is worse than having no money in savings, a baby, and every single cent spent before your paycheck even hits yours hands. Luckily we were able to make things work until those raises and promotions finally started rolling in, but I would still consider it a cautionary tale. You should be able to afford your house, all of your living expenses, an emergency fund, some percentage of your paycheck to a 401(k), and some small amount to savings. At a bare minimum. We're still trying to get "caught up" on all those lost years of retirement savings.
Thanks for sharing your experience OhioToCO.
Good advice, years ago housing appreciation was almost a guarantee, and it probably still is in the long term. But that long term time horizon may be further out than some people can weather if they get themselves in over their heads in the short term. In the near term buying for the future can also get a little bit dicey because you are paying that whole time for a lot more house than you need.
I agree with others that have mentioned the two income trap. Our goal is to buy such that we aren't on the street if something happens to one income.
For the consideration of those asking this question, here is my real-life example.
Purchased a house in 2012, monthly payment of $1,952. Insurance went up slightly in 2013, making our payment $1,976.
End of 2013: county assessed all properties in its unincorporated part additional 5k - 6k in property taxes to be paid over 15 year period (long story), which brings our property taxes up ~$400/year, insurance went WAY up, about $500/year because of the recent floods in the area. Despite the fact that we were not affected by the flood, and there is no way we would be, since we are way outside of the flood plain, I'm sure this increase is due to multiple insurance claims they received from our area. I will shop around to see if I can get a better rate from someone else, but I don't have my hopes high.
So, this will bring our mortgage payment up an additional ~$90/month. We are OK, since we bought less than we could afford, and our mortgage payment is about 20% of our net, about 12% of our gross.
I just want posters who come here to ask about affordability to think about the possibility of the above scenarios.
Flood insurance is a national program and insurance companies only service the product produced by FEMA. So it is what it is and you can only buy national flood insurance based on FEMA accessment of risk of your area flooding. truth is private insurers do not want to cover flood insurance. County taxes is a matter of your county official raising the taxes people there voted for. In most areas you can contest accessed valuation on taxes but not the rates.
so...when your insurance raises...SHOP!!! Many companies will be cheaper than what your current company is charging because the are doing a market penetration campaign....I would stick to companies that offer discounts for both Auto AND Fire together...because the discounts are great! If your credit is good and your claim hx is next to nothing...there is NO REASON you can't find a great rate. The key is...you have to be a NEW CUSTOMER...and be willing to change at the drop of a hat. Read your policy, understand what is covered, understand the difference between REPLACEMENT COST and MARKET VALUE and insure correctly. Also understand your RIDERS!!!! (Do you really need that rider?)
On the flipside...challenge those assessments! The market has gotten better...but NOT that much better! FIGHT for yourself...blanket statements are made to be challenged...most people don't, so they pay. FIGHT THE POWER!!!! DON'T LET THE MAN KEEP YOU DOWN!!!! WOOT-WOOT!
in all honesty...if $75 a month is going to bankrupt you...maybe cut the cable, the cell, the internet, the starbucks, the gym, the self pampering, and whatever else nickles and dimes you every week. $75*12= $900 ($400 tax + $500 insurance).
In hindsight - which does you no good now - did you ever consider getting a home warranty as part of the closing costs when you bought it?
I had one included as part of my contract - paid for by the sellers for the first year. I think the cost at the time was around $400. Got a lot of things fixed that first year (My house was about 14 years old when I bought it) The only thing I didn't like is the hard sell tactics used at the end of that year to get me to sign up for another year. They called and called and called and called ...
Something to think about for anyone buying a house. Just make sure the seller pays for it, LOL
A home warranty was the first thing I got when I purchased the house. So many of those breakdowns that I mentioned was fixed free of charge to me. So your absolutely correct to recommend a home warranty for home buyers. The company I have is actually one of the good ones. No hard selling tactics required on their part for me to re-sign.
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(My house was about 14 years old when I bought it) The only thing I didn't like is the hard sell tactics used at the end of that year to get me to sign up for another year. They called and called and called and called ...
