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One thing I would caution you on is the preapproval amount from the lender. That is the supposed maximum you can afford. Unless you enjoy rice with occasional hotdog slices throw in once a week, try to stay away from taking out a mortgage that is at the max.
If you're looking at $100,000 homes and your income is $100,000/yr, you are golden. Your PITI (principal, interest, taxes, insurance) on that $100,000 home is likely going to around $700/mo. To get a more accurate number, type in the actual numbers to a mortgage calculator.
Your monthly net income is around $5500. Do you have any other debt?
I'm glad you are taking as much time to think about your future home purchase than we ever did. We made some costly mistakes because we hadn't thought it through.. we just went by what we *thought* couples were supposed to do once they got to a certain age.
In hindsight everything we probably thought (and did) was wrong. And it cost us tens of thousands.
We don't have a SFH, but we have a condo. Our first property was a home and it was a money sink. People are right when they talk about maintenance issues. With our condo we pay an HOA every month, and it's expensive, but it's predictable and covers all the big, scary stuff that's outside the walls. We just have to cover what's indoors, which feels way more manageable.
I would think that if rents are now higher than a prospective mortgage then it's a good time to consider buying. I like building equity.
If you are considering doing this before you're 40 and you're closing on 39 now then we're not talking about a long duration of time. It's really not! You can totally suck it up for a year or year and a half and live bare bones.
The sky won't fall if you don't max out your accounts either. Just make sure you get any employer matching.
Are you an Aquarian?
I'm only contributing just enough to get the match right now. However I'm behind (way behind) in retirement funds so that's why I was questioning if I should 'stop living' for the next 15 months or so and kill myself contributing to retirement funds 'and' a house downpayment fund.
I had a separate thread in the Atlanta section about HOAs. They scare me because of the additional cost
Your rent/house price ratio is unbalanced IMO meaning that you pay too much rent in comparison of how low your mortgage would be. So would advise you to buy.
I thought the house market is super high right now??
Remember, sacrificing now by saving up will make you appreciate your house even more.
If I can get the 20-30k saved up the home itself will be closer to 120k. And likely an older one bedroom condo in a not-overly-crime-ridden-but-nowhere-near-luxurious area.
However, these are indeed going fast and every few months it seems there are less and less to pick from I admit. So who knows what I'd have to choose from by the time I do buy.
Last edited by southkakkatlantan; 09-01-2017 at 02:06 PM..
I'm a few years younger than you and I've purchased two houses, both with low down payments.
The first time, I was living far from family in a one bedroom apartment. Family would come visit and they would have to sleep on an air mattress in the living room. For less than my rent, I could own a 3 bed/2 bath house. So I did it. I was approved for $150K, took out $113K.
Due to a screw up by my realtor and inspector (long story- has to do with missing unpermitted work before I purchased the house and it wasn't discovered until I had it under contract to sell), I lost quite a bit of money when selling my house. I had to wipe out my entire savings, bringing cash to the table to close it. Then, I had a few years of unhappy employment and I bounced around. Payroll screwed up at one place, and I ended up taking 3 months unpaid just as I was becoming stable. So, financially, after moving back to my home state, I was a wreck. (Better than many, but a wreck for me- 680 credit, maxed credit cards, $0 in bank)
Once my job was stable, I quickly paid off all of my debt and built my credit score back up. I originally planned to wait until I had saved 20% before buying. I hated apartment living and a one bedroom was not enough room. Rent for two bedroom apartments is more than a mortgage, so I decided to look. I ended up finding something. I kept my budget VERY low. I wouldn't even let the mortgage banker give me an amount I was approved for. I didn't want to be tempted. I told her my strict budget and she approved me only to that amount. My mortgage is close to the equivalent of one year's salary. If I was going to rush into buying, I wasn't going to over extend myself. So now, my total payment (PITI) is about $100 more than my rent was, for double the square footage (quadruple if you count the basement) plus a three car garage and a large yard. My mortgage is less than 1/5 of my take home pay, so it is not difficult to afford. My car will be paid off in three more months, so then I will have even more money freed up.
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tl;dr
If everyone waited for 20% down, there would be few homeowners. You can make a smart decision without 20% down. When you are doing a low down payment, make sure to keep your budget reasonable. Do NOT take out the maximum loan amount you are approved for.
Thanks for sharing your story.
I'm not prequalified but the calculators say I could get approved for a bit north of 300. That's right at where most of my friends who are making around what I make buy at. I want to go less than half that. For the reason of being able to afford to max out retirement accounts and travel basically. I'm looking in the 1 to 1.5 times salary amount. Would love to be under 1 times my salary but it's probably unrealistic.
The next set of questions is just how slap dash a rental can satisfy you...
so that you'll have the extra $$/month needed to invest elsewise.
That's the question isn't it? I like renting...a lot. In terms of having no maintenance costs and more flexibility in terms of mobility.
I'm sure you've been reading and/or posting in the other thread about renting versus buying...if the plan is to 'never' buy then I have to depend on what's available of my own income to invest. If I buy as I mentioned at least I can get a property eventually where the mortgage costs are shared freeing up additional funds I did not have to earn from a W2 to invest. By renting I forgo that opportunity, right?
If the plan is don't buy, then as of 'today' I could max my 401k and that's it, nothing more really*. That's currently the amount I'm putting away into a down payment fund.
(* Yes I know some might say I can do more by moving out, getting a roommate (again), never traveling, cutting my own hair, growing my own food, etc. etc. etc. but I'm just going by my budget as of today. If I don't buy then I have enough left over in the budget right now to max a 401k.)
Last edited by southkakkatlantan; 09-01-2017 at 02:10 PM..
One thing I would caution you on is the preapproval amount from the lender. That is the supposed maximum you can afford. Unless you enjoy rice with occasional hotdog slices throw in once a week, try to stay away from taking out a mortgage that is at the max.
If you're looking at $100,000 homes and your income is $100,000/yr, you are golden. Your PITI (principal, interest, taxes, insurance) on that $100,000 home is likely going to around $700/mo. To get a more accurate number, type in the actual numbers to a mortgage calculator.
Your monthly net income is around $5500. Do you have any other debt?
My net income is moderately lower than that. But that's partly because some of my income comes from a 8% bonus lump sum at the end of the year. Income taxes are a bit higher in my state as well.
I have about 10k in student loans and that's it. Rate is too low for me to throw savings money at it and it doesn't bother me right now. I have about 30k available in credit cards and I put all my bills on them every month for the points for travel. But I pay it off every week (yep, I said week...I'm a bit obsessive as I've seen and experienced things in life that have me scared of debt).
I don't own a car so no car debt.
I don't plan on going anywhere near the max. As tempting as I'm sure it will sound, I know the decision to do that would set the course for the remainder of my life, likely 'not' for the better.
I tend to agree with MrRational's assessment. Don't buy if you're not planning to "stay put" for a long time. Owning property adds responsibility, not freedom!
Given your rent and your income it seems you should have plenty to be able to save and have fun too, unless there's some additional expenses we're not privy to here.
Based on all the other 'quality of life' issues you talk about it does seem to suit best.
Maxing out the 401K should be happening regardless of the buy or rent question. You should have other pretax accounts as well (IRA, HSA, etc).
At 20something a person can still get away with ignoring those retirement fund realities.
But once you cross 40 you just can't do that anymore.
For many in your boat the solution is to find a wealthy lover.
Regarding the bold...I can't max out the 401k 'and' max an IRA 'and' save 15k annually right now for a home. That's almost $40,000.
As for the wealthy lover...at my age, I think that's also something best left for the twenty-somethings
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