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Old 09-01-2017, 08:15 AM
 
Location: Atlanta
2,920 posts, read 2,830,978 times
Reputation: 1748

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I'm 38 and would like to buy a home around the time I turn 40 (in roughly 15 months). I'd be a first time homebuyer.


How do you know you're financially ready to buy a home? I've spoken with others and after giving them background information they say I'm not ready because I need to be in a position to:


a. Have a 20% downpayment
b. Be maxing out retirement accounts while still saving for the 20% downpayment (I'm only contributing the minimum this and next year while saving for a home*)
c. Already have a fully funded emergency fund (think 1 year of expenses in an account somewhere-I've got more like 2-3)


1. I plan on saving 20% down. But now I'm reading that it's ok to go with a 3.5% down FHA or similar loan as a first time homebuyer. I'm looking at properties low enough that I don't think the PMI would amount to much if I go with such a loan. So I'm debating on the 20% down part right now. Thoughts?


2*. I'd like to hear from others who were able to both max their retirement accounts while saving 20% down. How long did this take for you? How much did you put down total? What did you sacrifice? Right now I'm sacrificing the retirement contributions in order to save for the 20% down but now I'm rethinking if this is a bad idea. I'm already way behind in retirement savings anyway. What do I think it would take in order to still max out the retirement accounts and save for the downpayment at the same time? I think it would take me cutting the budget to the bare bones. Meaning: absolutely no travel anywhere until I purchase the home, no going out with friends to anywhere that requires spending any money, no charity type of contributions, and finding ways to pick up a good bit of additional income. This sounds like a daunting task and I guess I could use some inspiration.


3. Is it fair to say that, if I am not accomplishing a,b and c above before buying a home, that I'm not ready to purchase? Rents are rising rapidly where I live so it makes sense to buy sooner rather than later. But that's my inexperienced opinion. In my mind, being able to purchase a home that frees up way more money than I'm paying now in rent will then give me the opportunity to max out retirement funds and fully fund an emergency fund. Even with maintenance costs I do believe I'd come out ahead buying soon which is the main reason I've finally decided to look into doing so. But maybe I'm being naive and thinking about all of this the wrong way.
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Old 09-01-2017, 08:22 AM
 
8,916 posts, read 3,245,350 times
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are you ready to take care of a house? to keep it from falling apart?

the mortgage payments are cheap and easy part of owning a house, if you need more money for it, work a 2nd job but the problems don't go away because you have extra money unless you are paying someone to do them

that's how I decided I was ready for a house. the money issue was not an issue, I was paying as much on rent anyhow so it wasn't a concern. If this is a problem, buy a smaller/cheaper house

I paid $1200 for rent for the conveniences, now I pay $900 in mortgage + $200 for upkeep/conveniences, so the money isn't different
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Old 09-01-2017, 08:39 AM
 
Location: Atlanta
2,920 posts, read 2,830,978 times
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Quote:
Originally Posted by MLSFan View Post
are you ready to take care of a house? to keep it from falling apart?

the mortgage payments are cheap and easy part of owning a house, if you need more money for it, work a 2nd job but the problems don't go away because you have extra money unless you are paying someone to do them

that's how I decided I was ready for a house. the money issue was not an issue, I was paying as much on rent anyhow so it wasn't a concern. If this is a problem, buy a smaller/cheaper house

I paid $1200 for rent for the conveniences, now I pay $900 in mortgage + $200 for upkeep/conveniences, so the money isn't different
To answer your question:


I think so I may not be able to do everything myself, but I'm in a position to be able to pay for it, can save to ensure I have the funds to pay for when things go wrong, and am definitely resourceful enough to be able to find the best prices for paying for maintenance related expenses.


Good point that you are paying as much for your home as you did in rent. I need in mind that although the mortgage will be cheaper than rent, the maintenance fees will put me at the same as what I'm paying rent (if not more).
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Old 09-01-2017, 11:37 AM
 
28 posts, read 14,269 times
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Can I ask why you want to buy a home? From a strictly financial perspective, it sounds like you would be stretching yourself to save a down-payment and your quality of life will suffer in trying to do this. And once you get your house, you will be "house poor." If you post some numbers regarding your financial situation and the cost of the home you would be looking at, I think people could provide more objective advice here. Lastly, just ignore people who tell you that you need to buy a home or how you should spend your money. When I hear people say the phrase "you are just throwing your money away on rent," it's a sure sign to me that the person is simply not educated on pros/cons of home-ownership vs. renting, and are simply regurgitating what they have heard others say.
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Old 09-01-2017, 12:15 PM
 
Location: The Triad (NC)
25,539 posts, read 55,178,360 times
Reputation: 26799
Before the specific number questions of affordability of property X or Y...
are the job stability and income adequacy questions.

First of these is do you expect to be --do you want to be-- in place for no less than seven years.
At 40ish though the question really needs to be asked in terms of staying in place to retirement age.
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Old 09-01-2017, 12:18 PM
 
Location: Atlanta
2,920 posts, read 2,830,978 times
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Quote:
Originally Posted by chicagocpa22 View Post
Can I ask why you want to buy a home? From a strictly financial perspective, it sounds like you would be stretching yourself to save a down-payment and your quality of life will suffer in trying to do this. And once you get your house, you will be "house poor." If you post some numbers regarding your financial situation and the cost of the home you would be looking at, I think people could provide more objective advice here. Lastly, just ignore people who tell you that you need to buy a home or how you should spend your money. When I hear people say the phrase "you are just throwing your money away on rent," it's a sure sign to me that the person is simply not educated on pros/cons of home-ownership vs. renting, and are simply regurgitating what they have heard others say.
Reasons I want to buy a home:


Based on housing prices in my area now it seems buying would be less expensive. For example, my rent is 1200. I'm looking at homes around 100k right now. That's close to 1 times my annual salary.


Right now I'm on track to have 20% down by next summer but that is WITHOUT sacrificing much of my quality of life. My dilemma is I have been questioning if I should sacrifice the couple of 'wants' in my life I still pay for in order to go the 'max retirement accounts AND save 20%' route.


I've never considered rent a waste of money. It wasn't until rents started going up as high as they are now that I started truly considering owning.


What's house poor exactly? I'd only have about 4-5 months worth of expenses in the emergency fund by the time I buy. Is that low enough to be considered house poor in your opinion?

Last edited by southkakkatlantan; 09-01-2017 at 12:28 PM..
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Old 09-01-2017, 12:27 PM
 
Location: Atlanta
2,920 posts, read 2,830,978 times
Reputation: 1748
Quote:
Originally Posted by MrRational View Post
Before the specific number questions of affordability of property X or Y...
are the job stability and income adequacy questions.

First of these is do you expect to be --do you want to be-- in place for no less than seven years.
At 40ish though the question really needs to be asked in terms of staying in place to retirement age.
Excellent question.


I don't want to stay in place anywhere for 7 years ever. But honestly, that's just the wanderluster in me. I love to travel. I considered moving around for a while but I don't foresee that happening now. I decided that would be too complicated and instead feel that I should set down roots and use the property as a means to traveling more. What I mean by that is one day I want to own my own place so I could AirBnB and do home exchanges-it's a way of swapping homes so your accommodations are free. I see it as a way to have my cake and eat it to-benefits of homeownership but a flexible plan that allows me to still see other places without the expense of moving.


Yes, I know there could be restrictions on this based on what I buy and where.


On another note, the other reason I want to own is the possibility of putting someone else in the property to offset some or most of the mortgage. I could get a roommate in a rented apartment, yes. But doing that with one other person, you almost always split the rent in half so the most you get off the rent is 50%. However, let me give an example that one of my friends bought a duplex and her tenant in the other unit pays her entire mortgage. I think that's very smart.
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Old 09-01-2017, 12:40 PM
 
Location: Portal to the Pacific
4,433 posts, read 4,300,780 times
Reputation: 4919
We are very close in age.. possibly within days!

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.
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Old 09-01-2017, 12:50 PM
 
Location: Greater LA area
15,070 posts, read 10,940,904 times
Reputation: 28646
Quote:
Originally Posted by southkakkatlantan View Post
Reasons I want to buy a home:


Based on housing prices in my area now it seems buying would be less expensive. For example, my rent is 1200. I'm looking at homes around 100k right now. That's close to 1 times my annual salary.


Right now I'm on track to have 20% down by next summer but that is WITHOUT sacrificing much of my quality of life. My dilemma is I have been questioning if I should sacrifice the couple of 'wants' in my life I still pay for in order to go the 'max retirement accounts AND save 20%' route.


I've never considered rent a waste of money. It wasn't until rents started going up as high as they are now that I started truly considering owning.


What's house poor exactly? I'd only have about 4-5 months worth of expenses in the emergency fund by the time I buy. Is that low enough to be considered house poor in your opinion?
where is that???? OH my!!! Houses for $100k?????


BUY!!! haha.


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.
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Old 09-01-2017, 01:04 PM
 
Location: Back in the Mitten. Formerly NC
3,726 posts, read 4,631,248 times
Reputation: 4959
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.


********
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.
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