Question for first time home buyers (pay, rent, taxes, rate)

[UntilTheNDofTimE]

This question is to all of you when you bought your first home.

I'll preface by saying that I'm a very prudent saver and the last few years have been able to save 40-50% of my gross income. I'm at a point where I'm very comfortable with the retirement money I've put away and I wouldn't mind sacrificing aggressive retirement savings to purchase a home. However where I live is so expensive compare to the median income.

Back in 2012 when I had my first stable good paying job in my early 20's, 150-200k seemed like a lot for a house and it wasn't something I was ready for. Those same homes are selling for 300-450k now. And five years later that 150-200k is very affordable for my current income.

Finally to my question. When you bought your first home was the payment affordable at the time, or did you struggle for a few years until you started making more money through career advancement or wage inflation. A lot of my friends seem to fit this criteria. A recent friend bought a house for 400k+ and since we both worked for the govt I knew his salary. He got approved on his own with a 100k downpayment but his payment is roughly 70% of bet by his admission. His GF lives with him so he has some income support. Even without her he said he's comfortable because in a few years he'll go from making 60k to 90k and the payment will be easy for him then.

In my area I couldn't touch a decent home for under $350k. With 3.5% down and a 30 year at 5% would be approx $2200 a month which would be nearly 60% of my net take home. I could rent out a room for $600-$700 a month if I want to. This seems very expensive but in 5 years I'm sure I'll be making a lot more and that $2200 will seem very affordable. If I wait until then, that 350k home may be $500k.

I have a job where I can pretty much transfer to any state in the country and not see a huge drop in income. That may be an option but with aging parents in questionable health it's not something I'm considering now.

[veuvegirl]

For our first home we made sure to have an affordable payment. Our home now, we are struggling. We bought what we could afford, but my husband lost his job.

Having been in both situations, I would never buy a house we couldn’t easily afford.

[MrRational]

Originally Posted by UntilTheNDofTimE

When you bought your first home was the payment affordable at the time, or...

Yes it was affordable.

In my area I couldn't touch a decent home for under $350k.
With 3.5% down and a 30 year at 5% would be approx $2200 a month
which would be nearly 60% of my net take home.

1) Too much. Way WAY WAY too much.
2) Do some deep contemplation for how you define "decent"

I could rent out a room for $600-$700 a month if I want to.

That's summer travel money... NOT budget your life around money.

...in 5 years I'm sure I'll be making a lot more and that $2200 will seem very affordable.
If I wait until then, that 350k home may be $500k.

Yup. That's what the RE agents say as well.
Don't fall for it.

...but with aging parents in questionable health it's not something I'm considering now.

Consider your options for some sort of co-housing with them or on their property rather than buying at all (now).

[Mr. Zero]

We were in our mid-30s and our careers were shifting into high-gear when we purchased our first home. We were easily able to afford the mortgage.

[UntilTheNDofTimE]

Originally Posted by MrRational

Yes it was affordable.

1) Too much. Way WAY WAY too much.
2) Do some deep contemplation for how you define "decent"

That's summer travel money... NOT budget your life around money.

Yup. That's what the RE agents say as well.
Don't fall for it.

Consider your options for some sort of co-housing with them or on their property rather than buying at all (now).

Decent defined by me is not in a crime ridden area. I'm a very frugal minimalist. I'd buy a 1,000 sqft house if they had those in my city. They do have small houses like that in one area. They are all 300k+ and they all need to be renovated drastically.

I know 60% of net is outrageous. I'm not looking to get myself in that situation. I just quoted it as part of my question to show that housing isn't affordable for my 60k income. However if housing continues to rise it will never be affordable for me.

Thanks for the feedback. Personally I'd rather just continue to sock 24,000+ away yearly in my 401k and IRA but renting a room through my 30's isn't something I want to do either. It's a mater of balance and I'm looking for that. But that's living in CA for you. I have family in New Mexico where non skilled labor pay 15-20 an hour and new housing can be had for 130k. Wish that was a thing here.

[MrRational]

Originally Posted by UntilTheNDofTimE

However if housing continues to rise it will never be affordable for me.

You aren't alone in this... especially so in California.

I'd rather just continue to sock 24,000+ away yearly in my 401k and IRA but...

No but. This IS the smart move. Retirement savings is far more important than home equity
and especially so in high RE cost areas (like California or Manhattan etc).

But if you want to have a home (emotionally) then you need to save more AFTER tax...
then you can make a deeper down payment (like 20%) and have the needed cash reserves too.

...renting a room through my 30's isn't something I want to do either.
It's a mater of balance and I'm looking for that.

This is where the spouse or similar enters the calculation.

If you can get the Monthly Housing Costs (incl mortgage, utilities, fees, etc) to the 30% of net level...
maybe even the 35% level... then the housemate contribution can begin to make some sense.
(the target I advocate is 25%). Just don't estimate it at too high a $$ or for full occupancy.

Originally Posted by SomeCrank

Retirement Saving counts for most; even more important than possible house equity.

Save/Invest First:
Annual Gross $90,000 -10% into Saving/Investment Accounts (PreTax)
Taxable = $81,000 less ~20% Payroll Deductions = ~$65000 Annual Net Income
$65,000 - $5K After Tax Save/invest = $60,000 Annual Net Income; $5000 per month.

Live on what that allows you:
$60,000 ÷52 = $1153 Weekly net (budget basis number)
Monthly Housing Costs Target (including ALL fees) = $1,153
Monthly Cash available for everything else? ($60K -14K ÷12) = $3,833

$1153 - $200 for utilities - $300 for taxes only leaves them $653 for mortgage (P&I).
At the current 3.92% rate that's LESS THAN $150,000 balance.
Even with substantial Down Payment $$... That tops out at about a $200,000 property.
Not much house in CA.

otoh... $1153 - $200 for utilities leaves them $953 for rent (and zero responsibility)..
Add another $500 from a housemate of some sort ($700÷8.5mos)... and they have $1453 for rent.
What can they get for that in Sac? LINK

[Nolefan34]

To the OP: You cannot afford it. 60% of your paycheck is WAY too much to spend on a mortgage. Experts recommend no more than 30% but even that is high. Does the 60% even take into account HOA dues? Taxes? Insurance? It’s not even certain you would get approved for a loan. The lenders will look at your financials and see you can not afford it.

Part of your problem is the low down payment. 5% or less means you’ll have almost no equity and high monthly payments. Your cash flow will be severely crimped. You are one emergency away from disaster. If you could spend a couple years saving $100-150k you could muster a decent down payment.

[Parnassia]

Originally Posted by Nolefan34

To the OP: You cannot afford it. 60% of your paycheck is WAY too much to spend on a mortgage. Experts recommend no more than 30% but even that is high. Does the 60% even take into account HOA dues? Taxes? Insurance? It’s not even certain you would get approved for a loan. The lenders will look at your financials and see you can not afford it.

Part of your problem is the low down payment. 5% or less means you’ll have almost no equity and high monthly payments. Your cash flow will be severely crimped. You are one emergency away from disaster. If you could spend a couple years saving $100-150k you could muster a decent down payment.

This. You can make a big dent in the cost of financing by handing some lender a big down payment. If you've saved that money you have a lot more discretion in how you use it...it's already yours. A heavily-mortgaged property isn't. If you are committed to living where you are now that is. That could easily change in the future. Also, remember that the mortgage isn't the only "new" expense to consider when budgeting for home ownership. Property tax can take a big bite too, especially in a high cost area. I'd imagine tax rates in many areas of CA are steep.

[CA4Now]

Originally Posted by UntilTheNDofTimE

Finally to my question. When you bought your first home was the payment affordable at the time, or did you struggle for a few years until you started making more money through career advancement or wage inflation. A lot of my friends seem to fit this criteria. A recent friend bought a house for 400k+ and since we both worked for the govt I knew his salary. He got approved on his own with a 100k downpayment but his payment is roughly 70% of bet by his admission. .

Back when we bought our first home, a condo, one could not qualify for a mortgage like this; lending was much more strict. They scrutinized your income statements and it was just not possible (thankfully). And this was when mortgage interest rates were in the double digits. Most people's mortgage payments were about a third of their gross income.

[emm74]

Is 60% before or after saving 40-50% of your income?

And what happens if you put more money down to keep your monthly payment more reasonable?