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After graduating college, and looking to get a family started, it is totally beyond me how people manage to actually buy a house.
After calculating things out, it seems a family would have to be making in the neighborhood of $75,000 to afford a barebones house at around $150k. So once you deduct your basic living expenses, you're left with next to nothing to try to buy a house. Just to crunch a few numbers, would this seem like a reasonable (rough) estimate?
Home Ownership expenses
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$4000/yr - Property Taxes - Rochester, NY area
$ 800/yr - Homeowners Insurance - NY average
Subtotal = $ 400/mo
Total before mortgage = $2120/mo
$150,000 30yr 6.0% fixed mortgage = $900/mo
So post-income tax, you'd have to be making in the neighborhood of $3000/mo just to EXIST (or around $50,000/yr pre-tax). And that's not even including 'extras' like emergency money (car trouble, appliances breaking, job loss), kids college, clothing, vacations, or whatever other expenses might crop up. Ugh.
Good to see that others who are starting out are thinking this through the right way. Having lived in WNY for many years I can validate most of your numbers. My thoughts are the following regarding how they can be adjusted/changed realistically. How you might want to adjust your thinking.
1) get rid of the car payment and lower your gas expenses... buy a car with cash (used is the way to go). Get something reliable, a few years old, very fuel efficient (compact or sub-compact car), and with low-mileage. Nothing with monthly payments because monthly payments will just decrease your ability to borrow money for a mortgage or anything else for that matter. Cars are just a poor investment in general, so pay for them in cash.
2) Find a job with benefits so as to lower your insurance/healthcare costs. The numbers you gave seem high for someone who is young, healthy, and single (and when working for a corporation). The number is about right if you are insuring a dependent such as a spouse. If you indeed have a spouse then hopefully he/she has some income (this day and age I'd expect that to be the case, if not, then I would hope to hear a good reason because now more than ever before double incomes are needed to live the stereotypical American dream so many seek).
3) Don't look at buying a house right now. Until you find a life-partner, or until you earn more money with one or by yourself, look into buying a condo at the most. Otherwise look into identifying a very good value rent-wise. The expense examples you provided are right on target for homeownership. If you rent you can cut them significantly. So for now rent someplace affordable and try to save as much from your paycheck as possible with the ultimate goal of eventually buying a home a few years down the road. You don't need to buy a home right out of school, and indeed it will do more to potentially cause you harm (financially) than waiting.
If you have a life partner already, just don't rush into homeownership. You've probably heard more about the positives than the negatives. Negatives such as the high cost of maintenance which comes with a home, negatives about significant chunks of paychecks (and the associated employment pressures/stresses) taken out to cover your mortgage payments. Lastly, negatives about how if you have less than 20% in cash down-payment to apply to a mortgage at closing your loan terms will be less favorable and indeed the ones who then get the best deal are the lenders, not the buyers.
4) Look into buying a home (or even renting) in a more affordable state or area. The reality is that NY has a high cost of living... but not everywhere does. If you're open to moving like I was, you can find places which actually have more to offer but cost less. I live in Fort Wayne Indiana. Our homes and land cost much less to purchase. The property taxes are about 60% less than Rochester, and the cost of home owners insurance is likewise a lot less. Our automobile insurance is also about 50% less and the sales tax on all things purchased is over 2% less as well. Our state income tax is likewise less than NY's. When you add all that savings up, my wife and I have incomes which stretch much further than all of our friends living in both downstate and upstate NY. Our incomes because we have good educations may be less than some of our counterparts in expensive or larger cities, but not much less. We live better lives out here with our family when all is said and done. We have all the stores/businesses and career opportunities out here that we had in NY (yes hard to believe if you're NY-centric and haven't traveled much outside the NE US) - in fact when you travel the country these days you'd be hard-pressed to find any mid-sized cities which are completely unique in what they have to offer. Most everything you see in Rochester you can find somewhere else more affordable (except Wegmans )
Good luck with whatever you do. I actually am friends with people who with combined incomes of less than 40k or single incomes of just over 20k actually do have mortgages. It can be done, but you need to set expectations accordingly. Their houses are not 2k square feet nor are they in the best school districts.
Last edited by belovenow; 12-31-2007 at 01:40 PM..
1) get rid of the car payment and lower your gas expenses... buy a car with cash (used is the way to go). Get something reliable, a few years old, very fuel efficient (compact or sub-compact car), and with low-mileage. Nothing with monthly payments because monthly payments will just decrease your ability to borrow money for a mortgage or anything else for that matter. Cars are just a poor investment in general, so pay for them in cash.
I agree, and I'm definitely working to eliminate the payments (paying off early). I have about $3,500 left on the loan. Didn't have a lot of choice in cars, fairly fuel efficient, it is a few years older: 2000 Ford Focus Wagon and ~58k miles. Going much older tends to result in more maintenance costs, as I learned with my '91 Buick Century. The fuel costs are adjusted for increasing fuel prices, although I currently spend around $140-$160/mo.
2) Find a job with benefits so as to lower your insurance/healthcare costs. The numbers you gave seem high for someone who is young, healthy, and single (and when working for a corporation). The number is about right if you are insuring a dependent such as a spouse. If you indeed have a spouse then hopefully he/she has some income (this day and age I'd expect that to be the case, if not, then I would hope to hear a good reason because now more than ever before double incomes are needed to live the stereotypical American dream so many seek).
I do have benefits, but this number is also adjusted to account for future wife/child (my g/f has a 5yr old). She will have an income, but will also have her own school loans to add in.
3) Don't look at buying a house right now. Until you find a life-partner, or until you earn more money with one or by yourself, look into buying a condo at the most. Otherwise look into identifying a very good value rent-wise. The expense examples you provided are right on target for homeownership. If you rent you can cut them significantly. So for now rent someplace affordable and try to save as much from your paycheck as possible with the ultimate goal of eventually buying a home a few years down the road. You don't need to buy a home right out of school, and indeed it will do more to potentially cause you harm (financially) than waiting.
Hopefully, I have found my future wife, but with her son, would it still be a better option to rent vs. buy?
If you have a life partner already, just don't rush into homeownership. You've probably heard more about the positives than the negatives. Negatives such as the high cost of maintenance which comes with a home, negatives about significant chunks of paychecks (and the associated employment pressures/stresses) taken out to cover your mortgage payments. Lastly, negatives about how if you have less than 20% in cash down-payment to apply to a mortgage at closing your loan terms will be less favorable and indeed the ones who then get the best deal are the lenders, not the buyers.
I have read some about the PMI when you don't have 20% down, but have also read about the 80/20 style mortgages which will eliminate that.
4) Look into buying a home (or even renting) in a more affordable state or area. The reality is that NY has a high cost of living... but not everywhere does. If you're open to moving like I was, you can find places which actually have more to offer but cost less. I live in Fort Wayne Indiana. Our homes and land cost much less to purchase. The property taxes are about 60% less than Rochester, and the cost of home owners insurance is likewise a lot less. Our automobile insurance is also about 50% less and the sales tax on all things purchased is over 2% less as well. Our state income tax is likewise less than NY's. When you add all that savings up, my wife and I have incomes which stretch much further than all of our friends living in both downstate and upstate NY. Our incomes because we have good educations may be less than some of our counterparts in expensive or larger cities, but not much less. We live better lives out here with our family when all is said and done. We have all the stores/businesses and career opportunities out here that we had in NY (yes hard to believe if you're NY-centric and haven't traveled much outside the NE US) - in fact when you travel the country these days you'd be hard-pressed to find any mid-sized cities which are completely unique in what they have to offer. Most everything you see in Rochester you can find somewhere else more affordable (except Wegmans )
The taxes in NY (especially Monroe county) are basically the highest in the nation, but the housing and food costs are very low. I'll definitely be looking into comparitave living costs elsewhere though. And those which have a strong IT/Software development job market.
Good luck with whatever you do. I actually am friends with people who with combined incomes of less than 40k or single incomes of just over 20k actually do have mortgages. It can be done, but you need to set expectations accordingly. Their houses are not 2k square feet nor are they in the best school districts.
I'd be willing to sacrifice the school district if my g/f didn't already have a child, but the value of a solid education is priceless (not talking private school). I was also thinking a fairly modest 3 bedroom house, nowhere near 2k sq ft.
Location: Stuck on the East Coast, hoping to head West
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When my husband and I bought our first house (14 years ago), we both worked two jobs to save up for the down payment and a small emergency fund. Back then it was really hard to qualify for a mortgage. We had absolutely no debt when we applied for our loan. No credit cards, no car payments, nothing. And we had great credit.
We also went through a first time homebuyer's program: acorn.org. Its a nonprofit who's purpose is to help low to moderate income families get into a house. They also partner with banks. By completing their first time homebuyer's program we were able to knock a percentage point of our loan. I don't know if that's still true or not. However, at the very least they offer counseling services about deciding if you're to buy, the best program, etc. I learned a lot. Also, we didn't have to join the organization to benefit. I was poking around their website and noticed that they have offices all over the country so might be worth a look.
After graduating college, and looking to get a family started, it is totally beyond me how people manage to actually buy a house.
After calculating things out, it seems a family would have to be making in the neighborhood of $75,000 to afford a barebones house at around $150k. So once you deduct your basic living expenses, you're left with next to nothing to try to buy a house. Just to crunch a few numbers, would this seem like a reasonable (rough) estimate?
One fundamental flaw, you are assuming everyone buying a house has a car loan payment and a student loan payment. Not everyone starts with the fundamental assumption of non-mortgage debt. Take non-mortgage debt out of the picture and you have another $420 per month.
That may sound harsh, but I know lots of people who made choices that got them through college without significant debt (that's another discussion going on in the forum) and I know lots of people who survive without car loan payments. It just might be these people who are in the pool of homeowners.
Don't mean to sound tough, but they did make life choices and sacrifices that just might now be letting them own a home a little sooner than others.
We have an IO loan and we will be refinancing it before it resets to a 7 or 10 year IO.
We will retire out of CA with pensions.
We also have a rental out of state.
Also looking to buy 3-8 acres out of state
We have no consumer debt or dependents and all of our extra $$ goes to 401K, roths and savings.
Our monthly house payment is $1110.63.
Don't forget all the 'Little" expenses of home ownership, such as:
Gas for the lawn mower and/or snow blower
Salt for the water softener
String for the weed whacker
Fertilizer for the yard, plant food for the flowers
The list goes on and on, but it is all monthly, quarterly, etc extra dollars you never dreamed of needing to spend.
Good points. The original OP did not include any "maintenance" that is required for all homes. Things break down and need to be replaced, you have to paint, the list goes on and on. It ain't cheap. Don't misunderstand me, I love living in a SFH, its just very expensive.
You also didn't include anything in your projections for 401K or a 529 for the little one...remember, time goes by very quickly.
Nowadays if you're just starting, I don't see how you can do it any other way except for having a plan and sticking to it. Budgeting and knowing where all your money goes is key. It helps if you have a partner who shares your frugal ways, but if they don't you need to have a clear understanding because money is the biggest factor for divorce later on.
Ditch the cell phone, cable, and fast internet, unless a land line is more exspensive than the cell. Oh You forgot those? Well don't get them.
Most homes are two family income homes. The way to get around this (yes this sounds silly but if you have the knowledge will work) Skip the house and buy a duples or better a four plex. Now you have up to three other families helping with the mortage. Plus you now have lots of tax deductions! Figure an 75 or 80 % occupancy rate. Remember maintenance costs. Try for something not too old, and maybe a little bit of a fixer upper in a decent neighborhood. Some people can qualify for a larger buiding with income. Then work into a home later.
One fundamental flaw, you are assuming everyone buying a house has a car loan payment and a student loan payment. Not everyone starts with the fundamental assumption of non-mortgage debt. Take non-mortgage debt out of the picture and you have another $420 per month.
That may sound harsh, but I know lots of people who made choices that got them through college without significant debt (that's another discussion going on in the forum) and I know lots of people who survive without car loan payments. It just might be these people who are in the pool of homeowners.
Don't mean to sound tough, but they did make life choices and sacrifices that just might now be letting them own a home a little sooner than others.
You're right, I suppose that is something that not everyone ends up with (I just sortof assumed everyone did, since tuition costs are so ridiculous these days). I'm working to find either a job that pays better, or a second job that pays fairly well and is a third shift position. If I could go back and take a different option for college (meaning going to a state school, instead of a private school) I'd do it in a heartbeat.
Well, I didn't specifically mention 401k, but had included some numbers for "Retirement Savings", I have a Roth IRA. No 529 yet though (which I know I need to start), the only problem is that the financial aid packages for colleges take into account how much you have saved, and count it against you (so you more or less end up paying the same amount anyway).
It'd be nice to ditch the cell phone and fast internet, but they're both requirements of my job (software development) and I'm 'on call' if one of the processes I'm responsible for has an issue.
I had also thought of having something like a duplex, but so much of the time (unless you know a LOT about plumbing, HVAC, electrical and whatever else) you can spend much more on maintenance costs than it ends up saving you. And then there's the almost guarantee of having bad tenants and legal battles...
The market is so much better now for first-time home owners. I would do everything I could to buy now. You can get a great house at a steal. Or, if you're handy, get a fixer-upper at an extremely low cost.
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So once you deduct your basic living expenses, you're left with next to nothing to try to buy a house. Just to crunch a few numbers, would this seem like a reasonable (rough) estimate?
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