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I'm a longtime lurker, but this is my first real post.
My wife and I are looking to purchase our first home. We are both 28 and just finished school. I have a Ph.D. (not in English, so excuse any grammatical errors lol) and got a job as an assistant professor (tenure track). My wife has a B.S. in biochemistry and is currently working as a cardiac ICU nurse. She is also a year away from becoming a nurse practitioner. Oh, and she was a professional photographer before becoming a nurse. I actually mean she was a professional as opposed to someone who buys a camera and claims the title. We have a 9-year-old boy and a recently adopted 5-year-old girl. You could say that we are mature for our age.
We just moved to the DFW area for work. We are close to family and happy with our jobs, so we don't plan on moving again. Since we are millennials, we are extremely concerned about being house poor. We don't make irresponsible decisions and don't plan on starting. We would appreciate some outside opinions on whether or not the home we are looking at is a smart and affordable purchase. We've talked about it with our parents, but both of our parents have very low incomes and don't have a lot of experience with financial planning. We also don't trust lenders to be honest with us.
We are looking at building a house in a beautiful little subdivision that is built around 3 lakes. The school district is also phenomenal. The house price should come out to be around $260-270,000. We expect the mortgage to be something like this after putting $20k down:
Principal and interest-$1190
Insurance-$150
Taxes-$600
PMI-$115
HOA-$40
Total=~$2100 for the top price of $270. The base price of the house is $250k, and we are aiming for $260k or lower, so the PITI could range from $1800-$2100.
I only have $6000 in student loans. We could probably pay that off within a year or less. We have one car payment that is $360. Other than that, we are smart with our money and don't have any debt. We make a base salary of $110,000. My wife still makes an extra $15k a year doing photography on the side. Our kids also bring in $1200 a month for special reasons, but we don't include that in our finances. That goes to their savings accounts. Right now we have a $1000 rent. We pretty much live on my salary, and bank most of my wife's salary $2500-$3000 a month. This purchase would add about a $1000 to our monthly expenses.
So, do you think we can afford a $2000 a month mortgage and maintain a reasonably fun lifestyle (normal vacation once a year, eat out every now and again, etc.)? Take-home pay for us is about $6000 a month, which puts our PITI-to-net income percentage at about 33%. We would love to have it at 30% or lower, but my wife really wants a newer, energy efficient home. Total debt payments (cell phones, internet, car, etc.), not counting groceries and gas, is about $1000. We also want a large house for the extra bedroom for guests, an office for our jobs, a bonus room for all my guitars and the kids games, and a generally nice looking home for entertaining friends, clients, and colleagues. The neighborhood is also perfect for kids; they can kayak on the lakes everyday if they want. Land here is too expensive, so a neighborhood like this is the next best thing.
Sorry for rambling. Just trying to avoid regrets. I'd appreciate any advice you have to offer.
Thanks for reading.
Last edited by jpricewood; 01-20-2016 at 08:58 PM..
On paper, it looks like you can easily afford the house. The question is just whether you're comfortable with bumping your monthly spending up by over $1000/month. I said over because you've not counted utilities in your budget; do you have any idea what they will run? And don't forget there will be items you need to purchase quickly that apartment dwellers don't generally own, such as ladders, hoses, and lawnmowers. Oh, and more furniture, but you can get that a bit at a time.
We lived in an older home before moving to Texas, so I have everything needed for a yard. I'm paying another $100 a month right now to keep all my yard stuff and tools in storage. I'm also pretty good with yard work and repairs, and if I can't do it, my brother-in-law is a contractor.
Utilities won't go up much. We've been paying, on average, about $300 a month for water, electric, and gas. We've requested utility bills for all the similiar 3000 sf homes that we looked at, and this price seems to be about average. You're right, it may change some, but hopefully not a lot. The house is a 1.5 story home with a radiant barrier. Our greatest fear was the increase in utilities. Thus, I refuse to get a two story that has lots of open air to heat and cool due to the vaulted ceilings. We won't have a swimming pool either, as the HOA has a nice one 500 feet away.
Sounds like you're all set, then! I bet any increase in utility costs will be offset by the $100/month you'll be saving when you can get rid of that storage unit after you've moved the stuff into your house. You seem to have thought this purchase out very carefully - I say go for it!
We want to think that we have thought it through and left enough in the bank to maintain a nice savings account and contribute to retirement. I just worry when I see people on these boards saying that they wouldn't pay over a $2000 PITI while claiming that they net several more thousand dollars a month than we currently do. I guess they stick to the Dave Ramsey rule.
But, the alternative is to keep renting. Right now, we have the four of us plus our lab crammed into a 2 bedroom apartment. 3 bedroom apartments and houses in the nice school districts around here run anywhere from $1200-$1700, and that's average pricing. I guess a few hundred more to own a nice brand new home seems like a smart decision, or at least for us and our kids.
Last edited by jpricewood; 01-20-2016 at 08:49 PM..
Do you have appliances? Don't buy them from the builder. I know here builders wont landscape unless you pay for it seperately or you are in a townhouse development that the HOA handles all the exterior items. I would double check that insurance rate but even that wont go up or down too much. New homes can also come with some sticker shock like property taxes spiking after the purchase, another item that is regional just keep it in mind.
Altogether it seems like a doable purchase in the short term I just hope you are leaving yourself with some emergency funds. Make sure you are making plans to replace the car so that one doesn't come out of nowhere down the road, and I mean years down the road my car is 11, and you should be set. It is nice to see other millennials have their stuff together so early in their life.
We don't have appliances. They are included in the cost of the build. Why should we not buy them from the builder? I agree, a tax spike scares me, but Texas is where we want to be, so I guess that is one risk we will have to take.
We would like to have more savings, but we aren't draining our savings either. We nearly did that early in the house hunt, but realized how stupid that would have been. The wife's car is pretty new. It should last a while. I may get a couple more years out of my truck, so we are keeping that in mind, but I won't drop 40K on a new one. I always buy used, because I do a lot of off-roading for my job. I have no intention of scratching a truck up. Worst case scenario is that we call the father-in-law who is a mechanic. That is the best thing about being close to home - resources.
We want to think that we have thought it through and left enough in the bank to maintain a nice savings account and contribute to retirement. I just worry when I see people on these boards saying that they wouldn't pay over a $2000 PITI while claiming that they net several more thousand dollars a month than we currently do. I guess they stick to the Dave Ramsey rule.
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Rather than Dave Ramsey disciples, I'd bet those people also have a lot more student loan debt, higher car payments and a big credit card balance.
Something to consider when buying a new construction home is the tax jump after the first year.
When you escrow the taxes are typically based on the cost of land before improvements. Once the home is built and closed the tax man will re asses and your escrow money jumps!!
We don't have appliances. They are included in the cost of the build. Why should we not buy them from the builder? I agree, a tax spike scares me, but Texas is where we want to be, so I guess that is one risk we will have to take.
We would like to have more savings, but we aren't draining our savings either. We nearly did that early in the house hunt, but realized how stupid that would have been. The wife's car is pretty new. It should last a while. I may get a couple more years out of my truck, so we are keeping that in mind, but I won't drop 40K on a new one. I always buy used, because I do a lot of off-roading for my job. I have no intention of scratching a truck up. Worst case scenario is that we call the father-in-law who is a mechanic. That is the best thing about being close to home - resources.
Builders will add a charge so they make something on the appliances too adding to the cost of them, same with everything else in the home. You can buy appliances at a fraction of the builders cost normally if you do some shopping.
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