U.S. CitiesCity-Data Forum Index
Covid-19 Information Page
Go Back   City-Data Forum > General Forums > Real Estate
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
Reply Start New Thread
 
Old 06-30-2020, 06:37 AM
 
466 posts, read 293,909 times
Reputation: 590

Advertisements

Honestly, every article I read from realtors is almost depressing, when they say how prices will continue to rise and there will be no decrease, even with this recession and pandemic among us.

It seems those of us that tried to take the route of high equity and lower debt are always slapped by this. Everyone is pushed to take on high mortgage debt, because despite the low interest rates, the prices are getting so high and continue to climb. The monthly payment might be lower, yes, but I don't want to be on the hook for $100k when I only make about $40k a year.

I feel like there's no way out! I keep saving but can't out save the rise in prices, because my income isn't increasing to offset it. The only way I can offset it is to sink a huge amount of savings into the down payment, which I'm not particularly happy about. Then I've sunk money into the house to try to get the monthly payment more affordable, and that's money I can't get back. If prices drop and I have to sell? Well it's gone.

Dave Ramsey says your monthly payment on a 15 year mortgage (including property taxes and home insurance) should be 1/4 of your monthly net income. If I can't get the payment under 1/4 for a particular house, then I either need a bigger down payment or not as nice of a house. I don't see how most people are able to do that. Most people I know my age (I'm 31) already have houses around the $200,000 range. It's none of my business, no, but I don't understand how they're able to do that. Either I'm making a lot less than they are or they are scraping by month to month.

I have around $120k in assets, but I don't want to put all of that into a down payment. It takes around $170-180k now to buy the kind of house I want (3/2/2, relatively new, in good neighborhood). But I'd have to put $100k down minimum plus closing costs to make the numbers remotely work based on the 1/4 rule. And even then it would still be over it on a 15 year mortgage. But I don't want to sink $100k into a house that I can't get back if I need it.

The other thing I see is I could always refinance for a lower rate, but you cannot refinance to lower the balance amount.

So, do I keep saving until I can get $150-200k in savings, and prices reach even higher or what?

Last edited by whatsgoingon4; 06-30-2020 at 06:54 AM..
Rate this post positively Reply With Quote Quick reply to this message

 
Old 06-30-2020, 08:15 AM
 
1,158 posts, read 1,043,725 times
Reputation: 3359
Quote:
Originally Posted by whatsgoingon4 View Post
Then I've sunk money into the house to try to get the monthly payment more affordable, and that's money I can't get back. If prices drop and I have to sell? Well it's gone.
Or you could keep paying rent, and then it's 100% certain you won't get that "monthly payment" back. How secure is your job? How long do you envision staying in the property if you buy?

Quote:
Most people I know my age (I'm 31) already have houses around the $200,000 range. It's none of my business, no, but I don't understand how they're able to do that. Either I'm making a lot less than they are or they are scraping by month to month.
Or Mom & Dad have gifted them the down payment.

Quote:

The other thing I see is I could always refinance for a lower rate, but you cannot refinance to lower the balance amount.
I don't understand what you are saying here. You can ALWAYS (unless you have a weird mortgage that I would never take on) make extra payments to lower the balance on the loan. And you can always refi to lower the balance; I just did it: gave the mortgage company $100,000 and refinanced with a lower balance and a 15 year note.

Quote:
So, do I keep saving until I can get $150-200k in savings, and prices reach even higher or what?
You have to figure out what you are most comfortable with. Is your current housing situation stressing you out? What is motivating you to want to buy? Can you wait until the inevitable seasonal adjustment in house prices comes in the fall? I have to admit that I'm jealous to hear houses where you are cost about $200,000. In my area that MIGHT get you a one-bedroom condo if you weren't too picky.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 06-30-2020, 08:42 AM
 
Location: The Triad (NC)
31,168 posts, read 67,984,889 times
Reputation: 36999
Quote:
Originally Posted by whatsgoingon4 View Post
I have around $120k in assets, but I don't want to put all of that into a down payment.
You shouldn't. But you also (probably) shouldn't have that much just sitting in a bank either.

You haven't said anything about needing a house... so lets stick with "housing" instead
because buying or renting, SFH or Condo apt, it all comes down to how much of your income
is available to be spent on whatever sort of housing you need/prefer ...
and even more critically how much you're willing to commit to other needs/desires.

So... starting with your gross income how much PER YEAR are you willing to COMMIT to investing?
For most it should in the 15-20% range with savings and debt service included with that.

Then you pay your income taxes and SS/FICA etc (and garnishment if you have any).
And for most these will also be in the 15-20% range.
Combined... that's about 35% off the top.

What does that leave in NET INCOME off of say $75,000 gross? (psst: $48,750)
Divide that number by 52 ($938/wk) and we're in Dave Ramsey territory (23% of net).

How many of those weekly nets should we be willing to spend on the monthly house bills?
That's to cover taxes and utilities and parking and trash and any other fees we have there.
Dave says ONE week per month and I concur.

Plug in your own numbers and see where you really are.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 06-30-2020, 02:29 PM
 
144 posts, read 45,652 times
Reputation: 493
IMO it's possible to be conservative and responsible in your home purchase without following Dave's plan. There doesn't need to be this dichotomy where you either do a 15yr loan at <25% net pay, or you are going to be house poor, slave to your mortgage, one paycheck away from disaster. It's certainly not a bad goal to aim for. But if owning a home is important to you I wouldn't beat yourself up for going over 1/4 net on a 15yr. Or going with a 20-30yr. As long as you can keep doing the other right things (retirement savings, emergency fund, living on a budget, not racking up other debt) I think you'll be OK.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 06-30-2020, 03:42 PM
 
8,703 posts, read 10,865,097 times
Reputation: 16662
Quote:
Originally Posted by whatsgoingon4 View Post
It takes around $170-180k now to buy the kind of house I want (3/2/2, relatively new, in good neighborhood).

Well, you do what every generation before Millenials did when buying their first house; you compromise. While HGTV seems to push the idea that your first house needs to be perfect, it does not. "Starter house" is a term that refers to your first house, that is not your ideal house. So, you aren't really priced out; you're just trying to jump to a different level.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 06-30-2020, 04:59 PM
 
3,047 posts, read 1,330,731 times
Reputation: 3724
What I would do and am doing is do a search of all homes sold in the past 30+ days. Look at the listing price and what they were sold for. Where I'm at homes are selling for around 6k over asking price. Therefore be prepared to put in an offer 6k over asking price or more.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 06-30-2020, 06:06 PM
 
Location: Princeton, New Jersey
674 posts, read 999,559 times
Reputation: 1212
Quote:
Originally Posted by whatsgoingon4 View Post
Honestly, every article I read from realtors is almost depressing, when they say how prices will continue to rise and there will be no decrease, even with this recession and pandemic among us.

It seems those of us that tried to take the route of high equity and lower debt are always slapped by this. Everyone is pushed to take on high mortgage debt, because despite the low interest rates, the prices are getting so high and continue to climb. The monthly payment might be lower, yes, but I don't want to be on the hook for $100k when I only make about $40k a year.

I feel like there's no way out! I keep saving but can't out save the rise in prices, because my income isn't increasing to offset it. The only way I can offset it is to sink a huge amount of savings into the down payment, which I'm not particularly happy about. Then I've sunk money into the house to try to get the monthly payment more affordable, and that's money I can't get back. If prices drop and I have to sell? Well it's gone.

Dave Ramsey says your monthly payment on a 15 year mortgage (including property taxes and home insurance) should be 1/4 of your monthly net income. If I can't get the payment under 1/4 for a particular house, then I either need a bigger down payment or not as nice of a house. I don't see how most people are able to do that. Most people I know my age (I'm 31) already have houses around the $200,000 range. It's none of my business, no, but I don't understand how they're able to do that. Either I'm making a lot less than they are or they are scraping by month to month.

I have around $120k in assets, but I don't want to put all of that into a down payment. It takes around $170-180k now to buy the kind of house I want (3/2/2, relatively new, in good neighborhood). But I'd have to put $100k down minimum plus closing costs to make the numbers remotely work based on the 1/4 rule. And even then it would still be over it on a 15 year mortgage. But I don't want to sink $100k into a house that I can't get back if I need it.

The other thing I see is I could always refinance for a lower rate, but you cannot refinance to lower the balance amount.

So, do I keep saving until I can get $150-200k in savings, and prices reach even higher or what?
Why are you set on a 15 year mortgage? If you plan to live there a long time, just get a 30 year mortgage. That lowers your monthly cost significantly.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 06-30-2020, 06:19 PM
 
Location: Sacramento CA
1,041 posts, read 207,962 times
Reputation: 2137
Buying a home is generally difficult for the young. It is impossible for the poor, but the young who often are broke or in some debt, have the time to achieve the goal of home ownership.

You can't look at it thinking "I can't afford the median priced home" or "I can't afford these prices I hear."

To buy a home in the area you want -- within reason as we would all live in the best areas if we could -- you have to start small. Your starter home is going to be small and old and is not going to be in an area you love. You have to compromise and start small. Since housing always goes up with time (actually it is fiat money that goes DOWN relative to housing, but that is a technical discussion)...

Since housing always goes up over time with the rate of inflation, your crummy old starter home will go up in value over time, especially if you do some home improvements. That is called "sweat equity", the gaining of value through your own hard work to replace kitchen cabinets and refinish hardwood floors and remodel bathrooms. You don't have to do the remodel job of the century. You just have to do a nice job of refreshing the bathroom with new, appealing stuff, and presto! your house is nicer and worth more.

You can easily find lists on the web of what home remodeling projects add the most home value, and which are a waste of money.

It can take up to 15 years to make money in your starter home, and I'm sure a licensed professional Realtor here will correct me if I a wrong, but I don't believe we have ever had a 15-year period in America where homes did not double in value, until the last silly housing bubble. But at least homes came back to their old bubbly value on real economic footing rather than the funny money it was based on last time.

They say you need to be in your home at least 7 years, I am warning it could be 15 years.

But if you buy a crummy starter home, I guarantee within 15 years of keeping it up and making modest but important improvements, you will be able to sell it for a nice chunk of change that gives you the down payment to afford a beautiful home you really like in a neighborhood where you really want to live.

This used to be common knowledge back in ancient times like 1980. For some reason, a lot of young people didn't seem to get the word that they can't just get into a median priced home right off the bat with the first good job.

I was 48 years old before I finally got a really nice home in the perfect area. So patience is key. Two incomes is a massive help. I didn't have that.

So hang in there, make a plan and follow it. And it goes without saying, you have to save your money and not get a new iPhone every other year etc.

If you can make yourself save money and you keep working, if you can stand to get a crummy old starter home as a launching pad into your beautiful new home 10 to 12 years later, then you will achieve your goal.

Good luck and God bless.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 06-30-2020, 06:24 PM
 
Location: Sacramento CA
1,041 posts, read 207,962 times
Reputation: 2137
Since about is TL;DR I will summarize below.

Save your money.

Buy a small less-than desirable starter home in a safe-is neighborhood you can tolerate, even if it is far from perfect.

Keep the small crummy home up and if possible, do high-value remodeling such as kitchens and bathrooms using the cheapest material you can to keep costs down, but good enough that they won't just flat wear out.

Put the small crummy home on low gas, and let simmer over a hot stove for 10 to 15 years, until cooked.

In other words, sometime between 10 and 15 years, your home will have appreciated enough with enough equity that you will be able to sell it for enough that you will have a down-payment suitable for a good home in a good neighborhood.

It takes patience.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 06-30-2020, 06:30 PM
 
Location: Sacramento CA
1,041 posts, read 207,962 times
Reputation: 2137
Do NOT be discouraged that houses are near a peak right now.

Everything cycles. What goes up, must come down. Home prices are very high today. History tells us that the will drop in the next cycle before going up again. I wouldn't not buy today.

But don't be fooled into thinking, because prices are high today, they will never be lower.

I bought my first home in Sacramento in 1984.

By 1987, home prices peaked. People said, "homes will never be affordable again. We missed out".

By 1992, falling house prices were near the bottom. People said, "homes will never be a good investment again.

By 2005, house prices were soaring and people said, "I have to buy NOW before I can never afford a house again!"

By 2011, house prices bottomed out after 5 years without new home starts, and people said, "Houses will never be a good investment ever again".

Do you see the trend here. Do you see how home prices ALWAYS cycle. They always have peaks and valleys.

In 2011, people I know were saying "Millenials won't buy homes. Homes will never go up again because demographics like Boomers dying will flood the market with empty homes."

Right.

Now it is 2020 and home prices are sky high.

Wait for a while, and you will catch the next bottom.
Rate this post positively Reply With Quote Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


Reply
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:

Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Real Estate
Follow City-Data.com founder on our Forum or

All times are GMT -6.

© 2005-2020, Advameg, Inc. · Please obey Forum Rules · Terms of Use and Privacy Policy · Bug Bounty

City-Data.com - Contact Us - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37 - Top