Wanting to make sure I can afford the houses that I'm looking at.

Submitted by killaho69 t3_zzs878 in personalfinance

I woke up during the middle of the night and couldn't go back to sleep, so I apologize if this has some sleep deprived ramble vibes.

So a little about myself, I'm 34m, live in a fairly low COL state (Bama). I graduated with a bachelors in Cybersecurity back in May, and landed my first Cybersecurity job in October. I have a 15 yo daughter and we live at my parents. My parents are good loving people but hyper religious and old school, which causes a lot of conflict with my non-religious daughter, and myself to some degree, plus we've been here a long time and it's just past due to leave.

I've been looking for a house for over a year, and even though AL is a low COL state, real estate prices are still high compared to Q1/Q2 of 2021, but they have fallen down some. New builds especially seem to be just sitting there. However, rent is very high for houses. Most houses I see for rent are smaller than the two houses I'll mention below, and cost more to rent than their mortgage payments. I would not do well in an apartment complex, as I am used to living in the woods. I can handle living in a community but I can't jump straight to sharing walls and upstairs neighbors. I also have a lot of hobby gear that would clutter an apartment.

I'm making 95k gross, with a possible 5k performance bonus (seems easy enough to hit, but I started too late in this year to get it I believe). After tax, insurance, 401k, etc I'm bringing home about $2300 bi-weekly. So, most months $4600. I have a Nissan truck from 2015 that's paid off and has been dependable. I work from home, so any gas/travel is mostly discretionary. I just started in Oct but all indications are that the job and I are a good fit for each other and I should be stable, and seems secure. Feedback from my leadership is very positive. Plus, my industry is critical and with 1-2 years under my belt, I should then be able to always find a job. My only debt is about 2.5k in credit cards which is WAY down from the 13k or so it used to be. I could pay it off now but trying to keep cash liquid so I'm just making payments of around $500/mo right now. I also have 7k in fed sub student loans. I'm hoping they get forgiven but I'm not banking on it.

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I have enough money for closing costs and down payments with some left over for furnishing or keeping as emergency money. The two houses I'm looking at are listed at 210k and 282k respectively. The 210k is about 1700 sq ft in a small town, the 282k is in a decent sized city for AL standards. My lender quoted me at 6.65%, and the 210k house would be $1500/mo including tax and insurance, and the 282k house would be $2000/mo. I get that's a pretty large jump between the two, but honestly I want to live in the city and I'm ONLY looking at that rural house because of it's low price. If I wanted to live in that city, anything decent starts around 250k for a 3br/2ba 1300-1500 sqft house, so I'd rather pay the extra 30k for how much larger it is (plus brand new).

The pros and cons for the 210k is the price, and it has 3 acres. However the county school isn't great, it's far from stuff and would require more driving, small dating pool (I'm single), and just a boring area. If something were to happen to my job, there are next to NO tech jobs in this area. Seriously, I worked at a credit union as a sysadmin for 35k/yr while in community college because they just don't exist here.I'm definitely confident I could afford the 210k one pretty easy, but it seems the bank that owns it is trying to ring out as much as they can. I looked at it Thursday, and the deadline for offers was Thursday evening. They said they have "multiple offers and will be accepting highest/best" but then right after I looked at it, they said they will be extending it to Sunday evening. I bid 3k over but I'm not willing to get enticed to overbid and overpay for it. So if it falls through....

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The 282k house is a new build, about 2500 sqft, has builder incentives like 10k towards closing and point buy down, 4k lender credit, which would help me a lot with being able to furnish a house from scratch. Builders don't like to knock off list price much, but the price has fallen 18k (when I first saw it 2 weeks ago it was >300k) so I'm hoping maybe I can negotiate maybe MORE point buy, since they seem to be motivated to sell. If I could buy down to something like 5.75% it would be great. It's close to things, much stronger dating pool, better schools, and if I lost my job, there are some tech jobs, including my old employer (a large university) that I have a good relationship with. They were redoing their pay scale as I left, so my old job as a server admin (60k) is now about 75k.

The 282k house is a dream house but I've estimated 2k principle/interest/tax/PMI/insurance, $200 power average, $80 internet, $80 water/sewage/trash. So all in all, right at 50% of my income. 3 years ago I barely even brought home $2k/mo, so I feel like I could probably survive alright as long as I budget efficiently. I rarely take travel vacations, I don't wear designer clothes. I rotate streaming services. I do have fancy electronics (gaming PC) and sporting goods, but what I have should last me years, and hopefully by then I'll have some raises. I used to eat out way too much, but I'm dieting and working out now, spending much less on food as I eat at home.

All in all, the 282k house seems to be meeting the "3x your gross income rule" and if this was 2020 interest rates I know I could afford it, but I missed the boat on the low interest rates (I tried, I got outbid on like 4 houses, and very sparse inventory last year). I know this sub is very conservative fiscally, so I'm sure I'll get at least one response to rent a 1br/1ba apt until I can buy a house cash, but on a serious note, while I'd love to stay at my parents longer and wait for interest rates and list prices to fall, all indications seem to indicate it may not get much better for a while, and we needed to leave yesterday. So any feedback is appreciated.

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biondablonde t1_j2dmexx wrote

I would absolutely forget about the rural house - you don't like anything about it except the price. It sounds like it's also a bank foreclosure which could mean issues with big ticket repair items. Mediocre schools are the cherry on top - it would be a shame to move your daughter to a poor district when she is so close to finishing K-12.

The $282K house may be a bit of a stretch financially at current interest rates, but your income should grow and you can always refinance when rates drop. You also won't have to deal with a ton of maintenance issues right away since it's a new build (you hope, anyway). Keep your lifestyle spending at the same level as it was when you were making $60K and you should be fine.

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killaho69 OP t1_j2et42o wrote

The rural house does have a new roof, new AC, and new hot water heater. The wood in the attic looked good from the ladder, and the wood/vapor barrier in the crawl space looked good too. But it definitely has a cheaper feel build quality. I'd be confident in it, but the other house definitely feels more solid and feels more well made. But yeah I just can't get excited about the area, even though it is much closer to family.

The new one comes with "builder warranty and RWC home warranty". I don't have a ton of faith in builders but if the other is 3rd party and an actual warranty company, that would help.

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thatgreenmaid t1_j2djj6v wrote

Honestly-are you even out of the 'probationary period' on your job???

It's too early to be looking at houses. Way too early. I can't even believe a reputable mortgage broker gave you time of day with only being at your current job 2 months.

If you really needed to leave yesterday, find a rental situation. You are not ready to buy.

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killaho69 OP t1_j2etp71 wrote

Job doesn't have a probationary period. I'm finishing up the tail end of a 2 week Christmas vacation. It was highly encouraged that I take it, since the company has a year end change freeze anyway and no patch changes could be made.

I've been consistently employed since 2019. I've changed roles or jobs 3 times, but I haven't missed a day of work.

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jgomez916 t1_j2dduf5 wrote

$95k in Alabama seems like really good money and presumably that number will continue to go up.

I personally would go for the $282k house that you really want even though in effect it’s 50% of your net pay. House price tags are lowering bc the IR rates are higher.

It def is scary buying when you know you will be spending 50% net on the housing but I think it’s worth it because when rates do go back down the values will go up again as more qualified and willing buyers hit markets again.

When I ( childless adult) bought In March 2020 my mortgage payment and utilities were 50% of my net but I was fairly certain in my city of Sacramento,CA demand during the pandemic would push prices up.

I also jumped into my purchase then because I was offered in March 2020 a 3.5% when in December 2019 I had almost bought at 5.5%.

In 2021 I refinanced down to 2.5% and dropped my PMI and my whole mortgage by $300 and that year I got a 5% raise and then in 2022 a 10% raise. Now my total housing cost with all utilities included is 30% of my net pay and I am very happy I bought when I did.I’d buy now and refinance later.

Mind you I am now married and the housing expense is now only 16% of mine and my spouses combined net pay. It’s even more affordable now.

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wickedkittylitter t1_j2e5266 wrote

For me, buying the $282k house is a no-brainer. As is knowing that I don't need to furnish a new house. You need a bed. Your daughter needs a bed. Buy a sofa. The rest can come later or be bought second hand and updated with paint. New homeowners often make the mistake thinking a house needs to be fully furnished with brand new furniture and decorated with new rugs and accessories. I'd also caution that new builds often mean that the new homeowner needs to buy and install window coverings.

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killaho69 OP t1_j2etcrg wrote

The house actually has blinds on every window already. I'd probably buy some curtains too for our two respective bedrooms, but yeah that's the plan. 2 beds, a fridge, washer, dryer, and a sofa. Anything else can come over time.

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thisgameissoessy t1_j2fgraq wrote

You can get so much gently owned and inexpensive furniture on OfferUp, FB Marketplace, Nextdoor, etc.

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arpatel530 t1_j2da6tg wrote

I would just wait until late 2023. Going to see a lot of pain for equities and real estate. The interest rate effects lag big time. Keep saving and keep your fund in a hysa earning 4%.

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killaho69 OP t1_j2dbj4n wrote

Problem is, I'm 34yo, my daughter and mother get in fights, then I get pulled into the fights, and chronically single because I've been at my parents for >7 years. If I keep "One more yearing it" all my youth will be gone before I leave my parents again.

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FckMitch t1_j2dc3os wrote

Rent

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killaho69 OP t1_j2dcoo2 wrote

Everything for rent is either for college students, in a rough neighborhood, or $1700 for a 1300 sqft house. If I'm gonna pay $1700/mo for a 1300sqft house, I'd rather just buy the 2500 sqft one for $300/mo more.

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1seabas t1_j2ec1zr wrote

Something good to remember is that rent is the most you’ll pay, and the mortgage is the least you’ll pay monthly.

It may feel like throwing money away, but you get a some great benefits like continuing to save money/pay off debts since you’ll pay less monthly, and won’t have the unexpected expenses of owning a house. I’d say even more importantly, you get flexibility! You can get out of your current living situation asap, and have more time to find the right housing fit for you/your family.

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SonOfMcGee t1_j2e6j7h wrote

I live in Northern NJ. My brother in semi-rural Michigan bought a house a while back and my wife was like, “Why didn’t he just rent a nice place. Seems more suitable for his lifestyle.”
I had to explain that in much of the middle of the country you simply cannot “rent a nice place”. Almost everyone owns their homes, even in trailer parks. And rentals are almost all low-quality homes for low-income folks to rent out of necessity.
Based on your initial post I’d say to go for it with the higher-priced place. It’s at the tippy-top of your budget but as a new build there’s a good chance it won’t need major maintenance (roof, AC, etc) for a while. Though I wouldn’t count on “just refinancing when rates go down”. There’s no telling if and when that will happen.

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killaho69 OP t1_j2eulxq wrote

Yeah you're right. Like both of the small towns near me have apartments for like $600-700/mo but the parking lot and breeze ways smell like weed 24/7, drug deals in the parking lot, etc. I wouldn't want to leave my daughter or my valuables home alone. Jump to the closest real city and apartments start turning into $1500+ real quick. Home rentals are absurd.

And yeah that's why I never mentioned in my post a goal to refi. Sure, it will be great if I can, but nothing I would bank on or build my budget around.

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bravo-charlie-yankee t1_j2fds2l wrote

A good rule of thumb also is 1% annually for maintenance around the house. In the rental scenario you'll pay at most $1700/mo

If you won, your MINIMUM payment is $2100/mo. And then you have maintenance. Need a new roof? 10-30k depending on pitch and size. Need to replace your HVAC? Got a plumbing issue? need sewer line replaced etc?

We bought our house and we have some large costs coming up, replace roof in next 5yrs (estimating $30k very steep pitch), our sewer line needs replacement (quoted $20-25k). We bought in summer, moved in Sept, HVAC broke before winter and had to replace immediately ($5k). Came back from vacation once, found someone had driven into our brick garage (luckily fix was only $2k)

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killaho69 OP t1_j2fiv0g wrote

Well one house is new construction with a builder and home warranty, the other house has a brand new roof, hvac, and AC. So I'm sort of being strategic in that regard. I know a major repair could be rough, so I'm sort of hedging those bets.

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smashinash023 t1_j2e1k5m wrote

how much do you have saved up for a downpayment and furnishings? I think the reason behind waiting another year would be to shore up your savings. you're fairly new into this job (which was a significant pay increase) and looking at a house that is 50% of your net income. having additional savings would be a huge buffer and make this feasible

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killaho69 OP t1_j2eu75h wrote

I've got about 15k that I've saved over the last year (5k of that in the last 2 months). By the time we close I might could be up to 20k. The new build is appealing because of the builder incentives. I can use their money to pay closing costs and maybe buy down some points, and hang on to more of my money to keep in reserve. Maybe I can negotiate even more.

I only plan to buy the absolute basics (beds, fridge, washer, dryer) and fill the rest in over time. I can put my socks and underwear in plastic drawers for a while.

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arpatel530 t1_j2dc47q wrote

Well then buy the house and refinance later. Silly to rent when you paying someone else's mortgage.

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FinsterFolly t1_j2e6vjn wrote

Not necessarily silly for the short run. With a purchase, he's going to be paying $3,600/yr more a month plus any upkeep on the house. His mortgage payment will only be contributing about $2,500/yr to principal.

A year renting might be a good short term solution to ensure job security and the area they want to live in. Plus, it gets them out of the house quicker.

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Sen_ri t1_j2ddtjc wrote

The 282k house looks to be manageable payments albeit on the high end of what you can comfortably live with. You say it’s a dream house for you so I think you should go for it. The best time to buy is when you really want to. Like you should know it’s worth it due to quality of life improvements.

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bros402 t1_j2dtmga wrote

Rule of thumb is 3x yearly income - so 285k is at the higher end.

Make sure you have around 3-5% of the value of the house saved for the first year - there's gonna be stuff that comes up, things you will want to change, etc.

after that, 1%-2% of the value of the home for maintenance

that should be on top of your 6 month emergency fund (at least IMO)

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SweetAlyssumm t1_j2easv2 wrote

Don't buy a house with a bad school system. Buy the expensive one or wait till something else comes along. If it were me, I'd be a little afraid of the expensive house but I'd probably buy it because it seems suitable (and then be super frugal for awhile).

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maerabug t1_j2eogoa wrote

In case someone didn't already say it, are those monthly payments just P&I (principle and interest), or do they include escrow too? Make sure to include insurance and property taxes in your budgeting.

I am also siding with the folks that say your job is too new to feel safe signing a mortgage yet. But, if you feel confident in replacing this job quickly with one that pays enough to cover the home costs, then go for it.

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killaho69 OP t1_j2eva7g wrote

That's inclusive of property tax, PMI, home insurance, etc.

My old job has trouble filling positions because they pay a little below private sector and the old fuddy leadership doesn't like remote work. As such, my old position and countless others are sitting open, even all these months later. I feel like in the worst case scenario, I could likely get rehired, but I'd be more in the 75k-80k range than 95k, though they even have a cybersecurity position they can't fill that pays about 100k, but that 5k isn't worth 4 days in office to me right now.

The main thing is I'll just have to live tight and keep saving/building funds to be a safety net until I get a few raises or bonuses in. But living tight will be easy compared to the mental suffering of being 34m living at home.

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rocket_beer t1_j2dw5w0 wrote

I would save another 60-90k cash.

The leverage to negotiate has never lost its power.

1 year of super saving will create a better future for yourself and your daughter.

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sephiroth3650 t1_j2ew8hw wrote

Generally, the $282k home would be at the very top end of your search. What does your entire monthly budget look like? It’s concerning that you live with your parents and are carrying credit card debt. It would seem to be foolish to choose to spend 20% interest on the cards if you don’t need to. If you’re already in a spot where you’re running up debt while living rent free….what will your budget look like with a $200k mortgage? How much are you planning on putting down? Unless it’s well more than $20k, I’d assume your payments will be a lot closer to $2200-2300, depending on taxes/insurance/PMI.

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killaho69 OP t1_j2exp8h wrote

The CC debt is old debt, a lot of it from a layoff years ago, supporting myself thru college, and 1-2 bad choices. It's down a lot from 13-15k. I'm not adding any new debt. At most, I might would use my Best Buy card for like a 18 months no interest type purchase on refrigerator, but I've sworn off carrying high interest debt. In fact, paying down the debt caused me to miss pre-2022 prices and interest rates. I started a job making 60k in Oct 2020, houses were there for 150k with 2-3% interest, but I was like "I'll pay off my truck and cards first" and I did, just in time for everything to go insane.

I could pay it off before I moved in easily, but I'm just trying to keep all my cash liquid for now until I have a clear picture.

Other than that, I have about $90/mo truck insurance, I have a few streaming services, yearly amazon prime, and a cellphone bill for my daughter and I. All could be cut back if necessary, except the insurance. Well technically even it could be cut back but I like carrying full coverage.

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sephiroth3650 t1_j2fblj6 wrote

You mentioned in one comment that you've lived with your parents for 7 years. I hear all the things you're saying....but it's still alarming that you're carrying a credit card balance after that many years living at home. It's also alarming that you're choosing to carry that high interest debt for no other reason than to have cash on hand. And I strongly disagree with the notion that you made a mistake by trying to pay that debt down before and you "missed out" on favorable buying conditions by paying it down. Sure...you could have spent less on the monthly mortgage payment....and that's immediately offset by having tons of high interest revolving debt on the books.

Beyond that, you really didn't break down any real budget. You mentioned $90 car insurance. You mentioned some other items, but assigned no numbers to any of it. You didn't give any number for gas. I realize you work from home and expect gas to be lower, but surely you drive a bit? You didn't mention how much your cell bill was. You didn't estimate anything for food or utilities if you buy this house. You mention "a few" streaming services. How many? How much? Do your numbers include retirement savings already? You mentioned in another comment that you have $15k saved now, and might be able to save another $5k by the time you'd close on the house. How much of this are you planning on putting down on the home? Surely not all of it, right? It wouldn't be wise to totally burn your entire savings/emergency fund in the purchase up front. And the flip side is....if you're only putting down $10k, your monthly payment is very unlikely be under $2300-2400/month. And just how much will you need to buy to furnish the place?

Saying all that....that doesn't mean you can't afford the house. There just isn't enough info given to say for sure. It feels like you're just very desperate to get out of your parents' place, that you're jumping on the first deal you see. It doesn't sound like you've really drilled down and listed out all the specifics to check your potential budget if you make this purchase. If I pull up a spreadsheet and plug in estimates for the things I believe you'd have to pay for, it feels like the budget is pretty compressed. I can balance it, but there isn't a ton left over after plugging things in. So it'd appear you can make it from a monthly cashflow standpoint, but you'd be equally screwed the minute you have to pay for anything unexpected. Because there isn't a lot there to build/rebuild savings aside from paying the monthly expenses. But that's just guessing, and without seeing your actual numbers and expenses.

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MillionaireLibrarian t1_j2f6hdj wrote

I used to live near Montgomery, AL. If it were me I would buy a much smaller house. I made a little less than you and found a beautiful remodeled house 1200 sq ft house which I sold in October 2021 for 150k. It was plenty for just a couple of people with much lower utility and maintanance bills. ie power to heat and cool, roofing, plumbing, and electrical. Interest rates are at 6% so you are paying 15k in interest a year on a 250k house.

Just my two cents.

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stvaccount t1_j2f95jv wrote

Don't buy real estate. Rent. Buy at the end of this recession.

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Humble_Signature_993 t1_j2ejzld wrote

Don’t buy any house, until you’ve saved enough for a significant down payment (30% or more).

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