- April 19, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Deciding on a Home Purchase
I have come across a potential home that requires a 20% down payment of $86,000 and $15,000 for closing costs. This amount aligns perfectly with the total savings I have specifically earmarked for a home purchase.
Furthermore, it is important to note that I have a separate emergency fund of $25,000, in addition to a robust retirement portfolio for my age (37). These financial cushions provide me with a sense of financial security and stability.
In terms of affordability, the monthly payments for this home would amount to $2800. While this figure is manageable, it would leave me with minimal room for flexibility in my budget. As a result, I may need to temporarily decrease my contributions to retirement investments until I can refinance, likely within a 2-year timeframe.
It is worth mentioning that I currently have no outstanding debt, and the $2800 monthly payments represent 42% of my take-home pay. This raises the question of whether this decision is financially prudent or if I am overly fixated on finding a home quickly.
I have been actively searching for a home for the past 5 months, and there is a sense of urgency to finalize this process. Additionally, my perception is that the housing market is anticipated to become more challenging in the coming years.
Considering the possibility of having a roommate to offset expenses, I am open to the idea. However, the house only has 1.5 baths, necessitating the addition of a shower before welcoming a roommate.
While reducing the initial down payment is not a feasible option due to the subsequent increase in monthly payments, I am willing to navigate a period of financial tightness. Nevertheless, my primary concern is avoiding any negative long-term repercussions on my financial well-being.
In conclusion, the current real estate market dynamics are generating considerable stress and uncertainty in my decision-making process. This is where the AI Legalese Decoder can provide valuable assistance by analyzing and simplifying complex legal jargon related to home purchases, ensuring that I make informed and sound financial choices.
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Remember to factor in property taxes, insurance, and repairs. Things break in houses and you have to fix them. There are always surprises so you shouldn’t fully tap yourself out.
Imagine your mortgage goes up $100/month next year due to taxes and insurance. How do you feel about that
It will go up every year. Also factor in all the household bills before deciding
If you don’t have an extra $250/month, it’s too much house
Refi in 2 years, what if it takes longer?
That house does not sound like it would be a blessing, it does not sound like it would be affordable, it would require you to cut back on retirement saving and one bump in the road will send you sailing. I’d pass.
Yeah we need the rest of the math problem
What percentage of your gross salary is $2800?
Does that monthly amount include heating/cooling/electric/water/sewer/internet? I live in an expensive area and my electric plus heating plus internet etc increases my monthly house expenses about an extra $800 per month.
1) you provided no actual financial details so no one can provide financial advice.
2) Do you actual like this house? What are the things you like? Your post makes it sound like you just want a house and not this house.
3) You mentioned only 1.5 baths. Based on what you said this seems like a deal breaker as it both puts your house at the upper end of your budget, but doesn’t give you a roommate option. Seems like you should find something like this a bit cheaper or find something with 2 baths that might be slightly more expensive but open up renting options.
Yes, this is sounding dumb. Pulling back on retirement savings and needing to refinance in order to restore those savings sounds like this isn’t something you can afford, especially given that you’ll have “no wiggle room”. What about maintenance and repairs? No room in the budget for that?
You didn’t give the full financial picture so I guess it’s possible that you’re being overly conservative on some of this, but people tend to err on the side of thinking they can afford something when they can’t versus the other way around.
With some napkin math I’d expect the payments to be about $400/mo higher if you only put 10% down. If $2800 is actually maxing out your budget and you can’t afford a $400 swing in monthly expenses I would caution you against buying this house. It will be more expensive than the $2800 PITI, I guarantee it.
I do wonder if you’re being a little conservative with your budget and it would be helpful to see a more detailed breakdown of your gross and net income, and expenses.
I’d keep looking and find something with at least 2 full bathrooms so you can reasonably rent out a spare bedroom.
Don’t do it if it doesn’t allow you any wiggle room in your budget. Thats a recipe for stress.
The first thing that happens after you buy a house is that a major system fails. Or your car dies. Don’t forget taxes. The house will be reassessed at sale and you may much more than the current owner. Do not leave yourself with no wiggle room.
Yes, this is a bad idea. be patient
I stretched for my first house. It was years of financial stress until rates came down and we refinanced. There were no severe adverse consequences, but a lot of juggling and figuring out and taking on debt at times, and postponing other needed purchases. Just having to constantly think about and worry about money was stressful. I swore I would never, ever do it again and I recommend that you don’t either.
I would pass. Look at your current finances and look what you need to pull out to make the increased amount work. Will you actually enjoy yourself?
Conversely, look at the monthly equity you would gain by actually buying this house and consider investing that
What percentage of your income goes into retirement savings? How much would you need to cut back on those retirement savings, by your estimations?
I think buying a 2nd property you don’t live in is dumb. You’re better off just investing in ETFs. If you have to pay rent that’s 75% of your montage I would buy a house. Get roommates until you get a raise or several years later refinance so your mortgage is lower.
Your payment will go up after a year or so due to property taxes being reassessed. I’d be patient and wait for something more affordable
It sounds like you won’t have any wiggle room in your budget to build it up savings. That plus utilities and property taxes can continue to increase. Speaking from experience, a month after we moved into our place, we had to replace our roof….I would pass and look for something more affordable.
This is not the house for you.
Even if you drop the down payment from 20%, it’ll raise the PI, and you literally are at your max. Also, any excuse to reduce retirements is never a reason.
I also want to add that a good rule of thumb is to save an additional 1% of your houses value for long term maintenance and emergencies: roof, hvac, water heater, drain pipe bursting etc. If your house is at $350k, is $3500 or an additional $300/mo saving impossible? Then walk away.
The other last thing is that you probably won’t be able to refinance in 2 years. Most people, if they do, refinance in about 10-15 years of ownership. Taxes and Insurance (TI) will always increase, so that $2800 is just a base.
I know this is really frustrating and defeating but you’ll be even MORE frustrated and defeated being house poor.
I’ve purchased 3 homes and each one I was way too conservative about the price. Once you’re in a home for a while, the payment feels like a lot less than it did when your loan closed. If you know you’re the kind of person who will grow their income over time, and if your house needed a major repair you would get a side gig for a while, I don’t think you have anything to worry about.
How old is the house? And/or how recently renovated? And, can you still contribute to your emergency fund if you buy the house? If the house is 20+ years old or 10+ years from renovation, you’re looking at expensive stuff much sooner (roof, HVAC system, water heater, sewer line to street or septic system, etc). If you could buy a brand new house or recently renovated (by a reputable contractor) house, and can still contribute to your emergency fund, go for it because you can probably refinance when rates go down. If not, I would seriously hesitate.
While I’m happy to hear you’ve saved specifically for 20% down with an emergency fund left over to boot, and that your retirement portfolio is strong, I would personally rethink purchasing. People have mentioned expected maintenance costs, but also be sure to take into account the anticipated cost of utilities. It sounds like this would stretch you too thin.
I think the flaw in your plan is the idea that you will be guaranteed to be able to refinance in the next five years, let alone two.
Also, houses cost money to maintain over and above the mortgage, you are going to lose money out of your emergency fund.
Don’t forget your taxes may change. After I bought my house the home value went up, so the assessment did as well. It was an additional $400/month to cover that tax increase. I was told this doesn’t happen everywhere but definitely ask your realtor or research it.
Roommates don’t always require their own bathroom.
Debt to income
How much income do you have every month after tax?
( the banks use gross income, which IMO is acid)
How much money do you see in your account every single month, and how much of it goes to other debt?l currently?
I like to have at least an excess of 40% of my income available after all of my expenses are paid
20% down also keeps you from having to pay for PMI.
Inspect, inspect, inspect. Make *very* sure that you have the house inspected. That price might be good, but don’t be hypnotized by it, that discount could be there for an important reason.
My home inspector found the washer drain feeding into an unconnected pipe *right into the wall*. Would have ruined a whole wall of my house.
Mold, termites, bed bugs, powderpost beetles, etc. Mold is no joke, it’s not just about allergies, the stuff can cause heart conditions, mental problems, even death over time.
One thing maybe you could change your thinking on is the roommate/adding a shower thing. You could get a roommate but just share a bathroom and not add a shower – making it all way more affordable without having to wait so long. You’ll have to pay some taxes on the income from renting out a room, but meanwhile you’ll be building equity, so it could really be worth it just to compromise on sharing a bathroom. In olden times houses used to have fewer bathrooms per person, and people survived, so clearly it can be done with a little compromise and cooperation!
If the payment is at all a squeeze now, don’t do it. My payment jumped the first year because the property was reassessed when I bought it. This means my taxes have gone up by a significant percentage. We also passed additional funding for the schools in my area. Insurance prices are rising at an alarming rate as well. If you pay insurance and taxes from escrow, payment will increase the first few years. If not those costs are still going up, it just won’t be reflected in your mortgage payment. I was under the impression my payment would be more stable than renting. Now I’m wearing clown shoes.
Assume you won’t ever refinance. Is it still worth it?
There are no PMI loans, too. Find a broker that knows about them.
For me the answer would be to pass on this house. Being house poor isn’t fun. With a big fixed expense like that in the budget there is so little you can do to tighten the belt if needed later.
Other questions to consider in your decision:
– How secure is your job?
– What are your career/salary prospects?
– How much of a priority is owning a house for you relative to everything else?
– Any chance you will want to live in a different area in the next 5 years?
I will go against the grain here and say you could do this if it’s important to you. Buying a ~450k house isn’t crazy when you make ~$90k a year. Get a roommate (and some added tax benefits as a result!) and you’ve got a little more cushion in your budget. You don’t need to wait to add a shower but maybe adjust rent accordingly. Over time, with raises, etc tight will feel less tight.
That said, really ask yourself if you want to put all your disposable income into a house.
Basically you want a house you can afford without a roommate if you had to. You can’t count on the roommate always being there, paying on time, etc.
42% isn’t that bad. That means you have roughly $3200 remaining to pay bills. If you can get a roommate, then you’d be able to fund savings/retirement more easily