So We Want to Buy A House...

In My Humble Opinion
1

My fiance I are neck deep in the craziness that is buying our first house. So far we’ve talked to one mortgage company and one bank about getting a mortgage and seen countless different houses. We’ve been thisclose to putting in offers on a few houses, but haven’t because we’re not sure of exactly what we can afford.

The mortgage guys haven’t been much help so far. They seem to be saying a whole lot of nothing - or at least nothing that really makes sense. They all talk in terms of percentages of our income. That’s all fine and good, but what I need to know is if the remaining percentage of our income will be enough for us to live off of.

Having lived in an apartment with my Mom all my life, I have very little knowledge of just what it costs to live in a house nowadays.

For the record…

[ul]
[li]We are looking to buy a home in southern Chester county, Pennsylvania (southeastern PA, near Wilmington, DE), if that helps. [/li][li]We make a combined gross income of about $70,000.[/li][li]I have some sizable credit card debt (around $6000 total) and around $30,000 in student loans. I’ve been working to pay off the credit cards and the loan repayment begins this summer. My fiance has no credit card debt or loans.[/li][li]I don’t have a car payment, but my SO has a payment of around $120 monthly with about 9 payments left.[/li][li]We’ve got about $15,000 total saved up, but very little in the way of furniture, so we’ll need a good chunk of that money to furnish the house.[/li][li]Every house we’ve seen that is in decent shape is listed at around $180,000 - $200,000. [/li][/ul]
I’ve done extensive searches on the web and haven’t found anything that really hels me. They can tell me what kind of house I can “afford”, but it always seems too high and never seems to take into account regular household expenses, a topic I know little about.

Any help at all would be greatly appreciated. Thanks in advance!

DoperChic (and DoperGuy)

2

I rent too so I can’t really tell you, but seeing this comment:

I can say the one thing I have learned since beginning to live on my own is that everything always costs more than you think it will. Just something to keep in mind. :slight_smile:

3

[ul]Find out if the Chester County Government has any incentives for first-time buyers (e.g.: paying for closing costs).
[li]Check with prospective lenders about first-time buyer mortgages. I only needed 5% down with my bank’s first-time buyer mortgage.[/li]Find a reputable realtor to help you understand all the numbers coming out of the mortgage people.[/ul]

4

This much I do know. :slight_smile:

My realtor has mentioned that we could ask the sellers to help with closing costs, but never mentioned asking the government for help. I’ll look into this.

[QUOTE]
[ul]
[li]Check with prospective lenders about first-time buyer mortgages. I only needed 5% down with my bank’s first-time buyer mortgage.[/ul][/li][/QUOTE]

I think that I can go even lower than this. I’ve heard 4.25%.

[QUOTE]
[ul]
[li]Find a reputable realtor to help you understand all the numbers coming out of the mortgage people.[/ul][/li][/QUOTE]

I’m working on this at the moment. So far, my realtor and mortgage guy have been very separate entities. I will talk to the realtor soon to see if he can help me figure out all the mortgage lingo.

Thanks to both of your for your advice. :slight_smile:

5

Is that the down payment or the annual percentage rate (APR)? Sounds like the latter.

6

Down payment. I made sure of that.

7

I’m kind of confused. Is your question whether, from a financial standpoint, your current finances would support buying a house in the $180,000-$200,000 range? Did you have questions about the mortgage descriptions you’ve been given (i.e., fixed, 5/1 ARM, etc.)?

8

A good rule of thumb is that you should spend no more than 1/3 of your take home pay on housing. With your income, that probably works out to a house that is somewhere in the $150k range. As you’ve noticed, in SE Pennsylania it’s hard to find a decent house in that range. If you have to go up to $180k things will probably be a bit tight at times. Pretty much everyone you talk to will gladly put you into a house that’s $200k or more, but you’ll end up “house poor”, meaning that you spend all of your money on your house and won’t have any money left over for things like a life. You were very much correct in thinking that a lot of the numbers you’ve heard so far were a little too high.

For a $180k house, I’d expect to pay about $10k to $12k total for the down payment, closing costs, and the couple hundred or so little checks you’ll have to write before the whole thing is over for inspections and all kinds of little misc. things (don’t panic, I’m exaggerating - it just feels like you are constantly writing out checks as the settlement date gets closer).

Always keep some money saved up. Unlike an apartment, a house can hit you with a $5k unexpected surprise at any time.

9

Have a look at your bank’s website. Is there some sort of online mortgage calculator / budget function that will allow you to do some quick calcs of what you can and can’t afford?

10

Mortgage companies and banks will give you a lot of rope with which to hang yourself. We consciously bought a house that was $30,000 less than the mortgages we qualified for. Don’t just think about your financial situation now–think about what it’s likely to be in the future. Are you anticipating any dips in your future income? Planning on going back to school? Having kids and staying home with them? Starting your own business? Be careful about saddling yourself with a bigger mortgage than you’ll be comfortable with.

When we were thinking about buying a house, my husband and I took a class for first-time homebuyers at the local Y. It was very helpful. They had different banks and financial planners come and talk to us, and they went over the whole process in great detail. You might want to see if there’s anything similar offered in your area.

11

First off, forget that $15000 … that will get sucked up in closing costs. You will NOT be able to get new or extra furniture. To be rather blunt, use that $15k to pay off as much debt as possible, and start saving anew. Personally, I wouldnt buy a house with that student loan hanging around.

As is pointed out down the thread, a house can pop up with a desperate need for a replacement heating system, or the hot water goes toes up, or the electrical system fries itself. I think that we have been extremely lucky but we have had the water pump go out 2 times, the water storage tank once, and an upgrade to the electrical system [in what was essentially a new house when we bought it in 1990.] Something on the order of $2k for the electrical system, the water system about $2k total [we cheat, and do the plumbing ourselves.]

Currently our roof is in need of repair [the soffits are getting pretty scrotty. Asshole who did the rebuild on the house used the wrong wood and didnt adequetely prep it before installing it.] It needs the trim sanded, reprimered and repainting, and the house needs a restaining. The hardwood floors can use a sanding and recoating with polyeurethane. The carpets in the bedrooms are getting shabby. Doing the work ourselves is going to be about $2500 or so.

I would adore a nice fence around the upper yard [we have a microfarm, and differentiate between pasture/woods and yard in the manner of a suburban house by calling it ‘upper yard’ as opposed to the area around the garage doors on teh bottom floor of the barn that gets used as a hobby location] but realistically it would be about another $2500, even doing the work ourselves.

I know $2500 doesnt sound like much, but when it becoomes an almost yearly expense when maintaining the property, it mounts up.

Another question is town requirements - we have a requirement to have the septic tank pumped out each year, though only $150, it is an annoyance. Garbage hauling service - it can be paid to the town as a utility, or you may have to contract for it separately, or haul your own stuff to a local dump. Many communities have yard maintenance requirements - mowing, plantings, fences, even the color of the paint…

What will come with the house when you buy it … that nice kitchen you see when you tour the house … appliances copme with the house or do you have to provide your own? A good fridge can be $1500 if you want the side by side with the water and ice in the door … Water quality - is it good or do you need water conditioning or even a home filter system?

Did I mention that you should watch 'The Money Pit"?

12

Urgh- tell me about it. I sit my finals in the next month, and then we’re planning to move back to Belfast. We have our first day of viewings (the “feeling out the area and how far our budget will stretch” viewing, not the “I want this house” viewing) on Saturday.

My dad is a financial advisor, so thank goodness I can leave the number crunching to him. It seems that we can get a 25 year, 100% mortgage for £140,000 which will mean a monthly repayments of £800…with that we should be able to get a nice 3 bed in our chosen location. We currently pay £600 rent a month on our crappy 1 bed apt in Dublin, so it’s not a big deal.

The scary thing is that we’ll be able to buy an entire house for only £2000 cash (1% stamp duty, lawyers, surveyors, bank charges), and that the bank would happily lend us up to £190,000 at 100%- such is the joy of being a doctor (hopefully), the banks know a cash cow when they see one.

Still, as for furniture, we’ll be working that hand-me-downs and Ikea, shabby-chic look.

13

I agree with those saying you should pay off all debt before getting down with a mortgage. You will have other needs that will come up after you buy the house, and you don’t want to put yourself in the position of trying to figure out which bills to pay in any given month. One less thing to fight about! :wink: Good luck!

14

We’re a few steps behind you guys, but we’re following the pay-the-debt-first model, and we’re almost done! Compare the interest you’re earning on the savings to the interest you’re paying on the debt. You’re probably losing money by carting the debt around. Especially since the housing bubble is (maybe, please?) about to burst, at least a little bit, can you wait a year until everything’s been paid and prices have fallen a little? Just a thought.

15

My brother is getting his house in June. The furniture I have on storage was going to move fomr paid storage into the storage room he gets with the flat - until he started looking at furniture prices. All of a sudden, his sister’s solid-pine dresser and bed look just fine for the guest bedroom :slight_smile:

  1. To get an idea of what your living cost will be, it may help to look at how much your Mom spends and in what. Things like food scale up and down, but cleaners don’t.

  2. Make a wish list of dream furniture and furnishings; don’t forget things like broom, bedsheets, extra lightbulbs. Add it up while seated. After you recover and close your mouth (incredible how much they charge for a set of coasters - often the littlest things are the most expensive ones), get an idea of what will you get as Family Heirlooms (which sounds SO much posher than hand-me-downs), there’s nothing wrong with having 11 perfectly-fine glasses. So what, if the 12th broke while they belonged to Aunt Anne!

  3. The 1/3 of your income is the Upper Limit. Don’t, don’t, don’t go beyond it unless the other choice is jumping off a bridge. I’m serious. Too often, realtors will talk as it was the lower limit: if yours does that, jump ship.

  4. Take those 15K out of the bank and pay off the credit cards this minute unless they are tied up in CDs or otherwise immobilized. Credit cards have the Highest Possible Legal Interest Rate, plus commision. C’mon, c’mon, what are you waiting for, hmmm?

16

This is very sound advice, especially if you’re like Hubby and I, and will just run up the cards again once you have them paid off. :smiley:

The most important thing about buying a house is don’t get impatient to own one, or you’ll end up buying one you can’t really afford, or settling for one that’s not exactly what you want. Shop around for a year or so-- seriously. Not only are prices likely to go down in that time, but you’ll have enough time to pay off debts and get your finances in order.

When house-shopping, always keep an eye toward resale. A great house may be in a declining neighborhood which won’t be so attractive in ten years. Just as an example, there’s a neighborhood around here I’ll call XYZ Hills. For a period of about twenty years, XYZ Hills was THE place to live for middle-class families. Homes increased in value greater than in the surrounding area. But now it’s going downhill. The homes were all built in the 1970s, and are starting to show their age, and now there are subdivisions of the new McMansions popping up everywhere. People who bought homes in XYZ Hills at inflated prices ten years ago expecting that it would be a great investment are going to be sorely dissapointed when they go to sell in the future.

Secondly, a house may LOOK great, but how will living there actually work? Is there plenty of storage space? Can the attic/basement be made into another room? How well-built is it? (Some of these new houses are absolute crap when it comes to quality, but you’d never know it from the price.) Yeah, that two-story foyer looks awesome, but it’s going to suck up all your heat and echo. How is the sound-proofing? (Walk into another room and say something in a normal voice. Can your husband hear you in the other room?) That huge kitchen and family room are wonderful, but are your bedrooms tiny and cramped as the result of all that wasted space? How will normal furniture work in the house? (Hubby and I once really liked a house until we sat down in the living room and realized that the layout of it left no place to comfortably position a TV.)

This is going to be the biggest purchase of your life. Don’t settle for something less than you’ll be completely happy living with for the next couple of decades. If you don’t see exactly what you want, wait. Chances are, it will come up on the market sometime down the road.

17

I appreciate the bluntness, y’all. It’s something that I don’t necessarily want to hear, but need to hear nonetheless.

Paying off my debt is a huge concern for me. The $15K is all in my fiance’s name, the debt (other than the car) is all in my name. I do not want to and will not make paying my debt off his responsibility. Yes I know that once we get the house, all our money will be pooled together, but until that happens, his money is his, mine is mine. If nothing else, his family would flip out if they found out that DoperGuy’s hard-earned cash went toward paying of MY debt.

I am in the process of negotiating the student loan system so I can find out exactly what I owe and how to consolidate (if it’s even worth it in the long run). I am looking at around $30,000 in student loans. If I waited until that were entirely paid off to get a mortgage, it would take years, easily. At the very least, we want to live together when we get married next year.

I have heard the 1/3 of take-home pay figure before. The problem is that we’re stuck with a crappy market right now, especially near where we both live. We only take home a combined $3900 per month. This would get us a house around $150K, something that we have yet to see in our area. Or at least we might have seen a few, but they all needed so much work that it erased any benefit to a lower initial cost.
I can sum this all up in one word: AAAAAAAAHHHHHHHHHH!!!

18

It seems to me that there is little harm, and potentially much gain in living together in an apartment for a year or two. Keep house hunting, maybe you will yet find the perfect house. (My brother and his wife bought a house based on potential–it is amazing what a good cleaning and a coat of paint on every surface (except the floor) can do for a house. Of course, they’ve also spent money on the master bathroom and the kitchen and the pool . . . )

More importantly, living in an apartment for a year will give you a chance to see what your expenses really are. How much do you spend on food, entertainment, clothing, etc. This will give you a better idea of how much of your income you don’t want to be spending directly or indirectly on the house.

Buying a house is tempting, but you may be better off not doing so immediately. I don’t think that you need to wait on the mortgage until you pay off the student loans, but at least find out what you have to repay and when before you get the mortgage.

19

Unfortunately, DoperGuy out and out refuses to get an apartment. He sees it as just pouring money down a hole. I happen to agree with him, but I’m really not seeing much else as an option if we want to live together.

20

I’m not surprised–there are a lot of people who feel that way about paying rent–and certainly it can be difficult to save up enough money for a down payment if one is simultaneously paying rent . . .

On the other hand, the assumption that the value of a house will always increase over time may not be as true today as people have often assumed that it will be. Buying a house isn’t just a financial investment, it is also an investment in a lifestyle. People who buy and people who rent often have entirely different approaches to things like lawn maintainance and household repairs.

Spending more time picking a house gives you more time to decide on the best location and to evaluate schools and commute times, and all those other fun things.

I don’t know that you shouldn’t buy a house now-- I just think that saying “I don’t want to pay rent, that’s just throwing money away” when the alternative is buying a house with a low downpayment so that it will be a long time before you start accumulating equity, or buying a house that you will come to regret because of high mortgage bills, or bad decorating that you can’t afford to redo, or too limited space . . . Sorry, don’t mean to be depressing. But if you are young, in debt, not high income, the notion that rent is throwing money away may be too simplistic a notion. Of course, if this is a position that he didn’t reach by logic–my logic will probably not sway him.