To Purchase or Not to Purchase (A Home)

[MamaPhD]

Hi Working Parents! I used to post here with more frequency before I took a Tenure Track Faculty position and have zero time for anything outside of my career, being a mom to a 3 year old and being a wife!

I'm back to ask a question that I hope you all can weigh in on...DH and I have never owned a home. We've always been in training (him med school and me grad school) and never knew where we would settle. Now that we are settled into our "grown up" careers, we are thinking its time...We have been living with my parents for a year. Its worked out well and we aren't dying to move out (they also help us a TON with our little one given our busy schedules). 

So, we have found a few homes we like and one in particular we really like but are feeling a bit nervous about pulling the trigger. How do you know that the house you purchased was "your house"? 

Any insights and words of wisdom are welcome!

[vasc]

Where do you stand financially? What kind of loan would you seek?

[MamaPhD]

We have been pre-approved for a physician loan which doesn't take medical school loans account in the debt to income ratio, waives mortgage insurance and allows us to a minimal amount down at a good interest rate. We have a good chunk of savings, some cc debt on an 2 year no-interest card and the only other debt is my husbands medical school loans. I have some under grad loans but they are being paid by the fed gov't.

[2chatter]

I knew when we found a house that ticked all the boxes. I made a matrix of things that were important and weighted them, then DH and I scored properties. We never agreed on everything, but this home - the only item he didn't like was age. As new construction doesn't exist where we want to live, we eliminated that and this was it. Having data made the decision dispassionate and got us both past "but I really love...." emotional decisions.

The one thing I would weight differently now is walking distance to schools. The kids walk k-8 and it is HUGE for sanity for me - community and social stuff for them. I would seek another home within walking distance if we were ever to move. I don't do carpool lines well and neither do the kids - they prefer to walk in the rain.

[akafred]

I don't know anything about your finances but I do know (mostly from listening to Dave Ramsey lol) that a lot of young doctors get antsy for the rewards of all their hard work and can then get over their heads quickly. It's not my life to lead but on paper, if the arrangement with your parents is working out, the best possible thing you can do is to pay off all debt (or at least all non-student debt) and sock away at least 20% down and then buy a house well within your means. I know that could be easier said than done. Realistically if you could pay off a lot of student debt and save 50% of a home purchase, you could really live well down the road. Start saving for retir mental early and you might be able to retire pretty young if you want to.

[k3am]

So, you have some fancy financing available to you. But a good rule of thumb? If you can't comfortably afford 10-20% down and the monthly payments on a conventional loan, you can't afford the home.

How much will you be saving monthly after mortgage, debt, credit card and general living expenses?

[rere26]

Our rule of thumb was our home loan had to be under 25% of our take home pay. After refinancing a couple of times for a better rate, it's way under. There were some must haves such as location, big front porch, big master bath, nice kitchen, and basement with a family room that our house has that I knew I wouldn't be satisfied without, so we made sure we didn't have to compromise before we bought.

[vasc]

Will you still be able to sock away money in savings for repairs and upkeep of a home?

[MamaPhD]

Feb 11, 2017 6:33:37 GMT -5 vasc said:

Will you still be able to sock away money in savings for repairs and upkeep of a home?

Yes I believe so. We are running these numbers this morning to confirm.

[MamaPhD]

Feb 10, 2017 22:07:07 GMT -5 k3am said:

So, you have some fancy financing available to you. But a good rule of thumb? If you can't comfortably afford 10-20% down and the monthly payments on a conventional loan, you can't afford the home.

How much will you be saving monthly after mortgage, debt, credit card and general living expenses?

This is SUCH a good point. We could afford a 10% down payment and the monthly payment on a conventional loan but not 20%. All of things brought up here are so important to think through! So glad I brought this question to you all.

[akafred]

Also, I don't think there is a "one" perfect home. There are lots of great homes out there all the time. Be very ready and when you're ready, you'll find it as long as you aren't in a hurry.

[saraml13]

In terms of financials, make sure you budget not just for the purchase price, but also unplanned repairs, improvements, furniture, decorating, and landscaping. Be brutally honest with yourselves about how much work you want to do on a house. With your jobs, I'm guessing that you don't have a lot of free time to coordinate renovations, so you probably want something move in ready. If an agent tells you that some project is really simple and will take $X and Y weeks, plan for 2-3 times that.

In terms of knowing when we had found "the one", we had narrowed it down to 2 towns next to each other that we wanted to buy in based on splitting our opposite direction commutes and proximity to family. About 6 months before we were ready to get serious, I started browsing all the listings and we went to open houses for just about every house was in our general price range. That really helped us understand what we could get in the market and what were the things we really liked and disliked in houses. When we were ready to get serious, we got a realtor and started touring houses we hadn't seen yet.

After a few rounds of house shopping, we almost jumped the gun on a house. We got excited because it was the biggest yard and house in good condition that we had found in our budget, and we came close to putting in an offer. We got scared off by the fact that there were other buyers starting to bid on it and it was at the top of our budget. In retrospect, we're really glad we didn't buy it because it was far away from the train DH takes to work and in kind of a dead area of town.

When our house came on the market, I could immediately tell it was a contender from the listing. Perfect location (a couple blocks from train, parks, and schools), nice yard, the number of rooms we were looking for, at the mid-point of our budget. We went and saw it the first week it was listed and immediately knew it was "the one". There were definitely things we knew we would need to do work on, but it had a lot of potential and there were no deal breakers. We put in an offer right away.

The house didn't necessarily show well and we did have to look past a number of cosmetic issues. It was occupied by renters, so it really wasn't staged. The renters had a couple young kids and the house was stuffed to the brim with clutter, the walls were all scuffed up, and the curtains were atrocious. But we were able to look past that, and without all the clutter, and with new paint and the grandma curtains taken down it was night and day.

[akafred]

To expand on ^^^, watch some shows like Property Virgins and Property Brothers and Love It or List It, etc, to get an idea of how to look past some cosmetic things. Some people get so caught up in ugly wallpaper or whatever that they can't see their furniture inside it, their style. But paint and wallpaper and carpet are simple fixes.

[supertrooper1]

Feb 11, 2017 9:37:32 GMT -5 akafred said:

Also, I don't think there is a "one" perfect home. There are lots of great homes out there all the time. Be very ready and when you're ready, you'll find it as long as you aren't in a hurry.

This.

DH and I have purchased 3 homes together. Each time we had a little bit bigger budget. But even now, I like our home and it's probably our forever home, but I wish there were some things we could change. Each time we looked at homes, there was always something just a little bit better but was $50,000 or $100,000 higher than our max price.  So when you think you're set financially to purchase take your time. It's great that you don't have to rush to find a home since you're happy with your current living situation.  I would recommend getting a pre-approval letter from the bank.  It can help your offer if/when you do find the home you want to buy.   

Just remember when you do buy, you're not stuck with it. You can always sell and buy another home.

[tas1883]

Remember how much time or money it will cost to keep up the yard, home repairs, cleaning in your budget too. If you or your H are not handy and don't have handy parents then cosmetic changes can become very expensive. Paint is relatively cheap but if you don't know how to paint or don't have the time and hire out painting a bedroom or the inside of the house can go from a couple $100 to $1000 plus.

Something I'm constantly reminding my H is that I always keep an emergency house repair fund for when the roof leaks, water heater goes, broken appliance, etc. Because crap happens when you least expect it.

[vasc]

To answer your original question, i think you need to narrow down your location since that's what you can change about a home the least. Look at school rankings for the schools that will serve your potential neighborhoods. What will your commutes look like, especially if you rely on public transportation? Are there are other specific landmarks nearby that would make the neighborhood a benefit or drawback? What about proximity to shopping centers, etc?

We answered all of these questions first and then sought out houses in a very specific subdivision as a result.

[brachysira]

I didn't read the responses, but I seem to remember you have a terrible commute? I wouldn't buy a house in that case unless I really was excited to own because I would hope for something to change to limit the commute someday. With your busy lives, I also wouldn't own because it's always something when you own--we were up all night on Friday because our sump pump broke and our basement flooded. It's leaves in the fall, snow clearing in the winter, and mowing in the summer. Infestations, weird leaks, why is the heat bill this high? It's always something, and even when you contract it out, it's still work to hire people and manage them. Use NYT rent vs. buy to figure out if you have to buy--in some areas the rent can be insane, although of course if you are living with relatives and it's helpful, then just keep doing that! I think barring a situation in which renting is too pricey, owning is only for the energetic who can't wait to paint, want a garden, and enjoy things like minor home improvement projects.

[brachysira]

With the market potentially unstable, not sure how much this applies, but Rent Vs. Buy demonstrates that owning a home isn't necessarily a great investment and you may not be "throwing money away on rent." If you invest your down payment money these investments are likely to do better than appreciation of your home. And since you live for free...

[Deleted]

Since you are OK with the situation and I'm assuming have a lot of debt I might stay there for another year and aggressively pay off debt.

I think we knew when to buy because it was shortly after having our first and we had the cash put aside for it.

That being said I would want someone to lose out on your dream home if that is the case. Owning is much more expensive then renting with decor and maintenance etc. We are in track to pay off the house quickly and I think our area will be stable as far as houses and we likely don't have to worry about being underwater etc, so I think it will work out well. But that isn't always the case as the housing market crash taught us.

[MamaPhD]

Feb 11, 2017 18:47:55 GMT -5 brachysira said:

I didn't read the responses, but I seem to remember you have a terrible commute? I wouldn't buy a house in that case unless I really was excited to own because I would hope for something to change to limit the commute someday. With your busy lives, I also wouldn't own because it's always something when you own--we were up all night on Friday because our sump pump broke and our basement flooded. It's leaves in the fall, snow clearing in the winter, and mowing in the summer. Infestations, weird leaks, why is the heat bill this high? It's always something, and even when you contract it out, it's still work to hire people and manage them. Use NYT rent vs. buy to figure out if you have to buy--in some areas the rent can be insane, although of course if you are living with relatives and it's helpful, then just keep doing that! I think barring a situation in which renting is too pricey, owning is only for the energetic who can't wait to paint, want a garden, and enjoy things like minor home improvement projects.

Great memory! Yes, I did have a terrible commute but not any more! Went from 1.5 hours one way to 15 minutes! I agree so much with all of the points you make and we have always wanted to simply rent because we have zero desire to paint, garden, do home projects, etc . However, the rental market in our city has become almost non-existent! Its actually really surprising how tight the rental market is right now. We also go back and forth on renting because of the instability. We are living with my parents because the owners of the house we were renting sold it...

[Widget123]

If your parents aren't trying to get you out of the house and you think the living situation is working out well with them, I'd wait until you were a little more financially stable and make sure you have your mind made up on where you want to live and how much you can afford.

[rach]

I work in mortgage banking. My personal comfort level in what I'm willing to afford for monthly payments and what a lender will tell me I can afford are two radically different numbers. Make sure you're comfortable with the total of all your monthly payments and keep in mind that you'll be responsible for maintenance with a house. If you are putting down less than 20%, I would be very sure you feel comfortable staying in the house long term in the event anything changes. (My mother still lives in what was going to be my parents' "starter" house. Things happen.)

We rented for an extra four years because I wanted to wait for what could be a forever house. For the market and our city at the time, that wasn't a bad decision. In my current city, rent is often significantly more than a mortgage payment though.

[sdlaura]

ITA with rach in terms of the enormous difference between what we can get approved for and what we'd actually feel comfortable paying for a house. Especially because we spend more on childcare than we do on our mortgage, but mortgage lenders didn't take that cost into account.

Like PPs said, I recommend doing a calculation of your net monthly income minus all of your current monthly expenses and the anticipated new expenses you'd have with a house. That should give you a good idea of how much you have left over each month for a mortgage payment.

[akafred]

At one time I owned a house with my at the time not quite ex husband. We had an agreement but it wasn't finalized; the mortgage was about $100k. Based solely on my income, I still qualified for twice the house I ended up buying (qualified for $350k - even considering the other $100 debt, bought $185k). That was before the crash so I assume it has tightened up some, but still, it was ridiculous.