Trying to buy first house

My wife and I got married about a month ago and now we are looking to buy our first home. As a couple we do fairly well, just breaking the $100k level, and have a excellent credit. I contacted my bank about a pre-approval just to see what we could get and it was a decent, $275k with no money down.

Now the rant begins. Like I said, my wife and I do ok as a couple and the payments (with taxes and insurance) came out to about $2,100. Normally that should seem doable but becasue we had to put ourselves through college we pay over $1,000 month in student loans and thats not going to change for 20 years. For the same reason we have not been able to save much for down payment/closing costs. In fact, we will be able to cover closing costs but thats it. As you can imagine that seriously cuts into what we can afford for a mortgage. To make matters worse, we live in area where real estate prices are totally out of control. Unless we want to commute 2+ hours a day(which I have beeen doing for 5 years and need a break) we cant afford anything in our area. Even places that we can afford we will have no money left over should the house need repairs. Not a good situation as houses in our range will need some work. Every place we looked at wont even fit my RPTV in the living room, let alone the rest of my HT equipment.

I just dont get that here we are, an upstanding young couple that works very hard, put ourselves through school, dont do illegal things, and are honet completely gets the shaft. Its almost like a penalty becasue we didnt have rich parents that spolied us. And how do other people affrod it? I just dont get it. Its like going to college hurt us more than its helping. I know thats not the case as I wouldnt have to the job I do now but you get my point.

We are exploring all of our options but becasue on paper we do well and our middle class there doesnt seem to be much out there for us.

I needed to get that off my chest. Its very depressing, all I want is a place to call home where I will feel comfortable raising kids and having good schools for them.

You live in a very expensive part of the country. Have you thought about moving somewhere more affordable?

Then you need to move to a more affordable part of the country or wait until you've paid off your school loans & can afford a bigger payment.

I can understand your frustration, but you are in the same boat as the vast majority of people out there. Like Steve, I would take a serious look at whether moving to a different area of the country is an option. Yes, this requires finding new jobs, possibly giving up proximity to family and friends and so forth, but is your current job and the financial stress you will be under buying locally or (more realistically) dealing with long daily commutes really worth it to you?

Even if moving meant a lower paying job, a lower housing/cost of living/less stressful life may make it worthwhile. You do have options. Getting yourself into a situation where you are financially overburdened, especially if the housing market is in a bubble, is just asking for disaster. Perhaps the universe is trying to tell you something. Ask yourself what you really want out of life. Are you happy? If not, change can be a good thing.

Andrew, Im in the same boat brother. Im single make about 32k a year but am having a hard time getting into a house. Sacramento (or CA in general) housing is obscene price wise.

Im probably going to move to Nevada soon. Yes Ill be away from friends and family but Id like to live more comfortably.

I have heard from a finace advisor that its useless to save for a down (or try). Theres so many loans for first time home buyers and the prices flux so much its almost impossible to save for a down.

I am attached to the area I live in and dont want to move. In fact, my entire family moved to FL over the past few years and I have no desire to join them. I love the Northeast. The only other place I would consider living is Boston area and real estate prices are just as bad. Besides, being the Yankee fan I am I need to be within driving distance to the stadium (priorities).



Definately an idea but I dont want to wait 20 years to buy a house. I am almost 30 and would like to have kids by 35 and have a house for them. I grew up in a big house on river front property and the relaiztion that I will probably never be able to afford something like that hurts. But I am ok with a small house, if I could just find one.

I know there are many other in this situation but I see lots of young couples buying big houses in the area. One thing I am going to teach my kids is marry wealty so they dont have to go through the same crap I did.

I ask myself the same question all the time. I just bought a condo (in CT) because there was no way I could afford a home. I make a VERY decent pay and I just can't believe how much homes are. I live in one of the more affordable areas of CT and STILL the houses are riddiculous!

I have NO loans and I've saved enough to put down 20%, but I still can't manage a home.

I have a 50 mile commute because there is no way I'd be able to buy a home near my work place (Norwalk). It absolutely amazes me how people do it. I have friends who (combined with their spouces) make less than I do. They have kids and STILL are able to manage. How the heck are they doing it??????

Like the old Stones' song, ya can't always get whatcha want. Hang loose for a while, property values are more than likely due for a serious correction. I've been through two or three valuation cycles with my house of 20 years. As you seem to be aware, it'd be insane to purchase property that would require all your available funds for payments alone....spit happens, and usually when you least expect it and can least afford it.

Cripes, be a little patient. My wife and I rented for six years until we could save up enough for a down payment on our first house and every cent we tucked away was a struggle. Good luck....perservere.

Mort

The one thing that comes to mind is that ad with the guy talking about all the great stuff he has.


The he says how do I do it? "Im up to my ears in debt, I cant even pay the finance charges"..........some one please help me"


.

The people who are able to afford these inflated housing prices are the ones who bought their first homes a few years back and benefited from the recent surge in values.

Case in point: A fellow I went to college with bought a townhouse in Northern Virginia 2 years ago for $175,000 and just sold it for $610,000! Now he's using the equity to build a $900K house on 20 acres of land. And he only makes about 50k a year.

$275K in northern NJ wont even buy many small condos...

I hear ya, once I saw where you were, I knew what you were talking about.

Jay

What is your rent right Now? Do you have a car payment? Credit cards? . now are you each paying 1000 a month on student loans? what type of social activites do you do? Do you bring lunch to work, do you smoke, how bout meeting up with the boys for a drink after work?

there are so many ways to cut out expenses when saving for a house.


100K a year is just over 8k a month. There are so many ways to save at least 4-500 or maybe even 1000 a month just by making small life style changes.

Well here is my story. Me and my wife built us a brand new house here in Pensacola, FL. She graduated and is now working as a Nurse. I am still in college for Electrical Engineering and have a good paying part time job in my field, that will become a great paying job once I graduate. She paid for her college and lived with her parents after she graduated for about 1 year. She saved at least 75% of her income for us to put a hefty down payment on a house. We got engaged shortly after she graduated and then found a home builder and built a nice 1400 sq. ft. 3 bed, 2 bath, 2 car garage home. Well we live off of about $40,000 to $50,000 depending on how much I bring in that year. It changes due to my school schedule.

Our parents never gave us a dime. They had the money to give us all they want, but we were raised to be good with money and make our own. We both bought our first cars with our own money at 16. For me that was a $5000 truck.

Well now we don't live beyond our means. We have no debt other than our house and pay off all credit cards at the end of the month.

I know it can be frustrating when trying to buy a house. But it is key to get a good down payment built up to get those payments on a mortgage down. There are a lot of programs out there for down payment assistance. Search around and see what you can come up with.

It helps also, like everyone else has said, that I live in a part of the country that is fairly cheap to live. Pensacola, FL was ranked in the top 10 for lowest cost of living in the country a few years ago. But the housing market has spiked here also. A house that cost $100,000 a year ago now cost close to $135,000. That is in one year.

I think the country's housing market is going to come down again soon, or at least flatten out. There is no way that it can continue the way it has in the past year or so.

A $600K townhouse! I didn't realize it was that bad...

I got my condo 6 years ago for the price of 72K I'm selling it for 210k and buying a new Townhouse for around 260. Selling my condo well allow me to put 100k down on the new place.

I resemble that remark !!!!

Respectfully Andrew...there are options for you and your wife to get into home ownership (like moving to a cheaper part of the country)...but when you put those options off the table to start, it really leaves you with little you can do. It seems the priority you have stated is really home ownership and raising a family. I believe you would put those above commuting and attending Yankee games in person, yes?

If you set out a long term goal of wanting to own a home in your area...the best, quickest path to get there may in fact be moving away before you come back and get your dream place. So...what do you do? Maybe you can find a company that has offices around the country, including one near you. You can see if you can start out in one of their other offices (in a cheaper area of the country) hopefully eventually transfer back to your current area after you build some equity from home ownership elsewhere.

Like I said...there are options to get what you want in the end...they will just mean more sacrifices to what you want in the short term and moving out of your comfort zone, for now, to get there.

I know people who wanted to live in Seattle, but could not afford it. They got a job with a company that was based in Seattle, but at their Dallas, Texas offices. Two years later after some promotions, they were able to transfer within the company back to Seattle and had enough from their "saving" in Dallas to buy a home in Seattle and now they are happy. Their willingness to be flexible and move to Texas temporarily, when they had no intention to settle there, is what made it all happen for them.

Welcome to the real world. I didn't buy my first house until I was 33 and I had to move to an area outside of where I wanted to live with a much longer commute. After living there for 5 years and making a nice amount of money on that house, I was able to move back to San Jose where I lived previously and bought a house that cost way more than it ever should. After living there for a year, I'm now moving my family out of CA to St. Louis. I've lived in CA for almost 17 years but the housing prices are just ridiculous. I decided that I didn't want to sacrifice everything just to live in a decent neighborhood with a decent house (and still lousy public schools). My house is sold and I've already bought a house in Eureka, MO that would cost over $1M here. I move in a month!

I don't know what to tell you. It takes sacrifices. Some people sacrifice their credit score by taking out too many loans, some people sacrifice all the "extras" and scrimp by, some people sacrifice location by moving somewhere else, some people sacrifice time by working two jobs, and the list goes on.

Buying the first house can be done, but something has to give. My husband and I wanted to move to a different area, but that area has really expensive real estate. So we sucked it up and bought a house in the city we already lived in, even if it's not the ideal place to be. But having a house in a nice neighborhood, a short commute, and plenty of money for "extras" was extremely important to us, so that's what's keeping us here. Some may say we're trapped, but I don't see it that way. I see it as us sacrificing our ideal location for a relaxed lifestyle and a decent place to raise our daughter.

Current Rent: $1050
Car: mine was recently paid off and my wife has about $6.5k left on her loan
Student Loan: Combined we pay $1k
Credit Cards: My cc balance is a bit high as I used it to buy books, food, and other college expenses. Like I said, I put myself through college and needed every financial resoruce possible. I just started paying $500 a month to get the balance down.
I dont go out much at all, dont drink or smoke.

My only real vice is DVD's but I have even cut back on that. When I first got out of school I wasnt even making enough to pay my student loans. Just recently I started a job where I am making decent money so I can finally start saving money. However that all could go towards a mortgage. And I was also going to start a 401k but the mortgage payment may cut into that.

I guess my biggest issue is that I lived on next to nothing for many years to get to this point only to be knocked right down due to housing costs. My wife is a teacher so her salary doesnt have the potential I do.

thats a good thing.


what is your wifes payments? what year? how many miles how much is the insurance. You have to look at every conceivable thing that costs you money. I'd trade in the car and get something that might be used or a slightly lower model to bring the payments down or get rid of them all together plus the savings on insurance. A new House is going to make you more money than a car. remember Cars Lose Value and Houses only go up.

Man I feel like SUZE Orman

I totally understand about the cash down. It's tough. I make a very good living by most standards and still couldn't come up with 20% down plus $6,000 closing costs in cash for a small $270,000 house 7 years out of college.

I had to save for two years to get enough cash to close (10% down plus closing). I'm lucky enough that my company pays decent cash bonuses every year so I had a one time influx into my bank account that I made sure not to touch. This year's bonus is going towards the incidentals involved in moving into a new place (which add up very quickly).

There is no secret other than to be very strict with your spending. Chances are that since you have a RPTV and are a member of this board you don't have the best spending habits to begin with. That's got to change if you want to buy a house (although I can't argue the merits of having a high tech, huge apartment should that be the path you choose).

Look at your spending habits - there are definitely places to cut. It's hard, and you will have to make sacrifices. The little things add up - forty bucks here, twenty bucks there, and next thing you know, you've spent $400 on nothing.

If you put $500-600 away per month, that's $20,000 in three years. If you factor in other potential windfalls (e.g., tax refunds of $1,000 every year) that's a potential $21,000 in cash to use in three year's time. Another tip - as you get raises every year, try putting that directly against savings. You'll never miss it and it's usually good for another $200-$300 savings per month every year.

Seems to me like you are receiving some good advice in these posts, Andrew.

I understand your frustration; I hated paying rent when I was starting out (why pay another's mortgage when I could have my own!). But, I pretty much did what you have been advised to do.

I rented a country house within 30 minutes of my city (cheap) that had all I needed for recreational pursuits within close proximity (the river was a 5 minute walk away where I swam, fished, kayaked, hiked). My friends loved my place so there was always a full house on weekends when they escaped the city. I worked for an airline then, so had a well paid job that gave me the best of two worlds (my country cottage & and overseas travel). I saved heaps. I ended up buying "the worst house in the best street" when I moved back to town, did it up and quadrupled my money within 10 years. 14 years down the track it is worth seven times what I paid for it. That street, btw, is in the best area of town and is now seriously sought after.

I fast-tracked payments by sacrificing the little things, paid the house off early and just recently used the equity to buy a rental... which I'm in the process of doing up... someone else will be paying my mortgage

Your dream home is unlikely to fall in your lap where you are - make a plan, make some changes and go for it!

Could not have said it better myself

I have lived in Boston for 5 years, renting at $1500/month. When my wife and I started looking for homes around the $300-$350k price range, we didnt find much of anything.

Crappy 2 bedroom, 1 bath capes go for $350 and up over most of Mass.

We ruled out down-payments straight away. I dont see a point in down payments on a first home. If you were gonna live there forever it makes sense, but to put a down payment on a house you will probably end up selling in 5-7 years doesnt save you much money.

Also, look into 80/20 mortgages. An 80/20 mortgage gets rid of the big mortgage insurance penalty.

We got approved for the mortgage, 80/20 with no down payment, and then started looking to buy. After 3 months, and not a single house that wasnt a pile of junk, we ended up buying a place in Atlanta. $275k for 5 beds, 3.5 baths, on a killer golf course in the northern atlanta burbs. No money down, and we got the seller to pay $6k in closing costs...making it a zero-cash closing (which was nice!).

We move next Monday.

Boston is a great city, we will miss most of it. But the commute is terrible, cost of living is way too high and the winters are brutal!

i'm buying a new home that will cost me a good chunk of change. luckily, my current home appreciated about 140k in two years -- so i'm using that money as a down on my new home.

so, it's like i bought a nice home (but not a "dream" home), sat on it for a while (two years so i don't pay capital gains tax), then used the equity to put as a down on a nicer home.

maybe you can go that route? it's a good way to build the equity you'll need -- assuming the market over there is as crazy as it is here.

I'm in the same boat. Single, make a great salary, want to get into a house. Everything near work is huge money, out of my range. I went through a huge fit as well when I first starting looking.

Everything seems expensive, but I suggest really going out and looking. Don't just look at the adds in the paper. The higher value homes get the attention, because they can afford to be advertised. It's possible some cheap gems can be found even in high dollar areas - just look.

Other thoughts to consider. Most people "grow" into their homes. Meaning the first year or two the payment is a little tough. But if you can expect regular raises, every year will get easier.

Save a few dollars to make a mortgage and rent payment for a few months. Buy a home in an area you don't want to live, but can afford. In an up and coming area would be best. Rent it out. Use the money to pay the mortgage. In a couple of years, you will have equity in the home. Sell it, and use it for a down payment.

Interest only mortgage. A lot cheaper, but you will be counting on the home going up in value for an increase in equity. A little risk, but a possible way of getting into a more expensive home.

You also kind of want to get into the most expensive house you can afford. The higher the cost, the greater the gains in the appreciation. Plus the greatest tax break.

Jeff - How does an 80/20 work? Is it a traditional 30 year mortgage covering 80% of the value and then a 20% 15 year loan covering the balance? Basically, the bank is providing both your mortgage and a loan for the down payment, right? How are the rates on those?

Ted brings up a good point, the hardest part about real estate is getting your feet wet. Once you own one place, cash for a subsequent house tends to come from the appreciation of your current place and/or the equity you've gained through your monthly payments.

Start small - buy a $140,000 one-bedroom condo or studio (they're usually readily available), live there for a couple of years and then flip it. In Connecticut, I'd imagine that you'd get somewhere in the neighborhood of $15,000-$20,000 on the sale after two or three years to put towards a bigger house. You have the cash to do the closing and I imagine that most banks are used to providing zero down mortgages for those types of units.

It's hard to save when you're stuck paying high rents. This mortgage will give you a housing payment around $1000 a month so you may see a savings there.

Think of it as downshifting before going into top gear.

There are lots of variaties of 80/20 loans from what I gather.

The one we got is a standard 30 year ARM (fixed for 5 years) on 80% of the value of the house. The other 20% is a home-equity 2nd mortgage that is basically like a credit card secured by your house. The rate is higher on the 2nd (we got prime + 1.125).

Since the 1st mortgage is only 80% of the price of the home, you dont get dinged with a big Mortgage Insurance penalty (saved us around $225/month).

Finding a decent condo under $150,000 is virtually impossible in CT. Decent condos start at $180,000. The only way to get under that, is to either move into the really crappy ones, or move into the ones that are less than 800 Sq. feet.

And as far as homes, my real estate agent gave me the listing for a cape that was built in 1944, on .46 acres of land, 4 rooms, 1 bath, 2 car garage, 921 Sq. feet - - - it was $174,500

The catch: The house was ready to fall apart! It was unreal! A total tear down! It was almost laughable.