Please convince me that buying a house will not be my financial ruin

sub sub elite local hobby jogger wrote:

Currently stressed out about buying a house on my own. I would feel more comfortable if I had a partner to buy it with, but I don't. With the cost of upkeep, repairs, taxes, etc., I simply see the home as being financial ruin for me and would destroy my solid financial footing at the moment. I hear so many regrets and horror stories. What do you think? Am I right to be overly worried about this decision?

If you can't afford it, then don't do it. If your concern is about spending money then I cannot help you.

You are smart to be concerned. Compare the current housing prices vs. inflation and you'll see that we were obviously in a bubble even before coronavirus started. I'm planning to wait another year or two (if my wife will let me.) We've been renting for TEN YEARS waiting for our credit to get repaired and waiting for prices to come back down to earth. We both lost our homes in the 2008-10 mess just before we married. I'm over 40 and still have zero wealth built from housing. I'll be starting over like I'm 23 again when I decide to buy.

ProppedHomes wrote:

You are smart to be concerned. Compare the current housing prices vs. inflation and you'll see that we were obviously in a bubble even before coronavirus started. I'm planning to wait another year or two (if my wife will let me.) We've been renting for TEN YEARS waiting for our credit to get repaired and waiting for prices to come back down to earth. We both lost our homes in the 2008-10 mess just before we married. I'm over 40 and still have zero wealth built from housing. I'll be starting over like I'm 23 again when I decide to buy.

The market seems a bit different now. These seems to be enough wealthy-ish buyers and a low enough inventory due to low density building practices that have driven up prices. Although I am noticing the higher value homes in my neighborhood staying on the market longer. The lower value homes get scooped up.

If you feel stressed, then don't do it. Housing is just as emotional as financial.

I just don't think we have a clear picture what is happening with the economy and unemployment and how that will impact housing prices in the near future. My primary concern with purchasing now would be the inevitable wave of foreclosures due to unemployment. Foreclosures drive prices down for all homes. Many married couples both have to work to afford their mortgage, so it only takes one spouse getting laid off or furloughed to cause them to either have to sell or get foreclosed on. Just like in 2007 and 2008, there may be a "pause" in real estate activity as nobody knows what the correct prices are. By 2010, we all found out and it was ugly.

bojack wrote:

sub sub elite local hobby jogger wrote:

Currently stressed out about buying a house on my own. I would feel more comfortable if I had a partner to buy it with, but I don't. With the cost of upkeep, repairs, taxes, etc., I simply see the home as being financial ruin for me and would destroy my solid financial footing at the moment. I hear so many regrets and horror stories. What do you think? Am I right to be overly worried about this decision?

If you can't afford it, then don't do it. If your concern is about spending money then I cannot help you.

I can easily afford the monthly costs but it's the big projects that concern me and will inevitably eat into other financial goals. Don't want to have to take out more loans to cover home repairs/upkeep.

If your source of income is stable and recession proof, I would wait for the inevitable wave of corona shut down foreclosures to hit the market. Housing prices will drop when this happens. You don't want to owe $250k on a home valued at $170k. That said, my house is mine, free and clear. That is a very comforting feeling.

Look at it this way. You have to pay for your housing some way, right?

If you're renting right now, your landlord has to pay for the maintenance, taxes, mortgage, etc. You pay your landlord MORE than that amount, that's how your landlord makes money.

If you look out 10-20 (or more) years into the future, will the house you buy today be worth more or less? Will the amount of rent you are paying be more or less?

I've bought and sold a few houses in the last 20 years. Maintenance costs were never debilitating, the biggest costs were the remodeling projects that my wife insisted upon.

If your plan is to buy something, and then sell it in 5 years or less for a profit, I'd say this is not the best time to do that. But if you find something that you can see yourself living in for 10-20 years, and the costs are roughly the same as renting, then buy now when interest rates are super low, and don't worry about prices fluctuating after that.

sub sub elite local hobby jogger wrote:

bojack wrote:

If you can't afford it, then don't do it. If your concern is about spending money then I cannot help you.

Then you cannot easily afford it!

Upkeep doesn't have to be really expensive year over year. A roof is expensive but last 25 years, a small loan on that is nothing in the grand scheme of things.

You clearly cannot afford it, rent.

I can easily afford the monthly costs but it's the big projects that concern me and will inevitably eat into other financial goals. Don't want to have to take out more loans to cover home repairs/upkeep.

bojack wrote:

sub sub elite local hobby jogger wrote:

Then you cannot easily afford it!

Upkeep doesn't have to be really expensive year over year. A roof is expensive but last 25 years, a small loan on that is nothing in the grand scheme of things.

You clearly cannot afford it, rent.

I can easily afford the monthly costs but it's the big projects that concern me and will inevitably eat into other financial goals. Don't want to have to take out more loans to cover home repairs/upkeep.

Why should I take advice from someone that doesn't know how to use the quote feature?

It depends. If you are looking at it as an investment, I would wait a little while. Ideally you want to buy when rates are low and prices are low (which rarely occurs). Without that, the next best thing would be to buy when prices are low and rates are a bit higher, as you could refinance down the road at a lower rate. If prices are still high in the market you live in, it may be best to continue to wait. Foreclosures haven't really hit due to the federal unemployment benefit and the moratorium on evictions and foreclosures in most states (you should check your own state's regs). Once those end (or are extended at a lower rate), there will be more homes available and prices will likely drop. If you plan on living in it long term and can easily afford the payment, it may not be the worst decision as the interest rate that banks charge may go up even if the federal rate stays low. So even if property prices drop, if the interest rate increases, it may be about the same payment. Don't buy unless you can afford a traditional down payment (20%), a fixed rate mortgage (not an ARM) and can afford a $10,000 expense like a furnace or air conditioner replacement and plan on living in it for at least five years.

Good advice. You arent ready to buy yet even if the market was favorable to you. Dave Ramsey wouldn't let you buy until baby step 4.

1. Save $1k. Doesn't mean anything but a personal commitment to start your path to financial freedom.

Most important step is right now! Plan your budget for every dollar and stick with it. This is a MUST partner committment between you and your wife.

2. Start snowballing your debts with Gazelle like intensity. This is definitely where you and your wife need to be on the same page. Rice & beans, beans and rice! The only time you see the inside of a restaurant is if you are doing the dishes for your 2nd or 3rd job to accelerate your income. The pets and kids are afraid they are next on the selling block!

3. Build your 6 month emergency fund in the event you lose your job, unforseen medical, car dies etc... For Emergencies only!

4. Start saving for that house down payment & start investing for retirement. Roth IRA. Kids college fund as well if necessary. Live beneath your means and don't be house poor.

No need to go further with the plan until you get this far IN ORDER. No "Ramsey-ish" or you will not only lose money in the process but may never get there. Also, this will give some more time to let the market settle depending on where you live. Renting is ok until you get to/through step 4. Keep that bill as small as safely possible. Remember, food, housing, clothes, transportation is top priority. If you can squeeze these down to an acceptable level, you will be debt free sooner. Your income is your path to personal wealth.

Don't even think about taking out loans for anything. Cash flow those projects. Gives you more time to plan, find great deals etc... Who gets rich from interest on loans? It ain't you!

Just start listening to Ramsey podcast religiously. It works. You could go Robert Kyosaki route but very risky with great potential for wealth or bankruptcy. Better know what you are doing with his Rich Dad, Poor Dad philosophy. Ramsey works for most who are committed.

Also, you'd get better advice if we had a bit more information...

How much do you currently pay in rent and how much is your income? How much do you have saved for a down payment? How much do you have saved outside of the downpayment? How much is the house you're looking to buy, and in what part of the country? What is you credit score and have you been pre-qualified for a loan yet?

All these factors are critical to deciding if you're ready to buy or not, or at least in getting the best advice from anonymous internet people.

Good luck

ProppedHomes wrote:

You are smart to be concerned. Compare the current housing prices vs. inflation and you'll see that we were obviously in a bubble even before coronavirus started. I'm planning to wait another year or two (if my wife will let me.) We've been renting for TEN YEARS waiting for our credit to get repaired and waiting for prices to come back down to earth. We both lost our homes in the 2008-10 mess just before we married. I'm over 40 and still have zero wealth built from housing. I'll be starting over like I'm 23 again when I decide to buy.

Don't take this the wrong way buddy but I don't think you should be offering any advice!

I know how escrow works wrote:

Also, you'd get better advice if we had a bit more information...

How much do you currently pay in rent and how much is your income? How much do you have saved for a down payment? How much do you have saved outside of the downpayment? How much is the house you're looking to buy, and in what part of the country? What is you credit score and have you been pre-qualified for a loan yet?

All these factors are critical to deciding if you're ready to buy or not, or at least in getting the best advice from anonymous internet people.

Good luck

Don't want to get to into raw numbers because everyone on Letsrun makes $250k+ and lives in a trendy high cost area, but I can give percentages, if that helps.

Currently paying ~26% of stable after-tax income on housing, all expenses considered. If I put 20% down with my current down payment savings, total fixed housing costs (mortgage, tax, insurance, utilities) will go up to 30%-35% of income. Not crazy about that percentage, would like fixed housing costs under 30% of after tax income. Retirement savings are currently about 25% of annual income and doesn't include additional savings/investments in non-retirement accounts, so maybe I could tweak those a bit. Also I don't have any debt (pay off cards each month), I have pre-qualified for a loan, and my credit score has basically stalled in upper 700s because I don't have any long-term loan payments.

Housing costs vary widely where I live based on neighborhood, but there are plenty of houses I can afford with my 20% down payment. I just might have to skip the hippest neighborhood and a working garage.

Well, with those rough numbers, I'd say you can definitely afford it. And you sound like the kind of person that will buy something of value they can afford, rather than stretch beyond their means to buy something they just really want or to look good to friends/family/spouse. That will be good for the long term, especially if things take a downward turn.

In your calculation of your mortgage, remember that the interest portion is the expense, and the principle portion is like plowing money into a savings account. Sort of...

Also remember that the mortgage won't go up, but your rent surely will.

Good luck!

I know how escrow works wrote:

Well, with those rough numbers, I'd say you can definitely afford it. And you sound like the kind of person that will buy something of value they can afford, rather than stretch beyond their means to buy something they just really want or to look good to friends/family/spouse. That will be good for the long term, especially if things take a downward turn.

In your calculation of your mortgage, remember that the interest portion is the expense, and the principle portion is like plowing money into a savings account. Sort of...

Also remember that the mortgage won't go up, but your rent surely will.

Good luck!

Thanks, I'm definitely the type of person that "buys something of value I can afford" rather than make impulsive purchases or buys to keep up with the Joneses (except the 4 vehicle purchases I made over the course 18 months, but that's a different story). I'm okay with those percentages but not crazy about them, although the recommended percentage amounts spent on housing are pre-tax income, which I meet those easily.

One thing I never understand (although I could easily look up) are payments on the principal vs. interest. I thought the whole mortgage was wrapped up in a fixed giant chunk of money, but apparently you can pay less in interest (and overall) if you pay down the principal sooner? Is that how it works? Please excuse me my ignorance, never had a big loan except a car loan I paid off in a year.

Each month when you make your payment, it's broken up into a certain amount toward the principal (paying off the loan) and interest. In the beginning, it's such a long term and there's so much money borrowed that most of the payment is toward the interest and very little is toward the principal. Just to illustrate, let's imagine a $2000 payment, maybe 1900 is interest and 100 is principal. The next month it's 1895 interest/105 principal. The next month it's 1890/110, etc until at the very end of the loan, 30 years or so later, it's $100 interest and $1900 principal.

If you kick in a little extra each month, and stipulate it goes toward principal, then the ratio will change more quickly, the loan will get paid off sooner, and you will pay less total interest over the life of the loan.

But with interest rates around 3%, and with that interest payment being tax deductible as well, don't be in too much of a hurry to pay it off..