DH and I are in the early stages of buying a home, and I am really nervous. We have no idea what things cost as far as utilities, home up-keep or what happens if something breaks? Can we really afford what we are approved for...etc. What did you do to feel comfortable making such a big purchase? What were your goals financially before you allowed yourself to purchase a home?
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@Bao: It's so easy to get nervous! I'm a spreadsheet nerd and I built one that put all of the monthly costs and expenses in there (as best we could guess) to help determine if we could really afford everything. I'm not sure how it is now, but when I was buying a house, I got approved for a crazy amount of money, and it didn't sound right. Seeing it in the spreadsheet really helped me to figure out what we could really afford vs. what they said we could.
Good luck!!!
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Our goal was to have 20% down for our down payment! I was really nervous too!
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I second BabyBoecksMom. You should definitely check on what YOU can afford and not what the bank thinks you can afford. The first time I went looking for a condo I was 23 and making $45k a year and was approved for over $600k. Thank god I didn't sign a loan for that amount!
Only take on a mortgage that you are comfortable paying. -
@BabyBoecksMom: Thank you, I am nervous about that too...I feel like sometimes they don't consider other things that could come up when telling you what you can afford. We will not be purchasing anything at the top of our budget though.
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@oliviaoblivia: wow are you serious?! That is insane! Good think you knew better.
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@Bao: It was in the middle of the sub-prime, interest-only mortgage banking funny business.
Good luck with your house hunt!
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We purchased a house that was $100k less than the pre-approval amount so we could make sure we could afford our utilities and problems. Unfortunately, we have had every problem possible because we bought an old, flipped house. You get use to saving, or going without a little and eventually it's no big deal. My advice, is to buy new or something that has been very well maintained! And to have at least $5k set aside.
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@oliviaoblivia: Thank you
@HLK208: I wish we could purchase new, but that won't be possible with our budget. We will probably end up with something 10-25 years old. My uncle is the realtor though, so I know we will get honest help and answers and not be pushed into anything, which is comforting. That's a bummer you had so many issues, but at least you didn't cap out your budget! -
Love this thread! We're just starting to save and are debating the idea of paying off a bit of credit card debt with our Christmas bonuses or putting it toward our downpayment (we're hoping to put down 15-20%).
@Oliviaobliva That is crazy! We have some friends that were also just pre-approved for a loan that was about $50K bigger than they needed and luckily they were smart too and went by what they can afford.
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I agree, the banks still approve way more than I think someone should take on even though they supposedly cut back after the housing market crash. I agree with @babyboecksmom, make a sheeet with your income vs expenses and go from there. Determine a comfortable buffer/savings you want, then see what's left over. Use online mortgage calculators to work backwards from your monthly payment amount to determine a mortgage you'd really feel comfortable with.
What we did also was to consider our monthly salary 2 paychecks since we get paid biweekly (not our annual salary /12). That way every year, we always have 4 paychecks as a little bonus that we didn't consider as part of the spending budget. -
@oliviaoblivia: i have a friend who looked for a house that was the amount they were pre-approved for. So stupid!
@Bao: When looking at houses, it is good to find out what their utility bills were, as well as their property taxes. It is information that should be available to you. We were renting when we bought the house, so we took out a mortgage where the monthly payments would be about the same amount as our rent. That way, nothing would change too much.
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Similar to @HLK208: we took over 100K less than what the bank was offering us and we put 30% down on our home. I would aim for a good downpayment and make sure you have several thousand away for repairs and maintenance. Purchasing a home is a very exciting time - Good luck to you both on your search!
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We bought our home 4 years ago and every year we've had to/wanted to do some maintenance work that is pretty expensive. I'd suggest putting aside several thousand dollars each year towards this.
Since we moved in, we've had to fix the furnace ($400 for an emergency house call), then replace it ($4000+), replace a portion of our fence ($600), do tree maintenance ($1000)... you get the picture. Home repairs and maintenance are expensive! This doesn't even include the items that were "elective" improvements.
There are also some start up costs that you probably won't have as a renter such as buying lawn care equipment. We had to buy a lawn mower and various tools (ladder, small hand tools) the first year. I am guessing we spent over $1000 on that stuff.
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@sunny: Good point about the starter equipment!
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I told the bank what we wanted our loan to be, based on what I knew we could afford to pay each month. Don't forget to factor in property taxes, homeowners insurance, and private mortgage insurance if you're doing FHA or putting down less than 20%.
I had a goal of $10k in savings (seemed like a good random chunk) and we ended up with $5k in there after our down payment (3.5% under FHA) and closing costs (most but not all paid by seller). It's basically because I got over eager and couldn't imagine living under our landlords rule for another year.
I do wish we'd had more in savings for furniture and stuff like ladders, lawn mower (still not purchased), etc.
As for things breaking... You deal with it. It never ends but I think it's worth it. You fix what you can and wait on the rest. I do recommend a home warranty policy if you buy an older house - we purchased one solely because our ac is 15 years old and we live in Florida (and we don't have a spare $8k lying around for when it does break). Our water heater is pretty old too. We went with Old Republic because I know several people who had major things like that replaced under that policy. It's like $350/year and you pay $65ish for a service call and they fix it for that amount, unless its something where negligence or improper installation, etc. caused it to fail.
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@ladyfingers: I've never heard of a home warranty policy, I will definitely look into that, thank you!
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I agree with working out what you can afford not what they will give you. Some of these things you just have to throw out to the universe, you can't plan for every circumstance that is going to come your way, but having an emergency fund (or even access to a line of credit in case of emergency) can be a lifesaver.
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I agree with PP's who say to get what you can afford, not what you're approved for. I know people who thought "Woah! I was approved for 300k, let's get a bitchin' house!" but they couldn't realistically afford all of the utilities/mortgage/upkeep on the house and ended up having to sell.
Spring for the best, most detailed and thorough inspections. We went cheap thinking "oh nothing could be THAT bad!" and ended up having a basement that leaks, a roof that needed to be replaced and plenty of other issues. An extra couple of hundred bucks would have saved us THOUSANDS.
One thing I'd also suggest is to contact the utility departments in the area you're looking at. In our region you can request the last 6-12 month average bills with cost/usage.
One last piece of advice is to think realistically about the shape the house is in. Does the carpet need to be replaced? Walls painted? What really needs to be done to the house. I was totally wearing rose colored glasses when we bought our house and am SO much more critical when looking at real estate now.
Good luck! Take your time and try to enjoy the process
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