Speedrunning buying my first house...

So my landbastard sent me a message yesterday.

"You know how you have a place ro live and everything?"

yeah...

"well, you don't anymore."

I've been here 4 years, really took care of the place and was never late on rent. Now I have until Halloween to get out. Their kid wants to live here.

The plan was to buy a house in the next 3-5 years. I'm currently in the credit building building stage.

The shock has yet to wear off but we're looking at the serious decision of trying to buy a house now, as the market is insane and doesn't look like it will cheaper a few years out. I'm just tired of paying some societal leeches mortgage.

I dunno. This is mostly just a rant, but I'm curious if anyone has advice for a couple of first time home buyers with decent jobs, decent credit, and sadly not much in the way of savings.

Get your credit report.

If there's bad stuff on there, contest it. It's up to THEM to prove you owe.

The magic credit score for a mortgage is 670 for, you get above that and the best rates are available to you. FHA will go down to 580 and still let you in with 3.5% down payment.

I don't know what the current debt ratios are but it used to be 28% of your monthly income for your mortgage(principle, interest, taxes, insurance) and when you include the rest of your debt(CCards, car payment, etc) that number couldn't go over 41%. I'm pretty sure those ratios have been adjusted up since I looked at a mortgage. I think I've heard 31% and 46%, it is worth getting the current numbers so you know where to pay things down. A $250 car payment can knock $45,000 off what you can qualify for!

In today's market with rates near 7%, remember your marry the house, you are just dating the mortgage. When the rates drop, refi!

I found a house in sort of my price range in a neighborhood I like, so this thread is relevant to my interests.  Current credit score is something like 770 but I have almost nothing down.  (Why do I have nothing down.... because my credit score is something like 770, because I pay off debts ASAP and don't own a box on a property that needs constant influxes of money)

Are you handy with renovation type stuff?  Or do you just want to move in and maybe mow the lawn? 

A few thoughts on the fixer uppers.  I have made money on every house we've had as I "slow flipped" our way through the past 35 years or so.  Started with no money and mediocre credit.  This is very much *not* passive income, but it's doable with average skills.  

It's a balancing act with your first house and no money to put down.  The house can't be in horrible shape, you won't be able to pass the mortgage inspection.  And of course, you need to move in, you can't work on it for six months first.  

Try to find a house that is on the low end of a nicer neighborhood.  Maybe one with dated interior (bathroom, kitchen, etc) but no major issues.  Simpler and smaller is better here.  Buy it and update a room at a time. 

Look into your state and city to see if they have down payment assistance for first time home buyers, historic neighborhood renovation assistance, etc.. this can be worth quite a bit.

You can read all of this advice and more on a bunch of financial independence blogs, of course.  I'm partial to Mr. Money Mustache, good and actionable tips.

In reply to Kendall Frederick :

I have some experience with basic home repair. in the mid 2000s I worked as an apartment maintenance tech, specializing in plumbing. I can handle most small jobs. But we don't really want a fixer upper or starter home. I'm in my 40's and SWIMBO is in her 50's. We kind of want a place we can die in. anything like that around here is $600-$750k. The $250k "investment oppritunities" are all falling over or currently on fire. They get bought up by big corporations within days to be haistly repainted beige and resold for $500k.

The plan was to stay where we were for 3-5 more years. pay off the car, then save for a house.

We know we will likely have to rent another place, but it'd me nice to pay my own mortgage for a change instead of some landbastard's. Owning something is not a job...

4 months notice is pretty nice, and renting to family is pretty reasonable, but to each his own. I didn't hear mention of kids, which might be to you advantage. Look for houses that are not in the good school districts and not close to kid-friendly options.  Think either remote locations or no nearby parks. Focusing on what most people dont want can perhaps get you a good deal. 

Most of what I mentioned above still applies even if you don't want a fixer.  A few questions: what's the rent vs. purchase price for houses in your area?  Do you have a workable plan for saving for a house if you go to another rental now?  The NY Times has a good calculator that can help you determine if renting or buying is better in your situation.   I see Tacoma, WA in your profile; current median home price is $482k and current median rent for houses is $2600, from Redfin and Zillow respectively.  Plugging in those numbers says it's cheaper to rent than buy for terms less than 14 years.  Note that's using their assumptions for rent/price inflation, growth of investments, etc.. which may differ markedly from reality.  Plug in some numbers for your situation to help inform your decision.

Rent vs Buy calculator

One thing such calculators don't capture is that, if renting is cheaper for the moment, will you actually save the difference or buy another car?  I suspect most of us on this forum have at least one story of Option B... LOL

I particularly hate the phrase "starter home" as it implies that you must trade up to the biggest house you can afford at the first opportunity.  If you're in your 40s/50s simplifying might be the best thing you can do.  

The serious question that you need to ask yourself is if you are willing or able to change your lifestyle in exchange for homeownership. Since you have no money saved for a down payment, I assume that you spend all of your money. You need to cut spending, make more money, or lower your expectations/budget for the house. Part of the reason for the down payment is to show that you are able to manage your finances. From what you have written, I'm assuming that you are renting a nicer house than you could afford to buy. If I were In your situation- unless you have some easy budget cuts that you can make or recently increased your income- I'd take the opportunity to  downsize for now and find a cheaper place to rent while you save money for a down payment. Home ownership is great, and an important step to building wealth. If you are ready. If not, you can easily end up in a position where the house owns you instead of the other way around. 

I do think the buy/rent decision is primarily a lifestyle decision rather than an economic one.  Rents tend to track property values pretty closely.  If  you can afford to rent, you can afford to buy.  You just have to be committed to the idea and be willing to make it work.  And above all, be realistic about what you can afford.

Edit:  If  you have to be out by Oct 31, do yourself a favor and find a rental for a year.  You really don't need the stress of finding a place to buy and be able to close on it before then.  You don't need that kind of stress in your life.

Mostly good advice so far...

Historically average home prices in the US have been roughly 5X median annual household income.  That ratio has gone up to 7X a few times before, and that's about where we are now.

The average 30 year fixed rate mortgage peaked in 1981 at 18.6%.  Until the 2008 meltdown 6-8% was considered "normal".  Don't wait for 3.5% to return, that's a once-every-75 year-event.

Downpayment size is not a predictor of mortgage default - ask the VA which has been offering $0 down since the beginning of time without problems.  Consider down payment assistance programs, eligible seller concessions.  Selling other liquid assets. More than one borrower has said "I like this car a lot but I'd like to own a home even more."

Today's mortgage underwriting systems depend upon sophisticated risk modeling that consider many things beyond credit score and budget.  Most people with decent credit and jobs can qualify for more than they can afford - hence the commentary about lifestyle.

Some lenders are warming up to the notion of "sweat equity" but most will shy away from properties that need significant rehab, especially combined with low downpayment and  minimal reserves.  Rent from accessory dwelling units and even boarder income is increasingly being considered towards budget calculations - but not every program will allow this.  

A local credit union is probably a good place to visit with some questions about your specific situation.

Wifey and I looking for our first house in the summer/fall of 1986 - as our 2/14 wedding date came closer my dad told me to rent as it was too close to comfortably close on a house and move in.  We didn't need more stress.  Good advice Pop's.

Landlord gives me a 6-month condo lease, I find a house the end-of-March and I'm asking my landlord to now break a 6-month lease early. 

Good advice to rent another year and relieve some stress and pile up some cash Dave Ramsey style.

The only thing buying does is hedge against future rent increases.  Beyond that it's probably more expensive to buy than rent and price appreciation dosent really make up for it. 
 

case in point. My parents bought a house for $150k in 1985.  Had they just borrowed that money and put it in th s&p 500 they'd be up $11M now. The house is now worth $600-700k.  But if you say that they haven't had rent or mortgage payments for 10+ years the. That's helpful.   But still not $11M. 

In reply to Fueled by Caffeine :

One still needs a place to live, though.  Yes, they could have had a lot more "money" but the majority of people can barely pay for one place to live, not effectively two.

In reply to Fueled by Caffeine :

That's a nonsense argument. One, no one is going to loan you money to invest in the stock market for 30 years. Two, you still have to live someplace in the mean time, which means that you still have a housing cost. So if you find some crazy lender  that will loan you $150k to put into the stock market for 30 years, you may as well buy a house too. Renting is almost always more expensive than buying long term. Otherwise there would be no rentals. Short term it can be cheaper, which is why many people can "afford" to rent a nicer house than they could buy, but the math goes the wrong way for them pretty quickly. This is area dependent obviously, but in general it can't be cheaper to rent long term than to own, the market doesn't work that way. If you get a 30 year fixed loan, your house payment won't go up for 30 years. I wish I could lock in other costs for 30 years. 
 

You did hit on an important point though. You don't want your total investment to be your house. If you could afford to buy a $2500 a month house and invest $1000 a month, or just buy a house that's $3500 per month, go with the former. The great thing about a house is an investment is that you can live in it. The bad thing about a house as an investment is that you have to sell it to realize the gains. 

It's not a practical argument.  It just illustrates how housing is not an investment like is thought. It's a hedge against future price increases.  That's all. But it really dosent make you money unless someone else pays for it(renting it out)

and yes. Still gotta live somewhere. 

One other problem with the house as an investment is that you never realize the gains until you sell it.  And in the end, you are not likely to be able to realize those gains- but your estate will.

In reply to Fueled by Caffeine :

Yes, that makes more sense. It is an investment Vs. renting, since you actually get something in return for the money you put in. There is no return until you sell it and downsize or move to a cheaper area, or your kids inherit it and sell it. But the hedge against future price increases can be a powerful wealth building tool. If I were to rent my current house now, it would cost me about $1300 more than my mortgage payment. I now have that $1300 difference to invest. 

Boost_Crazy said:

Since you have no money saved for a down payment, I assume that you spend all of your money... I'm assuming that you are renting a nicer house than you could afford to buy.

I'd take the opportunity to  downsize for now and find a cheaper place to rent while you save money for a down payment.

It's mostly good advice here and I appreciate it, but this right here has some serious avocado toast vibes. The assumption that a person is poor because they are stupid, or they deserve it is something that we really need to get over.

I am only a couple years out of college, I'm very early into my career. The past few years have been spent trying to pay down my student loans (I was approved for forgiveness but... well... you know) so most of my money goes there. I recently financed my first car because the market for inexpensive used cars dried up around covid and never came back. I'd been carless since early 2020 when I was hit by an uninsured driver. Financing a 12 year old car was an attempt to build up my credit which so far is working.

I don't live in a decadent mansion, I live in a tiny house that's way too small for us. The rent was cheap, the plan was to stay here until we had enough saved for a down payment. (fun fact, the previous tenant was also the landbastard's child who did meth and trashed the place)

Every single move I've made since I got to this state has been involuntary, resulting from the property being sold and the new owner either raising the rent (from $750 to $1300 for a1 bdr apartment) or just not renewing the lease. Each time the rent has increased and the amount of space we have has decreased.

So while I am aware that I will likely nor be able to buy a house at this time or likely ever, I absolutely resent your assertion that this is because of a moral failing on my behalf.

I'd be able to afford a house if I didn't eat avocado toast.

Your plan before all this happened was very good.  Stick to it.  Find another rental with monthly cost on the low side.  You did it before you can do it again.  Rushing into a home and mortgage can be very risky, if you want to experience a financial disaster this can be a good starting point.  Get your cash flow under control, buy CDs with your extra money and hold to your plan.

bludroptop said:

Mostly good advice so far...

Historically average home prices in the US have been roughly 5X median annual household income.  That ratio has gone up to 7X a few times before, and that's about where we are now.

The average 30 year fixed rate mortgage peaked in 1981 at 18.6%.  Until the 2008 meltdown 6-8% was considered "normal".  Don't wait for 3.5% to return, that's a once-every-75 year-event.

Downpayment size is not a predictor of mortgage default - ask the VA which has been offering $0 down since the beginning of time without problems.  Consider down payment assistance programs, eligible seller concessions.  Selling other liquid assets. More than one borrower has said "I like this car a lot but I'd like to own a home even more."

Today's mortgage underwriting systems depend upon sophisticated risk modeling that consider many things beyond credit score and budget.  Most people with decent credit and jobs can qualify for more than they can afford - hence the commentary about lifestyle.

Some lenders are warming up to the notion of "sweat equity" but most will shy away from properties that need significant rehab, especially combined with low downpayment and  minimal reserves.  Rent from accessory dwelling units and even boarder income is increasingly being considered towards budget calculations - but not every program will allow this.  

A local credit union is probably a good place to visit with some questions about your specific situation.

I just want to reiterate this post, because it's wonderful and perfectly accurate.  Even if you don't 'think' you can swing a purchase, it's best to talk with a couple lenders to see exactly where you stand, and more importantly, how you can get to your end-goal as efficiently as possible.  I have heard of multiple horror stories from friends and family involving double-digit percentage rent-jacking increases, because landlords know that they can.  I simply would not trust anyone anymore with renting, and if I were in your shoes, would be looking to accelerate the home purchase plan as much as reasonably possible. 

I wish you luck and hope everything works our well for you.  It's a tough situation to be in for sure. 

I closed on my current house in Sept 2017, 0% down. Whereas they used to 96.5/3.5 loans for FHA, now they just charge you a bit more interest. But even then it was only 4.6%. Then in 2020 refinanced to 2.9%, so we will be here for a while. Which is ok with us, we like the house. 

But the neighborhood is changing. Most of the homes, ours included were built in the early-mid 80s, so many of the older folks that bought new have left this mortal coil, sold, etc, so many of the homes have become rent homes. 

I'd look into buying if you can as well, as long as you're prepared for things like the water heater to go out, HVAC needing fixed/replaced, etc. 

Being 'early career', I would expect that means you should also be able to increase your income in the next 3-5 years from the greater experience level. I'm not sure if that was a factor in your original plan or not, but it does coincide well. If you also close out your loans by then, and ideally get up to a 'best rate' credit score, that should put you in a much better position to buy.

I think it's worth running the local numbers on renting vs buying and consulting your preferred credit union, but my gut agrees that your sticking with that plan may be the path forward right now. It sucks, but there just might not be a better option available.

If it's any consolation, while prices may not be going down, it sounds like your personal financial outlook has a good potential to outpace price growth over that time. Which is definitely a good thing.

Keep in mind that it will take about 6 weeks to close on the new place if memory serves. I've tried to push that in the past and it can be challenging as you try to get all the pieces in place.

If all the cheap stuff locally is being purchased by corporate flippers, make friends with a Realtor(tm). They'll know about stuff before it hits the market, and if you find someone sympathetic you might be able to get an opportunity to buy before it gets listed. You have to be ready to move, though. Get your preapproval in place so you know your budget.

Also, move-in and closing costs are always more than you think.

In reply to Keith Tanner :

Closing time will vary. Both homes I've purchased closed in about 3 weeks.