Money Matters
MMintzer91
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Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
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Buying a house, in need of some budgeting advice!
Hi,
My boyfriend and I are in the process of purchasing our first home. We have been looking at houses for a month now and while this is a fun time in both of our lives, I can't help but see dollar signs. I know that a home is a HUGE investment and that we would be responsible for EVERYTHING but it is starting to freak me out. Our lease is up at the end of Jan. and we would ideally like to close and skip a month between Jan. rent and our first mortgage payment but if we find a house and decide to move on it sooner than that, we will have two payments. Please help, I need advice on how to budget for our needs and for upgrades once we find a house that we LOVE.
What are some ways to manage our money, I have tried keeping a binder with all the information but I never really got far with that. I unfortunately have horrible spending habits.
Re: Buying a house, in need of some budgeting advice!
There is more legal protection to married couples when owning property then there is to unmarried couples cohabitating.
It's not that PPs here are being judgey on your living choices, it's just the bare facts.
Advice beyond that: Read Home Buying for Dummies - it's a commonly respected and recommended book around here on MM and the BAH board.
General rule when buying a house is not to spend more than 30% of your gross income if you live in a high cost of living area, 28% in a mid cost of living area, and 25% if you live in a low cost of living area. The percentages INCLUDE the mortgage costs each month (principal and interest), taxes, home owner's insurance, and major utilities like gas, electric, water, sewer, trash.
For example, if you make $80,000 before taxes and live in a high cost of living area (30%), then only $24,000 (is 30% of $80k) per year or $2,000 per month ($24,000 divided by 12 months) should go toward your housing costs. Any higher and you will be mortgage poor.
This just happened to two good friends of ours. They were talking marriage, very happy, and looked for their first house together. Thank goodness they put it in her name only, because they broke up not six months later. I'm not judgy at all about living together before marriage-we did for three years. I just think it's way too risky to put both names on a house at this point.
As for other advice, start watching listings and going to open houses. Talk about what is important to both of you, and figure out your budget. The advice that I liked and followed was to chose a payment that's no more than 25% of your TAKE HOME pay. That should keep you from feeling house poor unless you have lots of debt.
Get recommendations and find a kick butt realtor who will really put you first. This is so, so important. They do exist, even for first time buyers.
Avoid "special" mortgages like FHA/VA. They tend to either have very high closing costs or PMI that never goes away. I think USDA may be an exception, but don't quote me on that. We were able to get a good conventional loan with 5% down.
I also really echo @AprilZ81 's advice about future proofing and itemizing your other expenses. Remember that you want to have an emergency fund left over after housing costs are paid!
ETA: For general financial knowledge, stick around here and participate! I've learned a ton here. Step 1 is a good written budget.
One thing you do need to know, federal regulations just changed Saturday and in the near future most realtors are saying it's going to take 45-60 days to close until this all gets figured out. So if you want in in January, your timing isn't bad. And on both mortgages we have ever had your first payment isn't due until the 1st. So if you close on the 2nd, you don't pay your first payment essentially until the next month.
The best advice I can give you is to start on a budget. Divide up who is responsible for what. Over estimate everything. Your current electric is $100 in an apartment, guess $200 for a house. That type of thing. It's better to overestimate these things than to get in and find out you can't afford it.
Also, don't buy anything before you actually close. Don't open any new cc either. If you need a washer and dryer, fine, but wait until after closing. Big purchases before hand can affect your credit score and potentially stop you from closing.
I would stay away from small purchases too. No don't buy the cute new shower curtain, or whatever. I would even be saving like crazy, asking myself do I really need a new pair of shoes or whatever right now.
Also don't buy any crap about getting given your closing costs. If your mortgage guy tells you that you can only come in with a down payment and no closing costs because there is this gift program, run away. I almost lost my first house because of this crap. I had to go get approved at the local bank and fortunately I had just enough in my savings to cover closing costs. (Literally I had like $300 to my name after closing, really not a good place to be).
Anyways, I only skimmed above, so just some more things to think about.
Meh, I'm in the minority too. My H and I bought our house 9 years ago, about 4 years before we were married. We had been together 3ish years I think? I was just the opposite; to me, we were buying it together and paying for it together, and there was NO WAY we weren't going to have both of our names on the deed. Yes, with the realization that if we had not stayed together, it would have been way more complicated and messy, but at least one of us wouldn't feel that we had been 'renting' from the other. I think as long as you are practical and realistic and KNOW what the ramifications could be, it's really okay to make the best decision for your situation.
As far as advice, I'd say that looking for a month really isn't that long, so don't get too freaked out. Also, make sure to set a budget based on your actual numbers, not on what you can get qualified for. H and I qualified for a loan double the amount of what we actually spent, but we knew there was no way we wanted to try to figure out that payment. 9 years late we would qualify for a lot more since we both make more, but we love having a small payment and our house will be paid off in 10 more years.
All of that being said--this is all great advice for somebody who is ready and prepared and has figured out a budget and has their spending under control. I am very concerned that by you saying you have horrible spending habits, you are not at all ready to purchase a home. Let's tackle whatever else you have going on before you jump in to home ownership.
I think PP gave good advice so far but I just want to add that before we can give you good advice on budgeting for a new home we need more info.
Do you have any debts currently? Credit cards, car loans, student loans, etc.
If so, what are the balances on those debts and interest rates?
Also what is your monthly take home?
Like others have said you don't want to be house poor, so I would recommend keeping your house costs to 30% of your take home.
Here is a little take on what my H and I did... we admittedly bought a house when we were not ready 2 years ago. We both made significantly less than we do now (about $35,000/year less) and I have so many regrets.
1. We were not out of debt when we bought our house and there was no excuse not to be (we both lived at home with minimal rent payments). We had 2 car loans, small amount of credit card debt, and my student loan. All of these things could have been paid off in a year had we waited and aggressively paid them off.
2. We did not have enough in savings. On top of having debt going in our home purchase we did not have nearly enough in savings to justify buying a house. We didn't put anything down on the house, but got lucky enough to avoid PMI with a special loan program in our area. Plus the seller covered half our closing costs. We were getting married and updating the house and basically we've squeaked by the last two years, finally starting to get ahead.
3. We settled on our home. We were both so excited to move out and be on our own before getting married that we bought a house we liked (not loved), in an area we don't like, with an HOA we didn't want, and it's a town home not a single family. Don't get me wrong I've enjoyed making our house our home and we enjoy living on our own, but we definitely rushed it. If we had waited just 2 more years and paid down debt and saved more we would have moved immediately into the single family we wanted. Now we are on a 5 year plan to pay off all our debts and save an e-fund and a significant amount to move.
ETA: Bottom line all of this could have been avoided had we made sure we were prepared and financially ready.
I am still focusing on controlling my spending habits as I've mentioned on this board before I can't use credit cards. I know if I do I spend too much. So try to think of way to get your spending in check and make sure you stick to it before buying a house.
Do not rush this decision. Make sure you have all your stuff together before buying. My advice to you if you have debt pay it off before buying a house and save save save. You can never have too much saved when it comes to buying a house. Also make sure you and your BF sit down together and talk about your financial goals, what you want in a house, where you see yourselves living, whether or not it's a long term house or just a starter home, etc. It's very important that you two are on the same page before buying.
Best of luck to you! I hope you stick around. This board has been amazing for me to "see the light" when it comes to finances and kick my butt in gear. I only wish I would have found it before buying our house.
We kept our finances separate until the day we said "I do." We ran this like a roommate agreement and there was a contract in place to protect us both. We laugh at it now that we're married and we've been together almost 12 years now. But it was the best way to make sure we would not end up in court if we were to separate. We actually shredded the agreement the day after our wedding.
Also, we were together for 5 years at that point and had lived in our own separate apartments. So this wasn't just some drive by relationship.
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On the Real Estate Investing forum I frequent, a few of the members are real estate attorneys who always recommends posters discuss this strategy with their own attorney. And they're not advertising their services at all, just giving insight on posts about "how do I limit my liability". But the gist is, if each property a person or business owns is in its own trust, it can be much harder to sue for a person's personal assets or even other business assets (ie equity of other properties).
I wouldn't be surprised if you all would lose your Homestead Exemption if it were titled in a trust. But, you never know, it would be a good question for your Assessor's office.
I'm glad to hear your coworker won her case! I remember you talking about that in a previous post. But I'm sure just being involved in a lawsuit is really stressful, even when things go well.