5 Replies Latest reply on Sep 17, 2015 6:11 AM by BetsyD in RI

    First time (single/female) homebuyer

    Anna Grubic


      I am 25 years old and recently establishing my career after graduating from graduate school one year ago. I currently rent a room in a friends house but am very interested in investing and purchasing my first home. I make under $35,000 and want to know if this is a smart move for me or not. Money is tight as it is (with my car payment, rent, and loan payments) and I just need to know the basics of how much I would be looking at with buying a home. I know I qualify for a $1,000,000 mortgage but I do not own any furniture. With a security system, bills, a mortgage, and everything else that comes with a home--should I wait?


      Thank you!


        • Re: First time (single/female) homebuyer

          You should absolutely wait!


          Who told you that you would qualify for a $1 million mortgage? That doesn't sound right to me. Most of the advice I see says you can afford a home about 3X your annual household income. A million dollars is a whole digit more than you can possibly afford. Even if that's a typo and you live in an area where you can find a nice $100,000 home, I would still advise you to wait a little while.


          The money reasons: 1. Give yourself time to pay down debts. Your debt to credit ratio is one of the factors for your credit score and interest rate qualification. Pay it down and you'll get a better mortgage rate. 2. Houses are more expensive than a mortgage payment. If you don't have much of an emergency fund you could get yourself into trouble when you have to make repairs. It's expensive to decorate and furnish a new place. There are a lot of extra expenses at the beginning - insurance, closing costs, and stuff you'll find yourself needing right away. 3. You're just establishing your career, I wouldn't recommend tying yourself to a house yet. How secure is your job? It is a job that you'll outgrow once you have a few years of experience? Once you have a few years of experience, you may find that the best way to advance your career is to move on to a new company maybe in a new place. Few people stay at their first job out of school very long. Unless your company is very good about promoting from within, you'll want the flexibility to move on - maybe across town, maybe across the world. If you take on a mortgage right now, will you be stuck with so much debt you can't even look for better career opportunities? If you own a home you want to keep it for 5-10 years before selling it (unless you're a flipper) - that's how long it takes to recover the initial investment. 4. Property is a long-term investment. Very long-term. Are you ready to have a large part of your net worth tied up in a house? There are a lot of other investment instruments that may allow you to pull money out more easily if you need it. Depending on where you live property may be a good investment or a poor investment. Your primary residence is where you live, but you can't depend on it making a profit.


          The life reasons: 1. You may geographically be where you want to be for the rest of your life. In my 20s I was not. I wanted the flexibility to explore, try unconventional jobs, and move on when the timing was right. I'm very glad I haven't put down roots, because I've enjoyed my adventures. On the other hand, you may be like my friends who've bought and love their homes and communities. 2. Owning a home might make relationships more complicated. When it's time to move in with a significant other where will you live? What if that person owns, too? What if they live in another town or state?


          You may feel like your need to be a homeowner is greater than all the reasons to wait. You may be unhappy living with your friend, and want to move out to preserve your friendship. You may really love your community and job and want to put down roots for the next decade. Having your own home may be the key to your happiness and security. If so, buy and be happy in your purchase. But if I were you, I'd wait at least a year to pay down debt and build up savings. You think money is tight now, I guarantee a house will make it tighter - especially if you live alone after living with a roommate.

          • Re: First time (single/female) homebuyer

            Hi Anna,

            Since this is your first place, I would take it slow. First, go to a reputable lender, say, your current bank, and start asking questions. The bank's mortgage lender will run numbers for you and let you know "what you can afford," which means "what the bank will loan you". That way you know ahead of time what price range to be looking at, what your monthly mortgage payments will be, and therefore you can best assess your financial situation. The bank can also give you a pre-approval letter that you can show your realtor, or the seller so they know you are approved for a mortgage for that amount.


            You will need a down payment as well--best is 20% of the total, so a place for 100K, you'll need 20K to put down. (Perhaps your next goal should be to save 20% for the down payment, then begin to look once you have 20Kish saved--just a thought).


            Start looking at places for sale in that price range and see what's out there...just because you look doesn't mean you have to buy.


            Good luck! Happy looking, and (eventually) happy buying!

            • Re: First time (single/female) homebuyer

              Mortgage brokers are like car salesmen - sure, you could buy a Porsche 911, but are you prepared to pay for a $3600 tune-up?


              Buy a home when you are in the right financial situation and prepared for the risks (and there ARE risks). Jumping into it because you're tired of living with a roommate doesn't qualify. You'll get as good or even better returns sticking $10K/yr into a 401k or even better, a Roth IRA


              First of all, there's no rush. We bought our home in 1989 because everyone - family, media articles - was pushing ownership. "Rates will NEVER be this low again!"  "Buy now because prices will just keep getting higher and higher!"


              Well, of course, that turned out to be utter nonsense. Prices crashed, rates eventually fell as well, and 10 yrs later mortgages were cheaper than ever while prices gradually recovered. But we've learned - you just can't control everything. Maybe you'll be lucky and in 25 yrs be sitting on a nice profit. But I can count a fair number of friends who suffered bankruptcies in the '90's as well as others who are currently underwater on their mortgages.


              When you're underwater, as we have been and many others still are, your job opportunities narrow. The decision to move elsewhere for your career gets trickier. Walk away and your credit takes a hit, which requires unpleasant explanations when you apply for a new job, or try to get into an apartment, or even apply for car insurance. Staying put means career moves which might be sideways instead of profitable promotions.


              But if you're determined to buy, katie72925's advice is spot-on, in my hindsight.


              The advantage of a condo over a single family home (SFH) in your situation can be considerable. In an urban area, many condos become rental units once the owner has 'moved up'. Good location and fixed maintenance costs (HOA assessments) can overcome the disadvantages of less future appreciation, remodeling inflexibility (no going beyond the walls, LOL), and those unforeseen and costly home maintenance emergencies that SFHs always have at the least convenient moment.


              There are upsides/downsides to a SFH. Your property taxes are one of them, and you can expect them to rise periodically. Unless you are in CA, which limits property tax increases, many states balance their budgets on property taxes. New Jersey is notorious for their outrageous property taxes, for example.


              Your utilities are higher. This was unexpected for us (we didn't buy our home until we were in our mid-40's). Our utility bills jumped over 8x what we paid in an apartment, because altho our cottage is small it's also two levels, and the downstairs is much colder than the upstairs.


              You'll need homeowner's insurance, which isn't too costly unless you live somewhere where there are frequent natural catastrophes. You will want replacement value coverage, and if you have any valuable technology or personal items like jewelry you must insure those separately (most policies are limited to $500 for such items). You may need flood insurance if there is ANY danger of flooding; a regular homeowner's policy doesn't pay for flood disasters. You probably need umbrella liability although it isn't usually expensive.


              If you don't have disability coverage at work you should look into it. If you become disabled or can't work for six months, how would your mortgage and other bills be paid? You need to think about this carefully. You need a six month emergency fund MINIMUM when you're a single-income homeowner, and more would be better.


              Unless you are buying new construction, even a 'turnkey" home will have maintenance costs. Appliances these days have an effective life of 8-10 yrs. Good DWs run from $700 (Whirlpool) - 2K (Mile). Those fancy Wolf ranges you see on HGTV are $8K. If your water heater goes, as ours just did, it was $1800 for the labor and replacement. A sewer clean-out (nothing is less fun than having your sewer line back up, making your washer unusable) cost us $450 and they had to come out twice - no guarantees so we paid almost a thousand bucks in a week.


              Painting our house - a fairly simple rectangle, primer + one coat only - bids at $11K. Doing the roof cost us about the same. Heaven forbid you should need a new car when your roof starts leaking. Many people defer maintenance like that but it's a mistake. Our neighbors are very frugal and use a lot of grey labor, but right now they're fixing dry rot damage to 3 windows and a door, and it's going to cost them close to $10K without painting.


              An experienced homeowner's motto is, "Nobody knows what it's really going to cost until they actually break into the walls!"


              Don't overestimate your DIY ability and underestimate the work that entails. Some people love doing it but more owners do things wrong and/or cheaply. Every RE agent can tell you great stories about those, plus you'll see them if you visit open houses. Just think of the logistics: if you don't own a pick-up truck plus dolly plus strong friends, you get to pay delivery charges. Even getting an IKEA bookcase home can be a struggle if you've got a subcompact car.


              So many people sigh and say, "Gee, I want a garden!" I've got a garden, a big one (bigger than the house), and it's like a part-time job every week. And that's not counting the expensive of water, fertilizer, tools, soil, plants, garden furniture.....


              Being a homeowner opens up a whole new world. For one thing, we now understand that exotic language called "contractor-speak." When a contractor says, "Oh, that's a small job," s/he means it's anything under $10,000! And most contractors out here only take cash, btw. No useful bonus points  !


              Owning a home can be a useful back-handed way of saving, over the long run. But if you buy and then have to sell in five years or less for ANY reason, you will almost always lose money. For us, the first 20 yrs of owning the home were less profitable than if we'd invested it in stocks. The most recent 5 yrs have made us money - but that's all on paper. You can't count on making a profit, and we don't.

              • Re: First time (single/female) homebuyer
                BetsyD in RI

                I just saw your post and even though I'm a bit late in replying, I'm a single female homeowner myself - albeit a good deal older than you are.  I'll be honest - whoever told you that you could qualify for a million dollar mortgage with an income of only $35k was selling you a bill of goods.  That's ridiculous.  You can't afford anywhere NEAR a million dollar mortgage with that income, especially with the current debt you have.  But here's a reasonable calculator to figure out what you CAN afford Maximum mortgage calculator - from bankrate.com.  It takes into consideration not only your income, but your current debt as well as the property tax on the home, PMI (mandatory mortgage insurance, if your down payment is less than 20% of the price), insurance on the home, etc.  Frankly - with your current debt load and income and no down payment, plus no available money to furnish your home, I wouldn't recommend that you even try to buy right now.


                Owning a home isn't just about the mortgage and furnishing it.  You should also take into consideration the fact that YOU will be responsible for maintenance on the home - not just the big things that happen occasionally - furnace, roof, windows - but the little things.  Weekly lawn maintenance, trash, snow removal (if you live in a snowy area), keeping up with painting, cleaning, plumbing issues, etc. 


                If I were you, I'd concentrate on paying down my debt load and then concentrate on saving up for a downpayment.  Once you're out from under your loans, you'll be in a better position to buy a home - and then consider whether a single family home or a condo is the best fit for your lifestyle.  (Personally, I wish I'd gone with a condo - I currently own a SFH and frankly, it's a HUGE PITA with all of the maintenance and no one to help out with it!)

                  • Re: First time (single/female) homebuyer

                    Also be sure to get a home inspection, and even if you like your real estate agent remember they're going to recommend someone who glosses over problems.  Even if it's new construction. Even if it's a condo. When I bought my house it wasn't new, but I got a good report from the inspector.  But a week before closing the sheet metal roof the inspector told me could last another 10 years blew off and had to be replaced.  If it had been 8 days later, I would have had that immediate large expense.  Instead, the sellers had to pay.


                    If you're buying a condo, be sure and check the monthly fees.  They're not usually deductible, if you buy a co-op you'll be able to deduct some because there's often an underlying mortgage.  Take a look at the reserves on a condo/co-op.  If the building needs a new boiler or the board decides to replace the windows and there's not enough money in the reserves, every unit will be assessed which may be a few thousand dollars.  Decisions like that are made at board meetings and you should go. Consider that at some time you'll be expected to hold a position on the condo board because most places have trouble finding owners that will participate.


                    Also remember that you'll need to save money along after you buy because everything wears out eventually.  I've been in my house for 11 years and things mostly went fine for a while but this year I've had to replace the boiler ($7500), reline the part of the chimney that handles the boiler ($1100) and have the brick repointed on a section of wall ($1600).  If the repointing worked, I'll need to have some bubbly plaster repaired and painted.


                    Also look at rental costs in your area vs. mortgage and expenses.  In my area a mortgage bought much more house than a rental did 10 years ago.  But younger people tend to move around more and rental will make it easier to relocate and fix your commute if you change jobs.  I didn't buy a condo until I was 40, house at 50.  There's no hurry.