Now that we’ve paid off our debt, and now that Eric is bringing home the bacon, we’ve gotten excited about the possibility of owning our own home.
Home ownership is a really big goal of ours.
But we knew very little about what it would actually cost or what we could actually afford. So we went to our credit union to get some info. Just out of curiosity.
I walked away with my dreams shattered.
Eric says I’m being melodramatic (I’m not!), but basically it’s gonna be a while before we can afford to buy a home.
The Bad News on Buying a House
At our credit union, they offer low down payment programs if your loan is under $417,000.
You can’t get squat under $417k around here. The two-bedroom in our neighborhood is going for $460k.
Anything above 417k, you either have to pay the difference in cash, or get a jumbo loan, which requires a 10% minimum down payment, closing costs and temporary PMI.
On a $600,000 house, we would need $90k upfront, plus two months’ mortgage payments, totaling an additional $8k. Housing payments include home insurance and property taxes.
Say we went really low budget and scored something for $450k? We could do the lower $417k loan and pay the difference in cash, but it would still be about $50k in upfront costs, plus two months’ mortgage payments.
The Good News on Buying a House
The only real good news is that we’re excellent candidates for a home loan.
- We have no debt
- We make a good income
- We have excellent credit
The credit union rep said we are very low risk and was amazed at our financials.
A part of me wonders if we would have been better off keeping our cash rather than paying off debt. I know that we made the right decision and it feels AMAZING, but now we’re back at square one when it comes to building up our cash reserves.
That being said, we’re already ahead of schedule of where we should be at this point in order to save $30k this year. So we’re saving money quickly.
But, but, but…
For a $450k home, the estimated mortgage would be $2800 (property taxes, insurance, etc included). For a $600k home, the estimated mortgage would be $3800, according to our credit union.
Those are both still over the $2500 mortgage we had envisioned…meaning…. will we ever be able to buy a home???
And both those mortgages include the $50k-90k upfront costs–so how much higher would the mortgage actually be if we had a low down payment?
Could we save that amount? Yes, we could, within the next few years– I really don’t know how long it would take us.
And what will the housing market be like at that point? Housing prices have already rebounded significantly in Orange County.
We run the risk of getting priced out the longer we wait–which is a very real possibility and one of my biggest fears. But at this point, buying is not an option.
All of this information has weighed on me heavily. It was a real let-down, for sure.
Eric has assigned me the task of crunching our budget to save as much money as possible, while he takes care of figuring out how we’re gonna get a house.
The financials of this whole scenario stresses me out. Saving money? I can do. Figuring out how we’re gonna make home ownership a reality? I have no clue.
We still have to explore other options, like an FHA loan, but I heard those require PMI insurance throughout the entirety of the loan…
Honestly, I don’t know anything at this point. I’m so overwhelmed by this info and I’m so discouraged too. I want to stop thinking about it, but it’s like telling yourself to avoid the pink elephant in the room…
The thing that irritates me the most…
…is that we know other couples who own their own home, and they make a lot less than what we make and have way more debt than we have. So how are other people affording to buy a home, and we can’t? I don’t get it!
And there’s no way they had 10% down.
Ugh, I’m just so frustrated.
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In a similar situation: California is just so overpriced! We are literally thinking we might buy property outside the state, rent it, then eventually sell it and retire somewhere else (in a cheaper state – or out of the country!) That’s our plan B right now.
That sounds like a frustrating situation. I lived in southern CA for a while so I can appreciate the difficulty presented by high prices.
Renting may prove to be the best option, financially. In some cases, you’re better off renting and investing the delta.
I can totally appreciate how you would feel crushed since this is something that you have been working toward and saving for! I got into a discussion this weekend with several friends about real estate as an investment in this day and age. With such volatility in housing prices and the problems in the 2000s with mortgage rates, the idea of buying a home as a sign of financial security and investment isn’t that realistic. Sure, a home allows you to build roots and have the stability of not worrying where you’ll be leaving or what will happen when you renew your lease, but that’s assuming that you and Eric want to stay in the same place for a decade or more. After we got displaced from our home for four months last year, The Man asked me what I would do differently next time. My answer: rent, not own. I know wherever you are and wherever you end up, your home will be filled with love! xoxo
[…] Newlyweds on a Budget are in the same boat as us when it comes to house buying […]
You paid off 45k in 45 months. You’re saving 30k this year. Your husband is making more money than when you we’re paying off said 45k. Save for three years and I bet you can get 100k for a downpayment (which by the way in INSANE to me). …But also, maybe renting in Cali isn’t such a bad thing if it means you can have everything else you want in life?
Also, trying to figure out other peoples financial situations will kill you. It’s not worth it. Who knows what they’re possibly struggling with.
Wow that’s crazy expensive. Save like mad. Get a second opinion outside of the credit union. Also, consider foreclosures and/or fixer uppers. Look for good bones in a house and location if you want to be there long-term – ie. school district. You seem like the type of couple that is so smart with money you would be DIY’ing things and be super thrifty homeowners. Also get a legit realtor – not one that’s going to show you houses you can’t afford, same with where you get your loan.
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You should consider moving! There are plenty of places in the US where $250K will buy you a great house that aren’t in the middle of nowhere! $600K for a house is crazy IMHO!
I’m sorry, that must be incredibly frustrating and like you said to see other people be able to buy a home and wonder how they’re doing it must be annoying. They’re probably not being responsible like you are and are in way over their head. Sometimes I wonder if owning a house is even worth it because of all the costs that go into it. But if it is still something you want try to keep an eye out for foreclosures, short sales and houses that are for sale by auction in your area. You could look into how much buying a piece of land is and then building a home or a tiny house. Also, instead of just checking with one credit union you could check with mortgage brokers to see what they can offer, which could be a better deal and ask about any kind of first time home buyers loans you might qualify for. You might be able to get a special loan since your husband is a firefighter or possibly something because of your line of work as well.
I’m so sorry you got this bad news. I remember being denied for the first mortgage we ever applied for and it was devastating. It really does feel as if your dreams are being popped like bubbles.
I know this isn’t what you want to hear right now, but what is meant to be will happen. You have side incomes and regular incomes and clearly the desire to own a home, so you will make it happen.
Before we bought our house, we created a budget including the mortgage payment, extra utilities, taxes, insurance and repairs. We then saved the excess over our current rent and utilities. This showed us that we could make the new payment and helped us save the down payment. There was a huge difference between what we were paying in rent and the mortgage so we were able to save up fairly quickly.
Don’t feel bad. The other couples you know are probably not being as responsible as you are being when it comes to having your finances in order before buying a home. Believe me you are doing the right thing doing your homework and waiting to be financially ready. I’m a new homeowner and let me tell you it is no walk in the park financially. I agree with many things your reader Lori said. We had our basis covered with 20% down and plenty of money in our emergency fund when we bought. Our home as sucked a lot of that money from our savings so you do not want to be house poor when you buy a house. There is always something to fix and things you never even considered would be so expensive to replace. If you’re not a DIYer you have to pay for the labor which is expensive. I would say go as low as you can in your mortgage. Take your time, visit some homes you may be interested in, keep doing your homework and keep saving. In the end you will be happy you did.
I just read your post and thought I would share my thoughts and my journey to home ownership. I feel your frustration because that is where I was a few years ago. A friend from graduate school shared with me about the NACA program ( https://www.naca.com/nacaWeb/index_main.aspx) and I was able to afford a townhouse in the Washington, DC area. It wasn’t an easy process, but as a single person I am happy that I took the plunge. I just checked their website and they are in CA. It is like a FHA loan with no down payment and no PMI. I know it sounds too good to be true, but I have been in my home for 4 years. Good luck!
wow thank you so much for sharing this info!
I totally understand, the prices of homes in my area (NYC) are around 450-600k, the only way I can see owning a home is to 1.Save at least 30k 2.Buy a 2 family home to rent out the top floor for our mortgage payments 3. Probably FHA loan/first time homebuyer anything 4.Pray something decent in our price range ever shows up.
We are in a tight spot right now because we are pregnant with our second and can probably fit in our apartment for another year tops! So trust me I believe the stress!
That’s a lot of money, but being debt-free and having a decent income puts you guys in a great position. Your friends may be super duper house poor and financially stressed, so they may not be able to afford it either. Just save up the cash a little at a time and keep hustlin’ — I’m sure you’ll be able to buy a home in no time!
I’ll likely be renting for a long time, mostly because we’re not sure where we will end up. We could not afford to buy a house where we currently reside, and it is a little depressing to admit that. I’m sure you guys will work your magic at saving and side hustling, though. You’ll get there soon, and hopefully things will change in your favor as far as the market goes.
Just a thought-keep an eye on foreclosures and short sales in your area. Many times, you can get a much better deal with a bank-owned home, instead of a “retail” home. We bought a short sale home in FL in 2009, but back then, they were plentiful!
It sounds to me like you two are in a strong position. Don’t be envious of your friends who are already homeowners – just think about how stressed they must be month-to-month with their mortgage plus all those minimum payments on debt! It sounds like you might need to be patient and either save for a little longer or wait for another downcycle in the housing market. It won’t go up monotonically forever, and since you are such strong candidates you will likely be able to get a loan even if the banks tighten up.
In the meantime, enjoy renting and use all the extra time you have being renters to keep up those side hustles! Seriously, sometimes it’d be so nice to be able to call someone else and not have to deal with maintenance things ourselves.
I feel your pain man. I don’t know how long I can go on living here…and I’m just paying rent. I have GOT to start thinking about getting ahead, whether that be for a home someday or retirement. Or shit, just having some more “fun” money. LA has been seriously kicking my ass! I love the weather, but damn.
I live in Southern California too, and I feel frustrated about the housing market FOR SURE. It just feels hopeless. My only suggestion would be opening up your search outside of your neighborhood/area, into places that aren’t viewed as highly but are still safe. I have friends who live in Santa Ana, and their neighborhood is very safe, just not one of the ‘nice’ Orange County neighborhoods.
But, even the cheaper places around here are still outrageous. I tend to feel discouraged when I think about it, so I’m just focusing on saving for now. Blerg.
Have you considered going to a first time homebuyers class? I considered myself pretty knowledgeable about the buying process…until I went to the class. The one in my area (MN) had people that worked as realtors, mortgage brokers, the title company, construction companies, etc. The mortgage broker in particular gave a ton of information about down payment assistance programs for first time homebuyers in fantastic neighborhoods that I had no clue about, about how taking the class could eliminate your need for PMI on your mortgage with a low downpayment for certain banks, etc. The ones here are put on buy a community organization group but I’m sure you could find something similar near you. If nothing else, it really prepares you for the process and gives you some numbers to call with questions.
Girl, I feel ya. The Auckland market is even worse (and because we’ve had such big issues with construction in recent years there’s no way I would want to risk buying, say, a townhouse, not to mention they don’t hold value here – though that might change over time – like normal houses). The mortgage payments on a $400-500k house are not actually as bad as I thought – it’s the down payment that’s the killer.
People I know who have bought houses (and have managed to do with 20 percent down because lending has tightened up around here) have done so with parental help. Well, except possibly for one girl and i have no idea how she did it or if she had parental help, or how much she earns. I do know she bought a $550k house with a little over 20% and is paying about $500 a week for it. Which means she had well over $100k deposit (just a couple years out of uni) and that boggles my mind.
Much like Mysti above, I don’t know much about mortgages, but I do have an FHA loan. Even with the PMI payment each month (which is rolled into our mortgage) our monthly payment is less than what it would be if we had gone with a standard 30-year loan. And I believe that payment itself only lasts for 6 years. Another promising aspect of the FHA loan is that we could have put a lower amount down on the house if we wanted. I think we could have gone as low as 3%, but we chose to stick to 5%, which is what we had always planned to put down.
Sure, things are different in every area, and being in California you will likely need more than 5% to keep your mortgage at a manageable payment, but you might luck out and find an option that allows you to put down less. Especially if you talk to a dedicated mortgage expert who knows about different programs from different lenders. For instance, we went through a mortgage broker who presented us his best options. We signed our mortgage with one company and a month later it was “sold” to Wells Fargo. So even though we didn’t know when we signed on the dotted line that Wells Fargo would end up being our lender, we got a great deal nonetheless and are happy with where we’re at.
Buying a home is one of the most stressful things in life, but with a little research and some knowledgeable people by your side, you’ll figure it all out. Good luck!!
Ah I think it will be so long before we buy a home, but you two have done a great job! I know it will only be a matter of time before you two find the perfect house for you. I’m really glad Eric is now all settled with his work too. 🙂
I feel your pain! I’m in the same situation right now. Buying a house in my desired area is laughable, there’s just no way it’s going to happen any time soon. Fortunately for me, prices are on their way down in my area, not up, and hopefully in a few more years I might be able to snag some low budget fixer upper.
Would you and your husband consider starting with a condo or townhouse?
My husband and I are about the same age as you and your husband. We purchased a townhouse in California (Los Angeles) area last year. While it is by no means our forever home, it will be perfect for the next 8-10 years, giving us time to save up for another down payment and possibly keeping the townhouse as a rental property, or selling the townhouse at a profit (hopefully).
I honestly never thought we would be able to find something we can afford, but we did, renovated it, and are very happy. I recommend having a good agent (interview a lot of people) and a mortgage lender you trust. Go out and drive around Orange County. Explore different neighborhoods. I’m sure you can find something you can afford.
We are definitely considering townhouses–we rent one right now and love it.
Ok, I admit I haven’t read your “about” segment of your blog so excuse this question….do you have to live in California? The Midwest is still a very reasonable area to purchase a home…..well, unless you are buying in Chicago. I watch those house hunting shows a lot and see absolute shacks going for half a million. In my city, you could get a near mansion for that. If you are open to relocating, you can easily afford your dream. Perhaps you can find a less expensive community even in California.
Both our families live here and my husband and I both have excellent, secure jobs. It would make no sense for us to move.
I hate california home prices (but I love California). It’s insane. My husband thinks we are going to sell and buy another house within the next few years and I think that is insane. I feel lucky to have gotten the house we did when we did without thinking of the cost of doing this all over again now that prices are on the rise. We were able to get a VA loan with no down and no PMI or else I don’t know how we would have managed it. If you do it before you feel ready you might regret it so I think it’s great that you are waiting but at the same time I’m sure it’s stressful to think of it being out of your reach.
It IS so frustrating and discouraging to see the numbers and wonder how others do it. I am GLAD our housing rates aren’t AS bad as yours out there, but they are still pretty steep. We had to put 10% down on ours (I think?! how do I forget these details already?!) and the closing costs felt so expensive and like a kick in the gut after all that, but with steadily saving for a year before we bought, really helped us do it – I KNOW it seems daunting and will it ever happen, but with YOUR amazing saving abilities and budgeting, I bet you can. It may take some time to find the right house in the right price range that doesn’t make you house poor, but I think you can do it, it just may not be immediate, which is the tough part to swallow.
I do agree with Lori. We just bought a house, and it’s been expense after expense. Part of me wonders if it’s worth it. I’m glad we bought a smaller house than most, because utility bills do increase. Our budget went up about $500 a month. Which is about how much we are paying in principal ($500). It’s nice to have more room, especially when family visits which is quite often. If we had upgraded to a bigger apartment, our rent would have gone up by almost $500 too.
I am not a mortgage expert (nor do I play one on the internet!), but we do have an FHA mortgage. Our mortgage required 5 years of PMI, and then it would drop off. You can have it drop off sooner if the loan to value ratio gets below 80% (which isn’t going to happen for us before the 5 years).
I have no idea if the FHA requirement have changed….so you may be correct. But it is at least worth a look.
We are 3 years into our 5 year PMI requirement. Our interest rate is 5.25%, which I know is a little higher than average right now, but if we tried to refi again, we would loose our 3 years of PMI that we have already paid and have to start over. Not worth for us.
I am looking forward to 2016 when the PMI gets paid off and can get put toward something else. We pay $136 per month for this lovely requirement.
We just sold our beautiful home and moved into an apartment after 7 years in the house. I know that “owning” a home is something that many people our age feel like they are supposed to do and it does feel like it’s a good choice and that it’s your own place in the world. In reality, though, you are just renting from the bank with all of the maintenance and liability. We never one time were even close to not making our mortgage and have tons in savings, but we wanted the option of accepting opportunities without being so tied down and liable. Our house was $170,000 and in a great, desirable neighborhood. It had granite and wood floors and vaulted ceilings and crown molding. It still was pretty hard to sale and it was really stressful. After 7 years, we essentially broke even and walked away with nothing. In addition to the sticker price, there is also 6-7% realtor fees (we went through zillow.com to avoid some of that). There is also insurance for the house, which for us was $120 a month (versus $120 a year renting). It also cost a lot more in electric (basically double for us owning vs. renting). We also had to have a lawn service because our lawn had areas that needed pesticide, etc. My husband worked tons and still had to spend a good chunk of his Saturdays mowing. We also could not have picked up and moved or changed jobs or made choices for our family based on priorities alone with a big (to us!) mortgage. I cannot imagine being financially liable for such an expensive house as your are talking about. On top of that, if anything goes wrong, it’s completely on you guys to fix it. I had one friend who had extensive flooding and another that had an upstairs and downstairs A/C go out at the same time shortly after buying that cost $20,000 to repair. I know that “owning” a home sounds like a great idea, but in reality it truly is a huge liability with very little difference between it and renting. We paid about $100,000 in mortgage over 7 years plus money for extra electricity and insurance (plus more gas since my husband worked 30 min. away). That’s about $15,000 a year, plus an extra $2500ish for added electricity and insurance. I know that might sound low, but that was with a $170,000 1700 sq. foot house. We are THRILLED with renting again and knowing that we can pick up and go with very little notice and that we aren’t liable for any problems that arise. We are in a better area with more to do and I am home with my little one without any financial strain or stress. Renting to me is about OPTIONS. I know home ownership sounds like a great idea, but it really really ties your hands and you become tied to debt. There are some tax breaks, but they pale in comparison to resale costs and things breaking. There is a stigma about renting long into adulthood, but if I were in your area, especially with the job changes you guys have had in the last few years and the idea that you would like to start a family relatively soon, I would keep renting (maybe upgrade the rental if need be) and stash cash. There will be another time when housing prices are at a low. That might be 5-10 years from now, but you will have the cash to really make a sound investment and the years under your belt to be sure that you know where you will want to work and live. I’m not trying to be a downer, I just really wish someone had had this conversation with me before we bought. Our house was beautiful, but it wasn’t worth the cash difference of renting and saving the difference (much less the stress 🙂 )!
That is definitely something to think about.
I will say that regarding the jobs, we’re now all set. Eric and I will both be staying at our current places of employment until we retire–barring any sort of emergency situation. As far as job security goes, we’re as secure as you can get.
While we do want our own home, Eric is also interested in real estate investing. He knows lots of firefighters who get into real estate as their second job, so fixing things up and being a landlord and all that would be Eric’s second job per se. I guess in regards to the actual cost of the house–that’s just what we’re used to. We know it’s expensive to own real estate in southern California, but that’s just what things cost around here.
As far as renting vs. owning, it may seem like you’re just throwing money into debt, but at least at the end you’ll own something right?
It’s definitely not a decision we’ll make lightly and we obviously have a long way to go.