- Base your decisions on money you have, not future earnings
- Save 20%
- Save 3 months repayments (preferrably 6).
- Dont borrow such that repayments will be greater than 35% of your post tax income.
- Account for significant interest rate increases (they’ll almost certainly go up wherever you are in the short term).
- Make sure you can still put 10% away in savings each month (preferably more)
- Prefer higher interest rates for added flexibility (dont get a rock bottom interest rate that’s going to cost you 5k to shift when conditions change)
- Have 2k (pref 5k) put away for a maintenance fund so you can cover unexpected expenses
- Make sure all this cash is sitting in high interest investments that you can quickly get to.
- adjust the above for your risk appetite
I went ahead and looked up average age of first time home buyers. It’s 31. Just an fyi. I would bet the average age of first time home buyers is younger for the income you’re expecting to be at in the near future, but probably still late 20’s.
Well, I can’t really argue with your feelings, lol…
Well, there ya go.
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Ya, I think it’s like 4 or 5 iirc.
That’s crazy. I figured it was way sooner. Amongst my friends, I’m the unsuccessful one without a house. According to a calculator online we would be able to afford up to a 400k house given our debt to income ratio. The houses where I live are expensive AF. I live in a resort state.
Lol, ya… According to a financial calculator my wife and I could afford a $1.2M house a few years ago.
You’re gonna wanna scale your expectations a bit.
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The only way buying makes sense for you right now is if you buy a duplex that cash flows with you in one unit and a tenant in the other. If you do it right your tenant will pay the mortgage and you’ll have essentially zero monthly housing expense. Then use this time in your life to pay down every other debt to zero. Then once you save up enough for another place keep the cash flowing paid down duplex as a rental.
This is called “house hacking” and it takes additional smarts to vet tenants, collect rent, maintenance etc… you can learn more at bigger pockets. But it’s a very simple business model as long as you don’t buy based on feels.
Never buy a house with a girl that isn’t your wife. Take a look at her debts too. They become 50% yours the moment you sign.
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Typically rent is cheaper in the short term. If you can invest that difference wisely you can come out well ahead. That’s what I did but I chose bad investments, so I didn’t come out ahead.
It worked in theory though, I have a big Malibu home in theory haha
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I can see it in the short term, sure. Particularly with mortgages being front loaded with interest (or variable…).
What would you suggest you invest in when you’re only making ~70k?
Your 401(k)
*You personally should “invest” in debt reduction.
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Yeah so say you have 30k, for a 300k home. Instead of buying, you invest in something that can earn you say closer to 10% for 5 years instead of purchasing a home plus you invest what would have gone into repayments.
At the end of the 5 years, if you’re smart and a bit lucky you have a larger deposit than you would have paid off on the home. So you can have a smaller mortgage or a bigger (or better positioned) home or more of a nest egg.
But there’s a risk, house prices could sky rocket, your investments could crash, etc.
Banks will push you and approve a loan up to 5x your annual income. I went at 3x which leaves some comfy room for saving, beating down the principal, having a kid, emergency life stuff, etc.
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Ya, no, I follow, but you hit the nail on the head, there’s risk. Lots of risks. I can’t pick stocks to save my life… Imagine if you had put all $30k in Bitcoin last December…
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Or drugs and hookers. They seem like a great place to put your cash before you do it.
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There is a valuable lesson there that applies to homes too.
Don’t buy on hype in a hot market on the future value. Lots of people got scorched in the mid 2000’s on that.
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Absolutely.
Another thing to consider is interest rates. They’re still near historic lows and that’s not going to continue to be the case forever.
Yikes
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God yes!
In 5-7 years people will be looking at the past few (maybe 8-10) years like money porn.
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I bought my first at 25, sold at 27… but, I didn’t have any debt other than a very small car payment. I also could buy it with my income alone and the mortgage was negligible to my income. I bought it as an investment as well, and did very well when I sold it… However, the conditions I bought under were different than your scenario.
Exactly this.
Don’t do this! Buying a house should not be purely motivated by emotion. It’s too big of a financial decision to do this. Ultimately, lots of people do and they are hamstrung for 5-10 years until their income increases.
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