What advice would you give to someone who wants a house

[haapai]

but thinks that it will be years before they can afford it?

Personally, I'd ask them where they are in the process and if they have a copy of Home Buying for Dummies but I'm curious what the rest of you would say. 

[haapai]

My BF bought a copy back in the late nineties because it was the required text for a multi-week home-buying class given by his credit union.  Within a week, he had determined that he was at least a year from being in a position to buy a house but he continued to attend the course.  His car died a couple of months later.  Because of what he had learned, he knew exactly how much of his replacement car could be financed and purchased that amount.  A year later, he bought his first house. 

I borrowed the book in the aughts, when home prices were skyrocketing, and learned enough that I was very happy remaining a renter, possibly for life.  I simply could not imagine plowing so much of my income into a single investment (a home) and maintaining a large reserve for repairs when it could be invested instead. 

Things changed a bit when the housing crisis hit.  I needed to move and while I was scouting out places, I noticed tons of small, neglected houses with realtors' signs in front of them.  I checked out the prices and was shocked.  They were within my range.  Because of the book, I knew what to do next. 

Because of those experiences, I would recommend the book even to those who are probably correct in their assessment that they are years from being in a position to buy a home.  It can teach them enough that they can make better decisions in the meanwhile and move quickly when the time comes. 

My only fear in recommending the book is that such a move may sound Pollyanna-ish. 

[Pink Cashmere]

I’ve never read, or even heard of that book, but what I tell people IRL that want to buy a house is to do their homework and research any and every thing related to buying and owning a house. Even if they bring up specific things that I might know something about, I share what I know and still tell them to not just go on what I say, do their own research to make sure whatever I said really makes sense for them.

From what Mister has shared about when he bought a house when he was married, his agent was really nice. She helped him buy a house that he really couldn’t afford, with an adjustable rate mortgage that he didn’t understand how it worked, with a second mortgage from a lender that ended up getting in a lot of trouble because of their lending practices, and blah, blah, blah…. basically a train wreck waiting to happen. But he bought a house.

I was advising people to learn everything they can, to prepare for buying a house before I even met Mister, but his story is an example of what can happen if you don’t do your own research.

The Internet wasn’t really a thing when I started researching buying a house. I didn’t even have a computer, never mind, the Internet. I don’t think I even bought or checked books out of the library. I do remember that the Sunday newspaper had a separate real estate section and every week, my Grandmother saved it for me and I’d read the articles and take notes, and look at the houses for sale in the area I wanted to moved to, to get an idea of the prices. The articles were a wealth of good information, but I don’t remember what else I used to learn, even though I’m sure I also read elsewhere. All these years later, I still feel like I did pretty good buying my house, and I know for a fact that my research helped me avoid a few bad things, including a mortgage company that would have cost me a lot of unnecessary money if I’d used them. 

So my advice would be to read and learn. And read and learn some more. About everything related to mortgages, buying a house, and owning a house. A house is probably the most expensive thing you will ever buy, so don’t count on anyone else minding your money for you, or looking out for your best interests. Informed decisions are usually better decisions.

[billisonboard]

Join the military and become eligible for a VA home loan. 

[busymom]

Get the house inspected (although that doesn't always work--the company that inspected DD's house missed some serious stuff, and never took responsibility for it).


Avoid HOA's.  If you really don't like mowing your lawn, or shoveling your snow, you can hire a private company that will most likely do the work for less money than the HOA monthly fee would be.


Check out the crime rate in the neighborhood you're considering.  Also, see if the house you like is in a flood zone.  


Get preapproved for a mortgage, and no, you do not "have" to buy as much house as you qualify for.  Mostly, be patient, as the right house might take awhile to find.

[haapai]

Would any of you tell someone who was going to have to save for several years to skip the high-yield savings account and invest the money in a Roth IRA or after-tax account instead?  You can pull quite a bit out of a Roth IRA later and it's a way of getting a return that might keep up with rising home prices. 

[tractor]

I would direct them to a mortgage calculator on-line so they can see what a monthly payment will look like under various scenarios so there's no surprises when interest rate is x, vs 10, 15, or 30-year term length. They could also adjust amounts given various down payment amounts, etc.

Then it's start saving, they will need cash for a down payment, repairs, improvements, etc. these add up fast.

To be fair, it's tough out there for a first timer. Both of my kids are very happy to be renting, even though they are blessed to have great jobs that pay well.

[tractor]

Jun 11, 2024 7:15:19 GMT -5 haapai said:

Would any of you tell someone who was going to have to save for several years to skip the high-yield savings account invest the money in a Roth IRA or after-tax account instead? 

It depends on how long they have before using the money. If it was only 1-2 years, I'd be inclined to have most of it in savings account just so it's accessible for a down payment, etc. if it's 2-5 years out, I would find someplace that pays higher interest, but is still accessible.

[haapai]

Those on-line mortgage calculators bug the crap out of me.  They tell you how much you can qualify for but not what you can actually afford.  They also just guess at property taxes. 

[djAdvocate]

consider moving to a country that has less expensive housing.

many do.

[NomoreDramaQ1015]

The traditional 30 year mortgage booklet is 10 pages long.  The adjustable rate mortgage booklet was so thick it could have broken my toe when I dropped it.   There is a reason why it's so huge compared to the other one.    Think about that before you sign the dotted line.

That's why we had housing crisis #1.  For your average Joe IMO they are not a good idea.

[Cookies Galore]

Well, we bought in 2016 before everything blew up and who knows how valid this is anymore, but the best thing I heard when we were talking to mortgage brokers was that if you don't have 20% then just put down 5%. A 10-15% down payment isn't going to do much, might as well hold onto some of your cash and do the minimum DP.

My personal advice: it's totally normal to cry on the subway when you get the mortgage application documents and reality sets in that you are about to embark on the biggest purchase of your life (to date).

[haapai]

One of the issues with telling people about the option of putting 5% down is that they may need 10% to close.  When you are buying at the bottom of the market, the mortgage fee, the inspections, and the amount that you need to put into an escrow account can be gob-smacking.  The rules of thumb out there for how much of the purchase price things should cost simply do not apply when you are buying a cheap house. 

I bought a $47k house with a USDA loan and landed up with a mortgage that was 102% of the purchase price and I had to write a $6300 check at closing! 

[saveinla]

I think it was Suzie Orman, but I dont remember - she said try to spend like you were paying the mortgage and utilities on a house for a few months before you even bought a house. If it was hard, you were not ready . If it was fine, you had some money saved ip.

[NomoreDramaQ1015]

My personal advice: it's totally normal to cry on the subway when you get the mortgage application documents and reality sets in that you are about to embark on the biggest purchase of your life (to date).

Right? It's also totally normal to start not caring if you just signed up to agree to be made into a human centipad you just want to stop signing forms.

[Cookies Galore]

Jun 11, 2024 9:31:49 GMT -5 NomoreDramaQ1015 said:

My personal advice: it's totally normal to cry on the subway when you get the mortgage application documents and reality sets in that you are about to embark on the biggest purchase of your life (to date).

Right? It's also totally normal to start not caring if you just signed up to agree to be made into a human centipad you just want to stop signing forms.

My signature was DESTROYED on closing day.

[TheOtherMe]

After the summer of trying to get my yard to drain correctly, I would say rent.

[soupandstew]

There will be unpleasant surprises.  Even in new builds, stuff breaks down usually at the least convenient time financially.  And no, your homeowners insurance doesn't cover the HVAC that dies in the middle of a heat wave or ice storm.  Brand new refrigerators die and, while they are under warranty, everything in them dies too while you wait weeks for a replacement.  

Back in 2016 we had a big hailstorm and everyone's roof was toast.  My 2% windstorm deductible was $9,000, the average around here for our little homes.  Many folks had to live with a blue tarp roof for years because they didn't have the deductible in cash.  

[bookkeeper]

Jun 11, 2024 8:28:17 GMT -5 saveinla said:

I think it was Suzie Orman, but I dont remember - she said try to spend like you were paying the mortgage and utilities on a house for a few months before you even bought a house. If it was hard, you were not ready . If it was fine, you had some money saved ip.

This!  If you think you are ready for a house, start saving money like you are making the payment.  

Mortgage insurance is money gone from your pocket to benefit only your lender.  If you can't come up with 20% down when buying a house, keep saving and checking your tax valuations to try to get rid of the mortgage insurance as soon as possible.

[phil5185]

I would not plan for a long-term savings account or an investment account.  The risk is that the cost of housing might go up faster than you can build wealth for a DP (that puts you in a worse position than you are now).   In general, don't purposely avoid risk simply because it is 'risky'. Analyze the risk, plan some work-arounds, and assume some sensible risks.

When I buy rental houses I look in neighborhoods that are 2 to 5 years old.  The first owner has planted the lawn, hung the drapes/curtains, set up the mail box.  And the roof, paint, furnace, refrigeration, appliances, plumbing, electrical service, flooring, is all near-new. Almost no maintenance needed for 10 or more years.  (That can be a huge savings in your start-up cost, maybe as much as $20k).

Borrow as much a you can, try to get a 30 year loan with 3% to 5% down. Or borrow the down payment with a 10 or 15 year equity loan. Or sell your car, buy a new one with zero down payment, add the sale cash to the house DP.

Avoid Var rate loans, no need to add that risk to your plan. And avoid balloon payment loans (a low payment loan followed by a full pay-off at the end, 10 or 15  years).  Real-life example: One time I had a rental house that had a 30 year mortgage plus a 15 year balloon payment - it snuck up on me, I had to sell my truck/camper to pay the 15 year balloon.

[haapai]

That's probably the kindest possible way to lead someone to the conclusion that they just can't afford the house that they want and get them thinking seriously about whether they are likely to increase their income enough to ever afford it. 

[haapai]

I'm not totally discounting the option of dramatically decreasing expenses but most folks would struggle to find a way to do that enough to outrun price increases. 

[thyme4change]

Jun 11, 2024 9:54:27 GMT -5 TheOtherMe said:

After the summer of trying to get my yard to drain correctly, I would say rent.

I just spent 10 grand on maintenance- and it wasn’t either of the things I thought I needed the most.

I think I could spend 50k on this house - and that wouldn’t get me a new bathroom or new kitchen or a big closet, or really anything fun. Just stupid maintenance stuff.

[NomoreDramaQ1015]

Jun 12, 2024 10:41:34 GMT -5 thyme4change said:

Jun 11, 2024 9:54:27 GMT -5 TheOtherMe said:

After the summer of trying to get my yard to drain correctly, I would say rent.

I just spent 10 grand on maintenance- and it wasn’t either of the things I thought I needed the most.

I think I could spend 50k on this house - and that wouldn’t get me a new bathroom or new kitchen or a big closet, or really anything fun. Just stupid maintenance stuff.

Right?  I swear that the house knows when we come into money and decides to break on purpose.

Oh you got a bonus you say:: immediately something expensive breaks::

And don't get me started on stupid shit like who owns the side walk or the little piece of yard in front of our house vs who is expected to shell out money for it.  The answer is the city owns both but if something is damaged YOU "own" it and have to pay up or the city will fine you.

DH said he was going to put a toll booth on our sidewalk if that is how they want to play.

[Cookies Galore]

Jun 12, 2024 10:41:34 GMT -5 thyme4change said:

Jun 11, 2024 9:54:27 GMT -5 TheOtherMe said:

After the summer of trying to get my yard to drain correctly, I would say rent.

I just spent 10 grand on maintenance- and it wasn’t either of the things I thought I needed the most.

I think I could spend 50k on this house - and that wouldn’t get me a new bathroom or new kitchen or a big closet, or really anything fun. Just stupid maintenance stuff.

I recently did the math. We spent $41,000 on our house in eight years. New HVAC, plumbing, electric, maintenance, new steps, new roof, etc. Our house is 113 years old so it's going to always need something but damn it would be really nice to do something outside of keeping our house from killing us. Because I really want to rebuild our mudroom and add a half bath.

[Tiny]

What advice would I give to someone who thinks it will be years before they can afford a house... 


I'd say that's it ok if it takes a year or two to prepare.    I spent a bunch of years "saving" up a down payment/money for closing/and EF for the first year of ownership  - I get it that back then 20K went further towards buying a house than it does now - but I also didn't have a lot to put towards the "savings" each month.        For me preparing was getting my finances (my spending, my fixed expenses, a plan for future known expenses)  in some sort of order/control.  I needed to make better spending decisions and dialing back my spending/spending more mindfully took me months and months.  I didn't spend a weekend and suddenly make better decisions or no longer have 'debt' or no longer just "cash flowed" big expenses from my paycheck.   

During that time they need to build up savings.   That's really the rub, though.   building savings means figuring out your current spending and any "fixed" expenses.  It means looking ahead to future expenses (like a new vehicle, the next move to a new apartment, some other committed expense - like a wedding your own or to participate in a friends. and on an on an on. )   
It might take a year to get one's "budget" under control and in order.  

It isn't like you wake up on a random Saturday morning and think today's a good day to buy a house - I'll run out and get one right after breakfast.   I think a lot of people think home buying is something you accomplish quickly - like in a month or less.   I've heard newbie homebuyers complain "I've been looking at houses for a month.  I'll NEVER find a house. It's hopeless."  and I'm like you looked at what 4 or 6 houses...  get over it. keep looking.   You just got another month of "savings" towards your house under your belt. 

With a year or two of prepping for home buying - you should also get a feel for your future income... have you reached the top of the pay scale for your job?  do you plan to make that dollar amount for the rest of your life? How secure is your job?  Is that good enough to support long term homeownership?    Homes are a constant expense beyond the mortgage. 

Those are some things i would touch on when giving advice.    

   

[haapai]

Jun 12, 2024 11:20:11 GMT -5 Tiny said:

I'd say that's it ok if it takes a year or two to prepare.    I spent a bunch of years "saving" up a down payment/money for closing/and EF for the first year of ownership  - I get it that back then 20K went further towards buying a house than it does now - but I also didn't have a lot to put towards the "savings" each month.        For me preparing was getting my finances (my spending, my fixed expenses, a plan for future known expenses)  in some sort of order/control.  I needed to make better spending decisions and dialing back my spending/spending more mindfully took me months and months.  I didn't spend a weekend and suddenly make better decisions or no longer have 'debt' or no longer just "cash flowed" big expenses from my paycheck.   

During that time they need to build up savings.   That's really the rub, though.   building savings means figuring out your current spending and any "fixed" expenses.  It means looking ahead to future expenses (like a new vehicle, the next move to a new apartment, some other committed expense - like a wedding your own or to participate in a friends. and on an on an on. )   
It might take a year to get one's "budget" under control and in order.  

With a year or two of prepping for home buying - you should also get a feel for your future income... have you reached the top of the pay scale for your job?  do you plan to make that dollar amount for the rest of your life? How secure is your job?  Is that good enough to support long term homeownership?    Homes are a constant expense beyond the mortgage. 

Those are some things i would touch on when giving advice.    

   

Replacing a vehicle that is paid off when you applied for a loan definitely needs to be taken into account when you decide how much to borrow. 

My car was paid off when I was approved for a PITI of $1107 a month.  My hands were shaking when I handed the calculation sheet back to the gal who had calculated it.  I told her that if I borrowed that much, I'd never be able to replace my car when it died.  I landed up buying a house with a PITI of about $750 a month.  I was only willing to go that high because the escrow calculation was screwed up and I knew that I'd be building up an escrow surplus by about $125 a month.  (This seemed like a very good way of forcing myself to save for the many repairs that the house was going to need.) 

Sometimes I think that it is probably far better to have to save for a house than to have a big chunk of money gifted to you.  It helps you avoid so many mistakes. 

[resolution]

They may want to check with their city or county for first time buyer programs. They might be able to get some assistance that would get them into a home faster.

[bookkeeper]

Other advice I would offer, there is no such thing as "our forever house".  Some people will stay in the first home they buy for a long, long time, but most Americans don't.  Years ago when we were shopping mortgages, the average length of an American mortgage was 6 years.  I have no idea what it is now.  People move around, that's how realtors make money.  Don't get too invested in the place you live until you have stayed a while.

[Pink Cashmere]

Jun 12, 2024 13:18:36 GMT -5 resolution said:

They may want to check with their city or county for first time buyer programs. They might be able to get some assistance that would get them into a home faster.

Yes! I always advise that for first time home buyers. I used a first time buyer program when I bought my house. The seller was willing to lay closing costs, but since I already had something under my belt for that, my offer was for a lesser price for the house, without him paying closing costs.

I had enough money to pay get into my house without any assistance, I was very nervous about buying a house and making sure I could keep it, so I bought less than what the banks said I could “afford”, and I preferred to take advantage of anything (reasonable) that was available to me, to keep as much of the I’d saved as I could, in my pocket. 

Less than a month after I bought it, I said I should’ve just rented something. But after I got all the kinks worked out, and none of them were major, all was good. It’s a good house.