how much should i spend on my 1st house?

[BLADEMDA]

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Use this checklist of important questions as you determine how much house you can afford. If you cannot answer "yes" to these questions regarding the house you have your eye on, then it's not a wise move to buy it right now.

Can I make at least a 10% (preferably a 20%) down payment?
Can I keep house payments at or below 25% of my monthly take-home pay? Here's a calculator to help you quickly calculate your payment.
Can I afford to take out a 15-year fixed-rate loan?
Am I working closely with a real estate agent I can trust?

Dave Ramsey on Buying a home

 

[BLADEMDA]

Pay Off the Debt—All of It!

Your last debt in your debt snowball is the one with the largest balance. Fortunately, when it comes up in your snowball, you have a chunk of cash to throw at it every month. It can be awfully tempting to stash that cash for a down payment on a home instead—especially when you keep hearing about terrific deals and great home loan rates.

But you should never buy a home just because the market is great—whether it's your first or third house. Buy when you're ready financially. That means being out of debt and having an emergency fund of three to six months of expenses. With this solid foundation, you're financially prepared to face a leaky roof or a busted water heater.

Saving Money Is a Good Habit to Keep

Once you've saved up your emergency fund, you'll feel like a money-saving pro. So keep your momentum going while you save up your down payment. To get the best home loan rates, you'll need a down payment of 100%. (Yes, you read that right.) If you're not that hardcore, commit to saving at least a 10–20% down payment. That sounds like a lot, but don't be discouraged. You can take some steps to speed up your savings:

Get an extra job and save what you make for your down payment only.
Don't lend your money to Uncle Sam! If you received an income tax refund this year, adjust your withholding so you bring more money home in your paycheck.
Selling stuff is good for getting out of debt—but you can save that money too!
Have a conservative price range and keep your mortgage payment 25% or less of your take-home pay on a 15-year, fixed rate mortgage.
You might become so good at saving that you decide to keep saving until you can pay cash for a home. After all, 100% down is Dave's preferred method of home buying!


Dave Ramsey

 

[deleted307836]

Blade, you make it sound like your two prior posts are your own thoughts. At least make it known that you are simply copying and pasting from Dave Ramsey's website.

 

[pgg]

Very few want to go old school and actually save money in an account before considering a home.

To play devil's advocate, old school meant mortgage rates of 9% or 12% or higher ... without a large down payment and/or smaller loan the interest costs over the life of a 30y loan were apocalyptic. These days you can get credit cards with rates lower than old school mortgages.

I'm all for living well beneath one's means, and any home is an illiquid money sink, but the math IS considerably different today.

 

[BLADEMDA]

To play devil's advocate, old school meant mortgage rates of 9% or 12% or higher ... without a large down payment and/or smaller loan the interest costs over the life of a 30y loan were apocalyptic. These days you can get credit cards with rates lower than old school mortgages.

I'm all for living well beneath one's means, and any home is an illiquid money sink, but the math IS considerably different today.

"Old School" is saving up money for a down payment of 20% or more and taking out a 15 year mortgage.

Home ownership has a lot of expenses associated with it:
Taxes (find out your mileage rate)
Upkeep (lawn, a/c, roof, etc.)
Mortgage costs


I think now is a great time to buy a home but a home you can afford. For example,

$900,000 home. $450,000 income

$225,000 down payment and a $675,000 mortgage for 15 years. Can't wait? Then buy a $675,000 home with just $67,000 down and get a 15 year mortgage.

 

[BLADEMDA]

Blade, you make it sound like your two prior posts are your own thoughts. At least make it known that you are simply copying and pasting from Dave Ramsey's website.

http://www.daveramsey.com/home-buying-tips/get-finances-in-order/


You want your new home to be a blessing, not a curse, right? Follow these simple guidelines and you'll keep Murphy and his 3 cousins Broke, Desperate and Stupid from moving in

 

[BLADEMDA]

When it comes to home buying, Dave is a huge fan of the 100%-down plan—paying cash for your home. A lot of Dave's Facebook fans like this plan, too, and have paid cash for their homes. So we asked them for their advice on how to make it work.

We received many comments from people who thought paying cash for a home is an unrealistic goal. Others wondered if it's worth the sacrifice. But Ashley Sublett said she doesn't want to buy a home with cash just because it's a better deal. For her, it's about peace of mind. "I will feel more freedom to do as I please, rather than worry about the next (visit from) Murphy (unexpected emergencies) potentially threatening my home."

It Won't Be Easy…

It's clear from the advice we received that paying cash for a home is the result of hard work and discipline—there's no magic pill to make it quicker or easier. Here's how our fans have reached the goal:
•Start small. Many homeowners like Michelle Cavazos Zamora bought small homes they paid off quickly. They sold their starter homes and paid cash for the next one.
•Pay as you go. Barry Castle built his home himself over six years, paying cash as he went. He only paid $77,000 for his home that now appraises for $250,000.
•Save and invest*. Russ Toeller and his family had the patience to save and invest for 10 years to buy their home. He's now retired from the military with no bills!
•Sweat equity. Cynthia Vahovic and her husband bought a fixer-upper for $14,000 and spent nine months fixing it up. "Standing on your deck feels different when it's all yours!" she said.
•Look for options. Marianne Cascone and her husband sold their too-large home and are living in his grandmother's old home until they save enough to pay cash. She said their friends felt worse about their sacrifice than they did. "We've never been happier and can focus on the important things now."

…But It's Worth It!

With the right perspective and lots of disciplined saving, just about anyone can pay cash for a home. Beau Froese started saving his money right out of high school and bought his home for cash at age 28!

Even Holly Gann Shadrick and her husband, who were $90,000 in debt five years ago, just paid cash for their own home. "It needs lots of work, but it will be so worth it not to have a house payment!"


Dave Ramsey

 

[countingdays]

Buying a house for 400k in some places is a great house with good schools, convenient location, etc.
If 400k where you live buys you a older, not yet renovated house, far from downtown, in not the best school district, then buying it will be a bigger financial mistake than just going 800k with <4% interest. For one, you won't like living there. For two, you'lll want to move soon and the 24k realtor cost and 10k closing costs, and 2-3k moving costs will be a bigger loss than you are likely to see from any decreased value of your 800k house.

It depends on your location. Where I am, 800k houses in the right neighborhood have multiple offers the day you list them, or at least within a few days. I'm in a rapidly growing city with strong job growth. Evaluate your specific situation. Don't buy into rules that were created when interest rates were 9%. The math is very different at 3-4%.

It amazes me that gold bulls who fear high inflation don't see the value of property ownership and low interest debt in a future high inflation environment.

 

[Mman]

I'm not a fan of paying all cash for a house simply because you'd be spending years wasting money on rent (which has no return of value to you) while saving the money. At least with a mortgage you are gaining equity every month with your payment.

But living cheap is the way to go, especially for a first house. If you don't own a house, you can't know what things to look for and what you will want out of it. Go cheaper on the first one and pay it off fast and then you can upgrade for your 2nd home.

 

[CDI]

A colleague and I started at the same time, same pay. His house is close to 700K, about twice that of mine.

Guess which one of us goes on way more family vacations? 👍

So, you spend more on trips, while his money is stashed away into home equity.

I'd take a 3rd route: smaller size home, and few vacations, and money would go towards investment properties instead. I'd keep my main residence in 30 yr. loan, put all extra money into cash heavy short sale offers, which I'd rent out.

 

[sevoflurane]

Pay Off the Debt&#8212;All of It!

It may not be what others like to do, but I agree completely. So long as you have that FU funds on the side.

 

[IlDestriero]

When it comes to home buying, Dave is a huge fan of the 100%-down plan—paying cash for your home. A lot of Dave's Facebook fans like this plan, too, and have paid cash for their homes. So we asked them for their advice on how to make it work.

We received many comments from people who thought paying cash for a home is an unrealistic goal. Others wondered if it's worth the sacrifice. But Ashley Sublett said she doesn't want to buy a home with cash just because it's a better deal. For her, it's about peace of mind. "I will feel more freedom to do as I please, rather than worry about the next (visit from) Murphy (unexpected emergencies) potentially threatening my home."

It Won't Be Easy…

It's clear from the advice we received that paying cash for a home is the result of hard work and discipline—there's no magic pill to make it quicker or easier. Here's how our fans have reached the goal:
•Start small. Many homeowners like Michelle Cavazos Zamora bought small homes they paid off quickly. They sold their starter homes and paid cash for the next one.
•Pay as you go. Barry Castle built his home himself over six years, paying cash as he went. He only paid $77,000 for his home that now appraises for $250,000.
•Save and invest*. Russ Toeller and his family had the patience to save and invest for 10 years to buy their home. He's now retired from the military with no bills!
•Sweat equity. Cynthia Vahovic and her husband bought a fixer-upper for $14,000 and spent nine months fixing it up. "Standing on your deck feels different when it's all yours!" she said.
•Look for options. Marianne Cascone and her husband sold their too-large home and are living in his grandmother's old home until they save enough to pay cash. She said their friends felt worse about their sacrifice than they did. "We've never been happier and can focus on the important things now."

…But It's Worth It!

With the right perspective and lots of disciplined saving, just about anyone can pay cash for a home. Beau Froese started saving his money right out of high school and bought his home for cash at age 28!

Even Holly Gann Shadrick and her husband, who were $90,000 in debt five years ago, just paid cash for their own home. "It needs lots of work, but it will be so worth it not to have a house payment!"
Dave Ramsey

I'm not so sure advice and success stories about 14 and $70k 100% cash down houses have any utility for people that take home 25k a month and spend more than 70k on a kitchen remodel.

 

[BLADEMDA]

I'm not a fan of paying all cash for a house simply because you'd be spending years wasting money on rent (which has no return of value to you) while saving the money. At least with a mortgage you are gaining equity every month with your payment.

But living cheap is the way to go, especially for a first house. If you don't own a house, you can't know what things to look for and what you will want out of it. Go cheaper on the first one and pay it off fast and then you can upgrade for your 2nd home.

Good advice.

 

[ssmallz]

If homes cost $900,000 in your area then I guess you will be renting and saving money for a long time.
A home is a place to live and an illiquid investment.

It's not quite that simple. Don't forget that in areas where a decent home costs 900k, rents are gonna be priced higher as well so a decent 2br is gonna cost you 2k+/month. A house may be an illiquid investment but renting is a zero investment.

I agree with what others are saying that you shouldn't buy more then you can afford but you can't put an absolute number on how much you should spend b/c it's different for every area.

http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=0

The above is a link to a calculator that compares renting to buying. It doesn't include tax deductions and other accounting shenanigans but once you put in the numbers you can pretty much see that if you plant roots an know you're gonna be someplace for 10+ years, buying makes more sense then renting even if you have to stretch your budget a bit to 2x your partner income

 

[Impromptu]

I am just about to start my job out of residency in a nice midwest city with a great salary. I am buying a house at just under 40% of my annual income, using a 7 year ARM doctor loan at 3.25%, no down payment, no PMI, no early payment penalty, mortgage company pays origination and appraisal fees. The house was recently flipped, and very well done. It is 2 blocks from my hospital, but in a nice, quiet neighborhood. That location trumped many other houses. I will walk to work. My wife and I currently share a car. We can save up and pay cash for any car we want before winter comes. I plan on living there for 3-5 years, so will definitely have it paid off before the 7 years deadline for varying my rate. When we upgrade in a few years we may either sell it or rent it out.

I like the adage that wealth isn't about how much you make, but how much you keep. I know that comparing my midwest house to those in California or Florida isn't apples to apples, but that was by design. Zillow has similar sized homes near where my brother lives in California listed at around $1,000,000.There will be no buyer's remorse for us. We will be able to use that extra money in many other ways.

 

[imfrankie]

I am just about to start my job out of residency in a nice midwest city with a great salary. I am buying a house at just under 40% of my annual income, using a 7 year ARM doctor loan at 3.25%, no down payment, no PMI, no early payment penalty, mortgage company pays origination and appraisal fees. The house was recently flipped, and very well done. It is 2 blocks from my hospital, but in a nice, quiet neighborhood. That location trumped many other houses. I will walk to work. My wife and I currently share a car. We can save up and pay cash for any car we want before winter comes. I plan on living there for 3-5 years, so will definitely have it paid off before the 7 years deadline for varying my rate. When we upgrade in a few years we may either sell it or rent it out.

I like the adage that wealth isn't about how much you make, but how much you keep. I know that comparing my midwest house to those in California or Florida isn't apples to apples, but that was by design. Zillow has similar sized homes near where my brother lives in California listed at around $1,000,000.There will be no buyer's remorse for us. We will be able to use that extra money in many other ways.

Congrats

 

[BLADEMDA]

QUOTE=Impromptu;14097335]I am just about to start my job out of residency in a nice midwest city with a great salary. I am buying a house at just under 40% of my annual income, using a 7 year ARM doctor loan at 3.25%, no down payment, no PMI, no early payment penalty, mortgage company pays origination and appraisal fees. The house was recently flipped, and very well done. It is 2 blocks from my hospital, but in a nice, quiet neighborhood. That location trumped many other houses. I will walk to work. My wife and I currently share a car. We can save up and pay cash for any car we want before winter comes. I plan on living there for 3-5 years, so will definitely have it paid off before the 7 years deadline for varying my rate. When we upgrade in a few years we may either sell it or rent it out.

I like the adage that wealth isn't about how much you make, but how much you keep. I know that comparing my midwest house to those in California or Florida isn't apples to apples, but that was by design. Zillow has similar sized homes near where my brother lives in California listed at around $1,000,000.There will be no buyer's remorse for us. We will be able to use that extra money in many other ways.[/QUOTE]

👍👍 smart move

 

[CDI]

I am just about to start my job out of residency in a nice midwest city with a great salary. I am buying a house at just under 40% of my annual income, using a 7 year ARM doctor loan at 3.25%, no down payment, no PMI, no early payment penalty, mortgage company pays origination and appraisal fees. The house was recently flipped, and very well done. It is 2 blocks from my hospital, but in a nice, quiet neighborhood. That location trumped many other houses. I will walk to work. My wife and I currently share a car. We can save up and pay cash for any car we want before winter comes. I plan on living there for 3-5 years, so will definitely have it paid off before the 7 years deadline for varying my rate. When we upgrade in a few years we may either sell it or rent it out.

I like the adage that wealth isn't about how much you make, but how much you keep. I know that comparing my midwest house to those in California or Florida isn't apples to apples, but that was by design. Zillow has similar sized homes near where my brother lives in California listed at around $1,000,000.There will be no buyer's remorse for us. We will be able to use that extra money in many other ways.

Nice! That much closer to financial freedom.

 

[Gern Blansten]

I am just about to start my job out of residency in a nice midwest city with a great salary. I am buying a house at just under 40% of my annual income, using a 7 year ARM doctor loan at 3.25%, no down payment, no PMI, no early payment penalty, mortgage company pays origination and appraisal fees. The house was recently flipped, and very well done. It is 2 blocks from my hospital, but in a nice, quiet neighborhood. That location trumped many other houses. I will walk to work. My wife and I currently share a car. We can save up and pay cash for any car we want before winter comes. I plan on living there for 3-5 years, so will definitely have it paid off before the 7 years deadline for varying my rate. When we upgrade in a few years we may either sell it or rent it out.

I like the adage that wealth isn't about how much you make, but how much you keep. I know that comparing my midwest house to those in California or Florida isn't apples to apples, but that was by design. Zillow has similar sized homes near where my brother lives in California listed at around $1,000,000.There will be no buyer's remorse for us. We will be able to use that extra money in many other ways.

Good move! Very smart.