Hello, this is going to be a long post but I need help badly. So thanks in advance.
Me and my wife (both very frugal) (married about a year) have been renting my parents basement “apartment” for about 6 years now to save money. We pay $700 a month. It’s been great for the time we’ve been here but we are 27 now and will be looking to buy a home for ourselves probably in the next 1-2 years to start a family (2 kids in mind). We are pretty financially responsible. The problem is we live on Long Island, New York and the cost of living and housing is absurd here. I barely know anybody my age or even in their 30s that has their own place. So I’ll give our numbers, prices, and strategies I hope you can help me with. We both work in healthcare.
THE INCOME
Combined gross yearly salary: 124.7k ($10,392 monthly)
Combined net yearly salary: 82k (payroll taxes (21.7k) health/dental/vision/life insurance (7.5k) pension contribution (5.5k) union dues (1k). Comes out to $6833 monthly.
I have a good secure union state job with a pension making 95k currently that I intend to stay for at least 20 years (therefore any home we will buy we intend to stay in for at least 20 years). 2-3% raise annually. Wife works privately per diem (about 2 days/week) and then does some other side stuff like child care for a few thousand more a year which I’m not including in this. Consider it cushion money for now. When we have kids this will be good because she can be flexible with work and we have a bunch of family here to help us watch the kids when she does work so we will not have to pay for any child care which will save a ton of money.
THE EXPENSES
Current expenses are about 22.2k a year. This includes 8.4k in rent which we be gone once we buy a home. So once we are moved in our current pre-anything home related expenses would be about 13.8k. This includes all expenses (groceries, car insurance, fuel for cars, and misc. expenses). We have 0 debt and 780+ credit scores. I have a 2022 EV that i got for 24k after incentives because of a long commute (saves me a ton of money on gas and maintenance) had a 20 yr old dying car before this, and she has a 2016 that’s in good shape so we should not need cars for a long long time.
THE SAVINGS
Ally HYSA: ~110k (in prep of down payment, move in expenses, furniture, appliances, repairs etc, more on this later)
Roth IRAs ~50k combined
Taxable brokerage ~44k (neither of us were eligible for 401k/403b until very recently)
THE PROBLEM
Like I said, COL is crazy here. Even with prices somewhat coming down (barely). Pretty much the CHEAPEST home that’s not in a bad neighborhood and that’s not a shack, (we’re talking BASIC 3 bed, 2 bath house like 1500 sq ft that’s like 70+ years old) is 400k. For anything close to “decent” its 500k+ and still 50 years old. Keep in mind this is a house we are going to spend the next 20+ years in (probably 30+ if we’re being honest). Also we’re extreme introverts so we spend like 90% of our time at home so I really want something that’s somewhat “nice” and we can happily grow a family in.
Home price examples (based on Zillow) (30 year fixed w/ 20% down, current rates)
400k home – $2926 monthly. (P+I = $2016, Property taxes/mo = $770, Insurance/mo = $140)
450k home – $3295 monthly. (P+I = $2272, Property taxes/mo = $866, Insurance/mo = $158)
500k home – $3662 monthly. (P+I = $2524, Property taxes/mo = $962, Insurance/mo = $175)
Can we afford… any of these realistically? Even the cheapest of a 400k home comes out to 43% of our net monthly take home. The 500k home is 54%. And this is with 80k-100k down to avoid PMI too. Looking at the numbers honestly its just disheartening and I don’t know how regular people like me and my wife who compared to most people I know make decent money, still cant even afford a “normal” home.. the thought of spending $11k annually just on property taxes.. makes me wanna puke. The people I work with live in homes twice the size in great areas that they paid like 200k for 20 years ago that are now worth like 600-700k+. It’s just like.. I don’t understand how my generation is supposed to just have enough money to just pay for shelter here.. a basic human necessity.
ADVICE PLEASE?
So.. what do we do? My wife is very paranoid about having enough money for a down payment plus moving in, repairs, furnishing, etc. etc. which I understand. So the first thing she wants us to do is get to ~$125k in our HYSA. This would cover down payment (IF we did 20% (80-100k?), still don’t know about this) + all those other expenses that I’m sure add up super fast. After we got to that number we would start investing all extra money we have until we bought a home. Is this smart? Should we even use a down payment of 20%? Or do we try and get a bigger mortgage, put a smaller down payment, pay the PMI, and invest the money instead? But then again our monthly payment would be even BIGGER which it’s already enormous.. Putting 5% down on the 450k home instead of 20% brings the monthly payment to 4k.. As you can see my head is spinning trying to figure out the best way to do this. I honestly don’t know what to do. I really appreciate anyone who took the time to read this essay. I’ll take any advice to heart. Thank you.
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If you have time on your side, save more for a significant down payment. It also helps compete against other offers. If time is of the essence, then look for cheap listings that need significant home improvement. Improvement expenses are likely to be cheaper than mortgage rates given how stupid the LI and similar markets are right now. Bonus is that while repair doesn’t really improve home resale value on its own (because most things have under 100% ROI), market inflation will change that.
My hubby and I (28) just had this convo yesterday because we are in same about ($150k gross and $7,200/month net in the capital of CA. We have only been married and living together two years but I bought a cheap condo in 2020 for $150k at a 2.5 % rate as a single woman and my mortage is $600 and HOA $310 ($910).
A house at $365k (we toured just yesterday) with 15% down ($55k) would be $2,760 plus all utilities.
We only have $65k saved and 0 investments outside of 401ks which we will not touch. We decided to open our first HYSA and deposit $3k per month for the next 36 months until our $65k grows to $180k At that point we will put $100-$120k on a house. It’s crazy to think we really need that much but I feel like we do need that much if we plan to have two kids in the future and put both those kids in FT daycare ($3k per month expense on day care).
Time is on our side and I know we will hit our savings goal and we are very fortunate. I tell my hubby I feel for peoples who can’t save like us bc housing is increasing unaffordable in many metros.
As someone under contract for a house right now, so much of this is familiar. I make more than you and your wife, and I’m buying a $400K house with 20% down and it’s tough to stomach the new payments, though it’s not really an issue except in the percentages. Cashflow-wise it’s an increase of $200/month (mostly due to interest rates), but I’m still able to save 20% each month separate from my sinking funds, on top of maxing my retirement, so I’m less scared. While the rule of thumb of not getting a mortgage higher than 30% of your gross income is great, because I am maxing retirement it skews my take home percentages. But I also have lower than average spending in other areas and am debt free which gives me flexibility.
Remember you don’t need to buy everything for a new home all at once. It’s kind of a rite of passage to have secondhand furniture or or mismatched appliances. Have a fully funded emergency fund before you start for the house, but not the stuff. I’m glad I did as my furnace failed a year earlier than the home inspector led me to believe it might.
PMI is also not evil, especially if it’s on the lower side. If you get good rates at 15% or even 10% down, paying a few $ in PMI to get in when ready won’t break the bank. If you itemize, I believe you can still deduct it, though the laws were under review, so that might have changed. But as a seller, I gave better consideration to offers that had 20% down, and anyone putting down less needed to front more earnest money to compete. Consider it both ways while this is a seller’s market.
No matter how much people keep hoping for “the crash”, numbers I see are not supporting that. It’s why buying when you’re ready to buy is such good advice. I was 29 when I bought my first place, but I lived away from the city and was the first of my group of friends to not rent. The only reason I did at that exact point, was my landlord decided to go condo conversion and kicked us all out if we didn’t want to buy in. Otherwise I’d have waited another year.
Thank you for sharing your story and seeking help. It’s great to hear that you and your wife are financially responsible and planning for your future. The cost of living and housing in Long Island, New York can be quite challenging, especially for young families. Have you considered looking into first-time homebuyer programs or government grants that could assist with the down payment or closing costs? Additionally, have you explored the option of moving to a nearby town with lower housing costs? Best of luck to you and your family in your search for a new home!
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