I’m a 25M currently living at home with parents. I gross $102k a year and have no debt. I don’t pay rent or have any expenses other than gas for my car. I’m worried, am I buying too much house? Is this a huge mistake?
I’m buying a house in a HCOL state for $575k. I’m putting 20% down on a 4.9% 30-year mortgage. I will have enough money for a 5-6 month emergency fund left over. It’s a new construction home. I plan on living in the house for at least 5-7 years minimum.
I’m estimating a house payment (PITI + HOA fee) of $3250 a month. After the housing payments, utilities, gas, insurance, groceries, and around $450 a month of fun money, my budget leaves me with around $700 a month of free income. Is this too little left over?
I’m maxing out my HSA, and I’m contributing 6% of my paycheck to get my employer match. I’m also maxing out an ESPP. After these deductions from my paycheck along with taxes, my take home paycheck is $2400 biweekly (avg take home is $5200 a month). At the end of the year, I’m gonna sell the stock I get from the ESPP to partially fund my Roth IRA and then max it out from savings.
Soon to be first time home buyer. Am I about to make a huge mistake?
byu/rotreasy inpersonalfinance
Posted by rotreasy
33 Comments
That’s a mistake IMHO. More than 50% of your net take home is going to your mortgage. Why not just live another year or two rent free, save that amount and put a 40%-50% down next year or the year after?
That budget is hella tight and I wouldn’t be comfortable with that. A whole host of costs will come into play for any new home, whether it be a fixer or new construction.
How the hell did you get a 4.9% mortgage?
Keep your current sweet deal going. Travel a bit. Take flying lessons. Learn Chinese. Remember the truism: “The house owns you.”
Actually this could work. While not ideal, you have two very good backup options:
1. You can reduce the paycheck deductions if needed (not ideal but it is possible)
2. Rent the place out for cash, or even move back with parents
The question is probably, is this house for investment? (if so, then it is too risky). If this house is a lovely place that you want to make it a home – it probably can work out well.
depending on which state you live in, very few states have home prices moving up, like new jersey, most like texas, florida are retreating. Waiting a couple years to live rent free, stash some cash etc seems logical. if you are in no hurry, i won’t do it. especially since you’re young, and if you get in a relationship your home buying needs could change.
Numbers aside, are you sure you want to move directly from your parents’ house to buying a home? Assuming this new home is in the same city/state, have you experienced living anywhere else, even a different part of town?
I understand the interest in beginning to build equity, but this is the most free and flexible you will likely ever be in your life—before marriage, kids, etc. Consider if there are any other experiences you want to have first before making a hard commitment to one place, and allocating so much of your disposable income towards it.
I’d wait if you’re in no rush. This a tight budget, and interest rates are probably going down at some point in the future.
Get roommates and charge them rent. If you can afford to buy, I’d do it.
In the most respectful way what happens if you lost your job within 2 years or so. There’s many factors to buying a house and I forgot that one when I did.
Never lived on your own but you want to buy a 600k house?? Yeah massive mistake.
You racking in 100k while being rent free? And you’re 25?? Millions … billlions of people wish they were in that situation. Think about that. You want to give that up to rush into living paycheck to paycheck? Because $700 a month is NOTHING. There’s so many other small costs you aren’t considering.
If you want to be independent why not get you a cheap lil apartment for a while and stack your bread?
Really think about this shit because it can fuck your life up fr man
I don’t understand people who have never even paid rent a day in their life and then jump into homeownership right away. I’ve rented, and owned, and owning is way more responsibility in every single way, rent is hard enough on its own.
I hate to ask this and I don’t want to sound snide, but you don’t pay rent, you have no experience budgeting monthly for it. Putting it in savings, and actually feeling the pressure to pay it every month so you’re not homeless are different.
Also, on a human level, do you have the skills to live alone and run a household? You said you live with your parents. Are they usually the ones cooking dinner and buying groceries? Are they buying and budgeting for toiletries and maintenance, and everything else? What about laundry? Cleaning? You’ll have to clean an entire house, and keep it clean. Landscaping? Do you do any of that now? How involved are you in running the household? These are important questions to ask yourself.
Ramit Sethi has a recent video that will help you understand what you’re getting into with homeownership. Definitely worth watching before signing your freedom away:
[https://www.youtube.com/watch?v=KGXDEMDokVY](https://www.youtube.com/watch?v=KGXDEMDokVY)
The biggest financial and lifestyle mistake I made was building a house when I was 25. I should not have been in a rush to get anchored to one spot.
It was a financial mistake because it cost me about two years on my FI journey. If I had just stuck to renting and throwing money into VTSAX, I could have retired at 33 instead of 35.
It was a lifestyle mistake because I didn’t understand the concept of “the things you own end up owning you.” Owning a house is like having a toddler that never grows up. It needs constant attention and will suck the dollars from your bank account and minutes from your life. Instead of spending my weekends going on trips, visiting with family/friends, etc., I got to mow my lawn and maintain my house. Oh so fun…..
Also, remember that the mortgage is the **least** you will pay each month vs rent is the **most** you will pay each month. Every single thing that breaks, wears out, etc. has to be fixed by *you*. Either you get to watch YouTube videos on how to fix it, go to the hardware store to buy stuff to fix it (quite possibly more than once), then fix it — or you have to hire out the work and pay someone else to fix it. You think you’re in the clear because it’s a new house? Nope. You’ll still have all sorts of stuff that goes wrong in the first couple years, especially with the way builders hack things together nowadays and the quality of the materials available. I tried going with all sorts of upgrades, paid extra for Made in USA parts, etc. and I still had issues. There’s no such thing as a maintenance-free house.
And what happens if you lose your job, or get a new job opportunity somewhere else? Instead of easily moving to a new location for a couple hundred bucks, you’re going to be tied to your house and either miss out on opportunities or pay tens of thousands of dollars to sell.
Run a rent vs buy calculator.
Using local market rent since you live with family.
https://www.calculator.net/rent-vs-buy-calculator.html
Assume you find a house for 1500-2000 instead. Now take that $1,250-$1,750 you could save, plug it into a compound interest calculator. And see how many millions of dollars you are missing out in your future.
You will be house poor. Unless you are willing to use the house to generate income: take on a roommate or stay with parents on weekends and use it as an Airbnb, but that seems like it could be rather inconvenient.
Going from never living on your own to paying 62% income to JUST mortgage and HOA is insane. Wait till you get your new property tax evaluation on that new build!!
Then in 2-3 years you meet someone and may want to buy a place with them somewhere else.
If you are happy at home I would keeping socking away money like crazy. Then in a year or two, move out to a 1 br apartment to learn how to live on your own and figure out what you like and don’t like about certain locations and amenities.
Then down the road buy with much better knowledge AND by that time you will have 50%+ to put down on it.
Also you are at peak growth trajectory in your career. You should be job hopping every 18-24 months targeting a 15-20% pay jump each time. You want the flexibility to move for these new great jobs and being tied to a house enormously limits your ability to do so.
No unless you are planning on roommates, renting a room etc.
Homes come with tons of expected big expenses, full stop. And taxes and insurance keep going up.
That $700 extra per month is nothing when you own a house. Go wander the aisles at Home Depot one day. Check out the prices for the yard tools to maintain the lawn. A snowblower and driveway salt if you are in a cold climate. A dishwasher if yours shits out one day, as will inevitably happen. Cleaning products, light bulbs …I could go on and on. Houses require a lot of supplies and I doubt you are considering all of that because you are used to living in your parents’ home where your parents take care of all that. An apartment or even a small condo could give you an introduction to living on your own and maintaining your own household, but will leave you with a financial cushion while you figure it out.
Yes, you are making a mistake. Way too much house plus an HOA, which is a racket.
Im going to be real OP. thats basically what my house costs, we make more than double what you make, we have very low expenses (no kids) and house repairs/unexpected expenses still make some months a bit tight for us. I would NOT do this personally.
I was making roughly $200k, had no debt at all, maxing out retirement options and even I knew to keep my budget under 400-425k (that’s with a 20% down payment). For you to do 575 at half of that is not sustainable at all.
This is way too much. I make more than you and would never set myself up for that kind of payment alone.
Is it just you in the house? If so, buy a house if you like but something much smaller.
I did something similar around your age, albeit with a much cheaper house, and it was a great decision. What made it financially smart was that I had a roommate for the first 4-5 years that paid half my mortgage. There was no reason for me to need an entire 1800sf house to myself so I bought with a roommate in mind. Eventually I met my now wife and moved the roommate out so she could move in.
Respectfully, you need to learn how to run a home before buying one. Move out and experience 100% solo responsibility before making such a huge commitment with little independent living experience.
Absolutely do not buy 600k house. Save. Save. Save.
Huge mistake. That’s way too large of a mortgage for your salary.
>This will be my first experience living anywhere outside of my parents’ home.
Then you absolutely should not buy. You have no idea what your real-world expenses will be living on your own.
Get an apartment.
Not what you asked about but be careful with new construction. Get a GOOD house inspector. New construction is not proven and is often full of issues. Most builders do not care and just finish the job quickly. It’s a bunch of subcontractors just trying to get paid.
I know someone kinda in a similar situation who lived at home and is looking to buy a home directly after moving out: what if you meet someone that changes everything for you and you want to not live in the same city you grew up in anymore, or she/he doesn’t? You might want to experience some different states or even countries first at 25
Way too much. For perspective, we bought a $500k house while making almost $300k/yr. Also realize that with new build homes after the first year your property tax will skyrocket. $700 a month leftover is not even enough to furnish the house
I bought a $520k home @ 3.5% on a salary of $125k and it about broke me. I was living paycheck to paycheck for the first time in a decade. Add some surprise medical expenses and quickly found myself in debt for $20k. The first time I was carrying credit card debt in over a decade, too. It took a healthy promotion at work to finally dig out. It worked out and I am still in that house 17 years later. I don’t regret it, but let it serve as a cautionary tale.
One big difference was that I had a wife that was not working, so I had to budget for two. I would still take another hard look at the numbers. Don’t just look at what is the most you can afford. Look at some worst case scenarios. What happens if you need to replace HVAC? a roof? What happens if you lose your job? How quickly can you find work again, and do you have the emergency fund to cover these events.
The problem with buying a house as a single person, unless you are certain you want to be single the rest of your life, is it introduces a potential roadblock to long-term relationship or marriage. What happens if you find a partner and want to live together? Are you going to force the partner to pay half your mortgage? What about if you meet someone who lives elsewhere and may not want to move?
Yes, I get it, it’s great to own a home rather than pay rent or live with your parents, but there are other life considerations to weigh.
A simple piece of wisdom when it comes to looking at your monthly housing costs: rent is the MOST you will pay each month (apartment complex, owner, whoever covers any repairs), a mortgage is the LEAST you will pay each month (you’re footing the bill for things that will eventually break)