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Last Thursday I shared the first of Luneray’s posts on buying a house. In today’s second part, she talks about the psychological impact of agreeing to an enormous loan.
We looked at more houses today, but we didn’t see anything that we liked more than the 50s time-warp, so we made an offer on that. You remember the 50s time-warp, don’t you? The one with the freezer in the bedroom? It is a very cute house, actually.
The house has been on the market for months. It’s an estate sale, and the heir lives in California. I don’t know if buyers just aren’t interested in the house, or if the heir is just asking too much. The price has been reduced a few times, but the realtor still thinks it’s too high (based on recent selling prices of other houses in the area that are the same size and in similar condition). So we offered $5000 less. If we get that, great. If she won’t budge from the current asking price, that’s fine too. As long as the inspection doesn’t turn up any fatal flaws, then we are okay with the current price.
Three days later…
The shock and enormity of actually buying a house are starting to sink in.
Last night, Oscar and I signed and initialed loan papers. Lots and lots of loan papers. I’m having trouble wrapping my brain around the concept that mortgage payment doesn’t mean house payment. Rent is rent. My current rent is $950 a month (which is below median for this neighborhood). The mortgage will be about $1150, which is about what I expected. However, the house payment is currently estimated at $1300, adding in taxes and various required natural disaster insurances. Homeowners insurance is separate. A person may not have a mortgage, but they will always have a house payment.
My big fear right now is: Will we actually be able to afford to live in this very modest, extremely inexpensive (by local standards) house? We already live a pretty pared-down lifestyle. We will essentially be doubling our housing costs, plus assuming all the maintenance expenses. I just got a promotion, but I haven’t started the job yet. The earliest I’ll see that salary increase is October 10th. (And you know that the raise is never quite as much as you expect it to be.)
Oscar’s supervisors said he’d be hired permanently at a higher rate, but they haven’t mentioned anything about that lately. I’m counting on him getting hired at the rate they promised. If that’s not going to happen, then I’d like to know now so that I can legally back out of the mortgage deal, hopefully without forfeiting the earnest money.
I’m in the freak-out stage right now — in time I’ll be able to address my concerns more rationally.
Buying a house — especially buying your first house — is emotionally draining. It’s scary. Thanks to Luneray for sharing her home-buying adventure with GRS readers.
This article is about House and Home, Real-Life Thursday, 21st September 2006 (by J.D. Roth)
September 22nd, 2006 at 6:19 am
It sounds like the potential buyer has evaluated the cost side of the equation, but the income side appears to be murky. Before making such an important change to the monthly outflow I would do some serious calculations about expected income. The human resources department at the company can probably confirm the fitness of the calculation, but they will probably be hesitant to make a firm prediction.
September 22nd, 2006 at 6:53 am
I would add that the moment you transition from renter to owner you hav eto call tradespeople and pay for all repairs: Have a slush fund for repairs of about $4000
Also, to avoid a lot of pain, make sure the foundation is reinforced concrete, one (newer) roof on the house with working gutters, updated electric, and updated cooper pipes. Then, have the seller buy a you a home warranty plan.
Never hire unlicensed heating/electrical tradespeople.
September 22nd, 2006 at 11:16 pm
Don’t forget you will be getting a tax credit for the interest portion of the mortgage payment. On $1150, I bet that is at least $1000 in the early part of the loan. If you’re in a 25% tax bracket, that means you essentially will be “given back” $250 of that per month. If the money would be helpful on a monthly basis as opposed to a year-end refund (and I hate refunds, it just means the government borrowed your money interest-free), you can adjust your witholdings at work.
But please check in with a tax planner before blithely following my recommendations.
September 23rd, 2006 at 7:00 am
My husband and I just bought a house in April and it was the most stressful thing we have done. Some things we did to make the finances of it a little better:
1. We had a considerable amount of savings for a down payment. We also had two small remaining debts- one of our cars and a student loan. We calculated that if we put that $ down on the house our payments would have been about $30/month less on the mortgage but if we used it to pay off those two remaining debts that was more than $400/month in payments.
2. We got the total amount of our mortgage + escrow + whatever from the bank in advance and divided it into 4 equal parts. Then set direct deposits of 1/4 of the mortgage from the paycheck to go into joint savings account just for the mortgage. This guarantees two things: A. our mortgage is always the first thing we pay and B. since we are both payed bi-weekly instead of twice monthly, we get a total of 13 mortgage payments worth of deposits to make an extra principal-only payment every year. Plus, there were 6 weeks between closing and the first payment so we accumulated buffer out of the gate. It really makes me feel less stress knowing the money for the mortgage is always accounted for before everything else.