January 21, 2015
Mrs. Micah briefly returns, like Godzilla from the sea with a rant. She was chatting with Revanche when Revanche ran across an article that pissed Mrs. Micah off so much she needed to respond. The piece was written by Robert Brokamp on Get Rich Slowly, “How to save for a down payment on a house fast.” Now, I’ve been out of the PF blogging “business” for a solid 4 years, but *harumphing sound* back in my day, GRS wouldn’t have published this kind of tripe (just tried tripe in pho, tripe turns out to be delicious, must come up with new metaphor).
This piece is crap from start to finish. First, let’s start with the premise. The couple got married and got pregnant pretty quickly. Either it wasn’t on purpose (accidents happen, even with birth control) or it was a “let’s see what happens.” In the latter case, this shouldn’t have been a “save fast” thing. You decide that after getting married you’ll be opening up the possibility of creating a new human? If you’re being financially responsible, you take into account all the possibilities, like needing to move.
But whether planned or not, the premise here is entirely flawed. A one-bedroom apartment is legally (in many places) too small for parents and a child, though with an infant in the crib and with everything else going smoothly, one may not have to leave instantly. Even if you can’t stay in your current place, that doesn’t mean you should instantly start house shopping.
If you’re going to start this kind of dramatic, unplanned lifestyle inflation once your kid arrives, you’re starting down a really bad financial path. Will you need a bigger car next? A preschool you can’t really afford?
Particularly awful suggestions from the list include:
1. Get help from family. This only works if you have wealthy and financially secure family. You know what I’ll inherit? I have no idea. If my dad lives another couple years max (at 70), maybe a tidy sum. If he lives another couple decades, I may have to support him. And my dad is comfortably upper-middle class…but not wealthy. Only the truly wealthy have that kind of money to safely throw around. I could ask my dad for money for a down payment, but that might well bite us all in the butt in a decade’s time.
4. Use IRAs. What. …you even admit, Brokamp, that this “almost hurts” to type. Yes, you’re absolutely allowed to take money out of various IRAs w/o penalties if you’re a first-time homebuyer. You can withdraw the money you put into a Roth because it’s post-tax. But are you going to let your lifestyle inflation choice take away from your future financial security?
5. Sell your body. Really out of left field. Unless you plan to sell your eggs (not an option if pregnant), this isn’t the kind of thing to get you big money fast. Medical testing carries inherent risks, it’s almost impossible to participate in the more lucrative tests if you’re also holding down a job (I looked into some at NIH), and…really? This is advice for someone who’s holding down two part-time jobs and finding other sources of income, not for someone getting a mortgage. Yay you got your wisdoms pulled for free, but that’s not really helping the goal here.
6. Get help from your boss. ahahahhahahahahahahahah you must be male. Heck, maybe it’s a good time to milk that male privilege for all it’s worth and take advantage of the biases men receive when starting a family. But be aware that your female colleagues are taking negative hits when they have children–in perception, in pay, in everything. This isn’t just the dozens I’ve stories I’ve heard from friends, this is study upon study backing up the stories. Start with “The Motherhood Penalty,” thanks Nicole and Maggie for that link.
Relevant reading: Have I lost my fire?
Negotiating a raise because of life decisions you made, however, strikes me as being the opposite of being a good asset to the company (although some companies will play along with it, at least for “family men”). You don’t deserve more money from your work because you chose to get married/have a baby/buy a house/etc. You deserve it because of the quality of your work.
Relevant reading: Terrible workplaces: A blast from the past
How someone could type any of these without stopping and saying “wait, do we really need to buy a house right now?” is beyond me.
What you can do:
A. Get a bigger apartment. Even if you want to buy a house, you don’t have to do it the instant the baby comes. A 2-bedroom apartment is plenty big enough for most kids. Maybe when you have a second kid or when your kid is getting older, you’ll want a bigger space, but for the first 5 years, minimum, your kid doesn’t need a big space.
(Yards are really nice as options, but a public park will do.)
B. Rent a house. If you really, really have to have a house, look into your rental market. Voila, now you have more space and a yard.
Now that you’re in a place where you’re no longer rushed? Start saving for that down-payment. Put time into planning where you want to buy.
The one decent piece of advice in the list, IMO, was:
2. Buy a fixer-upper that doesn’t need immediate fixing. When my dad downsized after my mom’s death, he sold our family house as a “fixer-upper” because he didn’t want to put in the time and money to make it good-as-new. The house had a good 25 years of family living put into it. Everything worked, but the paint was old, the linoleum scratched, and it needed maybe $30k of work to make it pristine according to realtor standards.
Once you do have the money to buy a house, that kind may be a great starter house for you and your family. If you let some of the more dramatic stuff go until the kid is older, then it’s not as much of a crisis when they draw on the walls behind your back or take safety-scissors to the carpet. But unless you get a great deal on that house, you can still hold off on buying it until you are ready.
You have at least a couple years of your child not having a clue that they’re not living in a house. Where you are, where they live, will be home. Be smart. Don’t mortgage their future buying into the habits of a society that’s drowning in debt.
June 14, 2013
“We have to get this guy a house.”
Back from our various vacationtimes, we immediately saw that, while Doggle was thrilled to see us, he was also happier, peppier and more engaged than ever before. He’d been hanging his shingle in a house with a yard, kids and other pets for a week and amid the shameless spoiling, it was clear that he’d been taking dog lessons from someone.
Apparently the quiet life in a small apartment with DINKs doesn’t quite inspire the still-reticent Zendog to come out from his shell and do a doggy dance, or dash around happily pouncing on his toys four times a day nearly so much as the chaos of a full house does. It’s probably too much to hope that he’d picked up the notion of catch, but we actually have hope now that he might try.
So are we serious about getting a house for the dog?
Well, we’d been kicking around the idea of buying a house for some time now, and we designed our budget this year with a specific goal to save for a new down payment. It does feel like providing a yard is the next best thing we can do for our beloved Doggle. And yes, we want it for ourselves too, but let’s be honest, we’re doting parents and the dog is our happy excuse for a lot of things.
But … real estate around here is absurd.
Early explorations of Zillow and Trulia revealed real estate listings that are literally jawdropping.
We’re planning to stay outside the city. Many 20 and 30-somethings may find it appalling that people would actually prefer suburbs to the bustling city, but it’s true of us. We love visiting the city but it doesn’t feel like home to either of us. Between the traffic, the lack of (free) parking, the tight quarters, we’re just not city people. And with the tech industry out here, and the salaries they pay, we couldn’t afford the city if we wanted! So, y’know…
We’d like to be within fifteen or twenty miles of the city for reasonable commutes, which also suits my need for a warmer microclimate, so that was our first search parameter. We’d definitely be paying more for the luxury of better weather and saving time on a daily basis. If we were willing to be in say, Hayward, where I know the weather is as hot as even I would like, prices would be far closer to reasonable. But the compromise is better weather for me, not great for me and utterly crappy weather for him. For this, we shall pay.
We’re looking for at least two bedrooms, we’d really like two bathrooms and a two car garage, and a decently large kitchen is important to me. If there was a room I could start converting into my own private library (The Dream), that’d be the best but I will settle for a good amount of wall space and storage. We have no storage where we are now.
Last, PiC is reminding me to keep searching in specific areas where the schools are better. Which is sensible, this may be where we stay for a really long time. It needs to be a pretty safe neighborhood with some staying power. Which also means we probably should look at more than 2 bedrooms if we’re going to have any spawn. I grew up in a small 2 bedroom apartment but as an adult, I don’t really want to do that again, albeit from the other side, if I don’t have to. It might be character building but I’ll find another way to impart that.
Search results: moderately horrifying
We’re finding one and two bedroom, one bathroom, one car garage single family homes in moderately close/decent neighborhoods are starting at A. Million. Dollars. Seriously.
This shouldn’t be any surprise when in some neighborhoods, $800k hardly gets you more than a two bedroom, x bathroom(s) condo or apartment.
And three bedroom, two bathroom with garage SFHs run more like 700K-3M.
*gulp*
The estimated monthly payments on those homes that are 3k-7k (in more extreme cases) are almost beside the point. I’d only feel comfortable to committing to a new loan if we had 200K in cash with a healthy uncommitted cash flow. We do not have 200K in cash.
We could make a pretty good run at it but it’s not going to happen overnight and as much as I fantasize about taking another job, that’s not going to happen either. Freelancing, maybe. A whole other job would be crazy and crazy-making.
Making it happen
We still hold hope this can work and maybe even in the next year or so. Not that I expect the market to get much friendlier over the next year, but we have steps to take to increase our buying power, and reduce our stress.
1. Reduce our current fixed expenses, including the current mortgage to make a significant dent in the down payment goal. We’re refinancing and going over all the other expenses to trim back.
2. Keep those fixed expenses low – I don’t want to commit ourselves to either too much house (payment) or too strict a budget. After nine+ years of living on a shoestring income to debt ratio, I refuse to find ourselves coming up empty on cash for the sake of a house.
3. When we get a decent cash cushion in place, I’ll focus on foreclosures to see if we can’t stretch our buying power.
4. Hope hope hope that mortgage rates aren’t abominable twelve to twenty four months from now.
It’s time to dig deep and turn on the saving engines again. It’s not worth cutting off our allowances, I don’t think, since it’s not much per month anyway, but I’d love to pull back a little bit everywhere.
::What else should we be doing?
June 6, 2013
This post about all the reasons a house is a terrible investment (via nicoleandmaggie) made me laugh a little. Most of these ring true as financial reasons my pocketbook doesn’t want a house just yet, even as we’re staring at homes in the area, and starting to save for a new down payment.
If it were a purely financial transaction, I’d really think about six more times about trying to buy a house given the real estate market here in the Bay Area. Everywhere I look: astronomical prices. Apparently this is the “Paradise Tax” according to @isobelcarr, but my heat-loving soul protests.
I grew up renting all our lives and I still think it was a relatively simple way to go considering my family didn’t have steady and at least a bit consistent income. They could manage rent but managing the costs of maintenance and ongoing property taxes probably wasn’t likely. So despite being good friends with people who were firm proponents of real estate as investments, I had trouble picking up that attitude.
I can’t think of my home as an investment, not the home that I live in.
It’s my home and retreat and I’d love it. But I wouldn’t be so enamored as to think we’d ever resell at a high enough price to recoup: down payment, all fees associated with the hunt and the purchase, all the interest (yes, it may be tax deductible but still), any fees associated with refinancing as we’d probably do at least once, and of course, principal payments, insurance.
Given the high unlikelihood that a home would reliably turn a profit, it’s a purchase, in my opinion. Unless it’s to be rented out, in which case you have a whole other set of calculations, but we’re talking about a home you live in for the sake of argument.
The case for buying?
There are certainly good reasons to buy. As a homebody, it’s the place I’d spend the most time. Owning would mean having general, if slightly limited, control over the routine monthly costs when I made the initial financial decisions: down payment, term of loan, interest rate (which is still ultimately determined by the market rate).
Assuming no HOA, I would have generally free rein to do with the house as I pleased, and most importantly, rescue any kind of dog I wanted. None of this stupid breedist crap you get from HOAs which assume that large dogs are dangerous when my experience shows that 80% of the small dogs owned by our neighbors are untrained, unsocialized panic or aggression-driven little craps that go for Doggle’s throat every time.
The case for renting?
There’s definitely something to be said for only being responsible for your own conduct in a rental, and not being responsible for routine or emergency maintenance. Having to fix your own EVERYTHING is expensive and exhausting according to multiple homeowning friends. I’m not greatly familiar with the rules outside of CA but landlords must respond to problems within a reasonable period of time, and if we preferred to handle calling in for services ourselves, our landlords tended to be fine with our deducting the bill from our rent.
A good renting and credit record tends to buy you leniency and cooperation from a hands-off landlord too: they don’t mind accommodating requests that might be slightly out of the ordinary.
Having the flexibility to pack up and move with a month of notice may be important if you’re a university student, a young adult starting out with a new job, an adult looking for new jobs in a tight job market, a retiree who doesn’t like to be tied down to a mortgage or a single place … in other words, the flexibility of renting could be important to just about anyone. There’s something incredibly stressful about, say, getting a new mortgage and then unexpectedly getting laid off in a recession or bad job market, even with the best of emergency funds.
The variables…
Cost effectiveness of renting v buying: Depending on where you are, the supply of rentals may be low, driving the cost of renting an equivalent home higher. Or it may be high, in which case you have lease incentives, and more expansive options to lure you as a renter. Toss-up.
Your living space: If you have a good and reasonable landlord, you may have relative freedom as to personalizing your home. Or not. Or your landlord may suck at doing repairs in a timely manner. Or you might, as a homeowner.
HOAs: There’s a bunch of stuff I hate about HOAs. It is nice not to have to worry about the long-term maintenance but I’m not sure it’s totally worth the trade-off. And we feel that much more tightly bound to our neighbors. The good ones, the horrible ones, the really horrible ones. It’s a crapshoot whether the people who run for a seat on the board will be competent as well.
Over to you: what are your priorities when it comes to your living arrangements? Are you a renter, buyer, both? (neither…?)
Confession: I always dreamed of buying a house outright with cash. I don’t think that’s going to happen soon.
April 17, 2011
Between our travel plans and the random breaches of security that the HOA has notified us of (garage break-ins, scammers getting access to the building), we’ve been considering ways to shore up the security of our home.
For sliding doors or windows, the standard rod dowels to prevent opening works well so that’s a cheap and easy solution.
For the main door, we’d noticed a while ago that several neighbors had had an extra lock installed on their doors and had been discussing getting the same done. While we’re generally DIYers when it comes to home repairs and renos, this one was a bit beyond us as it requires drilling through the door itself and I’m not prepared to invest in those tools just now.
PiC’s gotten one quote around $380: $150 for the lock assembly (the additional lock), $50 to replace the existing handle, $95 for labor, $65 service call and tax. This locksmith is recommending that we add a reinforcement plate which is part of the lock assembly.
He’s still waiting on the other quote from his second choice but I’m still reeling from the first quote. It’s been a long time since dealing with door drama and I’m not certain if this is just typical Bay Area COL or if these locksmiths are overly pricey.
January 9, 2009
Another one acquaintance has succumbed to the I need to own a home NOW syndrome.
Recently engaged, she and her man have been seriously condo-hunting for a few months now, rejoicing in the fact that housing market is ripe with plums for the picking. She’s not made any PB & J declarations, but they’ve gotten pre-approval for a loan so they feel confident in their ability to secure a purchase of a short sale in the next few months before their summer wedding.
Again, in a purely hypothetical sense, if I were to be asked for my advice …. well, my mental alarms are working overtime.
I’m familiar with some aspects of their finances from a few get-togethers:
The fiance, X, is self-employed. A year into running his own business, he’s done well enough for himself that he’s able to cultivate long-term clients rather than taking every short or long term project that comes his way. That’s quite a good direction to develop. He’s made a good 5-figure income. Plus!
They both have retirement accounts – maybe not fully funded, but definitely funded. Plus!
They scaled back their entire wedding and turned it into more of a backyard affair because they didn’t have anything saved for the wedding, and didn’t want to take on another $10-15K of debt. Good move. Plus!
But, they didn’t have anything for the wedding because X spent about 20K on her ring. I’m not saying there’s a “right” amount to spend, just that they are out that much money that could have been for the wedding or their e-fund. Either way: Minus!
His ladylove, Y, is about to lose her job. She doesn’t know when, but a layoff is imminent. Minus!
Y also hasn’t had any success in landing another job that I know of, and because she’s entirely caught up in wedding planning and house-hunting, I can’t imagine that she’s devoted any time to a job search. Minus!
In my eyes, that’d be the most basic of needs in a three-priority situation like this: Find a job, then get married, then buy a home.
Then, too, my other concerns remain:
Tracking routine expenses – Y loves her clothes, accessories, and expensive tech equipment. She also has no head for caring about numbers. (Note: she doesn’t have to be an expert, just willing to pay attention.) That has to stop if they’re taking on a mortgage with one income while accustomed to two.
Health – Neither will have employer-sponsored health insurance after the job loss. They’re young and healthy, but can’t afford any emergencies or accidents (how well can any of us?). It’d be important to have a contingency plan, whether it be buying insurance or setting aside emergency health money. If nothing else, catastrophic health insurance would be a really good idea.
Moving costs – This would include closing costs and associated fees. I’d hope that they don’t end up paying for unnecessary points or junk fees, but as novice home-buyers, that’s always something to watch out for.
Also, while they may pass on purchasing new furnishings right into their new gates, some maintenance issues will probably come up. They’re looking at short sales, and the condition of those homes are not going to be the same as that of a new build.
Taxes – self-employment, primarily, for both. X, of course, will have planned better for his upcoming tax bill, and Y might have since she did have some contractor income. Those will have to be addressed some time this year.
And I don’t know when property taxes are assessed, but can they afford property taxes? Are they prepared?
Not to be the ultimate party-pooper, but I would strongly urge them to re-assess the commitment they’re about to make together. To the home purchase, not to each other! I think their relationship is fine, but can see how making a hasty, major purchase could strain even the strongest marriage.
What do y’all think? Have I missed anything else?
And what would you do in this situation? Do you think my caution, concern and conservatism are (perhaps, wildly) misplaced?
July 17, 2007
Well, one reason is articles like this one remind me how much it takes, in one go, to buy a home!
A scary excerpt:
“My mortgage broker wasn’t accepting zero down,” says Alfonso Rey, 32, who in February bought a one-bedroom, one-bath condo in San Francisco — one of the nation’s most-expensive markets — for an eye-popping $714,000.
Rey and his wife had been outbid on 16 properties until they offered $62,000 more than the asking price for the condo — and wrote to the owners, pleading with them to accept their offer so they wouldn’t have to move out of the city.
While I doubt I’d ever go to such lengths just to stay in a particular area, (I sure hope I wouldn’t need to!) buying a home of any sort is still so far off in the horizon that I can’t even make out what shape my castle in the sky takes. Is it a single family home? A duplex? A condo? Who knows! All I know is that it’ll cost an arm and a leg 🙂
May 8, 2007
Chatting about the house for sale down the streeet with a friend, I was taken aback at his bald statement: Forget about your 401(k) until you have a house. Your house is your 401(k)!
His logic is as follows:
It took him 10 years after college to buy his home. That was 6.5 years ago. He hasn’t contributed a cent in the last 6.5 years because he and his wife bought a fixer-upper and have spent that time and money tearing out floors, replacing the bathroom, kitchen and deck, and various other housely duties.
They overpaid the mortgage and refi’ed almost every 6-8 months (paying no closing costs each time) until they arrived at what they considered a great interest rate. I’m not sure what that is, but they’re happy with it.
Now, they have 1 little girl and another little one on the way, they’re secure in their home and are comfortable with their house and tax payments even with his wife working on sales commission and making a bit less than usual.
When he’s going to start contributing to his retirement again, or how much he really contributed before, was left unsaid.
I can see how being house wealthy with a growing family in his mid-30’s can create such an air of contentment, but I wonder how he’s going to make up for his lost years of compounding interest, unless he initially contributed heavily in his 20’s and that’s why it took a while for him to save the money needed for a down payment. On the other hand, he’s flexible, focused and driven, very entrepreneurial and creates new income streams for himself really easily.
I’m rather intrigued, not enough to stop contributing to my retirement plans and watch my tax bill shoot through the roof instead, but intrigued nevertheless.