After moving and dealing with longer commutes, my partner and I are thinking about buying a home, given the high rental prices near work and our interest in building equity. In the areas we’re considering, rent ranges from $2,500 to $3,000 per month, while the median home price is around $500-600K. I used several rent-vs-buy calculators, and they all suggested it would be cheaper to buy after about 5-10 years, which seems reasonable for us.
Together, we make $144.6K a year with no monthly debts. The calculators gave us a range of what we could afford, with most saying we could comfortably handle a mortgage of around $3-3.5K monthly, or a home priced between $475-500K.
Considering factors like housing availability, interest rates, and policy changes after the federal elections, we’re planning to make an offer around spring. Here’s the timeline we’re thinking of:
4 months before the offer: Review finances, get married (we’ve been domestic partners for 5 years but will marry for the legal and financial benefits), and get pre-approved.
1 month before the offer: Find a realtor and start the search.
Offer: Submit pre-approval again, make the offer, and negotiate by April.
Within 1 month of sale: Get the home inspected and appraised.
1 month after sale: Finalize loan approval, do a final walk-through.
Closing: Pay costs, sign paperwork, and get the keys by July.
I have $160K in liquid assets, and my partner has $29K (she recently finished school and started working), giving us a total of $189K. After setting aside $45K for a six-month emergency fund, we have $144K left for a down payment, which is more than enough to avoid mortgage insurance. We’re planning to store these funds in a 3-month CD at 4.99%, as we’ll need them in about six months.
Here are a few questions:
Do these numbers and the timeline seem reasonable?
Should we maximize our down payment, or do many people put down less and pay for mortgage insurance?
Does the difference in our savings impact the pre-approval or the buying process in any way?
Are there any other investment options we should consider, given our situation and timeline?
Any additional advice or thoughts would be appreciated as this is all new to me!
A $3000-3500 mortgage payment, plus $1000 in taxes, insurance, and maybe HOA, could be tight on a $145k gross income (I have $3500 PITI on $135k gross). Have you worked out a budget that accounts for homeownership costs?
That’s a good point. I’m not sure if the calculators factored in insurance and taxes. We’re trying to stay clear of HOAs. For a $500K house, which is at the higher end of our range, I estimate around $200 per month for insurance and taxes. So, maybe I should aim for the lower end of that range (~$3000)? Obviously, less is ideal, but I’m trying to find a balance between being frugal and realistic. The problem is that rent in our area is averaging $2700/month, so if we keep paying that, we’re really hurting our ability to save for a house. It’s crazy how tough homeownership is for a professor and a research scientist with no kids!
Where are you planning to buy the house? You can check property tax rates online, but they usually hover around 1%, plus extra fees. For a $500k house, you’d likely be paying about $500/month just in property taxes.
For two professionals, your combined income seems a bit on the lower side. Are you in a lower cost of living area? Though, based on your house budget, it seems more like a moderate cost of living region.
We’re planning to buy in Santa Fe, NM. I miscalculated the property tax; the online calculator shows it’s about $325/month, plus $150/month for insurance, totaling around $500/month. We’ll aim for a mortgage payment closer to $2.5-3K to keep within our budget.
As for our income, it feels “low” given the circumstances, but we recently moved for better-paying jobs at the top university in the state. I can potentially make extra through summer research, but that’s not a sure thing.
I noticed the same thing with the online calculator—it matches what you found. But on Redfin, property taxes are listed at 2-3% of the assessed value, which is often much lower than the sale price, even for homes that have sold recently. Where I’m from, homes typically get re-assessed to the sale price, so I’m curious if Santa Fe handles assessments differently.
As for your income, I was just going off personal observations. I know a couple of professors at state schools who work part-time and make about what you and your partner earn combined. It seems like the cost of living really plays a big role in these situations.
Out of curiosity, which schools do your friends work at, if you don’t mind me asking? Estimates vary quite a bit depending on the state, but the average salary seems to be around $65-70K…