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If Only EVERY Home Buyer Was This Ready!

By JLP | February 25, 2009

I saw this post over on the FatWallet forums:

I recently read a thread about a person wanting to purchase a home. Almost all of the posters told the OP he was not financially ready. This made me wonder what everyone thinks of my situation, as I am under contract to purchase my first home.

My info:
Single
27 yrs old
Credit score of 780
employed as an engineer
$53,000 annual salary
Take home pay is about $1200 every two weeks, contributing 15% to 401k
approximately $50,000 cash
$3,000 Stocks
$19,000 401k
$0 credit card debt
only debt is $24,000 on truck with payment of $453. Trucks value is about $30k
Currently living rent free with parents ( this needs to change )
Purchase price of home: $130K
20% down so loan amount is $104k
Mortgage payment will be about $580
Taxes are $1700/ yr
I also have several thousand dollars in other easy to sell items such as silver, guns, and ammo.

Here’s a link to the thread.

Wouldn’t it be nice if everyone was this prepared when they bought a house?

According to my math, his house payment plus taxes equal about 30% of his take home pay. This is reasonable and should become a smaller percentage of his net pay due to future raises. Not a bad starting point.

The only thing that sticks out to me is the that the mortgage payment and the truck note will take up 43% of his take home pay, which seems like a lot. He’s fortunate that he will have a nice cash cushion of $24,000 when he moves into his house ($50,000 – $26,000 downpayment). Let’s hope he doesn’t have to eat through it as he adjusts to homeownership. Trust me, there will be lots of unexpected expenses popping up.

I wish him well.

Topics: Budgeting | 12 Comments »


12 Responses to “If Only EVERY Home Buyer Was This Ready!”

  1. carlos teodoro Says:
    February 25th, 2009 at 11:19 pm

    As a engineer with a degree, you are underpaid. Find a new job that pays a fair salary.
    Second, at 27, you should have stopped depending on your parents as far back as 8 years ago. Why weren’t you kicked out??
    Buy the house now that prices are down.
    Invest in government securities while things are still not stable.
    Buy gold coins.

  2. js Says:
    February 25th, 2009 at 11:35 pm

    Where can I find a house for that?

  3. Preston Says:
    February 26th, 2009 at 1:12 am

    js: We refer to the areas where homes are priced like that as “the sticks”

    :-)

  4. Philip Says:
    February 26th, 2009 at 7:03 am

    Carlos, as an engineer it depends on what your degree is in as to what salary to expect, as a young engineer I know plenty that are around that same salary. As far as not depending on his parents 8 years ago, he has been able to grow his cash reserves significantly so he can do this now.

    Like has been pointed out that 453 car payment is a bit high for including a mortgage with it but obviously he is doing a decent job of saving his money and will track it well.

    I hope he does a good job of finding a house that won’t need any major renovation done, or new roof or furnace soon.

  5. Jon Says:
    February 26th, 2009 at 8:15 am

    He doesn’t mention what the interest rate on the auto loan is. If it’s 0% its worthwhile, anything more than the 2% he’s getting on the cash and he’d be better paying that one off completely.

  6. Andy Says:
    February 26th, 2009 at 8:46 am

    Your salary also depends a lot on where you live. As a software developer in Texas, I make around $42000, which on seems a lot less than you might find in other places like California. It balances out though because the cost of living is a lot less.

  7. Beth Says:
    February 26th, 2009 at 9:13 am

    I’m impressed that, by the age of 30, he’s doing this well. I know too many individuals (and couples) in the 25-35 age range that haven’t even begun to get this financially organized and/or have purchased homes that they couldn’t afford. I wish him well (although I think he’ll do just fine – as long as he can keep his job).

  8. Ray Says:
    February 26th, 2009 at 10:52 am

    Your car payment is high, see if there is a way to reduce it. I think your finance look great, I would just hold on purchasing a house in the US for now until I’d see housing numbers stabilize, I might lose out on some gains, but at least you’d not be hurt by continuous fall in prices.

    Good luck!

  9. Deb Says:
    February 26th, 2009 at 7:14 pm

    Man, I wish I had been half that together at his age, but I also didn’t have the luxury of living rent free with parents! Noetheless, this guy is doing great! He’s young, he’ll earn more as time goes by. And maybe he really enjoys his work and isn’t purely motivated by money.

    I recently bought a small fixer upper on 4 acres for $170k, with 10% down, PMI wrapped. I could have put 20% down, but wanted to save some cash for building a large metal shop (am starting a small hobby farm), and for some much needed improvements to the house and the previous home that I kept as a rental.

    I can honestly say that there are so many unexpected expenses with homeownership that it can be astounding. Especially in the few first years. Keep plenty of cash in reserve!

    Even if you have the cash for 20% down, I’m not always an advocate for it. If you’ve got a great FICO score (I do), and know you’ll be in the home for a long time (I will), and otherwise have a good financial situation (I do) – I think putting `enough’ down is fine. But good for him for having the 20% and so much cash & savings – well done.

  10. El Cheapo Says:
    February 26th, 2009 at 8:52 pm

    The numbers work, however living at home at age 27 sticks out. If this is his first time away from the parents while working, maybe a year of rent and paying bills might help. We’re at least 1.5 years (optimistically) from a housing bottom so it wouldn’t hurt.

  11. Jamie Gold Says:
    February 27th, 2009 at 10:47 pm

    It’s great that the guy has savings. But what is it with boys and car-toys? Why does someone who doesn’t even own a house yet has such an expensive car that he’s still paying for?

  12. thomas Says:
    February 28th, 2009 at 9:17 pm

    He better keep those guns and ammo.

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