Welcome, my aspirational friends, to the first Millennial Housing Diary. Today, we'll look at two people: a 24-year-old male in San Antonio and a 25-year-old female in Washington, D.C. You'll see a wide(ish) range of salaries, financial backgrounds, and debt situations.
I'm publishing their accounts of buying a home, edited for clarity and brevity, as well as their answers to my questions. Without further ado... here we go:
24-year-old male living in San Antonio, Texas
Income: $75,400, before tax (plus commission)
Down payment: $40,000 (saved over the course of a year; able to save $20,000 from living in parents’ guest home for a year and received the other $20,000 as a gift because of a full-ride college scholarship)
Cost of home: $291,000
Type of home: Single-family home, 4-bedroom
Location: San Antonio, Texas
APR (interest rate on his loan), or the interest rate on $251,000: 4.625%
Total monthly payment: $1,900-$2,100
No student debt
What he says:
"I was originally looking to move out of my parents' home and into an apartment in a good location in San Antonio, TX, but the price of rent for a 2-bedroom was nearly $1,600 after utilities. (Note from Katie: Ellie and I's rent & utilities for a 2-bedroom in Dallas is about $1,000 each, or $1,795 in rent alone—obnoxious, but not horrifying.)
I couldn't justify spending this much on housing, especially after living in my parents' guest house for free. I also couldn't justify never seeing a return on rent. So I began looking for homes, and the advice I have for anyone else is to educate yourself on the market you're buying in. Watch which houses sell, study the neighborhoods and learn which ones will be able to hold their value or appreciate.
If you're looking at new homes or subdivisions like I was, research the builders. Find out which ones build homes to last. The last thing you want to do is make a hasty decision. If you're buying a house this young, chances are you won't be living in it for longer than 5-10 years (unless you're ready to lock in for life, which I wasn't).
Make decisions with renting out or reselling it in mind. Is it near a good school? How close to shopping/grocery stores are you?
The idea of paying a mortgage consistently without a "quick way out" really scared me. You can break a lease for a cost—you can't break a mortgage. Be sure you have fall-back money, so in case you lose your job or something happens to your income, you can pay your mortgage for at least 4-6 months out of savings in a worst case scenario.
I think my situation is a little bit unique. If I didn't have the commission from work, or parents that could help me with the down payment, I would've had to save for at least 2-3 more years in order to feel comfortable with a down payment."
25-year-old female living in Washington, D.C.
Heads-up from Katie: This one blew my mind a little bit. Their salaries, the cost of their home, and how early in life they were able to make such a huge purchase really astounded and impressed me. She went into a lot of detail for both herself and her boyfriend, with whom she purchased the home. Check it out.
Her job: pharmaceutical sales representative
Her salary: $105,000 + quarterly bonuses based off sales performance (KG: holy shit.)
His job: lawyer, first year associate
His salary: $180,000 + yearly bonus (KG: double holy shit.)
Type of home: 1,170 sf. 2BR & 2.5BA | 2-story unit within a row home (3 units in building total)
Location: Logan’s Circle, Washington DC
Ages at the time of purchase: 24 & 25
Home purchase price: $699,900
Down payment: $85,000 (including closing costs and transfer taxes)
How long it took us to save: 2.5 years
Fixed interest rate: 5.125%
Monthly mortgage payment: $3,300
*The unit above us rents for $3,600 a month and the unit is smaller than ours!
HOA: $211 monthly
Goes towards building maintenance and every unit contributes.
Taxes: $419 monthly in escrow for property taxes
Insurance: $550 yearly/bundled with my boyfriend's car insurance
Total monthly payment: around $4,000 (we pay about $2,000 each)
Student debt? She has no student debt; he has student loans from law school. His minimum payment is $1,100 monthly, but he pays $1,600 per month.
"Although he makes more money than I do, we decided to use my credit score and financials to apply for the mortgage loan. Why?
1. I have no student loans/debt
2. I had a very high credit score
3. He had just finished law school and only had pay stubs from summer employment
*Since we are not married, they would not consider us jointly.
My contribution: $65,000. I would put my entire bonus checks and a monthly amount from my paycheck into a money market account.
His contribution: $20,000.
He contributed a $10,000 salary advance from his law firm. Law firms offer this advance because law students are discouraged from working while studying for the bar exam. He also inherited money from his grandparents to pay for college. Due to scholarships, there were leftover funds.
He invested the remaining inheritance money into stocks and mutual funds while he was in college. His investment portfolio was liquidated for his portion of the down payment. So although this money was “gifted,” he has been personally managing the money for 5+ years.
He "formally gifted" me $45,000 (the original $20,000 for the down payment and $25,000 for renovations) and documentation was shown to our lender. *Note from KG: This "formal gifting" she's referencing is a process in which someone gives you a large amount of money and signs something saying there's no expectation of reimbursement.
We were unable to put down a full 20% so we do have to pay for mortgage insurance. We wanted to live in a high cost/highly appreciating area and we couldn’t justify paying rent. Our mortgage is essentially the same price as if we had decided to rent a unit of equal size, so to us, it's worth it. We plan to refinance once we're married and have paid down part of the mortgage to eliminate the PMI.
(PMI = mortgage insurance you have to pay when you can't put down 20%, the magic number.)
The most recent Zillow search estimates our house to be worth $735,800.
We decided to invest $25,000 cash into the home by renovating the kitchen and half bath. We would not have been able to afford our home if it had been recently renovated (last update was early 2000s). By doing the renovations, we were able to generate some “sweat equity” on top of the property appreciation.
In 2019, we want to renovate the two upstairs bathrooms."
There are a few obvious things that came to light in these two entries.
For one thing, having a wealthy family and no student loans helps a lot if your parents are willing to gift you part of the down payment. The down payment is the obstacle to buying—you probably noticed both entrants noted that rent in their area is comparable to their mortgage payments.
Secondly, if you're in a serious relationship (or married) the burden is split in two. Even if you have student loans (like our second entrant's boyfriend), they aren't inhibitive... if you make nearly $200,000 per year.
Kinda goes to show how crucial it is to consider what, exactly, you're taking out loans for—$1,100/month minimum monthly payments on a loan for a degree in something that hardly makes $40,000/year simply isn't a solid return on investment. Unfortunately, they don't tell 18-year-olds this, and unless your parents were savvy and involved, it's unlikely you had these realizations going into school. I don't think I would've.
Finally, I want to take this chance to say: if you've read this far, you're clearly interested in making good financial decisions. If you aren't raking in $100,000 a year or anywhere close to buying a home, don't beat yourself up over it. Most of us aren't. There are ways for "average" earners to become wealthy, too, and it's rooted firmly in behavioral decisions about money (as we've discussed before).
Just note the little nuggets of wisdom each of your fellow Millennials are offering and allow it to motivate you to save more aggressively—that is, if you even want to buy a home at all. Next week we'll hear from two people who don't think the home ownership life is all it's cracked up to be.
And soon—for my ladies—be on the lookout for posts about how to substitute cheap or free alternatives for things like Dry Bar, facial waxing and threading, getting your hair colored, and more. (In other words, how to be hot without spending your way to the poor house.)
The young woman's money guide for all the things you're too embarrassed to ask your friends. Build the life you thought you were too broke to afford through managing your spending habits, travel hacking, and simple, smart investing.
Full-time Brand marketer at Southwest Airlines, part-time Yoga Sculpt teacher, occasional Waffle House Model and reformed materialist.
Download my free budget tool
Rent or buy calculator
Invest with Robinhood. Get free stock.