Welcome back to the second installment of Millennial Housing Diaries!
I feel like sentiment surrounding this series has been mixed—while there have been plenty who said their morbid fiscal curiosity was satisfied, a handful were put off by the fact that the previous entrant(s) received part of their down payments as a gift.
Look, I get it.
But the principles of fairness aren't applicable in life.
It would be unfair if life were a zero-sum game in which we're competing with one another for the same prize. In reality, we're all just trying to take the breaks we can get to improve our situation. As envious as I am, I don't believe it's right to shame people for their financial good fortune—that doesn't do anything to further financial transparency.
In the end, if you KNOW someone only purchased a home because they were given the down payment, that should (in theory) make you feel BETTER about not being able to do so yet.
But if people are afraid to divulge that (massive) detail for fear of being ridiculed, they won't—and the rest of us will feel like there's some money mystery we're unable to unlock in our quest for home ownership.
That being said, this week's post features two people whose commentaries tickled me—they're glad they have homes, yes, but the process (and sometimes, the ownership itself) is NOT all it's cracked up to be.
Single 23-year-old male in Tuscaloosa, Alabama
Income at time of purchase: $55,000
Down payment: 10%, or $23,305 (combination of gift from parents and unused college fund money)
Sale price: $230,250
HOA: $225/mo. (this is based on % of property owned. Two businesses own 51% and the residential units are split based on size for the 49%. Mine is largest so I pay most, but I also have a larger vote.)
Property taxes: $1,400/year
Other expenses: Electricity (use programmable thermostat, water included HOA dues), cable/WiFi, owner’s insurance, cleaning when lazy
Other non-fiscal expenses: Guests are fun but cumbersome and expensive (and you have to clean up after them).
"My decisions were mostly based on location and size. Most of the places I looked with a realtor were 3BR/2BA or bigger, and I didn’t need that. I currently don’t have a roommate and can still pay monthly payments of $1,200 (thank God) but with a bigger house, I would have to have a roommate or two. Location was the biggest draw (downtown, so I walk a lot—which saves money).
The main thing I'd tell someone looking to buy is that you are your own landlord, so you have to fix anything that breaks—including sh*tty appliances.
I've received three pay raises since I started working (about $4,000 total), so I split the "extra" money into savings, investments, and mortgage so NONE of it touches my bank account. These auto-transfers are great because they guarantee I won’t spend it. This also means I’m paying more than original $1,200/mo., so I should finish paying the mortgage early."
Married 24-year-old female in Huntsville, Alabama
Income: $75,000 before taxes (husband’s salary didn’t apply because he had just started a new job in a new industry, so they would only consider his part-time gig income, which was a couple hundred per month. That being said, his credit history was longer so we put the loan in his name.)
Down payment: 5%, around $8,000 (a stipend from an internship that I never touched)
Cost of home: $170,000
Type of home: Single family, 1800 sq. with .75 acres of land
Location: Huntsville, AL area
Mortgage: FHA* (explained in article below)
Total monthly payment: $925
No student debt
"So we, like you, started our home search on Zillow and were fooled by their Zestimates. We looked at 8 houses before we settled on a new build—it was partially complete when we found it so we had a little say in some of the finishes, etc.
We went back and forth on the offer 5 times to get what we wanted. Because it was a new build, we were able to get the builder to pay closing costs (I think this saved around $6k). We also required them to drywall and put baseboards in the garage, cabinets in the laundry. We wanted gutters and a fence but they wouldn’t budge there.
We put in an offer during the start of a government shutdown - which meant our loan wouldn’t be reviewed or approved until it reopened (which was only 3 days, luckily).
We put in a few stipulations, including a home inspection and land survey to ensure everything was as it was supposed to be (do NOT buy a house without this!).
Our offer was accepted beginning of December, but the home wasn’t complete until mid-January. Once the house was complete, we had an inspection. Following the inspection, we had a few things that needed to be fixed. And we had the home reinspected after. This happened twice.
This pushed our closing date right against our closing deadline for the loan application. The bank does an inspection as well to estimate worth—which was a few grand over our offer, so lucky for us we didn’t need to put more down to cover the difference. We literally closed with one day to spare on our deadline.
Home inspections and fees for the bank were a couple grand total.
All in all, the process was absolutely maddening and I wouldn’t recommend it to my worst enemy.
We worked with a local bank which made the process a million times easier and, even then, it was a freaking nightmare. I’m crazy organized and had everything ready from the day we were ready to get serious and there were still unpredictable needs.
I had to get a certified transcript from my school because my salaried work history was less than 5 years. Stupid stuff like that. They needed so much history on our bank accounts—all of them. We had just merged all of our stuff, so that was a nightmare (imagine trying to get history from previous accounts to prove the money for the down payment wasn’t a gift—that requires entirely different documentation). Our loan officer and realtor were godsends.
As for saving and mortgages, we live by Dave Ramsey and this is where we went astray. Renting in Huntsville makes no sense because our mortgage is less or equivalent to what rent would be. We were also keen on the market—we knew mortgage rates were increasing and things were quickly turning into a seller's market, with the new Toyota plant and Facebook data center bringing thousands of new jobs to the area.
Note from KG: Being aware of new businesses and development in your area is helpful when deciding on the timing for this process. For example, Dallas welcomed a giant insurance company and a Toyota plant in recent years, both of which aided DFW's skyrocketing real estate market.
We went with a 5% down payment because we knew the costs associated with home ownership after you get the keys. It was better for us to put less down, than to put some of those new "home ownership" costs on a credit card and pay 20-30% interest on that if we were unable to pay it off MoM. Some of those costs put equity into our home, so for us, the trade-off was worth it.
That being said, we’re able to make WAY above our required monthly payment—so even though our loan is 30 years, we have plans to pay it off nearly 10 years early, if we stay here that long (unlikely).
*FHA is the first-time homebuyer loan: it stands for Federal Housing Administration loan. It allows you to put as little as 3.5% down. Keep in mind, though, the buyer has to pay a fee at closing for using it.
All in all, buying a home is so much more than just a financial annoyance. It takes a ton of time, a lot of paperwork and all of these people only work 9-5. You really have to have a flexible job or a lot of PTO to make it work.
What really annoyed me was that, 75% of the time, you as the buyer have no clue what’s going on. You’ve submitted everything and you’re waiting to learn of your closing date, waiting to learn what rate you’re being locked in with, and everything. It's out of your hands once you’ve given them all the documentation. You have to trust that everyone else is doing their job which isn’t easy—especially as a control freak.
Also: I can’t say how many times I said, “It should not be this difficult,” during the entire process."
*grabs back mic*
These two left me with a few conflicting takeaways.
For one thing, seeing how little they put down made me feel like, "What am I waiting for?" As of right now, I could put down 10% on homes like those.
Then I remember that pesky PMI, or extra mortgage insurance, that you have to pay when you put down less than 20%, and I'm reminded why it's sometimes better to wait it out.
Secondly, I kept comparing my own situation (in Dallas) to theirs (in Alabama). As I'm sure you can imagine, Dallas's market is more expensive (and more inflated). Not to mention the weird idiosyncrasies like property tax that vary from state to state—Alabama's (I imagine) aren't that high, while Texas's are extreme because we don't have state income tax.
Check out this beautiful McMansion you can get in Huntsville for $500k:
These same digs in Dallas would run you at least $2M. In short, markets aren't equal. Or fair.
Lastly, the amount of paperwork and process gives me heartburn. As a self-proclaimed organized control freak, I do NOT like the idea of surrendering my fate to a bunch of lenders, agents, and banks. I remember when I went through the process, I was plagued by this paranoia that everyone was trying to rip me off because I was a young woman. Definitely a distraction.
That's all, folks. See you next week—we may be switching it up a little. Stay tuned.
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.
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