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Big Girl Math; Part II

lyn*

(website)

Veteran

Due to complex family dynamics (very complex family dynamics) I cannot get reimbursed on a large amount of my savings that I have accrued thus far in my life. Essentially, I am starting from $0 at this point in my life, but that also means no debts.

Now, big girl math kicks in - if I want to buy a house (realistically, a condo) in two years for $300K, I need at least a 25% downpayment to get a reasonable mortgage interest rate.

So, in two years, I need to accrue $75,000. If I get paid biweekly, $1440 per paycheque is what I need to save.

In what world am I going to get a job that I can save that much?
This means no vacation, no purchases of any sort beyond food.
My car absolutely cannot die and it is 12 years old already.

How do people live like this? Is this why it's so hard for single people to buy a house?

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46 replies

Latest reply was from Jules

Sveta

(website)

Veteran

I am not sure you need 25% downpayment. The rate is very good now and you may be able to do with 10% - have you already talked to the bank or mortgage broker?
Another question - how much you pay for rent now? You should be able to subtract it from $1440 but then had to add utilities and taxes. And then add maintenance and repairs...
All in all owning a house is expensive and not necessarily the best investment. I would go for it only if it gives you a better lifestyle than renting. Will it? Why do you want a house in 2 years?

Firecracker (Sharan)

Veteran

Oh, Lyn, I feel for you. Aaaargh! I was single for a long time and rented for years. I finally bought a house and had to sell it sooner than I wanted to, due to an unexpected transfer; so I didn't get any financial benefits of owning. I didn't buy another house until about 15 years later, and after I had gotten married. If not for the housing crash, we would not have been able to afford our house, after working and saving for our entire careers.
I would save what you can, without letting your savings deprive you. Settle on an amount that you can put away comfortably, and put a hefty portion of that savings into investments (maybe half if that seems prudent--you do have to think about having a cushion for emergencies), where it can earn more interest. You're in a good profession to earn a good salary, and your savings will grow before you know it. Keep your possessions small, so you can fit into a smaller space and get a location you love.

lyn*

(website)

Veteran

I have talked to a financial company which recommended 25% - and if I didn't have the money to take out a personal line of credit for the money (which sounds kind of nuts, personally).

I don't have to pay any rent now because of the family dynamic - essentially live rent free here, but if I leave, then I get to take nothing with me.

I think I would buy a house if I got married, no? I kind of have always grown up with "you have no business getting married if you don't have a way to support yourself!"

I suppose it would be reasonable to wait until we were both staff and then just buy; and rent until then. We could easily afford $1500 to $2000/rent on resident salary, but man, that downpayment would be killer. When we are staff, our salary jumps about 3 to 5x higher.

ETA: Very frustrating part - I had my nest egg from when I used to teach and I'm quite angry that I've lost it because a family member made bad investments. I also made money when I sold a previous property, so starting again from nothing has made me learn something -- NO FAMILY LOANS.

Gigi

Veteran

Yes, Lyn, it is very difficult for single people to afford a house. And there is a tremendous amount of money that gets invested in the upkeep, on top of the mortgage payment. I am 40 and have never been able to save enough to buy; I am still living in rented apartments. IMO, you need two decent incomes to comfortably afford a house.

My advice to you is to not do anything you're not comfortable with. If you're not comfortable with how your mortgage payment is going to compare to your paycheck, don't do it! People can become what we call "house poor"--don't know if you have that term in Canada. Basically, it means that all the money you have gets funneled into the house payment and the house upkeep--and then you have no money left over for food, car repairs, medical expenses, a movie, etc. I would sure wait until you get that rise in salary as staff. You don't need that kind of stress in your life.

elpgal

Veteran

Lyn*, Do you have more lucrative options in another town with a lower cost of living?

Lucy

Veteran

Lyn*, I'm from Australia, so things might be v different where you are. But I wonder: could you buy an apartment, and rent it out for a few years? That way someone else is paying the bulk of the mortgage. If you stay where you are, you won't be paying rent, so you can add in extra money too. Then, down the track, you can get rid of the tenants, and move in, or sell it and buy somewhere else? I don't know what the tax implications are in the US, but this can work quite well in Australia - and it was the only way I could buy my first place, as my husband was largely supporting us while I was on scholarship for postgrad study.

rae

(website)

Veteran

Granted I am not familiar with the Canadian market values, rents, or taxes, but overall it seems like most of the western world is still at the high point in a property bubble.

I hope I don't sound pushy and weird, but I always feel obligated to talk about this, because this goes against what the bulk of mainstream anything will tell you. Everyone usually says buy no matter what, but the bottom line is that when you can't comfortably pay for a home, it means housing prices are too high. Lots of the 2008 housing crash came about from buying too much home - in some cases "too much" being any at all.

Not saying you can't buy, but don't feel like you have to. I am not for or against owning in general; I am always FOR spending less and saving/investing more. Sometimes renting really is better financially.

Some things that are good to consider:
- Renting costs = rent + utilities. Buying costs = mortgage payment + taxes + utilities + maintenance + sanitation + labor + HOA fees. Be sure it's still a good deal when you factor all of that in. Many people only consider rent vs. mortgage payment.

- How long do you want to stay in one place? Owning is generally better than renting after ~ 30 years. But if you might need to move (or move in with an SO or buy a place together with a DH) in just a few years, it's kind of a roll of the dice to bet on the market being favorable enough to offset property taxes at the exact time you need to sell.

- along the previous lines, don't think of a home as an "investment." Again, not what Big Real Estate tells you. An investment is something you are willing to drop like a hot potato and sell whenever the market is up. Most people plan to stay in their homes indefinitely, making it an indefinite liability (again, taxes+maintenance+utilities et cetera that you have to pay, all while not reaping any returns).

- also consider, if you don't have $$ tied up in equity right away, what other investments could you make? If you aren't ready for your Forever Home, you could use that principle to invest in a way that earns you dividends in the mean time. Your money could be making you more money to put toward a long-term housing purchase later.

- another idea is what if you don't sell? Are rents in the neighborhood good enough that you could rent out the condo if/when you move onward and upward? That can sometimes be a good reason to buy.

Sorry for the novel... DH and I talk a lot about this seeing as how insane LA housing costs are.

Liz

Veteran

i'm wondering why the pressure to go from $0 to being able to buy a $300K house in just 2 short years?

There is no time frame in which someone must buy a house in order to be considered an adult. There is no rule that everyone must buy. There is no rule that all young couples must buy a house immediately upon marriage. If you ARE feeling like these are "rules," then I'd explore those expectations along with crunching numbers.

Anonymous

I think you should put house plans on hold until you know where you will be, what city, will you be partnered, living with a partner etc. You have to be in a house minimum 5 years to make back the money you put into it.

House prices might just be excessively crazy in your city too. You can do a down payment of < 25% but then you have to pay mortgage insurance on it.

Alassë

Veteran

That sounds like too much pressure to save up 25% downpayment in 2 years. We only bought a house because in our area it was cheaper to buy and have the monthly mortgage payment than to rent (!).

Gaylene

Veteran

Do you want to own a condo in this city? Or are you happy enough in your current situation, or with the option of renting? The push for owning often comes from pressure along the lines of "well, if you are paying rent, why not pay off a mortgage instead because you will be building equity at the same time?"

The truth, however, is a whole lot more complicated. First, as you've pointed out, you'll have to live under severe financial restrictions until you build up a sufficient down payment. You'll also want to set aside some money for a contingency fund to cover things like start-up costs or special levies that might be imposed by the condo board. And, for the first few years, you won't be building much additional equity because most of your mortgage payment will be directed towards covering the interest--which might be extended if interest rates rise when it comes time to renew. Your "investment" might actually lose money if housing prices stall, or decline, or if you need to sell your condo after being in it for only a few years.

Renting (or, in your case, living rent-free) gives you a lot more flexibility and, if you set up a regular savings plan, could put you further ahead in a few years. And, just two other pieces of advice. First, always consider money given to family members as a gift, not a loan or investment. And, second, listen to investment advice from family and friends, but make your own hard-headed decisions about your own financial affairs. Your money, your decision!

Classically Casual

Veteran

Lots of good advice here, Lyn*. I'd add if you and the ER doc are getting serious, wait and do the whole thing jointly with him when you know for sure where you're going to live, and can make allowances for each other's taste & must haves. That way you'll both love the house and be emotionally invested, as well as financially on the hook...

An aside from my hair dresser: she's observed that this is the order of operations for unmarried couples in their 20's-30's
-live together
-get a dog
-buy a house
-get married/ have a baby
-dog gets forgotten

Isabel

Veteran

I have to agree with Liz and others, why two years ? If it cannot be done in two years, then it cannot be done. Some people save for a decade. If you go to 3 years, you need to save $990/paycheck. Four years brings it to $700. But you are also going to need an emergency fund, because if something happens soon after you buy the house, you are going to need some liquidity for it.

You have lots of option. Put down 15%, then when your salary goes up, put extra toward your mortgage every time you get paid. This will essentially bring down the total as if you had put down 25%.

At this point, it isn't just you being single, but that you are not earning at your full salary yet. You should consider that. You may not be able to live like a full fledge doctor until you are one. ( I know that you are doctor, but you are a resident . )

Also, you need to learn as much as you can about savings and investments and not leave it to someone else. And if you do, you should understand enough so that you can eyeball it regularly and assess if the investments are good or not.

Sorry that you lost everything.

kkards

Veteran

lyn*, can i assume that you have done the big girl things, and used an couple of on line calculators to see how much house (condo) you can afford. can i also assume that you have been to many open houses in several neighborhoods that you are considering to see what you can get for your money? is the $300K you think you need to spend realistic? honestly, until i really started going to open houses, it was hard to understand what i could get for my money, and in most of the cities i have lived in, the prices really varied by neighborhood, so that can play a big part in your decision,
also remember, that you actualy need more than just the down payment....you will need $ for closing costs, maybe an attorney (this varies by state, not sure about canada), and most banks will require that you have enought savings to cover a couple of months expences. in add't, if you are buying a condo you need to factor in condo fees.

lyn*

(website)

Veteran

Ah, thanks for all of the great advice - I talked to my parents about it (especially since they're the ones who have shlepped my money) - and they thought it was insane I'd want out in two years and buy my own place - so this is good. My dad (like the rest of you) pointed out that I am not at my full earning potential yet.

From now on, money to the family = 100% gifts. Ugh, I should have known this was going to happen, but thankfully I am in a position right now to be able to get out of it.

I don't know about the boy... it's part of the reason why I want to move forward and do some big girl math crunching, but I suppose he would be able to contribute some too. And I don't think he's adverse to living here he is for another year, either - heck, I wouldn't be adverse to living where he is for a year with a definite "out" date.

As for where I want to live in the future - this depends on my partner more than anything. I can hang up a shingle anywhere and be able to make at least 200K a year. I hypothetically have been grooming the way for an academic position here though, and would like to stay (projected at least 350K a year).

I have owned multiple condos in the past - so I'm more comfortable with the buying and selling of condos than an actual house. The work required for an actual house would make me go insane (and not be able to work because my house needed so much work!) - I have my eye on a new build right now; for $300K in my neighbourhood I should be able to get about 900 sqft of a new build with a condo fee under $300/month with TWO (yes, two) underground heated spots.

If I wanted a bigger condo I could do that with 300K as well, I can go up to about 1400 sqft with two heated underground parking stalls, but older building and I'd need to pay upwards of $800/mth for condo fees which is nuts.

I definitely DO NOT live like I am staff - a lot of my colleagues do - and I think this has helped me with some savings. I think a lot of them borrow - there is no way you can afford three $5,000 overseas trips in a year on my salary.

Isabel

Veteran

lyn, with all due respect, why are you talking to your dad if he was part of "shlepping" your money and part of the reason that you lost your entire savings ?

I know that you had some concerns about them being able to take care of themselves and it turned out that they are in pretty good financial shape and relatively young. You should not be lending or giving them money at this point. From what you have said in the past, they have plenty of money for their needs, their wants, and their retirement. If you want to help them down the line, you should be saving and investing now so that in the future you are in really good financial shape to take care of yourself and your family ( if you have one ) and help your parents, if they needed. It seems to me that your family is trying to get your physician's salary up front before you start earning it. You are going to have to get a handle on this before you really start earning good money or this will only get worse. Just because you went to med school doesn't mean that you owe your family an upgrade in their lifestyle.

You need to establish yourself before getting on to such other big things. Also, if living at home continues to lead you to be broke, then it is not at all an advantage. : (

Your number one priority has to be building a very good foundation for yourself. In the end , that will help others too. I promise. : )

lyn*

(website)

Veteran

To be fair, my mother was the primary individual in the whole investment fiasco, so I still talk to my dad about it. My mom has been essentially avoiding any contact with me for the last few months - it's really too bad, I'm not going to hound her for the money or anything.

They have money, it's not like they need it, but my mother has a bit of a greedy streak, so it's a bit annoying that way.

I feel that they feel that they need a lifestyle upgrade because now that I have my own salary. I think they do (in that they don't support myself or my sister) - I ask them for a certain amount of money every month for my sister, but that's about it - these are for her personal expenditures (i.e.: she needed new glasses last month) - and not for things like rent or food.

I am currently not living at home - I couldn't stand living at home because of the rules are just insane - i.e.: I have to be home by the time the sun goes down. I am 28 years old. I can stay out the WHOLE NIGHT if I want - okay, parents? But no, they say I have to be home by sunset which is like 5 pm in the winter. I am barely done work! They are fairly nuts.

I kind of redefined my financial goals - I hope to have enough to purchase a replacement car by my next birthday. I have enough now to finance a car, but I'd like to be able to purchase a car in cash. I have dreams about going to the dealership with a box (or maybe a briefcase!!!) of folding bills. HAHHAHAHA. I kind of want to do that for laughs.

Mo

(website)

Veteran

Lyn, people do that all the time! My BF often comes home looking like a drug dealer from a late car sale after the office ladies have gone home and he has the wad of cash to look after until the next business day.
As for the house hunting . . . my own parents didn't own until after 40 but with N. California real estate that wasn't unheard of. I honestly never thought I'd own my own place, and my mother still never has in her 67 years.
The BF owned his place when we first started dating, but we didn't move in together for almost a year, and we'd known each other socially for over 5 years before dating. I'd just go slow with planning an entangled financial future with a somewhat new man in your life.

amiable

Veteran

I haven't read all the responses, so this may be a repeat. But I'd like to suggest that there's nothing wrong with NOT owning a house. Houses are a big responsibility, and really, a big liability - something's always breaking or needing improvement, they're super high priced, and they pretty much tie you down to a location for a long term. There's also much less guarantee that you'll get your money back out of it when you sell than most people imply. Please don't feel like you're not a real adult if you choose not to own a house - it's better to rent something you can comfortably afford than own a house that you can barely afford and have to stress out every time some extra work needs done on it.

That said, I own two houses - I get the draw. (Those two houses are eating me out of house an home, so to speak....)

carter

Veteran

Lyn*, I sell real estate for a living, and my advice is to wait. Save as much as you can now, and keep it in YOUR control, but don't push to buy before you've reached your initial full salary. Once you're making $200-$350k, you will NOT want to live in a $300k condo, no matter how great it may sound now. Once you're married, 900 sf will get VERY SMALL very fast, plus there is no room for bambinos. Save every penny that you can comfortably save now, and save even more when your full salary kicks in. But wait to buy until you can very comfortably afford a place that will serve you well for at least 5-7 years (through marriage and a toddler or two).

As a side note, hooray for you for wanting to pay cash for a car! A car loan is the fastest way to be upside down on an investment since the car's value is guaranteed to drop substantially the first couple years. Pay cash and buy a 2 year old car if at all possible.

lyn*

(website)

Veteran

@ Mo - One of my friends went to a dealership to buy his car in folding cash, attache case with handcuff and all - he also got two of his coworkers to escort him. Hahaha; I wish I had been there to see that - he is a strange boy. :p I am banking on getting a job here, which is not true - you guys are right, I should probably wait to get a contract before anything else happens. At least a 5 year deal.

@ Amiable - Thanks for the advice; there is enough in my condo that needs to be fixed up all the time (and there is only 650 sqft of stuff to break!) - and that has me scratching my head often enough.

@ Carter - Thanks for your professional opinion; do you mean that I'd want to live somewhere worth more than 300K? - I agree that a condo isn't great for kiddies though; and I guess if kiddies are going to happen they will happen in the next five to seven years (that would put me in the 33 to 35 year range) - and I can always make a big decision after that. I did grow up in 1000 sqft with the four of us - and that was considered quite large, so I am used to the teeny tiny space - may not be true for boy.

My 2000 (model year) car I bought in 2003 (actual year) for a song - I'd totally do it again. Love my car, and so much nicer than I could afford new - it was a car coming off someone's lease (one of those rich attending staff docs wanted a new car, perfect for me!). I have looked at a few just coming off a 3 to 5 year lease, and if I only have to drive it for the next 3 years, then that's perfect. I get a little scared once my car turned 10.

carter

Veteran

Lyn, perhaps I shouldn't have told you what *you* will want but instead tell you what my clients have experienced. I have a cardiologist client who moved here for his residency. He bought a house for $350k. It was plenty large for a someday wife and kids, but 3 years later he reached his first real salary level and got engaged. He wanted to move up so he felt comfortable inviting his new colleagues for dinner. The new house was $850k. Even though we sold the old one for more than$350k, he was still out money after fees, closing costs, moving costs, etc. Another client wanted to buy early in his sales career. He paid $250k. Four years later he's killing it at work and hates that he's stuck in a low-end house because the market just won't pay him what he has in it. Yet another client bought a townhouse as a single mom. Now she's marrying a man who comes with a live-in son and a visiting daughter. She is dreading having her house on the market and is kicking herself for not buying the 4 BR unit in the first place.

I guess all I'm trying to say is that the only thing you really know for right now is that you will have a large increase in income in the not-too-distant future. What you don't know is where you'll be in your life (and head) when you get there.

lyn*

(website)

Veteran

Thanks so much, Carter - I definitely have run into this difficulty even now in my little 650 sqft place - I don't have furniture (I figure it's pointless to buy furniture if I'm going to move in 5 years) for the living room or the dining room. I have a study desk, a bed, and a wardrobe. My TV is on top of a cardboard box all taped up.

I feel embarrassed to invite my friends over. I know that they all have really nice places with leather furniture, and it's like inviting people here to ... what? I have a lovely granite kitchen, but that's just for me to cook in and enjoy. I don't really have a built-in area to entertain, unless everyone wants to take turns sitting on my bed and watching my TV on top of the cardboard box :p

I am pretty thrifty now and I am okay with not inviting people over - we are generally way too busy anyhow to have guests over too often. I am thinking of getting some arm chairs and use my living room space though (right now it's empty and my sister uses it as an exercise studio) - maybe I should put some money into that first.

Man, an $850K house must be nice - drat, I need a cardiology boyfriend.

Diana

Veteran

OK, so I don't own a home (and I am almost 34, and married) so maybe I'm not the best person to counsel you on this but ... if I were you, I would wait.

From my own experience, there are several reasons why I don't own, even though I do think about it from time to time.

-- I may possibly be moving in a year or two. In my field and the current job market I can't guarantee that I'll find a job in this area (or a job at all). Yes, there is the possibility of renting it out if we move but that's not a hassle I want to deal with.

-- Although the market is stable in my area, there are some things that always help your resale value. Here, it would be things like more than one bathroom, parking spots, updated kitchen, etc. We can't really afford a condo with these features and definitely wouldn't want to spend the time/money fixing one up to sell.

-- (Not an issue anymore since I got married, but before it was definitely a big one). I make a postdoc salary (i.e. peanuts). This means that no bank will give me a good interest rate, even if I make a big down payment. So either I'd have to settle for the terrible interest rate, if they would even give me one, or I'd need to have someone (i.e. my parents) as co-owners. Which is not really something I wanted to do (I am sure you understand, having your own Asian parents...)

-- Because we rent, we can live in a great neighborhood. Our rent is definitely high, but we can afford it. We can't afford to buy anything in this neighborhood, so if we bought we'd have to go either to the suburbs (ugh) or a less nice part of town. At this point in our lives (no kids, just married, etc) living in a great, safe, and centrally located neighborhood is a priority for us. I definitely do not want to live in the suburbs right now. And honestly for me buying something in an "up and coming" neighborhood is NOT an option, because I would not feel comfortable living there.

Mo

(website)

Veteran

Just to jump back in, I deleted earlier that my brother and his wife bought a condo in CA shortly after getting married. I thought it was frivolous info on first post, but want to say that they raised 2 kids in that same condo, who are still sharing a room (gasp, in America!) and they are happy and well adjusted. My niece is just now 21 and soon to move out permanently, while her younger brother is just starting high school.
Also the BF and I had his best friend and wife, with their young daughter, living in his condo when we were dating. 5 people in 1100 sq ft. Oh, and I lived with my mom and her BF in my last years of High school with my younger twin brothers (again 5 people) with under 1000 sq ft and just one bathroom. 3 teenagers with one bath. And we all survived just fine.
I think the keeping up with the Joneses 'American Dream' if you will is overblown and overrated. People live beyond their means way to cavalierly (rant over)

EDIT: all that to say, you may love, and cherish for years, a $300K condo! lol

ironkurtin

Veteran

I personally think ownership is greatly overrated. Not only can real estate be tricky but there is maintenance and taxes and utilities and insurance - a house costs far more than just the house. I would not rush into it.

Also, buy some furniture. Not having furniture because you'll move in FIVE YEARS is just nuts.

anne

Veteran

Dana beat me to it!! Lyn* just spend one weeks savings on some furniture at ikea or second hand and your place can seem much more homelike!

I do pity younger people these days with the price of housing. I live in one of the most expensive cities for housing in the world, and there is no way I could buy a house on my own if I was starting our now. And the rent here is so expensive that it would take nearly half my weekly income to rent the place we have bought, which is just crazy since I am supporting 4 other people. (Happily in our case we bought cheaply in the 90's and had some family help, so were able to buy)

DonnaF

Veteran

I'm so so sorry about the loss of your nest egg. I know you are quite a budgeter and obviously actually do (instead of just plan!) because you said you've owned several condos. Like others have advised, I wouldn't be too quick to bite the bullet and buy. That would be jumping the gun! (So I have this image of you with a bullet in your mouth jumping over a gun.) Continue to live frugally, but think about spending a little for furniture just to make your place a bit more comfy. It doesn't have to be a lot; maybe something cast off by an ex-resident moving elsewhere to be a staff doc?

lyn*

(website)

Veteran

Well, I talked about my furniture with boy today, and he was like, "Well, don't buy a couch because I have a couch." So we'll see. I'm willing to wait a little bit - although there is a beautiful armchair at Ikea that is calling my name that would make an excellent reading chair.

Then I could get a reading lamp, and a small table for my tea, and a cute little rug; and there are curtains that match my little cushion... and a pretty vase for flowers. And some pretty wall art.

*SQUEE*

SO EXCITED FOR REAL FURNITURE!!!

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