Getting gifted a decent amount of money, can I afford a house?

[snervel]

Sorry long post!

So like the title says, my girlfriend’s (22F) parents are giving us a decent amount of money $40,000-50,000 usd hoping that is a good amount to put down on a down payment for a home.

After crunching some numbers and doing some thinking with today housing market I think we are in a good spot, but wanted to ask what you all think.

So our current finance: I (24m) has been working full time for a while now and saved up a number I’m proud of $20,000. I have another $2,200 in checking. My really salary is 71,500 which is going up to 73,000 in June. I put 8% in my 401k and my company does %3 of my salary (so over $600 all together), I also have an HSA that my employer puts money in every month that I am investing. Together I have about $13,000. Did Robinhood when I had no money so I have $221 in there. With taxes and all deductions I pull in 1829 per check plus $120 for internet and wife reimbursements per month. 12 month span would be: about 48994 a year after all deductions and 401k contributions.

I already put a deposit on her ring before learning about this lump some of money and I will go pick it up next Monday taking about her $3870 out. I work remote so I have no car (though I want one), my phone bill is about $100 (work covers $80) a month our current rent is $800 utilities Range from $50-$150, internet is $40 (work covers this), and we have a lotttt of subscriptions ($150). I have student loans $19000 where my monthly payments are super low ($30) I usually put $120 towards these. I put 8% in my 401k and my company does %3 of my salary (so over $600 a month all together), I also have an HSA that my employer puts money in every month that I am investing. Together I have about $13,000. Did Robinhood when I had no money so I have $221 in there. We live probably above our means imo I do manage to save almost 1,000 not including my 401k. That’s with eating out, clubbing, shopping, ect. We’d cut back on the bars if we got a house probably (we currently live in the city)

Her (22F) is still in school getting her masters. She works a part time job but really focus on her athletics (since she’s in scholarship) she maybe pulls in $400 a month currently (we don’t spend her money). When she graduates she will be looking for sports related jobs. She has nothing lined up but has heard back to a few places. We can expect her to make anywhere from 20k to 40k (to be safe 20k, I like worst cases scenarios). We plan on using her income to throw money at my loans.

On paper it makes sense to buy a home (rents increasing) and everywhere we look rents as much as some mortgages, but then again homes have a lot of expenses to come with it (closing fees, furniture, appliances, taxes, possible HOA fees) we also want to think abt a wedding plus immigration fees (she’s foreign) and possible a 2nd car (this is a want). I’ve always had financial anxiety, so it’s always good to hear other opinions or tips before moving forward.

Thanks!

Edit: probably should include this, but we are not looking to buy like tomorrow. Our lease isn’t up for a while and we PLAN ON BEING MARRIED before we close on anything. House will be in her name anyways, so even if we arnt married yet I’d be a “renter”.

 

[nancymsl]

@snervel Why not wait until you are more settled in life before buying thing. Once you both have solid employment then it's something to consider

 

[snervel]

@nancymsl I would consider my self settled! I don’t have parents so I kinda grew up quick and been working full time for almost 4 years now! She’s always been in school though so from her end I def can see this!

I’m thinking more financially, would I make sense? Especially if rent cost the same as purchasing? That’s my biggest worry, I’m at the point where living in an apartment and paying someone else mortgage is frustrating. I’d like to get out if it seems financially responsible.

 

[marlond]

@snervel It’s not financially responsible if you don’t have enough money to pay for the house. Buying a house is a lot more than just a down payment, you’ll need money for closing costs - figure 3-5% of purchase price, first months mortgage and escrow. Are you handy because any repairs or upgrades will cost plenty, beyond paint!

 

[snervel]

@marlond I was not aware of escrow had costs, how much typically is that?

 

[immd]

@snervel Depends on property taxes. $400 to $700 in my area for escrow alone per month, and they usually pull that with your mortgage. So, if you are considering $1,700 a month for a mortgage. You're talking more about $1,000 for a mortgage with $700 for escrow in my area.

 

[snervel]

@immd Thanks! That def something to consider and add to the excel sheet, are townhomes different by chance? Since the HOA? Or do they end up being more expensive.

 

[joannemaree]

@snervel Escrow usually includes property taxes and homeowners insurance. In some cities, the county auditor might have a website with all sorts of details on the house, including what the current property taxes are.

 

[marlond]

@joannemaree The above, plus HOA is extra cost.

 

[allmyhope]

@snervel Is it a gift to you or your girlfriend? I wouldn't buy a house without a marriage license.

 

[snervel]

@allmyhope They say both of us, but of course it is my girlfriends (they’d give it to her even if I wasn’t around). We also plan to have a marriage license before we close! Since she is foreign, we’ve been together for 5 years and been living together for 3! House will probably just be in her name though (I don’t mind at all)

Wedding will come later though! But we plan a court house marriage and having a friend if the family do the legal immigration paper for free and it should only be around 4k

 

[blastcat]

@snervel Please do not do this! If you are contributing to the down payment and the mortgage monthly you absolutely need to have your name on the house. You never know what may happen and if things go wrong you’re gonna have a hell of an uphill battle trying to get back anything you put in to that house.

Please don’t take this the wrong way, but from the questions you’ve been asking I really think you need to slow down and take another year or two before you jump into buying. Take that time to focus on getting married, take advantage of your cheap rent to save more, and do a bunch of research on the real cost of home ownership (maintenance—both the cost in time and $, property taxes and reassessments, escrow, pros and cons of HOAs, home owners insurance, buying points on the mortgage rate, region specific ins and outs, etc.). If you slow down and take the time to learn about the process and how much more goes into owning a home vs renting you will be much much better off in the long term!

 

[snervel]

@blastcat We are moving slow, we are not in a rush to buy a home. This is just part of my research! We are just starting to have conversations since her parents told us about the money. I just want to know if our financial situation is more so ideal. Put it like this, if we were a married couple with 3 years of work each under our belt, should we buy a house?

Been getting a lot of answers about relationship, which is at least of my worries. Im really the furthest thing from a stresser besides my financial security. I take other issues as the come! I still don’t mind the house being in her name, I do not think Reddit will change my mind. Though I appreciate the concern, thank you!

 

[blastcat]

@snervel Fair enough! I really respect that you’re trying to learn and not just jump in blind so I’ll try to give as much advice as I can from my own experiences. I will say I think the problem is that assessing the situation isn’t as simple as applying a formula of we’ve been working x amount of years, can we buy? There’s a lot of nuance and some people that are only 6 months into their careers are absolutely ok to buy, while others who are 15 years into their careers still aren’t. How secure is your job field and current company? How much room for growth is there? What are prices like in your area? What’s your credit like? Will you start a family in this house? How are the schools districts? All sorts of stuff

My best advice is to sit down with all your numbers and look at what payment you can afford monthly in total before taxes and insurance and utilities, I think you said $1700 but that may have been for everything so adjust accordingly. Multiply that number by 90-95% (planning for the other 5-10% to be maintenance stuff) gets you 1530-1615. That is your mortgage amount.Then total up how much you have saved, multiply your mortgage amount by at least 3 as an emergency fund to set aside (I recommend 6 though). I’d add another $10k minimum to that to plan for any immediate items that need to be fixed/moving costs etc. Subtract that total from your savings and that’s what you have as a max down payment. Take that amount and the mortgage amount and plug them into a mortgage calculator online and it will tell you how much that gets you for purchase power, and then look around at listings in your area and see what that will get you. Take the time to research your areas property tax rates and how that amount goes up typically after the first year in your house as they reassess the tax amount when sales occur. Start talking to lenders and make sure you can get approved. Speak to insurance agents in your area about typical rates for coverage to get an idea there. Check utility rates (houses are way more expensive than apartments usually for this). Add up all those costs and see what it looks like and decide how comfortable you are with that.
Also talk to people you know who are homeowners and ask about maintenance things they do that you may not realize go with home ownership. You can also peruse subreddits like r/homeimprovement and that sort of thing. You’ll be surprised how many things go into maintaining a home that you don’t think of, for example I had zero clue that grout needs to be resealed every few years to help avoid moisture damage! Use the knowledge you gain from that research to look out for things that may be problems in homes you look at, or signs of a well maintained home. Learn about cost and ROI of updates to give yourself a better idea of what things in a home are deal breakers to have turnkey and what you can live with replacing yourself. When I bought my first place I didn’t place any value on a turnkey kitchen thinking I could easily paint the cabinets that I didn’t like. When I was ready to start that painting project I found very quickly as I did my research how much time and effort it takes to do it so it doesn’t look cheap and crappy and regretted how low I valued a kitchen I liked from the start. I think if you take the time to research all this stuff and use what you learn to be very intentional about your decision making you’ll be fine

Re: your name not being on the house, fair enough but I’ll leave you with one last consideration. It isn’t about hedging your relationship, it’s about you protecting your financial security

 

[snervel]

@blastcat This might just be the most helpful response of them all! Thank you!! We are currently having conversation every night before bed planning, and started really doing research. This is really good stuff to consider and will help me like the right decision from a financial stand point and an overall mental health stand point! Awesome

 

[2gethamagazine]

@snervel I second this about making sure your name is on the title. From personal experience, it just makes a potential messy break up less messy.

I was in a 4 year relationship when we decided on buying a house cause we were ready to take that next step. We wanted to get the house first and then get married so that we can have a place of our own to grow our wealth and future. 7 months into living together we broke up.

Having both of our names on the title, it was clear that we either sell it and split the profit or one of us buys the other out if they wanted to keep the house.

Mind you, both of our parents were good friends and we sat down at the table and talked about marriage after getting a house.

If you’re contributing, your name should be on the title.

 

[alwayscurious]

@snervel Wait until she graduates to look at buying. You guys might find that her job prospects are better somewhere other than where you are now.

 

[burningbush84]

@snervel You have not listed anything about median costs for the homes you think you can afford. Based on your rough outline it’s most likely going to be at or under 300k.

 

[snervel]

@burningbush84 Ideally mortgage payments no more than 1700. This way we still would have a good amount of cashflow! For the locations we have been looking though in good neighborhoods (meaning low crime) and houses we actually like the look and the inside we have found payments as low as 990 (this is insurance, principal and interest, taxes). This is not a forever home or a dream home.

 

[saskia]

@snervel Are you looking at tents?

I live in a LCOL area of sc and no payment would be that low even for a 1500 sqft ranch