Good idea to buy significantly below budget?

[Anonymous]

Hi all,

We have been approved for a home loan with Wells Fargo up to 400k and with a lending company for even higher (475k).  We live in California (Los Angeles County).

We found an excellent condo in the complex we have had our eye on - two bedroom, one bath, two car garage and an actual fenced yard.  This is hard to find in our area.  The neighborhood is nice, schools are great (we are in a suburb, not LA proper), etc.

Price is $330k.  We are offering $333k.

I make 60k base and around 24k commission.  I have not been commission for two years so the $24k can not count as income towards loan.  My husband makes 40k base and has a 40k trust income per year.  No CC debt at all, around $50k of available credit.  Only monthly debts are my car payment of $377 (owe $15k, relatively new) and $206 student loan ($11k balance).  My middle mortgage score pulled by WF was 736 and husband's was 804. 

This condo will be well below budget.  We want to have money to save, put towards retirement, travel, etc.  Is it ridiculous to go this low when we could buy something much bigger?  We do not want to be house poor, but then I find myself questioning if we are being TOO frugal...

[Anonymous]

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wrote:

Hi all,

We have been approved for a home loan with Wells Fargo up to 400k and with a lending company for even higher (475k).  We live in California (Los Angeles County).

We found an excellent condo in the complex we have had our eye on - two bedroom, one bath, two car garage and an actual fenced yard.  This is hard to find in our area.  The neighborhood is nice, schools are great (we are in a suburb, not LA proper), etc.

Price is $330k.  We are offering $333k.

I make 60k base and around 24k commission.  I have not been commission for two years so the $24k can not count as income towards loan.  My husband makes 40k base and has a 40k trust income per year.  No CC debt at all, around $50k of available credit.  Only monthly debts are my car payment of $377 (owe $15k, relatively new) and $206 student loan ($11k balance).  My middle mortgage score pulled by WF was 736 and husband's was 804. 

This condo will be well below budget.  We want to have money to save, put towards retirement, travel, etc.  Is it ridiculous to go this low when we could buy something much bigger?  We do not want to be house poor, but then I find myself questioning if we are being TOO frugal...

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What's that?

[Anonymous]

The ancient rules on mortgages that held up well forever (and still do) are House Price = Gross Income x 2.5 and make sure to do 20% down.

So your gross income is either $164K or $140K.  Let's take the smaller amount:

House Price = Gross Income x 2.5

House Price = $140K x 2.5

House Price = $350K

If you're offering $333K that's even better -- and if you can put $66K down, you will likely never have a mortgage problem for the next 30 years.

Congrats on holding yourself back from what the banks want to lend you!

[Kree]

Married.

Two bedroom.

Good school district.

Sounds like you have a child, or are planning to have a chid or children.  The only reason I would suggest looking higher is for further familial growth, but if 2 bedrooms is enough, then kudoes on making a smart purchase.

[Anonymous]

No kids yet, but we do plan to start trying this fall for one.   We are definitely undecided on having more than one child, at least biologically and would probably adopt a second child in the 2-4 year old range.  We were planning to live in this unit for around 4-5 years (at least four MINIMUM) and then either sell or rent it out.  We would lean towards renting if the HOA approves and the compex is not at max capacity for rentals.

[iced]

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wrote:

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wrote:

Hi all,

We have been approved for a home loan with Wells Fargo up to 400k and with a lending company for even higher (475k).  We live in California (Los Angeles County).

We found an excellent condo in the complex we have had our eye on - two bedroom, one bath, two car garage and an actual fenced yard.  This is hard to find in our area.  The neighborhood is nice, schools are great (we are in a suburb, not LA proper), etc.

Price is $330k.  We are offering $333k.

I make 60k base and around 24k commission.  I have not been commission for two years so the $24k can not count as income towards loan.  My husband makes 40k base and has a 40k trust income per year.  No CC debt at all, around $50k of available credit.  Only monthly debts are my car payment of $377 (owe $15k, relatively new) and $206 student loan ($11k balance).  My middle mortgage score pulled by WF was 736 and husband's was 804. 

This condo will be well below budget.  We want to have money to save, put towards retirement, travel, etc.  Is it ridiculous to go this low when we could buy something much bigger?  We do not want to be house poor, but then I find myself questioning if we are being TOO frugal...

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What's that?

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Agreed, with homes there’s no such thing. I make 3x what the OP does and bought half as much house. You’re not that frugal.

[CreditInspired]

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wrote:

Hi all,

We have been approved for a home loan with Wells Fargo up to 400k and with a lending company for even higher (475k).  We live in California (Los Angeles County).

We found an excellent condo in the complex we have had our eye on - two bedroom, one bath, two car garage and an actual fenced yard.  This is hard to find in our area.  The neighborhood is nice, schools are great (we are in a suburb, not LA proper), etc.

Price is $330k.  We are offering $333k.

I make 60k base and around 24k commission.  I have not been commission for two years so the $24k can not count as income towards loan.  My husband makes 40k base and has a 40k trust income per year.  No CC debt at all, around $50k of available credit.  Only monthly debts are my car payment of $377 (owe $15k, relatively new) and $206 student loan ($11k balance).  My middle mortgage score pulled by WF was 736 and husband's was 804. 

This condo will be well below budget.  We want to have money to save, put towards retirement, travel, etc.  Is it ridiculous to go this low when we could buy something much bigger?  We do not want to be house poor, but then I find myself questioning if we are being TOO frugal...

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For me, not being house poor says it all.

And since this condo is way below budget and you've had your eye on it, I think go for it. IMHO, contributing the maximum amount to both of your retirement accounts makes sound sense. Also, setting up an emergency spending account is good.

GL2U on whatever you decide to do.

[Anonymous]

To me this would be an easy decision. You could pay the home down much faster and have lots of equity in it . Plus put more away in savings.

Especially since you love the house and the area.

[Anonymous]

I understand you may not think I am that frugal.  This is definitely frugal for Los Angeles county.  A single family home in our region is $500k+.  Most condos are running $400k+.

We would love to move out of state as many young people are doing this in California.  However, our families are all within 30 miles and we are very close to them. 

Edited to add: THANK YOU ALL FOR THE GREAT ADVICE!  I appreciate every single response.  We put an offer on the house yesterday afternoon.  It's been verbally accepted and we are waiting on her counter with a home of choice contigency.  Unfortunately, she did not get the condo she wanted (outbid by a cash buyer which happens a lot where we are, or everywhere I suppose).  We are in a good situation and can wait for her to find something.

[iced]

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wrote:

I understand you may not think I am that frugal.  This is definitely frugal for Los Angeles county.  A single family home in our region is $500k+.  Most condos are running $400k+.

We would love to move out of state as many young people are doing this in California.  However, our families are all within 30 miles and we are very close to them. 

Edited to add: THANK YOU ALL FOR THE GREAT ADVICE!  I appreciate every single response.  We put an offer on the house yesterday afternoon.  It's been verbally accepted and we are waiting on her counter with a home of choice contigency.  Unfortunately, she did not get the condo she wanted (outbid by a cash buyer which happens a lot where we are, or everywhere I suppose).  We are in a good situation and can wait for her to find something.

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Totally understand, and the all-cash frenzy is in many places. In our neighborhood, anything over 500 square feet is running at least $650k, but I would still not borrow more than $200k of it. The good news is that with the amount you're saving, when you're ready to buy your next home in 5 years you should be in a position to put a large down payment or just pay cash outright for the home and be the guy who outbid you this time around.