Deciding to Buy A House
In February 2018 I started my first job as a software engineer and I went from a teacher’s salary of $40,000 a year to an engineering salary of over $100,000 a year. I had envisioned that with all this new money, I was ballin and I’d be able to live so much more comfortably than before. I thought I’d be able to vacation comfortably, eat out comfortably, go on fun adventures like wine tasting or museum hopping, take mini 2-day vacations, have a nice apartment, help friends and family with money when they need it, donate to many different non-profits, save at least a few hundred dollars a month, and do all of this without incurring new debt. But I very quickly realized that my 6 figure salary was not enough to do all that. Not even close. I made decent money but I was not rich. My credit card debt was slowly growing and living in Oakland California came with a steep price. My small apartment costed $2300 a month just for rent and it was virtually impossible to find anything cheaper within 1 hour of Oakland. As of February 2019, the average rent for a 1 bedroom apartment in Oakland is now $2560/month. In order for me to live in Oakland as comfortably as I wanted to, I’d have to make 2-3x what I was making and it was going to be years before I could ever hit that type of income.
In order to get closer to living the way I wanted, I needed to either drastically reduce my expenses by at least $1000k a month or find an alternative stream of income like a side business or a second job. I considered options such as moving into a communal house or getting a large house and becoming the master tenant. But the first is really difficult for someone with my income and the second is too expensive to get off the ground.
I’d always seen homeownership as an important part of my process of building wealth. It would allow me to build equity and lower my expenses by having tenants. Buying a home in Oakland was out of the question because the average home is over $715,000 and many of these homes are falling apart. I knew I wanted to stay with my company, which is headquartered in Atlanta, and Atlanta’s housing market is much more affordable.
The First Steps
Assessing My Risks
Most financial advisors will tell you to have 6 months of income saved up before you even consider buying a house. This is the “pragmatic” and safe approach. Many people have been unlucky enough to buy a house and then lose their job or become sick, resulting in a default on their loan and home foreclosure. I understood that I would not have 6 months of income saved up (that’s more than $50,000) and that I wouldn’t have that type of money any time soon. In my current situation in Oakland it would have taken years for me to save that much and even more years to then save for a downpayment on a house.
I assessed my situation and how I could make a home purchase less risky. I was working at a stable and profitable company that would likely not have random or surprise layoffs anytime soon. The only way I would lose my job is if I had poor performance, so there’s no room for me fuck up at work. My work provides disability insurance which means if I’m in the hospital for some reason and cannot work, I’ll continue to receive 60% of my income. And I have enough life insurance that my family would be able to finish paying off the house if I die. There were also ways to make sure I had assistance with the mortgage. If I bought a house with enough space to have multiple tenants, then I would significantly increase my income and create a sort of safety net for any unforeseen circumstances in which I cannot pay the full mortgage. After thinking through all of this, I decided to go against conventional logic and take a risk.
How much can I save?
Once I decided that I wanted to buy a house I calculated how much money I thought I could save in a year. I knew I’d be getting my end of year bonuses and my tax returns. If I did that plus rent out my second bedroom, I could save about $10,000 and if I waited a full 2-3 years I could save closer to 20k. I did end up getting a roommate but after the first month she wasn’t able to pay rent anymore and after about 3 months I asked her to move out. There were a few setbacks like this along the way.
How much I can afford to pay monthly in mortgage expenses?
I then determined what a reasonable budget was for a mortgage. Even though I planned to get roommates, I knew that I needed a mortgage that I could afford to pay on my own if I ever had to. So I set $1500/month as my target and $2000/month as my maximum.
What price point can I afford?
The next step was to speak to a mortgage Broker on the phone. I explained what my income and credit score was and he gave me an idea of my options for a loan. He told me that based on my credit score of 660 something, an FHA loan would be my best bet. FHA loans are government backed loans for people with subpar credit scores who would likely get charged extremely high interest rates if they got a private loan. FHA loans also allow for a downpayment as low as a 3.5%. The only downside is that if your downpayment is under 20%, you are required to pay homeowners insurance for the entire length of your mortgage.
Then started looking at houses online. I looked at homes all over the Atlanta Metro Area with 3-5 bedrooms and got a feel for the general pricing options. On sites like Realtor.com and Zillow you can estimate what your monthly mortgage would be for certain houses based on the size of your down payment. I played around with the numbers a lot. How much would a mortgage be if I put 20k down on a 300k house? What if I put 20k down on a 200k house? What if I put 10k down on a 200k house? At some point my mom offered to give me $10,000 towards my down payment which allowed me to speed up my timeline. By October 2018 I was so excited to buy a house I decided I’d take my mom’s gift and my end of year bonuses, and aim for an early 2019 move. My max budget was 300k but my target price was 250k. My calculations determined that a 4-5 bedroom and 3-4 bathroom house would allow me to comfortably have two roommates plus an office and/or guestroom, which would give me all the comfort and additional income that I was looking for.
Determining Where I Want To Live
The next step was to find a realtor. During a work trip to Atlanta in October 2018 I met with a co-worker recommended realtor and explained to her what I was looking for. She then gave me a list of neighborhoods to visit. My mom and I (she had flown in from Miami to meet me) spent two days driving around to all the different neighborhoods and neighboring cities to assess the vibes. We explored gentrified areas, an upper middle class suburban city named Dectaur, and a few areas with lots of abandoned homes/buildings and small traces of gentrification. Eventually we happened upon this area called Cascade Heights in Southwest Atlanta and both my mom and I fell in love. It’s on the edge of the city perimeter but the area was stunning with beautiful overgrown trees, lots of beautiful shrubbery, wide roads, and very large houses on large lots of land. I could tell just by the feeling of being there that THIS was where I wanted to live. And after doing some research I learned that Southwest Atlanta has historically been THE black upper middle class part of Atlanta. Which was perfect. I wanted to live in a nice home AND live in a black neighborhood, which ruled out pretty much every where else.
Closing on a House
Once I found the house I wanted to make an offer on I had to decide with my Realtor what to offer. The house was priced at 286k and we made an offer of 265k hoping that the seller would counter offer with 270k or 275k. It just so happened that on that same day someone else made an offer. So I had to decide what was the highest price I was willing to pay for that house, since I would have no idea what the other buyer was offering. My new offer was 286k and it was accepted. Before all of this I had already started collecting the paperwork I would need for my loan application. This included tax documents, pay stubs, bank account statements, salary/income verification, and more. Once my offer was accepted I was able to immediately complete my application for the loan.
While the application was processing I had to move forward with additional steps like hiring a home inspector to inspect the house. His report identified about 40-50 different issues with the house. We negotiated with the seller to fix the majority of issues except a handful of items.
A Breakdown of the Financials
- Purchasing Costs Total: 26,600
- Closing costs $17,000 (includes downpayment)
- Inspection & Re-inspection $800
- New Furniture $2000
- Moving across the country $2000
- Blinds $1200
- Security $1600
- Washer, Dryer, & Fridge $2000
- Where did the money come from? Total: 22,900
- $11,000 from mom & dad
- $6000 from bonuses
- $4000 from tax return
- $1900 from returned apartment security deposit
- The rest was scraped together from my monthly income and credit cards
- Current Monthly Expenses Total: $2457/month
- Mortgage, taxes, & homeowner’s insurance $1977
- Bi-Monthly Cleaning Services $180
- Internet $60
- Security $60
- Water $40
- Electricity $60
- Gas $80
- Yard maintenance $idk yet
The Blessings and Woes of Homeownership
Homeownership has been amazing so far. I live in a 5bedroom/4.5 bath house with a 2 car garage on almost 1 acre of land. The neighborhood is just so beautiful and GREEN which is really nourishing for my spirit. As you can see in the unedited picture above, My backyard overlooks a stunning green uninhabited forest. There’s so much space for me and for my dog, especially outside. I can’t wait to landscape my front and backyard where I will plant lots of flowers, fruits, and vegetables. I also want it to be a great space for hosting parties and gatherings.
I have enough space to have 2 roommates plus a guest room and an office. Having a guest room was super important to me. I needed to have a home that I could open up to friends and family. It’s also large enough that if I ever lost my job or decided to take a break from working, I could get 1 or 2 more roommates and have the mortgage covered.
My two roommates give me an additional $1600/month in income. My goal is to save this money and eventually invest in another rental property. It has not been easy to save at the moment because I still have a lot of expenses associated with the house. Addressing some of the issues that the sellers wouldn’t fix is costing money, such as re-seeding the lawn and adding some grading to the back of the house (landscaping stuff). This, plus putting down stone and mulch in some parts of the yard is going to be about $1500 which will have to be done slowly over time.
On top of that, my basement bathroom is having plumbing issues so the shower, toilet, and washing machine cannot be used right now. In the middle of dealing with that the basement started to flood as a result of a very strange storm last week that is affecting people all over Atlanta. Addressing the plumbing and flooding issues is going to cost a few thousand dollars. $2000 for emergency water removal to ensure that mold doesn’t begin to grow under the floor or in the walls. Another $1000 for a plumber to breakup the blockage in the downstairs bathroom and send a camera down into the drainage pipes to see if there’s a larger systemic issue. If the issue is serious and will lead to recurring blockages then I have no idea what it will cost to fix that.
Homeownership has come with its challenges and I haven’t been able to save yet in the way that I would like to. But I know that in a few months, all of these issues will be addressed and it will be smooth sailing from there. Eventually I’ll have enough money saved up that an emergency issue will not require me to drain my entire savings. That is the goal–to be prepared for difficult times and still have enough saved to invest in building wealth and financial security.