Speaker 1: Episode three seventy three, How much House can You Afford?
Speaker 2: Welcome to the Brugal Friends podcast, where you'll learn to
Speaker 2: save money, embrace simplicity and life. Here your hosts, Jen
Speaker 2: and Jill.
Speaker 1: Welcome to the Frugal Friends podcast. My name is Jen,
Speaker 1: my name is Jill. And it is increasingly harder to
Speaker 1: afford a house. It is it's more affordable to rent
Speaker 1: in most places now than it is to buy. But
Speaker 1: if you still have your heart set on buying, you
Speaker 1: should and we are going to help you figure out
Speaker 1: maybe what is the best amount of house for you?
Speaker 3: Yeah, how much can you afford? It might be less
Speaker 3: house house than five years ago, But listen, if you
Speaker 3: didn't do it five years ago because it wasn't the
Speaker 3: right timing, it wasn't the season you were in, you
Speaker 3: don't need to stress about that. Things shift and change.
Speaker 3: We cannot tell the future, and there are still things
Speaker 3: we can do in walking out wisdom and discernment for
Speaker 3: what's going to be the best next step for us
Speaker 3: as individuals and for our families. So we're just here
Speaker 3: to give you what we know, what the internet has
Speaker 3: to say, and kind of weigh it out. What's going
Speaker 3: to be your best next step.
Speaker 1: Yes, but first, this episode is brought to you by
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Speaker 1: on that. I don't know the percentage they use. Again,
Speaker 1: it's a small percentage because that's cash back, But when
Speaker 1: you're making a huge purchase like a home, that can
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Speaker 1: dot com, slash Cashified, or just click the link in
Speaker 1: the show notes and thank you for supporting our sponsors
Speaker 1: in the friend Letter that helps us bring it to
Speaker 1: you three times a week for free with lots of
Speaker 1: tips to save money. Ways to get significant cash back.
Speaker 1: And if you're not getting the friend letter yet, definitely
Speaker 1: head to Frugal Friends podcast dot com to start getting
Speaker 1: that it's free. Sponsors allow us to keep it free
Speaker 1: for you.
Speaker 3: I love this one. You just recently told me about Cashified.
Speaker 3: Wish I had known about it when we did buy
Speaker 3: our house, and maybe they didn't exist yet.
Speaker 1: Then.
Speaker 3: I just know that we spend a great deal of time,
Speaker 3: probably more time than we should have, negotiating for the
Speaker 3: seller to give us like a thousand dollars towards closing costs,
Speaker 3: and in the grand scheme of things, like a thousand
Speaker 3: dollars probably wasn't worth all the time and energy of
Speaker 3: negotiation back and forth. But yeah, if we had just
Speaker 3: known about this, that could have helped a lot.
Speaker 1: Yeah, it wound much easier. So if you are wanting
Speaker 1: to buy a home, there are a lot of creative
Speaker 1: ways that you can make that fit in your budget. Again,
Speaker 1: we don't believe that you need to own a home
Speaker 1: in order to be financially secure financially free, but we
Speaker 1: don't believe it's a bad thing. It is something that
Speaker 1: is person to person different. So if you are the
Speaker 1: person who wants to own a home, then go with that.
Speaker 1: We have a couple other episodes to help you out.
Speaker 1: We've got episode three fifty six Frugal Side Hustle, Airbnb
Speaker 1: Rooms and co hosting. This was what Airbnb rooms, essentially
Speaker 1: renting out a room in your home on Airbnb. This
Speaker 1: is what Travis and I did when we first bought
Speaker 1: our home before we had kids, to help make our
Speaker 1: home more affordable. And then also co hosting is a
Speaker 1: way you can use Airbnb to make money without hosting anyone.
Speaker 1: It definitely does help if you have hosting experience, but
Speaker 1: you can be a digital co host and manage properties
Speaker 1: for Airbnb owners. So three fifty six, that's a really
Speaker 1: good one. And then episode two nineteen home buying tips
Speaker 1: in a crazy hot market. It's a little outdated, but
Speaker 1: we have a lot of tips that are still This
Speaker 1: is it'll help you even more because this we recorded
Speaker 1: when it was a seller's market and it's currently a
Speaker 1: kind of a buyer's market, but it's still it's it's
Speaker 1: come more to a buyer's market. But so these chips
Speaker 1: should help you even more so Episode two nineteen. But
Speaker 1: let's get into our first headline when you take to
Speaker 1: the internet and you google how much house can I afford?
Speaker 1: These are the types of things the Internet's going to
Speaker 1: give you, and we're going to talk about some things
Speaker 1: so you don't have to google. And also some of
Speaker 1: our opinions and the first article that comes up both
Speaker 1: are actually from bank Rate. They just have a lot
Speaker 1: of good home buying content, and this first one is
Speaker 1: should I buy a house now or wait?
Speaker 3: That is the question. I think. I've even been talking
Speaker 3: with a lot of friends about this, like they'll come
Speaker 3: to me have it because of this podcast. A lot
Speaker 3: of people know I have this podcast. I don't know.
Speaker 3: I mean, I'm kind of out of the game. I'm
Speaker 3: in a house currently, but it does feel I can
Speaker 3: feel the weight of that question, seeing how much has
Speaker 3: shifted in the last three years, some of the ebbs
Speaker 3: and flows, you can have that feeling of, well, is
Speaker 3: it going to get worse? Am I going to look
Speaker 3: back in three years from now and wish I had
Speaker 3: bought now? Or is it going to get better? Am I?
Speaker 3: Am I going to yeah, wish that I had waited longer?
Speaker 3: And I think this is the question we're all asking
Speaker 3: now or wait? This article I think has a really tempered,
Speaker 3: helpful approach, but they are citing that most would be
Speaker 3: buyers currently are picking the weight side of the equation.
Speaker 3: That the volume of existing home sales was down more
Speaker 3: than fourteen percent from October twenty twenty two to October
Speaker 3: of this past year of twenty twenty three, according to
Speaker 3: the Nationalciation of Real Litters, and according to the Fannie
Speaker 3: May Home Purchase Sentiment Index released in early November, and
Speaker 3: overwhelming eighty five percent of consumers believe it's a bad
Speaker 3: time to buy a house. And yet they're also citing
Speaker 3: some different reasons of why it might be looking a
Speaker 3: little bit better. So, you know, we were, as buyers
Speaker 3: in a constant disadvantage over the past few years, but
Speaker 3: things have started to look a little bit better for
Speaker 3: buyers in parts of the country. Certainly depending on where
Speaker 3: you're at in the United States, different pockets are looking different.
Speaker 3: So you've got days on the market, those figures are
Speaker 3: are up, so that is currently giving buyers more time
Speaker 3: to make an informed decision. So we are not in
Speaker 3: the thick of some of those pandemic days where you
Speaker 3: were waving inspections and pulling the trick, or you only
Speaker 3: had hours to make decisions and you were competing with
Speaker 3: ten other people and paying over asking price. We are
Speaker 3: starting to see it cool off a bit, which is great.
Speaker 3: But yeah, popular West Coast cities that had been suck skyrocketing,
Speaker 3: like Seattle and San Francisco, they saw double digit year
Speaker 3: over year declines. So this is giving a little bit
Speaker 3: more leverage to buyers. Of course, you've also got the
Speaker 3: issue now of increased interest rates. So at the time
Speaker 3: of recording, we are the average is just under eight percent.
Speaker 3: You're looking at about seven point nine percent, but we
Speaker 3: know day to day, month to month that has shifted
Speaker 3: and changed. We saw about six percent back in October
Speaker 3: twenty twenty three. Now we're kind of back up to
Speaker 3: just under eight percent. So these things we can't totally predict.
Speaker 3: I do think we are in a bit better times
Speaker 3: than maybe a year or two ago. Again, with that
Speaker 3: kind of time on the market, prices are cooling off slightly,
Speaker 3: you've got a little bit more negotiation power as a buyer.
Speaker 3: But again the downside is those interests, right, So these
Speaker 3: are the things that we're all weighing out, and so
Speaker 3: then when it comes to yeah, is it a good
Speaker 3: time to buy, they kind of have some helpful things
Speaker 3: to think through.
Speaker 1: Yeah, it's it is. Every home buying season has its
Speaker 1: unique qualities, right. So we purchased a house in May
Speaker 1: of well, April of twenty twenty two, and literally I
Speaker 1: put in I was comparing lenders at the end of
Speaker 1: March and getting rate locks and kind of going into negotiate.
Speaker 1: And while I was doing that is when the interest
Speaker 1: rates started skyrocketing. And so I locked in rate and
Speaker 1: went to talk to the lender and he's like, you
Speaker 1: need to go with this rate because you will not
Speaker 1: find this rate from any lender from here on out.
Speaker 1: And so we got really lucky in that. But we
Speaker 1: were buying at a time where inspections were being waived.
Speaker 1: We were, you know, at some homes we were offering
Speaker 1: sixty thousand over asking and still getting out bid. So
Speaker 1: we were it was such a stressful time. I almost
Speaker 1: I would prefer a season like this where you can
Speaker 1: take your time, you can negotiate the price. Ultimately, the
Speaker 1: price of your house won't change over thirty years. What
Speaker 1: you buy it at now is what it will stay at.
Speaker 1: Rates can change, and rates are now trending downward. It's
Speaker 1: still very high, making it unaffordable at some rates because
Speaker 1: houses our back upwards in price. So we had a
Speaker 1: few months where they were trending down, they are back
Speaker 1: trending up an increased price. So it's so these three, uh,
Speaker 1: these three qualities that bank rate lads out. If you
Speaker 1: do meet them and you want to buy a house,
Speaker 1: then it would be a good time to buy a house.
Speaker 1: If you don't meet these three qualifications essentially, then it
Speaker 1: probably is better to wait until you do. But each again,
Speaker 1: home buying season will have its unique qualities, and you
Speaker 1: have to the best time. It's sometimes the best time
Speaker 1: to buy a house was you know, always quote unquote
Speaker 1: five years ago, right, except for a few times in history.
Speaker 1: But we don't have that, and we cannot predict the future.
Speaker 1: So we can we can predict with some certainty what
Speaker 1: twenty twenty four is going to be like. It looks
Speaker 1: like house prices are going back up and interest rates
Speaker 1: are going down, So that may be good if you
Speaker 1: buy now. It may mean you can refinance sooner. But
Speaker 1: and you have more right now, you have more negotiating
Speaker 1: power for the home price than when interest rates go down,
Speaker 1: you will have less negotiating power because more buyers will
Speaker 1: will flood the market, so you have to kind of
Speaker 1: weigh those options. But if you can afford it, I
Speaker 1: would take more negotiating leverage on the home price. We
Speaker 1: definitely did not get that. We didn't overpay, but we
Speaker 1: definitely paid at the top. Like our home has not
Speaker 1: accrued any equity in the past two years. But we
Speaker 1: have this rate locked in that we can actually afford,
Speaker 1: and if we had to pay a seven percent interest rate,
Speaker 1: we would not be in this house. We can afford
Speaker 1: it because we're airbnbing the back part and it is
Speaker 1: a rental property ultimately for us. So that's my insight.
Speaker 1: So I'll go into this first. You need to answer
Speaker 1: yes to these three questions essentially, and if you can,
Speaker 1: now is the time to buy. The first is do
Speaker 1: you have excellent credit? Anytime you're borrowing money, Start by
Speaker 1: checking your credit score. The best deals on mortgages will
Speaker 1: be available to those with high scores of seven forty
Speaker 1: and above, and says in fact, the median credit score
Speaker 1: for mortgage borrows in the third quarter of twenty twenty
Speaker 1: three with seven seventy and if you are in the
Speaker 1: excellent range, you're not going to get any better rate
Speaker 1: than at eight hundred, than you are at seven seventy,
Speaker 1: and probably even seven forty. So once you're in that
Speaker 1: excellent range, you've pretty much tapped out for the low
Speaker 1: rates on your mortgage.
Speaker 3: Yeah, Number two is have you saved enough for a
Speaker 3: down payment? So, of course, in addition to meeting all
Speaker 3: of your regular expenses, your typical month and month spending plan,
Speaker 3: you need to be sitting on a sizeable chunk of
Speaker 3: change for a down payment. I will also add for
Speaker 3: closing costs. We'll get into some of those numbers in
Speaker 3: the next article. But the more you can pay upfront,
Speaker 3: the less you'll have to borrow, which then means the
Speaker 3: less interest you'll have to pay. So having plenty for
Speaker 3: a down payment is certainly going to make lenders feel
Speaker 3: more comfortable about loaning you money. It helps to have
Speaker 3: that cushion in case if something unexpected happens, So not
Speaker 3: just a down payment, but then even more left over
Speaker 3: after that. Again, not just for closing costs. But now
Speaker 3: as you're stepping into if this is the first time,
Speaker 3: if this is the first time for you being a
Speaker 3: home owner, you're going to run into all sorts of
Speaker 3: unexpected things when it comes to upkeeping a home. If
Speaker 3: you are used to renting and having your landlord pay
Speaker 3: for fixes as they happen, that's not going to be
Speaker 3: the case anymore. So I my personal recommendation is having
Speaker 3: at least five thousand dollars set aside for whatever you
Speaker 3: might run into with the house over the upcoming year
Speaker 3: or two. I know, for us, our heating and cooling
Speaker 3: system went out within the first couple of months of
Speaker 3: us moving into our home, so things like that can happen.
Speaker 3: Not to mention if there's any other fixes or asthetic
Speaker 3: things that you want to do to the home, having
Speaker 3: additional money set aside for that. So what you're down
Speaker 3: I know that they're kind of using just general terms.
Speaker 3: Have a sizable chunk of change enough money. Of course,
Speaker 3: some of the typical recommendation is twenty percent of the
Speaker 3: overall home purchase price would be a good down payment goal.
Speaker 3: Many people don't do that. The reason for doing twenty
Speaker 3: percent is not just to cut the amount that you
Speaker 3: are borrowing, but also that usually cuts out you don't
Speaker 3: have to pay private mortgage and insurance that PMI can
Speaker 3: add a monthly cost to your mortgage. Honestly, for us,
Speaker 3: we chose not to do twenty percent, and our PMI
Speaker 3: is only about thirty dollars a month, so it was
Speaker 3: more advantageous for us to keep cash in our pockets
Speaker 3: pay the thirty dollars a month than to shell out
Speaker 3: thousands more. That's going to have to be a personal decision.
Speaker 3: Of course, it depends on the type of loan that
Speaker 3: you're getting, how much of a down payment, but still
Speaker 3: the bigger the better, certainly because again you're borrowing less,
Speaker 3: which means you're going to pay less interest, and in
Speaker 3: a time when interest rates are fairly high compared to
Speaker 3: what we've seen over the last few years, that's going
Speaker 3: to be pretty advantageous for you.
Speaker 1: And we'll play around with some numbers in the next article,
Speaker 1: but essentially you need to have your down payment and
Speaker 1: your emergency fund set So, yeah, five thousand is a
Speaker 1: good number, or three at least three months of expenses
Speaker 1: in your emergency fund plus your down payment. In a
Speaker 1: setting like this, you can go with a lower percentage
Speaker 1: down payment and still have negotiating power. In more competitive markets,
Speaker 1: the person putting down more money will beat you out
Speaker 1: every almost every time, So think about that as you
Speaker 1: decide when to purchase, because right now you might be
Speaker 1: able to get away with three three and a half
Speaker 1: percent down. In the future you might have to go
Speaker 1: closer to five or ten percent, and houses will increase
Speaker 1: in price. So we were able when the market was
Speaker 1: really good, we did put three and a half percent
Speaker 1: down because yeah, same for us. It was we saw
Speaker 1: equity rising and saw that it was much better for
Speaker 1: us to pay PMI than it would to be to
Speaker 1: wait to save thousands more dollars. So PMI is great,
Speaker 1: and you can use the equity bill in your house
Speaker 1: to put towards a refinance to get PMI off, So
Speaker 1: I wouldn't worry about that. But if you're worried between
Speaker 1: saving three to ten percent, the earlier you buy, the
Speaker 1: lower your down payment, I think, and this is personal opinion,
Speaker 1: you'll have more leverage with your down payment.
Speaker 3: I like how they wrap up this article and saying like, ultimately,
Speaker 3: the decision of one to buy home is up to you.
Speaker 3: Life's going to go on whether the timing is perfect
Speaker 3: or not. If you're anxious to become a homeowner and
Speaker 3: you've met the criteria that we've just mentioned, and you're
Speaker 3: financially stable, you can go ahead and start house hunt.
Speaker 3: But if you're not feeling if it's making you feel uncomfortable,
Speaker 3: if you've not met this criteria, then you might want
Speaker 3: to lean more on the side of waiting. I think
Speaker 3: that's kind of the most helpful summary.
Speaker 1: Yeah, and then the third one is are you planning
Speaker 1: to stay in the home for a while, so beyond
Speaker 1: the purchase price, buying a home comes with closing costs.
Speaker 1: Like we mentioned, it comes with replacing water, heaters and
Speaker 1: furnaces and all of that one time transaction costs. You
Speaker 1: should be reasonably certain you won't move again anytime soon,
Speaker 1: or that you are willing to keep that property as
Speaker 1: a rental if you do move, And that's what we did.
Speaker 1: We bought another house and are renting out our old
Speaker 1: house because we wanted to buy a rental and they
Speaker 1: were too expensive, so we had to buy a bigger house.
Speaker 1: We had to upgrade when we didn't want to turn
Speaker 1: the back part of this house into a rental and
Speaker 1: use our original primary home as our you know, kind
Speaker 1: of the rental we wanted to buy. So it was
Speaker 1: a move that we made. I don't if I had
Speaker 1: it to do again, I wouldn't do it again. I'm
Speaker 1: just gonna be honest, I wouldn't do it again. It
Speaker 1: will turn out to be profitable for us in the end,
Speaker 1: but for me, I'm not a real estate investor. I've
Speaker 1: learned that about myself and I don't want to even
Speaker 1: have long term renters or airbnb. I'm just I'm done
Speaker 1: with it. So I would say, be very sure that
Speaker 1: you're going to stay in this house for a long time.
Speaker 1: You can rent it out possibly should you want to move,
Speaker 1: but you should not want to move if you are
Speaker 1: buying a house somewhere. So those are the three questions
Speaker 1: that you need to answer yes to. Do I have
Speaker 1: excellent credit? Have I saved enough for a down payment?
Speaker 1: Part B? Do I have also my emergency fund? And three?
Speaker 1: Are not planning to stay in this home for a while?
Speaker 1: And if you can answer yes to all those questions,
Speaker 1: then this could be the time to buy, and so
Speaker 1: we will look at costs, specific costs in our next article.
Speaker 1: Our next article is also from bank Rate and it
Speaker 1: is literally titled how much house can I Afford? And
Speaker 1: it starts out with a calculator that we will play
Speaker 1: around with, but then also has some guidance, some wisdom
Speaker 1: that you should think about when you are asking how
Speaker 1: much house it can afford.
Speaker 3: These calculators are so fun. It's amazing the tools that
Speaker 3: the internet has. You can just plug and play with
Speaker 3: these numbers. So to give an example to answer this tangibly,
Speaker 3: how much house can I afford? We're just going to
Speaker 3: go on some loose numbers here to give you a
Speaker 3: general sense, but certainly use this tool find yourself somewhere
Speaker 3: in here. So if we were to say, use some
Speaker 3: pretty straightforward easy numbers that an annual gross household income
Speaker 3: is one hundred twenty thousand, So if both you and
Speaker 3: a partner are working and bringing in gross income of
Speaker 3: one hundred twenty thousand, we know that that's not everybody,
Speaker 3: but it's a number we're plugging in, and that your
Speaker 3: monthly debt currently, let's say you are in a debt
Speaker 3: payoff right now of student loan debt or credit card
Speaker 3: debt of let's say five hundred dollars a month. This
Speaker 3: could also probably include car payment too, right.
Speaker 1: It's any debt, yeah, any, it's all minimum payment if
Speaker 1: your minimum payment's equal five hundred dollars a month.
Speaker 3: Total, So if it's more than that, you know, consider that.
Speaker 3: But so we're saying that this person, this fictional family,
Speaker 3: has five hundred dollars of monthly debt that they're paying off,
Speaker 3: and that they have twenty thousand dollars for a down payment,
Speaker 3: that the current interest rate available to them is seven
Speaker 3: point nine percent, and they are interested in a thirty
Speaker 3: year mortgage.
Speaker 1: This is seven point three Oh.
Speaker 3: Sorry, my eyesight is not great. Seven point three percent
Speaker 3: wouldn't that be nice? So what the calculator then spits
Speaker 3: out is that the recommended budget for price of a
Speaker 3: home that you could afford would be four hundred nineteen,
Speaker 3: eight hundred thirteen dollars. Let's just call it four to twenty.
Speaker 3: You could buy a home for four hundred twenty thousand
Speaker 3: dollars at that point, your monthly payment would be about
Speaker 3: twenty seven hundred dollars two thousand, seven hundred and forty
Speaker 3: one dollars, and that your estimated closing costs would be
Speaker 3: right around twelve thousand dollars. So that means, in addition
Speaker 3: to that twenty thousand dollars down payment we just mentioned,
Speaker 3: you'd have to also have twelve thousand dollars set aside
Speaker 3: for closing costs. These are, of course all estimates. This
Speaker 3: doesn't include different negotiations that you may make, and of
Speaker 3: course all the different numbers that you could be plugging
Speaker 3: into the calculator. It's also assuming certain tax rates and
Speaker 3: insurance rates. But depending on where you're looking at buying
Speaker 3: your property taxes, your monthly insurances. If you live in
Speaker 3: an area like US in Florida, and you're also required
Speaker 3: to get flood insurance, all of those things could also
Speaker 3: increase your monthly payments.
Speaker 1: So yeah, so this this calculator in this particular person.
Speaker 1: We did this off of the median home price in
Speaker 1: the US four hundred and twelve thousand dollars. So this
Speaker 1: is the income, debt, down payment, interest rate kind of
Speaker 1: that will get you the average home in America. It's
Speaker 1: not place to place, but this is kind of what
Speaker 1: you're looking at for quote unquote median and it includes
Speaker 1: a few things like property tax per month and homeowners insurance,
Speaker 1: but doesn't include PMI or HOA fees, so it's not
Speaker 1: all encompassing. But this is what you can expect. And
Speaker 1: if you have these different qualifications your maximum budget, they
Speaker 1: will give you a five hundred and twenty two thousand,
Speaker 1: they'll prove you for around five twenty two, depending on
Speaker 1: your credit score, and that'll give you a monthly payment
Speaker 1: around thirty four hundred dollars and B fifteen thousand in closing.
Speaker 1: But the way bank Rate is doing this is they
Speaker 1: run off. They recommend something called the twenty eight thirty
Speaker 1: six percent rule. So most financial advisors agree that people
Speaker 1: should spend no more than twenty eight percent of their
Speaker 1: gross monthly income on housing expenses and no more than
Speaker 1: thirty six percent on total debt. So the twenty eight
Speaker 1: thirty six rule is the home affordability rule that most
Speaker 1: financial advisors use. It means your mortgage payment should be
Speaker 1: that should be affordable. It says, let's oh, for example,
Speaker 1: let's say you earn four thousand dollars a month, and
Speaker 1: that means your mortgage payment should be a maximum of
Speaker 1: eleven twenty twenty eight percent of four thousand, and your
Speaker 1: other debts should add up to no more than one
Speaker 1: than four hundred and forty each month thirty six percent.
Speaker 1: So that is so you have I have more room
Speaker 1: for more debt than in the scenario we gave. But
Speaker 1: when I was playing around with the numbers, the more
Speaker 1: debt that I put into the calculator, the higher the
Speaker 1: price or the lower the price of the home that
Speaker 1: would be recommended, and I wanted to keep that as
Speaker 1: close to four to twelve as possible. So if you
Speaker 1: have more debt then you can certainly and the homes
Speaker 1: are less expensive than forour twelve, then that's fine. But
Speaker 1: think about the twenty eight percent rule. Take your gross
Speaker 1: monthly income, so not net. Take your gross monthly twenty
Speaker 1: eight percent of that is about what your mortgage payment
Speaker 1: should be. And they're taking They're saying mortgage payment, not PMI, taxes,
Speaker 1: all the s gross stuff, because you really can't predict
Speaker 1: that until the very end. So that's why they say
Speaker 1: all the calculators are going to give you just your
Speaker 1: mortgage payment. So instead of using thirty which is what
Speaker 1: most people have maybe heard of, use twenty eight of
Speaker 1: gross monthly income on mortgage, and then make sure your
Speaker 1: debts don't add up to more than thirty six percent,
Speaker 1: because your debt to income ratio is a huge factor
Speaker 1: in what you get approved for in the mortgage business.
Speaker 1: So really those are the two most important things to
Speaker 1: consider when figuring out how much you can afford.
Speaker 3: I do really like how they're also mentioning in this article,
Speaker 3: considering what your monthly payment will be. I think sometimes
Speaker 3: when people are going through this home buying process and
Speaker 3: they get approved for something, it's like, okay, great, the
Speaker 3: lender is saying I can get a house for four
Speaker 3: hundred thousand dollars, let's go shopping, but not always looking
Speaker 3: at some of what will this mean for me in
Speaker 3: my then day to day, month to month. So I
Speaker 3: do think it's important not just to look at that
Speaker 3: one number, but also the monthly cost, because if you
Speaker 3: could technically afford four thousand dollars a month, but let's
Speaker 3: say you're currently running and you're used to twenty two
Speaker 3: hundred dollars a month or less, and plus maybe you're
Speaker 3: not needing to pay for certain utilities depending on where
Speaker 3: you're at, I think it's really important to look at
Speaker 3: how much how pinched am I going to feel? How
Speaker 3: financially strained might this cause for me if I do
Speaker 3: move forward with this at this time. So I think
Speaker 3: that's an important consideration. And I think once you are
Speaker 3: looking at specific houses, you can get a general sense
Speaker 3: for what are the property taxes in that area, what
Speaker 3: are people paying for homeowners insurance in that area, and
Speaker 3: you can get this calculator to give you an even
Speaker 3: more accurate estimate, still going to be an estimate and approximate,
Speaker 3: but being sure that you feel comfortable with where you're
Speaker 3: at right now if you were to take on that
Speaker 3: monthly amount. Does this feel comfortable for you? Do you
Speaker 3: still feel like you have some financial cushion month to month?
Speaker 1: Mm hmm, yeah, I think looking at I think looking
Speaker 1: at that debt to income, it's going to be important
Speaker 1: for your month to month. It's also super important for
Speaker 1: actually getting approved for the mortgage. The last week before
Speaker 1: you close on a home is so stressful because the
Speaker 1: mortgage companies like to leave everything to the last minute
Speaker 1: and stress you out to the max. I Oh my gosh,
Speaker 1: this was so frustrating for me because I was trying
Speaker 1: to stay on top of everything. I was trying to
Speaker 1: really make sure we had everything right up front, and
Speaker 1: they just kept put me off and put me off
Speaker 1: until the very last minute, and it was so frustrating.
Speaker 1: So going in strong and knowing your debt to income
Speaker 1: ratio your DTI, and you can do this. They give
Speaker 1: on this article the calculations for it. But you can
Speaker 1: just search for a DTI calculator and playing around with
Speaker 1: those numbers and just being very sure that you stay
Speaker 1: under that. It's going to be really important because so
Speaker 1: everybody goes into home buying with a budget. Right, So
Speaker 1: we can do these numbers and say everything, but everyone's
Speaker 1: going to go in with their budget and their agent
Speaker 1: is going to show them houses that are more. It's
Speaker 1: just going to be a better house, like houses that
Speaker 1: cost more are better. But we have to be really
Speaker 1: practical when you are making this kind of housing decision.
Speaker 1: This is one of your big three housing, transportation, food.
Speaker 1: Housing will make the biggest impact in your financial freedom,
Speaker 1: how much you spend on it, how much equity is growing.
Speaker 1: All of that. Your primary residence isn't typically an investment,
Speaker 1: though some people will say it is, uh, but it
Speaker 1: does protect you against inflation like we've seen for the
Speaker 1: past five years. It does. It is a protection. So
Speaker 1: you really have to look at this like a business decision.
Speaker 1: And yes, we want to be in a safe neighborhood,
Speaker 1: and we want to have walls that are stable and
Speaker 1: all of these these are yes, these are the practical
Speaker 1: parts of the business decision. Uh. But we have to
Speaker 1: understand that windows can be replaced, tubs can be replaced,
Speaker 1: things can be replaced over time, things can be painted,
Speaker 1: wallpaper can be removed. I just removed a ton of
Speaker 1: it this weekend, you know. And these aren't all things
Speaker 1: you want to do. But if it keeps you in
Speaker 1: that debt to income ratio that puts you in a
Speaker 1: good monthly spot so that you can pay off your
Speaker 1: debt and invest, it's necessary. It's necessary to think that way.
Speaker 3: Yeah, and we are living in a time I know,
Speaker 3: some time, rent usually rental prices, yeah, are going to
Speaker 3: be No, here's what I'm saying. I think if buying
Speaker 3: a house is also going to help with your monthly amount,
Speaker 3: I think for some people a mortgage payment is going
Speaker 3: to be less than what maybe their rent price is
Speaker 3: because we're also seeing rental prices skyrocketing as well. So yeah,
Speaker 3: it's not I know we're saying that there's a lot
Speaker 3: to consider here, and man, this is so so expensive,
Speaker 3: But for some people this is going to be the
Speaker 3: best financial decision for them, both in the short term
Speaker 3: and the long term. And just to feel like, yeah,
Speaker 3: you're getting locked in at a certain rate rather than
Speaker 3: waiting and seeing and interest rates going up or being
Speaker 3: beholden to rent prices skyrocketing in your area.
Speaker 1: The last thing I wanted to mention on this one
Speaker 1: is how do you current mortgage rates impact affordability? I
Speaker 1: just want to touch on that one more time, because
Speaker 1: they have a part on here that says over the
Speaker 1: last year or so, the Federal Reserve has raised interest
Speaker 1: rates an attempt to bring down inflation, and it work.
Speaker 1: Inflation is much lower now than it was, though it's
Speaker 1: still not at the Fed's goal of two percent, but
Speaker 1: that cause mortgage rates to rise in turn, so increased
Speaker 1: rates often dampen the home buyer enthusiasm. We've seen that, however,
Speaker 1: if you're still in the market to buy a home,
Speaker 1: highest interest rates mean your monthly mortgage payments will be steeper.
Speaker 1: Even though mortgage rates aren't permanent, you still have to
Speaker 1: think in five year terms. You have to be able
Speaker 1: to afford this house for five years. So, as a example,
Speaker 1: with a five percent interest rate, the principle and interest
Speaker 1: on a thirty year, six hundred thousand dollars mortgage would
Speaker 1: be three thousand, two hundred and twenty per month. At
Speaker 1: eight percent, that figure would be four thousand, four hundred
Speaker 1: and two after dropping as low as three percent in
Speaker 1: late twenty twenty, and rates hit seven point eight in October.
Speaker 1: I think they're back, probably back at around that in January.
Speaker 1: But so that is over one thousand dollars a month.
Speaker 1: So no, it's one of those things like you will
Speaker 1: for the next two years. If you buy a house,
Speaker 1: you'll be paying probably one thousand more than you would
Speaker 1: have a couple of years ago. That's a lot, so
Speaker 1: you have to be at a financial place to do that.
Speaker 1: But once you are able to refinance in a couple years,
Speaker 1: that will go down drastically. So if you're if you're
Speaker 1: still on the rise of your career, then maybe it
Speaker 1: is a time to wait. But if you feel like
Speaker 1: you are kind of maxed out and maybe are only
Speaker 1: pursuing the inflation raises, which we always think you should
Speaker 1: be pursuing as much money from your employer, as much
Speaker 1: money from your industry as possible. We don't believe you're
Speaker 1: ever capped out. But if you believe that you're not
Speaker 1: going to be making twenty thirty percent jumps anymore, you're
Speaker 1: kind of at that level, then definitely it's it's a
Speaker 1: good time to buy a house, and you can play
Speaker 1: around with these calculators. Kind of like that to see
Speaker 1: to even play around with interest rates. I know in
Speaker 1: this example we seven point three, which is actually lower
Speaker 1: than what the average interest rate is, so that is
Speaker 1: accounting for excellent credit. But yeah, you'll have to play
Speaker 1: around with the budget calculator. We definitely like the one
Speaker 1: at bank rate because you can put in a lot
Speaker 1: of different things. But yeah, that's that's our recommendation to.
Speaker 3: Know what we also like to play around with. Keep
Speaker 3: it Lucy Goosey, see where it takes us.
Speaker 1: I love this one. It's it's always age as well.
Speaker 1: It's not like home buying episodes.
Speaker 3: The week.
Speaker 4: That's right, it's time for the best minute of your
Speaker 4: entire week. Maybe a baby was born and his name
Speaker 4: is William. Maybe you've paid off your mortgage. Maybe your
Speaker 4: car died and you're happy to not have to pay
Speaker 4: that bill anymore. Duck bills, Bffalo bills, Bill Clinon, this
Speaker 4: is the bill of the week.
Speaker 5: Hi, my name is Tony and I am from Wyoming.
Speaker 5: I started listening to your podcast about a month ago.
Speaker 5: I absolutely love it. We started our debt Snowball to
Speaker 5: try to get out of our debt and specific what
Speaker 5: has really helped me from your podcast is the frugal
Speaker 5: mindset and the values based sending, so thank you for that.
Speaker 5: My bill of the week is our entertainment category. So
Speaker 5: going through our debt snowball, we obviously wanted to cut
Speaker 5: back as many expenses as we could, and we started
Speaker 5: looking at all of the entertainment subscriptions. So we have,
Speaker 5: you know, all the things Hulu and Netflix and HBO
Speaker 5: and Disney and all of them, and what we ended
Speaker 5: up doing was deciding to pick one and cutting down
Speaker 5: on all the others. They're easy to cancel, they're easy
Speaker 5: to start up again, and so what we're going to
Speaker 5: do is keep one going at a time. When we
Speaker 5: get tired of the one that we picked that's our
Speaker 5: favorite at the for now, and our kids get bored
Speaker 5: of watching things and we get bored of watching things,
Speaker 5: then we will cancel that one and tick a new
Speaker 5: one and start that subscription backup. So that's my tip
Speaker 5: for saving some money in that category and limiting some
Speaker 5: of those subscriptions, and also, honestly, we're spending less time
Speaker 5: watching TV that way. Hope you guys have a great day,
Speaker 5: and thank you again so much for your podcast.
Speaker 3: Beautiful beautiful tone me. I love this bill, I mean,
Speaker 3: thanks for your encouragement. I'm so glad that mindset and
Speaker 3: values based spending has been particularly helpful in the debt
Speaker 3: payoff journey. And what an incredible tip here about subscription bills.
Speaker 3: I think this is one that, yeah, we can all
Speaker 3: take to heart. Jen, I know you do this, Eric
Speaker 3: and I have recently started doing this because you're right,
Speaker 3: it's so easy to resign up if there's a new
Speaker 3: show on some other platform that you want to see,
Speaker 3: then cancel what you're currently watching, pick up the other one.
Speaker 3: It's like, we can't be watching this multiple things at
Speaker 3: one time, and I think it can help us to
Speaker 3: just find what is enough be content even if there
Speaker 3: are multi people in the house. How can we negotiate,
Speaker 3: find one platform at a time that's gonna entertain us
Speaker 3: and switch around. There's there's no problems with switching around.
Speaker 3: I love this so much.
Speaker 1: We just canceled Disney Plus because it was going up
Speaker 1: in price so much, and we will will get it
Speaker 1: again when our our you know shows come back and
Speaker 1: we'll be able to binge them. There was a. I
Speaker 1: can't find the image now, but I just recently saw
Speaker 1: an image of how many pieces of content each streaming
Speaker 1: service has and it was actually Prime has more content
Speaker 1: than any other streaming service out there. So I think
Speaker 1: the type of streaming service also has something to do
Speaker 1: with it. The variety. If you're an Amazon Prime member,
Speaker 1: I'm not so. I think Netflix was the second most,
Speaker 1: so thinking like, oh, I'll just get one at a
Speaker 1: time and go in order of these. You know the
Speaker 1: amount of content in each, and I wish I could
Speaker 1: find it, but I'm having trouble, but maybe you can.
Speaker 1: You can google it at a later date.
Speaker 3: If you all listening, want to submit your bill if
Speaker 3: it happens to be a tip about ways simple ways
Speaker 3: you're learning to save money. If it's about paying off debt,
Speaker 3: if it's about a bill you don't mind paying. If
Speaker 3: it's about a dollar bill you found in the middle
Speaker 3: of the road. If it's about a person nay bill.
Speaker 3: If you are Bill Gorugal friendspodcast dot com, slash bill,
Speaker 3: we cannot wait to hear it. And now it's time for.
Speaker 1: All right, So for today's vulnerability Round, describe your dream house. Jill,
Speaker 1: you know Jen.
Speaker 3: In previous years, I probably would have been such a
Speaker 3: dreamer and said, a really beautiful home right on the
Speaker 3: water with a boat dock and a pool in kind
Speaker 3: of an l shape with a bit of a courtyard.
Speaker 3: But I'm not going to say that anymore, because Okay,
Speaker 3: the real world has happened, and I understand that if
Speaker 3: you live on the water, you're responsible for the sea
Speaker 3: wall and that needs to be redone every so often,
Speaker 3: and that's going to be tens of thousands of dollars.
Speaker 3: And to live on the water is going to increase
Speaker 3: your property tax and insurances just astronomically that by the
Speaker 3: time your house is paid off, you're still paying far
Speaker 3: more than a mortgage would ever be just to live there,
Speaker 3: just because of the taxes and insurances that you still
Speaker 3: are going to maintain. Huh. So I'm I'm not a
Speaker 3: glasses glass half full on this one. But but you know,
Speaker 3: what it's doing is leading me to contentment and finding
Speaker 3: my enough And so my dreaming big now is just saying,
Speaker 3: you know what, my house, my house with a few
Speaker 3: more improvements, is going to be where I probably live
Speaker 3: for the rest of my life because of the state
Speaker 3: of things. Wow, house, But I'm if I could add
Speaker 3: a pool, just a small little plunge pool, with a
Speaker 3: finished garage. So that was more than we even thought
Speaker 3: we could have when we bought this house. Having a
Speaker 3: detached garage was not even on my list of things,
Speaker 3: because I didn't think I'd ever be able to afford it.
Speaker 3: It just so happened to have a detached garage, which
Speaker 3: is awesome. Someday I'd love to finish that off into
Speaker 3: some usable space. That would be great if I could
Speaker 3: have a pool and a finished garage, and if I
Speaker 3: could be so bold as to request that there's no
Speaker 3: more increase on our property taxes or insurances, that would
Speaker 3: be my dream. That's me dreaming big. It's not going
Speaker 3: to happen, but if you're asking me to dream, that's
Speaker 3: my dream. That's my new dream. I'm not on the water,
Speaker 3: I'm not paying for new sea walls, but that's what
Speaker 3: i'd love.
Speaker 1: Your Joss is a dream. I love your house, so
Speaker 1: thank you would agree with you.
Speaker 3: I mean, we've made it into something we love, that's
Speaker 3: for sure.
Speaker 1: Oh it's beautiful, it's gorgeous. So my dream house four bedrooms,
Speaker 1: two bathrooms, one pool, and a finished garage. I have
Speaker 1: to put that in there. For Travis, that is his dream,
Speaker 1: and so so we the state of things, this is
Speaker 1: not our dream house. This is not where we want
Speaker 1: to be long term. We the thing was is that
Speaker 1: we loved where we lived. We did not want to
Speaker 1: leave there. We just wanted to get an income property
Speaker 1: and have that and I don't know where we lost
Speaker 1: our way. Somewhere in early twenty twenty two, we lost
Speaker 1: our way and we realized that. I got so angry
Speaker 1: the first half of twenty twenty two. I was so
Speaker 1: angry because no normal person could buy a house under
Speaker 1: four hundred thousand dollars. It was infuriating. We put an
Speaker 1: offer after offer after offer, and that's not even the
Speaker 1: average home price in Florida. We were trying to buy
Speaker 1: the average home price, and we couldn't get approved because
Speaker 1: all houses at that price were being bought in cash
Speaker 1: by investors, either individual investors or hedge funds, mostly like
Speaker 1: high volume individual investors in our area. And it made
Speaker 1: me so mad.
Speaker 3: Yeah, she was that.
Speaker 1: I was like, I bought a home. I think out
Speaker 1: of spite at that point, I know I really did.
Speaker 1: They say don't make emotional purchases because you're in love
Speaker 1: with something you can't afford. I made an emotional purchase
Speaker 1: because I was so mad that that local people who
Speaker 1: wanted to get ahead financially could not get into the market.
Speaker 3: You were just like, you will not have this house.
Speaker 3: I'll have it.
Speaker 1: So we had to go higher. We had to buy
Speaker 1: a half million dollar home and move into it so
Speaker 1: that we could afford the mortgage, so we could get
Speaker 1: a convention loan. I mean, you don't have left to
Speaker 1: put down. But we would not afford this as a rental.
Speaker 1: In order to get into this house. It had to
Speaker 1: be a conventional loan with three and a half percent down.
Speaker 1: That's all we could afford. So we had to move
Speaker 1: into it at that point and leave the house that
Speaker 1: we love. And this is more than you ask for.
Speaker 1: But we're like a little angry.
Speaker 3: If we talk about houses. I think every episode we've
Speaker 3: done on houses in the last three years, you're going
Speaker 3: to get a little bit of angry and unhinged John
Speaker 3: and Joe.
Speaker 1: Yeah, from us, But but so I I we've always
Speaker 1: had this, you know, four bedroom, two bath, finished garage thing.
Speaker 1: I dream of a pool, but I would also take
Speaker 1: friends with a pool neighbor with a pool, and and
Speaker 1: I just don't know if it's going to happen at
Speaker 1: this point, which is sad because we were doing everything right,
Speaker 1: everything we were told to do. And yeah, I just
Speaker 1: don't know who happened. Because this is a fixer upper
Speaker 1: and we are fixing it up. We will financially come
Speaker 1: out on top, but not in the way we want to.
Speaker 1: So that's just frustrating.
Speaker 3: Who knew asking us to describe our dream house this
Speaker 3: is going to lead to such just pessimism. We are slat.
Speaker 3: We're solidly in our thirties, just catapulting towards sixty when
Speaker 3: we just believe that there's no hope for anything else.
Speaker 1: Well, yeah, driving straight into mediocrity at a very high speed.
Speaker 1: But there any other thing you.
Speaker 3: Be hopeful about? Yes, like the rest of our episodes.
Speaker 3: Maybe maybe go back in the archive for something a
Speaker 3: little bit more lighthearted. And thanks for your kind reviews
Speaker 3: that are still keeping us afloat. It's a hopeful thing
Speaker 3: like this one from habarn says you all need a
Speaker 3: tour that's fun. That's a fun suggestion forgal Friends podcast
Speaker 3: is an entertaining and informative show that just feels like
Speaker 3: you're chatting with some old pals, some older and older pals.
Speaker 3: Thanks to Barn, I don't have a lot of friends
Speaker 3: I can discuss my debt free journey with. So it's
Speaker 3: so fun to listen to y'all. Y'all have made my
Speaker 3: commute and runs more enjoyable and efficient. If you're ever
Speaker 3: in Houston, you've got a friend in me. Hey, this
Speaker 3: is the next? Is this the I feel like a
Speaker 3: lot of people have been suggesting we should go on tour,
Speaker 3: or maybe I just suggested it because we've got a
Speaker 3: lot of awesome fans. There's a lot of people in
Speaker 3: Australia who listen to So we're going to go to
Speaker 3: Texas in Australia and maybe buy a house there, you know,
Speaker 3: old tour maybe will find more affordable housing.
Speaker 1: Nope, thank you for listening. If you enjoyed the show,
Speaker 1: please take a minute to leave a race a review
Speaker 1: on Apple Podcasts and Spotify. It helps potential new listeners
Speaker 1: know what our show is all about. Please don't let
Speaker 1: them know how sad we are.
Speaker 3: Don't face it solely off of this episode. Also listen
Speaker 3: to other episodes and then leave us a review. Okay,
Speaker 3: See Next.
Speaker 1: Time by Google Friends is produced by Eric Sirianni.
Speaker 3: Oh Jen, Yeah yeah.
Speaker 1: We just removed wallpaper this weekend, you know, I told you,
Speaker 1: and I primed the walls. I'm gonna paint as soon
Speaker 1: as we're done here.
Speaker 3: WHOA, Okay, well, color.
Speaker 1: That's what I have to look forward to. White.
Speaker 3: Yeah, we all love white.
Speaker 5: White.
Speaker 1: It's such a good it's actually, if I could be specific,
Speaker 1: it's alabaster.
Speaker 3: Yes, it is, of course it is. That's that's what
Speaker 3: we recommend. H That's what I mean.
Speaker 1: I went with pure white because I'm psycho. Are You're deranged?
Speaker 1: But I a little bit of gold and black. I
Speaker 1: think there's gold and black.
Speaker 3: In Alabaster's got a nice bit of a little bit
Speaker 3: of cream to it.
Speaker 1: Yes, I love I love this version of cream and
Speaker 1: it is a fantastic paint. We're not sponsored by Sherwin
Speaker 1: Williams or the color Alabaster, but it's a good one.
Speaker 3: I would be. I wouldn't turn it down, I know, right.
Speaker 3: I'm excited for my my Backsplash tile samples are arriving
Speaker 3: today because this one is also still not done with renovations,
Speaker 3: but we will start to post some before and afters
Speaker 3: on our Instagram page. If you're still with us, you're
Speaker 3: you're in this podcast enough to probably be interested in
Speaker 3: those before and after so follow us on Instagram, m.
Speaker 1: HM at Frugal Friends podcast, and keep following at Modern Frugality.
Speaker 1: I'm still doing No Spend January. Hey, Yeah, that's great.
Speaker 1: That's still happening. Yeah, we're recording this in December, so
Speaker 1: I'm not I haven't done it yet, but at time
Speaker 1: of publish, I'll be in the thick of it. So
Speaker 1: if we're walkinging, we got to be in it together
Speaker 1: because this is the thick of it.
Speaker 5: So