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  • How big is this mistake

    I'll admit, i didn't do my homework and much of this decision was emotional at the time.

    First time home buyer for primary residence. Wanting to buy a house because i expect to stay in the area for a long period of time (5+ years) and my rent is set to increase (1275 to 1425) in the next few months. Would like more space than what we have in our current apartment. I also think that prices in my area will likely not drop in the next year so i was thinking of pulling the trigger sooner than later.

    Ended up offering 40k over asking on a 3bed 2 bath (listed as 269k, buying at 309k) due to suggestion from realtor for aggressive initial offer (285k) with 1k escalation clause since wife and I like the house and apparently there were 10 other offers. Inspections waived. 10k earnest money deposit. The roof, water heater, windows, and sewage were replaced/looked at within the last 2 years. kitchen and master bathroom remodeled in the last 5 years. appraisal came back at 310k. FWIW, zestimate is 286k. Mortgage would be 15 year, 2.99%. No HOA fees, total monthly payment would be 2090$ including mortgage and taxes, not including private garbage disposal services and utilities.

    We like the house because of the backyard, size (0.41 acres, finished basement of 750 ft + 1920 of other livable sq ft), distance between neighbors. So we got pulled into what the realtor was suggesting at the time. It didn't seem too out of the norm considering all the wild stories of what houses are going for.

    Now that the hype has died down a bit, i feel like I'm being too flippant with my money (essentially a new car) and that I'm going to be screwing up my future self. Other houses in my area with similar specs of bed/bath and sq footage are listed at and/or sold for around this much (anywhere from 285k up to 350k) in the past 12 months.

    About me: 2nd year attending. went from salary of 195k to 205k. expecting to go up to 215-220k in the next year. I have no student loans, about 4k in cash, 80k from a UTMA account from my parents, 140k combined in 403b/457b, 25k in Roth IRA, and 45k in taxable account. Wife has -30k of student loan debt, salary of about 65k, 15k in 403b, around 2k in cash. No kids yet, probably not for at least 5 years. I save 50% of my gross income.

    My question: Should I back out of this deal and wait to see what other houses come up? I'd potentially lose 10k of the earnest deposit but thats not as bad as potentially 74k from down payment and closing costs. Or, am i being too anxious and the numbers are reasonable in the end?




  • #2
    Seems not terrible to me. If you really like the house, I'd just proceed. At worst it's a small mistake.

    Comment


    • #3
      First, your anxiety is normal. Calm down. Housing is an expense, you want to up the expense some.
      Rules of thumb are helpful, but only guides.
      Mortgage <2x gross check
      You are saving 50% of gross now, what is your savings rate after the purchase? That will make or break your decision. Insurance, utilities, maintenance and at least 1-2% for repairs.

      The biggest risk is the inspection waived. But inspections only go so far. It is not a “guarantee” of any type. Even with an inspection, things go south and that is the reason for repairs in your budget above.

      Actually, my only suggestions financially is to run your “new numbers” and boost your Efund some.

      Otherwise, I seems like first home purchase jitters.
      Normal to fear making a mistake. But you haven’t identified the mistake. I don’t see it worth your $10k deposit waiting for another house.

      Comment


      • #4
        I don't think you should be too anxious. numbers sound reasonable to me.

        I payed full asking price for my house and at the time that was stupid to not negotiate. I got the house and now its gone up >30% value.

        You have no student loans saving 20% should be fine....

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        • #5
          Do you think it's a coincidence that the house appraised at basically your exact offer?

          Comment


          • #6
            Originally posted by CordMcNally View Post
            Do you think it's a coincidence that the house appraised at basically your exact offer?
            it felt very fishy, I'll admit. Not sure how i can investigate this though.

            thank you for the responses so far. Reassuring.

            You are saving 50% of gross now, what is your savings rate after the purchase? That will make or break your decision. Insurance, utilities, maintenance and at least 1-2% for repairs.
            i think in the first 90 days after closing I would cut it down to 0 from my paychecks to build up emergency fund/have cash for unexpected expenses and then increase it back to 50% when i have a sizeable amount.

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            • #7
              I don't see a mistake anywhere. Just what you have to do in this real estate market.

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              • #8
                Originally posted by Tim View Post
                Normal to fear making a mistake. But you haven’t identified the mistake. I don’t see it worth your $10k deposit waiting for another house.
                mainly the "overpaying" by 40k

                Comment


                • #9
                  Originally posted by MRF View Post

                  it felt very fishy, I'll admit. Not sure how i can investigate this though.

                  thank you for the responses so far. Reassuring.
                  It's all a big game. Even with all these offers above asking it is pretty rare for an appraisal to come in right at or just above the offer. The appraisers who tank too many deals will find themselves without work.

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                  • #10
                    You're going to be fine. You bought a very reasonably priced house and plan to stay a number of years. I imagine you'll at least break even, even if you "overpaid". Definitely not going to be a blip on the radar 10 years from now. Enjoy!

                    Comment


                    • #11
                      Originally posted by MRF View Post

                      mainly the "overpaying" by 40k
                      And maybe you wouldn’t have got the house. You might have overpaid on the next. You have done some due diligence. You still don’t have a problem. You can lose $10k by backing out.
                      Second guessing is a fool’s game.

                      That is different than if you decided you don’t want the house. The only thing I see is that you “feel” like you paid top dollar and didn’t get a “bargain”. I can almost guarantee if you get a “bargain”, it comes with a cost. I still do not see the “mistake”. As you said, short of cash. Fixable and some risk. That is fixable too. Wait to fix it until you have the cash. You have short term solutions for a long term house.

                      Sounds like you might regret more NOT buying the house.

                      Comment


                      • #12
                        I think the numbers are fine and the anxiety of a home purchase is so common. It's the buyer's remorse that happens with every significant purchase. Your combined gross income is > the mortgage. But I agree with others, I would calculate the upcoming cash flow and savings with the new house expense and build up the E-fund to a comfortable amount.

                        The $40K over asking may seem crazy but this real estate market is unlike any other. The comps are coming in at or above what you got the house for. There were 10 other offers on the house...who knows, maybe your $40K over asking was only $3k over the next best offer.

                        I thought the local housing market was crazy in 2017 when we bought our house. We paid $8K over asking at the time and I had the same anxiety for a while after the purchase. Low and behold, 5 years later and the value of our house has gone up (conservatively) $150K since then.

                        Let's say $265K combined income, maybe $160Kish after taxes, retirement, etc. That leaves you about $13K a month on a $2,090 mortgage. You should be fine!

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                        • #13
                          The house prices are what they are. I don't think you overpaid too much.

                          What I am concerned about is why are you underpaid so much. $215K for a physician is very low.

                          Comment


                          • #14
                            Originally posted by wideopenspaces View Post
                            You're going to be fine. You bought a very reasonably priced house and plan to stay a number of years. I imagine you'll at least break even, even if you "overpaid". Definitely not going to be a blip on the radar 10 years from now. Enjoy!
                            Agree with this. Don't sweat it. I know that I have a hard time spending money and I sweat the small stuff. I'm working on both of these issues, even at FI.

                            My point? You have company in the Over-analyzers Anonymous club meeting.

                            Comment


                            • #15
                              Originally posted by CordMcNally View Post
                              Do you think it's a coincidence that the house appraised at basically your exact offer?
                              Yeah, the current appraisal system is a joke. One of the best examples of "regulatory capture"

                              Comment

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