MONEY buying a home

Our Dream House Was a Money Pit

150529_REA_DreamHome
Perry Mastrovito—Getty Images

Here's how we dug ourselves out of a financial mess.

Once upon a time purchasing a home landed at the very top of my bucket list.

At 25 years old it felt like the next logical step in growing up—a move that would inch my wife, Jessica, and me closer to the American dream.

From the outside it appeared we were ready for it. We’d built up our emergency fund, paid off our car loans, and started setting aside cash for a down payment. We did everything by the book.

Well, not everything.

When it came time to pull the trigger on our new home, we completely maxed out our budget—effectively signing ourselves up for months of financial strain, emotional stress and major regret.

Landing Our Dream Home—$50K Over Budget

In 2009 Jessica and I were living in the Dallas–Forth Worth area. At 23 and 24 years old, respectively, we were doing great.

I was a firefighter/paramedic, and Jessica was studying photography at the University of North Texas while working as a preschool teacher. Together, we pulled in $75,000—and had zero debt, no kids, and about $25,000 saved up between our emergency fund and retirement accounts.

We were renting a one-bedroom apartment for $750 a month, but loved the idea of putting down roots and moving into a home where we could eventually raise a family.

So, with giddy excitement, we began house hunting for properties in the $150,000 to $170,000 range—a number we settled on after plugging our finances into an online mortgage calculator.

We also decided to look into an FHA loan for first-time homebuyers, which would only require us to make a 3% down payment. I knew 20% was the rule of thumb, but it just wasn’t really something I saw other first-time buyers my age doing. Plus, putting down 3% would preserve some of our savings, and I liked having a reliable cushion to cover us in emergencies.

Two months into our search, we noticed a “for sale” sign on a stunning house just a few doors down from a home we’d just viewed. When our realtor offered to give us a peek on the spot, it was love at first sight.

The house was enchanting: It was just a few years old, with four full bedrooms, 2,400 square feet, and a lush backyard. We couldn’t find anything wrong with it, until we heard the price—$206,000.

We knew it was well over our budget, but couldn’t bear the thought of letting it go. Plus, we’d been pre-approved for a $200,000 loan, which felt like permission to purchase a home of that size.

In hindsight, I know this was a terribly risky move, but at the time I didn’t know any better. And none of our friends or family advised us against buying the home.

After the closing costs were said and done, the total came to around $207,000. We plunked down $7,000—and moved in August 2010.

Plenty of House, Not Enough Cash

Although we loved the home, we were instantly struck by our high expenses.

While our original $150,000–$170,000 price range would have put our housing costs at a manageable 30% of our total income, springing for a $200,000 loan shot that number up to just shy of 50%.

But we felt confident we could handle the expenses, since I was banking on a steady flow of raises from my employer. (Spoiler alert: They didn’t.)

We’d just have to tighten our belts to sustain our $2,000 housing bills, which included the mortgage, insurance, taxes and utility bills.

That meant some serious lifestyle changes, like declining after-work drinks with friends and passing on the dinner date nights we loved. We couldn’t even afford to fully furnish and decorate the place—inviting friends over to an empty house was really tough on my pride.

Even worse, our new bills put an end to the $250 savings contribution we used to make every month. And forget about retirement—our nest eggs were put on hold entirely after moving into the house.

In a matter of months, we had gone from feeling financially flush to pinching every penny—a change that put unnecessary stress on our marriage. More and more we found ourselves nitpicking and bickering with each other.

Over the next nine months, as Jessica and I had many conversations about our decision, it became more apparent that we were being seriously weighed down by the house. We felt stuck, and began to wonder: Had we made a huge mistake?

About a year and a half after moving in, we made the drastic decision to put the house on the market in August 2012. There was no straw that broke the camel’s back—you can only go so long living paycheck to paycheck before you realize that something’s got to give.

While waiting for it to sell, we did everything we could to start saving again. We had a feeling we might take a loss on the house, and wanted to lessen the sting. So we began selling our belongings—our boat, TV, cars—and socked away the profits.

Jessica and I also explored ways of bringing in additional money on the side. She picked up freelance photography work, while I began building websites. All in all, we were able to shore up an additional $15,000.

We finally sold the house at the beginning of 2013, taking a $10,000 loss. While the hit didn’t feel good, the sale took a massive weight off our shoulders.

Our New Life: House Poor, Cash Rich

Armed with about $30,000 in savings and two travel backpacks, Jessica and I did something even crazier after giving up our homeowner status: We left our jobs—and decided to travel the world.

For two years we went all over Europe and South Asia, mastering the art of budget travel. We picked up odd jobs teaching English, painting houses—and even herding sheep! I also continued to do some web development work, and invested in a few blue-chip stocks.

By the time we returned to Texas in the fall of 2014, we had about $100,000 to our names—and were ready for a fresh start.

Jessica is still doing freelance photography work, as well as running a few photography workshops. And I continue to take on web development projects.

But, in a strange twist of fate, I also decided to break into the real estate industry. A few months ago, I earned my realtor’s license and was recently hired at a national agency. I’m looking forward to helping guide other first-time buyers to find a great house—in their budget.

Although we’re certainly not in any hurry to buy another home, if we ever do I’ll definitely be taking my own advice: Buy only what you can afford.

As you might imagine, living out of a backpack for two years really changes your priorities when it comes to material possessions. Having financial security and a better quality of life now means much more to us than a fancy house.

In the end, our version of the American dream has turned out to be different from most. But I’m happy that it’s ours.

(as told to Marianne Hayes)

More From Learn Vest:

MONEY home financing

The $265 Billion Bill That’s Coming Due for Homeowners

miniature house with dollar sign
Getty Images

Brace yourself.

Millions of consumers will have to absorb a major hit to their household budget in the coming months. About $265 billion in home equity lines of credit (HELOCs) will enter the repayment period in the next few years, according to a study from Experian, and consumers may see their monthly payments spike — in some cases, triple or quadruple what they previously paid.

HELOC originations soared from 2005 up until the start of the housing crisis, and because many HELOCs enter the repayment phase after 10 years, these billions of dollars in outstanding credit balances are just now coming due. This wave of HELOC resets is expected to significantly stress borrowers’ finances and the lending industry.

“This analysis is critical as we want to not only help lenders prepare and understand the payment stress of their borrowers, but also give consumers an opportunity to understand what the impact may be to their financial status and how to be better prepared for it,” said Michele Raneri, Experian’s vice president of analytics and business development, in a statement about the study.

HELOCs are generally divided into two periods: draw and repayment. During the draw period, consumers can use the line of credit while making minimum, interest-only payments. Once the HELOC resets, consumers can no longer borrow from that line of credit, and they must restore the equity they haven’t yet repaid.

“Instead of using it like a line of credit, borrowing and then repaying the loan to restore the home equity that had been tapped into, most people simply took the maximum amount in cash and never tried to pay down the outstanding amount for the entire 10-year period,” said Charles Phelan, a debt-relief consultant who specializes in HELOC negotiation, in an email. He contributes content on the topic to Credit.com. “In effect, most existing HELOCs are therefore like a huge credit card debt that has been at the maximum limit for years, with only interest expense being paid each month to keep the balance the same and not reduce it.”

How much your payment increases depends on many things, like the interest rate and the length of the repayment period — a shorter repayment period generally translates into a larger increase in payment. Some HELOCs have no repayment period and require a lump-sum repayment when the draw period ends.

The HELOCs that are coming due were opened in very different economic times, under the impression that home values would continue to rise. Because that didn’t happen, borrowers may not be prepared to handle this significant change to their finances.

“A lucky few will be able to absorb the new high monthly payment without defaulting and thereby risking foreclosure, and some will have sufficient equity to obtain a traditional refinance to a new single mortgage,” Phelan wrote. “For a majority of homeowners with HELOCs, however, options are limited due to real estate prices having dropped to the point where the most HELOCs are not covered by equity. This blocks people from refinancing to a single new mortgage at a more reasonable payment level.”

Even if refinancing is an option, it requires the borrower to have great credit. Phelan said borrowers without the ability to refinance can look into government loan-modification programs, Chapter 13 bankruptcy or settling the second lien, but he expects HELOC defaults to skyrocket. No matter how you plan to address your HELOC reset, it’s crucial to have a grasp on your credit standing so you can better research your options for managing repayment and how those options will impact your credit. One way to get your credit scores for free is through Credit.com, where you’ll also get suggestions to help you improve your credit.

“With more than 10 million of these contracts having been issued during 2005-2008, a tsunami of defaults is likely and will be a downward drag on America’s housing recovery for years to come,” Phelan wrote.

If you took out a HELOC between 2005 and 2008 and you’re not sure what you’ll be facing when the HELOC resets, it’s time to look at your agreement and understand what you’re dealing with. Simply by calling your lender, you can get a handle on the situation and prepare to absorb this shock to your finances.

More from Credit.com:

MONEY home prices

This Is America’s Biggest, Priciest New Home

Construction continues at a home being built by Nile Niami, a film producer and speculative residential developer, in this aerial photograph taken in Bel Air, California, U.S., on Monday, May 18, 2015. Niami, who hopes to sell the house for a record $500 million, is pouring concrete in L.A.s Bel Air neighborhood for a compound with a 74,000-square-foot (6,900-square-meter) main residence and three smaller homes, according to city records.
David Paul Morris—Bloomberg via Getty Images Construction continues at a home being built by Nile Niami, a film producer and speculative residential developer, in this aerial photograph taken in Bel Air, California.

An insane mansion is rising in Bel Air.

When the Los Angeles Business Journal reported last summer that work had gotten under way on a megamansion construction project in Bel Air, Calif., the property was expected to measure around 85,000 square feet, including a 70,000-square-foot main house. The New York Times wrote about the NIMBY issues being raised by property last December, when the expected listing price was estimated at $150 million.

These numbers are enormous, astronomical, absurd—hard for the average person to fathom, let alone afford. Yet apparently, these figures were on the low side.

The latest on the property, as reported by Bloomberg News, has it that the compound will exceed 100,000 square footage of living space, including a 74,000-square-foot main residence and three smaller houses on the four-acre property. If this turns out to be true, the Bel Air property would trump the notorious 90,000-square-foot estate in Orlando featured in the documentary The Queen of Versailles for the title of America’s largest recently built home. (The White House, by the way, is a mere 55,000 square feet.)

What’s more, the developer, film producer and speculative real estate investor Nile Niami, says that $150 million is chump change. He plans on putting the property on the market for the more fitting sum of $500 million. Bear in mind that the most expensive price ever paid for a home was $221 million for a London penthouse in 2011, and that no home in the U.S. is currently listed for more than $200 million.

In any event, what does one get in a Bel Air megamansion that measures potentially 100,000 square feet and costs potentially $500 million? Here are some of the key figures:

• 30-car garage
• 5,000-square-foot master bedroom
• 4 swimming pools, including a 180-foot infinity pool
• 1 “jellyfish room” with glass fish tanks on three sides
• 45-seat IMAX-style home theater
• 360-degree views of the Pacific Ocean, Beverly Hills, downtown L.A.
• 74,000-square-foot main mansion
• 100,000+ total square feet on property’s four homes
• 8,500-square-foot private nightclub inside the mansion
• 40,000 cubic yards of earth to be removed for construction
• $500 million expected listing price

MONEY Housing Market

4 Ways to Break Your Lease

house handcuffs laying open with key
Ryan Etter—Getty Images

One attractive aspect of renting vs. owning a home is the lack of a long-term commitment. While it may seem that renters can pick up and go at the drop of the hat, there are still usually agreements in place. You may not be able to sneak away from a lease in the middle of the night without consequences, but there are steps you can take to minimize the penalty of leaving your rental agreement early. You’ll also want to be aware of any potential impact on your credit.

1. Know Your Rights & Your Lease

Before you get started on the process, it’s a good idea to look over your lease and see what exactly you have legal responsibility for if you leave the rental earlier than planned. You also might want to get familiar with the tenant laws in your state and city. If your landlord hasn’t kept up his or her end of the bargain, you might be able to leave without incurring any issues. In fact, there may be clauses in the contract for your specific situation. Once you know exactly where you stand on paper, you are equipped to talk with your landlord and (hopefully) negotiate a deal.

An eviction and any subsequent judgments a landlord can get against you for unpaid rent can have serious credit consequences. If you’ve broken a lease and were sued by your landlord, it will appear on your credit reports. You can get free annual credit reports from each of the major credit reporting agencies to see if your credit has been affected by breaking a lease.

2. Communicate With Your Landlord

Usually it’s a good idea not to treat this like a secret — keeping your landlord in the loop can benefit both of you. They may not be happy you are packing up early, but you can explain your situation and work together to make the best of it. The more notice you give, the more time they have to try to replace you and the longer you have to persuade them not to charge you any fees.

3. Look for a Replacement Tenant

Landlords charge penalties for breaking rental agreements because it interrupts their income and means more work for them. Advertising properties, checking credit scores and completing paperwork all take time and money. Instead of paying the rent yourself while the apartment stays vacant, it can be a good idea to scope out a replacement tenant on your own —whether this person will take over the remainder of your lease or sign a new one.

4. Be Flexible & Proactive

Since you are the one breaking an agreement, it can be a good idea to take responsibility and be active in resolving the situation. By offering up solutions or just making it easy for your landlord to rent out the place again (like being accommodating with showings) you can put yourself in a stronger position.

More From Credit.com:

MONEY home improvement

3 Money-Smart Ways to Boost Your Home’s Curb Appeal

yellow victorian style house
Stewart Cohen—Dream Pictures Dallas, TX

Cosmetic fixes can put a prettier face on a plain-Jane home, and the bill doesn't have to hurt.

Just as every mother believes her son is a handsome devil, we homeowners tend to see the best in our houses—or at least we become comfortably familiar with the way they look.

But let’s face it, to the objective eye, not every man is George Clooney and not every house is a Frank Lloyd Wright masterpiece. There are a lot of drab, even downright gloomy façades out there, especially among homes that were built shortly after World War II, when many builders abandoned traditional architectural styling to streamline costs and mass-produce housing.

Thankfully, the cosmetic surgery required to put a beautiful face on your home doesn’t require a big-ticket construction job. “Creating curb appeal isn’t about trying to transform the house from a plain-Jane ranch into a grand Victorian,” says Charlotte, Vt., architect Ted Montgomery. “Just changing one or two little details is all it takes.” It’s an investment that will boost your home pride, endear you to the neighbors, and generate a lot more interest from buyers someday.

To find inspiration, you can hire an architect (about $100 an hour) to offer ideas and maybe sketch a plan (expect these to take a few hours each). Or look at similar homes in your area while keeping the following strategies in mind.

Subtract Flaws

Assuming the house and yard are already well maintained, job one is to get rid of blemishes left by a penny-pinching builder or the misguided efforts of previous owners:

Replace the garage doors. The most prominent facial feature of many homes is a pair of big garage doors, which all too often are flat, lackluster slabs of steel or vinyl. Trade them for more visually appealing doors with moldings, windows, or an old-fashioned carriage-house look ($3,000 to $8,000 a door, including labor). See DesignerDoors and ClopayDoor for examples.

Remove siding. Sometimes ugliness is only skin deep. “Peek under dreary aluminum, vinyl, or asbestos siding and you may find well-preserved wood clapboards,” says Asheville, N.C., architect Jane Mathews. If so, remove the siding, repair the old wood, and give the house an attractive paint job ($10,000 to $20,000). If not, you could paint the siding or replace it with fiber cement siding, a no-maintenance product that looks like real wood ($15,000 to $25,000).

Lose the funky railings. Swap out bad porch or stoop railings, such as black iron bars or chunky pressure-treated decking components, for visually interesting banisters and spindles that are worthy of their prominent placement ($1,000 to $10,000).

Add Character

Like a dimple or a cleft chin, the addition of an interesting architectural element can give your house some distinctiveness.

Install a salvaged door. The typical post- war front door is decidedly dull, but the entry should be your home’s focal point, says Corvallis, Ore., architect Lori Stephens. For interesting replacements, look in an architectural salvage yard (see page 26). Consider a recycled mission-style oak door, a six-panel Colonial with blown-glass windows, or arch top French doors ($400 to $1,600; more if you’re converting a standard opening to an arch top).

Add moldings. Many newer homes lack exterior trim; the siding just butts up against the windows and doors. A contractor can give the house a more sophisticated, traditional look by cutting back that siding and slipping in wide, flat moldings around the openings and possibly at the corners of the house and between its stories ($3,000 to $4,000). It’s best to use a synthetic product like cellular PVC for your new moldings, since it looks like wood but will never rot.

Enhance the roof. A straight, unadorned roofline makes a house look about as interesting as a shipping container. So consider adding windowed dormers (a.k.a. gabled peaks) or extending the eaves (the roof overhangs) a few feet beyond the front of the house with detailed moldings on the underside ($2,500 to $10,000 per dormer or eaves extension). This is major surgery, though; do not attempt it without first getting an architect’s input.

Enhance the Effect

Invasive procedures aren’t always necessary. Just adding the right accents can transform your home’s outer look—not unlike a pair of stylish new specs or a good haircut.

Replace light fixtures and hardware. Lose generic shiny brass or black house numbers and mailbox and porch lights (especially bare-bulb fixtures) and substitute something unique and substantial, perhaps made of antiqued copper, bronze, or brushed nickel. For ideas, see Rejuvenation and Restoration Hardware.

Plan for a nonstop flower show. Most of the flowers in your yard probably bloom in the late spring, which makes for a beautiful May—or whenever the big show happens in your climate—but leaves you with a bland yard for the other 10 or 11 months of the year. A local nursery can help you choose and plant additional bulbs, shrubs, and trees with different bloom times (as well as plants with colorful autumn foliage and winter berries), so there will always be something performing ($50 to $250 a shrub, $500 to $1,500 a tree).

Add color. A paint job ($2,000 to $10,000) in pleasing hues can make any structure appealing. “But don’t choose a bright, high-contrast color scheme—that only exaggerates a house’s flaws,” Montgomery warns. For subtler suggestions, check out the book House Colors by Susan Hershman ($26 at Amazon) or go for the colors of nature—muted greens, deep reds, and pale yellows—and keep the body and trim close in color. That will give your home a friendly, peaceful look rather than make it say, “Hey, look at me!” Sort of like an average-looking guy choosing a simple charcoal suit instead of a flashy powder-blue one that only a Hollywood star could pull off.

For more on money-smart home upgrades, check out The Money Guide to Home Improvements, available on newsstands June 12.

MONEY Best Places

These Are the 25 Best Cities for Finding a Job

Chamber of Commerce, Raleigh, NC
Visions of America—UIG via Getty Images Chamber of Commerce, Raleigh, NC

A new report shows the best places to find a new gig.

A new Glassdoor study ranked America’s 50 biggest cities and come up with the best 25 for workers.

The formula weights each city’s housing affordability, how employees rate their job satisfaction on Glassdoor’s site, and how easy it is to get a job (the ratio of openings to population).

Thanks in great part to its location in the university-heavy “Research Triangle,” Raleigh, N.C., is the top-rated metropolitan area for jobs. Like Austin and Seattle, which also rank in the top five, the city has benefitted from a tech boom in recent years, as companies and workers have left higher-cost areas like San Francisco and New York.

Scroll down for the top 25 cities—or check out the full ranking at Glassdoor, which has Riverside, Calif., and Las Vegas landing at the bottom of the list.

  1. Raleigh, NC – Glassdoor Job Score: 4.1
  • Number of Job Openings: 24,146
  • Population: 1,242,974
  • Median Base Salary: $50,950
  • Median Home Value: $198,400
  • Job Satisfaction Rating: 3.3
  1. Kansas City, MO – Glassdoor Job Score: 3.9
  • Number of Job Openings: 28,786
  • Population: 2,071,133
  • Median Base Salary: $46,000
  • Median Home Value: $138,500
  • Job Satisfaction Rating: 3.2
  1. Oklahoma City, OK – Glassdoor Job Score: 3.9
  • Number of Job Openings: 16,759
  • Population: 1,336,767
  • Median Base Salary: $38,100
  • Median Home Value: $129,400
  • Job Satisfaction Rating: 3.3
  1. Austin, TX – Glassdoor Job Score: 3.9
  • Number of Job Openings: 33,198
  • Population: 1,943,299
  • Median Base Salary: $50,000
  • Median Home Value: $226,400
  • Job Satisfaction Rating: 3.3
  1. Seattle, WA – Glassdoor Job Score: 3.9
  • Number of Job Openings: 69,423
  • Population: 3,671,478
  • Median Base Salary: $70,000
  • Median Home Value: $344,700
  • Job Satisfaction Rating: 3.3
  1. Salt Lake City, UT – Glassdoor Job Score: 3.8
  • Number of Job Openings: 17,970
  • Population: 1,153,340
  • Median Base Salary: $44,000
  • Median Home Value: $224,000
  • Job Satisfaction Rating: 3.4
  1. San Jose, CA – Glassdoor Job Score: 3.7
  • Number of Job Openings: 51,439
  • Population: 1,952,872
  • Median Base Salary: $99,000
  • Median Home Value: $863,800
  • Job Satisfaction Rating: 3.5
  1. Louisville, KY – Glassdoor Job Score: 3.7
  • Number of Job Openings: 16,295
  • Population: 1,269,702
  • Median Base Salary: $40,000
  • Median Home Value: $131,100
  • Job Satisfaction Rating: 3.2
  1. San Antonio, TX – Glassdoor Job Score: 3.7
  • Number of Job Openings: 29,980
  • Population: 2,328,652
  • Median Base Salary: $40,000
  • Median Home Value: $147,600
  • Job Satisfaction Rating: 3.3
  1. Washington, D.C. – Glassdoor Job Score: 3.7
  • Number of Job Openings: 116,770
  • Population: 6,033,737
  • Median Base Salary: $61,000
  • Median Home Value: $361,200
  • Job Satisfaction Rating: 3.4
  1. St. Louis, MO – Glassdoor Job Score: 3.7
  • Number of Job Openings: 31,365
  • Population: 2,806,207
  • Median Base Salary: $45,000
  • Median Home Value: $133,200
  • Job Satisfaction Rating: 3.3
  1. San Francisco, CA – Glassdoor Job Score: 3.7
  • Number of Job Openings: 94,933
  • Population: 4,594,060
  • Median Base Salary: $70,000
  • Median Home Value: $728,000
  • Job Satisfaction Rating: 3.5
  1. Columbus, OH – Glassdoor Job Score: 3.6
  • Number of Job Openings: 25,242
  • Population: 1,994,536
  • Median Base Salary: $43,000
  • Median Home Value: $146,700
  • Job Satisfaction Rating: 3.2
  1. Dallas-Fort Worth, TX – Glassdoor Job Score: 3.6
  • Number of Job Openings: 102,311
  • Population: 6,954,330
  • Median Base Salary: $50,000
  • Median Home Value: $157,900
  • Job Satisfaction Rating: 3.2
  1. Boston, MA – Glassdoor Job Score: 3.6
  • Number of Job Openings: 86,565
  • Population: 4,732,161
  • Median Base Salary: $56,000
  • Median Home Value: $367,600
  • Job Satisfaction Rating: 3.4
  1. Minneapolis-St. Paul, MN – Glassdoor Job Score: 3.6
  • Number of Job Openings: 48,231
  • Population: 3,495,176
  • Median Base Salary: $52,000
  • Median Home Value: $210,300
  • Job Satisfaction Rating: 3.2
  1. Atlanta, GA – Glassdoor Job Score: 3.5
  • Number of Job Openings: 69,642
  • Population: 5,614,323
  • Median Base Salary: $49,180
  • Median Home Value: $155,200
  • Job Satisfaction Rating: 3.2
  1. Memphis, TN – Glassdoor Job Score: 3.4
  • Number of Job Openings: 14,776
  • Population: 1,343,230
  • Median Base Salary: $42,000
  • Median Home Value: $107,000
  • Job Satisfaction Rating: 3.2
  1. Indianapolis, IN – Glassdoor Job Score: 3.3
  • Number of Job Openings: 23,863
  • Population: 1,971,274
  • Median Base Salary: $44,000
  • Median Home Value: $130,100
  • Job Satisfaction Rating: 3.2
  1. Chicago, IL – Glassdoor Job Score: 3.3
  • Number of Job Openings: 124,633
  • Population: 9,554,598
  • Median Base Salary: $50,000
  • Median Home Value: $186,900
  • Job Satisfaction Rating: 3.2
  1. Houston, TX – Glassdoor Job Score: 3.3
  • Number of Job Openings: 74,442
  • Population: 6,490,180
  • Median Base Salary: $52,000
  • Median Home Value: $157,900
  • Job Satisfaction Rating: 3.2
  1. Baltimore, MD – Glassdoor Job Score: 3.3
  • Number of Job Openings: 45,558
  • Population: 2,785,874
  • Median Base Salary: $46,000
  • Median Home Value: $244,100
  • Job Satisfaction Rating: 3.2
  1. Richmond, VA – Glassdoor Job Score: 3.2
  • Number of Job Openings: 17,933
  • Population: 1,260,029
  • Median Base Salary: $45,000
  • Median Home Value: $186,300
  • Job Satisfaction Rating: 3.2
  1. Pittsburgh, PA – Glassdoor Job Score: 3.1
  • Number of Job Openings: 29,456
  • Population: 2,355,968
  • Median Base Salary: $43,000
  • Median Home Value: $124,500
  • Job Satisfaction Rating: 3.1
  1. Nashville, TN – Glassdoor Job Score: 3.1
  • Number of Job Openings: 27,850
  • Population: 1,792,649
  • Median Base Salary: $41,600
  • Median Home Value: $176,700
  • Job Satisfaction Rating: 3.2

 

MONEY homeownership

How Big Should Your Home Down Payment Be?

Getty Images/Michael Krinke

20% isn't always the magic number.

When buying a home, most people take on a mortgage. There are many things to consider when taking on a mortgage loan, including interest rate, closing costs and the down payment. Once you calculate how much house you can realistically afford, you can start looking at properties and considering how you will afford the house.

There are several ways to fund what will likely be the biggest purchase of your life. Before you start signing with lenders and sellers, it’s a good idea to consider how much down payment you should be making and how that will affect you both immediately and in the long run.

The Basics

In case you are really new to this, a down payment is the chunk of cash you pay upfront when buying a home. This money shows the lender that you are capable of saving and are so serious about this investment that you are willing to put that savings toward making the home yours.

The Magic Number

You may hear that the typical down payment amount is around 20% of the total property value. While some people (like veterans) can qualify for homebuying assistance, most people will have to put 20% down to secure their mortgage without paying private mortgage insurance or taking out a second loan. When you are thinking about what type of house you want and what exactly you can afford, it’s important to keep in mind you will likely want to have 20% of the property’s value in savings dedicated for just this purpose before purchasing a home.

Paying More

If you have more than 20% of the home price socked away in savings, there are some reasons for using it as a down payment. The more you put down, the better position you are in for negotiating a lower interest rate with your lender. You will also have to borrow less if you put more down, meaning you will pay less in interest payments over the life of your mortgage.

Before you jump into this option though, it’s a good idea to be sure you can comfortably afford this house without putting your regular costs at risk, consider what other debts you may have and whether you think the savings could do more for you if used elsewhere. For example, it’s important to maintain an emergency fund so that you have cash set aside if (and when) the unexpected happens.

Paying Less

While the financial crisis left many homeowners defaulting on their little-to-no-money-down mortgages, the tide has turned again, and now the minimum amount needed for a mortgage is only 3.5% (there are some zero-down mortgage programs, but certain restrictions apply). In order to pay less than the normal 20%, you have several options.

You can secure a second loan to make up the difference between what you can afford and the 20% mark. You can also take out private mortgage insurance (PMI) to give your lender peace of mind. In case you get into trouble making payments down the line, this policy would pay the lender. You can check if you qualify for a loan backed by the Federal Housing Administration (FHA). You can also look for state and region-specific down payment assistant opportunities through your local government. If you are buying a house with less than the typical down payment needed, it’s important to know that you are taking on more risk.

Before you apply for a home loan, it’s important to know where your credit score stands. The difference of just a few credit score points can mean better interest rates and a major savings over the life of your loan. You can get two of your credit scores for free on Credit.com, updated every month.

Your down payment amount makes a big difference both now and down the road, but it’s a good idea to leave yourself enough money to afford your next few monthly payments as well as closing costs and other immediate expenses the house may incur. Remember, this is just the beginning.

More From Credit.com

MONEY buying a home

Why You Still Can’t Afford to Buy a House

DreamPictures—Getty Images

Homeownership is at a 25-year low

Last month did not bring good news for those looking for evidence of a housing recovery. According to the Commerce Department, the seasonally adjusted home ownership rate for Q1 2015 sank to 63.8% — a number not seen since 1989. That represents a 1.2% decrease from Q1 of 2014, a 0.2% drop from Q4 2014, and the continuation of a general ten-year decline from a peak of over 69%. A few more months of this trend would put home ownership in historically low territory.

At the same time, household formation (those striking out on their own) increased by 1.7 million in Q4 of 2014 and another 1.5 million in 2015. Home prices are continuing to rise according to the S&P/Case-Shiller index, and the inventory level of unsold housing has dropped below five months according to the National Association of Realtors (NAR). Six months is a typical supply for a healthy housing market.

So, the number of households is increasing, the housing supply is low, and prices are rising — yet the number of homeowners keeps decreasing. How does this add up?

It appears that too many of these new households still cannot afford to buy a house, at least not the ones that are available to them. They are forced to rent instead, and as a result, that market is also out of balance. Diana Olick of CNBC reports that rental vacancies are hitting historic lows. The current market could be considered a “pre-recovery” stage, if you will — millennials and those knocked down by the housing crisis have recovered to the point where they can enter the rental market, but not to the point where they can afford to buy a home even with the currently low fixed interest rates.

There is a cascade effect going on in the housing market that will take some time to remedy. Those who want to upgrade their homes are having difficulty gathering down payments and qualifying for loans, thanks to wages that are still stagnant and credit that is still relatively tight. Thus, the supply of starter homes is low, making first-time ownership difficult for those who have recovered enough to qualify. Some signs of wage pressures and loosening credit are present, but not enough to fuel a true recovery.

In terms of numbers, the calculation methods may make the situation look worse than it really is. Since the overall number of households is increasing and the majority of these are renting, the number of homeowners relative to the total is shrinking. It is not as though large numbers of people are losing their homes, as was the case during the housing crisis.

Many economists expect the decline in home ownership to begin stabilizing finally and to stay stagnant until the true recovery phase can kick in. A combination of rising wages, job increases, government approaches to make credit more affordable to first-time homebuyers, and the general decline of underwater homes through home appreciation should lead to a housing upturn. Of course, the question on everyone’s mind is: how long will it take to reach full recovery and convert renters into first-time homebuyers?

Nobody has that answer, and the housing market has defied most predictions of recovery over the last few years with frustratingly mixed progress. However, we can predict one thing with certainty. If the housing outlook is still struggling at this time next year, politicians and policymakers up for re-election will panic and start to take action, most of which will probably be misguided. Let’s hope the market intervenes before the politicians can act.

More From MoneyTips:

MONEY home prices

10 States With the Least Affordable Homes

Diamond Head, Oahu, Hawaii
Carl Shaneff—agefotostock Diamond Head, Oahu, Hawaii

A new study shows where in the U.S. home prices are the most out of whack with income.

In most parts of the country, a family with a median household income should—ideally—be able to afford a median-priced home in that area. In fact, an analysis of county-level data from RealtyTrac showed that a monthly payment on a median-priced home was more affordable than fair-market rent on a three-bedroom unit in 76% of counties studied, making buying a home the more economical choice for many Americans.

Of course, there’s a lot more at play when determining if you can afford a house than looking at your paycheck and the rental market—buying a house often requires a home loan, which can be tougher to come by if you don’t have good credit. At the same time, a good credit score will only get you so far in the home-buying process, because if housing in your area is exceptionally expensive, even a median household income may not get you much house. (This calculator can show you how much house you can afford.)

To determine the states where housing is least affordable, the Corporation for Enterprise Development divided the state’s median housing value by the median family income in that state, according to 2013 Census data. A breakdown of all 50 states and the District of Columbia is available through its Assets & Opportunity Scorecard tool. Here are the states with the least affordable homes.

10. (tie) Rhode Island

2013 median housing value: $232,300
2013 median household income: $55,902
Ratio of median housing value to median income: 4.2

10. (tie) Vermont

2013 median housing value: $218,300
2013 median household income: $52,578
Ratio of housing value to income: 4.2

8. Washington

2013 median housing value: $250,800
2013 median household income: $58,405
Ratio of housing value to income: 4.3

7. New Jersey

2013 median housing value: $307,700
2013 median household income: $70,165
Ratio of housing value to income: 4.4

6. Oregon

2013 median housing value: $229,700
2013 median household income: $50,251
Ratio of housing value to income: 4.6

5. New York

2013 median housing value: $277,600
2013 median household income: $57,369
Ratio of housing value to income: 4.8

4. Massachusetts

2013 median housing value: $327,200
2013 median household income: $66,768
Ratio of housing value to income: 4.9

3. California

2013 median housing value: $373,100
2013 median household income: $60,190
Ratio of housing value to income: 6.2

2. District of Columbia

2013 median housing value: $470,500
2013 median household income: $67,572
Ratio of housing value to income: 7

1. Hawaii

2013 median housing value: $500,000
2013 median household income: $68,020
Ratio of housing value to income: 7.4

Those are some eye-popping figures, especially if you’re from the other end of the spectrum, like Iowa or Michigan, where the median home price is just 2.4 times the median income in those states. Places like Hawaii, D.C. and California are significant outliers, though.

Nationwide, the median-priced home ($173,900) is 3.3 times the median household income ($52,250), but homeownership remains out of reach for many Americans. Homeownership rates are at their lowest level in more than two decades, partially due to tight credit in the mortgage market. To have the best chance at getting a home loan, borrowers need to focus on improving their credit standing (you can track your credit scores for free on Credit.com) and paying down debt, so they can prove their ability to repay a home loan.

More from Credit.com

This article originally appeared on Credit.com.

MONEY home improvement

The Best Garden Tools for Mom

gardening tools
Andrew Unangst—Getty Images

Q: My wife and I started a gardening seriously a couple of years ago, and I want to get her some solid, high-quality tools for Mother’s Day to replace the standard “homeowner-grade” junk we’ve been using. Can you recommend a good basic set?

A: Gardening tools are one of those purchases where you really do get what you pay for. Affordable, light-duty products will inevitably snap, bend, or fall apart if you put them through anything more strenuous than, say, planting annuals each spring. And you’ll find that top-of-the-line tools also make laborious tasks easier. Here’s a roundup of high-quality yet reasonably affordable basic gardening gear.

Hand pruner: For everything from clipping overgrown bushes to removing spent flowers so a plant can produce more blooms, you’ll want a good set of bypass pruners, such as those made by Felco ($53 at homedepot.com).

Hand tool set: Look for heavy-duty metal hand tools, such as Lee Valley’s 3-piece set ($62 at leevalley.com), plus Fiskar’s tool apron, ($13 at amazon.com), which is designed to wrap around a standard 5-gallon bucket (about $3 at any home center) so you can carry all your tools and supplies in one hand.

Cart/seat: Gardening means getting down into the dirt, either by kneeling or sitting on a comfortable seat. A Tractor Scoot ($90 from gardeners.com) is a seat plus a storage bin set on chunky wheels.

Gloves: Make sure to get her a pair of good leather gauntlet gloves, which protect wrists as well as hands. While you’re at it, get yourself a pair too ($30 at duluthtrading.com).

Long-handled tools: Perhaps nowhere is quality more important than with tools designed to quite literally do the heavy lifting. For starters, consider the forged round-point shovel, PROHOE 6-inch scuffle hoe, and Union half-moon turf edger ($46, $35, and $40, respectively, at amleo.com).

Read next: 4 (Mostly) Cheap and Easy Ways to Green Up Your Grass

Your browser is out of date. Please update your browser at http://update.microsoft.com