Help make it possible for my future-self to buy a home

January 8, 2021 4:34 PM

I'm single, mid 30s, modest income, with strong ties (vocational and personal) to Los Angeles. I expected to be renting indefinitely, until I realized this week that a) I might be WFH long term and b) I'd really enjoy living in a small house in the mountains (trees! solitude! hiking!). What can I do in the next couple months to make the long term goal (homeownership) more likely, and what can I do in the middle term to stay on track?

I have ADHD, so go through cycles of intense interest in a thing, and then months/years where the topic/hobby doesn't engage me. Right now I'm enjoying obsessing buying a small cabin in the Big Bear area in ~5 years, but I'm terrible at long term projects, especially ones with slow, methodical progress.

Near Term?
What changes can I make in the coming months, both financially and mentally, that will set me up for the ability to buy a home in a few years (if that's what I still want)?

Longer Term?
After the initial excitement of a new goal wanes, how can I keep on track with such delayed gratification? I enjoy the intensity of striving for goals and deadlines. I get energy from problem solving and making things work out. I'm worried about getting bored with slow growth and dipping into savings for the sooner-gratification of travel because "my goal is so distant and abstract it doesn't matter"

Current Situation Details
- 18 months ago I was both homeless and unemployed. (I don't have experience with long term stability/planning).
- That resulted in credit card debt. I've been moderately aggressive about paying it off, will be done by April.
- I live with 4 roommates and feel lucky to only be spending only 30% of my takehome on rent. It's a stable situation I expect to be able to maintain for multiple years. (Big house, long term friends with most tenants, including the landlord)
- I've been at my job for 13 months--my first corporate/career-type position. My salary will increase, but probably slowly.
- My car is 2-3 years from being paid off. No student loans (and no degree).
- Emergency fund is ~2 months expenses.
- No other savings/investments. My company offers a 401k, but I've been focusing on my credit cards and becoming overall stable month-to-month.
- Natural spending habits follow a boom/bust cycle. I give myself a weekly allowance for gas/groceries/entertainment, then when it builds up a decent surplus, make a big trip to Target/Amazon.
- Emotional spending weakness is the thrill from infrequent splurges ($300-500) on nice toys/tools or event/travel tickets.

posted by itesser to Work & Money (19 answers total)

You need to save a great deal more, and will need to find a budgeting system that can work for you. Have you looked at YNAB? I personally disliked it, but it really seems to click with a lot of people who have spending trouble, especially boom/bust cycles.
posted by aramaic at 4:48 PM on January 8, 2021 [5 favorites]

I'd identify a target 5-year savings amount that you think will be consistently manageable, put some kind of auto-transfer in place into an account that you don't use for anything else and that isn't connected to your checking account so that withdrawals are kind of a pain, and then set it and forget it for a while till you hit your goal and it's time to actually start looking and planning.
posted by The Elusive Architeuthis at 4:58 PM on January 8, 2021 [7 favorites]

Natural spending habits follow a boom/bust cycle

This is going to get in the way of a down payment and even if it's not 20%, the median home price in Big Bear according to Zillow is $400K+. If you want this to happen that means you need to work toward saving up $30-40K at the absolute least to be a minimally qualified buyer. If you aren't putting away the excess cash toward this goal you won't get there. Starting from zero, that means you need to be saving about $600 a month and you need to be able to carry about $2000+ a month plus taxes and maintenance on a mortgage.

If that sounds out of reach, be aggressive about your career development at the same time as you get better at budgeting. Often people are told this lie that homeownership is out of reach because they can't/won't make the budget and sacrifices for it, but the reality for most people is that wages are low across the board and there is a point where no amount of budgeting will make up for just not having more income in a housing market that is out of control in most of CA. That increase in income is probably only going to come from being really good at your job and trading up for a better paying one at the first opportunity. This does need to be combined with budgeting and resistance to lifestyle inflation to work so you don't just spend the raise on toys, but as soon as you have even a modest amount of routine comfortable savings (on top of your 401K, that gets funded as soon as credit card is paid off), things get way easier and doors open. But hour for hour, you will get the most out of focusing on your career once you plug the gaping budget holes.
posted by slow graffiti at 5:35 PM on January 8, 2021 [17 favorites]

Part of motivation is feeling like the goal is doable. This might be worth crunching some numbers and feeling like you have an achievable savings goal to get you to your downpayment (and then some).

Part of maintaining motivation is feeling rewarded when you do the thing. Maybe, every time you "defer" spending, you get to mark off in a bullet journal style tracker that you've done the thing, or you buy a much smaller item that represents/reminds you of what you're working towards (e.g., a $20 book about the history of Big Bear or how to maintain a cabin).

Trying to keep the goal more actively visible may also help remind you of what you're working for. Maybe print out some photos of the area and post them around your place, on your desk, as your desktop wallpaper, your wallet and taped to your credit cards even. Maybe you join any local community forums -- I like joining the sub-reddits for the places I hope to one day move to and they add a nice semi-regular reminder.

It might be worth trying to dig deeper into your emotional spending tendencies. Maybe working with a therapist could help unpack your relationship/conceptions about money & spending?
posted by ellerhodes at 5:38 PM on January 8, 2021

Download Redfin app to start getting a sense of property values in the area.
posted by St. Peepsburg at 6:33 PM on January 8, 2021 [1 favorite]

Short term, look at your credit and understand what yours is like and what you need to do to improve it. Raising your score can take several years so make that a short term priority, because if your credit is shabby, the added interest you'll pay by itself can put a home out of your budget, assuming you even qualify in the first place.

If you've carried high debt-to-limit, that alone will crush your score, even with a perfect payment history. But it recovers quickly in a couple months once you pay things down under 30%, and especially under 5-10%. But things like late payments, etc. there's no quick fix beyond time for other than disputing what might be inaccurate.

Longer term.. save, save, save. You can get into a home with no money down but you'll again pay for it in the long run with higher interest rates and/or points, and PMI (Mortgage Insurance) that you'll have to pay. Best option is to have 20% put away for a down payment plus 6 months of take home pay as a safety buffer. Calculate what you need to save per month to achieve that and see if it's feasible. If you can get there, you'll be in better shape than a lot of homeowners. If it looks dodgy, look into what First Time Homebuyers Assistance programs are available in CA that will support a smaller down payment. I bought my first property with no down payment via a low-interest second mortgage program, so it is doable, though not desirable, especially if that happens to be about the time the housing market starts a correction and values plummet after you buy.
posted by SquidLips at 6:38 PM on January 8, 2021 [4 favorites]

I don't have anything to add on the financial side, but as an Angeleno who worked in the greater "Big Bear area" for 2 years, and rented a cabin during that time, I want to say that heck yeah, it's beautiful up there. It took me about 2 months to adjust to the slower pace of life and then I loved it. Look at smaller (and sometimes cheaper) communities between BB and Lake Arrowhead: Arrowbear, Running Springs, Green Valley Lake, Twin Peaks, Blue Jay, etc.
posted by BlahLaLa at 6:39 PM on January 8, 2021 [2 favorites]

You don't say if you grew up with office-worker parents, so to add on a bit to slow graffiti's advice, in the medium term, learn what it takes to advance in your current company, all the while sending out feelers for better jobs. Skip this advice if it sounds completely wrong -- I only know vaguely IT-ish industries, and read Ask A Manager instead.

In terms of advancing, this means looking at the job description for the next pay grade up (or two) and making it known to your manager that you are interested in being promoted into that position, and that you are interested in gradually taking on those responsibilities. Keep notes on your own achievements. Reject (or delegate, heh) work that does not get you towards your goal. If your company doesn't have a formalized "career discussion", you probably need to set a calendar event every 3 months to talk about this in your manager 1:1.

However, the easiest way to get promoted is to change jobs, so keep an ear open, keep your linkedin updated, keep in touch with former colleagues, etc.

re: Natural spending habits follow a boom/bust cycle

[a mindset to try on for size] I have never budgeted because I am an effortless saver (due to growing up with parents who sacrificed a great deal to ensure economic stability). I have the mindset that if I need something, I can always get it (because I have this savings cushion), 'zero' has never been in sight, so I can always get it later.
posted by batter_my_heart at 7:00 PM on January 8, 2021 [3 favorites]

Have a different account where the savings for the house goes. Arrange to set up an auto transfer in if you can. Do everything you can to convince yourself that you MUST NOT take that money out. (I did this using a Vanguard account for my "do not touch money" separate from my regular checking and money market accounts.)

Maybe it helps to view this money has belonging to your future self, not the real, present day you. You wouldn't steal money from your roommate would you? Don't steal money from "Future Itesser" either.

Set goals that are attainable in a couple of months. Every time you reach the goal, spend some of your regular spending money on something house related - a book on home maintance, a framed photo from the area where you are going to move, a decoration of the front door, a weekend trip to the area. Not just celebration but gesture that shows that this dream is real and you are moving towards it. (This gets funded out of splurge money, not your never touch long term savings)
posted by metahawk at 10:03 PM on January 8, 2021 [1 favorite]

Seconding aramaic's suggestion. YNAB, both the app and the underlying philosophy, is what helped me get out of debt, take control of my budget, and save up enough for to buy a home. (In SoCal!) Total game changer.
posted by platinum at 10:37 PM on January 8, 2021

I'm not familiar with LA specifically, but many places have first time home buyers programs.

You might want to consider whether you are willing to consider alternative goals. Perhaps the van or tiny home lifestyle combines the thrill of travel with owning your own home. Moreover, there are other places that will have lower housing costs that are less susceptible to the challenges posed by climate change.

A portion of your Roth IRA contribution can be used without tax penalty for home buying. That being said, saving for retirement is also an important goal.

In budgeting there is a saying of "pay yourself first." Your workplace may have the option to have your paycheck deposited into separate accounts. Or your bank may have an option of automatically routing $x from one account to another. In other words, consider having a portion of your income saved automatically where you won't even notice you have it.

I would also suggest you do some reading on financial planning and/or set up a time to meet with a Fiduciary Financial Advisor. Having knowledge and a game plan will make your goals seem more real.
posted by oceano at 3:58 AM on January 9, 2021

The money you have been paying off credit card debt? Either move that all into savings, or some into savings and some into your 401K (especially if there is an employer match). Do it automagically if at all possible.

Otherwise, it may be worth researching other similar areas to live in that are even cheaper.
posted by plonkee at 4:08 AM on January 9, 2021

I would do some research on fire risk around Big Bear and how much fire insurance will cost (or if it's possible it may become unaffordable at some point as fires continue getting worse). I would be really concerned about how hard it might be to evacuate in a fire there, and some particular properties will probably be more dangerous than others.
posted by pinochiette at 7:55 AM on January 9, 2021 [6 favorites]

Near term- pay off credit card debt ASAP and sell your car and buy a cheaper car for cash. Your credit card and car payments can then start going into savings for a down payment on the cabin. Start making a budget and pay yourself first by transferring down payment money into savings immediately when you get your check. ( or better yet have it done automatically) I did this and managed to buy a house in the Bay Area in 2012 when prices were down- Still driving my cheap car ( 2001 Honda with 215000 miles on it- it just keeps going- do have to spend some money on maintenance but not nearly what a monthly car payment adds up to. ) Maybe put some pictures of Big Bear cabins and maybe a thermometer graph of your down payment money somewhere you will see it a lot to help with motivation.
posted by morchella at 8:14 AM on January 9, 2021

I was just about to post the same link as squidlips above. FHA loans require a much smaller down-payment than standard mortgages, like 3.5% instead of 20%. They also offer longer term mortgages, like forty years instead of thirty. (If our financial situation improves dramatically you can always refinance for a shorter term. ) It's definitely your place to start. Be sure to check out their online homebuyer education course. There may be a non-profit or public agency in your area that will help you figure out what you need to do before you can apply.
posted by mareli at 8:42 AM on January 9, 2021

Seconding pinochiette, except I would go even further, and suggest you not do this unless you have a profound spiritual need to live up there. In this century, living or buying in any area in California with significant pine coverage is a poor bet.

Big Bear specifically is both very high risk for fire, and rated in the top one percent worst towns in the state for evacuation routes. That's Paradise levels of bad.

I'm sorry to be a downer, but the fire situation will only continue to get worse; what looks risky now might look outrageous in ten years, to you and/or to insurance companies. Do you feel any connection to the desert? That's how you get solitude in SoCal without the accompaniment of increasingly disastrous fire risk.
posted by desert outpost at 3:21 PM on January 9, 2021 [1 favorite]

I disagree with some of these comments. None of us know enough about where you stand on various factors (debt to income, credit score) to give you the fastest path to qualifying. What you should do are these things: (1) go try to qualify for a mortgage, (2) transfer your credit card debt to low interest options (e.g., a zero interest for 12 months intro offer), (3) put more into savings to get yourself to a basic down payment, and (4) do whatever you can to raise your income, either temporarily to get a bigger down payment, or ideally permanently by asking for a raise or getting a new job, to improve your ability to qualify.

Qualifying for a mortgage is just getting a passing score on a bunch of formulas. You need to know where you stand on those formulas. Maybe try doing it using online calculators. But you can also just call a place that issues mortgages, and they'll walk you through it, and then you'll have begun to build a relationship and made your dream feel more like a reality in the process. Nothing the internet can give you will feel as real as someone emailing you a letter pre-qualifying you to borrow $285k (even if there's nothing in your area at that price range) or telling you that they could qualify you but only once your credit score reaches 630, or whatever. A realtor can refer you to a good mortgage broker. Or you could just call Loan Depot or Quicken or one of the mortgage mills. (But to be clear: do not try to buy a home with a mortgage from them. In my opinion, it'd be better to start building a relationship with a broker you can work with over the long run.)

Do you have to pay off all of your debt first? No. Having debt influences the formula but isn't a deal-breaker. They subtract the debt payments from your income before calculating whether you have enough income to pay the mortgage payment. It's the monthly payments that matter. The other way debt matters is that it can lower your credit score, particularly if you have a high percentage of your credit used. But since the variable is the percentage of total credit, you can improve it not only by paying off debt but also by successfully applying for larger credit lines. (For starters, if you've been paying on time for awhile or had an increase in income since you first applied for the card, you might just call your current credit cards and ask them for a credit line increase.)

Do you need 20 percent down? No, as noted above, you can get loans with 3.5 percent down, though 5 percent is helpful. You'll also need some for closing costs and inspections, so I'd shoot to save about 6-7 percent (plus some for emergencies). Putting 20 percent down is for suckers at current interest rates, and the delay can screw you over in appreciating markets. Yes, you'll want an emergency fund but don't lock that up as home equity, and don't wait until you have anywhere near that much saved. If you lose your job and can't make payments, do you think the bank will be like "no worries, you put 20 percent down?" No. But if you put 10 percent down and then keep the other on hand for a financial emergency, then if you lose your job, you can save your credit, avoid late fees, save your house, etc. The downside is that you have to pay mortgage insurance. That isn't super-fun, but if the home appreciates, you can get it removed after a few years.

You're still willing to live with roommates, and that's great. It's way easier to buy if you can do that, so I'd try to buy something with that in mind. The payment on $400k might be something like $2200?$2500? (Ask that broker you call!) If you can rent out two or three bedrooms at $600 or $800 apiece, then your rent may not be worse than it is now, or maybe it'll even be better.

The thing that's tough about home ownership is that at any point, some expensive problem might pop up, so you'll want to set up your post-home-purchase budget such that you can continue to pay off debt and build up a good emergency buffer.

Given that you get an intense interest in something, maybe you can move quickly and get something set up now. If not, set up things you can forget about, like automatic transfers from checking to savings every month. Good luck! I like chatting about this stuff if you want to memail me.
posted by slidell at 6:36 PM on January 9, 2021 [1 favorite]

I would counter that 20% down may be for dummies, but you should aim to have that much saved heading into your purchase. Depending on locality, you may not be competitive for purchase without that cash in hand, and even if you do put down less, having the extra cash saved helps with other new homeowner expenses.

I would actually recommend looking for a "new homeowner course" offered through your bank or credit union. They'll have local advice and will be able to walk you your common pitfalls/the process as well as share with you any programs you may be eligible for.... That course, when paired with a lot of the good advice above will help you figure out your own next steps.
posted by larthegreat at 7:51 PM on January 9, 2021 [1 favorite]

Another thing to keep in mind is that many of your home buying "peers" do receive some sort of financial assistance from family. That's "great" for those who have that privilege, but they can be a poor comparison group for those of us who don't.
posted by oceano at 12:36 PM on January 10, 2021 [2 favorites]