The seven paths to DC-area home ownership

[Anonymous]

Im #7. Bought in a condo in columbia heights pre-target etc...just sold it and made a 200k profit. yes you read that right. But I bought it cheap, it was straight up and as a single woman it was hell on a lot of days, especially in the summer. I got super involved with my folks on my block, attended tons of community meetings, took teh corner store to court, emailed or called cops and Councilmember about every damn thing and things just started to slowly improve. Have a family now and live Petworth. 5 years in Col Heights. It actually still seems pretty crazy over there but glad I did lived there before having a kid. I earned that money!!

[Anonymous]

We had good credit and put little down to get into the housing market.

[Anonymous]

We are a combination of #1 and #7 - bought a large but unrenovated house in 2011 for $450K, with a $100K down payment and a slightly higher interest rate for a fixed rate loan with no verification of employment.

I should also add that we live in a close-in but unfashionable Pimmit Hills because we were priced out of Arlington AND unwilling to go further out than West Falls Church.

Our house appreciated considerably over the last three years - you really can't buy anything livable larger than 900 sqft in Pimmit Hills any more for $450K any longer. We are renovating gradually and pat ourselves on the back daily. PH isn't for everyone, and it sure wasn't any better 3 years ago. It's all uphill from here.

[Anonymous]

Combination of #3 and #5.

We live in a really safe area, but schools aren't all that desirable. However, I realized none of the school options around here are really all that appealing, so we went with what we thought was the best of our options. However, I find myself re-evaluating that decision still.

[Anonymous]

Combination of 2 and 6. We bought outside the beltway in ffx county because we couldn't stomach the neighborhoods/housing stock/iffy schools that we could afford closer in. My commute is the trade off as I work downtown. Dh works near dale city. The down payment came from an inheritance.
Hhi is about 160, and our mortgage is 360. Tight right now with two in daycare, but we can live here a long time. Beautiful area, good schools, nice house.

[Anonymous]

Anonymous wrote:I'm confused why you would rent for 8 years when we had a nice market bottom in 2008/2009. Why not buy then?

Now you're trying to buy something at the top of the market again. I'd wait.

Market bottom? Prices inside the beltway basically tripled over the 2000s, and in 2008/2009 they dropped like at most 10%...

Incomes didn't triple, so that 10% really didn't provide any help in affordability (and banks weren't lending, so good luck as first time home buyer).

Geez, OP, you should have expected the Fed would pump up housing and assets with QE, everyone knew that...

[Anonymous]

We came at $375k a few ways:
1. Many calculators recommend putting 20% down. $75k is the upper end that we'd be able to muster in a best-case scenario while factoring in closing costs. Also, we don't want to drain our emergency fund to come up with additional money and we may have another kid soon, in which case we'll need additional savings. Based on previous comments, I may consider putting less down and paying PMI but that will be a bitter pill that I'd rather not take if I can help it.
2. Many calculators recommend not going above 2.5x annual income. That may be conservative but it's what we're comfortable with.
3. Many calculators talk about 28-36% gross income for mortgage payment, but this seems really high, particularly since we'd only probably be able to afford a fixer upper (which will require additional money along the way). Right now our rent is much less than that and we'd like a mortgage that's close to our current rent. That way our cost of living will be predictable. And that's in addition to existing childcare costs, college savings, and retirement savings (let alone groceries, etc.)! Paying 28-36% toward a mortgage payment would substantially change our household expenditures picture.

All of these factors steer us in the vicinity of $375k. Evidently most folks are willing to stretch themselves further than this (hence the high prices). I can't think of any other way.

OP, if you purchase a house for $375,000 with 20% down, you'll have a mortgage of assuming a mortgage of $300,000. Assuming taxes of $3000/year and an interest rate of 4.5%, your monthly PITI will be roughly $1820. (I imagine that's considerable less than your rent right now). That's $21,840 per year, or 14.5% of your gross. I understand you don't want to get up in the 28-36% range, but you're a long way from there at $375,000. And nased on what you've said you want, $375,000 just isn't realistic.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:$156K is a good salary for the region. $375k on that salary is too conservative. Even with a 5% mortgage and 0 down, 30 year fixed on that is $2k a month. Add in 350 for taxes and insurance and you are looking at only 18% debt to income ratio, *FAR* shy of the 28%-33% ratio that most people subscribe to. Using 28% as a ratio, your "affordability" figure jumps to about $580k, which can buy you a nice townhome in Fairfax, or even a single family in some of the older but still nice neighborhoods like Burk.

I am not a Realtor, just someone who has done enough of these types of calculations to know when people are over/under extending themselves.

We had a lower combined salary than you and purchased a home for $537K with 3.5% down in 2009. 4.5 years later we make a tad more than you do, but have two kids in daycare now. We manage just fine. We don't have the discretionary income that others do, but as you said there has to be some wiggle room in your expectations for the DC area.

In 2009, our HHI was $120k, we bought a 1600 SF condo steps from Vienna metro for $365k with 20% down and $350/month hoa fee. Two kids and managed fine financially.

Ok, maybe with zero childcare expenses and student loans that could work just fine.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I'm confused why you would rent for 8 years when we had a nice market bottom in 2008/2009. Why not buy then?

Now you're trying to buy something at the top of the market again. I'd wait.

Market bottom? Prices inside the beltway basically tripled over the 2000s, and in 2008/2009 they dropped like at most 10%...

Incomes didn't triple, so that 10% really didn't provide any help in affordability (and banks weren't lending, so good luck as first time home buyer).

Geez, OP, you should have expected the Fed would pump up housing and assets with QE, everyone knew that...

Yes, banks weren't lending! I was 25 in 2008, had 20% down on a condo I could afford and had excellent credit. I lost it because the banks couldn't do the loan

[Anonymous]

Anonymous wrote:My wife and I have rented in the West End for the past 8 years. Since that time we've had a child and hope to have another one in the not too distant future. In other words, we're outgrowing our apartment and are considering the need to live in a larger space.

We like the DC area and would like to stay, but we're pricing out houses in the area and it's clear that it's going to be tough if not impossible to do so. My wife and I make a combined income of approximately $158K, and according to most house-affordability calculations that results in being able to afford $375K houses. This figure, as you know, does not go far in the area.

We are still left wondering how people afford homes in this area. We thought about what others have done and eventually compiled a list which comprise what we've called 'the seven paths to DC-area home ownership' (in no particular order):
1. Command a massive dual-income salary
2. Willing to live far outside the beltway/endure a long commute
3. Willing to live in an undesirable area (poor housing stock, bad schools, no nearby amenities, high crime rate, etc.)
4. Have saved up a down payment over a very long time
5. Willing to be extremely 'house poor' (>35-40% of income going to mortgage service)
6. Get help from family (inheritance, or have gotten help from family for other costs (ex. parents paying for college) which allowed saving for down payment)
7. Bought pre-boom (and have since enjoyed incredible appreciation)

Of course, some folks have taken multiple and overlapping approaches, and there's also the chance we're missing some.

At the end of the day we recognize that we are much better off than most and count our lucky stars each day that we have what we do. We recognize we are truly fortunate. And we don't want this post to be construed as a 'woe is us' lament. However, it's disheartening that mid-career professional families can scarcely afford the area.

I would like to hear about those of you who want to buy in the area eventually and face similar circumstances as us. Which path to home ownership are you planning to take?

We are #7 and #8. I have to stop myself from feeling jealous of my friends' $1.5M houses but at the end of the day I am happy in my well-located, somewhat unideal inside-the-beltway "shitshack." Very similar house in my desirable neighborhood/school district is coming on the market for probably $700K this weekend and I hope we get some nice, modest neighbors instead of someone tearing it down to build something atrocious (likelier).

[Anonymous]

Anonymous wrote:Saved a 20% down payment and bought a house for half the amount we were approved for in SS, which is too "ghetto" for half the people on this board.

+1, Except we bought in Burtonsville. We lived in apartments paying way below what we could afford for 2 1/2 years in order to save up for that down payment. It sucked at the time, but was well worth it. Our mortgage is super cheap, we have a big yard and our commute is not bad. But it all depends on what your priorities are.

[Anonymous]

Anonymous wrote:

We came at $375k a few ways:
1. Many calculators recommend putting 20% down. $75k is the upper end that we'd be able to muster in a best-case scenario while factoring in closing costs. Also, we don't want to drain our emergency fund to come up with additional money and we may have another kid soon, in which case we'll need additional savings. Based on previous comments, I may consider putting less down and paying PMI but that will be a bitter pill that I'd rather not take if I can help it.
2. Many calculators recommend not going above 2.5x annual income. That may be conservative but it's what we're comfortable with.
3. Many calculators talk about 28-36% gross income for mortgage payment, but this seems really high, particularly since we'd only probably be able to afford a fixer upper (which will require additional money along the way). Right now our rent is much less than that and we'd like a mortgage that's close to our current rent. That way our cost of living will be predictable. And that's in addition to existing childcare costs, college savings, and retirement savings (let alone groceries, etc.)! Paying 28-36% toward a mortgage payment would substantially change our household expenditures picture.

All of these factors steer us in the vicinity of $375k. Evidently most folks are willing to stretch themselves further than this (hence the high prices). I can't think of any other way.

OP, if you purchase a house for $375,000 with 20% down, you'll have a mortgage of assuming a mortgage of $300,000. Assuming taxes of $3000/year and an interest rate of 4.5%, your monthly PITI will be roughly $1820. (I imagine that's considerable less than your rent right now). That's $21,840 per year, or 14.5% of your gross. I understand you don't want to get up in the 28-36% range, but you're a long way from there at $375,000. And nased on what you've said you want, $375,000 just isn't realistic.

Especially when you factor in the tax deduction you get for mortgage interest, especially in the early years. You're effectively getting 1/3 of your mortgage payment back in tax deduction, so your net income becomes higher.

[Anonymous]

Anonymous wrote:OP here again. Thanks for the comments received thus far.

A few points:
Part of our frustration is that while we live centrally, I work downtown and my wife works in Fairfax. So we can't really move further east without worsening her commute (which is already terrible on 66). Of course, going west really doesn't help the affordability problem at all. Otherwise, we'd be able to consider Brookland, H St., Takoma, or PG.

Additionally, another frustration has been our lack of being able to save due to childcare costs, etc. We have decent savings, retirement, and are beginning to save for college costs.

Saving for a down payment on top of that in this environment is intimidating and would take years. In fact, you could argue that houses are appreciating faster than we can save. What's the point of saving, say, $15,000 per year when house values rise $40,000 per year? It's clear that you've missed the boat and that 'path' is no longer viable. Further, I'm not comfortable putting only 3.5% down. I'll be paying PMI forever and I hate paying interest on anything as it is. It's just more money down the drain.

I love it when people want to live in "Downtown" or close to "Downtown" and they WORK IN FAIRFAX?!?!?!?!?! Are you serious? You have been throwing money away month after month to live in downtown DC when one of you works in FAIRFAX! Any you don't know why you can't afford a house?! You seem to lack basic judgement (as well as basic financial sense).

If, for example, you were willing to use one of you 7 path, specifically, move out near your wife's job in Fairfax and become a commuter to you job in DC, you would accomplish a couple of important things. 1) You could find a more affordable house and 2) presumably, you could find cheaper child care cost. Reading your 7 paths (and your subsequent postings), it appears that on some level you think people are able to follow one of these paths as if by magic. NO. It is by hard work and, often, by doing things that aren't exactly what you want. For ex., I imagine that you love the idea of living downtown. You are in a high-rent area (waste of money). In addition, your cost of eating out, child care, etc. is all high. And you do this b/c you VALUE that lifestyle more than you VALUE homeownership.

Those of us who did take a path like the one's you've listed simply VALUE homeownership over downtown living, eating out, etc, etc. I rented in Dupont for a while after getting married. But, when all of our friends remained in cool rentals, my DH and I saved our money and bought a fixer-upper house WAAAAY out (by 20-something standards) in...Palisades. Yup, it was pretty uncool amongst our friends at the time. Fast forward about 10 years (and plenty of home projects, missed vacations, un-purchased clothes/shoes), we sold that house for about $1mm more than we bought it for. We VALUED home ownership, so we made it happen for ourselves (whilst paying off student loans, saving for kids' college, etc.) even when it would have been "easier" "cooler" "hipper" or "more fun" just to stay downtown renting.

You have plenty of options. You just need to decide what you value and then work toward that.

[Anonymous]

For one thing, 17:24, one works in Faifax and the other downtown. Not sure why your first squawky paragraph was necessary.

And for you to have bought a fixer-upper in Palisades over 10 years ago when it was considered way out there - and to have made a $1M profit? Yeah, you were in the right place in the right time, benefiting from external factors you had no control over.

Just stop. Please. You have no useful insight to bring to this thread.

[Anonymous]

OP, we have a HHI similar to yours (well, very slightly higher now that I have changed jobs but basically equivalent, or possibly less when adjusted for change since we bought our house in 2000.

So yes, we bought pre-bubble and our home value has doubled since then.

We also are both very thrifty and probably could have saved the money ourselves, but my DH had some money his parents had set aside for grad school that he never used, so we used it instead for a down payment.

We looked and bought in Arlington, which unfortunately has become even more expensive and competitive than it was in 2000, and at that time houses were receiving multiple bids, bidding wars, escalation clauses, etc. Frankly we were lucky to get our home.

We chose the strategy of smaller, older house in a neighborhood that we like but is not considered a top Arlington neighborhood. At the time we didn't consider schools, and many DCUMers think our neighborhood school is abysmal, but it isn't and we came to love it and our kids have thrived there.

To buy in this area, unless you are very wealthy, you have to be willing to sacrifice something. In our case we learned to live with a small house, no garage, and in a neighborhood and school district that lacks prestige (although everyone who lives in the neighborhood loves it and is happy with the schools).

Hang in there...good luck.