Advice for buying a home

[tbc32]

Here's the situation that we're in. I am a doctoral student with:

• little debt (car loan and 35k in student loans),
• little assets (3k in an index fund, 7k in a target retirement fund/Roth IRA, 1k in individual stocks, 5k in cash),
• little income (just my student stipend of less than $20,000/year and another $2-3000 from web design and illustrating jobs on the side),
• and a little family (wife and two kids).

We've decided to buy a townhome (we'll be here for at least three more years) and found one at a great location for an amazing price. Our offer was accepted and the bank will pre-approve a loan for us provided we pay our car loan down from $8,500 to $2,500. We really like this bank because they will work with multiple first-time home buyer programs (HANDS and HOP), programs that will match our down payment and then some, giving us an additional $8,000 to put down on our home (with our $5,000 cash). We've contacted a dozen or so banks and mortgage lenders in our area and this is by far the best option we have. So we have to figure out how to pay down our car loan without using the cash we have saved for a down payment and hopefully keeping as much money as we can in our meager retirement account. Here are a few possible scenarios. We could:

1) Cash out our $3,000 index fund and $1,000 in individual stocks, taking a loss (this loss won't help us with taxes, our income is so low we get everything back anyways), and scrounge up loose change for the rest.

2) Ask our bank to lower the interest rate on our debit card credit line (currently 9.75%), extend our credit from $1,000 to $5,000 and live off credit this summer until we can take out more student loans in the fall. If they won't lower our rate we could get a second credit card and use it.

3) Try to get some extra work pronto. I do a little web design but don't have a ton of free time (between my research and school). My wife is an illustrator, already extremely busy on a project that won't pay her until the summer time.

4) some sort of combination on the previous three.

So, what do you think? What would be our best option or is there something I haven't thought of? (I have no rich uncle).

[jIM_Ohio]

Wait is the best option.

The bank might have qualified you so they can make money. It does not mean that is the best choice for you.

3 years will be tough to break even on the house. Look at costs to close on the condo. Look at costs to sell the condo. What gains would you get in the 3 years in between?

My advice is reduce the risk and Rent and invest for 3 years. Then when you graduate, look at your current savings, and see that lower expenses are better than owning a condo for only 3 years.

Especially in this real estate market. I doubt you would get more than 2% more than you paid for condo now in 3 years when you sell, and I bet closing costs and selling costs would be 5-10% of the cost of condo.

The alarm for me is you are willing to borrow at a 9.xx% rate to get into a condo when you have little other income. NO WAY condo will appreciate faster than 9.xx%. NO WAY.

[tbc32]

Sorry, I should have been clearer about our intentions... we should come out on top 1. because we are able to take advantage of $8,000 of free money given to us at closing (from HANDS and HOP), and 2. We plan on keeping the townhome after we move as a rental property. We've been renting but want to start building equity and own our own place.

[jIM_Ohio]

Originally Posted by tbc32

Sorry, I should have been clearer about our intentions... we should come out on top 1. because we are able to take advantage of $8,000 of free money given to us at closing (from HANDS and HOP), and 2. We plan on keeping the townhome after we move as a rental property. We've been renting but want to start building equity and own our own place.

I still have not seen logic to get 8k of free money when 6k will cost you 9.xx%.

Just because the 8k is there does not mean it is free. Tell bank to wait until you can pay off your debt from 20k of income. Maybe have wife get a second job?

[project15]

I agree with Jim. Unless this townhouse is $60k ($20k * 3) and you have a 20% down payment, there's no way you can afford this right now. Rule of thumb is to not buy more than 3 times your household income - this includes the 20% down payment.

Besides, closing costs are painful - im going through the process right now. I'm writing checks left and right for inspections, attorney, etc...

[disneysteve]

I have to agree. I don't know how much the house is, but I don't see where the money is coming from to consider buying. Heck, I'd like to know how you are supporting a family of 4 on 22K/year while also making car payments and student loan payments.

[maat55]

You are not able to do this with any comfort. You should not be living off credit lines or credit cards. This is not an investment, in anyway, the way you are doing it. Be patient and rent, keep your living expenses to a minimum and keep saving money instead of borrowing.