Should we buy a house?

**Fizgig** · 03-31-2007, 06:12 PM

Just my opinion, but I think a house may be biting off too much right now.

A good rule of thumb is to buy a house no more than 2.5 times your annual income, so with your income that's a limit of 172k, which is not available in your area. Do you expect your income to change (decrease) after the baby - time off, etc? Your expenses will surely go up, and if you continue to work full time there's daycare costs.

I'm estimating that your monthly take home is around $4500. A 30 year fixed 300k mortgage at current rates is $2000/mo. Figure another 4% of the home's values for taxes and insurance (check actual values, this is just an estimate), and that's another $1000/mo. Now you're up to $3000, which is 66% of your income. Can you really afford that? Can you afford food, daycare, utilities, retirement savings, clothes, probably someday a car payment, on what's left?

I think it's a good choice to continue renting for a year after the baby is born so that you can adjust to the new lifestyle and expenses before tying yourself down to a huge debt. Really, young kids don't care if they're in a barn or a mansion.

**disneysteve** · 03-31-2007, 06:24 PM

Originally posted by bandelove View Post

The thing is i want to know your opinions on whether you think this is a good financial move for us right now.

My answer is definitely no. With an income of 69K, you can't afford a house selling for 300K or more. You should stick to the rule of thumb of spending no more than 2.5-3 times income, so a max of 207K. Besides, why do you need a 4-car garage, especially in a starter home.

That said, I don't think that you can even afford 207K. Why? Because you are having a baby soon. That means a couple of things. Mom will be out of work for some period of time, at least a few weeks, maybe more if she has a C-section. Then, either she will go back to work and you'll have child care expenses or she'll stay home and you'll lose her income. Plus your day to day expenses will rise with diapers, formula, higher medical costs, car seat, stroller, toys, etc.

**shelbylovesmelby** · 03-31-2007, 06:31 PM

I agree don't bite off more than you can chew. Since you are young and pretty much debt free, I would look @ finding like others have said a starter home that may need a lil work (as all homes do one way or another) & has a decent yard. Don't forget to watch the taxes on the homes as well, they don't account for that usually on online calculators into your monthly payment.

Plus, you need to not just live to pay your mortgage but for your impending child & things you will need in the future.

Including the things Steve factored in..... Day Costs if mom goes back to work, the loss of income if mom has a change of heart (like I did) after going back to work & become a sahm that's half your income GONE. Don't forget your insurance premiums/contribution will go up w/ the addition of a baby. The wedding of your dreams may also be out of the question.

I just wouldn't want to see you guys living like my mil's old neighbors did.... they only ate bolognia sandwiches & they were soo broke my mil said they washed clothes in the kitchen sink because they were approved for this HUGE house but couldn't even affford to put appliances in their home nothing. They just worked to pay the mortgage for their lakefront home & had nothing else to show but a house they couldn't afford. The realtor & mortgage company really saw a sucker comming with that family.

So in summary don't live beyond your means even if they approve you to do so as you don't know what the future holds once baby gets here & beyond.

**getforfree** · 03-31-2007, 07:09 PM

We bought our house for 205K in 2004. our income was less than 30K combined, and I was pregnant with my daughter at the same time. At the same time we were spending lots of money on the house repairs, because we bought an older house as is. We did most of the work ourselves. We didn''t spend any money on babycare that time, because dh was working ft daytime, and I was working pt nights or weekends. Now we both got raises a few times, but our house payment is still the same, so now we even have money left over after all the bills. As long as the house payment fits in your budget, you can do it. This might mean to decreas spending in you other areas like intertainment, clothes, and working some overtime or side jobs. But it's all for just a couple years when your pay will go up, but your house payment will stay the same. If you stay in rent, your rent payment will go up and up all the time.

**poundwise** · 03-31-2007, 07:29 PM

I read through the post a couple of times and did not see a mention of a down payment. Do you have money saved for this? Or would you have to get "creative financing" to make this happen?

What about savings? Owning a home comes with a lot of other expenses that you'll have to be prepared to handle.

Also, renting is not the worst thing in the world. Buying a home that you can't handle, that takes too much of your take-home pay just to make the mortgage payment, etc. are worse options. Rent does not always go up; well, eventually, yes, but not each year and not by much each time, typically, either. I have the same rent now as I did 3 years ago, for instance. Also, when you own a home, taxes may (and do) go up, as well as insurance; coupled with maintenance expenses that typically increase with time. I'm not knocking home ownership by any means; I'm just establishing that, in renting v. owning, it is not an automatic slam-dunk for the latter.

Here's a simple rule: If you don't have the money (for a down payment, for closing, in savings, for maintenance of a home, etc.) then you aren't really ready to buy a house. Unfortunately, this doesn't stop most people because they are convinced that they need to own a home, no matter what.

Be smart. Get a house when you're ready. If that's now, then take some time and make a wise choice regarding the total cost of a home and what sort of payment fits your budget. If that's not now, then wait; plan and save.

Best wishes.

**bandelove** · 03-31-2007, 08:52 PM

After pricing mortgages it will probably be around 1900 at the most with a 30 year fixed and putting just 5% down. Property taxes and insurance are about $200 a month. If we needed to put down more we could and our parents are more than willing to help invest in a down payment. In our area this is basically the price for a starter home. Even for a fixer upper it would be around 250k or we could go for a 1200 sf manufactured home which is in the mid to upper 200k and the quality is horrible. We dont "need" a 4 car garage but with all the work my guy does with cars it would only make sense. As it is we already own 4 cars, granted 2 are classics and we dont drive them often. I dont anticipate ever having a car payment, i will always buy used because you get a better value and my guy can do all the work so it doesn't make sense to us financially.

I will be going back to work, we've tossed the idea of one of us staying home and if that was the choice we would continue to rent. Day care will be around $500 and we've factored in all these details with having our baby when we starting thinking more seriously about this. We dont spend crazy as it is, we're pretty frugal actually and toys, clothes, etc wont be an issue. We spend maybe $800 on expenses each month on food, gas, entertainment, etc. Plus, I sell on ebay as a hobby and could easily make another 1k a month if absolutely necessary. As for medical insurance we're lucky to also have that covered, at least for another year and within the next year our income should be going up.

I know it's definitely a stretch but in the town we live in rent will continue to rise, home prices will continue to rise. Had we bought a home when we first moved here 2 years ago we would have paid around 160-190k for a home. The way i llook at it a home is where you spend most of your time and even if most of your income is going towards it thats okay if you are happy. We're ready to buy and we're not happy renting a place thats old and rotting away. On paper i feel we can afford it.

**cschin4** · 04-01-2007, 05:45 AM

The worst thing you could do is to buy a house right now when a baby is due soon. You should continue where you are, take the time to enjoy your new baby rather than trying to settle in to a new home. And, after you do this and get into a new "routine" THEN go look for a home. Do not jump into this now!

**disneysteve** · 04-01-2007, 07:02 AM

Originally posted by bandelove View Post

putting just 5% down

I will be going back to work, we've tossed the idea of one of us staying home and if that was the choice we would continue to rent.

I know it's definitely a stretch but in the town we live in rent will continue to rise, home prices will continue to rise.

On paper i feel we can afford it.

A few comments: It sounds like you guys have given this a reasonable amount of thought and run the numbers so I commend you for doing that. Buying a home isn't something to jump into blindly.

In your first post, you mentioned a downpayment of "at least 10%" but now say 5%. Which is it? That makes a big difference in your monthly costs. Personally, I'm old-fashioned and still believe you should put down 20% and if you can't, you should rethink the affordability of the house you are looking at. But I admit that not many seem to share that view anymore.

Knowing you will return to work is important to the equation as is knowing what daycare will cost. It sounds like you've got that figured out. Plus boosting your ebay income would be a big help since your expenses will rise considerably between the house and the baby. I think a lot of young couples (and older ones too) underestimate the costs associated with becoming homeowners.

As for rent and prices continuing to rise, that is almost certainly true in the long term, though may or may not be true in the short term. We don't have a crystal ball to know.

All of that said, I would still stand by my original opinion that someone earning 69K can't realy afford a 300K home, but only you know your budget, spending habits and likelihood of income increasing in the coming years. That last part, rising income, is very important, as getforfree mentioned, as it can have a huge impact on what % of income is going toward housing costs. Stretching a bit to get in can work out great if you know income will be rising soon. Just make sure you are protected if income doesn't rise. And, most importantly, make sure you will still be able to afford the home costs if one of you were to lose your job and have no income for a period of time. That is what buries so many couples - They buy based on their joint income. One partner loses a job and all of a sudden they find they can't make ends meet.

Good luck.

**lgslgs** · 04-01-2007, 08:19 AM

If you both are only 22 right now, straight out of college, not yet married, and only making 69K total AND have a baby on the way you will be facing plenty of challenges over the next couple of years without adding a house (especially one you can just barely afford) into the mix.

Trust me, you don't want to try to navigate the ups and downs of the early years of marriage, career and a newborn with the added fun of surprise home repairs, being tied to a mortgage and possibly limiting your ability to relocate for a job if you need to, or adding home fix-up or renovation to the mix.

You've got enough to do just with jobs, new marriage and a kid on the way. Once that gets easy and you have a track record of being able to handle it and build up your savings account at the same time, then consider the house.

Houses eat money like nothing you've ever seen!

Lynda

**creditcardfree** · 04-01-2007, 08:33 AM

I have to agree with most of the others that you are not ready for a 300K mortgage. We make slightly less than you and I can't imagine buying that expensivie of a home on that income. In fact, we just bought a home of about 173K and we had almost 20% to put down. You will not have much left for furniture, yard maintenence, college education, retirement savings, entertainment. We also do not have car or credit card debt. Just the house. Utilities on a large home are much more than a two bedroom apartment. As a ten year home owner, houses cost more than just the mortgage...much more.

I think you would be much better off staying in your apartment or another for $950 and paying yourself difference between that and the projected mortgage payment for at least a year or more. You'll save more towards down payment and will be able to know if you are able to handle that much of a mortgage payment.

Yes, houses may increase in cost while you wait. I'd much rather buy a home for more that I can reasonably afford than to buy one that I can't afford and drains all my resources.

You are looking at $2100 towards your house on a net income of $4500. That is a huge percentage of income towards the house and not including maintenence or utilities that come along with it. And it's much harder to Ebay with a small child around...they do take some time too. It can be done, but you don't know how you will handle it until your baby is here.

Okay...lots of thoughts and just my opinion. I wish you all the best.

**bandelove** · 04-01-2007, 10:10 AM

You all raise valid points. I agree that having a baby, buying a house, and just being out of school seem like a lot going on for a couple our age an can be stressors. We've been together 6 years, living together 2 and each year we get stronger as a team- we're married just without the papers and we dont plan on having a big wedding since thats not us. Theres always going to be ups and downs, especially with careers and kids but we've already battled worse ships than that before. We've both been in our jobs for 2 years now and have come a long way in terms of money and titles. When we first moved here 2 years ago to finish school we made a combined income of 20k before taxes. I feel proud that we made it through that with no problems and help from our parents because our friends in similar situations have ended up in debt and still get help from mommy and daddy. We didnt struggle by any means in my eyes, we just managed our money well and got through it.

The way i look at it we can either buy a place here and now get a good deal (in comparison to waiting another year and using a realitor) since we know the owner, save on closing costs,know up front what utilities, etc will be and jump in knowing what we're getting our selves into.

OR we will have to move back to phoenix which we both hate, where commuting expenses will be higher, utilities higher(up here you dont need a/c in summer and in winter the fireplaces heat up the home perfectly), homes are still around 200k now, but they get cheaper the further into bfe you move. In that case we'll both have to deal with finding new jobs, moving 2 hours away, and i feel we'll still be in a ismilar boat. In phoenix everything is soooo spread out that if anything that will be a bigger stressor on our situation than anything.

Moving back would be a huge consideration because cost of living is horrible here and we cant justify paying close to what we would pay in a mortgage for a run down old apartment. We love this town, its beautiful, small and is exactly the type of place we want to live and have our family, not a big concrete city.

Renting definitely has its pros/cons but i definitely see more cons in waiting to buy in this town even knowing our salaries will increase. Our increases will still not be enough to afford any of these homes in relative terms. Cost of living here is ridiculous, a study showed you basically need to make $17.01 to afford a 1 bedroom here. NUTS! In reality there is very few people who can really afford to live here. Our lease is up in 3 months and either way we have to move.

What if he rented his home instead because that too is another option. Say it's around $1400, then would it be worth it? Quiet neighborhood in culdesac within walking feet from teh forest so you can go hiking and biking and the home has tons of space and everything we need. Consider the fact that apartments out here are minimum $950 for a 2 bedroom not including utilities, no washer/dryers inside, avg 869 sf.

**bandelove** · 04-01-2007, 10:31 AM

Another thing. Whats your thoughts on an interest only loan?

**disneysteve** · 04-01-2007, 11:52 AM

Originally posted by bandelove View Post

Another thing. Whats your thoughts on an interest only loan?

Here is a good tutorial on the topic: http://library.hsh.com/?row_id=58

Personally, I'm rather conservative when it comes to home financing. I believe you should not spend more than 3 times your income on your home. I believe you should put down a 20% downpayment. And I believe you should lock in today's historically low fixed-rate mortgage rates with a standard 30-year loan. If you can't afford to do these things, it is very possible that you are considering a house you just can't afford right now.

Remember that an interest-only loan depends on the home value appreciating to build equity rather than your monthly payments building your equity. That may have worked great a few years ago when prices were rising steadily, but today with prices flat or falling in most areas, it is a much bigger risk. You could easily find yourself with negative equity if you decide to move.

**PetMom** · 04-01-2007, 01:11 PM

We have a national housing sale slump going on now, but sounds like
you are in a coveted small town. Have you checked how fast home
turnarounds are going on now with a slump?

Some people try out a home and think they can sell if things
just are not working out. In some situations in a good market
this can actually be an option, but to depend on the selling
of house as a backup is folly.

Down here we factor in utility costs as they can run as high as
the morgage payment in some cases. You have factored that
in. That must be great to not have high energy costs.

You have a fleet of vehicles, does your current landlord let
you park that many in the apt. complex? Plus I know that working
on cars in an apt. is sometime not allowed.

You are as an apt. dweller at the mercy of the landlord raising
the rent. But, in a home you can sit here and have the insurance
rate go up, or, the property taxes. If you have a larger house
you have a more profitably taxed home.

Interest only payment? Those usually come with the no down
payment. I would research this, but I realize with our 30
year loan during the first 5 years we were basically paying
interest only.

Some cautious experts recommend purchasing a home that
can be paid for with one salary of a couple just in case, but
you need to factor in quality of home and a crime ridden
area that would not be safe.

I won't even go into the cost of repairs or the age of the
house or how thorough of an inspection to do (think flooding
during rain, how upright is the fence, are there termites - and
my favorite: the foundation shifting - just all the joys of home
purchase and upkeep). Home buying is one of the worst
places to get stung, (and so many in the transaction to sting
you, from the realtor, seller and mortgage co.) far more in my
opinion than with any other purchase.

That sounds great you are a good ebay seller, maybe you
should hike up the selling and get more for a down payment
and thoroughly search the market in your area, I do know
when all the pros and cons are weighed in that I do prefer
owning a home and with pets and kids it is really great
to have a backyard.

Should we buy a house?