When to purchase a first home?

**Tree0164** · 10-13-2012, 01:23 AM

Do you have a down payment? Banks and mortgage companies are requiring 10% and in many cases 20% down payment. You can start pre qual process.

I would also make sure that you have an emergency fund all set as well Being a homeowner you are responsible for all maintenance that you just don't have to deal with as a renter.

You have alot of debt right now. I would focus on that. Not everyone needs to own a home.

**elessar78** · 10-13-2012, 03:02 AM

hey cherry,

We were in a similar boat although with less stuff, no dogs, and debt levels are comparable. My mom kinda sealed the deal with a generous gift to push us over the 20% downpayment threshold.
We got a great deal for the house at a fantastic interest rate. Property taxes here haven't been adjusted since 1969! And we got a great rate for homeowner's insurance.

I was actually the one who was always against buying a house before we were "ready," but being in it now shows me that we were always ready for this.

But the cost of ownership of a house is much higher than just the mortgage/taxes/insurance. You'll want to make it a home and maintain it, so plan on having to spend more on everything. We did a sample budget and lived off that and banked the difference. We felt that it wasn't such a stretch so we went ahead and did it.

Don't get pressured into anything. Like you, my mom was really insistent for years and that she would help financially to make it happen. But we didn't do it until we were ready. While we are thankful for the help, she made the same arguments about interest rates in 2009 and they just kept going down. So even when we hit bottom and rates are 0.25% and things start creeping back up�more than likely you'll still have a good rate a few years down the road.

Kids don't care where they are born. You don't need a title to the place you live to have a child. As long as it has loving, committed parents they'll be all right.

**MonkeyMama** · 10-13-2012, 05:38 AM

I don't think the debt is a deal breaker, but you will definitely want 20% down and a decent emergency fund. The bottom line is if you can't save up a down payment, then you probably could not afford all the costs that come with home ownership. In the interim, since you don't have kids, I would rent the cheapest/smallest place possible to that end (that is what we did - bought first home in VERY expensive city). Either that, and/or I would be working very hard to save up the money.

Definitely don't let others pressure you. Honestly, there has not been a year since I graduated college (1999) when it wasn't "the best time ever to buy real estate." When we bought and every year until about 2005 was "you have to buy because you prices will go up forever and you will never afford it." Every year on the way down is "interest rates will never be so low, real estate will never be so cheap." Frankly, I don't think we have hit bottom yet, and interest rates will be low for a while. & even if they are not - it's infinitely better to buy a house that you can afford at a higher interest rate than to buy one you can't afford at a lower interest rate.

I have personally watched just about every single person I know lose their house to foreclosure - a lot of hasty home purchases. So, that is my point of view.

**humandraydel** · 10-13-2012, 06:11 AM

Originally posted by cherryblossom View Post

We can swing it with the mortgage approval and small down payment (from my parents)--but I wonder if just because we can doesn't mean we should.

Are you sure you CAN "swing it"? Because I'm not convinced a bank will approve you - based on the information you've provided so far. How high is your debt-to-income ratio? Do you have ANY savings of your own? Banks do NOT like it when your down payment is from family and you have no other savings. What happens if the roof leaks? Or the furnace breaks?

**isaac** · 10-13-2012, 06:58 AM

My Wife/Dog/Myself were also in the 'really want to stop renting and buy a house' boat not so long ago. We finally realized through reading savingadvice.com forums that we were nowhere close to ready. We're paying off everything, saving $10,000 emergency fund, and 20% downpayment before we even start looking at houses. I feel we'll be much better off in the long run.

We have been looking at cheaper apartments though. You say you rent a house for just two of you, where I live houses are insanely more than apartments. I think you should consider downsizing while you save.

We found a lovely 1 bedroom apartment that's perfect for the 3 of us and is around 1/3 the price of local 3bedroom houses that are for rent.

**chrisburke21** · 10-13-2012, 08:36 AM

Housing Dilema

I would have to say I agree with Issac above. You might find yourself in a situation a lot of other people are in. Which is house rich and cash poor. I would at least knock some off of the debt and have a reasonable emergency fund. Especially if something goes wrong with the house you buy. For example a new roof etc.... could end up putting your family in a very bad financial situation.

**dontgopoor** · 10-13-2012, 09:17 AM

I agree with the posters who say to pay off your debts before you buy a house. You don't want the added burden of a house payment (and all of the other costs that come with home ownership) plus the costs of kids on top of your debt.

Yes it will take time and yes it will be hard - but you'll be glad when you start your family and home ownership with no debt.

**elessar78** · 10-13-2012, 09:37 AM

I'll be the first to say that I'm probably trying to rationalize our own situation in my answers.

We were also at the point where our current home payments are actually ten dollars less than what we were paying for rent. Sure, it doesn't account for ancilliary expenses of owning a home but I think it's a good comparison. We have low household overhead so the home isn't such a strain. We're still saving like we were before we bought. Yes we added risk but it's a calculated risk we took based on our specific situation�I'm a pretty risk averse person.

Yes, there are ideal ways to do things. But as long as fundamentals of personal finance are still observed and you know what you're getting into then make the decision. I'll never use the term "take the plunge" because that implies a degree of blindness that I would not recommend anyone take particularly with buying a home. Do your research, crunch numbers, put your budget and finances through "stress tests"�how would your budget hold up to a mortgage payment, increases in utilities, and a surprise $5,000 repair/tax bill etc?

How many responded to the modified Dave Ramsey plan?

**cherryblossom** · 10-13-2012, 01:28 PM

Thank you all for the great advice!

To the person who said we would likely not be approved for a mortgage, we had been preapproved last year. I became self-employed this year but have the option of going full-time which would allow us to become approved again (as self-employed people need 2 years of income tax returns).

The house we rent now is a 3-bedroom in Colorado Springs and costs us $875 plus utilities. We had rented a one-bedroom apartment in a building when we first moved out here that was $700, but we ended up paying $50 a month for pet fees, and doggie daycare for our dogs since there wasn't a yard. If we are renting by next year, I will want to move to a nicer home and will probably pay a little more.

Does any have ideas on which types of debts would be okay for homebuyers to still have? I know I would at least want to get rid of all the credit cards before we buy--but what about car payments? (Mine is at 0% interest, and husband's is at 4% but we plan to sell his). I am least concerned about the student loan debt at 1% because that is a payment of $135 a month.

**Wino** · 10-13-2012, 05:23 PM

There are some simple rules for ascertaining your financial health. Note that the exact numbers are variable, and there can be arguments, but what follows is good enough for you to do a financial snapshot.

Gross monthly income is used for the calculations, but I think this is not correct. I think that medical policies, and FICA, etc. should be deducted, as those fees are unavoidable or extremely stupid to ignore. You should NOT deduct your federal withholding or 401K or other variable and somewhat avoidable deductions. Regardless of my opinion, though, gross income before deductions is used by most people for these calculations.

Total debt should not exceed 36% of your gross. Housing debt should not exceed 28% of the gross. This makes it easy to see that 8% is allowable non-housing debt. Savings should be a minimum of 10% of your gross (some say 15% here). Emergency fund (over and above savings, and very liquid) should be three to six month's of your expenses. For most folks, I'd suggest six times your monthly take home pay.

As you gave no income figures, no one here can help with your decision by giving his opinion. How much you owe, or how much your payments are, is only half of the equation. In fact, I'd say those two pieces of data only add up to half the equation. If I were in your position, I would start by writing down my monthly gross income, then subtracting the "mandatory" items, then the "voluntary" items, leaving the net income you have to work with. (Note: mandatory are unavoidable deductions: FICA, Medicare/caid, health insurance; voluntary items are Federal income tax (you can lower this by charity, deductions, or by some amount if you get back any refund at all), life insurance, 401K, stock plans, etc. I realize that which category things fall in to is a judgment call, but I think this step is worth it if you are running close to the wire financially.)

I would then write down my total debt amounts. After that I would write down my monthly debt minimum payments (as they are this month; credit cards will vary for instance).

Comparing all of these numbers should make it fairly obvious whether you can buy a house or not. If you have $1000 left from the above - remember, there's no food, utilities, rent, or anything else in the above - you should not be buying a house.

Lastly, write down all of your monthly bills (separate from the debt payments). This last is where you have a chance to change your situation. You can rent a cheaper apartment (once your lease expires). You can use a cheaper cell phone plan (once your contract expires or once you determine paying off the plan is cheaper than keeping it). You can cook more meals from scratch. You can turn off lights or turn up/down the thermostat.

So you have pluses: income and assets. You have minuses: debt and expenses. And you have desires: a new house, car, college tuition for your kids, or retirement. These things all add up to zero.

So, do the math and decide if you can afford a house.

**snafu** · 10-15-2012, 11:13 PM

The government has made it clear that they have no plan to raise interest for two years. Million of people are still underwater on their mortgages, owing more than their home would be worth if they were to list for sale. Depending on where you live, there may be another reduction in pricing for the latest tranche of defaults.

If you list all your assets and expenses, many SA participants would likely crunch the numbers and make suggestions. You can watch house values on-line in the district you would be most likely to buy and use an on-line mortgage calculator to work out costs. Keep in mind that the mortgage is just one of a myriad of costs in home ownership. The amount of time you need to devote to home ownership is often a surprise to newbies. There is a huge amount of work and costs in moving. I believe it was listed as the 4th most stressful of life's events.

I certainly wouldn't buy a house without 20% down payment and 6 months emergency cash fund in these difficult economic times. Understand the cost of mortgage insurance is in addition to general perils home owner insurance that will continue for the life of the mortgage.

**TBH** · 10-16-2012, 06:25 AM

We bought our first house when our son was a baby. We felt we didn't have a choice. We were living in a tiny apartment in a hip neighborhood, and after we bought in a less trendy neighborhood our mortgage payments were 2/3 of what our rent had been, and we had twice as much space.

However.

I sort of regretted rushing to buy because we bought what we could afford and it wasn't a house I really wanted to live in. We were there 5 years and I couldn't wait to get out. When we bought our second house, we agreed that we were going to wait til we could afford a house we'd both want to be in long term.

So I guess I'd say that it's better to rent for longer until you can afford the kind of house you really want. Okay, maybe not your dream home, but something you'll be able to really be happy in.

I think you should try to eliminate credit card debt before you buy. A manageable car payment and student loan debt seems okay to me, depending on what your payments are. Nice that your mom will help with a down payment, but it's none of her business when you buy. I am very familiar with generous parents who think they can tell you how to spend your money because they're willing to help you out. You have to resist. If she wants grandchildren that badly tell her to get a babysitting job.

**YLTL_Dan** · 10-16-2012, 07:19 AM

Wow, sounds like you are getting some major pressure from your parents! Remember, the kids are like toys for them because they can put them away when they're tired of them! This is your decision, and you shouldn't let them push you into buying a house or having kids before you're ready.

I agree with everyone else here... you have way too much debt to buy. Why not rent a house if you really want to get out of the apartment? Houses are really expensive when you add in all of the extra stuff you have to pay (utilities, insurance, maintenance, etc).

**cherryblossom** · 10-16-2012, 08:25 PM

Yes, there is a lot of family pressure to buy. My parents like to point out frequently how they have never rented in their lives. I have to keep in my mind though that my parents are in a very different financial sitaution than us.

Here is more info on our finances: I am self-employed working as a contractor. I make $65 an hour an average 20-25 hours per week. Therefore income varies. My husband makes $30k a year. We have one car payment at $350 per month (at 0% with $13k left) and another car payment at $250 per month (at 4% with 8k left). Our credit card debt totals $11,500. Two of the cards are at 0% interest and our main card does have interest so we pay more towards that balance. We generally pay a lot more than the minimum balance per month. I have $14k left on a student loan at 1% interest with payments at $135 a month. We have $5k in stocks. Our major expenses is our house rental at $875 a month plus about $150-200 in utilities, health and dental insurance at about $400 per month, gas at about $400 a month (some days I have to drive 200 miles for work), retirement account at $200 a month, internet costs $55 per month, cell phones (2) at $100 per month, food is $500 per month, and our dog expenses are around $200 a month.

We don't have a landline or cable TV. We cook all our own meals and rarely eat out. While we can cut some of our food costs, eating healthy is hugely important to us and is not something we are willing to give up on. We have been listing my husband's car on craiglist to sell, as my parents have a car they will give to us for $500. However, no one is jumping to buy a mustang convertible right before Colorado winter and so we probably won't be able to sell right away, but when we do we will probably be a one-car household for a little while. I do have the option to work more hours...however, our home tends to fall to pieces if we are both working full-time. We just don't have those time management skills to get all those things in order that seems so easy for other people

For us disorganization is in every area.We shop at thrift stores and don't buy clothes very often. Our gym membership is free and we don't have much in the way of entertainment other than Netflix and our dogs. I feel as if we are so frual in so many areas--but just aren't making any headway....

When to purchase a first home?