Should you factor in two incomes when buying a house?

[TBH]

In defense of 'bad' neighborhoods--
We had an infant and my job had ended when we were looking for a house, so we were forced to buy based on one income. The bank said we could afford a $300K house, which would have enabled us to buy in a much nicer neighborhood with better schools. But we bought 3.5 years ago for $70K instead, in a very edgy neighborhood, and for the most part we've been very happy with the decision.

One income carries the house and our major living expenses easily. The other income (part-time income only) allows us to save more than we would otherwise, and pays for things like trips to see family.

I recently had a major medical crisis and let me tell you, it was wonderful to not have to worry about money while I was lying in a hospital bed. I would never want to own a house that required both incomes.

The one thing that is different about my situation is that I live in a large city and we have school choice. We can opt out of our local neighborhood school (which sucks) and go to one of the better schools on the other side of the tracks.

If I were in your shoes and I didn't have school choice, I'd probably buy in the better school district, but I just wanted to tell my experience because y'all seem so against buying in lower income neighborhoods. I think some lower income neighborhoods can be great, stable communities and I'm very glad I'm not like many of my friends, who live in the 'nicer' neighborhood but can't weather the smallest emergency without getting deeper into debt.

[Snowgirl]

What I have trouble understanding is why losing one of 2 incomes is scarier than losing you ONLY income, should something happen. With no income, you're in big trouble, whereas with one of 2 still left, you have more room, and with cutting expenses +EF you might get along for a while, even if your mortgage "needs" 2 incomes. I mean, would you advise a single not to buy a house, because it's based on his total income?

We have 2 good incomes (DINKS), and we made the choice of buying a house based on that. Sure we didn't max out on what the bank allowed (we'd have to stay home and eat noodles if we had!), but got a mortgage payment that fit in our budget+lifestyle with room to spare. In case of a job loss, we could probably still afford it with great cost cutting measures, on a temporary basis. We'd still be better than a single income family.

I think you should go for the house based on 2 incomes if you intend to keep the 2 jobs for a while. If/when you have kids, you could always move if there really is a need. It is great to plan ahead for possible scenarios, but you realize you might never have kids or such, or it might be a long time before that and your income bigger then. Buy what you prefer, if you can afford it, and if it makes sense.

[disneysteve]

What I have trouble understanding is why losing one of 2 incomes is scarier than losing you ONLY income, should something happen. With no income, you're in big trouble, whereas with one of 2 still left, you have more room, and with cutting expenses +EF you might get along for a while, even if your mortgage "needs" 2 incomes.

There is a book called The Two Income Trap by Elizabeth Warren and another woman whose name escapes me at the moment and they discuss this in detail. Their theory is that all the families with two working adults are actually more vulnerable financially than a "traditional" one-income family.

They have some interesting points and data to support this. If you are interested in the topic, it is worth reading. I don't agree with all of what they say, but they do make some good points.

[Snowgirl]

There is a book called The Two Income Trap by Elizabeth Warren and another woman whose name escapes me at the moment and they discuss this in detail. Their theory is that all the families with two working adults are actually more vulnerable financially than a "traditional" one-income family.

They have some interesting points and data to support this. If you are interested in the topic, it is worth reading. I don't agree with all of what they say, but they do make some good points.

Might be worth a read, if the library has it. However it might not apply much here in Canada, with the public school system very strong, and the various social benefits (health care, paid maternity leave , ...). I also fear that it's based on being "trapped" to work, and that each woman's dream would be to stay home and have kids! I'd get crazy spending my whole days with only children to talk to, and doing housework. I got a university degree for a reason... I still don't know how I'll survive my 1 year maternity leave if we have kids. And I'm by no means an ambitious career woman, just a girl who loves to excel at her job.

[disneysteve]

I still don't know how I'll survive my 1 year maternity leave

Why do you have to take 1 year off? Most women I know only took a few weeks, no more than 6-8 weeks if they had a c-section.

[LivingAlmostLarge]

Because steve everywhere but the US has a real maternity policy. Only in the US do we expect women to heave ho back into work asap. 6 months is very common in Europe, if not one year.

It really depends, I think I'll make a good income when I work. And I made a good income before I went back to school. So, the problem is when there are disparate amounts earned by the couple.

If both make $50k then going to one income is hard. But if one earns $80k and the other $20k it's a whole different ballgame and there is definitely a financial benefit to one person not working.

Also another problem is at a babycenter board I read, they said if you aren't earning $40k/year, then it's not worth daycare, extra commuting, dry cleaning, eating out = working expenses. I don't know if that's true, but when I left my job in 2003, I was making more than that. So it's likely still worth it for me to work.

However, I'd prefer to stay at home. But that may not be an option if DH wants to run his own business. We'd need a stable income, health benefits, etc. So finances would not be the only decision.

Although it'd have to be a darn lucrative business to make DH give up his day job.

[Snowgirl]

Why do you have to take 1 year off? Most women I know only took a few weeks, no more than 6-8 weeks if they had a c-section.

As LivingAlmostLarge said, because here we have a paid maternity leave: 25 weeks at 70%, then 25 weeks at 55%. Because of that, daycare for very young infant is very hard to find, and frankly, I think a 1-2 months baby is too young for daycare (no available grandma) so I'll take the time, at least 8 months. It's even much easier if they're over 1 year. My boyfriend would also be allowed to take part of this leave (parental leave), but it would hurt his employer (very small place), so he wouldn't do it.

[Staceyy]

I'm a former mortgage professional. When I purchased my house, I qualified on my income only. Good thing because a few years later I was laid off. Dh picked up the slack and has been making the payments ever since. It has been two years since the layoff and I still have not found another job. I also having been in the business knew to get a fixed rate loan.

The folks I know who have done the best financially in life kept trading up. They started by buying condos or small starter homes and kept moving up over the years to something better.

[TBH]

Also another problem is at a babycenter board I read, they said if you aren't earning $40k/year, then it's not worth daycare, extra commuting, dry cleaning, eating out = working expenses.

I really think that depends. For us, the take-home pay helped a little but was not really the point. By continuing to work mostly part-time since my son was born (he's 4) I've managed to build my retirement savings quite a lot, and pay for things like trips to see family (my family lives in beautiful places that are very very far away and expensive to get to--some across the Pacific and across the Atlantic). My part-time jobs have also provided me with health insurance, which was important since it was really expensive for me to be on my partner's plan. And the places I've worked are casual enough that I can bring a bagged lunch and don't need to dry clean my work clothes.

We did pay for part-time daycare, which in a daycare center is more expensive on an hour-by-hour basis than full time care. That always annoyed me. But my son will be school age soon enough and then we'll have free childcare, I mean public school, for much of the year.

I also think it can be worth a lot for future job growth to continue working at least part time so you don't have big gaps on your resume. Unless you intend to stay out of work indefinitely, which is a fine choice if that's what you want and it's feasible.