25 - Need help creating a financial road map for the next 3-5 year

[finance102]

I feel like I have a good grasp on our personal finances but I'm struggling to figure out where to go from here. I'm employed as a full time engineer making $68K/yr and my wife is a PhD student on a fellowship that pays $30K/yr. My wife's income will likely be quite a bit higher after she finishes school but obviously we cannot guarantee that.
We're in Chicago and live in a comfortable townhome that costs us $1500/month. We have no remaining student loan debt, no credit card debt, no car loans - no debt whatsoever. Part of my paycheck goes into a 401K, HSA, vacation fund, and generic savings account every month. We also contribute a nominal amount to a roth IRA.

We established a $10K emergency fund and have close to another $10K in savings/conservative ETFs. There is a chance that our landlord will be putting our townhome up for sale in fall, probably for around $180K. While we enjoy the place I don't think we like it enough to buy. It's a perfect size for the two of us but isn't really something you can "grow into." Most things I've read say that in this market you shouldn't be purchasing property unless could deal with living there for an extended period, even greater than the traditional 5 years recommendation.
The idea of being a home owner appeals to me but I would want a larger single family home. Is that shortsighted logic? Should I be seriously considering this town home or condos?

Also, coming up with 20% down payment in the Chicago market is quite daunting for us. If we bought property at any point in the near future I see no way around being forced to pay for private mortgage insurance, which feels like a waste of money. But is paying for rent any better?

So which option would you pick?
1 - Try to continue renting for the next few years, at least until my wife graduates and is employed full time. If we get kicked out of our current place, begrudgingly search for another place and waste more money on moving expenses.
2 - Consider buying the townhome we're currently renting?
3 - Consider buying a more expensive single family home? We would have a meager down payment and how would lenders feel about my wife's student status?

Any other general advice?

[mcsmith76]

There is a lot of things you talked about here however I am unclear on things like your age (25?), job stability, desire for a home, years remaining of your wife's fellowship, her future earning potential, your desire to remain in Chicago longer term, if you need to replace a car soon, etc, etc. Given this lack of understanding, I almost find it illogical to even offer my recommendation.

So, if you can clarify the above items it would be helpful.

Otherwise, what I sense is that you are not financially ready (but doing fairly well) to do the home purchase until you do a few things:

1. Lock down the $20k as emergency savings only.
2. Max out your 401k or split the 401k and max fund the Roth IRA.
3. Being saving for a home with the remaining cash.
4. Use the income from your wife's next job to help with #3 (after she does #2).
5. Get 20% down on a home that you feel comfortable with.

I would not let moving expenses or renting stand in your way of prudence. You will be grateful that you disciplined yourself to save the 20% down and it only seems reasonable to wait for your wife to land her full time job before considering any purchase.

Just my perspective based on your note...I am in a similar situation and I have actually found peace in the monthly rent payment after previously owning a home.

[jpg7n16]

My vote is for option 1.

Home might even be sold to someone looking for a rental unit, and would be attractive as it is already rented.

I would not buy a home I don't want and am not in a position to buy, just because I might have to move. You haven't really given any strong reason why you should buy it...

[Bades]

How much are you able to save monthly after all expenses?

[Goldy]

I vote for option #1.

My wife and I were in a similar boat when we were both in our masters programs and realized that we could actually afford a house. We started looking but thanks to this forum decided to wait and build up our house downpayment budget. Turns out we quickly got relocated and the fact that we didn't have to sell a house was great. With the money we saved in those years renting we were able to buy a house with 30% down and live a very comfortable lifestyle.

Alot of my friends bought houses too soon and can't seem to outgrow the starter home since they are stuck paying PMI and higher interest rates since they can't refi. I really think option 1 is the way to go.

[MonkeyMama]

#1

Like McSmith said, not enough info to say for sure. But your post gives off the impression that you are not financially ready to buy, and that the only reason you are considering it is given the fact that you may have to move.

To be fair, I despise moving, and have always had a longe range financial plan to move as little as possible. BUT, if I had been kicked out of my rental in my teens/20s, I would have just had to suck it up and move. I don't see how "rushing to buy" helps anything.

Also, if you have no debt, good income, etc., I don't see why you can't come up with 20% down. It takes time and patience, but many many here will tell you horror stories about rushing into home ownership. Renting is fine - no need to rush.

If the area is expensive, you may just have to adjust your long-run expectations. I am from a city where we found "single family home" ownership well beyond the reach of sanity. We bought a condo, but were darn sure it was something we could live with for the long haul because it was likely all we were ever going to afford. Buying a home/land was just financial foolishness. Sometimes it just is what it is. You have to decide what is more important - the home, living in the area, fiscal soundness, etc. Trade-offs.