Hypothetical Budget: pre-homeownership

**bjl584** · 05-15-2012, 06:17 AM

Are you contributing anything to a Roth?

Do you have a 6 month EF in place?

You may be a little too expensive on the home purchase. You may want a larger down payment or a less expensive house.

Taxes and home maintenance can be the killers. You can figure on having the taxes reasessed when you buy. They may or may not increase signifigantly. Just something to keep in mind.

**elessar78** · 05-15-2012, 06:28 AM

Originally posted by bjl584 View Post

Are you contributing anything to a Roth?

Do you have a 6 month EF in place?

You may be a little too expensive on the home purchase. You may want a larger down payment or a less expensive house.

Taxes and home maintenance can be the killers. You can figure on having the taxes reasessed when you buy. They may or may not increase signifigantly. Just something to keep in mind.

Building back our 6 month EF right now.

Not contributing to a Roth. In your opinion, should I be contributing to a Roth in addition to our 401(k)?

Taxes have not been reassessed in my area since 1969. Not kidding. The $1200 figure actually has the taxes built into it as well as insurance. Also $1200 is a bit inflated just for this hypothetical situation as our utility bills.

I appreciate the feedback, does the additional data I provided change any of your advice. Our rent is currently slated to rise to 1050-1100 by October.

**bjl584** · 05-15-2012, 07:28 AM

Originally posted by elessar78 View Post

Building back our 6 month EF right now.

Not contributing to a Roth. In your opinion, should I be contributing to a Roth in addition to our 401(k)?

Taxes have not been reassessed in my area since 1969. Not kidding. The $1200 figure actually has the taxes built into it as well as insurance. Also $1200 is a bit inflated just for this hypothetical situation as our utility bills.

I appreciate the feedback, does the additional data I provided change any of your advice. Our rent is currently slated to rise to 1050-1100 by October.

I'd be inclined to wait until the EF is back to 6 months before buying as a "just in case" fund. But, you can probably get away with 3 months as long as the rest of your finances are in order. And, it looks like yours are.

It's widely recommended that you have a Roth IRA if you are able to do so. I'd start one, even if you don't contribute the max.

You seem to have a good plan in place, so you can probably buy a $200K house and be able to afford it. The only sticking point is your savings rate. You said it is 10%. Most will recommend that you save 15% to 20% for retirement. You don't have to do it today, but it should be a goal that you work towards. If it feels tight now, it will really feel that way if you bump your savings percentage up. But, you could always do a refi down the road, and hopefully your income increases.

I guess it comes down to whether or not you feel comfortable with this purchase. You don't want to become house poor so to speak. Where all your disposable income goes into the house and there is nothing left over to live your life.

**elessar78** · 05-15-2012, 07:49 AM

Originally posted by bjl584 View Post

I'd be inclined to wait until the EF is back to 6 months before buying as a "just in case" fund. But, you can probably get away with 3 months as long as the rest of your finances are in order. And, it looks like yours are.

It's widely recommended that you have a Roth IRA if you are able to do so. I'd start one, even if you don't contribute the max.

You seem to have a good plan in place, so you can probably buy a $200K house and be able to afford it. The only sticking point is your savings rate. You said it is 10%. Most will recommend that you save 15% to 20% for retirement. You don't have to do it today, but it should be a goal that you work towards. If it feels tight now, it will really feel that way if you bump your savings percentage up. But, you could always do a refi down the road, and hopefully your income increases.

I guess it comes down to whether or not you feel comfortable with this purchase. You don't want to become house poor so to speak. Where all your disposable income goes into the house and there is nothing left over to live your life.

Yup. House poor is EXACTLY not where I want to be.

We have mechanisms to increase our incomes if necessary in the short-term. I am always asked to work overtime, as well as two other side jobs (none of which I've counted toward our monthly income) and we're slated for pay raises in September and October, respectively. Although I don't count on those because you know what happens when you do.

As I said, we're getting our house (both in a literal and financial sense) in order these days preparing for a home purchase. So building up the EF and discharging the small debts are on the priority list.

**DebtFree&Broke** · 05-15-2012, 07:50 AM

Don't buy a home yet, not until your other debts are paid off (or at least the car & credit card). It's that $562 a month that is making your budget tight. Take the next few months to track your spending and make a real budget. See what extra money you can find to add to your debt snowball. If you already have a 3 month emergency fund then send that $514 to your snowball instead.

I would pay $1350 (minus your current rent) extra on your debts every month. You'll know if you can pay the mortgage + home repairs on your budget -- Plus you'll snowball your debts faster.

Not many agree with me on this, but I think that you should take the 6% of your income you would put in a Roth and add it to your snowball too. If you are paying $1000+ a month on your loans they will be paid off quicker and you will have breathing room when you buy a home.

**MonkeyMama** · 05-15-2012, 08:20 AM

Wait, we are talking 23% take-home to mortgage? This doesn't look tight to me, at all, but keep in mind we had no debt when we bought, AND we live in California. The debt doesn't strike me as that large, BUT is worthwhile to knock out before getting into a house situation. Every little bit will help.

Childcare also strikes me as a rather temporary expense? Makes things tight in the short run, for sure, but should go down with time?

On the flip side, though we went much less conservative on one income, we were far more conservative on two incomes. We really didn't want to buy up to a second income, and that may be your dilemma here. The answer is to save more for this home. IT is always a good idea to "practice" a big financial change, like the last commenter recommended. Live like you have a mortgage (put the extra "above rent" to the debt), and see how it feels after a while.

P.S. I just spotted the student loans. Yup, those debts are what is making it *tight,* in addition to the childcare.

**elessar78** · 05-15-2012, 08:25 AM

Originally posted by MonkeyMama View Post

Wait, we are talking 23% take-home to mortgage? This doesn't look tight to me, at all, but keep in mind we had no debt when we bought, AND we live in California. The debt doesn't strike me as that large, BUT is worthwhile to knock out before getting into a house situation. Every little bit will help.

Childcare also strikes me as a rather temporary expense? Makes things tight in the short run, for sure, but should go down with time?

On the flip side, though we went much less conservative on one income, we were far more conservative on two incomes. We really didn't want to buy up to a second income, and that may be your dilemma here. The answer is to save more for this home. IT is always a good idea to "practice" a big financial change, like the last commenter recommended. Live like you have a mortgage (put the extra "above rent" to the debt), and see how it feels after a while.

P.S. I just spotted the student loans. Yup, those debts are what is making it *tight,* in addition to the childcare.

Good point about child care being a temporary expense.

This is the "practice". We're going to try to live on the budget I listed above.

Hypothetical Budget: pre-homeownership