Is now the right to time to buy a house or keep saving? ($$ details included)

[newlywed2012]

Hi all, Brand new here. My husband and I have another 6 months on the lease of our apartment. We love the apartment but hate the area where we are. He's 20 minutes from his job and I'm 45 minutes away from mine, so we'd like to move somewhere that's closer. Our jobs are physically located an hour apart from each so we'd like to go in the middle, which is a nice area.

We have a combined monthly income of $5,500. We owe $9,000 on his student loans. (I paid off the $100,000 in student debt I had in the three years after law school by moving in with my parents and living off the land and getting a second job, just so I could wipe out my debt ASAP; I ended up bringing a healthy amount into our marriage). No credit card debt or other debts. We save $2,000 a month, thanks to my vigilant monitoring of our finances. We spent less than a thousand dollars on our wedding a few months ago, since we had these financial goals in mind.

We have $50,000 in the bank, earmarked for down payment on a house. We have $17,000 for retirement, which I don't think about since we both agree we won't touch that money. The thing that worries me is our vehicle situation. Both cars are paid off. I'm driving a 14 year old car with 160,000 miles on it. No major problems so far, knock on wood. Husband is in a 6 year old car that is having major transmission problems. Nothing short of rebuilding the transmission will fix it, but the problems only come about when he drives in auto. When he takes it to manual it's fine, so he just drives like that now. If we had to, he could work from home temporarily but he'd prefer to go into the office each day.

I'm really torn because we will have the 20% down payment on a house when our lease expires, but I'm scared our cars may have to be replaced. And we're paying $929 rent on a place we love, and I'm sure there are so many incidentals I don't know about like property taxes and such with a house.

I guess my big question boils down to this: is it better financial sense to put the money into a down payment and finance a car after buying a house so we have that mortgage secured, or should we continue to rent and if the cars need replaced, do that in the extra year we stay in the apartment to build back up the 20%?

And is it better to outright pay off the $9,000 in student loans? The interest rate was at 3.5% but may go up depending upon this latest legislation. How much would that student debt of Husband's affect our mortgage approval amount and interest rate?

[YLTL_Dan]

Congrats on paying off your law school debt so quickly! It really sounds like you guys have your stuff together and should be in good shape.

However, if you buy a house now, you may not be in good shape anymore! Houses come with a lot of financial baggage (closing costs, inspections, insurance, property tax, maintenance, new furniture... need I go on? ).

Since you are doing so well controlling your money, I'd knock out the student loan debt today. After that, you should put 3-6 months of savings into your emergency fund (which could help pay for car repair or a new car). This will take you down to $25-$30k in your down payment fund. After you get that built back up to 20% of your expected home purchase, then you'll be ready (which it sounds like will take one more year at $2k/month).

As far as the living situation, why not move to the new location at the end of this lease and rent an apartment for one more year? Then you'll really know if the area is the right fit. Sometimes after we get married, we feel pressured to instantly buy a house because it's the next "thing". Take your time... and good luck!

[bjl584]

In addition to the $50K for the downpayment, you will also want to have a 6 month emergency fund in place. So, you will need to save more.

Do you have the option of going month to month once the lease is up, or do they make you resign?

If I had a 6 year old car with tranny trouble I'd probably get it fix, as long as that was the only issue with it. You are looking at a couple thousand to have the work done.

You have a wonderful start, but I would be inclined to stay put and keep building up cash. Both for an EF and for a replacement vehicle.

[newlywed2012]

OP here .... Not sure if we will have the option of month to month. If we do it will likely not make financial sense. My husband's last apartment complex charged him through the nose to go month to month. He did that when we weren't sure if I'd move to his city or he'd move to mine. The apartment increased the rent by over a hundred bucks to "market rate" and added a $150 month-to-month surcharge on top of that. So we're inclined to just stay put.

We're not keen on moving to the city where we'd like to buy since the move to this apartment made me lose my head a bit. I hadn't yet started my new job so I was in charge of the move and boy did my husband get an earful. I swore up and down I'd only move one more time in my life and we'd better stay but. It was the most stressful month of my life, far surpassing the chaos and stress of the bar exam. I'm not receptive to change Plus the area we would want to buy in doesn't have many apartments, and we really lucked out with a wonderful apartment where we don't have noisy neighbors or barking dogs. I'd give a significant amount of our savings to never ever move again.... Maybe another reason why we should take our time finding the perfect house.

[newlywed2012]

Why upgrade the cars now? I'd been planning to run both into the ground. I thought it would make sense to wait until there were major repairs that made driving the cars impossible.

My car is doing fine, knock on wood. It's not sporty and it has rust problems and my lawyer coworkers roll their eyes at it but it works for me. The only reason I'd think of replacing it is if I got pregnant (a two-door coupe would be a PITA with a carseat). My husband's car got new tires three months ago, just before we discovered the transmission problems.

[ActYourWage]

My car is doing fine, knock on wood. It's not sporty and it has rust problems and my lawyer coworkers roll their eyes at it but it works for me.

First off, great job with paying off the debt.

Second, the above quote makes me think you both will be very wealthy one of these days. Keep that attitude and you will.

I would probably pay off the student loans today. Before purchasing a house, make sure you have a 3-6 month emergency fund in place. So if you have 6 more months in the apartment, you could save 12K (2K/mth) more, move to the new location and move into an apartment (I know you said there are not many there). Save more money and put down on your house. Don't get house fever and rush the purchase, you both are doing good. Steady the course.

[MonkeyMama]

Congrats - you are doing well.

Only thing to add is that sometimes a very small sacrifice pays off more in the long run. Waiting an additional year (assuming you sing a 1-year lease?) is a pretty small sacrifice in the grand scheme of things - but will pay off immensely in the long run.

On the cars, keep them until they die, but saving a few thousand dollars will replace them in a pinch. I wouldn't/didn't devote more than $5k-ish to a newer vehicle, in your shoes. & of course only if you need to.

I don't think the student loan makes a huge difference in the grand scheme of things (low balance/low interest), and doubt it makes a difference when applying for a mortgage, but if you keep your lease an additional year might as well pay it off. You can pay it off in just 6 months, it sounds like, and then can bulk up your cash savings for a whole year so that you have something to fall back on after you put 20% down. Of course, I'd personally save up the cash first, and then if I didn't *need* it for a car soon, or a move, then I'd slay the student loan. Building up some cash keeps things flexible.

Maybe moving makes sense, but I personally despise moving and would just stay put. Just depends what you hate more - moving or commuting.

[sblatner]

Get a 15 year fixed rate mortgage and pay it off as quickly as possible.

I like 30 year fixed rate mortgages. A 30 year mortgage allows for a lower payment but with an option to pay extra so you can treat it like a 15 year. I don't like to get locked into a 15 year with the possibility of a layoff or illness making it difficult to pay the high payment.

You do miss out on a lower interest rate but with rates so low, that probably doesn't matter.

[scubatim84]

In addition to the $50K for the downpayment, you will also want to have a 6 month emergency fund in place. So, you will need to save more.

Do you have the option of going month to month once the lease is up, or do they make you resign?

If I had a 6 year old car with tranny trouble I'd probably get it fix, as long as that was the only issue with it. You are looking at a couple thousand to have the work done.

You have a wonderful start, but I would be inclined to stay put and keep building up cash. Both for an EF and for a replacement vehicle.

The problem is with a used car, you never know. This is why I will never again own used cars. I would recommend saving up enough money for a down payment on a new car, not a used car, for the simple reason that with a new car you have little if any possibility of getting hit with large, unexpected repair bills. Well, unless you buy a Ford anyway.

OP here .... Not sure if we will have the option of month to month. If we do it will likely not make financial sense. My husband's last apartment complex charged him through the nose to go month to month. He did that when we weren't sure if I'd move to his city or he'd move to mine. The apartment increased the rent by over a hundred bucks to "market rate" and added a $150 month-to-month surcharge on top of that. So we're inclined to just stay put.

We're not keen on moving to the city where we'd like to buy since the move to this apartment made me lose my head a bit. I hadn't yet started my new job so I was in charge of the move and boy did my husband get an earful. I swore up and down I'd only move one more time in my life and we'd better stay but. It was the most stressful month of my life, far surpassing the chaos and stress of the bar exam. I'm not receptive to change Plus the area we would want to buy in doesn't have many apartments, and we really lucked out with a wonderful apartment where we don't have noisy neighbors or barking dogs. I'd give a significant amount of our savings to never ever move again.... Maybe another reason why we should take our time finding the perfect house.

Month-to-month surcharges are pretty common...I'd be surprised if your apartment complex is any different. The thing is, as others have mentioned, if you're really happy where you're at then it might be worth it to tough it out another year. Buying a house is a god awful nightmare which will involve many up front costs such as inspections, closing costs, etc. However, I would keep this as a long-term goal. House prices are at an all time low, and so are interest rates, and this way your monthly living payment is building equity instead of going into oblivion. Just don't fall into the trap many people do of buying way more home than you need.

I like 30 year fixed rate mortgages. A 30 year mortgage allows for a lower payment but with an option to pay extra so you can treat it like a 15 year. I don't like to get locked into a 15 year with the possibility of a layoff or illness making it difficult to pay the high payment.

You do miss out on a lower interest rate but with rates so low, that probably doesn't matter.

This. A 15-year mortgage gives you a cheaper interest rate, sure, but if you can't make that much larger payment you're pretty much screwed. With a 30-year mortgage, there's usually nothing in the loan that is preventing you from making advance payments which you can of course do to save money on interest. Plus as SBlatner said, interest rates are so low already I don't think a 15-year adds that much value.

You guys are definitely on the right track...to summarize, wait 1 additional year, build up enough money so at a minimum you have a 3-month emergency fund (preferably 6-month) in addition to your down payment. I would also replace at least one of your cars so at most you only have the chance of getting nailed with having to buy one car. I would probably get rid of the car with transmission problems, as any car that's only 6 years old with those kind of problems makes me very, very nervous. I had a used Subaru WRX which cost me an average of $2,000 a year in repair bills. I have a brand new Honda Civic and the damn thing is cheaper by far due to lack of repairs.

[project15]

The problem is with a used car, you never know. This is why I will never again own used cars. I would recommend saving up enough money for a down payment on a new car, not a used car, for the simple reason that with a new car you have little if any possibility of getting hit with large, unexpected repair bills. Well, unless you buy a Ford anyway.

To each their own I have and will continue to be a fan of gently used cars (2-3 yrs old and less than 50,000 miles). If it is used, ALWAYS take it to a mechanic you trust and have them do a pre-purchase inspection for $100 or so. They will usually find anything wrong with the car - even transmission and potential engine problems since they know the warning signs.

Everything else you said, I agree with though.

[Plantingourpennies]

Hey OP, I like your idea of a $1000 wedding! DW and I did something similar...she tracks the finances too (uses mint.com)

Your ability to pay off 100K in 3 years caught my eye. If you are able to do that, then why not wait another year or so and be able to handle the downpayment plus 6 emergency fund with no problem?

One more thing-DW and I are in a similar situation in that our work is half an hour each way for both of us and we live in the middle. Consider (if possible) finding work that is next to your spouses (or vice. versa). Car costs from insurance, gas, repair, etc are just a waste, especially when combined with time spent in a commute!


Best,
Mr. Pop

[snafu]

Congratulations on all you've already accomplished. Since you find change difficult, I suggest you start researching housing options via virtual tours of listings. You need lists of 'must have' currently and long term with kids who turn into teens eventually. You can start by checking your credit score and running figures for mortgages as amortization tables are shocking to those who are unfamiliar with this type of long term borrowing. Interview a few realtors to get a realistic picture of closing costs in your area...many are negotiable. Get referrals from people you trust for that long list like home inspectors, appraisers, surveyor etc. Which banks/financial institutions will give you not only the very best rate but best terms/extras as well.

In our area a lease can be 'adjusted' via sublet to another qualified tenant which can get you released with a bit of responsibility. Alternatively, you can ask for a l-o-n-g closing date for the house you've chosen. If you and DH have not yet acquired DIY skills, you can use the time to take free classes/workshops offered at big box stores.

Cars have 5 year warranties which can be transferred to a new owner without cost if you negotiate that as part of your purchase. I feel depreciation is too much of a loss driving off the lot but each of us has our own petard.

[newlywed2012]

Your ability to pay off 100K in 3 years caught my eye. If you are able to do that, then why not wait another year or so and be able to handle the downpayment plus 6 emergency fund with no problem?

One more thing-DW and I are in a similar situation in that our work is half an hour each way for both of us and we live in the middle. Consider (if possible) finding work that is next to your spouses (or vice. versa). Car costs from insurance, gas, repair, etc are just a waste, especially when combined with time spent in a commute!


Best,
Mr. Pop

Thanks! We'd love to work closer to one of our jobs but the school districts in both of those areas are crummy. The place in the middle has wonderful ratings so it seems our best choice.

Re: saving $100k in 3 years. Boy it was tough! That was literally all my net income after paying for gasoline. My parents let me stay with them (in the two-bedroom house I grew up in, which sure was cramped for three adults) and didn't make me contribute to groceries. I literally didn't eat out or buy new clothes or shoes for three and a half years. I ate oatmeal at my desk for lunch for that entire time and my coworkers thought I was crazy. Sure I'd have liked to eat lunch out or grab a sandwich but I had that goal in mind. It still irks me how many snide comments I got about my lunch even though I was minding my own business. So it's possible but difficult. If I have to do that again I will... I'm in another office now with nicer coworkers at least. (Saving money is so much easier when no one is scrutinizing your behavior!)

[scubatim84]

Alternatively, you can ask for a l-o-n-g closing date for the house you've chosen. If you and DH have not yet acquired DIY skills, you can use the time to take free classes/workshops offered at big box stores.

You know, normally this might be good advice, but after having been through the home buying process a year ago I don't know if I would ever recommend this. Thanks to massive overregulation, and the nature of the market, you'll constantly be biting your nails and hoping the deal goes through. Trying to extend how long it takes for the deal to close seems like a recipe for disaster.

The majority of homes on the market now are REOs or short sales. The short sales may waste your time for as many months as you let it before you cut the cord on the deal without ever hearing back from the bank. The REOs? The banks seem willing to do anything to sabotage the deal, no matter how stupid. In fact, they're more than happy to sabotage approved short sales too, come to think of it. The first place we bid on was a condominium for $205,000 in San Jose, which was an approved short sale in the process of closing, which the bank turned around, foreclosed on and sold it at auction for about $185,000. If we somehow got it to close sooner, we would have been fine, but you can see how extending the closing date is not going to help you.

It still irks me how many snide comments I got about my lunch even though I was minding my own business. So it's possible but difficult.

Ignore them. People who spend their way into oblivion, and live check to check, have to mock those who have the presence of mind to save money and enrich themselves. It's not because they're inherently cruel (usually not anyway) but somewhere in that brain of theirs they probably realize they're screwing themselves over financially. People are just jealous of how much better off you will be in retirement.