Are we ready to buy a house?

**MakeAStash** · 11-25-2012, 07:56 AM

Based on what you posted, if you stay under $2000/mo for the mortgage, it looks reasonable to me. IMO this is the best time in decades to buy a home: prices appear near bottom and mortgage rates are at lifetime lows.

**disneysteve** · 11-25-2012, 10:59 AM

Welcome. I don't think you've given us enough information to answer the question. We need to see your budget. Right now, you have 9.7% going to retirement. That really isn't enough. You have 40K saved, which is great, but we don't know what your monthly expenses are so we don't know how large of an EF you need to maintain. That will dictate how much of that 40K can be used for a down payment and how much needs to be held in reserve.

Keep in mind that owning a home involves costs that exceed the mortgage payment. Utilities, taxes, insurance, maintenance, repairs all add to the total. You can typically add 20% or more on top of the mortgage payment to estimate the true cost of ownership. Plus there are initial costs like moving and furnishing the home.

You've already alluded to this but a 37-year-old guy earning 24K needs to seriously reconsider his career path if there isn't a big change clearly on the horizon.

Also as I think you realize, don't let your decision be influenced by rates and prices. Buy when you are financially (and otherwise) ready to buy. The only bad time to buy a house is when you aren't ready to do so.

**csamay** · 11-25-2012, 01:10 PM

More details about our budget

Thanks to those who read my post thus far. Agreed that sharing my budget would help folks see the big picture, so here goes:

Take home pay is 6400/mo after my 11% contribution to retirement, paying auto/life/renters insurance through payroll deduction, paying health insurance for all three of us and contributing to HSA and dependent care accounts (tax free). I do the max dependent care contribution which is 5K/yr paid towards daycare. I get back 208.33 biweekly and that goes right into our savings account. Note that our income varies depending on my husband's hours, at times he brings home about $400-$500 more but I only count on what I know is the minimum. When he brings in more I put in savings or help parents more.

Rent 1225
Utilities 50
Mobile Phones 150
Internet/Cable 150 (got cable for first time ever when daughter was born, figured it replaced us going out/entertainment)
Groceries and dining: 750 (cook at home constantly, smart shopper, but am out of country frequently for work-at those times husband gets more take out/convenience foods). At times when I am home I can get this figure to $500 in a good month, like this one. Turkey stock simmering on the stove right now lol)
Daycare #1 850
Daycare #2 850 (will begin paying August 2013-have been allocating this into savings until then)
Life insurance for husband 46
Gym for husband 125 (i have access for $10/mo at work. Not like I have time to use it, but keep it for that cheap cost as I do get over there now and then for a yoga class)
Gas and auto maintenance 475 (this is yearly average, some months it is only $250)
Personal care 75
Household supplies 40
Shopping/Gifts 100 (not used each month but allocated-whatever is not used is put in savings)
Car Loan: 225 [8500 @ 1.99%]
Student Loan: 300 (payment is 225 but I pay a little extra) [38K @ 2.25%]
Money to parents for mortgage, medications, food, general expenses: $500
529 College Fund 100 (would like to do the same for baby #2)

The money that is left goes into savings.

Regarding the contribution to my parents, they are on a very low fixed income and can't get by without that money-I've combed through all their expenses and cut what we could. Father was a hoarder and over the years I've emptied out/sold contents of all their storage units and garage to cut expenses and raise money for them. due to their bad mortgage, second mortgage, HELOC decisions they owe 1.5+ times value of condo so selling not an option. If I could find a property with two houses on it, or a duplex, would consider moving them in with me and renting out condo, but could only do so if I sunk about 8K into repairs and upgrades, property in bad shape. I do what I can but need professional help. We can't move in with them, too far of a commute and no room for us. Father has severe dementia, mom takes care of him, neither of them are blossoming with good health and I need to figure out what to do in the long term.

Regarding our childcare, getting rid of daycare not an option as my mom can't watch the kids, and my husband staying home with them would mean him again delaying the start of his career, which he did for a year when our daughter was born to stay at home with her. She will be eligible for preschool in a year but can't see us paying less for that than what we do now for daycare. Although I hope we will.

Regarding husband's income, he is up for a full time gig at his current place of employment working as a flight instructor, he would earn 40-45K/year plus benefits and retirement. If that does not happen his option is to go to a regional airline and make about 27K for the next 2-3 years and likely be based in another city. Not so excited about that option. The first option will become clear by the end of this year and then we'll have some decisions to make.

Did I mention we also need another car? I have a small sedan (11 yrs old, 90K miles) and it is not ideal to lean and lift 2 children in and out each day, my back is killing me already. But it is paid off and no big problems, tempted to just suck it up. Problem is my mother's car is literally held together with duct tape, so giving her mine would be the solution when the time comes.

Whew, if you are still reading this, I know there are many different threads running through, thanks for bearing with me, and for your thoughts.

**csamay** · 11-25-2012, 01:13 PM

Correction on budget

Gas/Auto maintenance IS $250 on average, I was calculating in car loan payment I already listed.

**Goldy** · 11-25-2012, 01:48 PM

I would say you need to wait a bit. I added up your expenses and came up with just over 6,000 a month going out and with 6400 coming in you are able to save ~400 a month (included the new daycare). If you tack that extra onto your current mortgage of 1250 would you be able to meet the payments on the house you are looking for? I'm guessing the answer is no after including tax, insurance, PMI, and all the extra utilities and repairs.

Right now doesn't seem like a good time to settle down anyway with your husbands career a little up in the air and the insufficent downpayment currently saved.

Have you considered reducing the SL payment to the minimum and adding the difference to your 401k?

I'd say wait one more year, see what happens with the DH job and continue to save to get to that 20% DP mark.

How much would a 20% downpayment be?

**csamay** · 11-25-2012, 02:45 PM

Yes, the issue is, while right now we have wiggle room in our budget to sock money away, once that extra daycare kicks in we really wont. I need to get real about our situation and understand that this might not be realistic for us...I just so want to move forward in life and am getting all sorts of advice from friends/family who are homeowners saying not to miss this opportunity, I need to live better, if I wait for the perfect time its never going to happen blah blah blah.

20% downpayment would be at least 80K, I believe. So twice what we currently have. At the rate I was able to save this 40K, that is about 3-5 more years of staying here and saving.

Does it make sense for me to pay less on the low interest SL and put the difference into retirement, rather than savings or just trying to pay off the loan? The account has had a great rate of return this year, but I so want to get that debt off my back-been paying various versions of the loan since 1998, ugh. If I can free myself of monthly payments that is more money to use elsewhere.

Nope, $1625/mo will likely not cover a mortgage payment with taxes; not in this market in this location!

**disneysteve** · 11-25-2012, 02:54 PM

Originally posted by csamay View Post

20% downpayment would be at least 80K, I believe. So twice what we currently have.

So you are considering homes in the 400K range. Rule of thumb is to spend 2.5 to 3 times income. For you, that would be about 300-350K so 400K is pushing the limit, unless your husband's income situation changes.

Also, you can't look at that whole 40K as down payment money. You still need to maintain a 6-month EF. That's 35K right there, so essentially, you only have about 5K saved that could be used for the down payment.

I think that makes the answer to your question pretty clear.

**Goldy** · 11-25-2012, 03:20 PM

Originally posted by csamay View Post

Yes, the issue is, while right now we have wiggle room in our budget to sock money away, once that extra daycare kicks in we really wont. I need to get real about our situation and understand that this might not be realistic for us...I just so want to move forward in life and am getting all sorts of advice from friends/family who are homeowners saying not to miss this opportunity, I need to live better, if I wait for the perfect time its never going to happen blah blah blah.

20% downpayment would be at least 80K, I believe. So twice what we currently have. At the rate I was able to save this 40K, that is about 3-5 more years of staying here and saving.

Does it make sense for me to pay less on the low interest SL and put the difference into retirement, rather than savings or just trying to pay off the loan? The account has had a great rate of return this year, but I so want to get that debt off my back-been paying various versions of the loan since 1998, ugh. If I can free myself of monthly payments that is more money to use elsewhere.

Nope, $1625/mo will likely not cover a mortgage payment with taxes; not in this market in this location!

I understand your pressures to buy a house but try to keep in mind that best opportunity to buy a house is when you can fiscally afford it. Sure interest rates might be great now but if it doesn't fit in your budget then its not a good time to buy.

Dont get too despressed about it though. With a great salary and you have tons of money coming in and in a few years that daycare cost will be reduced significantly which will free up a mortgage payment in itself.

Moving on to the student loan question, since the interest is so low and the fact that you are a bit behind in retirement savings I would think pretty hard at increasing your retirement so that you dont end up in a simlar situation to your parents. I only threw out the idea of cutting back on the SL payments because the interest is so low and it wouldn't effect your DP saving. It might not be the best way to go at it.

**snafu** · 11-25-2012, 03:45 PM

csamay; I admire the time, effort and financial support extended to your parents. It sounds like a lot of changes are on your horizon in the upcoming year. While this might not be the right time for you to take on the challenges of home ownership, it would be a good idea to stay current on the housing market in the communities that meet your needs. Try to track the cost of housing types and styles on a square foot [sf] basis since so much information is available on-line. Would you expect to buy a detached or semi detached, house, townhouse style condo or?

Your details need to be re-examined, figures reviewed each time there is a change. I hate to add to your list but when dad needs nursing home care, does mom expect to stay in the condo? Will that be cost efficient? I suggest writing a list of repairs needed for the condo, perhaps we can make suggestions to lower costs. Can repairs be tackled one at a time to spread out the cost?

It appears that interest rates will remain low for the next 12 months and the economy including the housing market is a giant question mark at the moment.

**csamay** · 11-26-2012, 05:30 AM

Thank you, everyone, for the feedback, this has been very helpful. I guess deep down while I am ready to live in a larger space, on a ground floor with some better amenities, deep down I don't think I am 100% ready to take that leap, as I know it would extend us financially. I learned the lesson very early as my family was repeatedly evicted, foreclosed on, and unable to make ends meet that the most important thing, after a loving family environment, which I was SO lucky to have, is to have a financial plan and then a plan B-Z as backup. Perhaps I am too cautious and needing that security but that's how it is. It's tough to see friends and family buying properties with significant help from parents or others on a downpayment and/or a monthly basis, buying new cars, living blissfully unaware of finances in general, but I realize that many of them are not saving for their retirement, counting on inheritances, or have their children's education already paid for by grandparents who know how to manage their money. At the end of the day, I need to continue to ignore those things and accept that is not My Life, and that is OK.

Regarding the condo repairs, I have a pretty good idea of ways to cut costs but when the time comes I will definitely seek advice on that on this board-what a great find this is!

We will stay put for now, at least another year, husband will Figure It Out ASAP, I will not reduce contribution to retirement and continue to pay debts as I have while putting away whatever we can in savings.

One last question-there were a few mentions of being behind on retirement, I didn't think I was doing that badly, even though I did get a bit of a late start. Looking at my budget, income, age, should I be trying to carve out another few percent to contribute instead of debating on temporarily reducing contributions in order to build up an EF/Downpayment? How much am I 'supposed' to have at this point, if I want to live off of lets say 70% of my pay in retirement? I know that regardless of anything else, once husband gets a different job we will put away a minimum of 10% in whatever plan he is offered, or his IRA.

Thank you...

**disneysteve** · 11-26-2012, 07:36 AM

Originally posted by csamay View Post

there were a few mentions of being behind on retirement

Originally posted by disneysteve View Post

Right now, you have 9.7% going to retirement. That really isn't enough.

Rule of thumb is to save 15% of gross annual income for retirement. That's household gross, not just yours or his. So if you earn 93K and he earns 24K, that's 117K total. That means you should be saving 15% or $17,500/year or $1,463/month. That does not include any employer matching on the 401k.

**TBH** · 11-28-2012, 01:13 PM

Somebody mentioned waiting to buy until your daycare expenses go down. We did something similar, except we already owned a very modest house and wanted to move up. (Modest house purchase here was cheaper than continuing to rent, but I know that's not the case in California.)

If your daughter is now 2, then in 3 years you will (hopefully) be ready for her to start school. If she goes to a public school, you'll have that $850 monthly daycare expense + your rent of $1250 available in your budget. That's $2100 monthly to spend on mortgage + taxes + increased utility costs + maintenance involved in owning a house. I know 3 years sounds like a long time to wait, but maybe before that you'll have two full-time earners in the household. Or maybe things with your parents will come to a head and you'll need to move them in with you, prompting an earlier move than you planned for. Anything could happen.

I would also like to suggest that maybe, just maybe, you should put less pressure on yourself about the college savings. I do think you should be saving more for retirement. It's important to save for retirement BEFORE you save for college. I know you want to give your kids all the opportunities you can, but you need to take care of yourself first. Paying for student loans will be better for them than having to pay to support you or your husband.

Good for you for being willing to look realistically at your finances. You sound like a very sensible person, and I bet you'll be better off than your friends who are buying nice houses now and pressuring you to do the same.

**breathemusic** · 11-29-2012, 07:55 AM

I realize that it's only a small amount each month, but you should keep in mind that saving toward your kid's college is not a requirement. While it's nice to be able to help your kids when they're going throug school, there's no reason they can't get some student loans (within reason based on their desired career) work part time during college, apply for various scholarships, etc. Or if you really want to save some, then save, but save less and just plan on giving your kids a smaller contribution toward education costs rather than paying for everything outright.

There are little things you can do to try and save here and there too, like with the grocery budget. If you're on travel, is there some reason your husband can't cook his own meals and eat out less to not spend so much on food? Maybe it would be a good idea to outline a food budget and try to stick to it.

**csamay** · 12-04-2012, 01:29 PM

Thanks again folks. Update: my husband has a job interview on 12/18 with a regional airline, hooray! The money would not be so good, just a few thousand more, but finally this would get him on the right track and within a year or so he'll get at least a 30% raise. Unfortunately there is a good chance he'd be based away from our city thus at this point, trying to buy a home is totally off my radar. We've decided to stay put at least 1 more year pending his job and our financial situation overall.

Regarding the college savings, appreciate the comments from some that the kids can always take out loans...I know that I can't take out loans for retirement, so I am going to reduce that contribution to $25 a month so I feel I am still contributing, plus continue to put any birthday/xmas/etc money that they receive as gifts in that account. I do fully plan on having my children involved in the funding of their higher education-I work in higher ed and see too many students take the 50K tuition/fees that parents are paying for granted!

Will not reduce contribution to retirement, will continue to try and increase it.

As we won't be trying to buy a home, I will invest in a new car with part of our tax refund in the spring and give my mother my car so at least she isn't stuck with her car that is truly on its last legs...will buy us a larger, used car with good financing if I need it-would rather finance at a 1% rate than take money out of our EF but will put as large a downpayment as we can.

Thank you for all the wisdom. My chin is up and I know we will get there eventually...wherever 'there' might be, really!

Are we ready to buy a house?