Can/should we afford a $215,000 house

[skives]

Given the limited info, sounds like you should sign a lease.

while you may think you are throwing your money away on rent, when you own a home with a 30-year mortgage, you are simply throwing your money away on interest for the first many years (tax deduction aside, of course).

Now IF the 130k homes are appealing to you and you plan to stay in a home for appx 5-10 years, then you may want to look at that price range.

We are looking for a home to stay in for life. I know everyone says you'll move but unless something majorly bad (or good (Win the Lotto)) happens we plan to stay there forever. We also plan to have a 30yr mortgage but pay it off in 10-15 years. Maybe faster.

[rennigade]

So should we sign another lease? Our actual price range for a house is $130,000 max.

If it were me I would sign a lease for another year. Regroup...do some serious number crunching and do not rush a home buying decision. Build up your savings.

Also...most leases allow you to leave if you give enough time. WE sign a lease but if we provide 45 days notice we can get out of it. Check your lease.

[skives]

If it were me I would sign a lease for another year. Regroup...do some serious number crunching and do not rush a home buying decision. Build up your savings.

Also...most leases allow you to leave if you give enough time. WE sign a lease but if we provide 45 days notice we can get out of it. Check your lease.

We can get out for a price. Starts at $1,300 and goes down $50 every month or we pay $50 more a month to not be in a lease.

[parafly]

Where are you and your wife in terms of your careers?
How stable are your jobs?
Do you expect your income to go up in the coming years?
Are you planning on having children in the foreseeable future?
Are you planning to go down to one income after having children?

Aside from the typical rules of thumb (20% down payment, spend no more than 2.5 - 3 times your annual income), these are very important questions which need to be taken into consideration when making such a big purchase on your first home.

Just as a reference, my wife and I bought our first home in 2010 for $266K. We put down 5% on the home. Our combined income at the time was about $120K.

We felt very stable in our jobs, and we were still relatively young in our careers and knew our incomes would be going up. We made the purchase knowing that we were staying in the home long term, and we could still realistically stretch ourselves on one income if one of us lost a job or we decided to have children.

We paid PMI for a couple of years, and we were able to refinance in 2012 to reduce our interest rate and eliminate PMI when our home value went up.

Six years later, we are in a great position. The home is very affordable on just my salary, my wife is staying home with our newborn daughter, we have built up a large amount of equity in the home, we have no debt besides for the mortgage, and our net worth is higher than ever.

Is a 20% down payment important? Absolutely. Is it a deal breaker? Possibly, but in my humble opinion, you need to do an honest and thorough assessment of where you see your family in the next 5, 10, 15 years, and make a sound decision based on your own personal goals and situation.

[tripods68]

Straight forward question. $215,000 is asking price. I know most here would say have down payment of 20% but I'm basing this question on an rural development loan that lets us borrow 100% and no pmi.

Gross combined income yearly- $76,000
Savings - $30,000
My 401k - $75,000
Wife's 401k - $6,000

No debt what so ever. No kids either.

Straight up! NO!

Why?

You are not ready to buy a home without a 20% down payment. For you to afford this home at that price, you will need to save up $43,000 as down payment. You also need 3-6 months of Emergency Fund set aside, maybe another 10-15K. With your current savings, you need to add another $30K to the equation to make this number work which include emergency.

My question to you, how long will it take to save another $30K? 1 year or maybe 2. If that's that case, you still need to rent for a while until you can muster enough money to buy a house in that price range. In two years, your income might go up again that will help save faster.

For now, I'd stay rent for a while. Unless you hate it, then I still rent somewhere else. Sign another lease for a year or two.

Alternatively,

Others have mention, you may need to lower your purchase home in range of $150-200K. Again that will depend the age, location, property tax, down payment, condition of the home, and job stability, emergency fund. If you feel confident those areas, I'd pull the trigger. However, I keep the lifestyle low.

Again, I would never own a home without putting down payment. The higher the number, the better.

[sv2007]

Rule of thumb is 2.5-3 times income so you're okay there.

However, that also assumes a 20% down payment.

DO NOT buy a house with nothing down. Just because you can doesn't mean you should. Since your question asked "Can/should" then I vote a big fat NO! Maybe you can but you definitely shouldn't.

Save up the 20%. Then you'll be all set. And don't forget to also have a 6-month emergency fund in addition to the down payment. Owning a home is expensive and will involve a lot of stuff you haven't though of or won't expect.

Why?

If the OP can obtain good terms, why put 20% down?
The reason people put any down payment is to get a loan with good terms.

[sv2007]

I think buying a house is not so simple where you just look at income and house price.

Some other questions to think about...

how stable is the income,

how much will it increase over the years (as the years go by the 30-yr fixed mortgage payment will become a smaller portion of that income),

how it the location (this is the big red flag I see, rural development mean high risk on whether you'll be able to even sell it; you know the builder got that land for near free)

how long are you planning to live there (RE transaction cost is nothing to sneeze at)

Is it a life style upgrade; living in your own house gives you a higher degree of control, but also more headaches.

Is the commute better?

so many more Qs

[bjl584]

Why?

If the OP can obtain good terms, why put 20% down?
The reason people put any down payment is to get a loan with good terms.

Wrong.

The reason that people should put 20% down is to go into the house with enough equity to insure that they won't ever be underwater on the loan. There is also the issue of avoiding PMI. Also, saving up 20% is an excellent exercise in financial management and discipline.

[sv2007]

Wrong.

The reason that people should put 20% down is to go into the house with enough equity to insure that they won't ever be underwater on the loan. There is also the issue of avoiding PMI. Also, saving up 20% is an excellent exercise in financial management and discipline.

What's worse? being underwater when you put 0% or 20% down?
OP specifically stated that there's no PMI.

If I can get the same terms with 0% down as 20% on the same property. You bet I'll put 0%.

[tripods68]

The goal is to avoid "debt trap" cycle. The quickest you can pay off the mortgage the better financially. The hardest decision shouldn't be made based on the lowest interest cost, or put the as little or no down payment BUT rather how fast I can pay off the loan as little interest cost for life of the loan. Loans are meant to be temporary not meant to be kept for Life!

[bjl584]

What's worse? being underwater when you put 0% or 20% down?
OP specifically stated that there's no PMI.

If I can get the same terms with 0% down as 20% on the same property. You bet I'll put 0%.

It's unlikely that you will ever be underwater with 20% down, so long as you stick to the rule of thumb of buying no more than 2.5 to 3 times your annual gross income.

I don't know how OP is structuring a 0% down deal. Every bank and lender that I've come across lately is requiring at least 5% down.

Terms aside, I'd only buy what I could comfortably afford. The down payment and the rate on the loan are irrelevant. Saving up 20%, having a 6 month EF in place, and not buying more than 3x your income are all excellent ways to secure a sound financial future.

[greenskeeper]

Straight forward question. $215,000 is asking price. I know most here would say have down payment of 20% but I'm basing this question on an rural development loan that lets us borrow 100% and no pmi.

Gross combined income yearly- $76,000
Savings - $30,000
My 401k - $75,000
Wife's 401k - $6,000

No debt what so ever. No kids either.

Need more info such as monthly expenses and what the total mortgage payment would be (principal, interest, escrow) per month.

The type of home and utilities also would factor into anticipated repair costs.

[ceejay74]

Why not use the money you've saved for a down payment? You could do a 10% which isn't bad.

[sjc0816]

NO.

I have no idea if you are planning kids or not....I say no either way. Trust me, you don't want it to be "tight" when you are a homeowner. Let me give you a rundown of the last 2 years in our house.

1) Finished basement flooded after 100 year storm. $1,500 deductible for insurance plus $2,000 in additional french draining around the perimeter to prevent this from happening again.

2) $3600 in new siding

3) $5,000 in new windows

4) $400 new sump

5) $700 new refrigerator after old one broke

6) $500 new washing machine (old one broke)

7) $3,000 in updates/renovations - not absolutely necessary but things were getting pretty gross...we needed to do some things.

See what I mean? You might think these things won't happen to you...but I promise, they will. Houses are money pits in general. We had savings to cover these things.....but you aren't even close to having what you need for emergencies. I promise, home ownership is over-rated unless you are truly prepared for it. So do your due diligence, rent as LONG as you need to and buy a house that you can easily afford.

[Gailete]

Did I not read this right since no one else commented on it? If your max price for a house is $130K, why are you looking at one that is well over $200K? Almost $100K MORE?

I also say no way to this arrangement. The taxes on that much house can be huge and depending on the size of the house the utility bills can be huge. Being a rural thing, here are some things to think about. We sold my house in town to move out into the 'country' 4 miles out of town when my husband finished building our house. Silly me thinking, oh we will have a well and septic so not much expense there. Well the well water is disgusting due to too much sulfur and my FIL that lives next door had a bad habit of changing the fluids in his big truck there at home and dumped the used stuff on the ground. That tells me that I can't trust the well water to be safe to drink especially with my health problems, so we BUY drinking water of about 40 gallons a month for the last 9 years. When the septic tank gets full it runs about $300 to pump out every couple of years. Oh and water table is so high we literally have to buy a new sump pump every year!

Then lets talk about heat bills. No natural gas out here so we use propane. Our house in town was about 1000 sq ft, but was old with poor insulation and so the heat in the winter was about $150 month, practically nothing in the summer. The electric was $30-60/month probably depending on the furnace in the winter or if we ran the window air units. This house is well over 2000 sq ft of living space plus additionally hubby's workshop (self employed). To SAVE money I buy propane on the pre-pay program of about $3K/year! This saves about $1K on the pay as you go plan. Because of the way the house is built and my continuing health problems which are greatly affected by heat, we needed AC so the electric runs $100-200/month. Oh and out here instead of the $40/quarter we paid for garbage pick up it runs well over $100/quarter. So we burn it when hubby is up to it.

These were all very unexpected bills that I hadn't taken into my figuring. Oh yeah the property tax jumped up in one year to 5 times what it had been!

When you think about buying a house, there are so many unexpected expenses that you just can't see ahead of time. The monthly payment is one of the least of your worries. Even the dumb things like if you have a landline the connection charge, or if you are with new utility providers, the connection down payment that they take out of the first month's bill and keep for a year to be sure you will pay your bills. Then the need for a lawnmower and some lawn care tools and then a shed to put them in if the house didn't come with a garage. Little expenses add up faster than the big ones sometimes.

Remember the last recession and the housing market that took such a nose dive? So many of the people I saw interviewed were people that had been told they could afford a very expensive house, no money down and variable rates after a certain amount of years. Now who knows if you can afford something? You or someone that is trying to con you to get your business. There is some reason you had budgeted only for a $130K house in the first place. Unless something drastic has changed, you should stay with that thought and save up a good and proper 20% down payment. I know with my last house the PMI on my $60K loan was over $60/month until we had paid enough we could ask the bank to quit it. BTW - if you track your PMI and you know you have hit the limit, tell your bank immediately because they are allowed to keep collecting for a few more months and why pay that out if you don't need to. That may have changed in the last few years but something to pay attention to.

Don't stress yourself, your wife and your finances to buy a home you can't afford.