Can I have a house?

[Pants]

So I am going to get brave and ask YM if I can have a house. I want to know if you think I am making a mistake.
Situation: We currently rent in a HCOLA where I drive 1.5 hours each way to work in heavy traffic. This is unsustainable for me. The house we want to purchase is approximately 30 minute drive for me and 10 min walk + 40 minute train ride for DH, approximately the same as his current commute which he finds manageable. We have found a house we would be willing to pay ~$230,000 for. This would be our first home. I have based costs on our pre-qualification from the bank where possible.

House Specifics
3br, 1.5 bath ranch with fenced backyard
Cost: 230k
Down payment: 46k (26k borrowed from my parents to be repaid, 20k of our own)
Monthly payment (approx): 995
Monthly taxes: 441
PMI: 0
Utilities (guess): 300
Insurance (guess): 125

Overall financial picture
30, DINKs
Gross income (approx): 119,000
Retirement: 20,000 (Low, I know. DH and I have upped contributions to 8% each plus ~5% company match and started external IRAs)
Rainy day fund: 40,000 (20k of this would go towards downpayment)
Student loans: 89,000
Credit-card: 5,700
General savings: 9,000

[Pants]

Monthly takehome: 5,850

Fixed costs/bills
Student loan: 630
Credit card 1: 60 (this is the min on $5,500 at 0% for life of the transfer, I don’t really have any plans to pay it off quickly.)
Other ccs: 40 (minimums on ~$200 in balances to maintain rotating credit)
Rent: 975
Utilities: 100
Cable: 125
Insurance (renters+auto): 90
Gym: 30
Dog walker: 400
Cell phone: 98
Public transportation (DH): 100
Charity: 65

Variable costs
Groceries: 450
Personal care: 75
Laundry/dry cleaning: 60
Gas: 150 (increasing due to gas prices, but will hopefully drop once we move)
Entertainment: 350
DH fun money: 75
Medical: 125
Vet: 100
Clothing: 125
Gifts: 70
Car maintenance: 150

Savings
Vacation: 75
General: 450
EF: 50
IRA: 250

So… can I have a house?

[whoisjohngalt]

I haven't looked over the numbers, but two things came to mind when I read your 1st paragraph:

1. Don't buy a house based on where you work, unless you KNOW that you will be working there for the next 10 yrs
2. Buy a house bc you want to buy a house and not for any other reason.

[alabamagal]

Would the dog walker go away if you got a house? Hate to say that would be the deciding factor, but the payment equals your current rent, and the taxes what you are paying tot he dog walker.

[cronewitch]

Dog walker 400? If this isn't needed in a house with a fenced yard that will help some.

Double the utility budget, houses cost more for things like sewer and garbage even expenses you have like heat are more in a house.

[resolution]

LOL I was wondering the same thing about the dog walker. You have the income to afford the house. You are looking at less than 2x your income which is very affordable. I am concerned about the general lack of savings. Is the income level new? Or did you recently cut back on spending? Or are there expenses that aren't reflected in the budget.

[Deleted]

For a $230,000 house you probably need to budget $2500 - $5000 per year for maintenance. ( I think the rule of thumb is 1-2% - it may be higher when you are just starting out because you don't already own the tools and lawnmowers and stuff needed to do the maintenance)

That would be another $400 per month in addition to the $1861 you listed in your best guess. You are currently spending $1075 for rent + utilities, so you would need to come up with an extra $800 per month (nearly) to afford the house.

Do the expenses you hae listed exhaust your take-home pay each month or is there extra? If there isn't extra, where (besides some potential gas savings) will the $800 come from.

You tell us if you can afford it.

[qofcc]

Holy crap, you pay someone $400/month to walk your dog??

Why would you borrow from your parents instead of getting a loan with PMI? Run those numbers, even if you pay your parents back with no interest over several years, your monthly payment would probably be lower with the PMI for a few years.

[shanendoah]

And double check with your bank regarding the money for your parents. I remember our mortgage guy telling us that they wouldn't count "gifted" money as assets, unless it had been gifted a significant number of months before. I know this doesn't change the fact that you will have that money for a down payment, but it means the bank, in determining how much of a loan they will give you, won't count it.
So, if you were pre-qualed based on you saying you had 46k downpayment, they may change what you actually qualify for based only on your 20k in savings.

[Angel!]

One thing to consider - do you plan to have kids & if so, how soon?

I think you can swing the purchase, especially if you can the dogwalker & you have a lot of discretionary purchases that could be reduced if things started to get tight. But, if plans for kids are in your future, then I would figure out if you can afford it with daycare & other kiddie related expenses. You don't want to buy a great home with plans to raise a family only to find that you can't afford to live there & raise a family.

You also haven't laid out the repayment plan for the money from the parents, that could hurt the budget too.

[Deleted]

(minimums on ~$200 in balances to maintain rotating credit)- What does this mean?

[Pants]

Ok, in response.
Yes, the income level is new. I was in school the last two years and before that made only 50k and was single.
We have $20k in retirement (well, I have $20k in retirement, DH currently has $500 total, we're working on it). $9000 in easy-accessible savings, and a $40000 rainy day fund. After downpayment will still have $20k in rainy day fund for emergencies.
kari: Is 49,000 not a lot of savings? I recognize that we don't have a lot in retirement, but I think $49k is pretty good for us just starting out with this income.
We currently save at least $500 per month of our net income to general savings, a lot more for "occassional" expenses like vacation, insurance payments, etc. We often have money left over at the end of the month. previously this was sent to debt, but now will be sent to savings.
dog walker: Yes, like I said HCOLA. I fully realize this is ridiculous. The problem is DH used to work nights which meant he was here during the day. He got a day job that pays much more but the younger dog was still a pup and 1) cannot hold it that long 2) destroys things. She's getting older and my commute is being reduced by 2 hours, which essentially means I can be home earlier. We may be able to cut this out.
gin: we just paid off a large amounts of cc debt and I have concerns about them shutting the cards and dinging our credit, especially right before we really need our credit scores. I'm just letting some small balances hang out on the cards for the moment. If we buy the house I will just pay those off and if they want to close the cards then they can feel free.

[phil5185]

26k borrowed from my parents to be repaid

I would avoid borrowing family money, at age 30 it's time to use outside money based on your own credit/resources. Parents are always there and offering the money when needed, but they too are looking forward to the day that you become intendant.

minimums on ~$200 in balances to maintain rotating credit)-

I wondered about this too - do you need to maintain rotating credit? Why not just one 'everywhere' (eg, visa) card, no need for a handful of cc's.

Your savings looks kinda fragmented - $40k here, $9k there. And $50,000 is dead money is too much, could you move some to a bond fund until you need it - something that returns 5% or 6% (we cap our savings at about $5000, but we have substantial investments that we can tap in a couple of days).

You are doing fine with the retirement accounts, $15,470/yr is a good input, extends to $3.5M at age 60 if you use 11%/yr funds. And you will probably be increasing the contribution with time - plus your taxable investment account and your Roths.

So the answer is yes, you can do this. But I would avoid the big DP, retain and invest your own cash elsewhere, it will be far more important to you in your out-years. (Eg, your $40k would be about a million in 30 yrs at 11%/yr). I've paid lots of PMI - my earnings on investments have offset it substantially.

[Pants]

We regularly go under in personal care, dry cleaning, etc. I then use that money to send to debt or savings.
There are some hidden savings to moving to a house too: we currently pay for laundry vs doing it at home, the house is further away from entertainment options making it likely we will go out less, decreased auto insurance and gas. These are little things and I certainly don't expect them to compensate for the entire cost of a house, but they are there.

I would borrow the downpayment money from my parents rather than pay PMI to keep the minimum payments low. Also, in case of emergency they would let me suspend the payments no problem. I doubt I can say the same of the bank. For the record, this will not cause hardship for my parents.
I did not include this money in my prequal application, so those numbers are based of my assets/income only.

[cpadvisor]

May 4, 2011 13:17:03 GMT -5 Pants said:

gin: we just paid off a large amounts of cc debt and I have concerns about them shutting the cards and dinging our credit, especially right before we really need our credit scores. I'm just letting some small balances hang out on the cards for the moment. If we buy the house I will just pay those off and if they want to close the cards then they can feel free.

Use the cards, but pay them off in full each month. Do not carry a balance - it is unnecessary. Maybe I'm misunderstanding how you are currently using the cards?

[resolution]

May 4, 2011 13:17:03 GMT -5 Pants said:

Ok, in response.
kari: Is 49,000 not a lot of savings? I recognize that we don't have a lot in retirement, but I think $49k is pretty good for us just starting out with this income.
We currently save at least $500 per month of our net income to general savings, a lot more for "occassional" expenses like vacation, insurance payments, etc. We often have money left over at the end of the month. previously this was sent to debt, but now will be sent to savings.

The savings is fine now that you explained that the income level is new. I was looking at your budget and seeing about 3k each month not accounted for and not a whole lot in retirement. Also he borrowing of money from your parents for the down payment. At the age of 30 with that amount of slack in the budget I would expect to see more in savings/retirement. So my initial thought was that the income was either new or there was a LOT of spending not accounted for. It would have been a problem if you were used to spending that amount of extra money and then bought a house still expecting to spend it.

[Pants]

phil: the 40k is invested currently. 9k is in outright savings accounts.

[debtheaven]

Two thoughts:

One, I know you have a lot of SLs, but I'm guessing it's not just one big loan, but a series of smaller ones. Might you wait a while and pay off even a small chunk of them in order to lower your monthly SL obligations?

Two, if you're buying a house and you plan to have kids, have you carefully checked out the local schools? I'm probably about your parents' age, but this is SO important. You don't want to buy a house and then find out you don't like the local schools and decide you need to pay for private schools instead.

Good luck!

ETA: I left a cushy, stable job largely because the company moved and I suddently had a 1.5 hour commute each way, so I can definitely understand that.

[CCL]

With $119,000 income and no kids, you don't have a lot of savings. I guess that's the price you pay for being in a HCOL area?

[CCL]

Have you considered a HELOC for the $26,000 rather than borrowing from you parents? This way you could still avoid PMI and likely deduct the interest.

[ihearyou2]

May 4, 2011 15:37:39 GMT -5 CCL said:

Have you considered a HELOC for the $26,000 rather than borrowing from you parents? This way you could still avoid PMI and likely deduct the interest.

Let's see a no interest loan from parents that can be paid back as needed or an interest HELOC, which one makes the most sense?

The student loans are icky otherwise your income is no problem for this purchase.

[Pants]

We haven't discussed the terms of the loan. We will, of course, prior to actually taking a loan from them.
They are doing this for me because my grandfather did it for them when they were starting out.
And if they don't ask for interest I'm not going to pay them interest.

[Deleted]

Yes, you may buy a house...wow, somebody is giving me power? ;D

You've received a lot of good advice. With respect to the parental unit loan; if your folks have A LOT of money then it's a nice thing to have. Just brace yourself that it can be brought up at all times. My MIL lent us a little money which we agreed to because it was a good deal for both of us; we got a lower rate and she was making more than she would have in a 2yr CD. From time to time she STILL brings it up 20 years later. I'm tacky enough to remind her that it was a mutually beneficial deal and that we paid her back early.

I'm biding my time because we lent her money for "a couple of months" and she still hasn't paid us anything back 6 months later. I am EVIL!

[debtheaven]

They are doing this for me because my grandfather did it for them when they were starting out.


THIS. There are so many snarky comments about BS being willing to take money from her parents. It doesn't sound to me like they are on the streets or that BS put a gun to their heads.

In my experience, people LIKE to "pass it on" / "pay it forward", especially to their own children. Me, DH and my ex are all getting to this point in our lives now (well, for us, not nearly to that extent, but the same general idea LOL.)

And all three of us feel that we can't find a better way to honor what our parents did for us when we were all starting out than by "paying it forward" to our kids.

I think there is great dissent between people who did have parental help and are happy to accept it and plan to pay it forward when the time comes, and those who did not and had to make their own way.

And then of course there are also those who walked five miles to school and back, barefoot, in the snow, uphill both ways.

[muttleynfelix]

Go for it!

[debtheaven]

wow, somebody is giving me power?

You do realize now you'll have to change your name to S-U-Z-E, right? ;-)

[thyme4change]

Why are you carrying $5700 in credit card debt?

[Pants]

Because it's at 0% forever, so why not? Even at 1% interest that money is making me money somewhere else...

[debtheaven]

Because it's at 0% forever, so why not?

You will inevitably have "surprises" when you buy a house, plus all the things owning a house entails, like hoses, sprinklers, ladders, tools, garbage cans, etc. With summer on its way I'm sure you'll want a BBQ and garden furniture.

So while I'm not sure that was quite Thyme's intention, I agree that it would really be in your interest to streamline and minimize your current debts.

[whoisjohngalt]

Speaking of PMI - you can prepay it at a HUGE discount. Yes, PMI is kind of throwing money down the drain, but at least you wouldn't have another $20K loan hanging over your head.

Lena