Buying a House

[KittyFooFoo]

Hello all,

I'm trying to decide whether or not to buy a house with my girlfriend.  My details:

Me: Salary $80,000, take home of $4,600/mo.  Zero debt.  $2k in cash savings, $10.5k in 401K.  Currently saving at a rate of $2-2.5k+/month.
Girlfriend: Salary $52,000, take home of $3,100/mo.  Car loan of $9.5k, being paid at $850/month. 
Current rent: $1,650/mo.

We are looking to buy a house worth <= $200k, which we would finance on a 30 year mortgage.  Each month, we would pay an extra $1k to the principal, resulting in a payoff period of about 10 years.  As far as I can tell, doing this is better than saving for two years, even with mortgage insurance and initial high interest, because rent is so expensive (we currently pay $1650/mo, and the best we could do in our area is around $1,250/mo).

I've attached a spreadsheet with my calculations.  It includes a NJ first time home buyer grant, and I was hoping to buy without dropping any cash by negotiatnig closing costs into the sale.  Please let me know if you spot something stupid I've overlooked.  Keep in mind that my plan is to get a 30 year mortgage and just pay it off at a 10-year rate.

Now, once we buy a house, under this plan our savings profile will change from basically stashing $2k a month in cash and paying off $850 of car debt a month to stashing $1-1.5k a month in cash and paying off $850 of car debt a month. 

My biggest reservation is that we are pretty cash poor currently.  Should we delay buying until we have saved a minimum amount in cash and paid off the car? Or should we go ahead and buy right away to minimize the cost of rent?

I am also interested in general feedback on this plan.  Maybe it's stupid to be putting such a high percentage of my savings into home equity?

Thanks all!

[kristof]

Knee jerk reactions:

1. You have no emergency fund. I would set aside 3-6 months of expenses before anything else. Otherwise you have nothing covering you in case of job loss/emergency expense and end up in deep trouble if you have no friends or family to help you out.
2. If rents in your area rea high, an alternative to buying a house would be living with roommates in a larger place to lower the rent you pay.
3. $9.5k (or more, if part of the loan is already paid off) seems expensive for a car unless it's a specialty vehicle used for work-related purposes. If it isn't, it could be sold and replaced with an equally useful and reliable car for less than half that cost; you could set the difference aside as the start of your emergency fund.

[netskyblue]

Absolutely agree on the emergency fund.  As I'm sure you know, it's generally not recommended to buy a house with a girlfriend/boyfriend.  Something could happen to the relationship, or could happen to the partner (death, disability, etc.).  I hate to say it, but you have to think about it.  What happens if a drunk driver runs into your partner and she's left brain damaged?  Presumably control of her and her assets would go to her nearest relative, most likely parents.  Not you, as you are not married. 

I have to advise either marrying to legally protect yourselves, or save up and buy the house on your own, when you can afford it.  You can have a rental agreement with your partner until you decide to marry.

[Khan]

Initial reactions:

How good of a relationship do you have with your girlfriend, to go into a business decision such as this with her?

Emergency Fund.

1k/month towards principle? No, put your capital to work. I'm locking in at 3.25% interest on my house, so I refuse to pay a penny more on the mortgage unless I want the safety of 3.25% return, otherwise, every dollar I get above my living expenses is getting invested in other accounts.

[Eric]

I'm a renter, so take this with a grain of salt, but why would you take out a 30 year mortgage if your plan is to pay it off in 10 years?  A 15 year mortgage has lower rates, so you could pay that off in 10 years and pay less in interest.

[MgoSam]

I think it might be wiser to take out a 30 year mortgage and pay in ten, though a 15 year mortgage will have lower rates, you are locked in. I think it would be wiser to instead have the lower monthly payments, so long as you are committed to paying a higher amount on your own and keep paying it. This way you can own the house free and clear in 10 years, but if you have an economic downturn, then you have a cushion in case you need to pay less each month towards your mortgage.

[StarryC]

If you aren't prepared to legally marry someone, you aren't prepared to buy a house with them.   If you really would legally marry, but aren't allowed to, that's fine.  If you are ethically/morally opposed to marriage, you should create some similar legal protections in a contract.  Buying a house together is as complicated, long term, and emotional decision as getting married.

If you feel that you alone could or should buy a house and you alone could afford the mortgage payment and would still want the house if you broke up, then you alone can buy a house. 

How could you imagine buying a house with her if you aren't even willing to pay off her car loan?  You could pay it off with your monthly savings and her monthly contribution in 4 months.  If you aren't committed enough to pay off her car loans, you aren't comitted enough to buy a house together. 

House or condo?  If you are planning to buy a standalone house and currently live in an apartment, plan for some additional maintenance expenses and spending time on the yard.  If you are planning to get a condo, be sure to include the association fees in your budget in addition to some lower maintenance expenses. When you buy, an emergency fund is more important than renting.  Right now, my rental's water broke.  Plumbers have been in on 3 separate days to fix it, and now they are going to have to do repairs on the plaster walls they tore up.   I'm sure the costs exceed $1500.  But I don't have to pay as the renter.  But if I were a condo owner, I would have to pay that.

[SnackDog]

I'm not impressed with some of the judgemental advice on getting married. However, I suggest you buy the house yourself in your name with your salary. Apportion expenses so she is paying her car and more of the other joint costs since you will pay mortgage, taxes and insurance.  If things go awry, she is free to go and you carry on with the house.

30 mortgage at these historic low rates - your money is better invested elsewhere.

[Rural]

And what kinda house is 200,000 gonna buy you, Im in Canada so I dont know your house prices... but 200,000 where I live in Canada would barley buy you a little lot in town, forget a house...
MY point is you have no savings are there gonna major renovations required for a house in this price? foundation issues? immediate expensive reno's / repairs that need to be done?

$200k here would be overpaying by 25% for the fanciest place in town. In other words, it's entirely area-dependent.

I do agree with everyone about the emergency fund coming first.

[rubybeth]

An assumption here, but I'm guessing you're a dude. My advice is directed to your girlfriend: if your hope is to get married to this guy someday, DON'T BUY A HOUSE WITH HIM IF HE HASN'T PUT A RING ON IT! I've heard so many horror stories of women who bought houses with their boyfriends and then the relationship didn't work out for whatever reason, so my advice to women is that the wedding planning should be well under way before buying property together.

I also agree with others re: no emergency fund, could pay off that stupid car loan in a few months, etc.

[Spork]

And what kinda house is 200,000 gonna buy you, Im in Canada so I dont know your house prices... but 200,000 where I live in Canada would barley buy you a little lot in town, forget a house...
MY point is you have no savings are there gonna major renovations required for a house in this price? foundation issues? immediate expensive reno's / repairs that need to be done?

$200k here would be overpaying by 25% for the fanciest place in town. In other words, it's entirely area-dependent.

I do agree with everyone about the emergency fund coming first.

Hehe.  My "starter house" in 1991 was $80k.  It looks like the most recent sale on it was 2011 for $115k.  So, yeah, location matters.   ...And my starter was not in some slummy, dangerous neighborhood.  It was a small suburban brick house that was brand new when I moved into it.

[Rebecca Stapler]

The absence of an E Fund is concerning, as is your intent to finance more than 100% of the equity by folding in closing costs. You would be starting out underwater. Do lenders do that anymore?

Not being married can affect your ownership rights, depending on your states' laws. In some states, with unmarried joint owners, if something happens to your girlfriend, her beneficiaries can move in with you. What happens if you split up and you feel as though you have paid more for the house than she has, but she is considered a 50% owner? If you enter into home ownership together without being married, I suggest you contact a local attorney to help you navigate potential pitfalls.