Author Topic: Should we buy a house?  (Read 5395 times)

thenewnorm

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Should we buy a house?
« on: May 12, 2014, 04:10:32 PM »
Thanks in advance for the input. I'm getting married in a few months, and my fiance and I are currently navigating the ever-so-fun waters that are financial decision making. Item of current debate: whether or not to purchase a house.

Income: I make $23/hour as an RN taking home roughly 1250 every two weeks after taxes. Somewhere around 42,000 annualy before taxes, etc. Contributing only 3% to the 401k right now though. I plan on increasing that as soon as i can track down the retirement representative, especially given the fact that my employer matches 50% of my contributions up to a certain point.
Fiance makes $12/hour with much more potential for future earnings, as he has started at the bottom in a company and has already received 3 raises in 8 or so months.

I currently owe 13,900 on a 2011 Kia Soul with less than 50,000 miles.-yikes. Making payments of 254/month at an interest rate of 4.27%.
I also owe 30,000 in student loans @ 6.8% interest- all federal loans. Payments are about $370/month.
Fiance has no debt.

Assets: Fiance owns a 2012 Subaru Outback and a 2002 Chevy Trailblazer outright. The subaru is used less frequently and the trail blazer is used for work commuting- about 14 miles each way 5 days/week.
I have saved about $7000 in the last 8-12 months and fiance has saved roughly $5000. (He also bought an engagement ring with cash.)

Which brings us to our dilemma- the housing situation. We both live with our parents currently. He lives for free and I pay a negligible "rent" which probably doesn't even begin to pay for what my parents are still providing me-food, cell phone, etc. We also have the opportunity of a $20,000 inheritance from a deceased relative coming our way earmarked for the purpose of a house down payment. I have found a small updated house in a desirable area of a nearby town for sale for $84,900. For a comparable house in our current area, we would easily pay at least $175,000. The cheaper area also has way more bike-able amenities and young folks, so it's a win-win.

What this boils down to is my question- In the mustachian's expert opinion, are we in a good position to purchase the $85k home? Given that our mortgage payments would likely be less than $600/month for a 15 year mortgage-which is what we would go for. Rent in the same area would likely be at or more than that.

Thoughts?

nawhite

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Re: Should we buy a house?
« Reply #1 on: May 12, 2014, 04:38:33 PM »
Despite what most people on here feel about rent vs buy, the real answer is that it is a local investment that is likely only available to you. The key is look at housing as the investment it is and not an emotional decision. Despite your debt load, your assets and you income, sometimes you find an AMAZING investment opportunity (that happens to be a house) and you need to pull the trigger. I don't know if the deal you're looking at fits that criteria (I'd need a lot more info about comparables, the area, the rental market etc).

I love the NY Times buy vs rent calculator but my guess is it will say rent while you can while its cheap: http://www.nytimes.com/interactive/business/buy-rent-calculator.Html

kite

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Re: Should we buy a house?
« Reply #2 on: May 12, 2014, 05:40:19 PM »
What nawhite said.

It's never a question of rent or buy a house, but rent something or buy THIS house.  It seems cheap enough,  but if it's not the right house,  there is no good price.   Could you see yourself living there the day the mortgage is paid in full?   I bought a home I could live in forever.   The investment property I bought has that same quality.   My must haves: enough yard for garden and clothes line, two bathrooms, at least one of which, along with a bedroom is on the first floor.   Buying a cheaply priced house and paying it off early has been good for me.  I broke even in the past,  future expenses are predictable,  taxes,  insurance and maintenance are 1/3 of what rent would be on a very modest one bedroom apartment.   
YMMV.

SDREMNGR

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Re: Should we buy a house?
« Reply #3 on: May 12, 2014, 06:17:53 PM »
What nawhite said.

It's never a question of rent or buy a house, but rent something or buy THIS house.  It seems cheap enough,  but if it's not the right house,  there is no good price.   Could you see yourself living there the day the mortgage is paid in full?   I bought a home I could live in forever.   The investment property I bought has that same quality.   My must haves: enough yard for garden and clothes line, two bathrooms, at least one of which, along with a bedroom is on the first floor.   Buying a cheaply priced house and paying it off early has been good for me.  I broke even in the past,  future expenses are predictable,  taxes,  insurance and maintenance are 1/3 of what rent would be on a very modest one bedroom apartment.   
YMMV.

I agree with the above.  It's never rent vs. buy generally.  It should always be a specific question.  Assuming that "market rent" for a city is set in stone and that you couldn't get a super deal in renting (just an assumption for this example), you have to compare apples to apples.  So if you were going to rent a 2 bed apartment, you'd have to compare buying a 2 bed condo that is similar in all respects.  And then you have to compare the costs.

The funny thing about both renting and buying, is that you can overpay or get a good deal in both cases.  So it shouldn't be a general choice, but a specific choice to buy this house vs. renting a similar house.  And if the purchase price were really low for that particular house, then who cares what the market price for the city is, you are getting a sweet deal and you should jump on it.

What I find from all the people on this forum who are anti-home buying / pro-renting, have had historically bad results from their home buying experience.  There are rarely any posts about.... "I just bought a house for really cheap and then sold it for ridiculous profit, but I would never buy another home!  It's stupid to make money on buying and selling homes!"  You can make all sorts of examples of why it is or isn't a good idea to buy a home in general, but the only analysis that matters is the one you do for the particular one that you are considering.

You lock in your profits when you purchase a home and then it's only a matter of how much money you make at disposition.

SDREMNGR

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Re: Should we buy a house?
« Reply #4 on: May 12, 2014, 06:22:24 PM »
On a completely separate issue with homebuying in general.  You in particular are in no position to buy a home.  You can "afford" to buy it according to lenders and there are banks that will lend it to you, but you are completely out of whack with your budget.

You guys have too many cars for the both of you.  And financed at that.  2 cars should be max.  No good reason to have more than that especially when you have hardly any savings and are thinking of buying a home.

CarDude

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Re: Should we buy a house?
« Reply #5 on: May 12, 2014, 06:27:03 PM »
You've gotten lots of good advice so far, so let me encapsulate and elaborate it. The most important factors to consider are a.) whether you plan on staying in the house long term, and b.) whether you can afford it.

I can't answer the first question, but if you were to use the 20k as a down payment (and note: using 2k as a down payment and spending the rest on "upgrades" is not nearly the same thing, and is a common pitfall many HGTV-type home-buyers fall into) and continued to make a combined 64k/yr, then I'd say the answer to the second question is yes. So decide if you want to spend the next 15 years there, since you're talking about a 15 year mortgage. If you aren't, then you should probably rent until you figure out what your long term plans are. If you are, then go ahead and buy.

People run into trouble with home purchases typically when a.) they buy when they aren't planning on staying in the home, or b.) they don't have the income or down payment necessary to make a sound purchase. These people then tend to turn around and state homes are a waste of money, unaffordable, or poor investments.
« Last Edit: May 12, 2014, 06:29:53 PM by CarSafetyGuy »

CarDude

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Re: Should we buy a house?
« Reply #6 on: May 12, 2014, 06:32:50 PM »
On a separate note, as noted above, there's no need for you to have three cars. I'd sell the Soul and split the Outback / Trailblazer. Whichever of you commutes longer should take the Outback, while the other keeps the Trailblazer. Then I'd throw most of your combined incomes toward knocking out your student loans. If you can get at least 10k from the Soul sale, that would get rid of 1/3rd of your loans in a heartbeat, while automatically funneling a minimum of $254 more/mo toward your loans.

Thegoblinchief

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Re: Should we buy a house?
« Reply #7 on: May 12, 2014, 07:50:47 PM »
Houses can be money pits. I'd personally take some time to consolidate cars, kill off the student loan, then talk houses.

If you bought now, without knowing more about your budget, you'd have difficulty dealing with unforeseen repairs, etc.

What about property taxes and insurance? Depending on the area, that's an extra couple hundred on top of the mortgage. Utilities are usually, but not always, higher in a house.

There's no harm in looking at the house, but make sure you do more detailed analysis of the expenses of home ownership.

Another Reader

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Re: Should we buy a house?
« Reply #8 on: May 12, 2014, 08:08:11 PM »
It sounds like houses are a lot less expensive in the nearby town.  What does your current location offer that makes houses cost twice as much?  Better schools?  Proximity to transit?  Lower property taxes?  How much time will moving add to your commutes?

Unless this house is a screaming deal that no one else knows about, I would put the thought of buying a house out of my head until I paid off those nasty 6.8 percent student loans.  How many more years is the loan on the Kia?  At $13,900 owed and payments of $254, it sounds like it's a ball and chain for a long time.  Also, you aren't married yet.  If something happens and you don't get married, you will have an unwanted house to sell.

In your shoes, I would up the debt repayment, max out the retirement, and find a very inexpensive honeymoon cottage or apartment to rent.  Put the $20k inheritance in a safe place, and kill the debt.  Then buy a house that suits your needs. 

thenewnorm

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Re: Should we buy a house?
« Reply #9 on: May 12, 2014, 08:18:37 PM »
Thanks for all of the feedback so far. To answer some questions: we live on the coast of Alabama, so where I live now is a waterfront town that is fairly higher income. A great place to raise children, but fairly expensive. It's not uncommon for someone's vacation home to be less than 12 miles from their primary residence.

The area with the inexpensive homes is "midtown" of the larger port city roughly 20 miles away. Homes in this area were built anywhere between 1850-1950 and the trend seems to be that people are renovating and selling homes in this area, but the market hasn't picked up enough for them to be too pricey yet. The housing market is saturated with homes. I looked at renting a 2/1 duplex in the same area exactly a year ago and it was going to run me $650/month. What's hard for me to wrap my head around is that we could spend virtually the same on housing (with the 20 k in equity instead of the bank) but actually be building equity instead of paying rent. The house in question has a new roof, electrical, and HVAC, all desired upgrades, and a privacy fenced in yard. Its only drawback is size, which is something I'm more than willing to sacrifice on. We would plan on staying in the house for 6-7 years, and would conceivably have the house paid off by then.

Another Reader

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Re: Should we buy a house?
« Reply #10 on: May 12, 2014, 08:32:05 PM »
Also, I think you are focused too much on payments in deciding whether you should buy (i.e. whether you can "afford" the payment.)  Yes, your current payments are only $624, but you owe a year's worth of your income. $43,900.  You have total job income of around $66,000.  Between the two of you, you only have $12,000 saved, contribute only 3 percent to your retirement (where is his retirement contribution), and you both live at home with minimal expenses.  With that income, the savings should be higher and/or the debt lower.  Where is the money going? 

Before you make any major financial decisions, I would gain better control over your money.  Track your spending via Mint.com or something similar.  I'll bet you will be surprised.  My guess is that the two of you have some money leaks that need to be plugged.  The resulting reduction in spending can be pointed at debt reduction or savings increases, such as upping your retirement contribution and starting something for him.

One of the few things I like about Dave Ramsey are his colloquialisms.  In Dave speak, you have "house fever."  As you say, the market in the port city is saturated.  That means deals will still be available when it makes more sense for you to buy.

thenewnorm

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Re: Should we buy a house?
« Reply #11 on: May 12, 2014, 08:36:15 PM »
I started out with 40000 in student loan debt and have only been at the savings/debt repayment for about 8 months total. Graduated exactly a year ago but had to pass boards, find a job, etc. I will admit, however, that I most definitely have house fever.

Another Reader

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Re: Should we buy a house?
« Reply #12 on: May 12, 2014, 08:48:32 PM »
Good work on the student loans.  Now put a cold compress on your forehead, sit down with the future Mr. Mustacheinthesouth, and paint the financial picture of your future.  Look at some scenarios.  If one of you loses a job, how will you fare with a house payment on top of the other debt payments?  Do Mint.com for each of you.  Figure out where the money is going.  Post your expenditures here if you like.  You will get a report card and maybe a few face punches. 

Gimesalot

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Re: Should we buy a house?
« Reply #13 on: May 12, 2014, 09:00:43 PM »
I would NOT by this house.  I just moved from midtown in Mobile.  The crime is still really high.  I left for 5 weeks in November of last year, and came home to a house without wiring, plumbing, or gas lines.

Don't forget that insurance will cost you.  Right now, I have friends that live in south of there and their homeowner's insurance is approx. $2500 a year.  They want flood insurance which will run them another $1000 a year.

The houses in that area are old.  You will spend a ton of money getting rid of knob and tube wiring, replacing floor joists, fixing crumbling piers. 

There's  a reason that there are so many "deals" in that neighborhood.  The houses aren't moving, most have been on the market for months, if not years.

feelingroovy

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Re: Should we buy a house?
« Reply #14 on: May 12, 2014, 09:10:25 PM »
I definitely had house fever when I first got married and I also am one of those people that have profited by rising house prices.  So I get it.

Even so, I agree that houses are money pits.  It's very easy to compare mortgage payments to rent and want to build equity. But it's very easy to underestimate maintenance and repair costs--both money and time.  There is *always* something.

This is my advice: Rent for a year or two at least in the area you're thinking about.  It sounds like houses aren't appreciating rapidly there, so there's no hurry.  Pay down debt (and sell one of those cars!).

If you absolutely must buy and it's a good rental market, buy a duplex and live in half.  You'd come out close to paying nothing if rents are $650 and the mortgage payment is $600.  You won't quite break even to 0 b/c of the repair and maintenance, but it will be close.

thenewnorm

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Re: Should we buy a house?
« Reply #15 on: May 13, 2014, 09:43:22 AM »
Ok everyone, I've come up with a new fairly aggressive plan.

(future) Mr. moustacheinthesouth and I throw all of our savings at my student loan (roughly 10k). This brings the balance down to $20k-about half of what it was this time last year. Then, I start paying off the remaining balance like a mad woman. I'm thinking I can pay around $1700 a month towards the loan, which means it will be paid off by June of 2015, almost exactly a year from now.

I'll continue to live with my parents until September. Then, the fiance and I have been presented the opportunity to rent his family home from his parents for $500/month plus utilities. This amount can be covered by the fiance's earnings. His dad works out of the country and his mom is planning on joining him after the wedding. This may not be the most desirable situation, especially given the fact that his mother will probably be around more often than we would like. It is, however, a small price to pay for being totally free of student loan debt by this time next year.

CarDude

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Re: Should we buy a house?
« Reply #16 on: May 13, 2014, 09:48:42 AM »
^ That's all a good start...I'd still sell one of the cars, though. It's a waste of money to insure and register more cars than drivers, especially when you don't have a unique use for any of the vehicles.

thenewnorm

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Re: Should we buy a house?
« Reply #17 on: May 13, 2014, 10:07:10 AM »
You're probably right on that point. My only reservation is that the Trail Blazer is very much on its last legs. It has over 200000 miles, no working AC, and countless other issues. It's at the "driving it into the ground just to keep miles off the Outback"point.

Also, I looked it up and I've only really paid off 5 grand of the student loans, so I'm not as great as I made myself out to be. Apologies.

Another Reader

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Re: Should we buy a house?
« Reply #18 on: May 13, 2014, 10:09:46 AM »
Great plan!  Fantastic offer from the future in laws.  Get the future hub's income up, kill the debt and buy in a better area when you can afford to buy.  Dump the Trailblazer when it requires an expensive repair and move on.

thenewnorm

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Re: Should we buy a house?
« Reply #19 on: August 11, 2014, 08:51:24 AM »
Just wanted to provide an update.

The New Plan:

Fiance and I will be renting his parents house for nothing. All we have to do is take care of the house and watch over their stuff until they return from his work assignment out of the country in 2+ years. We will also be responsible for the utilities.

My student loan balance is now $22,724.88 and I'm paying about $1600/month towards the balance. My car loan balance is probably only slightly lower than it was a few months ago. I'm just paying my regular payment of 254/month and am planning to deal with paying the car off rapidly once the student loans are gone.

My fiance has been promised a raise of 2-3 dollars an hour and has also been told his next raise will be to a salaried position somewhere in the 50 K range. We're not holding out on this, but it is pretty encouraging. I've also gotten a raise of $1.20 an hour, which came at the same time as I increased my 401k contribution to 10%, so my pay checks stayed about the same.

We still need to sit down and budget for what our expenses will look like once we move in and settle down, but it feels great to be on the path we're on. We're very lucky for the position we're in!

Deepsouth

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Re: Should we buy a house?
« Reply #20 on: August 11, 2014, 09:07:28 AM »
Congrats!  It sounds like everything is working out for you.  I think you made very wise decisions.