What would you tell this couple?

[SpendyMcSpend]

http://www.nytimes.com/2011/11/09/your-money/first-time-homeownership-is-still-beyond-reach.html?ref=your-money

Not many details but interesting story.

[happy]

I would tell them to read MMM!

[SunTzuWarmaster]

First - Buying land where they are is a good way to lose their shirt.  Job turnover and high purchase price makes renting-near-work a very attractive thing to do for bike-riding and cost-saving in general.

Second - Borrowing against your pension for a down payment on a fluctuating asset?  You have to be kidding me.

Third - Two teachers attempting to purchase a $300,000+ home?  Are you kidding?

Fourth - Almost all of the people in the teaching-to-pay-for-your-masters program that they are in burn out after 2 years or so (I know from personal conversations with 10+ people through this program).  This doesn't exactly scream "I will stay in this location for five years".  This is terribly risky.

Fifth - on Page 2, it says that the income is unstable.  Are they seriously looking to make a 30-year commitment with unstable income?  "Stretching" their purchase price?  This sounds like a recipe for bankruptcy/default.

Sixth - the paid thousands in broker's fees to find a rental?  WTF?

Seventh - They mention that the DOWN PAYMENT is 1 year's combined salary.  This is scary.  They are buying too much house (my down payment was 60% lower). Why do they want a house so badly?

Eighth - They can make a map of the city's happy hour?  Seriously?

Ninth - They decided to rent a house which is a 3-hour commute away?  Do they LIKE commuting?  I understand that the 'all you can ride' fare pass in NYC is available, but I cannot imagine paying for that with three hours of my time.  This is 1/8 of the day.  If you assume 8 hours work (yea, right!), and 8 hours sleep (yea, right!), with 30 minute meals twice per day (instant meals!), and 1 hour of getting-dressed/showering/shaving/whatever, 88% of their day is already spoken for (3 remaining hours).

Tenth - Why are they trying to BUY A HOME in NEW YORK CITY?  Have you seen a map of NYC?  It is made up of large buildings.  Apartments and condos are the fare of the day.

Finally - Is this supposed to be a sob story?  Teaching couple in NYC is not presented with the option of 'home owner'.  Is this a shock?  Highly volatile market, unstable career, borrowing against 401K, city generally unfriendly to home ownership, and a series of general 'red flags' in their finances all contribute to saying "this couple should not own a home".

[Lars]

Not much. Mostly I would listen. And I would ask "Why?" repeatedly. It is hard to get much from a 2 page article but I think they are either expecting more from the home then it will probably do in their life or their search developed it's own momentum and they lost track of the reason they wanted a house. So I would question their motivations with the thought that they may be happier and more satisfied if they focused more directly on their desires and dreams and less on a thing - even if it is something as special in our culture as your own house.

[ShanghaiStashing]

First, why do you care about home ownership? Having both owned and rented I presently vastly prefer renting. It provides flexibility, ease of transition to other areas, and is almost always the better financial decision.

I know plenty of people in teir 50's and 60's with high paying job (one guy who makes 500K / year) who have rented their entire lives by choice, not need.

It's a fine way to make a home and if you're a good tenant most folks don't want you to leave.

[Perpetual_Student]

Shanghai, why do you think renting is the better financial decision?  Just curious.  I am looking at moving in the next year or so and will need to decide if I want to continue renting or try to buy.

[tooqk4u22]

Shanghai makes a good point.

The most important thing about renting is the flexibility it provides but you don't control your costs, and you can invest your capital instead of having it sit in home equity.

With homeownership you lose a lot of flexibility but costs are more in your control, you also get a forced savings through amortization but the overall return is likely to be low.

The rent vs. buy argument economically really depends on a specific market and how it is performing (should rent in NY but buy in Vegas currently). Ignoring specific markets and thinking more generally about the averages, people get too hung up on the economic aspects of rent vs. buy and the reality is that over a long period of time and averaged among markets the math for either in the end is close because of repairs, maintenance, debt, return on investment, etc.

I choose to own because I want the stability for the kids and don't want to risk a landlord saying we are not renewing or they suddenly raise rent significantly.  In my area the math suggests that renting is slightly better than buying economically but it is a toss up.

[SpendyMcSpend]

Great discussion so far.  It is very popular to own a home and one does not feel that he or she is an adult without owning a home.  I would not want to buy a co-op in NYC as often you cannot rent it out and if you need to move it's dead weight.

[AmbystomaOpacum]

"I'm sorry."

They're working hard and feeling stuck. I imagine we've all experienced that at some point. It sucks.

Are there things they could do to save more money? Of course. The most important would probably be trying to find jobs closer to home. But they aren't exactly throwing away money. They're saving 15% + $1000k monthly. That's a good start.