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My fiancee and I are buying a house in the next few months, and could use some advice.
April 30, 2012 11:04 AM   Subscribe

My fiancee and I are buying a house in the next few months. We're looking for some financial guidance regarding some tricky judgement calls I have to make in short order. Thanks for any help!

My fiancee and I are about to buy our first house. I have been reading every 'how do I buy a house' thread on AskMeFi for the last five months or so, but I would greatly appreciate any advice specific to our situation that you generous people could offer. I apologize in advance for the length (but this is also helping me organize my thoughts, too).

Her:
2nd year grad student at a highly regarded clinical psych PhD program. Makes a $16,500 stipend from school (paid Sep through May), is able to work at her old job for a few months each summer and make a few thousand dollars. Most likely very good credit. No debt, school or otherwise. We both own our own (boring and reliable) cars, which we bought new and paid off quickly.

She currently rents an apartment by school, and her lease is up at the end of August, which is when we want to be moving in to our house. We are getting married at the end of September.

She has $40K in savings. Her parents have $20k that they are going to give her for a down payment. This is absolutely a gift and will not be repaid; it's the money they saved on her schooling from finishing early and getting scholarships and funding.

Me:
I was in the Marines for 4 years, and when I got out I went back to school. I graduated one year ago this month. In that year I started a non-profit art school with some friends, for which I am the treasurer. I might be able to make a little money teaching at the school in the next year or two, but for now it actually costs me (and the other founders) around $350 / month to cover the bills. We are at the tipping point of solvency, though – one or two more students, or a renter for one of the studios in our building and it breaks even. There are no more start-up costs on the horizon, just monthly bills.

I have been broke as a joke the last year. I did not apply for or take any public assistance. My few thousand in savings went toward building the art school, and the credit card balance slowly crept up ($3500). I have never missed a payment on anything, though, and have lived very, very frugally. I knew what I was doing when I slowly ran up the credit card, it was a tool and I used it. The few K in debt is well worth what I will get out of it in the long run from being a founder of the school (it is not hyperbole to say that getting in at the ground level of a little school like this, and eventually teaching there, is the best career path a visual artist in my field can make).

The Good:
Was just hired by my father's successful company last week at $36k / yr, plus year end bonuses. I have worked for this company as a contractor for the last five years, taking on more and more responsibility. We (hopefully!) are about to expand dramatically, and the field we're in is very secure.

I am a veteran, so I qualify for a VA loan – that means no PMI and hopefully a lower interest rate.

I am very, very handy – I can fix or build almost anything.

The Bad:
I have around 12K in student loans. According to every calculator out there, my payments will be just under $140/ mo. I have a credit card with a $3500 limit, and it is maxed. This month, with my first paycheck I am going to make a $1200 payment on the card to reduce my debt to credit ratio. As of right now I plan on making the same '1/3 of credit limit' payment next month as well, paying the card off within four to five months. I don't actually know what my credit score is (I didn't want to burn my free credit check prematurely, will be explained below).

Last month or so I found out that the grace period for student loans was three months shorter than I thought it was, and I was two months behind! I immediately get a forbearance, retroactively to the date that I was supposed to start payments.

The Ugly:
There is no ugly! I am very thankful for that. Maybe the student loan this is Ugly, but I'm hoping it isn't, or if it is, that I can untangle it quickly.

Our Budget:
My job and her career are both quite secure and have a lot of potential for growth, but we've budgeted very conservatively. For income we are only counting our net after taxes. We will receive a nice tax refund, bonuses, money from side work that I do, and her summer income, none of which we are counting on whatsoever. All of this extra stuff, along with at least 10% of our monthly take home pay will be saved. We don't plan on having kids until one of our incomes increases by at least 1.5 times an average 'cost of having a kid' unit.

After budgeting our expenses, projected bills, and what we want to save, it looks like we can afford about a $1,000/ month mortgage payment.

So now, here I go with the questions:

Should we run my credit now, or wait a bit for my drastically-credit-to-debt-ratio-reducing CC payment to show up on my report (and how long would that take)? Would the more accurate, lower CC balance score be worth waiting for, or should I get the score as soon as possible to make sure there is nothing weird on it?

Am I worrying too much about owing a few thousand on a card? Would the $1200 I plan to pay on the card next month (the second large payment) serve me better as cash-on-hand for closing costs and all of that?

Should I actually try to increase the credit limit on that card, or get another credit card from somewhere else to further decrease my debt to credit ratio?

What is the best way to extricate myself from my student loan situation? Should I just call them up and turn the payments back on? Is the amount of my income-based monthly repayment interdependent with my mortgage-worthy-ness in such a way that I should do things in a specific order? This is literally the only financial thing I have screwed up in like ten years, and it came from visually flipping a six for a nine.

What impact, if any, is a VA-backed loan likely to have on our interest rate? What interest rate are we likely to get (ballpark)?

When should her parents giver her that 20K? I'm thinking asap, with a letter signed by everyone that it is a gift.

How much should my fiancee put toward our down payment from her savings? Is $10K a good amount? We've been figuring on around $10K, which will be around 12% down on a 250K house. Would we be better served using more? Using less?

I could possibly ask my mother for a little cash to help toward a down payment, too. She is very financially secure. Any reason not to ask?

How do I approach a bank about my work situation? I made very little money last year, but I did manage to start a business, and I am the treasurer for the place. I managed a substantial budget each month, and was able to meet all of my personal obligations on just about no income. I am very responsible – how do I get a bank to realize this?

I have my personal account at a local bank. My dad's business and the art school both have accounts at the same local bank. I would like to use the same bank for the mortgage for simplicity's sake, but also because I like the way they do business. Would their knowledge of everything – my non-profit's account, one of my employer's accounts, and my personal account color their picture of me as a borrower in any appreciable way? I am going to get the cheapest loan with the best terms possible, but I would like to get a quote from them, and I'd use them over someone else if the payment was just a few dollars more.

Lastly, how to proceed? Get pre-approved first? How does one actually do this – call up banks? Stroll right on in? Does my fiancee need to be present at everything (she currently lives an hour away)? Look for loan offers over the internet?

Bonus question:
We may move in 5 years or so when she is done school, at which point I'll still work for my father's company, possibly branching our services out to wherever her career takes us (my job is not very location dependent). I would also start a branch of our art school wherever we go, using the brand we will have built here to get a few private students in our new city. We should have 75K or so saved by then, enough for another down payment wherever we go. I would like to keep whatever house we buy here and rent it out, as the average rental in our current city is about $300/month more than our mortgage payment will be, accruing equity and continuing to take advantage of today's killer interest rates. We could also end up staying where we are (which we would both prefer) Is there anything about this that seems infeasible?

That's it for now. Once it comes time to put pen to paper, I will be back in here asking abut mortgage terms.

If there are any further details I can give, I would be happy to provide them.

Thank you for making it through my post, and thanks in advance for any help. I really appreciate how generous MeFites are with their time and expertise. This is an awesome resource!
posted by amcm to Work & Money (29 answers total) 2 users marked this as a favorite
 
I will not be able to answer all of your questions but as someone who is attempting to buy an apartment for the first time I may be able to answer some of them.

In my case, I began looking at apartments before I got a pre-approval. I contacted a lender recommended by the realtor (they should be only too happy to offer you contacts). I did all my work with them online; no need to be present.

I think that 12% down on a $250k house would be $30k, unless I am missing something. You will probably want to budget more than $10k.

If you have a down payment, how will you manage to pay the monthly mortgage fees and other costs? It seems like it could be difficult given the salaries you have mentioned. Caveat: I am in New York and generally things are much more expensive here (though the property I'm looking at isn't), so I may be missing something.
posted by mlle valentine at 11:19 AM on April 30, 2012


Her parents have $20k that they are going to give her for a down payment.

Make sure they are aware of the gift tax.
posted by googly at 11:22 AM on April 30, 2012 [2 favorites]


Too complex for me to answer, but here are a few suggestions:

This is a great site and should answer many of your questions.

I can't think of any (financial) reason you shouldn't ask your mother. Depending on your relationship, you might also consider asking her to be a cosigner on the loan.

Shop around. Start with banks you are familiar with, ask around for referrals to banks and mortgage brokers, check out online lenders. This is a lot of money, and you have a relatively complicated situation. It's worth your time to find a lender who will sit down and work with you to get to a good rate. Even a difference of 1/8 of a percent can amount to thousands of dollars. At the same time, don't take the lowest rate if you don't trust the lender (or at least get everything, including closing costs, in writing. Also, once you get the loan, it will probably to sold off, so there won't be any future convenience benefit.

(Googly mentioned the gift tax. If you read the wikipedia article linked to, you'll see that you don't have to worry about it. Some people think there's a $13,000 limit. That's actually the annual amount per person that is completely exempt from tax, so the limit for a couple is $26,000. And even if they (or someone else) gives more than that, you first add up the excess of the amount over $13/$26,000, then pay tax once the sum of that is over $5 million.)
posted by Mr.Know-it-some at 11:30 AM on April 30, 2012


I don't mean to totally derail, but may I gently suggest that you reconsider whether you really should be planning on buying a home? You'll be a one-income family; that income is brand-new; you will need to funnel a lot of that income into paying off existing debts; it's important to have savings sufficient both enough for a down payment and a substantial chunk to make the inevitable necessary repairs when, ie, your hot-water heater explodes in the middle of the night.

You say that "the average" rental for your current city is $300/mo higher than the mortgage you expect; is that also true of the specific neighborhoods you might buy in?

I know that, on paper, a mortgage is very often cheaper than rent. And certainly over the long haul it generally is. But in the short-term (next few years) it's very often more expensive, and it's certainly riskier. And when I look at a grad student and a veteran with a brand-new job with a modest salary, the first question I have is, why aren't they just renting for a while longer? What's the rush to buy?
posted by Tomorrowful at 11:31 AM on April 30, 2012 [20 favorites]


I would like to keep whatever house we buy here and rent it out, as the average rental in our current city is about $300/month more than our mortgage payment will be,

Keep in mind that your insurance will go up, switching from regular homeowner to rental property.

I tend to agree with others above, however, I will also say that I, and a number of others I know have "gotten around" the large student loan debt issue with our spouse being the one to actually buy the house and then adding our name to the mortgage afterward. But you want to REALLY run the numbers and make sure that you can actually afford it.
posted by stefnet at 11:44 AM on April 30, 2012


My folks helped out with our home purchase for a similar amount. They split the gifts into two 10k chunks given during different calendar years. This may delay your purchase timeline, but it'll give you a chance to build up more of a credit history. It'll also give you time to shop around some - try talking to smaller banks about setting up an account there with an eye towards getting a mortgage through them.
posted by robocop is bleeding at 11:44 AM on April 30, 2012


(Never mind my earlier comment, I see that you mean $20k plus $10k for the down payment.)
posted by mlle valentine at 11:48 AM on April 30, 2012


You have to pay tax on any gift over $10k.

With a VA loan, you won't need a down payment.

Many lenders can offer VA loans, but you might want to check with a credit union.

Don't buy a house unless you have an 8 month emergency fund.

There's no hurry. Houses aren't going anywhere. Houses may be cheaper than apartments at first, but there are many expected and unexpected costs. While I like my house fine, I'd be so much better off if I were still renting. (Ask me about Hardi-Plank, digging up sewer lines, replanting sod and other unsexy and expensive projects.)

If you plan on moving in 5 years, then you won't get back your closing costs in new equity.

WAIT, WAIT, WAIT and buy when you're settled for the foreseeable future!
posted by Ruthless Bunny at 11:51 AM on April 30, 2012 [1 favorite]


Even with a $30K down payment, I don't think you'll be able to have a payment of $1000/mo. on a house with a purchase price of $250K. Most mortgage calculators only calculate principal and interest, but there's also taxes and insurance. I live in a fairly inexpensive area, property tax-wise, but I still pay about $300/mo in taxes and insurance.

If you're thinking about moving in five years, you should totally wait until your fiance is done with school and you know where you're settling to buy a house. That gives you a lot of time to build up awesome savings, pay down the student loan, and build your credit history!
posted by rabbitrabbit at 11:56 AM on April 30, 2012 [1 favorite]


Probably moving in 5 years = don't buy a house. Oh, I know, that was me six years ago - no no no, it's fine, it'll be totally cool, it's dumb to rent for 5 years!

The answer is: because of the tanking real estate market and credit crisis, which is nowhere near over. I refer to that house as "my albatross," and I nicknamed my ulcer "the mortgage."

Find a nice house to lease. Pay off your loans. Get stable in your employability. Find out where your wife is going to land (especially if she's going into academia - do NOT buy a house until tenured). Save. Have money to replace your paid off cars. Then, at that time, if home ownership is still a thing that people generally do, start looking into it.

You do not have to buy a house to be a grownup. Not being in debt is a super-cool grownup thing to do.
posted by Lyn Never at 11:58 AM on April 30, 2012 [4 favorites]


You say you can afford a payment of about $1k/month. You also mention a price point of $250K, and a down payment of $30K. At current mortgage rates of around 4%, the monthly principal and interest on a 30-year loan for $220K is $1050.31. But, principal and interest is not the whole payment. You don't seem to be accounting for property taxes and insurance (let alone maintenance), which can be quite substantial additional costs. You probably can't afford as much house as you're imagining you can.

Getting preapproved is a simple process that's not very meaningful. Basically you'd give a bank a rough outline of your income, the approximate price of houses you're interested in, and your social security numbers so they can check your credit history. The bank does a quick look to see if the picture you're painting makes sense and then says, "yeah, that sounds like a loan we'd be okay with." But you are in no way home-free at this point. Once you have found a specific house and agreed with the sellers on a specific price, the bank's underwriters will go over the whole deal and your financial situation with a fine-tooth comb. The fact that you were preapproved earlier does not mean that a real, specific loan for a real, specific house will be approved.

You should probably just go in and talk to someone at the bank about what's possible. The bank wants to give you a loan if they can. This is not a predatory game of gotcha where it serves you well to hide the truth about your circumstances. But the fact is, you don't have any income to speak of, your fiancee has only a little income, you have considerable debt, and you're wanting to buy rather pricey real-estate, with the down payment largely funded by gifts. I would be very surprised if a bank were willing to give you the sort of loan you're hoping for.
posted by jon1270 at 12:00 PM on April 30, 2012


I know this is tangential, but "You have to pay tax on any gift over $10k." is incorrect. Basically, unless you're expecting a multimillion dollar inheritance, you won't owe any tax. Details here.
posted by Mr.Know-it-some at 12:02 PM on April 30, 2012 [1 favorite]


Honestly, this seems like a terrible financial decision for you guys right now. What is the rush? Why not wait until you guys are married (!!??), as weddings are nutty expensive even when you think they won't be. Save up every cent you can the next 5 years, and once you are both on your career path with a few years of full-time work under your belt, THEN buy a house.

It seems like your lives are changing a lot right now, and buying a house is an insane amount of stress to just toss on top of the pile. What happens if your future wife can't get a job right out of grad school and the house you buy needs a new and your car breaks down and and and... $36k/year does not equal $1k per month. Ever. Sorry.

Please don't do this. There is nothing wrong with renting. My husband and I do it. We love it. Nothing ever costs us money unexpectedly. We are very secure, and we have money in the bank. Hell, in 3 years we might move to the west coast because we can afford it and there's nothing holding us back.

posted by two lights above the sea at 12:07 PM on April 30, 2012


Make sure they are aware of the gift tax. [...] You have to pay tax on any gift over $10k.

Not good information. Firstly, the annual gift tax exemption is $13,000 per person not $10,000 per person. Secondly, there is also a massively higher lifetime exemption so unless the parents have gifted several million taxable dollars already they still wouldn't owe any taxes. Lastly and most importantly, $13,000 per person for two people (a married couple) is $26,000 per year which is more than $20,000 so such a gift wouldn't even be applied to the lifetime exemption.
posted by Justinian at 12:13 PM on April 30, 2012


But the fact is, you don't have any income to speak of...

Sorry, I forgot that your dad did just hire you. The fact that you only recently got the job still isn't great, but you do have some income.
posted by jon1270 at 12:13 PM on April 30, 2012


I'll take a stab at a few of these Q's since there's a lot in here:

Should we run my credit now, or wait a bit for my drastically-credit-to-debt-ratio-reducing CC payment to show up on my report (and how long would that take)? Would the more accurate, lower CC balance score be worth waiting for, or should I get the score as soon as possible to make sure there is nothing weird on it?

You need to know your credit score before you have an idea of what kind of loan you'll qualify for. I don't understand that you mean about "running" it. You can get this pretty easily just about any time you want it. What is most important is your credit score at the time you apply for a loan. So I'd go ahead and find out you and your fiancee's credit scores now, and then see the extent to which you need to improve them to get the rate you want.

Am I worrying too much about owing a few thousand on a card? Would the $1200 I plan to pay on the card next month (the second large payment) serve me better as cash-on-hand for closing costs and all of that?

You should be worried about carrying a balance on a credit card not only because of its potential effect on your credit score, but because the interest you're paying is expensive. What seems to make the most sense in your situation is to continue to save, frankly, rather than trying to buy a house this summer just because the timing works great with your fiancee's rental.

What impact, if any, is a VA-backed loan likely to have on our interest rate? What interest rate are we likely to get (ballpark)?

The interest rate you get will depend substantially more on your credit score than it will on the VA loan. I bought a house with a VA loan in 2010, and the difference in loan rates wasn't much more than a .25% or so. But it will probably be a moot point for you since you won't have a viable option to put down the 20% that you'd need to get a conventional loan.

How much should my fiancee put toward our down payment from her savings? Is $10K a good amount? We've been figuring on around $10K, which will be around 12% down on a 250K house. Would we be better served using more? Using less?

The beauty of the VA loan is that you can put next to nothing down, which is good, since you have next to nothing to put down. The interest rates on 30 year mortgages are so good right now that it doesn't make sense (in my opinion) to put additional money down if you need not do it--at least for someone in your situation who has other pressing needs for cash. The reasons you should consider a larger down payment are if it will make a significant difference in your interest rate or whether it will allow you to qualify for a loan that you otherwise wouldn't qualify for.

I could possibly ask my mother for a little cash to help toward a down payment, too. She is very financially secure. Any reason not to ask?

Yes, because you don't want to be beholden to your mother over this for the rest of your life.


I have my personal account at a local bank. My dad's business and the art school both have accounts at the same local bank. I would like to use the same bank for the mortgage for simplicity's sake, but also because I like the way they do business. Would their knowledge of everything – my non-profit's account, one of my employer's accounts, and my personal account color their picture of me as a borrower in any appreciable way? I am going to get the cheapest loan with the best terms possible, but I would like to get a quote from them, and I'd use them over someone else if the payment was just a few dollars more.

Sure, this makes sense--it's definitely nicer to work with someone local if the cost is relatively the same. We did this on our mortgage, and it was great. Until the local bank sold the loan to Wells Fargo and everything became a huge pain in the ass. So realize that your interaction with the local bank might only be during the very first stage of this, getting the loan. I still think there is a reason to use them if you can. But, to be honest, I doubt that your business will be seen as a positive at this point by any lender, even one who knows you. You just don't have the evidence that it will be profitable yet. In any event, there's no harm in getting a quote from the local bank just to see what it is.

Lastly, how to proceed? Get pre-approved first? How does one actually do this – call up banks? Stroll right on in? Does my fiancee need to be present at everything (she currently lives an hour away)? Look for loan offers over the internet?

Your first step is to figure out what you can afford to pay, and how much money you should be spending on a house and whether it's actually feasible. You do want to be pre-approved before you start seriously house - shopping. If you belong to USAA (and you should) you can call them. Their loan was competitive but not the best, but they have a great program called "Mover's Advantage" where they hook you up with a buyer's agent and you a check for like $500-$1000 (depending on ultimate size of purchase) just for using the program, even if you don't get a mortgage with USAA. So if I were in your shoes I'd call my local bank, call USAA, and then solicit recommendations for other mortgage brokers that friends and family have used. Your fiancee need not be present for anything, she can just sign stuff.

We may move in 5 years or so when she is done school, at which point I'll still work for my father's company, possibly branching our services out to wherever her career takes us (my job is not very location dependent). I would also start a branch of our art school wherever we go, using the brand we will have built here to get a few private students in our new city. We should have 75K or so saved by then, enough for another down payment wherever we go. I would like to keep whatever house we buy here and rent it out, as the average rental in our current city is about $300/month more than our mortgage payment will be, accruing equity and continuing to take advantage of today's killer interest rates. We could also end up staying where we are (which we would both prefer) Is there anything about this that seems infeasible?

I wish I had answered this first. If you think you're going to move again in five years, don't buy a house now. Just save money and get your financial house in order. Really.

Overall, I think you may be disappointed at how much house you can afford in the Philadelphia area based on $50k in income and less than a top shelf credit rating, even with a VA loan. I'm guessing your total house payment--mortgage P&I, taxes, homeowners insurance--will need to be $1200/mo or less for this to be feasible. If you don't have much to put down, I'm guessing you're looking at houses that will be well under $200k.
posted by MoonOrb at 12:13 PM on April 30, 2012


I would say that at this point in time you would definitely benefit from an informal meeting with a mortgage loan officer from a bank. I met with one about 6 months before I applied for pre-approval and found the meeting to be incredibly helpful. For one thing, I found out that the bank wouldn’t pre-approve me until I had worked a year at my current job, regardless of my past income. Secondly, she offered me solid advice about which loans/debts were best to pay down first, and whether I should focus on paying down these debts versus adding more money to savings. Some of this advice was counter intuitive, such as paying down debts with the highest minimum monthly payment instead of those with the highest interest rate, but YMMV. In short, I think talking to a mortgage officer at a bank is your next logical step to determine if and when it is the right time for you to buy a house. Good luck!
posted by tr0ubley at 12:23 PM on April 30, 2012


I would continue to rent, pay down as much debt as possible and save, don't buy a house if you're planning on moving in 5 years and don't buy a house unless you're planning on having/sending kids to the schools in the area. Don't buy a house in an area with bad schools. Just don't.

No matter what you'll need to have whatever money you use for the down payment seasoned. Regarding the gisting of the money, you should ask her parents to break it in to multiple gifts either one to each of you or from each of them individually to her. A tax accountant will help you figure out the way to do this with the lowest tax burden.

Run your credit now, figure out what is out there, you're not going to get a fico score with the mandated free credit reports anyway. After you run your credit, fix anything in it.

Here is something to think about, every 10k you put down on a house or have in your back pocket for repairs is significant savings down the road, no matter what the interest rates are.


Based on what you described I think you're likely a few years from home ownership. Get rid of the debt, build up a much bigger nest egg for savings and down payment, aim for a 10 or 15 year fixed mortgage. It's not just the loan payments, but maintenance, insurance, property taxes, etc etc. All of that can easily be several hundred a month that you just don't see reflected in a mortgage payment.
posted by iamabot at 12:26 PM on April 30, 2012 [1 favorite]


Her: ... Most likely very good credit.

Respectfully, I think you should know this information at this point. You're planning on buying a house together. Moreover, if she's got anything unexpected on her credit report (unrealized identity theft, for example), it might take months to untangle.
posted by Iris Gambol at 12:32 PM on April 30, 2012


+1 for saving your money. I see so many people race to own their first home when the smart decision would've been to continue renting and saving their money.

Consider this:
on 250,000 at 4% over 30 years with 30,000 down your payment is $1050/month. Property Taxes will cost you another $150-$250/month (if you lived in my town) so now you're up to $1250/month and you haven't even bought home insurance yet at say $90/month. So... 1340/month is your payment BEFORE you have to fix the roof, or leaky faucet, or pay the heating bill, etc.

On $50,000 pre-tax that doesn't leave a whole lot of money left over. Plus, you won't see any real gains in equity for a while AND if you look at an amortization table you will see that you don't even make any real contributions to the principal for the first part of your mortgage, your payment will be mostly interest.

If you continue renting, you plan on paying $1300/month. If the roof leaks, you call the landlord and it's their problem. Wiring needs to be replaced, ditto. If you want to move, you provide your months notice and go. When you see yourself living somewhere for more than 5 or 6 years... that's when you buy. I have been in the VERY unenviable position of owning a house, affording the payments, but having no extra cash to do fun things like vacations or even not so fun but helpful things like put new windows in: IT SUCKS!

Call the in-laws and get the money. Or have them put it aside for you in a dedicated interest bearing investment. $30,000 at 4.5% compounded semi-annually for 5 years will have a future value of $46,590. Or, to put that in a more tangible sense it would be the same as putting aside $276/month. Watch your savings grow until you are settled somewhere and enjoy your first five years of marraige instead of wondering if you can postpone getting the shingles redone another year.
posted by Beacon Inbound at 12:36 PM on April 30, 2012 [2 favorites]


i'm with those who urge you to consider why you want to buy a house right now, given your current financial and professional circumstances, as well as the fact that you plan to move in 5 years. i think a lot of people believe that they must buy a house but without regard to whether it really makes sense for them to do so given their current life circumstances. this often leads to people buying houses they really can't afford to repair or maintain, or houses in areas that don't hold their value, or any number of other issues, just for the sake of owning a house. save your money until you and your fiancée are in a more settle situation.
posted by violetk at 12:57 PM on April 30, 2012


For comparison's sake, my partner and I earn 3-4x what you so, and I only felt comfortable with a $2000 house payment - and that included taxes and insurance. I don't think you can afford a house, and I don't think this is the right time in life for you to buy. When you're just graduating from school and jist starting a business, you need more flexibility and fewer financial ties. Buying a house is the exact opposite of that.

And I'm not even sure why you want to buy in the first place?

And what's your credit score? Below 620 and no lender will even look at you. Your gf's downpayment and good credit will not makd a difference.
posted by yarly at 1:20 PM on April 30, 2012


Honestly, if you won't have 6 months of expenses in-pocket, I would wait until you do. I agree with the other posters that there's no rush -- I recently rushed to buy a place and now wish I'd given it a few months, as I'd have a cheaper loan and more time to shop. (I'm still happy, but I would have had more $ left over.)

You know how when you buy a used car you budget for $2000 in repairs? After closing costs, moving costs, and whatever thing about the house turns out to be your first big problem, you've got the needle pretty close to E. I'd pay down some debt, sack away a little more cash, and come back to homebuying when you find a place you want to put down roots for more than 5 years.

(You will also have a tougher time getting a loan with new jobs and down payments coming from relatives, although perhaps the VA qualification makes this less of a problem.)
posted by zvs at 1:48 PM on April 30, 2012


Wow, you guys are fast!

First, thank you all for taking the time to answer, and for giving us a lot to think about.

I agree with everyone about being very cautious - we are not going to buy some place that is going to destroy our finances, or trap us in a house with a mortgage around our neck, and if that means no house then we'll rent. We're not reckless - I absolutely do not want us to be house-poor. This is a big reason why I asked this question, to find out what would make financial sense to do.

To address a few of the biggest red flags that have been raised:

Waiting until we are financially secure:
I had a feeling this would be the overwhelming response, from having read similar AskMeFi questions. We are not dead set on home ownership just because we think it is the next step, or it makes us all grown-up or any of that (in fact we're not dead-set on anything). There are real quality of life issues when it comes to renting vs. buying for us.

I personally want to live somewhere that I control, where I can change things and improve the building, punch holes in the floors and walls and roof where I want them, build-in bookshelves, put in a bathroom if I want another one, and maintain the place to my own standards. She's the same way; we want to customize and mess with things, build an office and studio, and make a really great home for ourselves that is exactly how we want it.

I can replace a roof, change a hot water heater, fix leaks, wire up anything, build walls, tear them down, do masonry, install hvac, make cabinets, etc., and all of that better than I've seen in almost every rental I've ever been inside of (except maybe masonry and some plumbing). A few hundred bucks a month is well worth the satisfaction of living inside of, and appreciating our own work, and living how we want. If we can do all of this for the same price (or cheaper) than renting, we think it is well worth it. If we cannot afford it, we cannot afford it and will wait. That is our goal, however, and if it is not irresponsible to do it now, we will do it now. This thread has given me a lot to think about regarding what that threshold of irresponsibility might be, and I am grateful for that.

Another reason is that our thousand dollars or whatever will be going towards something we own, and not something someone else owns. I would like to accumulate property, and own it, and manage it, and pass it on to my kids; not just keep trading up houses and re-setting our mortgage to 30 years of payments.

A third reason is that our money is worth more now than it will be worth in the future. Sub-4% rates make this very attractive to us. Another point of interest is like another $120 a month or something on a payment, so as rates rise, and as home prices creep back out of this once in a lifetime hole, mortgages and houses are going to get more expensive.

Price:
I also think that we should well within our means, and not buy the most expensive place we can afford. The 250K figure represented the most expensive place we could make payments on while meeting all of our other obligations (including having fun). With what I've read here and elsewhere, I agree that a more realistic figure is something below 200K.

We can get a 150K house in the area we want, put 30K down, and pay $830 a month on a 15 year fixed mortgage. (or 730/ month over 20 years). To rent something similar is at least around 200/month more.

We can get a 180K house with 30 down for $890 a month over 20 years, or 700 over 30 years.

We can get a 200K house with 30K down and pay 800/ month for a 30 year fixed. Same area, rents run 250-300 more per month for houses this size. Insurance and taxes will add another 150 or so a month.

That said , if renting is more affordable, in the form of renting a small apartment, investing our current down payment chunk, and making out like a bandit in five years or so then we are going to weigh that with the benefits and drawbacks of home ownership.

A possibility of moving:
It is there, which is why I mentioned it, but it is more remote than it seems to have been perceived. She is not interested in pursuing a tenured position in academia. She would rather work somewhere like the VA, which is where she worked before grad school, and still works during the summers (all at the Philly VA). We would both want to stay in the area, as all of our family is within an hour drive. If I had it my way I'd live in Philly until I croak. Our triggers to move would be 1. One of us gets some awesome dream job opportunity that makes it a financial no-brainer to move, 2. We have way more kids than we are planning to and outgrow our house, or 3. We can afford to buy another house and keep this first one as an income property that is at least revenue neutral.

I really do appreciate all of the advice! Thank you all for having our best interests at heart. If it is not too much to ask, I would be interested to hear what you have to think after I've cleared up our motivations for buying, our price range, and our likelihood of moving.

Thanks again, this has already been incredibly helpful.
-A
posted by amcm at 2:42 PM on April 30, 2012


I forgot to mention - the other big reason for trying to get our ducks in a row for a loan is that a lot of foreclosures are coming on the market in Philly, and we might be able to grab something at a deep discount. Cheap rates, low prices, and a glut of foreclosures is a really good opportunity for us if we do things the right way.
posted by amcm at 2:45 PM on April 30, 2012


Think a bit about how the different pieces of the puzzle are likely to change over the next couple of years.

* The Fed has said it expects to keep interest rates where they are through 2014. (Decide for yourself whether to believe it.)

* If a wave of foreclosures hits, it will take time for the market to digest them all. Prices probably won't shoot up very fast.

* The more time you have to strengthen your financials, the easier it will be to swing the deal you want.

So go ahead and get your ducks in a row, and keep an eye out for an exceptional deal. But don't feel like you have to grab something right away.
posted by Longtime Listener at 3:56 PM on April 30, 2012


I'd recommend you get preapproval ASAP and start going to look at homes in your price range in person. The real estate bubble 'burst' top-down: higher priced homes took the biggest hit and more modest starter homes have been the last to come down in price. In my area, the decrease in starter home prices was only from more affordable homes being sold as-is than renovated-and-flipped. The $170,000 house that needed $25,000 in renovations is being sold as-is for $170,000 instead of $200,000-after-reno at the height of the market. Very small net difference.

I don't know about the Philadelphia market, but you should go look at what your money can get you-- in person-- and compare its historical selling prices so you can see if it's trash or treasure!

One more reason to wait: first time homebuyer perks will go further if you wait for a bigger house. Many of them are based on a percentage of the home's value (down payment bonuses, lower interest rates) so you may find it's worth waiting until your fiancee graduates and gets a fantastic job. (Yep, this also contributed to the bubble by encouraging people to buy more than they can afford, but not all the magical $ has dried up yet.) Trading up in 5 years will also be harder without a major change in circumstances. You'll have to use the equity in home1 or save like crazy for another down payment.
posted by Gable Oak at 8:48 PM on April 30, 2012


Yeah, pay down your credit card and wait for the next statement to be issued, plus maybe a week or so, before you bother to pull your credit SCORE. The credit report will update a little after your next statement comes out, most likely. E.g., if your last credit card statement was dated April 10 for the period of March 5 through April 5, this next month will close on May 5, so get that payment in ASAP. Some report more infrequently, but most seem to report pretty quickly after the statement updates.

In the meantime, use something like CreditKarma (something free) to see the items on your report, in case you need to clean any of it up. Just don't pay for your credit score until you see that balance go down.
posted by slidell at 9:16 PM on April 30, 2012


One plan of approach some of my cohorts are using is to buy student-equivalent housing near a local university and then change over to renting it out once they're ready for a larger/elsewhere house.

I totally understand the quality of life issues in house vs. apartment, so if you can find a cheap fixer-upper, you may be able to pull this off. Elope or hold a very-small ceremony if you have to, if this is important enough to you. You'll both have to be on the same page and working as a team to do so.

That said, I know historically Philly is an expensive market, so you may not like what you can find in the "cheap" price range. The more work you can do yourself, the more sweat-equity you can get.

Keep in mind that VA loans have some extra hoops to jump through and more stringent property requirements, so allot extra time to dealing with those.
posted by bookdragoness at 9:11 AM on May 1, 2012


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