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hello everybody! please share your opinion on the following situation: we are a couple in their late 20's with a baby. we want to have another baby as soon as possible. we currently live with a friend and want to buy a home. we live in phoenix, az. husband works from home and therefore needs an office. his father is in financial trouble and has health problems, so will therefore have to move in with us somewhere in the next 10 years. we need a bedroom for us, one for each child, an office plus a guestroom/ room for dad. that makes 5 bedrooms. yeah, we don't NEED 5 bedrooms NOW, but we will eventually. so we found this house that costs 216K. we have 174K in savings. husband makes 50K annually. i am a stay-at-home-mom and would prefer to stay home until kids start school. question is: is it reasonable to buy this 5 bedroom, 216K house in our situation? we are considering buying it and making a 50% downpayment. we would have to pay the mortgage down that much in order to afford it. if we deduct our anticipated fixed costs (mortgage, hoa, utilities, cell phone bill, cable, insurances) we would have $1150 leftover for variable monthly expenses like groceries, clothing, gas, entertainment, baby items, etc. for bigger expenses, vacations, medical bills and emergencies, we would have to dip into our savings. we realize that a budget of $1150 for 2 adults and 2 babies is very tight and that we would probably have to go into our savings quite frequently. if we end up buying the house anyway, we will make a 50% (108K) downpayment, spend some more money on furniture and flooring and invest the rest of our savings (about 50K). probably into stock index funds. but it seems like financially, it would be wiser to buy a less expensive house where we could make a smaller downpayment and have more money left for investing. however we really like the house... it is the kind of house that we want to live in eventually. if we bought a smaller house, we would have to move again and buy a larger one in 10 years from now. if we're going to buy that kind of house anyway, is it smarter to do so now, while interest rates and home values are low? if we have more money to invest, we will have significantly more money in 10 years than if we use more on a downpayment. but maybe houses are a lot more expensive now and interest rates are so high then, that we wouldnt be able to afford a house of that size anymore? please let me know what you think! by the way, the inspection period ends tomorrow which means a definite decision needs to be made by then. so reply quickly please!
I'm not giving advice on your situation, but in general it is wise to have 6 months of living expenses set aside in savings. After that, we always do a 15 year mortgage instead of a 30 year. That way you are actually putting a significant portion of your mortgage payment to principal, even if you don't pay extra to principal. if it's 15 years until you actually move, you own the house outright. After that, look at what your investment options are. Can you invest anywhere and be sure of a better return than your mortgage interest rate? If you find one, let me know. Investment results have been for the most part negative (losing principal) in recent years.
We have followed this philosophy and it worked very well for us. It doesn't depend on a rising stock market or other things that may not pan out. Even with falling real estate values, I don't think another system would have worked as well.
Also find out about the HOA dues -- how much have they gone up yearly? In my experience they just go up and up and up.... and if your board and residents wish to waste money, it will be wasted and there is NOTHING you can do about it.
Buy a cheaper house. You don't need a 5-bedroom house. You really can't afford this house. $50K is a very limited income to have a house that expensive, and it's too early in life for you to dump so much of your savings into a house to make up for the fact that you can't afford the payments on a mortgage that would be needed with a more typical down payment.
You can always move to a bigger house later if and when you're making more money.
To the original poster, I think you probably have fell in love with a house and are now justifying your decision. In fact, if the "inspection period ends tomorrow" as you indicated, it sounds like you have already put an offer in on the ghouse. Allow me to be the voice of reason:
Father-in-law - You should not be making a decision based on what "might" happen to your father-in-law 10 years from now. Making a sound financial decision now may enable you to help him when (and if) the time comes
Stay at Home Mom - Its admirable that you want to stay at home with your kids. Making a mature decision will actually enable you to do that. What you are suggesting is just going to make you miserable. There is nothning worse than not having enough money to enjoy life.
5 Bedrooms - You DO NOT NEED five bedrooms. Your kids are little - one isn't even here yet. From what you said, I presme that you're not even pregnant. Why do infants need their own bedroom. You could easily get by with a three bedroom house. Maybe it would not be idea, but its doable.
Investing - You are talking about "investing the rest" of the money, but then you start talking about dipping into it for vacations, emergencies, etc. That is not investment. That is an "emergency fund" or a "sinking fund." Investing is what you do when you put money into the stock market and forget about it for at least five years or longer. You do need to invest - especially if there are kids in the picture, but you will not be in a position to do so if you buy the $216k house."
Income - You guys make $50k in income. That is the reality of the situation. You are talking about using the whole $174k as a safety net. In other words, you are going to llive right at the margin of your income, then use the windfall money as a hedge against the unexpected. What are you going to do when the money is gone - and trust me, it will not last as long as you think. I do not see any ongoing savings or investment strategy in your plan
The bottom line is you need to pull the plug on this deal. Even if the inspection period has passed, you can get oout of the deal. It will cost you your earnest money, but I'd rather see you lose $2k and chalk it up to experience than to make a decision that you will regret for a long long time.
This is for a 30 year mortgage then? Is that at 4.75% ... less than or equal to 5% I hope?
I wonder if you need to curb your spending a little if you are spending more than $1100 a month after your major bills.. btw "insurances" includes life insurance right?, but not including groceries and entertainment. How much does that other stuff cost. Do you have car payments.....are you saving for retirement in there?
Have you calculated the increased paycheck due to increase tax deductions (mortgage interest and prop.taxes, maybe HOA fees (not sure on that one as i do not have an HOA)).
With all of this cash money you have what I would do FIRST is have at least 6 months of expenses liquid in a "high yield" 4% checking account. you should not have to dip into that unless your husband loses his job or something large and unexpected comes up.
If your husband does not have 401k at work I would be putting $10,000 a year into a Roth IRA. I would prob do this right now before 4/15...... IMO I would not be investing in taxable stocks until you have the safety next and are maxing out that Roth IRA every year. Just my opinion though.
If you can afford the house with 50% Down, while still putting away enough for retirement, Jr's college education, have a nest egg.. house maintenance,etc. maybe you are OK. Not sure of this high monthly spending situation. Maybe you cut that out and you are OK...
Agree that 5 BR is big, but it might only be 2000 sq ft. This isn't THAT big.... not to say you could not live in a 1000 sq. ft. 2-3 bedroom house with no HOA....... or just anywhere without an HOA......
EDIT: now i realize the inspection period is over... wonder what they did.
Last edited by joe moving; 03-08-2010 at 05:55 AM..
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