I think my “Buying a home with debt?” post hit a nerve with a lot of people, but through the comments I got a lot of different perspectives and it’s honestly made me reevaluate my own stance on buying a home.
At any point, when it’s cheaper to own than to rent, then for sure I think owning a home should be a number one priority. Unfortunately, that wouldn’t be the case for us. Factoring in property taxes and a mortgage plus the increase in cost for utilities, I know we can expect to pay about 30-40% more than we do now for rent. That’s not taking into account actually having a savings account in case anything in the house breaks down, which we would be responsible for.
I was absolutely shocked that these couples could afford their home and take the risk of purchasing when they still had what is, in my opinion, a huge debt load. But I also agree that you can’t put your life in hold to pay off student loan debt. Dave Ramsey, I am not!
In the end, I have no idea what these couples’ financials really are. Personally, I like to believe that everyone except Eric and I has really big trust funds that they don’t tell us about and that’s the only reason why everyone else always seems to be doing better than us…but you know, whatever helps you sleep at night ; )
What the blog comments did help me see–and this is what is so great about having a blog–is perhaps changing my perspective a bit on the whole home buying situation. Since we do plan to be home owners one day, perhaps it is not as important to pay down every last penny of my student debt as it is to in fact save for a down payment and take advantage of the low financing rates.
I did say that I wasn’t sure if we would be completely out of debt before we bought a home and maybe my obsession with financial security would hold us back in this case.
All I know for sure is that we can definitely not buy a home before Eric gets his full-time firefighter job. That is the only requirement we really need because two stable incomes is practically a necessity in our situation. After he gets hired, we can reevaluate our five-year buying a home plan.
I still always feel like there is never enough money to go around. Why can’t I just have my debt paid off and have a fatty down payment too and be able to travel and go on vacation when I want? Is that just too much to ask for? 😛
Do you ever feel like there just isn’t enough money to go around? Just me?
30 comments
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Once you have the down payment, if you’re investing in property, you should always know what the return on your investment would be compared to other investments and what your net cash flows will be every year. Just having a gut feel is not good enough when you are practically signing your life away so to speak. Contact me if you need some help on http://knowyourroi.weebly.com.
At the end of the day, you have to what makes you comfortable. I think that you are an incredibly smart person who wants to make sure she is doing the right thing for her family’s future!
In our case it was definitely cheaper to own than rent… London prices are utterly crazy!
I feel your pain. I was unemployed for 5ish months and just got my first paycheck from my new job last week and now I feel like there’s less money than there was before. I think it’s because now that there’s more money coming in I’m thinking of all the things I want to do with it. Before, when I had no paycheck I was just all “NO SPENDING THE DOLLARS!!!!”. I just need to figure out my new priorities. 🙂
Money seems to disappear right before my eyes! I’m currently looking into attending a University, and that daunting task alone scares me financially because there really isn’t enough money to go around for my living expenses, tuition, and fees associated with college, but I’m one who always dives head first into what I am nervous about!
I have a couple of thoughts here. On one hand, we’re going to take a major loss on our current house when we sell it, simply because we bought at the height of the market and our area hasn’t recovered yet (we’re moving out of state, so have no choice but to sell). On the other hand, the cost to rent a 3-bedroom apartment in our area is about $300 more than we pay each month in mortgage/insurance/taxes; even if you factored in our utilities, it would still cost us about $50 more to rent than own. In other words, home ownership is complicated!
For us, owning a 1200 sq. ft. home, including tax and HOA, and homeowners insurance is still over $200 cheaper than the 600 sq. ft. apartment we rented. So, while we still have student loan and car loan debt, it’s better for us to own than rent.
I think if you were able to pay everything off- or most of it- that would be amazing. You would have so much more financial freedom to save and do things the way you want to. I would highly recommend that if you’re not in any rush and you have the means to do so.
On the other hand, having some debt helped us get approved for a home loan- and we actually got a (marginally) higher interest rate because we don’t have credit cards (no revolving credit= no good). Our student loan/car debt kind of actually saved us there. Our debt to income ratio is low, and considered “healthy” debt. Obviously next time we buy a house, we’ll have equity so that will a different story, but for first-time buying, having the debt actually helped.
So, like you said, it probably just depends on your situation, but I think in any situation, living debt free is ideal. 🙂 We’re still snowballing ours right now, and it’ll take time, but i think if we’re wise, we’ll be living debt free in a matter of years.
I hope Eric finds his dream job soon! I know that home prices in CA are SO expensive, so I hope you can find a way to someday own your own dream home. 🙂
I sympathize with you! Living in the Los Angeles area, it’s hard to remember that the reason everyone else in the nation can afford a home is because homes elsewhere are AFFORDABLE. Here, in the “big city” of Los Angeles, they really aren’t. I’m trying to grapple with the idea that I might never own a home here. I might have to purchase one elsewhere (maybe somewhere I want to retire) and live it in when I’m in my 70’s.
And, yes, I know someone that is my age and owns a home in a nice area – guess what? They were GIVEN the home and are supported by their parents. So your trust fund ideas isn’t that far-fetched. I can relate!
I always feel like there is never enough money to go around! The second I feel on top of things something else pops up, or someone else seems to be so far ahead that I’m left wondering what exactly I’m doing wrong in life. As a New Yorker, home ownership seems likely impossible here, so I try not to dwell on it. It’s just not a reality for us right now, or even in the next 5 years- the amount you need for a down payment is just SO intense in NYC (even for a co-op/condo). We have a GREAT apt. situation right now that I don’t take for granted, and I try to focus on the positives of not having the burden of home ownership for now in life.
I’m late to this topic but I wanted to say I actually really loved your previous post. Don’t rush into homeownership if you don’t feel ready, especially if you have a great rental option. I bought a condo when I had a very small amount of student loan debt and a car loan. While I put more than 20% down on my condo, I hated having so much debt and found it really stressful.
Some people have way too much debt, and some people just have different levels of debt tolerance. It’s so not worth being stressed out by your financial situation just to be a homeowner.
I’m now married with two little kids and we now have a house. However, I don’t see why you really NEED to own a home until you have kids and they are school aged. Even then you could just rent in a good school district. Obviously most people choose to buy a home before then, but that is just that, a choice.
Don’t beat yourself up or worry about what anyone else has but yourself. You know you may both look back and say, phew glad we waited until Eric got his full time job so we weren’t worrying so much or were able to save for a bigger downpayment etc etc. I know we look back and go, phew glad we waited and saved a nice downpayment and didn’t rush into it. Something is stopping you now and that’s your gut feeling and knowledge that you have learned about home ownership. College debt is not bad debt in my opinion but it certainly is not a debt to set aside from the budget. At the end if your budget can handle it all including a savings for emergency, home maintenance etc then it’s your call but if not then it’s still your call but one that you should both evaluate thoroughly. Looking back for us we didn’t make alot of money and I was in school, we waited, we saved, lived frugally and then we bought when the market was good and now we will have no mortgage 4 years later. I’m so happy we waited and saved, it gave us that head start, but that’s us… that’s what we chose and no one has ever given us a penny. We could have read everything we wanted to online but at the end if the numbers to jive, then really it’s a risk you will both have to decide on taking. No one can tell you that you are right or wrong.. do what you feel is right, it’s your life after all. Keep up with yourselves and no one else. Hope that helps a bit… 🙂 Cheers my friends.
You’re def making the right decision – if you can hold off on buying a place until you are ready, then it will all be worth it 🙂 I keep coming back to the herd mentality thing, it’s all about when you and Eric are ready and what you guys both want!
I just think you are being conservative and there is nothing wrong with that! It’s better to stay on the side of caution, I think.
I love that you took your comments and re-evaluated your perspective. Every one is different when it comes to buying a home. No two scenarios are the same either. Hell, I have student loans and we are building a home! But it comes at the same price as our rent plus his current mortgage (the home we rent out.) I don’t think you will ever be in a perfect situation to buy a house, take a vacation, have a baby, but you will know when it is right for both of you. I think making sure Eric has a full time job is important.
Also, I urge you to meet with a loan officer. What I calculated for a payment online versus what they figured our actual payment to be was two different things. Helps to talk it out with a professional to get their opinion. You guys will get there!
There is never enough money to go around, that’s what keeps us all working until retirement age when most people realize that there is more to life than working and money and that time and how you use your time is your most important asset.
Just my two cents…
From your previous posts you mentioned that you and Eric don’t always get along when it comes to household chores and getting things done. You will, (or at least should), try to work some of these issues out before you buy a home of your own. My husband and I got in quite a few arguments when we first bought our house. There is a lot more maintenance involved in homeownership then there ever was in renting and it was difficult to agree on who should do what and whether we thought the other person was doing it according to the same standard. One of you might think something needs upgrading or painting and the other might disagree. Once you finally come to a decision on whether or not to do it you’ll need to figure out who should do it. Do you hire someone? Try to do it yourself? Do it in your free time? Do it together? etc. etc. If we had worked some of these things out before we bought our house I think the first few years as homeowners would’ve been a whole lot smoother. I know this has little to do with your original post or this one for that matter, but I did think it was worth mentioning.
As for the actual question at hand I too would not have felt comfortable buying a house with debt. In fact, I paid off my car loan before buying our first home, because I wanted to know that the mortgage was the only payment I had to make each month. Of course, my husband and I were only two years out of college at that time and making very little money.
We used the rent vs. buy calculator for about two years as we kinda-sorta-not-really searched for homes in the area we were living. The entire time we had about 50k of student loan debt (for 2 bachelor’s, 2 master’s, 2 full semester study abroads, and an almost PhD) that we were aggressively paying off while skimming our spending money to put aside for a down payment.
We also spent countless hours with our finances being very conservative on what we were willing to spend on a house.
Then my husband got a job in a new town about 2.5 hours away that is a touristy area (Snow Bird zone). Being in such a gorgeous location meant that it was significantly cheaper to buy than rent. So we did the math, figured out that we could afford to continue paying our our student loans (not as aggressively, of course) on his salary alone so I could stay in this town (renting) to finish my PhD while purchasing the very modest home.
Did we do what you (in your post) would consider smart? Absolutely not. Are we living with a lot of financial uncertainty? I do not feel that way, at all.
To me the difference is that we have spent years doing our homework, checking the rent vs. buy, and balancing our budgets to have a healthy understanding of where we are. Earning a PhD in my mid-twenties takes sacrifices but I’m not going to put off buying a house (in an stunning location with vies of the Gulf of Mexico) just because I’m not finished with my doctorate.
It’s not fair to say these people are financially liberal or crazy for doing what is best for them. I know we’d fall into that from your perspective and I am extremely comfortable with our financial situation even with the student loan debt (that we are back to aggressively paying off since we both bring home an income to support our long distance relationship).
I also want to point out that I don’t believe in buying because the market is hot or the rates are low. I think that is a marketing game and it makes me mad to see Realtors and banks prey on innocent people trying to live the American dream when it is certainly not best for them at that time.
So, I applaud you both for making the decisions that fit with your lifestyle and budget. If you would rather rent a few more years to make sure you sleep a bit sounder at night I think it is wonderful!
It’s not just you…not at all. And then I see what people are making in “extra” income that pretty much matches only what I brought in on my main income, and I feel really low. Everyone’s comfort level is so different. Being broke can mean two things to do different people. I’m not broke by definition, but not at all comfortable with my income right now versus how much I can spend/save. You’re not alone! I laughed about the trust fund thing because I feel that way sometimes.
“Personally, I like to believe that everyone except Eric and I has really big trust funds that they don’t tell us about and that’s the only reason why everyone else always seems to be doing better than us…”
My guess would be they’re not ACTUALLY doing better than you – they’re just way more comfortable with financial uncertainty (i.e. their credit card debts are higher and they’re just not telling you).
It took me so long to figure this out. Why do the girls I work with who earn exactly the same amount as me have bigger houses, a full designer wardrobe, a brand new car and plenty of cash to spend on going out every weekend? Because they’re spending way more than they earn and increasing their debt.
So really you’re doing better than them, because you’re working hard to improve your financial situation 🙂
I feel ya! Why can’t there just be more money? Sigh. I don’t blame you for not understanding how that couple who makes less then you is doing it. Sometimes I wonder the same thing about others. Like, how can they afford that? They could be up to their eyeballs in debt and have zero savings but they just don’t worry about it the way you or I would. For us to get the size home we have would have cost us more if we were renting it. There are some 3 BR condos just a tad bit smaller that rent for $400-600 more then we pay in mortgage! Granted there is pool and those amenities that you get in a condo community and it’s more centrally located but C’mon!!! Being in So Cal we seriously lucked out on our home in terms of pricing for what we wanted.
I liked reading this and your other post too. I think it is SO true that you never want to be ‘house poor’ and rely on every penny to pay for housing. I DO agree that not having student loans paid in full is NOT a dealbreaker – if it was other debt, sure, but this is ‘good’ debt after all, low interest etc., and I think if you want to buy a house and have a decent downpayment (5% or so), then it’s a great idea to go for! M and are I going through this now and know that we don’t want to overstretch ourselves with a mortgage and are being conservative in what we are looking at so we get a good sized house, bedrooms/bathrooms we want, but not exhorbitant either, so we can still maintain the lives we live, and not feel house poor.
Ugh, there’s never enough money to go around. My husband and I felt pretty confident about buying our condo even though we have some pretty considerable credit card debt. The one thing we didn’t really account for was what we would need to spend money on once we did own a home. We had college and some-post college furniture, so we needed things like kitchen table, couch, and blinds (!?) that we didn’t really have the money saved up for. Thankfully, we bought a few months before our wedding so we used quite a bit of money we received as gifts for those things. Also, we definitly don’t save as much as you and your husband do, so there’s that 🙂 We’re working on a plan for that this year! Try not to feel too pressured and figure out the right time for you.
I have certainly felt the pressure of not having enough money to go around. I’m hoping to buy in the fall this year, but I’m so nervous about it! A mortgage is such a big commitment, but I know that I’m just not cool with renting anymore and even though it’s scary, I’m hoping this will be the right decision for us.
I’m of the mindset that everyone needs to do what’s best for you and your finances. But I’m with you on wanting to be debt free before taking on the house. Currently, my husband and I JUST crossed that mark, so we’re bumping up the E-Fund and then we’ll start to tackle the house. Or a car. Whichever comes first (my car is the same one I’ve been driving since high school, so you never know).
However, we’re also weird that when I say “debt free” we’re debt free to a point. My husband still has student loans, but his parents wanted to take back the payment as they wanted to pay for his education to start and didn’t have the funds at the time (now they do). Some people couldn’t deal with that. We’re going to take it by faith at this point.
But it’s your blog and your beliefs, so if people don’t like it, they’re entitled to their own opinion on their blog. 🙂
You sound very risk averse which I can totally relate to. I think it boils down to how comfortable with the whole situation. You may very well have to buy with some debt on your hands especially if you want to take advantage of lower prices.
I think it’s all based on what you are comfortable with. I know having a mortgage will be enough debt for me.
There was this fantastic calculator I saw on the rent-vs-buy front. Sometimes, buying makes more sense than renting. The website is: http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=0#
But besides that, it’s definitely not you. But it does vary with the person. I feel a bit drowned in my own finances and I know (not just feel, but know) there isnt enough money to go around right now. I’ve been looking at house down payments and the such, but right now, my main worry is to even get enough savings built to actually move.
On a last note, just as you’re unaware of other people’s full financial scope, a lot of us are also making the same ‘guesstimates’, so take them all with a grain of salt. Only you and Eric know the full story of your finances, so you two have the best knowledge to make a decision.
That is an awesome calculator! So for us…buying is better than renting after 25 years…and that’s using conservative estimates 😛 It’s still part of our American dream though so we’ll do whatever it takes to make it a reality…one day