Buying a House...Buy Now or Wait?

[ca2003]

So my long term boyfriend and I (going on 8 years) have been renting in apartments for almost 4 years and we would like to purchase a house at the end of this year. We are young, I am going on 24, him going on 25 and the other day at work my co-worker pretty much told me it was a horrible idea, we shouldn't just buy to buy, we both shouldn't be on the mortgage because we aren't married, etc. So I wanted to see what some thoughts are on here.

Some details: We have been saving and will be able to put 20% down so PMI will not be a part of our mortgage payment. Our rent is currently $970 and includes utilities, but come January I have a feeling that will change and it will be at least $970 plus utilities.

We had initially considered $200K being the top of our budget but this morning I did the numbers again and I think I will change that to $175K. $175K is a little more than double both of our gross incomes but the amount we would be financing, $140K is less than double our gross incomes.

I did a mortgage calculator and a $140K loan comes out to about $730/month for a 30 year loan with 4.75% interest.

I just did a budget and after our current monthly bills and expenses (cable, cell phones, student loans, groceries, etc) we have about $2,550 left per month which would go towards our mortgage, taxes, insurance, utilities and savings.

Ideally I would like to be saving $1,000 per month ($700 for pure savings, $300 for emergencies/vacations/clothes). Assuming a mortgage payment of $730, that leaves us with $820 for the taxes, insurance and utilities. I am assuming that property taxes would be $300/month, insurance $100/month and utilities $500/month. In this scenario our savings would be lowered by $80/month, but the amount of the budget I used for groceries is $400 so if I get back into the good couponing I was doing before I think I could lower that by at least $50 a month, if not more so that would make up a good portion of that $80 shortfall.

We would like to get married but we both feel making an investment in a house now would be better than continuing to waste money renting even though it is going to mean it is going to take longer for us to be able to get married since we have to save for that.

I would love to know everyone's opinions, advice, concerns, etc. If there is something that I am not thinking of that someone could point out that would be great. And I would also like to have some opinions of both of us being on the mortgage even though we aren't married.

[$Saving!]

The market for buying is good now. But in your scenario there are key elements to consider as you are obviously aware of, some you didn't mention but I'm sure you have considered as well.

There is a way to draw up the purchase that should your relationship go south (you have to plan for all scenarios even if you both feel it's not going to happen), that neither of you lose should you break up and share a mortgage.

The costs of owning a home are more than the PITI concerns, you will have to acquire yard maintenance items, unplanned costs of home maintenance (unless buying a home that is new construction which comes with a limited warranty) etc.

Instead of looking at the maximum amount you can mortgage (value of home), you should be looking at housing prices that give you the true financial room should one of you lose employment, the question to answer is "Could we still swing it on one income" because in this economy and even in good economic times, you can't predict what may cause your income level to drop suddenly.

Perhaps you won't get the dream home on the first purchase - you can always move up as your buying power and savings provide a higher level of comfort financially.

The goal is to not strap yourselves into something that makes it not workable should your income drop for unplanned reasons. That way you do not find yourself living on the edge should that happen.

There is no doubt that now is the time to buy, providing all financial considerations and possibilities are factored in. The object is to look long term (10 years down the road) and look at worst case scenarios that could create a financial struggle. Buy with those factors entered into your equations and you will be fine

[ca2003]

Thank you for your input. With my savings of $1,000 per month, I figured that should anything go wrong, we could draw from that. At the time we buy the house, we will probably only have about $2,000 - $3,000 left in savings after the down payment and closing costs. After being in the house for a year, I would hope we would be able to have at least an additional $6,000 to add to savings bringing us to $8,000 - $9,000 total.

If one of us should lose our job, about $7,000 - $8,000 in savings should hold us for up to 6 months. Should we be considering longer term than that?

The way I see it is the scenario we have is doable (but definitely our max price), but the first year or two may be hard as we build our savings back up (I would like to have $10,000 in savings as an emergency fund) and we would have to bank on the fact that neither of us would lose our job in the first year.

All other factors being the same as in my first post, if we got a house that was $160,000 the monthly payment would be about $670 and for a house that is $150,000 the monthly payment would be $630. Should we lower our max price to $160K or $150K and if we can't find one for that, continue to rent? I'm just thinking that if we drop to $160K or $150K the house will definitely need work done to it, while at $175K I am optimistic that we could hopefully find something that is pretty much move in ready.

[$Saving!]

All other factors being the same as in my first post, if we got a house that was $160,000 the monthly payment would be about $670 and for a house that is $150,000 the monthly payment would be $630. Should we lower our max price to $160K or $150K and if we can't find one for that, continue to rent? I'm just thinking that if we drop to $160K or $150K the house will definitely need work done to it, while at $175K I am optimistic that we could hopefully find something that is pretty much move in ready.

There in lies the rub - pretty much move in ready You will find that any home that is not brand new will need work and maintenance costs can be large, depending on what it is that pops up.

Heating/air conditioning units, roofs, windows, plumbing etc can all pop up as needs, some you can plan on (roof, windows) and others you cannot.

Unless the seller provides a warranty (some do) for a limited time on all major cost items, you will have costs unplanned for or needs that arise to fix so your savings has to take into account those unplanned expenses.

I'm one of the mindset that having a year of savings to cover expenses is a minimum, especially important in the rough and tumble economy currently. "House poor" is not something I would want to sign up for, so for me it would be shop around until the perfect house/price comes up.

You are most assuredly on the right track though, looking longer term than most! So many buy what they qualify for vs what they can truly afford long term

[bugweena]

You can definitely both get your names on the house. Maybe only one of you on the actual mortgage but you can probably get both on that, too, depending on your credit history. I would have the numbers run both ways and take the lowest rate. Of course, you need to be comfortable in your relationship to do that. My DSO and I have been together almost 10 years and we own (with our mortgage lender!) our home. Both names on house, but only mine on mortgage because I could get a better loan rate.

It is a buyer's market. I would definately stay at the lower end of "what you can afford." If you haven't already, both of you should sit down independent of each other and make a list of MUSTS and WANTS--I'm sure a google search would turn up a list or two. And compare your lists to make another one that works for both of you. I'm sure you've already talked about # of BR and BA but there are lots of other things in a house, too.

Suze Orman says in this day and age, to have at least 8 months of a emergency fund. I would definltey have that, too, in case something happens. You never know but you can plan for 'what ifs' by making sure you have enough put aside to cover your expenses.

It's great you have 20% to pay down. Can't remember if you're preapproved for a loan, but I would say to do that in advance, too. That way when you find "THE" house, you won't have to worry about getting approved for a loan.

Don't be in too much of a hurry, either. Take your time and look at houses to see what's out there. You will know when you have found 'home' although sometimes it feels like you will never find it.

Definitely get a home inspection and make your offer contingent on a positive one. Don't get caught up in a bidding war! Most all, good luck! Looking for a home is very exciting and I wish you and your man all the best. Sounds like you have put a lot of thought into it

[wholesalebiker]

Make sure to purchase home warranty plan if you do purcase it covers any mishaps w/ house furnace, aplliances, roof during first year....

[melodyjg]

The way they are talking, that things are still not over yet. If it were me (in fact we have been looking at a second home for awhile and are still waiting) I would continue to hold for awhile and just keep putting the money in the bank.

[everprincess]

I agree with Melody. We have been house shopping and not found anything we really like just yet. Me and DH have discussed the situation and decided to just keep putting back money until the first of the year. I would like to pay as much down as possible and still have the money in savings we have now.

[ca2003]

Thanks everyone for your advice. I am going to talk with my boyfriend about lowering our max to $150K an if we can't find anything then we won't buy. I think we are also going to have consider staying in the area we currently are, as houses are cheaper here and it would be easier to find something under $150K. This will allow us to have closer to $8,000 still in savings when we move in, which would give us an emergency fund of at least 6 months or help with a major repair. If this is the case and we are able to do this, it most-likely wouldn't be our long-term house. Would say, 5 years, be long enough to stay or would we have to stay longer for it to be worth it?

If we can't find anything in that range by October, I am not sure what we will do. Our lease is up December 31st, so we could sign another 1 year lease (but then we are tied in until December 2012) or we could go 2 month - 2 month (the issue with this is I would assume the rent charged may be higher). We will have to inquire about that to see what our rent would be come January in both cases so we can evaluate if we need to move regardless.

The hard part is that we don't want to get pre-approved until mid-August because my boyfriend plans on paying off one of his student loans and that may make a difference with our mortgage rates.

Also, since we are in our lease until December 31st of this year, we don't want to be finalizing anything until at least October-November but our apartment complex will need to know what we are doing by October. We have already inquired about getting out of our lease early or paying a lower rent for the months we aren't here since our rent includes utilities and they won't be used if we aren't here and that was a big no. We were actually told that if we move out prior to December 31st, we would have to pay the rest of the rent owed thru December 31st plus an additional 1 months rent, which makes no sense so if we move early, they won't know .

[amylynne01]

Would $8000 really last 6 months? That's less than $1350 a month. Your monthly costs for house, utilities, food, and insurance are $2030.

I bought a house in December 2007 and have regretted it. We wish we had waited because I know more now than I did then and the buyer's market only got better since then. Be sure you know all the costs of home ownership - are there HOA fees, what about trash pickup, alarm systems, home repair and maintenance, increased travel costs, etc. There are always surprises that come up.

I also would not buy a house with someone I was not married to.