I recently received an e-mail from a reader named Steve. For background, he’s 30 years old and has only recently started getting his financial house in order. Over the past six months, he’s built up a $2k emergency fund at ING Direct, and he’s been working to reduce his debt. That being said, he still has a decent chunk of credit card debt (around $14k) plus student loans ($9k) and a car loan ($9k).
Here’s his quandary:
My question is whether I should buy a house right now, or wait until I get married in a year or so. My thoughts revolve around two scenarios:
1. Continue saving, so I can buy the ring, pay off some credit card debt (I have about $10k), be prepared to pay for the wedding, and hopefully have enough for a down payment for house after the wedding.
2. Exhaust my savings and buy the house, which puts me basically on a month-to-month budget until I get married. This month-to-month still includes paying down my credit card debt at the same rate I’m doing it now.
My concern is that by next year, interest rates will be back up, and that if I wait until then, I’ll have lost money in the long term due to $200k on 6% versus 7%. But, if go that route, then I’ll probably end up financing a ring, a wedding, and a honeymoon — something which sounds quite bittersweet.
If I were in this position, I’d focus on debt reduction (check out NCN’s e-book on the topic) as well as building up some additional savings rather than rushing into the housing market. What better gift can you give to your future bride than a clean financial slate with a sizable buffer?
Not only would buying the house wipe out his financial cushion but, by his own admission, it would force him to take on even more debt down the road. To me, this has penny wise and pound foolish written all over it. And what’s going to happen when the air conditioning breaks down or the roof needs to be replaced? Mr. Murphy has a habit of visiting at the most inopportune times.
As for the direction of interest rates, who knows? In fact, a similar (albeit opposite) argument could be made about the direction of the housing market. Who’s to say that prices won’t continue to slide over the next year? Here again, your guess is as good as mine.
Why not focus, at least initially, on things that you can control? Things like debt reduction, building up that emergency fund, and/or saving up for a down payment. The interest rate concerns really boil down to a fear of the unknown and, while such concerns are understandable, it seems that the decision to buy a house should be based on far more than this.
What do you guys think?
@thomas Something that appears to bother you is people who “keep up with the Jonses”; equally as bothering to me is people who take every opportunity to be condescending, which your comment “I’m sure this will fall on deaf ears” sure is. If I knew it all and didn’t really want advice, I wouldn’t have asked nickel and all of you in the first place. I am where I am financially partially because I don’t have any financially stable 40-somethings around that I can go ask these questions to–if I did, I again probably wouldn’t have bothered asking nickel in the first place. The only thing your comments help is your ego.
Sorry everyone, I obviously take great offense at the comment and couldn’t help but voice it. Putting your own financial neck out on the line for all to see is really taking a private affair and asking the public to respectfully observe. I again thank all of you that were respectful and gave me wonderful advice. I will not be buying a house until some time after I get married, at which time I will hopefully have paid cash for a ring, a wedding, and paid off a good portion of my debt–all without that “BUY BUY BUY” monkey on my back.
Immensely thankful,
Steve
As a woman, I would not want my fiance to do anything to risk financial stability to buy me a wedding ring, pay for a wedding, or buy a house. I would want him to get rid of the debt as fast as possible, then save up for the wedding and house. Ring would be lowest on the list in terms of importance. However, I can understand the desire to have a nice wedding can outweigh the desire to pay off the debt quickly, so this is the one area where I would be a bit flexible. so I would set a wedding budget that was well below the median (no more than $10,000), set a deadline to save it up and just pay the minimum on your debts until you have the wedding budget plus a cushion saved up, plan a great wedding using creative solutions to compensate for your lower budget, rent a modest apartment/house, throw everything at the debt until it’s paid off, then start saving for a 20% downpayment on a house. Don’t worry about the interest rates. That’s less important than making sure you can afford whatever you buy no matter what happens to the economy.
This guy has absolutely no reason to be getting into a house. I think this is a textbook example of the average American trying to “keep up with the Jones.” I’m amazed at the “need it now” views of today.
You really want to find out what to do? Ask a married couple who is 40+ and financially stable and find out how they used to live. I bet you will hear stories of living in 1 bedroom dumps, working multiple jobs, and most likely no credit card debt.
People need to realize that we aren’t going to survive as a debtor’s society. Pay your bills, sacrifice today, and learn to live within your means.
But, I’m sure this will fall on deaf ears. So go ahead, buy that “2 month salary” ring, and get the 2 week european cruise, and buy your house that will push you past your income/spend limits. There is always the lottery to win!
I agree with #14. Your wife will likely want to help pick the house. Of course, it sounds like he’s already engaged or seriously dating, so she could help pick it out already.
Oh, also buy a used diamond.
Two reasons:
1) They’re cheaper. DeBeers and all their ilk have convinced people for decades that a shiny rock has inherent value. It doesn’t. Check eBay. Diamonds go for a fraction of their appraised value on eBay and other auctions. Which, by the way, is the best place to get a diamond if you want to pay a fraction of its cost.
2) Buying used puts no money into the hands of DeBeers and their ilk. They only make money on the initial sale. A resold diamond doesn’t benefit DeBeers et al. which is all the more reason to buy them for ethical reasons.
I’ve come across an interesting article–that I cannot find now–talking about the correlation between home ownership and unemployment. Basically, as home ownership passes a certain point, especially during a low point the economy, unemployment goes up. One of the reasons, it seems, is that owning a home in an unstable market means you are chained to it if work goes elsewhere.
Basically, if your local job market changes you have only a few options: a) move right away, rent and hope the home sells or b) stay where you are till the house sells and work a less-than-ideal job.
Basically, the house is a ball-and-chain in a bad economy and most especially so if your equity in it is very low. $2000 is not going to go a long way as a down payment.
If it were me, I would say fuck it the house market, rent a nice, comfortable place, pay down the debt, squirrel away as much money as possible and wait.
There is no point in owning a home if it’ll ruin you.
Steve:
It seems to me that you have too much debt on your back to get into more debt and maintenance with a house. Consider that when you get a house, you’ll probably have much more room to fill with furniture, more area to heat and cool, etc. It will become a large consumer of cash before you know it.
Houses will always be there, and interest rates don’t look like they will be on the rise anytime soon. You’ll be in much better shape with little or no debt to service before you get serious about a house. When I say “better shape”, I mean peace of mind. Having money affords you options, and having debt limits your options, no matter what your credit score says.
My focus on paying off debt before getting a house comes from this philosophy – don’t get a loan for anything other than real estate, and don’t have a loan on real estate that isn’t a rental or something you live in/on. In this way, what you are making monthly payments on also has added value.
Too many people get over their heads in credit card debt and car loans, and then become a slave to it. It is sad to read all the stories of people that have no cushion and no idea what to do when the debt and expenses start to become too much to handle. Think of trying to stay out ahead of a large snowball that is gaining size and speed down a long snow covered hill, and you’ll get the idea.
I’ll venture out into potentially dangerous waters here, all in your best interest. I’m throwing out 3 questions, and you can feel free to throw them out as well.
First, is the expense of a ring, wedding, etc. something that you and your lady friend need and want, or would it be better to put that money toward something more practical like a savings account for a down payment on a house? Your choice, of course.
Second, have you examined your lady friend’s core values when it comes to money? With you having limited experience and training in this area, you’ll need a stronger partner in the world of family finance to avoid trouble as you enter this “legal estate” with her. There will be two mouths to feed (and perhaps one or two more) and two interests in the game, but there will also be twice the income earning, saving and planning potential to make use of.
Third, have you defined your financial “end game” to any extent? This is something that you and your future wife should be discussing. Having a target in mind is always a good way to stay motivated and on the right course. Your “end game” might be early retirement, a cabin in the mountains, a half a million in investments, or all of the above. I find that careful focused planning and deliberate actions to work the plan are keys to success.
Okay, I’m out of those potentially dangerous waters now. Again, my questions are designed with your best interest (and my sad experience) in mind.
Admittedly, I am a financial conservative and a chicken when it comes to debt, but it has served me very well. Retired at 49, debt free, and I have financial freedom and peace of mind through focused savings and investments. My sweetheart is like minded in many respects, and that makes us function well as a team.
Good fortune to you Steve,
Clair
Sorry, Steve, I was asking Danielle. I shall reference next time.
Glad you made a decision!
Awesome. That makes sense. Thanks Daniel!
@Steve (25) –
First thing you need to do is set a budget for the wedding. You can go really cheap (sending evite invitations instead of postal ones), or you can go really expensive (sending $200 invitations). Once you know your budget and the date, you know your goal, and you allocate money accordingly.
Again, I would recommend that you look at Dave Ramsey’s 7 baby steps, and follow them in order. Get $1k in the bank if you don’t have it already (this will take you about 1 month). Once you have that, subtract your wedding allocation from your $1k and put the rest toward the CCs.
Once the CCs are paid off, start saving for a house. By that point you will have a nice chunk of money to put toward the house, and it won’t take you any time to save $20k or more.
@Blaise Parker Absolutely nothing is wrong with not ever buying a house. It comes down to lifestyle/happiness choices, right? I’m not sure I get the point of your question.
I guess there are a number of technicalities that I left out in my financial status, thus leaving my situation a little misinterpreted. In any case, you’ve all made me consider consequences of the number of possible decisions on my plate, and after talking about it more with my girlfriend, I’m going to hold off on the house until post-wedding. I must admit, the thought of making huge progress on getting rid of this monkey on my back is just about as exciting as the thought of buying a house–but it also brings about a peaceful feeling–one that wasn’t associated with the thought of buying a house right now.
So, now for the next question… If I have $1000/mo. to allocate to CC debt payoff vs. saving for the wedding, what do I do? I’ve considered doing what this site recommends:
http://www.whatsthecost.com/snowball.aspx?country=us
…and allocating all $$ to paying CC’s off, but then I won’t have any $$ for the wedding, house downpayment, etc. How to allocate funds?
The interest rate thing doesn’t seem like that big of a deal to me since most people don’t live in their first house for the life of the loan. So you miss on our on some good interest rates for a few years–you will most likely move within five years… ten years at the max and will be subject to the interest rate environment at the time you move. It doesn’t seem like that is a strong enough reason to buy now. Your home is not an investment, it is a place you live. Don’t get caught up thinking otherwise. Even if you sell your house at a profit it is unlikely that you will cash out and not buy something similar in cost.
Good luck!
And what is the matter with not buying a house until one is 45?
I think the people here are being very conservative with their advice. Not an entirely bad thing, but if you followed their advice you would not buy a house till you were 45!
I think you already know that a lot of things have to be taken into account and posting on blogs like this and reading others advice is a great place to start!
My husband and I started on a 80/15/5 loan 4 years ago, and got married last year. My income has remained steady while his has increased. We have sunk thousands of dollars into our home while maintaining our mortgage payment with deck, patio, sprinklers, gutters, dual zone heat/ac and yard/building tools. I wish we had not built our own home as our first house. We learned many lessons in this house that would have been less expensive lessons if they had been in a more “starter home” situation but I love my home and most financial decisions are also emotional ones.
Positives: increased net worth, equity in our home, improvements increased resale value, tax deduction, space for garden, space for family to come visit, small emergency buffer fund is growing, maintaining above average 401K contributions
Negatives: harder to recover from debt/large expenses, some weeks we feel house poor, more Joneses to keep up with, potential to sell in a bad market, high cost of even small home improvements
Advice I have for you is to take it slow and start to talk with your wife to be about her finances and how you could merge them together. Talk about your credit scores and how comfortable you are with your debt, how much house you can afford, what kind of wedding/ring/honeymoon you want to afford and if your parents are helping you pay for any of it. Look at neighborhoods you are interested in and find a real estate agent you can trust. Talk to friends or family who are homeowners to get better ideas the expenses involved with maintaining a property and most of all…
Even if you don’t think you will ever have a truck, make sure the garage is deep enough for one (personal mistake)!
If a good deal comes along in a good neighborhood you will be in a better position to snag it if you try to kick up your debt payoff and savings a notch.
Good Luck to you and don’t be too defensive, the fact that you are out here soliciting advice says a lot!
@Steve (11) –
“Broke” means:
– having a negative net worth
– being able to only pay minimums on things
– not being able to save
– living month-to-month
– not having an emergency fund
– etc
As to whether “being able to afford” something means “being able to make the payments,” the answer is a loud “no!” For a house, you need to consider upkeep (things break), taxes, HOA dues, homeowner’s insurance, etc.
Some people (notably Dave Ramsey, and I agree with him on this) argue that you can only afford the things that you can pay for with cash. For Dave, the only exception is a house, and he makes allowance for a 15-year fixed-rate loan, with a minimum of 20% down, and then no more than 1/4 of your take-home pay. Note: not a 20-, 30-, or 40-or-more-year loan, and not a floating-rate loan such as an ARM, and not an option-payment loan, and not a 0% down loan.
As a few real-life examples:
– I can make room in my monthly budget for payments on an HDTV, but I don’t have one since I cannot afford to buy one outright
– I can make room in my budget for a payment on that new 2009 VW Jetta TDI SportWagen that I want, but I don’t have that car because I can’t pay for it outright. (Well, and because it’s not here just yet… but you get the point.)
– I can afford to buy two of the new $200 iPhone 3Gs, but the $60/mo service cost (for 2 phones) stretches my budget more than I am comfortable, so I have no plans to buy the phone
And, yes, you’re right that a whole lot of people cannot “afford” their homes – this is EXACTLY why we as a nation are in this subprime mortgage mess. The subprime mess is the result of millions of people getting loans for houses that they could not afford, through loan or approval gimmicks that a decade or two ago would have been unthinkable.
You are able to afford a house after:
– you have saved 20% for the down payment
– you have saved 3-6 months of the expenses you would have while in the house
Many people would argue for a third prerequisite, and I would recommend it too:
– you have paid off all of your other debt
I would strongly urge you to read and follow Dave Ramsey’s 7 baby steps.
Best of luck.
What’s the hurry to buy? Just the interest rate alone? What about waiting to buy and picking the house with you fiancee/wife? If the house will be joint in the end, what about waiting til you ahve two incomes (maybe?), an improved credit score (hers?, yours after paying off debt?). There are a lot of variables. Don’t get stuck on the interest rate thing. (The value of the home may change as well). And I’d have to agree with the majority that there is no hurry and you sound like you’ll be in a much better place in a year or two.
I guess I agree with the majority. Life happens and when you don’t have a cushion, you pile on credit card debt. This can spiral out of control and mess up one’s life.
Examine the equity aspect of homeownership with quality of life issues. Also, if you live in a high property tax state be aware that you tax bill can be substantial and keep going up every year.
I suppose I will accept to disagree with well… everyone on here. And of course you will all think I am crazy. No, I do not expect a house to be my key to riches. But there is also value in happiness. I am not talking living beyond my means, buying the most expensive thing I qualify for just because I can, kind of happiness. I am talking about happiness that you can afford and not go overboard.
I’m a straight numbers kind of girl since that’s all money is anyway. And typically, to rent you are paying more for less. I live 2 people in a 1bdrm 700 sq ft apartment for $1500/month. I could buy something twice the size and only have my monthly payment increase by $100-$200 (including taxes and insurance). So if you have enough to get you into something actually worth your money and you are smart about it, then I don’t see the problem. And its not “virtually” renting because some of it is going to principal. It may not seem like a lot, but it adds up over time just like saving does. On a 200k 80/15/5 mortgage it averages $315/month towards principal (over the first 3 years). Thats over 11k, not quite “virtual” money I’d say.
The bottom line is you need to understand your situation and the implications. Go through systematically and see what is logical by the numbers. If the only real difference is your downpayment isn’t counted towards other debt, then you aren’t losing out on ALL the money you put for a downpayment. You can continue to pay off other debt while you are in a house. You are only losing out on the extra interest you are paying by not having it towards other loans. Which is usually less than the equity you will be adding each month.
That being said.
1. I would not buy if I had credit card debt at >9%.
2. I would not buy if I was anyone else but me and planned on selling before 5 years. Due to the current market and closing costs, fees, etc. In my case my company will pay the realtor, closing costs, and all that stuff. Upon selling I will be reimbursed 98% of any loss I incur. And will also be given 3% of the sale price of the home. So for my personal situation, even though I do not have 20% down it is cost effective to buy if I can just qualify for a mortgage.
3. I know its complicated, but run the numbers. See how long a mortgage would affect paying off your debt and the added interest you would incur. Does it come out as positive? And if not, is the loss worth the value of added benefits such as more space. In my case, the projected end payoff date of my student and car loans will only be affected by 6-8 months. Which to me, is not worth 3+ years living in a small apartment.
4. Have an emergency fund. I personally believe the amount does not need to be the 6 month standard but should be based on the financial risk level you personally carry. Ex. you have a steady in demand job, cost of deductibles for insurance (health/car/home), + some buffer, etc.
If it means going to month-to-month, don’t do it! I worked in title insurance for YEARS, especially during the subprime boom (for those of you who don’t know, title insurance is the insurance you take out to research the history of the property before buying), and many of the people who are in trouble now are in trouble because they went month-to-month to afford a house.
Sure, there were other issues for some of them like shady lenders and realtors, but bottom line is that they exhausted their resources to get into a house and put themselves into a bad position.
The market right now is a buyer’s market. Sellers can’t give away these houses if they TRIED. Yes, it’s a good time to buy. Historically, however, recessions last longer than a year at a time, so save for a year, and re-evaluate. As we start pulling out of this recession, lenders will be more apt to offer better deals to someone with 10K credit card debt and there will be more of an effort to get MANY buyers into the market, instead of the few who are risking it now.
Take a breath. It’s always best to wait if you’re unsure. If you want a REALLY good piece of advice, go find a bona fide financial adviser who specializes in real estate investment, and see what he would tell you to do.
@Andrea The numbers that you mention for buying your house are just about the same for me; if I had 0 credit card debt (or no aspirations of paying it off), I could afford the $1500/mo (in my case) with plenty of room to be putting away for a rainy day. And yes, my future wife is totally in on this whole discussion (she’s probably read these posts before I have) and in on picking out the house; every place I’ve looked at, she’s joined me–in fact, her dad’s my real estate agent.
And another good point you bring up–for the sake of discussion, even if housing prices keep dropping for another year, if interest rates go back up, I’m looking at effectively losing money in the long term as a result of that, right?
In any case, the more I think about it, it does sound way nicer to be CC-debt free than to be in a house… Ever since living in Europe, I’ve thought it was perposterous but oh-so-cool that the people I encountered didn’t really get the concept of credit cards; they paid cash for anything and everything (flats, cars, you name it).
Steve,
Broke means you type things like this:
“pay off some credit card debt (I have about $10k),”
“Exhaust my savings”
“month-to-month budget”
“financing a ring, a wedding, and a honeymoon”
“it’s just that I’m recovering from choices to go in to debt over the past 10 years (mainly that semester in France), ”
“am just starting to make my way out”
This is the KEY POINT:
“I grew up in a home with very little money and very little financial guidance”
I am glad you are asking questions, that is the first step to change, but the second step is facing your REALITY.
When you are affluent, I mean NOT broke, then you will not type the sentences you did. You will type things like:
“I paid off my debt.”
“I have 6 months of savings set aside.”
“I save 20% of my income.”
“I have (at least) 20% of a house payment and a fully funded house repairs fund of $XX,XXX.”
It sounds to me like your money is emotionally managed, not realistically managed.
Living in the future and ignoring the reality of now is what got you into the place you are in, well, NOW.
That’s what broke means.
P.S.: It sounds like all your questions (both asked to .05 and in the comments) are actually hidden “excuses”. I mean, really, “What does broke mean?”
You are smart enough to understand broke! Now face it and fix it!
Hmm, that’s a good question Steve. What does broke mean? I guess to me broke would mean a negative net worth. It also would mean I couldn’t go buy a shirt, lunch with cash on a whim, knowing my other priorities weren’t taken care of. But that’s me.
Affording a home is not just being able to make your payments as we’ve noted-repairs come up. Depends how much you make and what your price range is for a home also- our household income is 76k and bought it for 195k in 2004 with very little down. Our payment of $1300/mo is very doable for us. We also have excellent credit-800+ scores. I think your wife would want to help pick out the house don’t you? Don’t take that fun crazy house-hunting time away from her.
Oh and about your initial concern of rising interest rates- have you considered that if you wait housing prices might come down even more and you just might get an even better deal? Just a thought.
Absolutely NOT!
What’s with young people today and the thought that buying a house is the ticket to building wealth? My wife and I are 28, and we’ve already bought and sold a house. (Had to sell because of a job transfer.) We’ll be renting for the next 5 years…minimum. And we’ll be able to stick to a true “wealth building” plan because we’re renting. Owning a house comes with many ‘surprise’ bills and maintenance.
Here are three beliefs I have about buying real estate:
1. Buying a house is like investing in a retirement account…NOT the stock market. It takes a longer term committment than most people think to make money on it. Don’t jump into buying unless you’re willing to stay for awhile….like 5 years or more.
2. 20% down is the only way. Any other situation is just you trying to convince yourself to buy a house. You realize with any less, and a 30 yr. mortgage, you’re virtually renting anyway (with the amount of interest you’re paying per month.) Just as well rent and save yourself some of the other expenses, (maintenance, taxes, upgrades, etc.)
3. Save, save, save! I would recommend a full 6 months of emergency fund to cover bills. Trust me…you will be happier, and that’s what it’s about anyway, right.
One of the wealthiest people I know rented until he was 35 years old. He owns a car dealership, and rode his bike to work for years right after college. Owning to him was a burden, (taxes, maintenance, upgrades, etc.) until he was financially stable enough to handle it. There’s no glory in owning a house before you are financially fit!
Pay off the debt. You’ll be happy you did!
I would be very interested to what everyone would advise in my situation with slightly different details. As I am contemplating the same things over the next 2-6 months. To buy or not to buy? All in the midst of scrounging up money for engagement ring, wedding expenses, honeymoon etc. I have several factors which would be different.
Also as long as you aren’t doing 100% financing and can make you monthly payments (with money leftover) each month. What is so wrong with putting down less than 20% on a house? I am considering only putting down 5% and catching one of those 80/15/5. And would your opinion changed if you were guaranteed that you would not lose money on your house upon selling?
Hi all,
I’m the Steve that mentioned above. Just a little more background and a couple questions after reading some of your comments.
First, what does “broke” really mean? (no, seriously) Debt free? I’ve never really considered myself to be broke–well, not since college really. I have a great paying job for where I live (net income ~$3700/month)–it’s just that I’m recovering from choices to go in to debt over the past 10 years (mainly that semester in France), and am just starting to make my way out. Sure, I can allocate every penny after paying bills, food, etc, to paying off debt, but does this make me broke?
Also, just to defend the minor beating that my ego just took… 🙂 …my credit score is over 700, and I’ve been pre-approved for well over what I would be paying for a place @ just over 6%, if I went that route. …not that that’s the wisest decision, so I see.
And someone said something about “not being able to afford” it–what does that mean exactly? Isn’t “affording” just being able to make your payments? (If not, I wouldn’t imagine that a whole lot of people would be able to “afford” houses). No, I wouldn’t finance 100%–hence the question to nickel and all of you in the first place. At what point, then, is someone able to “afford” a house?
(my questions above aren’t out of vindictiveness–they’re honest questions)
Thanks so much for all your feedback so far. I grew up in a home with very little money and very little financial guidance, so I’m figuring stuff out as I go; advice from all of you makes a huge difference.
Agree with everyone else!
He’ll have a better credit history, less debt, thus better interest rate, etc., etc.
Most obvious: who’s to say the house he’d choose is the house of [their] dreams in a year or so? If one is contemplating bringing a SO onboard such a huge debt, I’d think one would make it a joint decision and investment.
Common sense.
But of course, that has seemed to be in short supply recently.
I wouldn’t do it. He needs to continue working on getting his debt paid down. Broke people shouldn’t get mortgages, just ask all the subprime folks. If he can knock out his debts by living like no one else, he would be able to get a much better rate due to having cash to bring to the table, and a cleaned up credit history.
While now might be the time to buy because prices are low, the first consideration is the current debt. Pay down your debt and position yourself so when you do buy you can enjoy the benefits.
Can you really afford a house?
Down payment? Or you going to try and do 100% financing? Credit score? Monthly income? How much are your payments? Then get married?
What you need to do is pay off your debt first. Save some more in emergency fund. I bet that 2k only covers you for 1.5 months.
Then save up your 20% for a house.
Definitely wait. Realistically, you need a substantial down payment plus other monies for closing, moving, new furnishings, etc. that go along with buying a new house.
When you buy a house without being well prepared for each of these things, you are just following the herd of “I want it and I want it now” Americans who end up drowning in debt and short-selling their house to avoid foreclosure (or worse).
If it wasn’t for the credit card debt I would say go for it. That’s what I plan on doing over the next year or so. And I have significantly more debt. Guess it depends on the person and the area. For me, instead of paying $1500 in rent for a 700 sq ft apartment I’d rather find an extra $100 a month and pay towards something.
Of course this implies that he can’t live the same lifestyle in the mean time. It undoubtedly requires cutting back on every day things if it is ultimately what he wants.
Isn’t this what has gotten so many American’s into trouble already? Buying a home you can’t afford. In the guys email there is not one good reason to buy a house. It sounds like he doesn’t even have the money for a wedding, ring or honeymoon.
I doubt he could really get a loan anyway without paying out the ass. 100% loans are almost gone. What about closing costs?
Andrea is right. What about those things that pop up?
It’s not that he shouldn’t buy a house, it’s that he can’t afford one. It doesn’t matter if rates are 2% or 200%.
saladdin
Wow, you hit the nail on the head with your post. He should wait. We’ve been homeowners for about 3 1/2 years now and in that time we’ve replaced the air conditioner-$2200, roof $1000 deductible per hail damage and the water heater. (The water heater was just last week-$800.00.) So yes, definitely helps to have a cushion.
We’ve tried to maintain 10k in our reserve at all times and that’s worked for us. Just recently though with the water heater, we’ve also had to pay to get a new serpentine belt on my car- $165, 6 mo of car insurance- $400 and I had to get a crown- $545. *Sigh* so now we have to rebuild our e-fund about 2k, no fun but doable.
If it were me, I would wait to buy the house. I know that’s what I would do, because I did it the other way and the last 8 years has been the most stressful of my life. I’m now nearing 40 and I feel like I have missed much of my 30s.
See, we did an 80/15/5 loan (that is, 80% first mortgage, 15% second mortgage, 5% down) even while we had next to no savings in the bank. There was no buffer whatsoever, so the slightest emergency would cause us to need to use debt.
Finally, now, 7.5 years later, we are at 66% LTV and have refinanced down to 1 mortage. And we have $15k in the bank. And we have paid off all our CC debt; our only remaining debts are the 1st mortgage, 1 college loan (7k), and 1 car loan (15k).
If I had the last 10 years of my life to do over again, I would:
– save the full 20% down for the house (no 2nd mortgage for us ever again – we don’t even have a HELOC now, and we have no plans to get one even for emergencies)
– have a 3+ month emergency fund BEFORE buying the house
– buy cars with cash instead of debt
Houses will always be around, and there’s always time to buy them later. Get your financial house in order and then buy the house… I guarantee it will be MUCH less stressful for you.
Incidentally, my wife and I were trying for years to get pregnant. We finally now have a 6 month old baby, and I am convinced that my financial stress was the single greatest contributing factor to our infertility. If Steve and his bride-to-be want children, that might be something to consider… not that this happens to anybody, or even to most people, but the reproductive system is one of the first in the body to shut down due to stress or other factors.
Best of luck to you. I hope you don’t make the same mistakes we did.
I agree with you. If you think about the interest rates alone, you’re better off paying off the high interest CC debt (probably 10% or so). It makes the 6-7% for a house seem much lower in that regard.
If he waits, I think Steve will be surprised by two things. First, once the CC paid is paid off, you’ll start saving a lot of money quickly if you continue with the same budget (going to your ING account instead of the CCs). Secondly, I think Steve may be surprised by the cost of the wedding and honeymoon. Although these things are controllable, are you really going to skimp on your wedding (that may be up to your fiancee more than Steve!)?
Hang in there and be patient. You’ll be fine.
Good luck!