Should we buy house in our situation ?

yt620028 · #1 (**permalink**) 01-23-2010, 09:42 PM

Hello,

We are thinking about buying our first home in about 6 months from now and wanted to get some opinions.

- We are married, I am 32 and she is 31
- We do not have kids, but plan on having them soon

- 56K debt on Credit Cards
- 20K Car loan (matures June 2013, but will pay off sooner)

+ 120K take home between the both of us
+ 20K in Savings
+ 8K in IRA that can be used towards first home purchase

- $1600 rent on a condo, currently in our 2 yr lease
- Our credit is around 700-720 in FICO

We are currently saving 5K every month, so we would have about 55K in savings by about June 2010. We are looking for a single family home in the range of 250-300K.

Dilemma

We are torn between the following two options

1. Pay off the debt, extend our lease one more year. Save 20% down and then buy a home

2. Buy home around July. This would put our payments around 1600$ for a 300K home or less if the home is of less. So we would be around the same situation as we are in now. We start paying off debts after we buy the home

Thanks

C9Consulting · #2 (**permalink**) 01-26-2010, 07:29 PM

Option one will be way smarter. Think about it, if you do option #2, your debt is still compounding and gaining interest all so you can get a house. So in the end you would be losing money. I would just knock out the debt and then work on the house. Nothing like getting a monkey that big off your back before you plan on starting a family

anonymous · #3 (**permalink**) 02-03-2010, 09:16 PM

On the other hand, the excess cost of rent may outweigh the cost of interest. If you and your wife both have secure jobs, calculate the expected value of each, and decide accordingly.

TheCaptain · #4 (**permalink**) 02-04-2010, 12:30 AM

Congratulations on being able to save about $5k/month. That is a great accomplishment and I hope you are able to continue that going forward, as it will put you in great financial shape for the long haul. Generally, I recommend that people save about 15% of what they make. From what you said you are essentially saving half of your take home pay (not sure what % of your gross). I assume you have the credit card debt at lower rates, however this is likely to go up considerably in the near future, so I recommend paying that off first and then looking to buy a home. Rushing the purchase of a home is one of the biggest financial mistakes people make, and one that I myself made as well. It sets you back a few years and there is nothing wrong with renting.

TMBGfan · #5 (**permalink**) 02-04-2010, 09:49 AM

Quote:

Originally Posted by yt620028

- We do not have kids, but plan on having them soon

This point sticks out for me. The typical cost of raising a child according to recent finding from the Telegraph is £769 a month ($1218). If you are planning on having kids make sure your mortgage payments and debt repayments still leave you with enough money to raise your children.

TheCaptain · #6 (**permalink**) 02-06-2010, 09:39 PM

$1,218 is probably a conservative estimate for two income middle class families. Day care in a relatively major city will cost you about $1,000/month, more in a major city, and college savings are about $500/month from day one for a state school. Then you have to add in clothes, etc.

sapphirecapital · #7 (**permalink**) 02-06-2010, 09:47 PM

as long as you take the cc debt down before getting the kids you are fine, if your jobs are secure, for tax reasons I would buy the house now,however do not expect any gains in value for the next 2 to 3 years

Rose · #8 (**permalink**) 02-12-2010, 10:31 PM

Are house prices still falling where you are? If so, waiting and paying down the debt might be a smarter option. Especially if the interest on the debt is high. It's very expensive trying to bring up children and service credit card debt plus a mortgage at the same time.

yt620028 · #9 (**permalink**) 02-15-2010, 02:51 PM

Sorry for not replying to the thread

I never got a reply for a couple of days and forgot to check back on this. So, we decided to pay off the debt first. Debt is now down to 40K

We should be done with it by June/July.

We were leaning towards the house because we felt we will be paying same amount as we rent now. Most of our Credit Card debt is at 2.99 APR which are all balance transfers. So the interest we pay over the course of 1 year would be about 4-5K even if the interest rates went up. We also wanted to take advantage of the first time home buyers credit.

Those were all good reasons to buy the house But it didn't feel right .... so we decided to pay off the debt.

We both have relatively secure jobs, but we wanted to buy something that would allow us to live (incl mortgage) on one of our salaries. We both make almost the same, about 5.2K Net.

We live in Michigan and the real estate is one of the worst in the nation. So I guess we can wait one more year.

Rose · #10 (**permalink**) 02-15-2010, 04:20 PM

Quote:

Originally Posted by yt620028

We live in Michigan and the real estate is one of the worst in the nation. So I guess we can wait one more year.

Yup - you can actually save thousands by waiting and buying cheap. Watch the housing market like a hawk, and if you do see your dream house, buy it - but otherwise it makes sense to clear the debt and build up as big a deposit as you can before your take the plunge.

Do keep us informed how you go!

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