Ever since my husband and I got married, my mother insists we should buy a house. I know she means well, but we are not financially ready to take the plunge. When we got married, hubby and I were making a total of $18 per hour together! He has since changed jobs and we have much improved our lifestyle, but I am still not sure that we could handle it. Please send advice. Is it smart to rent and be safe or to buy and worry?
Renting versus buying depends on factors other than your income. Consider the amount of your income only after you consider the other factors, which include the following:
Now, if you decide you want to buy a home, then consider what you can afford and where.
Frankly, from the tone of your note, it sounds like you are not ready. So don't let Mom push you into something you do not wish to do.
Check out www.bankrate.com. In the middle of the page, you will find different calculators. Click on the ones for mortgages to see what you would be up against or would be able to do.
Think carefully about renting versus buying and make your own decision. The only right or wrong decision is made with full information and with your husband.
Never buy a home until you are ready. It is easy to make mistakes and buy something you wish you hadn't. It sounds like you are young and not totally sure where you will be in five years. Have you stopped to think that Mom may want to ensure that you don't move out of the area? Now can be a buyer's market if you have the right loan and down payment, but you must be sure it is right.
My niece and her husband bought an expensive ARMS house before all of the foreclosures. They both earn a good paycheck, but it is now an anchor for them. Her husband took an interview out of the area and one of the reasons he is not taking the job is because of the house. His parents, unfortunately, told them they couldn't have a child until they bought a house. Guess what? No baby. They are too busy with work for that. Before you buy a house, have a five- to ten-year plan of what you want to do with your lives. A house is an expensive commitment.
Mary in WA
One of the factors I think this young couple should seriously consider is the cost of taxes and insurance on a home before making a buy or rent decision. In some areas, it is very hard to get good coverage and expensive to boot, adding not only the expense of the coverage but also the concerns of cancellation to the mix. We have been homeowners for many years and have considered selling and renting again just for the relief from that worry. If you have a mortgage, you have to have insurance.
In my opinion, the time to buy is now. The housing market is slow. In other words, houses are not selling. This makes it a "buyer's market." Houses in our area are going for thousands less than they were in the 1990s. If you had bought a house in the 1990s and were trying to sell it now, you'd end up taking a loss.
When the market picks up again, prices will increase. Who knows when that will happen? But if you buy now and the market improves, so will the value of your house. If not, you will have gotten a nice house for a decent price and you can live in it for a long time. If you want more house for the money, now is the time to take the plunge. Buying is usually less expensive than renting and interest is pretty low right now. It's a win/win situation.
Just be sure you get a fixed rate mortgage so your payment will stay the same and not go up at some point in the future.
I think you've answered your own question when you state that you're not financially ready to "take the plunge" and buy a house.
Renting is a wise decision if your financial situation is not stable or if you don't have a significant emergency fund in savings. First of all, if your financial situation changes unexpectedly (in the form of a layoff, for example, or a new baby), you're not bound to this property. You can move to a cheaper place as soon as the lease is up. Secondly, when (not if) major repairs become necessary, it's the landlord who will have to quickly come up with several thousand dollars to clean up a flooded basement or replace an aging furnace.
While buying a house is often a better investment in the long-term, you're wise to wait until you and your husband are financially stable enough to bear that responsibility. Your mother neither knows your full financial situation, nor bears the responsibility of making payments and repairs on your property, so she cannot make this decision for you.
If you can afford to put 20% down on a home and can make the payment plus set aside each month the amount needed to pay taxes and insurance, then think about buying. Remember that there are closing costs involved in the purchase, so be sure you have those available as well.
A conventional loan is better than other types of loans because you can earn interest on the funds you set aside for taxes and insurance. You don't have to worry that the bank will increase your taxes and insurance payment to meet their criteria. You can also shop for insurance if your current carrier raises your premium.
Parents always want their children to buy a home. It's the American dream, but if you can't meet the 20% down, don't get yourself in trouble with a "get it now" loan that could leave you with nothing.
Take the Next Step
Share your thoughts about this article with the editor: Click Here
Sign up for our free weekly eNewsletter Surviving Tough Times.
Looking for an answer to a frugal living question? Click here to ask a
Dollar Stretcher Stretchpert!
Copyright 1996 - 2013 "The Dollar Stretcher, Inc." All rights reserved unless specifically noted.
Contact the Dollar Stretcher at:
PO Box 14160
Bradenton FL 34280
"The Dollar Stretcher, Inc." does not assume responsibility for advice given. All advice should be weighed against your own abilities and circumstances and applied accordingly. It is up to the reader to determine if advice is safe and suitable for their own situation.