What would you do? (Real Estate Question)

[JSD]

If you're assuming your wife will get a new job soon, why not wait?  What difference will a few months make?  Plus, it'll insure that you wont end up paying  a mortgage on only your income should she have difficulty finding something new that suits her (added bonus: she wont feel pressured to take something she isn't thrilled about).

When considering financial commitments that project beyond a year, best to get your ducks in a row first.  Just one man's opinion...

Why  I don't want to wait: The market is at the bottom right now.

[Chris]

I am not a homeowner myself, but have been looking into it, and after talking with a lot of people, and looking at different options, my recommendation would be to wait.  Yes, it is a good time to buy if you have the money.  However, it does not sound like you really have the money to buy a place that big.  You really should simply wait until you are making more money (and have more of a down payment saved up), or if not, why not look into something more within your means?

If you want to get in the market while it is low, why not look into a cheaper condo or house, and hope that you will gain some value on it when you sell in a few years, when a bigger house is more within your means?

[Master Po]

My six words of advice.... BE PATIENT....BE FRUGAL......KEEP SAVING. My first home purchase many years ago was a struggle to come up with the downpayment. It finally happened and I immediately got laid off with a pregnant wife. It al worked out and I was glad I waited and that we did not overextend ourselves with a house we could not afford during the lean times. I would not partner up with anybody (keep your freedom).

My basic rule (besides an inital mortgage) is pay cash for everything you buy (unless an absolute emergency). Use your credit cards ONLY if you pay them off every month.

Flash forward for me. I am 100% debt free and have been for many years. I have a nest egg of cash that has already been taxed and completely free of any stock market flucuations whatsoever. I am 51 and I could retire today if I wanted to. I lived in that first house for 18 years and paid the mortgage off early. While I was frugal, hard working and created a successful business (and very lucky!!!) I still enjoyed life with my wife and daughter despite not buying everything we wanted.

So just be patient,frugal and keep saving. But remember without your health and your friends and family you will be a poor man no matter the size of your checking account or the size of your house. I am struggling to recoup from a serious disease and stay alive and my house won't help me do that, nor will my nest egg...just count your blessings you have been given and "stay the course". It's the journey and not the destination. Hope this helps. Peace   

[JSD]

Typical rule of thumb is you can afford a mortgage that is equal to 1 week's take home pay. If what you are saying is true, Jsaad, you can probably afford a mortgage of about $120-$140 thousand on a one family house. And that's with your wife working.

Here's the reality of the situation that you really aren't going to want to hear, you can't afford a one family home in the range you are looking and will probably be selling it, probably at a loss, and/or declaring bankruptcy within 3-4 years, easy. You will need closer to $30,000 down payment. You will need your wife to get and hold a job for at least a year. You will need her to build up credit. You will need to have zero, and I mean zero, other outstanding debt if your salary doesn't increase significantly.

Sorry, but you are young and have a long way to go before house ownership might be a reality. I would look at multi-family homes to begin with once you have more money saved and your wife is working. That way you will have the income of the other apartment(s) to offset your mortgage payment and be able to write off half of everything you are purchasing for the house because you are upgrading a commercial property(per se).

Sucks I know but I was in a similar circumstance when I was your age. I ended up relocating to Rhode Island at the age of 30 where I purchased a one family home for $120,000 that if it was in a similar suburban setting in Massachusetts would have cost 3 times the amount at the time. I will say I hated Rhode Island but it did allow me to build some great business relationships, gave me a push towards my eventual business opening and I made a bunch of money when I sold that house just before the housing crash 5 years ago which allowed me to move back to Massachusetts doing very well.

That's what I own a condo for right now. The idea is to improve my situation. If I can find a 2 unit house I already have the 2nd unit rented out for $900-$1000

A $300,000 two unit mortgage + monthly taxes = Roughly $2000/ month - 900 = $1100/monthly payment

Which is only $200 more a week than my condo cost me. It's definitely doable I just need to find a solid duplex and get pre-approved (for that price range anyway).

[the_Bird]

What markets are you looking at?  I know in some areas, $250k *is* a starter home, there just aren't any viable properties available in the $150k area. 

Good point.  I'm out of touch with the NE market.  Lived in Pittsburgh, Nashville, and Indianapolis since then.  I can get a brand new, 4 bedroom, 3 bathroom house out here for $150k, so my correlation of costs is probably off.  The midwest can be mind boggling sometimes. 

Even just within the state, there's a huge variance.  I live in a quiet, family neighborhood, dead-end street.  Small town in the western corner of the state, but it's nice.  Bought my house a few years ago for under $100k (smallish, needed work and the previous homeowner sold it to us significantly under its appraised value).  Same house two towns over would have been $250k, at least.  Same house outside of Boston, at the time would have probably been $300k+.

So, what's keeping you in the Boston area?  If you're talking about making one of the major, MAJOR life decisions about buying a house, are you sure that you're where you want to be?  

[JSD]

Jsaad, did I misread or did you say that you are renting out a condo?  would that be additional income?

Yes, we make a positive income from our rental property of $200 a week. (basically breaking even)

[JSD]

Typical rule of thumb is you can afford a mortgage that is equal to 1 week's take home pay. If what you are saying is true, Jsaad, you can probably afford a mortgage of about $120-$140 thousand on a one family house. And that's with your wife working.

Here's the reality of the situation that you really aren't going to want to hear, you can't afford a one family home in the range you are looking and will probably be selling it, probably at a loss, and/or declaring bankruptcy within 3-4 years, easy. You will need closer to $30,000 down payment. You will need your wife to get and hold a job for at least a year. You will need her to build up credit. You will need to have zero, and I mean zero, other outstanding debt if your salary doesn't increase significantly.

Sorry, but you are young and have a long way to go before house ownership might be a reality. I would look at multi-family homes to begin with once you have more money saved and your wife is working. That way you will have the income of the other apartment(s) to offset your mortgage payment and be able to write off half of everything you are purchasing for the house because you are upgrading a commercial property(per se).

Sucks I know but I was in a similar circumstance when I was your age. I ended up relocating to Rhode Island at the age of 30 where I purchased a one family home for $120,000 that if it was in a similar suburban setting in Massachusetts would have cost 3 times the amount at the time. I will say I hated Rhode Island but it did allow me to build some great business relationships, gave me a push towards my eventual business opening and I made a bunch of money when I sold that house just before the housing crash 5 years ago which allowed me to move back to Massachusetts doing very well.

Unfortunately, I've got to agree with Nick here.  A house over $200k is out of your range right now, but, on the plus side, if you're looking at a 10 year commitment, that $150k house house could be a great starter unit while you get things together for a nicer one.  Start smaller and build up the income from your rental property right now - and enjoy rent free living as a small concession from living with your parents (sorry man, I can't imagine how much it sucks to be a newlywed couple staying with mom and dad). 

It's not terrible because we have a separate pad but as a prideful provider it's a little embarrassing. My game-plan is not going according to script.

[JSD]

What markets are you looking at?  I know in some areas, $250k *is* a starter home, there just aren't any viable properties available in the $150k area. 

Tewksbury, Wilmington, Billerica, Burlington, Melrose, Stoneham, Bedford and Lexing (last 2 a long shot).

I want out of the city.

[Chris]

Jsaad, did I misread or did you say that you are renting out a condo?  would that be additional income?

Yes, we make a positive income from our rental property of $200 a week. (basically breaking even)

Ah, I missed that you already own a condo. 

I'm a little confused though, are you planning on selling the condo?

[the_Bird]

Jsaad, did I misread or did you say that you are renting out a condo?  would that be additional income?

Yes, we make a positive income from our rental property of $200 a week. (basically breaking even)

Ah, I missed that you already own a condo. 

I'm a little confused though, are you planning on selling the condo?

If you DID sell the condo, would you net enough (assuming that you have a mortgage on it) to help with the down payment? 

[JSD]

I think a number of things you should be thinking about. At the top of the list is the whether you expect to be in the area for the longterm and the overall economic health of the Boston area in the very long term. When the steel industry fell in the Pittsburgh area in the late 70s, it was over 10 YEARS before the price of homes went up at all(I know because I was trying to sell a house for that long). Right now there are homes on Nantucket that are selling for less than 25% of what they would have been worth a few years ago. There is a reason for that.

All areas of the country don't react the same and all the nonsense about the overall economy is just that-nonsense. For instance, in Pennsylvania, there are areas that will be booming because of the Oil Shale gas industry. Oil production in the country has peaked but the with the new technology horizonal drilling, there is a giant industry forming overnight. What new industry is happening in Boston? It is that industry that will drive a big uptick in home prices.

Buying in the big city is always scary. You can hit it big or get crushed. Or it can be stagnant for 10 years and you can't unload the home at any price. I have seen both happen. The thing that you have to remember is that you will most likely be selling your house because of job changing due to unemployment because of industry falling off. Now I live in the country, where prices seldom go up or down much. (I have one of the nicer 4 BR 2 1/2BA homes in the area and it would be worth big money near Boston but here in the mountains of PA, it is worth less than $150K). I can neither lose nor make significant money with my home.   

There are a ton of people waiting to sell their home in your area(I have a lot of friends there). I don't see the market going up for a while.
So the question comes back to-"how secure is your job over the next 15 years"?

As a BS/Criminal Justice I work in cooperate security and am positioning to become a federal or state officer. Whether it's the public or private sector I'm fairly confident I will have work here and I plan on sticking around. That aside I see your point which is (as always) enlightening. Fortunately, in my industry being around as many schools as there is makes Boston the place to be.

BU, BC, Umass, Northeastern, Tufts are just a few schools off the top of my head with departments.

[JSD]

My basic rule (besides an inital mortgage) is pay cash for everything you buy (unless an absolute emergency). Use your credit cards ONLY if you pay them off every month.  

This is exactly my philosophy. I've had a credit since I was (18 I'm now 25) and not once have I paid a dime of interest. (not kidding never once).

[nickagneta]

Typical rule of thumb is you can afford a mortgage that is equal to 1 week's take home pay. If what you are saying is true, Jsaad, you can probably afford a mortgage of about $120-$140 thousand on a one family house. And that's with your wife working.

Here's the reality of the situation that you really aren't going to want to hear, you can't afford a one family home in the range you are looking and will probably be selling it, probably at a loss, and/or declaring bankruptcy within 3-4 years, easy. You will need closer to $30,000 down payment. You will need your wife to get and hold a job for at least a year. You will need her to build up credit. You will need to have zero, and I mean zero, other outstanding debt if your salary doesn't increase significantly.

Sorry, but you are young and have a long way to go before house ownership might be a reality. I would look at multi-family homes to begin with once you have more money saved and your wife is working. That way you will have the income of the other apartment(s) to offset your mortgage payment and be able to write off half of everything you are purchasing for the house because you are upgrading a commercial property(per se).

Sucks I know but I was in a similar circumstance when I was your age. I ended up relocating to Rhode Island at the age of 30 where I purchased a one family home for $120,000 that if it was in a similar suburban setting in Massachusetts would have cost 3 times the amount at the time. I will say I hated Rhode Island but it did allow me to build some great business relationships, gave me a push towards my eventual business opening and I made a bunch of money when I sold that house just before the housing crash 5 years ago which allowed me to move back to Massachusetts doing very well.

That's what I own a condo for right now. The idea is to improve my situation. If I can find a 2 unit house I already have the 2nd unit rented out for $900-$1000

A $300,000 two unit mortgage + monthly taxes = Roughly $2000/ month - 900 = $1100/monthly payment

Which is only $200 more a week than my condo cost me. It's definitely doable I just need to find a solid duplex and get pre-approved (for that price range anyway).

You're going to get a $300,000 mortgage with PMI, home owner's insurance and real estate taxes paid off for $2000 per month with only $45,000 of reportable income and 3% down!!!!?

Please let me know where that bank is when I need to pull a line of credit for expansion, I'm going there!! Please, Jsaad, I'm not trying to be difficult here but I think your severely underestimating what your costs will be. Given what you have described I find it difficult to believe any bank is going to give you that loan but let's say your wife gets a job and someone takes a shot at giving you that loan. Do not for a second think you are getting it at less than 6.75%. The risk you are presenting is too great, especially if you are still making car payments.

A number more in the $2500 or more range per month is much more likely and and if you are renting at $1000 per month(which by the way the lending institution will not take into effect, they assume that apartment stays vacant for their purposes in determining risk.) that's more like $1500 a month. Is your future earnings of $4000 take home per month really going to be enough to carry all the rest of what you will need to live?

Don't rush into this Jsaad. And beware lenders that will be putting you into something that you really can't afford. A lot or most predatory lenders were put out of business when the market crashed but there are still some out there. Talk to a trustworthy financial adviser/planner and make sure you have a lawyer available to look over any proposals a lending institution gives you.

You're a good guy. I'ld hate to see you get screwed due to impatience.

[JSD]

Jsaad, did I misread or did you say that you are renting out a condo?  would that be additional income?

Yes, we make a positive income from our rental property of $200 a week. (basically breaking even)

Ah, I missed that you already own a condo. 

I'm a little confused though, are you planning on selling the condo?

No, I'm just renting it out and trying build equity with it.

[jdpapa3]

If you're assuming your wife will get a new job soon, why not wait?  What difference will a few months make?  Plus, it'll insure that you wont end up paying  a mortgage on only your income should she have difficulty finding something new that suits her (added bonus: she wont feel pressured to take something she isn't thrilled about).

When considering financial commitments that project beyond a year, best to get your ducks in a row first.  Just one man's opinion...

Why  I don't want to wait: The market is at the bottom right now.

I don't think this is true. I'm personally expecting tougher times into the next few years. I don't think the bottoming process is fully under way yet.