Hellobee Boards

@babynumber1: that's a great point, another thing you can do is try one of those online "how much can you afford" calculators, to give you a better idea.

@looch: @FoodNerd81: I agree with you guys. It's not even just taxes, but power and utilities which most of the time is included in rent (or a flat fee). Yes, people see renting as "wasting money" but why put yourself through financial stress in buying a house if you're going to end up in a foreclosure situation 10 years from now?

A 350k house is manageable on a 90k salary, but not if you are only putting so little towards the down payment. You also mentioned that the plan is for your husband to work at home and look after your baby. It sounds great on paper, but you have to think about how it will affect your husband's business, and what will happen if he can't handle looking after the baby AND working from home at the same time.

Honestly, if I were you I'd wait. Maybe look for a bigger rental with in unit laundry? Maybe a townhouse where it felt less like and apartment and more like a house? We bought three years ago but we bought a house for 100K and our monthly payment is less that what we were paying in rent after taxes and PMI and everything (rooms were a lot bigger in rental). At times, it's still overwhelming since EVERYTHING breaks at the same time and I couldn't imagine starting home ownership with a baby.

@Freckles: My math is sound. I triple checked it before posting it.

Whether or not housing prices will remain flat is a bit of a debate, but there is a lot more evidence that the value of land will continue to rise than the opposite (of course that depends on where you are, as I mentioned before). It's a much more sound investment than, say, stocks. Not to mention much easier to get in to and much more profitable when selling as I explained before.

And if interest rates are going to increase, all the more reason to lock in to one now while they are lower.

If you can't afford to buy a house now, the goal should be to be able to afford one as soon as you can.

@raintreebee: The more you pay off your mortgage, the less interest you pay. The longer you have your house, the easier it gets, while the longer you rent it will only get more and more expensive as the years go on and rent goes up. All that money goes to your landlord, not in to any sort of investment. In the long run, renting is not going to put you on top.

The trouble with diversified assets is that you can't live in them as you are paying towards them. You still need a place to live and rent is still a black hole.

@pui: A house can be thought of as two components--the rental component, and the investment component. Let's say that a house costs 5,000 to rent a month but 6,000 to buy. That 1,000 a month in the investment component while the 5,000 a month is the rental component. Essentially, when we buy the house, we are paying implicit rent at 5,000 a month. If I sell the house in ten years, I will maybe make up this implicit rent in the purchase price, but does this mean I have lived for free? No, because of the opportunity costs and the present value of money. So let’s say I buy the house for $100,000. I live in the house for 10 years. Then I sell the house. How much does it sell for? Let's say it again sells for $100,000 in year 10. Does this mean I’ve managed to “live for free” during these 10 years? No. We have to think about our opportunity costs and about present value.

From the standpoint of today, looking only at the rental component, having the house is like having a payment of $5,000 a year forever, which is worth $100,000. By living in the house for ten years and then selling it for $100,000 in year 10, I have (in present value, i.e. year 0 dollars):

100,000/(1+.05)^10 = (approx.) $60,000

So I have foregone a present value of (about) $40,000 in rental payments by living in the house for 10 years. If living in the house for 10 years was worth more than $40,000 (in year 0 dollars) to me, I have made a good investment, if it was worth less than this amount, then it was not so good.

But going back to the investment component--it may be that that extra 1,000 a month we paid for the chance on the housing market going up pays off (as compared to other investments). Then again, it may not.

But of course there are other considerations--some people psychologically need to have a house to save anything at all. Some housing markets have quirky differences between renting and buying. Taxes also make home ownership somewhat more favorable although some of this savings is reflected in the costs of real estate (by driving prices upward as compared to other non real estate investments).

Sorry for such a long response. Just trying to help the OP in seeing that renting isn't necessarily throwing money away (at least not more so than buying).

I would wait to buy until you have 20% down and additional savings of at least 6+ months worth of living expenses, ideally much more. Do not deplete your savings in entirety to buy a home.

I think housing is a great investment, but it absolutely is not always the answer and no one should rush into buying a home (or land, or any property) or buy if it means they will become "house-poor".

That's a lot of house for 90k a year, especially if part of that 90k in in flux because your husband is self employed. How much are taxes in your area? What would your total mortgage amount be, relative to your take-home each month?

As someone who works from home and has a baby, working from home at a job that requires several hours of devotion to projects is near impossible with a baby. Babies are a full time job by themselves. I would assume that you will need at least part time daycare, and then if your husband is able to swing both responsibilities, you've got some surprise savings. I would approach it that way, instead of approaching it with the assumption that you won't have a daycare expense.

Are you adequately funding for retirement? For regular/emergency savings? What about LO's college fund?

@Freckles: Of course! I have said multiple times that you shouldn't be house poor, you should save up accordingly and then make that leap.

@raintreebee: How is not all that money going towards investment?. I'm sorry, that doesn't make any sense, please explain the "why" to me here. Just because rent is X and a mortgage is Y doesn't mean your investment is Y-X. ALL of X is going to your landlord so that he can buy a Ferrari while ALL of Y is going to your investment. Part of Y isn't going to "living" and the other part is going to your mortgage, it is ALL going to your mortgage!

And I guess yes, buying a house is a bad idea if it's not going to increase in value at all (because like you explained, inflation). I never said otherwise.

@pui: Assets are generally worth the present value of their future stream of income they generate (consumption component) + any fluctuations in market value (investment component). So if I buy a house, I am essentially paying for the opportunity to rent it out. In our example, I don't plan to rent it out--I plan to essentially rent it to myself. So I am paying upfront the rental payments over x years. This is in contrast to renting from the landlord because there I am spreading the payments over x years. When you sell the house, you should recoup the upfront payment you made to live in it when someone else pays for the future stream of rental payments. A large part of the value of the house is what people will pay to live in it--whether it is you or someone else. Houses would be worth a lot less if no one could live in them. It doesn't mean that that money you pay to "rent" your house doesn't go to your ownership of the house. But it does represent "rent", and because you are paying all the rent up front some goes in to your "black hole" because of the time value of money. If housing prices remained constant, then there should be no difference between renting and buying. BUT, as you mention, we know that housing prices are not constant, and part of what we pay for a house, in addition to its rental value, represents the gamble on whether housing prices are going down or up. And that component is really just a gamble. All I am trying to show is that part of your house represents rental value, some of which you are "throwing away" by paying all of that rent upfront.

@Freckles: That's why when you get your home, paying it off as fast as possible should be top priority! The faster you pay it off, the less interest you pay.

We lived in an apartment for the first 7 months of LO's life, so we just bought a house in March. We were not in the right position financially to buy a house before that. I am so glad we have a house now, but sometimes it's not always realistic if you can't afford it.

@hilsy85: yup, I agree with you. It is not black or white at all, and I know so many people who went from living in an apt to living in a house and they are stunned by how much it costs to heat/cool a 4bd house.

@Freckles: I have to say too though that depending on your interest rate, you might prefer to invest your money elsewhere rather than pay down the mortgage sooner because the deduction on interest those first few years in fantastic.

Just want to randomly add not everyone can put down 20%, and there are other options. I know for us, homes cost $800,000 plus for single family homes in good neighborhoods. That's just the DC market. Now if all the people who only believe in 20% down can do that, good for them! For us, we are doing FHA 3.5% (oh the horror)on $800,000. $160,000 down is not in our cards, and we make well over six figures. So don't feel bad that you're "only" putting down $15K like a previous poster said.