Overextending ourselves on our first home?
Question: We are a soon to be married couple looking for our first house. Though we make decent money, its still hard to find anything we’d want to live in as we’re looking in an expensive area, Fairfield county, CT.
We think we’ve found our “perfect home” selling for about $400,000 (about $50,000 more than we can ‘comfortably’ spend/most banks would want to loan us). The mortgage payment would be $2500/mo (we don’t have perfect credit), PMI would be another $93/mo (we don’t have any equity) and real estate taxes another $500/mo (ouch). This would bring our total payment to $3100/mo. Factor that in with the fact that we pull in a combined $5500/mo after taxes and we have a situation where we will be undoubtedly strapped for cash. We understand we would be living “poor” for a while but we are optimistic that our salaries will increase nominally over the next few years.
The plusses of the house are that it is the absolute BEST VALUE we’ve seen in this price range, and we’ve been looking for several months. It is also the type of place that with a little sweat equity, we could really raise the value of the house (which isn’t true with most starter-ranch homes).
I have two questions: 1) Are we jumping into financial suicide?, and 2) How will tax benefits work? Assuming $2000/month of our mortgage payment will go to insurance and another $500 to taxes, does that mean we would have a VERY LARGE tax return to the tune of $600+/mo? How heavily should we factor this into our overall financial picture?
Answer: Why do you *have* to have this house *right now*, this second?
Why does the house need to be in *perfect* condition?
These days people have no patience and want instant gratification. This is can be quite costly financially!
When I bought my house, I did the exact opposite of what you are wanting to do. I was qualified by the lenders for a certain amount. Well I went and found a house at half that price. This is what I purchased. I also got a fixed rate mortgage. The house was not in perfect condition, but that is OK.
I have extra spending money each month. And when buying a house, you need it! Don’t forget about higher energy costs (you may have a $400.00 a month electric bill!), trash collection, water, taxes, insurance, house repairs, car repairs, new tires for cars, and on and on…
I’ve seen young married people overextend themselves on their house purchase. It is not fun. They have no extra money to do ANYTHING! They can’t replace the tires on their cars when needed. Can’t pay for repairs. They fight about money constantly. Then they get divorced.
Buying a house when you have bad credit is NOT a good idea. You will pay a ton of money in extra interest.
My suggestions:
-Wait to buy a house until you have good credit. Learn about credit and how to get good credit.
-For now, find the least expensive apartment you can which is in a safe area. You will then have plenty of extra money which you can save. Also you can go out to restaurants, go to movies, buy flowers for the wife, and do a bit of traveling. It is fun to do this stuff when you are young. When you get older, then it is time to be a homebody.
-Buy all the “stuff” you want now. New cars, clothes, TV’s, stereos, etc. Get all this stuff now, because once you buy the house, money will be tight.
-Save as much money as possible for a down payment.
-Have fun and enjoy your youth! Have patience and buy the house later when you have the income, down payment, and good credit. There will be nice homes for sale later.
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Filed under: Bad Credit Loan
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