DIYbanter - View Single Post - Overextending ourselves on our first home?

Jeanne

wrote:
Hi all -

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.

Do you plan to have children? If so (within 5-7 years), don't count on
the normal salary increase because things may change, one of you may opt
out of the workforce or work part-time.

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

I think so. You will have very little left over each month for other
expenses. If a car breaks down or if you need to get some repair on the
house (and you will), you're pretty much screwed. Are you saving for
retirement? That should come first.

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?

I wouldn't factor it in at all. You really need to work off your net
monthly income and not count on the tax return.

It's not necessary to own a house once you get married. I would rent
first until you 1) get a better FICO score; 2) save a large amount of
money for the down payment. Also, never buy at what the banks say you
can "afford" (never mind going over that amount by $50,000) - it's a
fictitious amount that the bank WANTS you to borrow.

Thanks!!!

Dave