On Feb 6, 5:25 pm, (Todd H.) wrote:
writes:
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.
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
Probably. If you're opting for an interest only loan, and/or variable
rate then, it's "totally." Aside from the finances, that stress is
widely reported to be bad for marriage longevity as well.
And as for sweat equity and fixing up, keep in mind that you won't
have any money to do anything if so much of your salary is going to
housing.
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?
Very little. Because whatever you are "saving" in deductions is going
out the window in interest payments and PMI.
It may be going out, but the fact that the govt is giving you a 25%
break is a factor in figuring out how much money you have left to live
on.
I'd rent for a while. Save up a nest egg to put into a downpayment.
Get your retirement money seeded and get used to making 401k and roth
contributions.
Why should they divert money into a 401K, when they already are short
money for a down payment on a house that they want? Houses have
proven to be excellent investments over time, you need a place to
live, and with rent, they are not getting any tax break, nor are they
building equity.
I'd focus on building up an emergency reserve and a down payment for a
reasonable home, and worry about the 401K after that.
Heal your credit over that time. With better credit,
you'll pay less in interest. With a down payment, you'll avoid
wasting money on PMI, and depending on the market at the time, spend a
lot less in interest (assuming rates don't go up dramatically), and
you'll have the flexibility to take that next big job opportunity and
salary increase that may afford itself without being tied to a mammoth
house that needs work.
If you are working with a realtor and they're showing you stuff you
can't afford, find another realtor, or get real with them. If you're
looking at price tags that you don't think banks will lend to you
that's a huge warning sign. Personally, if I'm anywhere near what the
banks are willing to lend me, I know I need to chop the pricetag by
40%!
Best Regards,
--
Todd H. http://toddh.net/- Hide quoted text -
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