UPDATE post #36 DH's pay is getting cut by more than 1/3, buying a house

[ltlmrs]

We found out yesterday that DH's contract would not be renewed come January and we're back to making ends meet via various part time jobs and at least two months of income that is less than half of our expenses. I'm also going to have to quit work soon because I really can't handle housekeeping, a toddler and pregnancy.

We will probably be a couple hundred dollars short of bills each month unless I can figure out how to cut our food budget from $300-350 each month to $200-250 and we drop our catastrophic health insurance of $150/month. We'd have some savings to carry us over to make up the difference if we didn't cut expenses but then we'd run out of money by the summer time when his hours would be cut even more.

One thing we're considering, however, is buying a house. We could qualify for a loan with no down payment and a mortgage payment at or below our rent payment each month. The disadvantage would be that it would twice the commute for DH and potential expenses.

Our thinking is that the reality of our situation is such that we'll probably not be in a stable financial situation for many years, meanwhile our family is growing and we don't want our kids growing up in the city. While his income is so high we think we should apply for a mortgage and buy a house for much less than what we qualify for and something that would be at or below our rent (or at least not more than $50 more than what we're paying in rent now). I, for one, am especially worried that if we keep waiting for "a better day" given the fact that there are no prospects in his field and no chance of him switching fields without sinking a lot of money into even more schooling, then we'll never end up buying a house and will probably end up being stuck in this apartment in a neighborhood we don't like in a city we don't like for at least another 5-10 years!

We have found a house that's perfect for us (except the commute) out in the country on a 5 acre lot that is not a foreclosure/sold as is and would probably qualify for the VA loan, but still at a price we could afford and depending on the interest rate would be at worse the same amount as our rent payment, hopefully less. It's about 30 minutes away from DH's family (a big plus) and an hour away from mine (okay). It would be a least an hour's commute for DH and I couldn't work at all out of home (though I am currently trying to figure out ways to WAH).

The fact that it's 5 acres is a huge plus for us. It's three bedrooms and two full baths which is plenty of space for at least 10 years, at which point we could add on if need be.

If DH gets a full time job again we could pay off the mortgage and our other debts probably within 15 years. The chances of him getting full time work though are pretty small due to the nature of his job, however.

So, thoughts? advice? The collective experience on here is so great and family advice we've received does not at all take into account our priorities (such as wanting to live in the country) that I'd love to get input from MDC mamas!

TIA!

[zebra15]

Here is what I see
1. You do not have continued income and the bank will find that out putting your potential loan in jeopardy
2. You can not pay your current bills, a house costs more than an apartment
3. If you have a zero down payment there is PMI
4. Utilites on a home are more than an apt
5. Commuting costs will increase with this 'house'
6. PROPERTY TAXES
7. What happens when you need to repair something on the house, where is that money going to come from?

I would not buy a house in this market. Really home ownership isn't all its cracked up to be. 5 acres is going to get expensive to upkeep. Why not attempt to rent a house before buying, get a 'taste' of what the costs could be? Your plan just does not make sense right now.

[alicia622]

I agree with Z- buying does not make sense at this time. Owning a home always includes hidden expenses and it will cost more for utilities and you have taxes and insurance. Can you find an appt or even a house to rent out of the city?

[lalaland42]

Yeah, I wouldn't. Even if the mortgage payment is less than rent, all the extras will put it over and you can't even pay bills as it is. There will be other perfect houses. Will you consider moving locales so your DH can find a permanent job?

[Maluhia]

Nope, would never ever do that with those financial numbers and that situation. Not ever.

[HeatherAtHome]

You might think it's 'affordable' now, but all it takes is a slight hike in interest rates to have it all come tumbling down. I would not chance it. It's not all or nothing. There are other places you could rent, don't get stuck in the idea that you have to buy the house OR stay in the apartment you don't like.

[SubliminalDarkness]

All it would take is a repair needed on the house and you could be homeless. I absolutely, no way, would buy a house under the circumstances you're describing.

[GuildJenn]

No I wouldn't, especially if you have not owned a house before. You just don't know how bad it can get if a furnace goes, roof leaks, and fridge breaks all in one year...and it tends to happen that way and at the worst times. Growing your own vegetables is great (although there are costs - water, seeds, time) but it doesn't cover a roof. (Broken toilet, backed up septic system...)

Then there's all the little things - a lightswitch here, a leaky faucet there, a fuse here, range hood fan, bathroom fan - $5, $4, etc. And then there's the time your 3 year old opens a window downstairs on the coldest night of the year and you only find it in the morning and your bills go up.

We have found that if we put our expenses on BASIC maintenance - not renos - over 5 years it has always worked out to at about 2% of the value of our home per year. Now it wasn't evenly distributed. But if you wouldn't be able to afford/save that (and if you're thinking of dropping health insurance, I don't see how) then I wouldn't do it.

I would focus your efforts on the 'prospects' (probably it is a lot easier to retrain at night from a city-based apartment without a huge 5-acre chores list ) and less on the 'get a house now.'

It will come, just breathe.

[dizzysmom]

Originally Posted by zebra15

1. You do not have continued income and the bank will find that out putting your potential loan in jeopardy

Yes, this. Your lender is almost certainly going to verify your employment with your employer and not just look at your pay stubs. I work in a bank and I have seen more than one loan that was ready to go be denied because we found out that the person was about to have a job change.

Even without that, owning a house in the country is very expensive. I don't know if you'd be located close to any grocery or hardware stores, but we're 30 minutes out from everything and having to run to town at least twice during every project has gotten old (and expensive). Add the increased cost of gas to the costs of home ownership and I don't think you will come out ahead. In the last year, we've had to replace the pressure tank and we just got a new hot water heater. Next year, we *need* a new roof and the year after that the septic tank will have to be pumped. It all adds up fast.

I understand not wanting to rent anymore and wanting to live in the country, but if I were you, I would wait until your DH manages to find a job that will at least cover your expenses.

[MommaMoo]

OP, I totally understand your desire to stop renting. We live in a little apartment that costs way too much money (high COLA area) and are looking to buy a house next year. Our mortgage wouldn't be any higher than what we pay in rent, and we would be getting a lot more for our money, too. It's very screwy that a mortgage payment is WAY cheaper than rent around here, but whatever
I also would never buy a house in the circumstances you describe. Some very good advice about home-buying is that you need to separate your emotions from the decision at first and really analyze it honestly. Having to scrounge for a mortgage payment sounds extremely stressful to me. It's not like if you can't make rent-you are seriously screwed if you fall behind on the mortgage. You can't just move to a cheaper place. Your entire investment will go down the drain if you lose the house, and you do NOT want to be in the same situation that so many Americans are in today. It would be devastating to lose a house that you wanted so badly. Really ask yourself what it would take to make you feel comfortable buying a house. I know that I want to have $10,000 in savings that does not go towards the down payment or closing costs. Also, our lives have been stable for years (DH has secure employment and we never have trouble making rent.)

Trust me, I know EXACTLY what it's like to be low income and desperately in want of a house. I also really want space for my boys to run around outside, my own washer and dryer, and to be able to add solar panels or whatever else we feel like doing to a house. But it is absolutely not worth buying a house unless we are in a great position to do so, because it would be far too heartbreaking and stressful to lose it all because the house needed a new roof or some other repair that we couldn't afford. From your post it sounds like you'd be headed for serious trouble if you were able to buy that house.

[ltlmrs]

Thanks for all the great advice. Let me clarify a few things about our situation.

DH will continue working with this same company as he has been for the past two and a half years, just a different status/pay scale. This aspect of it is actually fairly stable, except for a yearly seasonal break of 2-3 months when he's working a lot less. We have savings for that and historically have used our tax refund to fill in the gaps. So, as of today yes, we are about two or three hundred dollars short on expenses, but more likely than not (the good Lord willing and the creek don't rise!), he will have another job by that time that would allow us to make ends meet. But, we wouldn't have money to put into savings or apply extra to a debt snowball. We would only drop the health insurance for Ladybug because she would qualify for the state plan, we'd keep it for me and DH. If we stopped eating organic/free range we could very easily spend only $200 on food for the three of us. I've fed us very healthy food for several months at a time on only $100 a month because I make sure to maintain a very large pantry. If we had the space we'd also have a freezer for meat that's on sale allowing me to stock up even more.

We have actually applied for a mortgage before when we were in a much worse situation than we will be come February and were pre-approved (on that income) for more than twice the cost of this house that we're looking at. With a VA loan there is also no PMI and DH's parents will cover our very small closing costs as a gift. So, even with the cut in income we would still qualify for the amount we're wanting.

The monthly payment we've been quoted includes insurance and taxes and is still about $25 cheaper than our rent. And it's a fixed rate loan. The location is a longer commute, but it is central between the city we live in and the next town over: creating more work opportunity for DH. He has actually been wanting to start working in this other city, but has not been able to because the commute was just too long. There is a better chance of his getting full time work there as well, except he'd have to work part time first to get his foot in the door. It's also nearer to the school where he started his Master's that's been on hold for about a year because we're not taking out any student loans.

Second, this is not a fixer upper or a foreclosure. The owner has actually already updated the house quite a bit and will be doing some more work on it as part of the contingency. We are getting our funding through a VA loan which means that we cannot buy a house that does not meet their inspection which is the most stringent in the mortgage industry. We would also not buy the house unless the owner agrees to purchase a home warranty for us to cover unexpected expenses in the first couple of years.

Finally, we are actually living in the lowest priced apartment in the city and surrounding area. I've searched and searched for something cheaper, but even a one bedroom would cost at least as much as our two bedroom. The landlord has not raised our rent in 3 years, but we are waiting anyday for the letter in the mail. If he raises our rent and continues to do so like the other landlords in the area, we would not be able to afford the rent. Our utilities have been historically high because we are on the second floor with no shade and no insulation. I seriously doubt that the house would cost much more in utilities (we always over-budget for our utilities anyway to have a cushion) because it only bigger than our apartment by 200 sq ft. The house will also be hooked up to city water but the owner has been using a cistern for all his water needs. That means we could continue using the cistern and not have a water bill. We have never missed a rent payment and in the last three years we were late paying the rent only once and that's because we went out of town and didn't realize the other person hadn't paid the rent.

I hope that clarifies things a little.

[surrogate]

sounds like you have already made up your mind...now you are just trying to justify it

[lookatreestar]

i dunno, it would depend on the price of the home for me personally. but honestly we rented a home because we were SO tired of apt living...but after a year and a half we moved back into an apt. my dh works a lot and i hated having to do everything myself. also we were paying SO much, twice what the mortgage probably was

i think if you feel confident that you can make the payment, why not? obviously a lot of other folks bought houses and it didn't work out so they are just not paying.

[applecider]

I agree with most of the pp. Owning a house is NOT all it's cracked up to be and if I had it to do all over again, I would WAIT until I was good and ready. I would wait until DHs job was stable, had $$ in the bank and so on. And if that took years, then so be it. Also, even if the mortgage payment was the same as rent, what about higher utilities? Money set aside for repairs?

[SeekingJoy]

How much do you have in savings?

I would not buy a house under those conditions. It just doesn't make financial sense.

[tinuviel_k]

I love owning a house, but even though our house is not in any way a "fixer upper" we hae had to put a lot of money into little fixes, repairs, and updates.

Even if your mortgage is $25 less then your rent, chance are that you are going to have to pony up a lot more than that to cover home ownership expenses. We rented for years and years, and in the four months we've owned our house it is amazing what we have had to do. A random plumbing issue that didn't turn up in the inspection. Caulking windows and siding. Fixing the kitchen hood. Replacing the washer and dryer. Replace the furnace flashing on the roof. Buy a couple odds and ends for rooms. Pay to have inspections, chimney cleaning, appraisals. Repairing rotted sections of fence... We have put several thousand dollars into our very nice, non-fixer house in the four months we've been here.

And when you move, no matter what, it just costs money. There are things you'll need for a house that you didn't need for a rental. Big yard on the house you are looking at might mean you need and expensive mower. What about curtains and such? Dining out for a couple weeks when the move stress gets to you. There are lots of little things.

Its one thing to want to buy a house. if that is your dream and you can afford it than go for it! But take a long, careful look at what it is going to cost, and don't expect it to save you any money right now.

[Drummer's Wife]

Even if the house is deemed perfect during an inspection, things go out. Hot water heater, pipes can burst, gas line problems, etc., etc., etc. Plus all the regular maintenance (air conditioning, vents, and such). I honestly don't know why people would want to buy a house in this market, anyhow. Wait a couple years, is my advice, even if one has tons of money in savings and has a larger than average guaranteed salary. Who would want to be stuck selling in this economy? Life happens, you could have to move somewhere else and be stuck with a house you can't get rid of. JMO, of course, and I do understand wanting to get out of a shady neighborhood in a crappy apartment (BTDT). My DH commutes 30 minutes, and even that is a lot of wear on him, his vehicle, and his company's gas bill (luckily, they pay for it all).

I guess the thing is is that if you are worried about being approved 6 months from now when your income is lower, then there is probably a good reason you wouldn't be approved then, yk? Why take the chance of being stuck with a mortgage? Even with no PMI, I don't think buying w/o a decent deposit is ever a good idea.

ETA: can you rent a house in that area to see how it works out? Then you could be saving money that would be spent on house maintenance for buying a house someday.

[nwmomof2]

I'm going to give you my gut reaction here, and I don't mean to offend. If this were me and my family, the stress of owning a home, in the country, on 5 acres, with an hour commute for DH, and a toddler and new baby on the way, plus the possibility of being short every month for money to pay for basic necessities (not to mention all the other things that come up when you own a home), would be absolutely too much for me to bear. It sounds like a recipe for disaster, IMHO.

Taking care of a house and 2 young kids, plus all the land is hard work. Will you feel isolated way out in the country? A long commute can be tough on the commuter as well as the person waiting at home (not to mention the cost of gas. Have you calculated the increased gas needs and figured that cost into a projected budget?).

[dizzysmom]

I still think that budget-wise, you are cutting it too close as it is to add home ownership to the mix. A home warranty does not cover every repair, and even something small like fixing a small leak in the sink can cost you $50. If you don't have enough wiggle room in your budget to account for those expenses, you'll have problems. What about all of the stuff that you don't need in an apartment but will have to get to care for a house (lawn mower, etc.)?

If I were you, I would wait until you had built up some savings (and a down payment - don't buy a house without at least some money down) before you take this on.

[KayTeeJay]

Originally Posted by surrogate

sounds like you have already made up your mind...now you are just trying to justify it

Respectfully, OP, I agree.