With the Recession talk, would you buy a house???

Discussion in 'Budget Board' started by Tink113, Mar 18, 2008.

  1. Tink113

    Tink113 DIS Veteran

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    We are looking to buy our first house. Prices in this area have been way out of reach for years & I grew up here!!! The Washington DC area is just crazy expensive. Anyway, prices have fallen and for the first time my hubby & I can buy a house. The only problem is I'm a bit worried about the recession talk.

    WWYD???

    We make about $100,000 a year & our payments would be about $2,800 per month. (We are currently paying $1,600 in rent...and I hate giving that money away every month!)
     
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  3. leahjade

    leahjade DIS Veteran

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    It is a buyer's market with some great prices to be had, however just make sure your monthly mortgage payment -- including principal, interest, real estate taxes and homeowners insurance -- should not be more than 28 percent of your gross monthly income (before taxes). This is where a lot of people are getting into trouble by buying more house than they can afford.
     
  4. barbeml

    barbeml <font color=blue>Has lots of magic to share with o

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    Is there room in your budget for another $1200 per month in housing costs?

    Don't forget added costs for items that may be included in your rent, but will be in addition to your mortgage: homeowner's insurance, water & sewer, other utilities, exterior and interior maintenance (no manager to call when the heat doesn't work), landscaping, etc.
     
  5. rockyroad

    rockyroad DIS Veteran

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    If I felt that I had a job that would not be hurt by the recession, then I would buy one.
     
  6. delmar411

    delmar411 DIS Veteran

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    do you really have an extra $1200/mth just laying around to pay the difference between rent and the mortgage? Plus a large enough EF to protect the house in case of layoff or major issues w/ the house?

    That seems so higher in comparison to your rent....
     
  7. HeatherC

    HeatherC <font color=blue>Alas...these people I live with t

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    What we did when we bought our first house and have never regretted was to buy a house based on only one salary. That way if something ever happened to your or your husbands income, you would still be able to afford to keep your home.

    Going from $1600 a month to $2800 a month is a huge jump and not one that I would want to make. While $100,000 a year is a nice salary, that $2800 a month will take up a large part of it. If you think you can afford that big a jump, you could also start paying it NOW ...but to yourselves for another 6 months to a year. That would give you an even bigger downpayment and the prices will probably even come down further in that time. If you find it's too big a jump to do comfortably, you will then know.

    Don't forget that along with a house comes repairs, maintenance costs, higher utility bills, homeowners insurance, along with any improvements you may want or need to make to a house you have just moved into. That will be in addition to the $2800 a month.

    It is so exciting to buy your first house. But it is even more exciting to have a mortgage payment that is much less than the average person and which will still allow you to live your life and not become house poor.

    Good luck to you!
     
  8. Tink113

    Tink113 DIS Veteran

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    The mortgage, P&I, Taxes, and Insurance is just under $2,800 a month. That is more like 50% of our budget...but trust me...that is normal for this area.
     
  9. Karenj2

    Karenj2 Hot dog, hot dog, hot diggity dog!

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    If this is your first house, I'd try to get a place that would have your mortgage payments be as close to what your rent is now, 'cause there will be maintenance costs that you're not used to (i.e., repair, lawn stuff, HOA, etc.) Also, as a PP suggested, you don't want to stretch yourself too thin financially.

    But, as it was said, since it's a buyers market, it could be a great way for you to get your foot in the door, so to speak... (My sister lived in NoVA, and couldn't afford a house - they're moving to TX.)
     
  10. HeatherC

    HeatherC <font color=blue>Alas...these people I live with t

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    Doesn't matter what is normal for your area. It is what YOU can afford comfortably. 50% of your income towards a house sounds like a dangerous situation to me. I honestly think that is what got alot of these people now in foreclosure into trouble.

    A bank may tell you that you can "afford" it. But only you know what you really spend a month on things like food, clothing, health insurance, car payments, student loans, car payments, retirement savings, college savings if you have kids, vacations, holidays, etc..

    If you have little money left each month for all these things, that mortgage payment is going to feel like an albatross around your neck.

    I'm not trying to talk you out of it, but rather talk you into considering all the other factors. Life happens and peoples situations can change over night. Just make sure you are prepared and don't worry about what other people in your area are doing.
     
  11. aka-mad4themouse

    aka-mad4themouse <font color="blue">Budget Board Co-Host</font>

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    I also think that spending 50% of your income on housing is pretty questionable. But if you're convinced that you want to try this, I would suggest putting $1800 into a savings account every month for the next 6 months. Believe me, you will spend at least $600 more on that house every month through the increased energy costs, maintenance and incidentals. Some months you'll spend more, some months you will spend less.

    If you can live for 6 months without touching those savings, then maybe you can afford to buy the house. The added bonus will be that you will have almost $11K to be used for immediate improvements, new furniture, moving expenses, closing costs or to make your down payment more substantial.

    If you find yourself dipping into those savings, even if you eventually "pay it back", you can't afford the house.
     
  12. DMickey28

    DMickey28 <font color=blue>DIS Veteran<br>Comes from a very

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    We are also looking to buy a house in the next 6-8 months. The market down here is crazy and finally starting to be able to touch a house in this area.

    We currently pay $2000/month in rent. We are looking at keeping our entire house payment (ins., tax, HOA,) under $2600 a month. I am a SAHM so this is based on DH's salary alone. The $2600 comes out to exactly 25% of our monthly income. However, on top of DH's salary he works in sales so we make an average of 50% of his salary on top of it with commissions and bonuses. This year we are hopefully on track to actually make 105% of his salary. That is all extra money that goes towards retirement, e-fund, savings, paying down debt and vacations.

    I think that the market is PRIME for buying something but you need to make sure that it's a smart move. I personally could not squeeze another $1200 a month out of our budget without the dipping into the bonuses and commissions.

    Good Luck in the decision.
     
  13. wide awake

    wide awake <font color=darkgreen>Nuts are good<br><font color

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    As long as you don't have other bills it sounds okay to me. I am VERY conservative, and we are about 2 weeks from closing on a new house...our income is about $150,000/year, and the new payment will be $3050, includes everything. We only had to put about $5000 down on a $430,000 house...VA and excellent credit. We are keeping the house we've had for the past 8.5 years and renting it out...the payment on that one was $1840. DH and I are in stable jobs though...DH is in the AF, and I teach for a charter school that is doing well. It is a buyer's market, and if the price is right, and you feel safe w/ your jobs, go for it. You may never get another chance like this. Nothing like real estate...the house we'll be renting out still has about $200,000 equity in it, and that is taking into account the losses in the past couple years. I'm not expecting a boom again, but 5-10% appreciation/year will still net us $40-$50,000 equity increase on both properties.
     
  14. Tink113

    Tink113 DIS Veteran

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    Thanks for all the advise! The house is in Northern VA (McLean School District & if you know the area, that's one of the top area Schools). We have been putting about $2,800 a month into our savings for the past two months. We do not have school loans or any car payments. We do have about $14,000 in wedding debt that are on Credit Cards. --- CORRECTION: $12,000 in Wedding Debt, the other $2,000 is in deposits for a family Disney cruise --- Luckily, I have been able to move money around to keep the interest at 0%.

    DH is due for a raise soon & I will start looking for another job if needed.
     
  15. branv

    branv <font color=blue>The safety feature in my parents

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    Something doesn't add up. If your salaries before taxes are $100K, and your monthly housing expenditure would be $2800, then you would be spending 33% of your gross on housing, not 50%. By 50%, do you mean of your TAKE HOME salaries (after tax, medical, 401K deductions)?

    At 33% of gross salary, I'd say...maybe. Even that is steep, but we do have to consider the area you live in. But do you have other required expenses that change this -- loans, high debt, medical bills, childcare (now or future), etc -- then regardless of how much "better" it is than it was before, it's probably not a good idea until your debt is lower. If you fudged a little on saying you have a $100K'ish salary and you really are spending 50% of your gross salary, then I'd say no way. I don't care how "common" it is for your area, stop and think that is is exactly why so many people are losing their homes right now -- because they decided they needed to be home owners, despite the writing on the wall. It may not be fair that other people can afford houses while other's can't, but that's life. Unfortunately for some, homeownership just means making hard choices -- we transfer to more affordable areas, live rural when we'd rather live urban, give up certain luxuries. And sometimes you just decide you'd rather rent than move out of the best parts of town/state/etc or give up a certain lifestyle.

    After DH and I in the last recession both lost our jobs within a week of each other 3 short months after buying our first house, we decided then and there that our next home would be purchased on the basis of only one salary. It's simply not worth the stress and heartache. That means we had to make a lot of compromises: we waited three more years before we bought another house, and this isn't what I'd call my dream house, let alone a city I really care for (ugh...my neighbors :rolleyes: ), the commute stinks, but it's WAY less likely to keep us awake at night whenever job security gets iffy, or real estate tanks.

    I would just be very cautious right now -- what is your job security, what happens if just one of you can't work or find a job, how "flexible" is your budget..i.e. what can you give up and still pay mortgage, what is your savings safety net, and what is your debt: income ratio? Just think about it a little longer, and don't be tricked into buying b/c "everyone else does it". Don't forget, you'll probably see even more decreases in real estate costs over the next year (this real estate problem isn't going away anytime soon), so waiting a few months to figure this out won't kill you.

    Best of luck to you.
     
  16. Tink113

    Tink113 DIS Veteran

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    Sorry, you are correct. I meant 50% of net & 33% of gross.
     
  17. soccerchick

    soccerchick Dis Veteran<br><font color=red>My husband has rice

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    The neighborhood you are talking about is a good investment; get into the Langley district and even better;) ). Now I'm curious about property values and prices there. We're in Loudoun County and prices have plunged. Inlaws are in closer to the city and their tax assessments actually went up again!

    Have you run all the numbers? You need to sit down with a realtor or two and see what is what. Also sit down with a mortgage lender or two and/or your financial adviser.

    We doubled our mortgage from house #1 to house #2 and were fine. We came close to doubling it again from house #2 to #3 and have still been fine. We vacation, eat out, have kids in lots of activities, fully fund retirements, put $ in savings etc.

    If your jobs and salaries are recession-proof, go for it! If there's any chance of lost salary or pay freezes or reductions, furloughs, or RIF, I'd personally hold off and just keep saving/eliminating your debt.
     
  18. PaulaSue

    PaulaSue <font color=purple>I have a purple car too and lov

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    OP, I hope people will still be buying, we have 2 houses (ILs) to sell so we can move to a multi-family friendly house.
     
  19. Tink113

    Tink113 DIS Veteran

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    I know Langley would be even better, but OMG the prices there could kill a person out of shock. Also, my DH went to McLean High School and since Langley is their rival there is no way he'd allow that. LOL! The property value & prices have gone down. The same house sold in 2005 for $130K more then we are looking at buying it for. My in-laws & brother both live in McLean and they said that for property taxes this year, the amount was about the same... but something about the assessment for the houses went down & property went up. The whole county is up in arms because insurance companies don't want to give more coverage then the assessment. I hear Fairfax County is going to re-asses.
     
  20. mickeyfan2

    mickeyfan2 DIS Veteran

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    28% or 100K is $2333. Your payment is too high for your income. It is 33%.

    I would buy a home but not that high of a home.

    DH and I took the plunge during the early 90s housing slump. Our payments were lower and we still had a few touch and go months.

    I suspect that housing will continue to fall for a while. Start saving $1200 each month and see if you can live like that. It will also give you a larger down payment.
     
  21. mickeyfan2

    mickeyfan2 DIS Veteran

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    This is the kind of thinking that got many into the present housing trouble. Don't fall for that line.
     

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