Buying a home while in debt

**Preston** · 03-05-2009, 03:57 PM

I know this sounds kinda.. iffy.. but here is my current scenario.

My wife and I have the same employer and our combined incomes equal about $60000. We have good credit and no late payments whatsoever.. but trouble is we have about $30000 in cc debt plus 7500 in student loans. Our total cc debt was around $60000, but in the past 18 months we have been working really hard to clear it out.

We live in an apartment right now where the rent is going to go up in June to about $580, from $525. We have lived in the same place but we are on our 4th management company in less than two years... each one with different policies to deal with.

We live on a budget and we are able to put $$ away into emergency fund as well as apply about $1500-2000 a month toward our debts.

We have decided that we want to buy a condo/small home. By this I mean the maximum I would want for a mortgage would be $80000. Using a few different calculators, I am getting a mortgage payment of $400-450. I am kinda iffy if this is a good idea or not.

To me it appears that we would save money on our payment, and we would actually "own" our residence, but there may be higher bills for heating/electricy.

The place we are looking into now has a one car garage.. which is fine with me as it is only 5 miles from our jobs and I can ride my bike to work (I already do, but it's 14 miles each way to work)

I just wanted some overall feedback on this situation, whether or not it would be a good idea.

We are first time homebuyers , so we would get the $8000 tax credit that was part of the stimulus plan.

**kcsmom76** · 03-05-2009, 04:16 PM

In my humble opinion, I would say wait!!!

If you are not happy with the management, why don't you try and find another apartment?

You still have $30,000.00 in debt that is just going to keep adding interest. It looks like you could knock that out in another year or two. Then you could start saving an Emergency Fund.

Dh and I thought we had to have a house so we would have something that was "ours". But I tell you if one thing is not tearing up it something else going on that costs money all the time. We both wish we would of waited to have a bigger down payment and been in better financial shape before we jumped into buying a home.

You also need to consider how much insurance, and taxes are going to cost besides the upkeep on a home.

It really is a big decision. And it is your decision, but it never hurts to wait and you never know what $80,000.00 will be able to buy you in just another year or two or five. With home prices going down, this is definitely a buyer's market.

Hope this helps and good luck with your decision.

**Preston** · 03-05-2009, 04:24 PM

I am viewing it this way.

Two years at $580 a month waiting would be almost $14000 put toward nothing!.. My goal is to have a mortgage payment lower than current rent. 2 years where the $14000 is put toward (what will probably be ) a 65000 mortgage.

I appreciate all opinions on this though, and it is a tough decision, and thank you for your reply.

**McD** · 03-05-2009, 04:33 PM

The sad truth of is that you may not be able to qualify for a mortgage loan. Most lenders have really tightened their lending practices and your debt to income ratio may really hurt you.

It depends on your region of course, and the bank that you use but most banks here would look at you both being employed by the same company as risky, as well as the amount of credit card debt compared to your income as very risky.

**mommy4ever** · 03-05-2009, 04:35 PM

That $580 per month pays all your maintenance of your current home. You don't need to pay all the ins and outs of maintaining a home. You likely have most of your utilities paid for at the apartment, where owning you pay for everything.

you need to remember if you are buying a condo, there also property taxes and condo fees, as well as heat and power, renters insurance is cheaper than house insurance, so another increase there.

While it might be an attractive thing to own, right now with the economy, what if one of you or both of gets laid off? Can you maintain the mortgage and debt payments?

I would suggest waiting to be rid of the debt and having a nice 20% down payment and a new house fund(any renovations, furniture, moving expenses) so that you can just enjoy moving into your home, not worry which credit card is going to cover which expense, and how are you going to pay that bill.

**frugalbabe** · 03-05-2009, 04:35 PM

Well, I'm gonna be the oddball and say that now could be the perfect time to buy a house, even with debt. There is the $8,000 tax incentive, houses are bargains right now, and as the buyer you really do have your pick. But ask yourself these questions: 1. Can you afford the maintenance and upkeep of a home? Remember as the owner when the hot water heater goes out it's on you to fix it! 2. When you are figuring out your payments don't forget your monthly payment will also have taxes and insurance added in, this add between $100 - $200 a month typically. 3. Can you really and truly stay committed to keep paying off the debt at your same intensity even after you buy the house? 4. Are you 99.9% positive that your jobs are secure? The worst thing in the world would be lose your job.
Owning your home is a blessing and I would never go back to renting, I love being a homeowner, but it is more expensive than being an apartment dweller, there are so many hidden costs -- lawn maintenance, higher utilities, and on and on. And as a side note I don't see the housing market changing anytime soon - it may be smart to stay committed to shredding the debt and getting your 20% saved and then go ahead and buy, you do have all of 2009 to get the tax incentive. Either way good luck!

**ladykemma2** · 03-05-2009, 06:00 PM

Originally Posted by Preston

We have decided that we want to buy a condo/small home. By this I mean the maximum I would want for a mortgage would be $80000. Using a few different calculators, I am getting a mortgage payment of $400-450. I am kinda iffy if this is a good idea or not.

We are first time homebuyers , so we would get the $8000 tax credit that was part of the stimulus plan.

well, your mortgage payment would be 450 but tack on another 500 for escrow (taxes and insurance). and then another 250 banked every month for repairs and upkeep.

edited to add: don't forget about water bill, trash collection, homeonwers association fees, lawnmowing, there are a lot of expenses i didn't think about when we bought, either.

one more thought: i just paid off a 75,000 mortgage 15 year 5%. the payment was about 1100-1200 a month.

**Gibs** · 03-05-2009, 08:20 PM

It seems like there is a lot more to consider in your neck of the woods then it is in mine Lady kemma.

I was paying over 500 a month for rent. Now I own my home and pay 360 a month mortgage payment. It did cost close on 2000 for the lawyers fee when we bought, and we pay 415 a year for the house insurance.

My mortgage payment also includes payments to the town council for our water and sewer.

So for us, here where we are it was cheaper on us to have bought our house then it was to rent. BUT our house was 43000 not 80000.

Also we do not have home owners association and all that, I dont even know what it is lol....

**homesteadmamma** · 03-05-2009, 10:37 PM

You have an awful lot of cc debt. I'd pay that off first before I went into a mortgage. Your mortgage might be cheaper than rent, however you have insurance, heating, condo fees (if a condo), etc. I'm wondering why such a high amount of cc debt.

Also are your jobs guaranteed?

**brennasmom** · 03-05-2009, 10:41 PM

I would get my debt cleaned up first. Buying your first place would be great motivation

**misscas** · 03-05-2009, 11:20 PM

The mortgage payment is way off...it's more like just below 1% of the homes value on a 30 year loan with taxes and insurance included.

A lot of banks have gotten much picker about who they loan to and won't take anyone without a 20% down payment. Also remember, if you don't have the down payment you get to pay for private mortgage insurance which runs $50-100 extra a month. Don't take an ARM, interest only loan or subprime loan. These are for the desperite and you will end up paying for it in the end.

We have two organizations here locally that offer affordable homes to families who want to own. You help to build your own house and you have to volunteer on other projects in order to qualify. They take people who can't get help elsewhere. They also make you pay a certain amount out of pocket and they have income guidelines. Check out Habitat for Humanity for a good basic house. The other one here is Mennonite Housing which builds bigger houses in their own little neighborhoods. For information on your local area, try your local city hall, housing inspector, a social worker or a realtor.

**rachelMcK** · 03-06-2009, 06:14 AM

I'd pay off the debt first. There are several reasons behind that. First, its cc debt, not any form of good debt, and with how things are right now, a mortgage could be denied. Also, due to the state of the economy, if you were to buy a home, and then one of you loses your jobs and you still have cc debt, the more chances of losing the home. That and all the extra maintainence fees that go with buying a home.

**Denvergirlie** · 03-06-2009, 09:34 AM

Debt, debt, debt.

Do not view rent as throwing away money, it's not. You have to live someplace.

We are now debt free, but wouldn't even consider buying a house at this time, it's not worth it. We don't have the downpayment, we refuse to pay PMI. We don't want to increase our living costs, we want the flexibility to be able to move due to job loss or change in circumstances, whatever.

Also, take a look at this calcualtor to determine it's it's even the best move to buy... it doesn't take in account your debt that is almost as much as your yearly take home (Gross $60K, maybe take home $45K net if you are lucky). Nor does this account for insurance and all the other costs associated with homeownership.

http://www.nytimes.com/2007/04/10/bu...HIC.html?_r=2#

Play with the numbers, and see how many years it would take you to even break even.

When I plug in our numbers, sadly it says that buying would never be cheaper than renting (at least renting where we are now even accounting for rent increases in the future) ...

However, we will still eventually buy but it will be based on quaility of life because we want to move to acerage and no longer be in the city. But from a simple math perscpective, buying would not be a good thing now.

Additionally, I would be floored if you would even get a mortage right now with such a debt load and no downpayment. Banks are going to be going back to the "old" standards of needing to see downpayment money as well as a healthy balanced budget.

Then factor in the very real possibility that house prices very well might continue to drop, some "experts" foresee another 20% drop (averaged across the nation of course). Yes, some markets never were so over inflated, but some still are.

I know how discouraging it can be that past debt is now affecting your choices of what you can do with your future, been there, done that. Our journey to becoming debt free is much like yours from what you've provided. We dont' want to live in a rental, but past poor decesions took that choice away from us. We've recently become debt free and are now building a 6 month emergecny fund and then and only then will start to save for a downpayment.

Get mad, get angry, attack that debt!

best of luck to you

**Greebo** · 03-06-2009, 09:35 AM

You aren't putting $580/month towards nothing, you're putting it to having a roof over your head.

If you can get a loan to buy a house, most of your monthly payment will be towards interest anyway - very little will be towards principle. On top of the base payment, you will also have taxes, insurance, and if you don't have 20% down - PMI. Plus you'll be responsible for maintenance and a bunch of other stuff if you're in a condo - HOA's, common access fees, etc.

My suggestion - pay off your debts first, build up an emergency fund, then save up a good 20% down-payment. This is not the kind of economy you want to be taking risks in. You are in no position to buy a house right now. Debt free with 20% down, THAT'S a good position.

You make 60k a year. Live on 30, and you'll be debt free in < 2 years, and ready to buy a house in 1 more. Be patient.

**MomToTwoBoys** · 03-06-2009, 10:11 AM

If you buy a condo, you have to worry about extra fees on top of what you're paying for a mortgage.

If you buy a small house (a 1 bedroom or at the most, a 2-bedroom home in case you want to increase your family size), you have to worry about paying lawyer and closing fees on the house.

DH and I bought our house four years ago this coming July. We were only $5k in debt at that time and had the help of DH's parents to fork over the $13,500 for a 10% downpayment. Since you both have income and no children to speak of, but you're paying a ton on your CC debt, then I would focus first on the CC debt. I'd get that paid off and just look for a more suitable place to rent for now. You could end up getting a house and add even more debt onto what you already have, which adds also to your stress level.

I'd cut down your debt considerably or all together before purchasing. The housing market's still pretty rocky right now and that house could further depreciate by the time it bottoms out and rises again.