How financially stable should you be before buying a home?

[Erica in PA]

This is something that dh and I keep going over again and again... if a family is living paycheck to paycheck and struggling to keep their heads above water even while renting an apartment, it would not be wise to buy a home, despite the current good housing market and incentives, right? It would be better to get the finances under control and become more stable first, even if it means losing some of the benefits that are currently being offered if you buy a house... right? :confused:

[Loupelou]

I think it depends on why you are living paycheck to paycheck, is the rent higher than the mortgage for a potential home?

[OrganicAnn]

You should consider that with homes you have the potential for big expenses that you don't with apartments. So with a house you might need a new roof or new water heater/furnace or to replace a major appliance. When you are renting you don't have to worry about these things usually.

 

I'd suggest you save every thing you can to put yourself in a better position. And/or pay off any debt you have. There will be bargains with real estate for a while. It is better to go into it with the financial strength to handle a house rather than lose a house if you get into financial difficulties.

[phathui5]

I'd recommend having 3-6 months of expenses in savings before you buy.

 

We had a lot of unexpected expenses when we bought our house that were things a landlord would have had to fix if we were renting.

[LizzyBee]

It probably depends on where you live and how secure dh's and/or your job is. We bought our house because we could buy cheaper than we could rent. We financed 100% of our purchase price, but within 5 years we had 20% equity because of appreciation. During the recession, homes in our price category in this area have remained stable. They are selling slow, but the value hasn't depreciated.

[Stacy in NJ]

Typically buyers need to provide a down-payment of 15% of the purchase price for a home. Over the last few years banks were offering mortgages with a lower or no deposit option. Usually those included a balloon payment after 3 or 5 years. Those kinds of mortgages are going to become much, much, much harder to find. If you have the 15%, qualify for a 30 year fixed-rate, and have a bit of a cushion for an emergeny, then go ahead and buy. Depending upon your credit history, some banks may offer you a mortage with a lower down payment (10% or so) with an added PMI insurance option. Just be careful about the type of mortgage you sign on to. No adjustable rate or balloon payment programs. . . . EVER. Be suspicious of may banker or broker that offers a mortgage with less than 15% down payment.

 

Hope it works out for you.

[dragons in the flower bed]

Be certain to factor in not just the mortgage payment but the water, sewer, garbage, and taxes, as well as a monthly amount to put into savings towards the repairs you will eventually have to make.

 

If the house is in disrepair, I wouldn't do it. But if it's recently had the big things replaced, I'd take the risk. If you've factored in every extra cost of owning a home, the only risk should be that something will break before you've put enough money aside to fix it, so you'll put off fixing it, but before you can manage the repair, codes will come and shut the house down. But even then, you'll get a hearing, at which time, if you can say, "Here's when I'll fix this," they'll usually let you go home and wait til then to fix it.

[NavyWifeandMommy]

This is something that dh and I keep going over again and again... if a family is living paycheck to paycheck and struggling to keep their heads above water even while renting an apartment, it would not be wise to buy a home, despite the current good housing market and incentives, right? It would be better to get the finances under control and become more stable first, even if it means losing some of the benefits that are currently being offered if you buy a house... right? :confused:

 

If this is how one is living I wouldn't recomment buying a house. For us we will not buy a house until we are debt free so we can enjoy the home.

[AuntieM]

IMO, if one is in the situation you describe, living paycheck to paycheck, and/or has no emergency fund, no extra funds set aside for downpayments, closing costs, homeowner's insurance, visits from Murphy, heck, even to buy a lawnmower to cut the grass if you don't already have one... not a good idea.

 

When you *do* buy a house, you want to be able to consider it a blessing, not a curse. It will be worth the wait.

[LizzyBee]

But where I feel leery is we don't have a lot in savings for emergencies. If the roof leaks how would we pay for it? At least with renting, we don't have to worry about stuff like that.

 

 

That's another variable that is different for everyone. My dh can fix almost anything, so that helps keep our repair costs down. He even installed new windows and siding 2 years ago. It was a lot of work, but having to pay for materials only was a huge savings.

[Ruby]

I would stay put. I personally believe the economy will be getting a lot worse. (not looking for an argument). Renting still allows you freedom to downsize if you had too. Upgrade when you can. If paycheck to paycheck stresses you out now, just imagine what it feels like to be on the verge of losing it all. A mortgage locks you in and you can't always assume that you will be able to sell when you want to. Not trying to be negative but we are staring at this exact stress and we wish we had maybe done things different. It is the american dream. But being a slave to your mortgage or getting into trouble with a credit card because the expenses surprise you is scary. Put the finances first. Get some cash flow going and you will know when its right. Trust your gut. Ruby

[iluvmy4blessings]

I have owned my home for 3 years now. It was my first home purchase. I love that my mortgage is a good 200 to 300 dollars less a month than someone renting a similar house down the block. I will say, though, that I do NOT love the upkeep and maintenance. There is yard maintenance and then there are other things . I just paid 700 dollars to get my AC fixed. I have a toilet that is always stopping up . Upkeep and maintenance sometimes makes me wish I was renting.

[abbeyej]

Yes, I think you're right. Current incentives, potential savings, etc, are ultimately small potatoes compared to starting out with an emergency fund in the bank and a down-payment on the house. Taking 100 or 103% of the purchase price as a loan (assuming you could get such a loan now) can put you in serious hot water if your income ever drops and the market has not recovered significantly. Just too much jeopardy for me!

[Evergreen State Sue]

What would Dave Ramsey say? You should have 3-6 months of an emergency fund, no debt, and be able to afford a 15 year mortgage that is no more than 25% of your income. Then you will be blessed instead of burdened.

[LizzyBee]

One thing about the emergency fund... If you can get into a house without borrowing anything other than your mortgage, you will have the $8,000 tax credit to put in the bank, assuming you qualify for the credit.

[rafiki]

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[Katiebug_1976]

Dh & I decided if we waited to become "financially stable," we might be 90 before we bought our first home. So, we bought on almost 2 years ago. We are still living paycheck to paycheck, but no worse off than before we bought. Sometimes the paychecks are so tight that all the bills don't get paid. However, the house payment is at the top and always gets paid. I think things are even starting to get a little bit better, financially, since our mortgage is a little bet less than what it would cost if we were renting in the same area. Sure, there are other expenses that you are responsible for when you buy, and let me tell you, we have been hit with quite a few unexpected issues with our house! But since dh can fix almost anything (from sheet rock to heating and air conditioning to electrical, pretty much anything) that keeps the repair costs to a minimum.

Edited August 30, 2009 by Katiebug_1976

[Mandamom]

My suggestion is to have more financial security.

 

Right now we are trying to decide between fixing the septic (have a hole in our front yard due to a drain field collapse), heatpump (haven't had heat or A/C in a year but have a wood stove) and we need a new roof. We bought this house without financial security 10 years ago and now that the house is over 25 years old, the house needs some major repairs. If we had security over the years we could have kept up with some of these repairs so they wouldn't be critical needs as they are now.

 

(BTW, I think we'll go with the septic first but I might regret that if we have a really cold winter -- decisions decisions).

[Renee in NC]

My suggestion is to have more financial security.

 

Right now we are trying to decide between fixing the septic (have a hole in our front yard due to a drain field collapse), heatpump (haven't had heat or A/C in a year but have a wood stove) and we need a new roof. We bought this house without financial security 10 years ago and now that the house is over 25 years old, the house needs some major repairs. If we had security over the years we could have kept up with some of these repairs so they wouldn't be critical needs as they are now.

 

(BTW, I think we'll go with the septic first but I might regret that if we have a really cold winter -- decisions decisions).

 

This is what happened in our house and it was brand new. We were living paycheck to paycheck and the mortgage always got paid first (even if other bills didn't get paid on time.) We struggled and it worked - for about 4 years. Then it just kept getting worse and worse. Coupled with other economic things, we lost that house this past spring. It was pretty devastating to our whole family - we thought it was our forever house.

 

no other debt, a 6 month emergency fund, and 20% for a down payment.

 

Then I would make sure my monthly morgage, escrow included doesn't exceed 25% of TAKE HOME.

 

 

This would be my new standard as well, even though that means we will likely *never* own another house. I'd rather rent for the rest of my life than lose another home. There are few feelings worse than the fear of you and your dc being homeless.

[cathmom]

I agree with the others who say more financial security. We have been living in our house for 11 years, all of that paycheck to paycheck. Well, it didn't matter before because the house was new and we pay less than rent would be, but now we don't have the money to make necessary repairs. We need to replace our roof and I don't know how we will pay for it or when we will be able to have it done. My new standard would be: 25% or so of take home pay per month for the mortgage, about 20% down, and $10,000 in the bank for repairs when they come up.

[Ruby]

This is what happened in our house and it was brand new. We were living paycheck to paycheck and the mortgage always got paid first (even if other bills didn't get paid on time.) We struggled and it worked - for about 4 years. Then it just kept getting worse and worse. Coupled with other economic things, we lost that house this past spring. It was pretty devastating to our whole family - we thought it was our forever house.

 

 

Ditto. This is pretty much our life right now. By God's grace we have been able to sell off our adjacent parcel to get back on top but we were pretty down to the wire and almost bankrupt. It's been a sucky year. I wouldn't wish the stress on anyone. Ruby

[Erica in PA]

Thanks everyone-- that's what I hoped you would say! ;) Neither dh or I *want* to buy a house right now, but a lot of people are telling us we're crazy not to, and I just wanted to double check to make sure we were thinking about the situation clearly. We're both much happier renting than we would be owning a home and being one unexpected expense away from serious trouble. I would definitely rather wait until we're out of debt, and have some savings built up. Thank you for all the responses!