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Should I buy a house I can't quite afford?

I am a student in my third year of a 4-year graduate program, and in just a couple of months my husband and I will be moving to a more central locale.  We are looking at buying a house now, while prices are still so low. 

Is it ridiculous to buy a house that we qualify for (we are pre-approved) despite the fact that for the next year we will be paying mortgage from savings, and NOT income (my income will significantly decrease during my 4th year)?  Based on my math, we have more than enough in savings to pay the mortgage for 12 months. My husband will still be working, and I will be employed (just not working nearly as much).

My income once I graduate in 2014 will at least double (from what I'm making now), but more than likely it will at least quadruple .  My husband is also hoping to advance at his job in the near future.  This will give us more than enough income to pay student loans, mortgage, and add extra payments as well as savings.  I just don't want to pass up the opportunity to buy in this market while interest rates are so low!
  • January 11 2013 - US
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Answers (14)

Best Answer

You should purchase something that will not put you in a bind and drain your savings.  Consider adding a property that you can later add to your portfolio as a rental.  Make the home nice, clean and tile the living, kitchen, bath and hallways. Limit carpet to bedrooms.  If you only need to replace one room then cost is lower because you only have one room.  Target your rental to a mid market range.  Then if you choose to sell you can. 

  • January 11 2013
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Profile picture for wetdawgs
It sounds like your mind is made up.   Why did you ask?

  • January 11 2013
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Profile picture for user05671298
I do know what my loan payments are, and I will be relying on my post-graduation income to pay  them, and this will be the case whether I am renting or buying.  The market in the area is really starting to come back, thus our desire to act quickly. 

As far as rentals, in the same town a comparable rental goes for $300-$400 per month more  (including taxes and insurance), so renting it out is definitely an option if need be, and is something we have considered down the road.  

If we do decide to rent, downsizing to even a one-bedroom apartment is going to cost us more than we pay now - we are lucky where we are. To rent in this area, a decent apartment will cost us fairly close to what a mortgage payment would be, anyway.
  • January 11 2013
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  • January 11 2013
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Profile picture for David Sidley
No.  A better strategy would be to buy a home thats less than you can afford.
  • January 11 2013
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Profile picture for Ryan Ogle
There will still be good deals a year from now.  Get with a good financial planner and map out the next 36months.  I would wait as long as you can before you buy so that you dont get in risky situation.
  • January 11 2013
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I would be very nervous about what you are proposing. There are alot of what ifs never mind the fiscal cliff and the RE recession take 2 to worry about.
  The months go by fast and that pesky mortgage payment comes around just as fast.
 There is also alot more to consider than just the mortgage payment when owning a home such as eating or going out for fun now and again. 
  Keep watching the RE market and if things like the interest rate start going up then get onboard and take the risk but for now I would say wait.   
  • January 11 2013
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Profile picture for Dunes ..
No
  • January 11 2013
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Profile picture for sunnyview
Even if you have good prospects, you are taking a financial risk, but it is an option as long as you have reserves for more than you know you will need. I had a couple questions that might help people give you better information.

Do you know what your student loan payments will be when you finish? What is a price trend for the market where you plan to buy up/down or flat? How close would your PITI be compared to what you could rent the house out for if you needed to move unexpectedly?
  • January 11 2013
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Profile picture for user05671298
Allow me to clarify a couple of details.  We have already been pre-approved by our lender based on our current income for a USDA no money down loan, and my income is much less substantial compared to my husband's.  I am not anticipating paying our entire mortgage each month from savings.  We are looking at a 30% per month increase in housing costs from what we can currently afford, and a 14% decrease in total monthly income. A $300 shortfall each month is what we're looking at until I can go back to working full time.  Again, we have more than enough savings to cover our ENTIRE mortgage  payment for 12 months.
  • January 11 2013
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I would not do it unless you sit down and map out how your plan to pay the mortgage for the next 10 years.  If you can get by for a year on your savings and expect to make enough to pay it in the future, then maybe.   Best option would be to buy something you can afford and if you make more money in the future, sell it and buy a larger home then.  The stats in America are that the average home owner stays in a home 5 years,
  • January 11 2013
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Unless you intend on using just your husbands income to qualify then you should wait until after you have graduated and have full time, stable employment.

You risk losing all of your savings otherwise. It does not sound like your husband has a guaranteed "advance at his job". Nor do you leave yourself a lot of room for other things to live a happy life or cover repairs and maintenance. Never be house poor.

There will be plenty of great investment opportunities for you once you finish school and are working.  

However, there are a number of 2- 4 unit properties ,if owner occupied, you can obtain an FHA loan with only 3.5% down and use the rental income to help qualify. In most cases even although you live in one unit the rental income from other units will cover the mortgage  payment, taxes and insurance and possibly provide a positive cash flow and additional income stream.

But an SFR might not be the best decision right now......

  • January 11 2013
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No. Wait until you have stabilized your income. The chances of BOTH prices and interest rates shifting against you in a relatively short period are unlikely.
  • January 11 2013
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Profile picture for wetdawgs
I seriously doubt that a  mortgage lender will allow you to depend on mainly savings for a year for paying a mortgage.    Please contact a couple of good lenders in your area and go through the details.

My humble opinion is that it is a very bad idea.    House buying should never be an emergency.    What happens when rates go up?  Housing prices often drop to compensate so the net is about the same.   


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