May 04 2009

Saying “No!” to $8,000 and why we aren’t buying a house this year

In the last few weeks, Shane and I have learned a lot about what it takes to buy a house. The most important lesson we’ve learned: We are not ready to take on a mortgage and the responsibilities that come with having a house.

Spurred by the $8,000 tax credit for first-time homebuyers, we explored what it would mean to our lifestyle and our finances if we bought a house in the next few months. We learned that closing costs can quickly add up to $4,500 for a house in our price range, that we’d need to have about $3,000 upfront to pay for a year’s worth of property taxes and homeowners insurance, plus about $4,000 to $5,000 so we could put a minimum of 5 percent down on a mortgage.

We would only be able to put five percent down on a 30-year fixed mortgage. Over time, that tens of thousands of dollars in interest more than a 15-year loan.

We’d want to have money to move ($500 was the estimate I received). A house would likely require us to buy our own washer and dryer, if not other appliances, so that’s another $1,000 or so. If we moved to a house, we’d have more space and we’d want some furniture to help make it feel like a home instead of a house with a bunch of empty rooms.

So you see, we were looking at spending, oh, $14,000 minimum. That’s a lot of money to me!

The problem? We don’t have that kind of money to put toward a house.

We lowered our price range to see if it would make things more affordable. A cheaper house around here would be in a so-so or bad area. We wouldn’t be able to get a decent house in the location we wanted. If we did buy a house, it would have to be a fixer-upper in a “meh” part of the city. We wouldn’t have the money to make big repairs.

We would have to tap pretty much all of our emergency fund and then some. I don’t think I mentioned that we would be using at least some of our emergency fund, did I? At first, I didn’t think we’d need to use much, maybe $1-2k. That was before I knew more about upfront costs and additional expenses.

Buying a house is not an emergency. Using our hard-saved emergency fund to buy a house is just asking for trouble.

What’s more, we would be living on a tight budget for the foreseeable future. So tight, that it would take us a long time to rebuild that savings. Even with that $8,000 tax credit, we wouldn’t have a six-month emergency fund for quite some time.

To sum up, buying a house right now would mean we’d be in a fixer-upper in a lousy part of town. We’d have no money leftover and we’d be living on an extremely tight budget. What’s the point of that? Buying a house should improve your standard of living, not make it significantly worse.

Buying a house right now would be the dumbest, most reckless thing we could do.

Instead, we’re back to where we started a few weeks ago: We’re looking at rental houses so we can live in a bigger, better place without substantially increasing our living expenses and without tapping our savings. We’ll live in a nice place for a few years while we save money so we can put 10-20 percent down on a 15-year mortgage, and get a house that we really like in a good area.

By waiting just a little while longer, we’ll avoid the stress and heartache that comes with taking on a mortgage before you’re ready. We’ll save tens of thousands of dollars in interest by getting a 15-year mortgage. And, our near future will be fun because we’ll be able to live in a great part of the city.

Sure, we’re missing out on that $8,000 from the government, but accepting that money would come at an extremely high cost.

I’m glad we learned a little more about what it means to take on a mortgage and buying real estate in Pittsburgh. In a few years when we’re truly ready, we’ll be much more prepared.



16 Responses to “Saying “No!” to $8,000 and why we aren’t buying a house this year”

  1. Very smart analysis! Although there are many reasons to buy a home, there are lots of reasons to not buy a home, too! The government and banks have always loved first-time homebuyers, so you might miss out on the $8k tax credit this time around, but you never know when something else might come up!

  2. I’m sorry to hear that it didn’t work out. But it sounds like it’s the best decision for you guys right now. With Obama in office I think this kind of credit or something similar will be around for a while.

  3. I think you guys are making the right decision. Buying a house is definitely a big responsibility. And as you said, with renting a house, you can get the benefits of living in a house (space, yard, etc) without all the added financial stress.

  4. I would love to buy a house, so I’ve been really intersted in your recent posts. I didn’t realize that so much money was needed upfront. Thank you so much for sharing everything you learned. I guess for right now, I need to stay at the “marking my favorite houses online” stage rather than seriously looking. But I’m definitely going to open a new saving account for a house fund. :-)

  5. I totally respect your decision to forego purchasing a home right now. However, I just want to mention to any readers out there who are first-time home buyers, than the numbers you’ve crunched are market specific. Interests rates vary, home prices vary, property taxes vary, etc, etc. Anyone who might be looking into buying a home should continue to do their own research and make their own decision. In many markets it’s more cost effective to buy than to rent. And while some may not agree with me on this – I still believe that paying my own mortgage is better than paying someone else’s by way of renting. Good luck to you! You are being very conscientious and smart about your finances!! :)

  6. @ Lori — Absolutely — my numbers are market-specific and specific to my personal situation. I hope that in my posts, other potential first-time housebuyers can see some of the things they’ll need to research as well.

    It is nice to build equity on your own place instead of paying someone else, but when you look at how much you’re paying in property taxes, PMI, homeowners insurance, repairs, and utilities not covered in rent, we’d be paying substantially more money.

    We hope to be ready to buy a house in about 3 year’s time.

  7. Hi Kacie,

    Have you considered going on “tour” with your housing research experience? I bet there are thousands upon thousands of first time home owners in this country that are facing foreclosure that wish they did the kind of research you did.

    A rented home is every bit as much of a home as a house you pay a mortgage on. I think it’s great you and your husband are waiting until it’s a more financially comfortable transition for you. And, who knows in a few years the government might be doling out $15,000 to get you to buy a house!

    Take Care,

    Trixie

  8. I think that’s very brave, to admit you’re not financially ready! Bad (er, less than stellar) decisions about these kind of things can have serious repercussions, just as our current economic state and anyone who’s facing a foreclosure or serious debt can tell you. Owning a home can be a great experience, I’m sure, but it isn’t something that should be taken lightly and it isn’t a necessity. I’m no where near ready to buy a house myself, so I may be biased, but I do not believe that renting equals throwing your money away. It may not *feel* as good, knowing there is no return on the investment, but an apartment/house/duplex/etc is a home no matter what, so as long as you enjoy living there, what’s the problem? As you’ve pointed out, Kacie, the benefits are many, especially when it comes to maintenance, appliances, etc. You also have the ability to pick up and move a lot faster if there is a change in job or situation. That freedom is certainly appealing to me, at the age of 25.

  9. I think you have made a very good decision. I wish more young people made decisions on logic rather than gradifying their wants. Well done.

  10. Good for you, cherie! You can also try the rent vs. buy calculator on the New York Times website. Just google it and it will come up. The calculator will figure all the costs and give you a big pretty graph letting you know when you would break even on owning a home. Your closing costs, maintenance, increased utilities, etc. are figured in for both scenarios. It’s an wonderful resource. Good for you for waiting!

  11. Very well thought out and a great decision. I know that when you finally are ready to buy a house, you will be so much happier knowing you did it on your terms and when you were ready!

  12. Good for you for realizing it isn’t time for you to own a house yet. I bought one a couple of weeks ago (closing in June!) but I won’t be getting the 8K because I’m not a first time buyer. Too bad they couldn’t come up with an incentive for everyone you know?

  13. Sounds like a good choice!

    Make sure you check into other options though. I live in IL and if I purchase a home in a rural area (as determined by the USDA.gov website), we can finance 100%, NO downpayment, NO mortgage insurance and a gov’t-set interest rate (right around 5% right now). It’s a great program.

    We currently own a home, but are planning to move into a bigger house to accomodate our growing children, and with this program, we can get into a bigger house and have a significantly lower mortgage payment.

    Good luck with your plans! Oh – and I just read about paying off the car loan – great job!!

  14. Since I AM old enough to be your Mom I’d like to say “I’m proud of you.” The obsession with owning a home has sent too many people [pardon the pun] to the poor house, because they didn’t have the maturity to see it the way you do. I can say this honestly, because at 47 I am emerging from a very poor choice in home buying. With a new baby you need SAVINGS and more SAVINGS before you buy. A home really is a “money pit” and you need to be well prepared [as you guys are trying to be]. Good luck in your savings and in your eventual search for a home and a mortgage that’s right, not simply available.

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Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

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