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.