Need Advice Quickly, Please

[Ryan&Amber2013]

So our best friends just bought a house, and it just so happens that the house across the street from them is going up for sale. We ended up talking to the realtor, and gave them a low offering price, and they actually countered close to it. They are willing to let it go for $160,000 instead of the $150,000 we originally offered. They could probably get at least $175,000 realistically. So, the question is, should we pursue it? Here are some pros and cons:

Pros:
We would be next to our best friends and our children's best friends.
It is a quiet, nice, and beautiful area.
The house is CBS, tile roof, and newer a/c, all in good condition.
It is right on a dead-end.
It is an all-around convenient location.
If we had to sell we could make a profit if the market stays good.

Cons:
The price is way above what we feel comfortable with. Because I'm the only income making a median salary, we ideally want to stay under $100,000 for a home, so we were planning on waiting for the market to correct itself. We wouldn't really be saving and there would always be that fear of life becoming very difficult financially.
The backyard is about 50 feet from a busy two lane scenic road. On top of that, we wonder if in the future they would want to expand it which means we would have to move. There are no plans for that right now.
(edit): it appears that the taxes will be about 3,000 a year before homestead.

 

[JimmyH]

My first inclination was to refrain from offering advice since there are so many variables in such a situation, but given your pro/con assessment I would not risk putting myself in a position that might cause financial insecurity in this uncertain economy. The strain that can put on a marriage, on children, is significant. Wanting to stay under 100K, and ending up at 150K ..... drive over and see your friends, bring the kids, and enjoy their company without the strain of the greater debt.

 

[lynnie]

5 kids here, grown now, and we are finally making a good stab at saving and fixing up the house.

You don't want to end up "house poor". You need roller blades and hockey sticks and music and swim lessons (and a piano and guitar) and legos and trips to the zoo and camping and hiking, and maybe a missions trip when they are older and lots of books. Art supplies and other hobbies. Then they turn to driving age and your budget goes into black hole mode, and I'm not even talking tech school or college.

The USA is 21 trillion in debt (probably twice that with the off books debt) and no way to pay it; we are running up another trillion a year. We can make interest payments for maybe another 5-7 years, possibly ten, but at some point there will be a "reset" with probably a dollar devaluation and partial bond default. The most thoughtful conservative economists I listen think the hyperinflation will cause your salary to go half as far for many things like food and gas and all the bills. Or worse. Houses could deflate (stagflation, where you have inflation and deflation at the same time) but living will get tighter.

Then there are deductibles. Most folks I know owe 5-6-8 grand if they get emergency surgery. No guarantee that Ocrazyio will usher in free medical care for all. You don't know what can happen with your appendix or a kid breaking a leg.

Bottom line....don't do it unless you plan to rent out a room or two to keep your cash flow very comfortable, or if your parents are willing to give you some big money towards it.

 

[Taylor]

I agree with Jimmy. It is so hard to offer advice in this kind of situation (not that I could offer any, anyway, seeing as I've never owned a home). But, even in my inexperience, it seems to be that, in the end, it really comes down to finances. Can you swing a price that is 150% of your maximum budget? If you cannot do this comfortably, then the answer is obvious, perks notwithstanding.

 

[Edward]

If debt service on the mortgage is 25% or less and total debt ratio is under 34%, you will probably be in ok shape under ordinary circumstances. Get much above that (and lenders and realtors will be happy to take you there), and at some point, you'll likely feel a squeeze.

A several other factors to keep in mind:

Interest rates are going up, not down.
If the neighborhood is so nice, why are so many houses on the market at once.
Given the road behind, budget in the cost of a fence.

And finally, folks in California are probably wondering what kind of tiny house you can get for $150k.

 

[JTB.SDG]

Here's something really simplistic, but pray a lot over the next day or week or whatever the time-frame you have is. Joshua had a big decision to make in real time in Joshua 9 with no biblical directive; he did what seemed best but without seeking the Lord's counsel. As a general principle, when there is a big decision with no explicit biblical directive, seek God's face in an intentional way. A good example is Abraham's servant in Genesis 24.

 

[OPC'n]

You will regret the busy road I can tell you that from experience. We have semi trucks barreling down our street which is a residential area and the noise is so distracting. We can't get an ounce of peace. 60,000 dollars over budget doesn't sound like a good idea. I would think super hard on this one.

 

[Jack K]

It's hard to put a price tag on good Christian friends, both for you and for your kids. Following friends around is a bit risky: they may move again, or you may not remain so close in coming years. But living next door to great friends is a huge blessing too many isolated Americans never consider. It's worth some money and some risk. How much risk is what you must consider.

 

[Herald]

Ryan, advice in this type of situation is difficult because there is so much we don't know. While I am sure you are prayerfully considering your options, be careful not to bite off more than you can chew financially. While there are tax advantages to owning a home, there are also costs like maintenance and insurance. You live in a high-risk area for hurricanes, so that means higher homeowners insurance premiums than someone like me who lives in Central Florida. The cost of homeowners insurance will be in addition to P&I and property taxes. Is this home part of an HOA? If so, do you know the HOA fees and restrictions? Do you see your income changing for the better in the near future? If you don't see your income increasing, keep in mind that inflation keeps advancing even if income doesn't. These are things to consider as part of your decision making. I pray God grants you wisdom.

 

[TheOldCourse]

We just purchased a house ourselves a couple of weeks ago and had many of the same concerns (although not the busy road--we're off in the country). We ended up going fairly significantly over our original budget for a house that we felt we could live in for 20+ years rather than settling something that wouldn't quite meet our needs and that might send us looking again in 5-8 years. It's a small town market here and good properties just don't go on sale that frequently.

That said, we did carefully go over our budget when considering it to make sure we could afford the increased cost and it wouldn't put us in financial hardship or precipitous debt. There are more costs to homeownership than the mortgage/tax/insurance as Bill said. If just those obvious costs are stretching you and major unexpected repairs would be financially devastating, then you may not be able to afford it.

My own decidedly non-expert opinion is that I wouldn't expect much correction in the market for <$200,000 homes. It would require a recession to see substantial depression in the low-mid income markets for quality homes capable of housing a family. Interest rates are rising, as Edward pointed out. Even during mortgage negotiations our rates went up.

 

[chuckd]

So our best friends just bought a house, and it just so happens that the house across the street from them is going up for sale. We ended up talking to the realtor, and gave them a low offering price, and they actually countered close to it. They are willing to let it go for $160,000 instead of the $150,000 we originally offered. They could probably get at least $175,000 realistically. So, the question is, should we pursue it? Here are some pros and cons:

Pros:
We would be next to our best friends and our children's best friends.
It is a quiet, nice, and beautiful area.
The house is CBS, tile roof, and newer a/c, all in good condition.
It is right on a dead-end.
It is an all-around convenient location.
If we had to sell we could make a profit if the market stays good.

Cons:
The price is way above what we feel comfortable with. Because I'm the only income making a median salary, we ideally want to stay under $100,000 for a home, so we were planning on waiting for the market to correct itself. We wouldn't really be saving and there would always be that fear of life becoming very difficult financially.
The backyard is about 50 feet from a busy two lane scenic road. On top of that, we wonder if in the future they would want to expand it which means we would have to move. There are no plans for that right now.
(edit): it appears that the taxes will be about 3,000 a year before homestead.

1. What do you pay now in rent/mortgage? Are you living comfortably with that expense?
2. What would the mortgage be on this house (taxes and insurance included)? How much are you putting down?
3. Is your job stable?
4. What is the easement for that two lane road?
5. How has the housing market done there in the past 10 years? Especially the 2008 recession? Why do you think the market is in a bubble and a "correction" is in the future?
6. Buying at $160k and selling at $175k might actually turn out to be a loss after realtor commission, title policy, buyer negotiations, etc.

 

[Ask Mr. Religion]

I would stick to my criteria and not waver.

Your budget is set, along with other criteria (location, schools, distance from grocery store, medical professionals, work distances, etc.) I assume. The fact that this house is very, very, near a friend seems an odd tipping point to discount your set criteria. I like my friends, but I would not have living very, very, near them as one of my trigger points for a life-altering decision such as buying a home.

 

[bookslover]

Would you and your best friends still be best friends after living across the street from one another after a year? Two years? Five years?

Something to consider besides the financial stuff.

 

[Ryan&Amber2013]

Thanks so much for the advice! What is the max percentage of take home income you would spend per month on housing? Most conservatives I believe would say around 35 percent.

 

[TheOldCourse]

Thanks so much for the advice! What is the max percentage of take home income you would spend per month on housing? Most conservatives I believe would say around 35 percent.

Those numbers are handy but certainly not hard and fast rules. You need to go through your other expenses, including what you want to be able to give to your church and place in savings, and see what's left. If you have disposable income or few other expenses (car payments and other debt servicing especially) and live frugally otherwise you may be able to safely go over 35 percent. If things are tight already with debt, family expenses, health expenses, etc. then 35 percent might be too much. When we were renting in an urban environment we were close to 50 percent but our expenses otherwise were small enough that it was still affordable to us. Now we're around 20 percent but we have a lot of other expenses such that 35 and certainly 50 percent would probably not be wise for us. Also, as your income goes up, oftentimes that percentage should go down.

We use Mint.com for our budgeting and it's great for keeping detailed track of where your money is going month to month and whether you're hitting targets. There are other options out there, but I would strongly recommend breaking things down and really figuring out where you stand budget-wise rather than looking at gross percentages.

 

[chuckd]

Thanks so much for the advice! What is the max percentage of take home income you would spend per month on housing? Most conservatives I believe would say around 35 percent.

We can't answer that without knowing your other expenses. Best metric would be:
How much are you paying now on housing?
Can you pay more? How much? What would you have to sacrifice?

 

[Cedarbay]

Thanks so much for the advice! What is the max percentage of take home income you would spend per month on housing? Most conservatives I believe would say around 35 percent.

We purposely did not go above 15%.

 

[Jonathan R]

My wife and I are presently in a similar situation. We live further out from our church than most and we are waiting to buy a house. There have been several times when we could have bought a house closer to church (i.e. friends and relatives), but haven't for many of the reasons you have listed above. We do not want to get more house than we can afford due to a "good deal." Its not a good deal if it puts you in a bad position, end of story. Patience and wisdom are both needed when house shopping.

 

[Pergamum]

Proverbs 22:7: The rich ruleth over the poor, and the borrower is servant to the lender.


Try not to be a servant to anyone but God if you can.

 

[Ryan&Amber2013]

We purposely did not go above 15%.

How did you do that?

 

[Cedarbay]

How did you do that?

We bought a tiny, older home well under budget. We were a bit cramped yet felt cozy with everyone close by. Hubby and I have a low tolerance for debt so we were minimalist before it became popular.

 

[Edward]

If you have disposable income or few other expenses (car payments and other debt servicing especially) and live frugally otherwise you may be able to safely go over 35 percent.

That pre-supposes no other debt (no car purchases except for cash during the life of the loan, for example). Cars die unexpectedly, or you can get in a wreck that isn't your fault. How will that expense be covered? How will deductibles be covered on medical emergencies?

Yes, 35% ratios can work - as long as nothing goes wrong.

----
Something that hasn't been mentioned is down payment. Lenders backed off for a few years after the 2008 regional meltdowns, but they are back to high gimmick/low down payment loans. 20% should be the minimum down payment. So for a $160k house, you should be looking at about $32k down, and a roughly $130k mortgage. (Don't forget the termite inspection, the property inspection, title search, survey, etc.) And it this market, I'd look for a 30 year mortgage and plan to pay it off in 15 or 20 years.

 

[TheInquirer]

Busy street would be a deal-breaker for me, especially on a house that is a financial stretch. I would wait for the right deal if your financial target is reasonable for the area you live in.

I did stretch beyond my initial target prices on both of our home purchases but in both cases I had the money and my initial conception of what I could get in a house was unreasonable. I don't regret either purchase. In fact, in the home we are in now, I am glad I stretched the price by $50K and bought in a really good neighborhood and a home that was a better value than the cheaper one we put an offer on.

If I were buying again, I would really look hard at everything of major value in the home and knock the price down based on any and all things that need repair or replacing in the next 5-10 years (roof, HVAC, deck, appliances, garage door, fencing, flooring, windows - everything). Those things greatly affect the potential home owner financially and often aren't factored in the way they should during negotiations - especially if your realtor just wants to make a sale.

 

[Ryan&Amber2013]

Thanks all! We passed up the offer. I would rather not own a home right now than be in such debt and be very tight with money.

 

[Cedarbay]

Thanks all! We passed up the offer. I would rather not own a home right now than be in such debt and be very tight with money.

This is wise of you. I was concerned. Bless you and your dear family.