How much savings/income do we need to consider buying?

[Anonymous]

We just found out we're expecting in April. I have been trying to crunch the numbers on a new budget and have noticed that most people who post here own their home. Here's our situation:

HHI is $120K - We both work. One person is actively looking for a better paying job, but increase would only be $5-10K. Other person has a hiring freeze so has to wait it out or leave to get more $.

Renting at $2250/month
Have no debt other than $6K on a car (~$200/month)
Have $8K saved (recently paid off debt so savings are still low, but saving more each month) and expect $13K gift in January
Saving for retirement at 12% and 15%
Anticipating day care expenses of $1600-$1800/month

I like the place we're renting, but I would feel better about spending money on a mortgage. How much do we need to have saved to buy? Obviously, we wouldn't be able to afford a large downpayment, but we have excellent credit and stable employment and I think we're responsible enough to be homeowners. It would have to be a minimum of a 2 BR and 3 BR would be preferable. Is it realistic to look into buying?

Please spare us the flames. We aren't ignorant, just not well paid! Thanks in advance.

[Anonymous]

I'd look into perhaps a foreclosure home in a good neighborhood (think good public schools) and/or good childcare nearby. The preference would be to get rid of PMI but I don't think realistically you can do that if you can only put down 20k ($13k you're expecting + savings). I guess the max I'd do would be whatever range I could afford with mortgage rates, what I could put for a downpayment and then the equivalent of what you're paying in rent now/month. (even if you could afford more, I wouldn't pay more in rent b/c you WILL have homeowner exp. - repairs - you don't have now).

[Anonymous]

I'm conservative so I would say buy once you have a 20% down payment saved plus an 8 month emergency fund (in liquid, apart from retirement savings). If you are more comfortable with risk, you could wait until you have 10% down plus a 6 month emergency fund.

In the meantime, look at 2-3 bedrooms in neighborhoods you like and create a budget based on the price. Include new baby expenses and home repairs and see what you think.

[Anonymous]

Just get an FHA loan, which only requires 3% down. That is what we did, and even though we currently pay PMI it is still cheaper than renting. Your salaries are high enough to get a decent place.

[Anonymous]

FHA is 3.5%, but there are some conventional programs that might allow 5% depending on scores, income and other debts.

[Anonymous]

Where do you both work? That will determine where you can look. An I out of the loop or is OP's current rent pretty high? She could save more for the downpayment with lower rent. Since they don't have a kid yet, I suggest moving to a rental in a good neighborhood (but not necessarily in a good school district), saving more, and aiming to buy a home by the time your little one hits kindergarten.

You need to do what's best for you. No point in comparing yourself to those who are making more than you. I don't say that in a mean way, but doing that can make you take decisions that really aren't in your best interest.

[Anonymous]

Wait.

Have the little fucker first.

See what your expenses really are. Then go look at buying. Kids hit your wallet in lots of ways - some obvious - some not. Don't add to the stress with an inflexible mortgage and a depleted savings account.

[Anonymous]

Anonymous wrote:Wait.

Have the little fucker first.

See what your expenses really are. Then go look at buying. Kids hit your wallet in lots of ways - some obvious - some not. Don't add to the stress with an inflexible mortgage and a depleted savings account.

I agree with this completely, though I would probably phrase it differently! It is better to wait to make this type of financial commitment until you're settled into life as a new family. Risky financial decisions aside, what we're looking for now in a home/neighborhood/etc. is way different than I had expected. I'm glad we rented initially --- I didn't really know what would be important to me.

[Anonymous]

Anonymous wrote:Where do you both work? That will determine where you can look. An I out of the loop or is OP's current rent pretty high? She could save more for the downpayment with lower rent. Since they don't have a kid yet, I suggest moving to a rental in a good neighborhood (but not necessarily in a good school district), saving more, and aiming to buy a home by the time your little one hits kindergarten.

You need to do what's best for you. No point in comparing yourself to those who are making more than you. I don't say that in a mean way, but doing that can make you take decisions that really aren't in your best interest.

Ha. Not OP, but similar income etc. We rent a 2 bedroom in pentagon city. Need to be by metro since refuse to drive into DC. One works at home so need second bedroom as office. With utilities, parking, and pet rent are at ~$2800 per month. Welcome to DCMA

[Anonymous]

You're outta the loop re rent. 2250 is standard for a one bedroom in dc, arlington, Bethesda etc. Most two bedrooms run between 2900 and 3600.

[Anonymous]

Keep renting. W a small child, do you really want to spend your weekends doing lawn work, home repairs and the like? We rent, and walk to the park, take trips and enjoy family time with DD and DS on the weekend. And when something goes wrong, we call the landlord and THEY deal with it and THEY pay for it. Rent, and build a nest egg that lets you buy the house you want, not the first house you can afford.

[Anonymous]

Our HHI is similar and we also have one child in daycare. We got an FHA loan and purchased a short sale.

[Anonymous]

People who are saying buying is cheaper are not doing an apples to apples comparison; sure buying a house in Burke is cheaper than renting in Crystal City, but you give up *time*. Key question is where you get your work done, big part of housing equation.

[Anonymous]

The advice to rent makes sense if it is cheaper to rent than to pay a mortgage. However, that is often not the case in this area. It is easy to get trapped into a cycle in which you are paying so much in rent you can't save enough to buy in this area.

[Anonymous]

Anonymous wrote:I'm conservative so I would say buy once you have a 20% down payment saved plus an 8 month emergency fund (in liquid, apart from retirement savings). If you are more comfortable with risk, you could wait until you have 10% down plus a 6 month emergency fund.

In the meantime, look at 2-3 bedrooms in neighborhoods you like and create a budget based on the price. Include new baby expenses and home repairs and see what you think.

I'm even more conservative and I'd suggest having all these things as well as a separate maintenance fund for your house. Stuff will happen that you need to pay for, and you don't want to have to pull from your emergency fund (which I personally think should be left untapped unless you lose your income or have a medical emergency). I would have at least $2K in this fund to start, and then I'd contribute to it on a monthly basis. Trust me, you WILL spend it, and quicker than you think.