In the donut hole of assistance, Should I buy a home?

Question

I heard that there are a ton of credits and assistance for my county/state for first time home buyers, so I started to casually look at the assistance programs.

Unfortunately, because I would be living with my (unmarried) partner, we make barely too much combined to qualify for most of state and county assistance programs. I think the only program we qualify for is Pennsylvania's closing costs loan.

I net 70k, gross ~60k last year. Partner grossed ~40k last year. We both have 700+ credit scores and no credit card dept. Rent is currently $1,345. My partner's finances mostly break even, even with me footing ~75% of rent, foot, etc; though I still save $200-400/mo for a down payment.

Between us I could wrangle a ~$20k down payment from our savings. If a PA loan can cover closing costs, I hope to keep some of the savings for actual moving costs and initial home improvements (painting, carpeting, etc).

So my questions are:

How much home is realistic for me? I was looking at around $250k, or monthly payments around $900. Would it make sense for taxes or assistance programs to formally get a marriage license or domestic partnership?

I also have an unusual arrangement with my parents where I pay $500 a month for the student loans they co-signed. Its a big expense for me, without the tax advantages, since I'm just sending money to my parents bank account. Is this going to come up in the loan application process?

Answer 1

You're making $100k together per year: you're not in the donut hole, you're in the top 25% of all households, and the top 10% of non-family households (as yours would be). To be blunt, you're not in the "rely on assistance" area: you're in the "save up for your downpayment" sector.

My suggestion would be to figure out a way to save more than $200-$400 a month for now. $100k gross income means you have about $8k net income per month; $2k for rent and other necessities means you have $6k per month that you can potentially save. Even half of that - $3k per month - means you have $24000 saved by the end of this year, and $36000 on an annual basis.

As far as marriage or domestic partnership - I wouldn't get into one based on whether it helps you afford a home. It might be a good idea because it helps you handle some of the details arising when you have joint property, perhaps, but not solely for the financial aspect.

And as far as how much home is realistic? $250k is certainly realistic if you can save up enough for a good down payment. Try to get to the 20-25% range. If you're already halfway there, another year of renting won't kill you, and it will mean no PMI and much better rates.

Also consider a 15 year mortgage; we're in the same general income category as you and manage a 15 year on a $250k range house quite nicely. It doesn't add all that much to your monthly payment amount, compared to what you'd expect - particularly since the monthly payment includes property taxes which won't increase based on the length of the mortgage.

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Now that we have actual numbers from the OP:

$5000 actual paycheck income (post-tax, health insurance, 401k)
-$1345 Rent
-$ 710 Student Loans
-$ 300 Car Payment
-$ 100 Car Insurance
-$ 140 Cable TV
-$  90 Cell Phone
-$ 300 Food/Groceries
-----------------------
 $2025 Remaining

So, without cutting anything, you have $2k yourself you can be saving. (This assumes your rent number of $1345 is your portion of rent, and not the 100% amount.) That's $24000 per year, just by yourself. On top of that, you've got another $40k or so coming from your partner, at least some of which should be available as well if he/she is going to be co-owning? But if not, at least you have about $2000 a month you can be saving. You could also downsize the car, cut cable TV, downsize the phone, and have another $500 or so available - but it doesn't really look like you need to do that, given how much you have available now.

I'd look at what you're doing with that ~$2000 per month right now, and see how you can free most of it up. You haven't mentioned a few things like utilities, not sure if that's just forgetfulness or if your partner is paying them; so perhaps not all of it is available. But - even $1000 a month is $12000 to add to the $20000 you have now, which makes a big dent in that down payment.

Answer 2

I am with Joe.

Just doing some rough budgeting you should be able to swing 2-2.5K per month. Here is how I got that:

You gross 60K, 5k per month. 75% of rent ~1000, 75% of 600 for groceries 450, 75% of 400 for utilities 300, 500 student loan. 5000-1000-450-300-500=2750. Deduct another 250 for gas, car repairs, clothes, hair cuts and you have 2500. What else are you doing with your money?

This is with no help from your partner. I'd ask the same of him, what is he doing with all of his money? He makes 66% of what you do, but is only responsible for 25% of the bills. Combined you could be rocking this at like 5K per month. This is with not working an extra job.

Being a victim is a choice, you can win with money.

Answer 3

I generally agree with the other answers. Regarding the bit about your loan from your parents...

Your arrangement with your parents is certainly material to you getting another loan. The mortgage application will probably require you to disclose all outstanding debt.

Obviously, if you choose to omit it and your parents don't tell, it probably won't come up. But that would be unethical (definitely) and illegal (probably).

Whether this will interfere with you getting a loan is another question, but since it's your only debt it will probably be OK.