Let me start off by saying this question has been asked a million times before in a million different ways. I’m asking it now for my own clarity of what is the best thing to do in my situation and some guidance. And I swear I may sound like a total loser who had kids before having a strong individual financial situation, but I’m not a loser… just an idiot.
Details of Situation: I, along with my fiancée and two children, are being forced to move out of my parents home ASAP. I also need to take my cat and 85 pound dog (the dog part is important information, I promise). We would be first time home buyers/renters. Neither of us have ever had a credit card (though I do plan on getting one soon…I will buy only what I have with it as to make sure I don’t go into cc debt). My fiancée does have a car to her name (which she owns… no car loans). We both have yet to attain college degrees, and I have student loans that my 6 month grace period is soon to end and will require me to start paying them back (or does it???). We are young people (early 20’s). Currently I am the only one with income (though it is stable), however, soon my fiancée will start bring in an extra $400-600 monthly with a minimum wage job.
Details of Money:
Current Monthly Take-Home Pay: $2800
Current Monthly Expenses (including my student loans): $1300
Money Left Over: $1500
I have about $7000 saved and she has around the same (though her money is meant for college).
Our spending money outside of our Current Monthly Expenses totals about $200/month.
Renting: Around my area, renting a place is about equivalent to just paying a monthly mortgage of a 30yr 3.5% APR of a home priced at around $250,500. Also one of the major problems with renting is finding a place that allows my dog of her size. Some issues I see with renting: Smaller place (I can live with a smaller place no problem but with a family of 4, we need adequate space for our things), Extra monthly costs in pets ($20-50/month), lack of ownership… Some benefits: no need to pay for home insurance, (usually) no maintenance costs. So in all renting a 2 bedroom for us would be around $1300-1600/month.
Buying: To buy a place in my area would absolutely require a cosigner… assume I have one… Since my fiancée and I do not plan on moving away from our closest major city, I think it makes sense to give serious consideration to buying as well. The obvious issue with buying though is our lack of serious funds. We have no real emergency funds and no real money to use for a significant down payment. Other than the obvious expensive costs of home ownership (maintenance(I can do stuff I can do…), utilities, insurance, closing costs, furnishing the home (not too worried about this)), we can’t reeaallllly afford a home BUT it is doable. Our ideal price range would be $100,000-160,000 with a 25-30yr mortgage at 3.5 - 5.4%. If I’m just looking at monthly mortgage payments here, I can make them with just my income. My fiancé, with a job, can help make up some of the other costs, and if absolutely needed for whatever reason, my cosigner might help as well.
With all that said, the only real difference I see in buying vs. renting is that buying requires extra money to actually buy and maintain the home while renting is just a monthly cost (that can be more expensive than a 30yr mortgage.) Is there anything I can do to help better our chances of buying a home in the short term? Is it even a good idea to consider buying?
Help?: Is there any program/assistance that exists that helps out people like me? Low income, but stable job, first time home buyers… In the United States btw
And since this is the internet, is there anyone reading this post that has been through a similar situation? How did you get through it/manage not constantly freak out about money?
Oh, and can someone please explain what escrow means in simple terms. I’m confused if it’s an additional cost of buying a home. Is it a mandatory payment?
My analysis of the costs of buying a home:
HOA: not always but could be $200-500/month extra
Closing Costs: Not sure how much…maybe between 2-5%?
Taxes: range greatly…this is not a monthly cost, correct?
Utilities: I’m not too sure but could be an additional (depending on seasons) $200-600/month…right?
Insurance (Home&Flood): is this a monthly cost? not sure how much either…
Regular Maintenance: lets say around $1000/year
Unexpected Costs: I’ve read +/- $7000/year…
Does that cover everything above?? / Is it correct??
And thanks so much for reading this!! If I can get some answers, it would help put my mind at ease… even if I’m totally wrong.
EDIT WOW!!! This is amazing and I thank you all for your answers. I Love this site and the people in it. Truly amazing!!
I'll try to clear up some questions that some have had by commenting and other edits.
I see that I cannot comment now. I want to address everyone who took the time to answer though.
@Ben Miller… Your point about marriage is a good one however, it is something that isn’t all that important to us. When it does happen, there will be no ‘wedding’ just paper work saying we’re married. I’m not ignoring that our expenses/income in the eyes of the law are separate, however, they truly are not and we don’t perceive them to be separate in any way. I trust her and she trusts me, which is enough for us to make a commitment to buying a huge thing.
What I meant by renting is equal to…was that that the monthly payments are equal. I realize this isn’t practical to think this way, I was just trying to illustrate a point.
A PMI is something I forgot to mention as it is something we will absolutely need. My cosigner (financially stable parent) would be helping us with a down payment of probably around 5-10% that I have full intentions of paying back. That being said, other than the obvious fact that I would be paying more in the long run with a PMI (on interest of a home), is there anything else that’s ‘bad’ about getting a PMI? Would there be any benefits to it too??
My income is low, however, the career path I’m on would give me raises as I gain more experience…saying that, I’m not too worried about low income right now, and the other side of that, I’m not oblivious to thinking that things can go horribly wrong either.
And your answer about escrow was exactly what I was looking for!
@jkuz…I really love the idea of creating a ‘x year plan’. I will get on doing that!
@zing…Your answer pretty much sums up my thoughts about if I were to buy. I like to consider myself a kinda handyman and can totally tackle fixing projects around a home as that’s how I was raised. But yes, the big major problems are an issue.
And @R… What’s so bad about an HOA? other than that it’s an additional cost. It seems to be put to good use by whoever is receiving it…right? or no?
@kragan…Your thoughts on putting down your roots are correct, however, this is something we totally intend to do. We live near a major U.S. city that won’t have a shortage of jobs for either of us. Also for a host of many many reasons, we won’t even be leaving the county we currently reside in. Also school districts are absolutely on our list. In our area, there are a plethora of top rated districts. And yes, the houses/rents are more expensive (boooo). And by ASAP I just mean we have been told to get out, but not being rushed to find a place either. And those assistance/help programs are exactly what I was looking for!! I will do my research on them. Much appreciated!!
@Allenph…I really appreciate you giving your answer, as it helps put it in some perspective about someone else who went through something similar. I take what everyone is saying with a grain of salt too and I’m glad things worked out for you (right?)!
@David Park…Yes the little ones are very young. I added some of your figures on home ownership to my list as well. Thanks!
@Dan C…You give solid insights however we are sure we are not moving away from the area we currently reside.
It’s pretty clear the general consensus is that we should rent. I will continue to do my research and will make a decision with my fiancé soon. All of your answers are in my head and this really helped put my mind at ease…at least a little bit. I have a realtor who I have been talking with who is helping answer questions as well.
The tough part about renting is finding a place that’s adequate for our needs and less that $1600…Cuz I don’t think it would be smart to literally spend ALL of my money on a monthly rent. I would literally be unable to save anything substantial if I was to do that, which would keep us there/without money forever (or at least until we make a significant amount of more money) which totally seems like forever…
I totally understand how home buying is exponentially more expensive than renting too. I think it’s worth mentioning this decision cannot be based completely off what is the best financial decision. I want to make the decision that is best for my family (the answer could be the best financial decision). I’m not much of a risk taker when others are involved but I am considering it here with buying. Life is hard, blah blah blah, only time will tell.
But seriously Thanks again for all your inputs!! I really appreciate it!