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My wife and I recently sold our house, and are looking for a new one. One of the major reasons we chose to sell is that our monthly expenses typically exceeded our income, so we would just chip away at our savings month after month. This also left little money for vacations, car/house repairs, retirement/college savings, etc. I work outside the house but my wife does not currently. We also have two elementary-aged children.

We had been in agreement that our next house should be much less expensive so we could build our savings and try to live within our means. She now wants to look at houses that I feel are not in our price range, because she plans to return to work and is counting on that "future income" to make up the difference. I'm not comfortable with this.

My question then is: am I wrong in thinking that "future income" from an unknown job is not a solid basis to determine how much house we can afford?

Please be honest. I have suggested seeing a financial planner for an impartial third party perspective, but we haven't done that yet.

  • Was mortgage over or under 50% of your income? I am also banking on future income from my wife (she is in med school), but it depends on how confident you'll feel she will land a job and account for salary range. Budgeting tools help. – kennydust Sep 22 '17 at 16:28
  • Mortgage was about 1/3 (after taxes) of monthly income. The rest was eaten up by bills and other expenses. Her future job interests have ranged from part-time at Target to full-time corporate, so I feel like I'd have to go with the low-end estimate if anything. I set us up on Mint to help illustrate our spending but it stressed her out to look at it so she stopped paying attention to the alerts. – thesnow Sep 22 '17 at 16:33
  • How long after you buy will she be returning to work? Will there be after school/daycare costs that offset some of her earnings? Is it likely she can find work immediately and at good wage, or is there some uncertainty about what she'll do? – Hart CO Sep 22 '17 at 16:33
  • She has been talking about returning to work for a while, but has not settled on any one option yet. It would either be part-time with no before/after school care, or full-time with before/after school care. – thesnow Sep 22 '17 at 16:36
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If you expect a significant increase in future income, then you should wait until that future income is assured, and then buy based on that decision.

Buying more house than you can afford is what caused you to have to sell; you don't want to do that again. Instead of buying more house now, buy the right house for what you have now.

Better yet, though, you might rent instead of buying until the future income comes onboard. Then you can get the best of both worlds - you get to buy the house you can afford in a year or two, but also don't overspend your income.

  • +1 for live within your income. With rent typically higher than mortgage payments for the same house, I'd question the rent, but it's possible that renting is the best short term option. – pojo-guy Sep 23 '17 at 3:23
  • @pojo-guy When you include property taxes and maintenance, they're not typically higher (though of course you don't gain interest in the property). – Joe Sep 23 '17 at 3:27
  • The land lord typically has those expenses and has to make a profit. When I considered investment properties, I calculated that rent had to be 30 to 50% above my costs for it to be worth my time and risk. Nevertheless, I agree that renting is often a better choice than buying. – pojo-guy Sep 23 '17 at 3:41
  • @pojo-guy I just did a quick search for houses for rent near me. Sure enough - the closest house to mine (a few blocks away) has a rent that's about a hundred more than my current monthly payment (mortgage+taxes). It has one more bedroom, and 150 more square feet, so I'd say the identical house will cost less rather than more. – Joe Sep 23 '17 at 3:44
  • You have to keep in mind that the owner of the property does actually get to keep the property afterwards, so it's not necessary for the rent to fully cover the mortgage+taxes. As long as it covers the interest portion of the mortgage, the taxes, depreciation, and the expenses, the rest is profit (if the property doesn't go down in value). – Joe Sep 23 '17 at 3:46
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You'll have much more flexibility and peace of mind if your expenses are based on your current income and that income increases in the future. It's great that you aren't comfortable with spending more, you don't want to end up in the position you just removed yourself from.

That said, you don't just ignore planned income altogether. Personally, my wife and I feel best knowing that I have the essentials covered with my income, and that her income primarily helps us put away more for retirement, home renovations, and vacations, because she likely won't work for a long while if we have kids. How you plan depends on your wife's career aspirations and prospects, if your wife has high income potential and you don't plan to buy until after she resumes work, then it may suit you to plan on her income too. You'll have to balance the certainty and amount of her income with your goals.

If you're trying to make up ground on savings/retirement, then a less expensive house seems wise anyway. It's a much easier problem to decide what to do with excess funds than feeling trapped/stressed by a high mortgage payment.

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