In the situation you describe, I would strongly consider purchasing. Before purchasing, I would do the following:
Think about your goals.
- Consider where you want to live in a few years. In a home you might buy now? In another home in the same area, and rent out the home you might buy now? Somewhere else entirely? If your family grows, will it make sense to add on to the home you might buy now?
- If you are not married now, or don't have children yet, consider whether buying a home now will make it easier to get married, or harder? Easier to have children, or present an extra obstacle?
- Find out where you can live that is not at risk of flooding.
Work with good people.
- Get a good real estate agent. (Preferably a buyer's agent, whose legal responsibilities are to you not the seller. Also, preferably one who can warn you about obvious expensive problems with houses you are considering, so that you do not have to pay for more than a couple of houses to be inspected.)
- Find a good honest mortgage lender, who has experience working with people in your financial situation. I would avoid BofA, Chase, and PHH. (Avoiding PHH means avoiding USAA, NavyFed, and any other company that outsources their mortgage operations to PHH.)
- Get a good home inspector, who can tell you what is wrong with a house you think is worth buying, so that you can decide if you can really afford the house.
Set a budget.
- Find out how much you will need to pay in financing costs for a fixed-rate loan: interest, principal payments, mortgage insurance.
- Find out how much you will need to pay in taxes: Property taxes, homeowners' association dues, fire department fees (rare, but essential where applicable).
- Find out how much you will need to pay for insurance: Homeowner's insurance, earthquake insurance, et cetera.
- Find out how much you will need to pay for utilities: Electricity, natural gas (if available), water, sewer, garbage, et cetera.
- Find out how much you can choose to pay for services: Landscaping, lawn mowing, snow plowing (if applicable), annual sprinkler testing and backflow prevention testing (rare, but required for some houses with built-in fire sprinklers).
- Set aside a monthly budget for all of those costs.
Be able to handle surprises.
- If you do not yet have $ 5,000 in savings, and do not yet have a $ 5,000 available line of credit, get such a line of credit. (Even if it is at a high interest rate.) Do not use the line of credit. Instead, keep it in reserve in case your house's dishwasher, refrigerator, and water heater all fail one-after-another.
- If you need to get the line of credit, tell the mortgage lender you are working with what you are doing, and why. (If he works for a bank, he may even be able to set you up with a good deal.)
If buying a home makes sense, you can do the following after buying:
- Move in.
- Save the difference between your total housing budget (listed above) and what you had been spending on rent in an emergency fund.
- If the situation is as you have described, after a year you should have enough money in the emergency fund that you should never need to borrow against the emergency line-of-credit.
- Optionally, after your emergency fund is built up, you could pay down your mortgage.