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help with major purchases
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So yeah, it's an alt, as I'm uncomfortable with people knowing my finances. I'm currently under a lot of stress as my wife and I have lots of major events on the horizon. We are unsure about if we are being smart with our purchases, especially if we should be looking for a house. There are a lot of benefits (8000 tax credit, tax benefits in general from having a house, building equity, having my own place), but it's costly and this big of a purchase scares us both. Going to try and give as much information as I can on each.
1. our finances
we are enjoying a comfortable lifestyle right now living in an apartment. i make about 75000 a year, the wife makes around 30-40k. We currently have about 45,000 saved, plus around 7000 in stocks. i get a new batch of stocks every six months (next being july 1st) that is worth around 7000 each time.
2. house
we are looking to buy a house. the money range we are looking at is around 300,000. We recently saw a house we liked that dropped in price to 309,000. The house is clean, in a great neighborhood, very close to work, and a house we would have no problem living in and raising our kids. This house is not a "live there for 5 years" thing - we both liked it a lot.
3. cars
We need to buy two new cars this year. One for me as I currently have no car (car accident), and one for my wife, who is leasing a car and it runs out around june 1st. we also will need to pay around 1500-2000 for going over the miles on the lease. We are not looking to get new cars, but something used that is reliable and fairly cheap (havent put much thought in but for me, something like a corrolla with 60,000 miles would be fine)
4. kids
Definitely something that's on our mind. We have none, but we are both turning 28 this year and would like to start building a family soon. Thing is, I hear kids can also be expensive.
So, I'm a little overwhelmed, with so much going on. Not sure if I should hold off on some of these things, or do them in a certain order? I know I can't put down 20% on the house, so I'd have to pay PMI. This seems like a necessary evil, but I'm not sure if this is unwise or what. I'd love any advice - I'm not going to solely rely on it, but you guys are knowledgable and helpful, so why not ask? Thanks much.
1. our finances
we are enjoying a comfortable lifestyle right now living in an apartment. i make about 75000 a year, the wife makes around 30-40k. We currently have about 45,000 saved, plus around 7000 in stocks. i get a new batch of stocks every six months (next being july 1st) that is worth around 7000 each time.
2. house
we are looking to buy a house. the money range we are looking at is around 300,000. We recently saw a house we liked that dropped in price to 309,000. The house is clean, in a great neighborhood, very close to work, and a house we would have no problem living in and raising our kids. This house is not a "live there for 5 years" thing - we both liked it a lot.
3. cars
We need to buy two new cars this year. One for me as I currently have no car (car accident), and one for my wife, who is leasing a car and it runs out around june 1st. we also will need to pay around 1500-2000 for going over the miles on the lease. We are not looking to get new cars, but something used that is reliable and fairly cheap (havent put much thought in but for me, something like a corrolla with 60,000 miles would be fine)
4. kids
Definitely something that's on our mind. We have none, but we are both turning 28 this year and would like to start building a family soon. Thing is, I hear kids can also be expensive.
So, I'm a little overwhelmed, with so much going on. Not sure if I should hold off on some of these things, or do them in a certain order? I know I can't put down 20% on the house, so I'd have to pay PMI. This seems like a necessary evil, but I'm not sure if this is unwise or what. I'd love any advice - I'm not going to solely rely on it, but you guys are knowledgable and helpful, so why not ask? Thanks much.
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PMI is not that bad to be honest. We kept hearing horror stories about it when we bought our place, but it is pretty negligible compared to insurance/property tax. You definitely want to put a decent down payment on your mortgage, regardless just to give you a cushion of equity.
I'm assuming 300k for a house is about average for your part of the country? For comparison, our house was $110k for 3br/2bath 1700 sq. ft. If 300k is on the higher end, consider getting something less expensive that you can build equity in (home values are down right now, it'll only go up) and upgrade when/if the family situation calls for it. Being comfortable in a smaller place is much better than stretching yourself thin in a bigger place.
As far as cars go, if I had your savings/salary I would look into getting myself a lightly used reliable vehicle and buy it outright, then get the wife something new on a lease/finance. I've never liked having 2 car payments.
PSN: Beltaine-77 | Steam: beltane77 | Battle.net BadHaggis#1433
When we were looking at places around here you could find "fixer-upper" houses for around $85k. Our place was in one of the nicer neighborhoods. There was one other new subdivision that was a little nicer that had places in the $160k range. $300k around here would land you 3500+ sq. ft.
Of course our income is about half of yours.
If only I could work somewhere with a high cost of living and live here still. :P
PSN: Beltaine-77 | Steam: beltane77 | Battle.net BadHaggis#1433
You have a nest egg, you apparently have savings, you both have good jobs and if you're able to continue to save that means that you don't spend your money stupidly. I don't see anything wrong with buying a house you both like. Housing CAN be a big deal. It can also be an alternative to renting. I'm not really sure what you're asking for specific advice on. If you're just saying "am I doing anything stupid?" No, you seem to be upper middle class.
Say that in 2010 you bought the house, two cars, and spawned.
What would your payments be on the mortgage (including pmi and tax)?
the cars?
The kids won't be super expensive right away, but factor in some longer-term stuff like saving for college
If you put all that down on a spreadsheet, along with all your other current expenses, it makes it easier to talk about some of the "what ifs". Like if you or your wife lost your job, what would you have to cut back on? how long could you keep up on the payments?
I bought a new car in 2007 and while it was a fun experience and I got a great deal, I will never buy another new vehicle again. It's too expensive and way too much hassle.
He never typed anything about getting a new "new" car.
Put the house purchase on hold until the car purchases are made, you don't know what kind of expenses might crop up. I've put in about $3K over the past year on my 70K miles suv, eventhough it's been well maintained (no disasters, just a lot of different things happening). Continue to accrue savings to put to the house down payment. If you clean out your savings buying 2 cars and putting a down payment on the house, you'll have little cushion in case anything unforeseen (bad) happens.
Owning a house: definitely weigh the tax benefit (only the interest on the mortgage is tax deductible) vs. house maintenance overhead (lawn care, appliance/plumbing/electric maintenance, pest control) plus the difference between your current rent and mortgage+PMI+homeowners insurance.
Kids: I've got a 20 month old and a 2nd on the way. The main cash-out-of-pocket due to them is because they are timesinks. Depending upon your attitudes towards child-rearing, one of you is going to have to take time off or adjust work hours or possibly stop working for awhile to take care of the child (or pay for childcare, which isn't cheap). Your earning capacity gets impinged upon because not many lines of work lend themselves to childrearing while working. Also when kid gets sick (or if his cough/fever means childcare won't take him) then you need to take time off to care for him/her. If they live nearby extended family can really help you out here.
I've 80/20 insurance and the out of pocket cost of baby (pregnancy through birth) was about $4K. Including prenatal care, visits to OB/GYN, drugs/vitamins, co-pays, and normal vaginal delivery (not a special needs baby) and post-natal care costs. Probably another $1K in baby stuff (stroller, carseats (newborn/infant and baby/toddler), crib, bassinet, cloth diapers, etc.). Outside of that we don't spend a lot on them, baby showers and 1st birthday party helped a lot, and now there are handmedowns for the 2nd.
Another consideration re: kids/house is the school district of the house in which you're interested, is it a good one? If not you may be looking at private schooling, which is pretty expensive.
I'm sensing you're risk-averse and really don't like debt, so that informs my advice.
Ah, I just saw "we need to buy two new cars." Reading fail.
Which is more important to you? Having $15k in a bank earning less than 3% interest, or having a loan that adds about $2000 to the price of the car?
There isn't a wrong answer, of course. Lots of people prefer to keep a large amount in savings and will opt to take out reasonable loans, despite "losing money" due to the difference in interest rates.
Housing is slightly different as housing doesn't [typically] depreciate and fulfills a need that everyone has. Not buying a house doesn't mean you save a lot of money -- it simply means you're paying rent. In my neighborhood, rents are essentially identical to mortgages, price-wise, so there's an incentive to buy here. Ultimately the decision is a trade-off; while it may be cheaper or easier for you to rent, the advantages of home ownership (no landlord among many other non-monetary things) may be more attractive to you.
PMI is essentially a waste of money; avoid it if you can. Yes it's often necessary for buying your first home, but the cost of PMI is typically high. My PMI is $140 a month. In my case, I didn't have any money for a downpayment, so it's "worth it" for me. But if I had the money for a downpayment, I'd save $1680 a year. That's a lot of money. Would I have emptied $40k out of my savings for the downpayment? Well, that's the risk decision -- am I going to sell the house and make that money back? Of course, having a big downpayment does more than eliminate PMI -- it also drastically reduces the monthly mortgage payment. A $200k house at 6% flat goes from $1200 a month to $960. So that's $240 difference, meaning that by paying the $40k downpayment to avoid PMI, you're not just saving $140 a month -- you'd be saving $380 a month. That's equivalent to $4560 a year, meaning that in 5 years you'd have saved $22.8k -- or more than half of your downpayment.
Then get yourself a nice slightly used car, let some one else pay for the depreciation.
Also, buying 2 cars, or making any major financed purchases will give you a good ding in your credit score for the short term. This will hurt your ability to get a home loan as well as the rate you may receive on it. However, it is unlikely that the auto loan will be effected as much by the purchase of the house. So house first then cars.
If you have kids, you will either have to watch them yourself and adjust your work schedule or pay some one else to do it for you. So, plan on paying for everything on 1 income, or factor in child care which can be several hundred dollars a week depending on where you live. Unless you have family near buy that will do it for free in which case i am jealous of you.
Since everyone seems to be missing this fact, he's already looking to buy gently used cars.
Why this price point? Did you decide on this when you saw that house you liked or decided on it ahead of time? Have you already gotten financing? Does 300k by you something that 200k or 250k cant? I know you said there were things you didn't like, but $50k not like? 50k with interest over 20-30 years is how much?
This is something a lot of people don't critically consider. They look at their income, check financing and determine "we can afford a house worth X dollars" then immediately start looking at homes in that price range. Yeah obviously that 500k house is gonna be nicer than that 150k house a few miles away, but is that difference actually worth 350k to you? Can you instead put 50k into the 150k house and make it just what you want? Then take the difference and, I don't know, take an overseas vacation every year? Buy a boat? go to Vegas once a month?