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I'm buying a home in a better school district in MN. Where I live the houses are cheap but not the ideal neighborhood or space for my kids (4 and 2). So we found one for 300K that should be suitable for us for the long-term. 4bed 3bath 3 car garage. We both are state employees and have state pensions. I still add funds to my defer comp and will continue doing so. Also other factors to consider is that her parents will move in and help with watching the kids. I know we'll be giving up some freedom but it's the norm in our culture to take in elderly parents. They are also going to contribute either paying the monthly Utilities or Food/Supplies. I'm 32 and think time is on my side. I think after this I would start following the Ramsey's baby step plan.
This is my situation and would like to hear from personal experience if people have this work.
take home income: $5,235
Mortgage $2,107
Utilities estimated $500
Cell $115
Car Insurance $150
Student Loans $284
Life Insurance $38
Tv/Net $150
Gas $300
Food/Supplies estimated $600 (her parents?)
Savings to rainy day fund $75
Hair Cuts $35
Expenses: $4,354
After her parents pay their portion: $3,754
Future Expenses: New Vehicle
Last thing I want to be is house poor, but this is really the dream home at the high end of our budget. Some other nuggets to help us along the way are we get two extra checks a year, tax returns, and the sell of our current home to live on. Also, MIP would fall off in about 10 years. Do you guys think we'll be ok?
I think you should consider funding Roth IRAs for both you and your wife. Also, depending on how much is already in your rainy day fund, $75 per month seems a bit light.
I will do it if 1) you have savings to cover the down payment and moving costs and 2) if you can easily sell your home first.
Dream house comes and goes. Your income does not support two mortgages at the same time.
Another point is that you should not count your inlaws' contributions for sure until you live with them for at least one year.
I would not consider too much about house poor at this point. You are young enough to see career advancement. Your kids' education is priceless. If you really feel financially stretched, you can stop your 401/457 contributions temporarily, your pensions give you some cushions most young workers do not have.
I think mortgage payment is too large for your income.
When kids are 2 and 4 you may fit in $600 a month for groceries, but 5-8 years down the road you may be amazed at how much they eat.
Grandparents will be watching kids now, so no expenses for child care, but eventually you may want to have something in your budget for kids activities.
In short - you don't have room in your budget for the increase of expenses. Yes, you will be house poor, unless your income increases.
I would not consider too much about house poor at this point. You are young enough to see career advancement. Your kids' education is priceless. If you really feel financially stretched, you can stop your 401/457 contributions temporarily, your pensions give you some cushions most young workers do not have.
YIKES! I work in the public sector....for a large city that has a near top notch credit rating. Our pay was cut by over 10% 4 years back and pay increases since then still don't have us back to what we were previously making, and we're contributing a much higher % of our salaries toward the pension as well. The pay cut alone effectively cut our pension benefit. It is a REALLY BAD idea to totally cut off the 457 contributions. Don't believe for a second that governments aren't going to find ways to trim those pension benefits one way or another. If they don't do it in obvious ways with full fledged pension reform, they will find sneaky ways to do it (higher employee contributions, lower cost of living adjustments, higher health care contributions, slower rate of pay increases, etc.)
Beyond the pension reform issue, not putting anything in the 457 give you NO FLEXIBILITY. You're effectively saying "I'm going to lock myself in to my public sector job for the rest of my life". What if your employer has layoffs? (We had layoffs where I work, and of course, many were shocked when it happened...again a city with the second highest credit rating) What if you want to make a change, but you can't because you're taking a huge hit because you're totally dependent on your pension? What if you can't work the full number of years required to get the maximum pension benefit because of health or personal reasons?
Locking yourself in to anything in today's unstable economy just isn't a smart move, whether that be stretching to buy a house or an employment situation. Savings and investments buy flexibility and freedom. People generally vastly underestimate how much financial flexibility contributes to their quality of life.
Consider that it might actually be cheaper and better for your kid(s) if you bought a less expensive house in a so-so school district and home schooled them.
I will do it if 1) you have savings to cover the down payment and moving costs and 2) if you can easily sell your home first.
Dream house comes and goes. Your income does not support two mortgages at the same time.
Another point is that you should not count your inlaws' contributions for sure until you live with them for at least one year.
I would not consider too much about house poor at this point. You are young enough to see career advancement. Your kids' education is priceless. If you really feel financially stretched, you can stop your 401/457 contributions temporarily, your pensions give you some cushions most young workers do not have.
This, with the additional caveat that if the student loan balance is too high that's problematic. You can afford the home on your income, but not necessarily $300K + X of debt.
I would be VERY careful about including other's income or contributions to a household as what do you do if they suddenly CAN'T contribute to the household expenses. The bank or finance company will consider that.
Let me say this: we are looking at a reasonably priced home in our area in GREAT shape, and the owner {POA} is willing to deal. I ran the numbers for us, it will leave us with just $200/month left over with generous allowances on all other expenses {in case they go up}, and yet the house is only 22% of our income {net} ***see below. We would have minimal reserves after moving. AND we have 3 incomes,and I am seeking a second income!
It isn't quite our dream house, but..it is a long way towards being one above what we currently have, and in the next town and county.
You will be TOO tight if her parents can't contribute, and WHAT, pray tell, will you do if they both become disabled and need care of their own? Their income/contributions may evaporate! It IS a REAL possibility. THEN you will also have baby-sitting costs to add to your budget! Your culture may well take in elderly parents, but it may be to care for them, not for them to actively contribute.
ALso, as pointed out, what will you do IF the salaries are CUT? MOH works one job for a state adjunct, and lets just say the income isn't what it was last year, THAT*** is one reason why we are now so tight on the cost of living if we get the house.
Another is an emergency surgery MOH needed last year with a high-deductible insurance plan leaving us to cover a HUGH part of the cost.What if it happened again this year?
Also, taxes are guaranteed to go up each year, for YOU as well as us, most likely, so, for us, IF our income doesn't increase along with it, that $100 may evaporate quickly!
SO, I, too vote that YOU will be house poor!!!
MAYBE Look for a cheaper house in the school district that maybe you can better afford.
WE are disappointed, but don't want to be house poor either.
Don't dig yourself a hole you can't get out of, is my BEST advice!
GOOD luck!
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I work in the public sector....for a large city that has a near top notch credit rating. Our pay was cut by over 10% 4 years back and pay increases since then still don't have us back to what we were previously making, and we're contributing a much higher % of our salaries toward the pension as well. The pay cut alone effectively cut our pension benefit. It is a REALLY BAD idea to totally cut off the 457 contributions. Don't believe for a second that governments aren't going to find ways to trim those pension benefits one way or another. If they don't do it in obvious ways with full fledged pension reform, they will find sneaky ways to do it (higher employee contributions, lower cost of living adjustments, higher health care contributions, slower rate of pay increases, etc.)
