Thinking of buying a house, am I able to or is it too soon? (real estate)

[masterori]

Graduated about two years ago, no student debt. I've been thinking if it would be possible to buy a house if my parents and I combine our yearly salary. I make ~55K while my parents combine is about ~50K(ish). So total about 100K a year. They said they'd be willing to make the monthly payment (said its like paying rent), I'll chip in whenever needed.

I am a bit reluctant to buy the house, because I'm probably not gonna live in it. Since I'm still fresh out of school, I know I'll be moving around a bit as I change jobs. Would a condo be better, or not at all? I'd rather have my parents live in a house or somewhere that they don't have to pay someone else rent, you know?

[RosieSD]

Well, how much of a down payment do you and your parents have saved up?

Income alone won't qualify you for a mortgage; you'll need to have between 10% to 20% of the purchase price for a house IN CASH available for the down payment to qualify for a mortgage.

The median price of a single family home in SD is hovering around $500,000. So, at a minimum you'll need to have $50,000 in the bank for a downpayment (But you may need a larger down payment to qualify for a mortgage. It will depend on your and your parents credit scores and work histories).

If you have the down payment ready to go, can qualify for a mortgage (talk to a mortgage broker before you go home shopping to get pre-qualified), and neither you nor your parents have any other debt (including student loans) then it might be worth considering.

However, it goes without saying that you and your parents will all need to be on the same page about who will be covering the mortgage, maintenance, repairs, etc. on the home. What happens if your parents get sick or become unemployed? Will you be able to cover the mortgage in full (you will be legally responsible for doing so if you're on the mortgage).

You and your parents might also want to discuss what would happen when you want to buy a home of your own down the road when you start your own family. It wouldn't hurt to discuss how this plan will affect buying a home of your own later with the mortgage broker too.

All that said, you're a great kid for wanting to help your parents move into a home of their own. Your parents must be very proud of you.

[hkbruin]

Master, are you thinking you can put a down payment? If so, how much? That can largely affect your mortgage and ability to secure an offer. But the biggest factor is... is it your primary residence?

[The Flying Dutchman]

Don't forget you're competing with a lot of all-cash offers out there.

[USDefault]

Do not do this. You are an adult, and you need to establish yourself first.

What if your parents fail to make payments? Are you going to cover mortgage payments for a condo and a house? I don't think so, your salary isn't enough. What if your parents can't or stop paying, and the house goes into foreclosure, and the bank comes after you to satisfy the note? Your only recourse likely is bankruptcy -- it will be disastrous for your credit, and may disqualify you from certain areas of employment.

What if the Fed raises rates and property values plummet? Who is going to make up that difference? What if you want to sell the house, that's in your name? Now you're in a three-way discussion about what to do about your property; it's a mess.

A mortgage is a whopping thirty-year commitment. What sounds good in years one, two or three may be a major drag by year ten or fifteen. This has bad idea written all over it.

[hkbruin]

Says the person with the moniker "default". Sky falling much?

Talk about debbie downer. I think each person has a decision appropriate to his or her situation. My brother had my parents backing and his property is worth nearly 150% of what he bought it for. Plenty of parents are willing and able to help. You talk with absolutes as if you know this person. There are plenty of examples of people that make your argument completely unsound. Or unwise in the long run.

Sure, 30 year mortgage is a commitment, BUT WHAT THE HECK, so is marriage, so is a career, so is best friendship. This is life. THe best people take advantage of EQUITY. Paying yourself. Maybe a concept you have no idea of yet. Every business person that makes good money has mortgage(S). You're basically telling this person to stay poor, cause building wealth requires you to leverage assets.

[someguy10]

Originally Posted by masterori

Graduated about two years ago, no student debt. I've been thinking if it would be possible to buy a house if my parents and I combine our yearly salary. I make ~55K while my parents combine is about ~50K(ish). So total about 100K a year. They said they'd be willing to make the monthly payment (said its like paying rent), I'll chip in whenever needed.

I am a bit reluctant to buy the house, because I'm probably not gonna live in it. Since I'm still fresh out of school, I know I'll be moving around a bit as I change jobs. Would a condo be better, or not at all? I'd rather have my parents live in a house or somewhere that they don't have to pay someone else rent, you know?

This is a really kind idea but I think ill advised at this point. I wouldn't take out a loan for more than you alone can handle and that won't be a whole lot in SD considering you presumably have a rent/mortgage payment of your own. Instead of really extending yourself financially now, I suggest you focus on continuing to advance your career and financial position.

[photo4fun]

Originally Posted by masterori

I'd rather have my parents live in a house or somewhere that they don't have to pay someone else rent, you know?

first you need to calculate your total cost of the loan (payment/interest + tax + insurance + maintenance ). if it's less than renting then go for it.

[OwlAndSparrow]

Don't worry about median home prices. By definition, you can beat those fairly easily. You still need a nice down payment, though. 10% is not a bad number, but 20% is the magic figure for getting out of paying for mortgage insurance.

Also don't worry about prices falling (California real estate is a pretty good investment). Even if they do, so what? If you decide to sell the place as soon as prices fall, you'll lose money, but you lose money when you pay rent, too.

I don't see how anyone could possibly say that a mortgage becomes a worse deal over time. It's the other way around, usually. People who got mortgages on houses 15 years ago probably paid peanuts compared to what the houses are worth now. I know of plenty of people who paid about $200k for houses in 1998 or so that are worth over $600k now. The houses aren't anything flashy, but they'd be completely impossible to afford at the moment.

On a 1998 mortgage, though, their house payment is now cheaper than rent would be anywhere.


By the way, I think it's good to have that sort of devotion to your parents. So many people these days think it's honorable to be individualistic, but I think that working together as a family unit gives you power that neither of you can have on your own. I know of multiple families, including mine, that built wealth the same way. We help each other buy houses, and as a result, the older members of the family have a ton of equity and rental income that can help the younger generations get established and then repeat the cycle.


Now, a condo helps in a similar way, but you're still paying a ton of money in condo fees every month. It's an easy way to get the cycle started if you don't have a 20% down payment saved up, though, and your parents could trade in the condo for a house when enough equity builds up.

[PolarNettles]

I like using this calculator to get an estimate of the costs of buying a house/condo (use the Deluxe tab) - http://michaelbluejay.com/house/rentvsbuy.html . If you're looking at condos realize that the HOA fee can be a sizable percentage of your monthly costs and will generally never go down.

As for co-signing with your parents - I'll give another anecdote. My parents owned several properties in the Bay Area, some since the 80s. Unbeknownst to myself or my siblings they were heavily in debt to the tune of $700K and had to declare bankruptcy once the 2008 recession hit. Luckily the kids were not involved with any of the loans, otherwise the entire family would have been screwed. So owning real estate is no guarantee of financial security and family members may not always be forthcoming about their true financial situation.