Fighting over rent vs. buy, this is getting ugly (Oakland: real estate, rentals)

[metfigga]

My wife and I are suddenly at odds and it boils down to our disagreement over whether we should (can) buy a house or continue renting.

Here are the finances:
Combined gross annual: @ $150k
Down payment: $50k
Considering homes in the $400-500k range
IR = 5.25%
Based on the numbers and including PMI, Insurance, and Taxes we'd likely owe about $3,300/mos (not including maintenance/upkeep which I estmate at about $4k/yr)

We have the following current mos. payments:
Car = $360.30
Daycare = $1,300
Rent = $2,000

We live in SSF, in a rented 2BR/1BA house that has mold issues. We're now month to month so we have flexibility to leave.

We've been pre-qualified for a loan and the IR of 5.25 comes from our mortgage broker.

We have been looking in the East Bay (Berkeley, Glenview, Dimond, Albany) and based on what we've seen the prospects aren't that good.

In addition, the cost of renting a house in a better neighborhood (and a higher quality home) is about half the cost of buying.

I don't want to be tied to a huge mortgage that ties up all our money - every dime we've saved would be used for down payment/closing costs. I don't think that's a wise move for our family.

My wife has basically said she refuses to move again unless it's to a home we own. We have a 2 yo boy so we want to make sure we live in an area with good public schools.

Since the bank and our RE agent have told us we can afford a loan of up to $550,000, my wife is convinced that we can pay as much as $3,700 a month for a house. I disagree, I think we can pay it, but it will pretty much hogtie us and then god forbid anything happen because we will no longer have any money saved or the ability to save any money.

Am I being over-protective of our finances, or is now the time to put all our money into a home purchase?

Sorry for the long post but I can't even talk about the idea of waiting this thing out a bit while prices are still liable to fall without my wife crumbling to tears.

[ssmaster]

sorry, dude. a mother with a 2 year old wants her own home. i don't think this can be a purely economical descicion if you want a happy home life.

[jade408]

1. I vote for paying way less than what your RE tells you you can afford
2. Albany is a great town to raise a family, and has good schools. Housing options for your budget are slim
3. Dimond is pretty popular with families and I know quite a few happy ones there

If it was my money right this second, I'd hold off. The prices for the type of home you are looking for are still way over priced compared to the cost to rent them. Here's my pitch for Housing Market News, they have a calculator to help you figure it out. If the rent is half the mortgage, it is too expensive.

I think it is is a good time to by a condo in many parts of Oakland at the moment, but I am not so sure it is a great time to buy a new house. If you are putting every penny you have saved into your down payment, you aren't ready to buy. I also think you should pick a mortgage that is doable with 1.5 of you working -- just in case one of you loses income. Just my two cents.

[NorCal Dude]

What your california real estate agent tells you can afford and what you know you can afford are often two completely different things.

[viola99]

I don't know what you have in savings, or how your health insurance coverage is, or how much you have saved up for retirement. But it really sounds like you can't afford to buy yet.

You have a child. If anything were to happen to you, your wife, or your son - medically or economically, you would need to have a substantial cushion of savings in order to keep afloat. Blowing all your savings on a down payment for a home is irresponsible - you should be keeping several months, if not a year's worth of salary somewhere easily accessible as emergency savings - which is that $50K right there. If you already have emergency money saved, then ignore this.

But you also need to consider that the Bay Area is expensive and that housing prices are probably not going to drop that much more. I am moving to SF and am considering rent vs. buy as well. I also have small children. Currently, I live in NYC, also an area where it is cheaper to rent than buy. And that is what we do right now, because renting allows us to do exactly what you are saying - have a nicer home in a nicer neighborhood for the kids. We will probably do the same in SF for some time.

I think, if you really don't have any savings aside from this down payment, you need to stash that $50K in a savings account for emergencies only, and then start saving again for a down payment with the extra money you would be putting towards a mortgage. That way you can play pretend - you can take $3700 a month, pay $2500 (or whatever) towards rent, and then take the other $1200 (or whatever) and stash it in your down payment savings. That way you will actually see if you can live paying $3700 a month in mortgage, and in the meantime will be stashing cash for a down payment (or, if you already have emergency money, ADD to that $50K to get your down payment closer to 20%).

Good luck!

[mayorhaggar]

Frankly I think people fetishize buying a house too much, especially in the Bay Area which is still one of the few parts of the US where it's cheaper to rent a house than if you bought that exact same house. You are finding this out first hand but there are a lot of articles about this like this one:

It's still better to rent than buy in the Bay Area : On The Block - Real Estate

If you buy a house you have to deal with interest, taxes, and you're on the hook for repairs. Yes one day you'll pay it off but that's not for 30 years for most people and you'd still be paying taxes.

Now if you were somewhere like Miami where it's actually cheaper to buy than to rent, then yes by all means go for it. But somewhere like the Bay Area I think it's just too expensive, and prices aren't dropping I don't think.

If you want to live somewhere fairly convenient with good schools and in a nice house, then renting is fairly doable, but you want to buy then these types of places are expensive. Some people move places like Oakland or Pittsburg that don't have great schools but do have cheap houses (I saw a two story one in Pittsburg recently for $190,000) or they move to places really far away like Tracy or Modesto but that means 4 to 6 hours of commuting a day.

Frankly if just owning a house is more important than everything else in your lives, I'd move to a different region of the US where it's cheaper to get a house compared to average salaries. Seems like you get it but I don't think your wife does. Spending twice as much to buy than to rent the exact same place is ridiculous. If it was around a 10% or so difference I'd think about it because at least you could bank on maybe making more in the future and the house appreciating, but 50% is too much for those factors to overcome.

The Bay Area is a great place to live if you're young but it's just not that great for people with young kids who aren't millionaires.

[StandingRoomOnly]

I think 150k income is a good income to buy a 400-500k home, but your other figures suggest you both aren't quite ready to buy a house in that range. A 50k down payment is not enough. You should have 20% down payment in this market (80-100k) + a good amount of money as a cushion that isn't towards your down payment (e.g. extra 30k at least). There is also factoring daycare cost and your extra debt.

Also, like another poster suggested, it is wise to plan living on 1 income...If you can't afford your mortgage on either your wife's or your income only, I'd consider buying someplace where you can afford a house on one income (even if both of you plan to work indefinitely)...It comes with a lot of peace of mind knowing you can afford your home on 1 income if necessary. You'll feel less like a slave to your mortgage knowing you can comfortably afford it. You don't need that added stress of barely making it or living paycheck-to-paycheck.

I'd say, pay off your extra debt--sell and buy a cheaper car you can pay cash for and keep saving. You need that 20% down payment at least and extra cushion money. If your wife is at all money-savvy she will need to come to terms with planning ahead in order to get what she really wants in the future.

[metfigga]

Thank you all for your thoughtful feedback. I'm starting to feel that my tireless campaigning for continuing to rent is finally paying off. My wife actually looked at some available rentals with me tonight and she didn't cringe or cry.

She still holds hope that we can own our home here in the Bay Area but I think she's coming around to the idea that we don't win a prize for being the next one to buy a house.

Ultimately it would be irresponsible of us to selectively put ourselves in possible financial straits in order to appease an emotional desire or want. Maybe she's realized this.

Will keep you posted on how things play out, but if I could act alone I would rent a house in the area we'd like to buy and plan on staying there for at least a year. That way we can still save some dough while getting better acquainted with the area.

I really don't know how likely a home purchase is for us in the next 12+mos, we really need more money for a down payment and must have sufficient rainy day cash on hand too. That is simply not the case currently.

[ZhugeLiang]

Why buy now? You're still going to be overpaying. Cheaply renting is still the way to go for now.

[stan4]

Originally Posted by StandingRoomOnly

I think 150k income is a good income to buy a 400-500k home, but your other figures suggest you both aren't quite ready to buy a house in that range. .

I disagree completely. No way in heck would I buy a $500k home on $150k income, ESPECIALLY in tax-heavy Cali and ESPECIALLY since they don't even have 20% down.

The realtors and loan people are greedy so-and-so's...I wouldn't trust a damn thing they say.

I don't understand why the compromise with this guy and his wife isn't just to buy a cheaper house. May not be the 'ideal' area, but they have to compromise somewhere. BOTH of them.