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Lots of good thoughts in this thread. Its ultimately going to come down to both of you making your own decisions. So take what I'm about to say with a grain of salt.
We make slightly more than you all do and live fairly frugally- no car payments, no debts, etc etc. We also have no kids- which is a BIG difference. We live in the East Bay. Even so, we rent mainly because its a nice house and costs us $1,500 a month versus the $3,500 or so it would cost to buy the equivalent home in our area. We've actually lived in the home for over 8 years. We've thought about buying just a few times. We've saved up quite a bit of cash over the years but even so- putting all of it towards a $500,000 house would still be giving us a huge jump in monthly expenses. Like it or not, it seems that the East Bay still stubbornly sits at the $450,000-$500,000 mark for something halfway decent. I don't know if the prices are going to get cheaper because apparently people here are still happy to pay that kind of money.
I think you could very easily "upgrade" your home situation simply by renting somewhere other than SF. Rents in the East Bay are a lot less. So for less than what you're paying now you could probably rent something nicer here- as we have.
As others have said- you probably need more like $100,000 saved for a down payment. But this sort of brings up some basic financial questions. What about retirement? What about future college expenses? What about the potential for a job loss or some other unforeseen event? Buying a home would potentially put you in a financially risky situation because there would suddenly be less wiggle room. Its a question about what's a better investment or use of your money. If you own a house yet have no retirement savings then the house is basically a moot point.
Lastly- are you really stuck on living in the Bay Area? We've been spending a few years investigating other cities. Places like Austin, Raleigh, Nashville, Atlanta, and others are all pretty young, creative, vibrant cities. All of these have fairly healthy economies and affordable housing. You can easily buy a nice old historic home or maybe a new large house in the burbs in any of the above metros for under $150,000. We're probably going to save up a few more years and then head on out of here. We could almost semi-retire in any of those alternative metros versus here where if we bought we would be servicing a giant mortgage for decades. Seems like a no-brainer to me. The quality of life in the Bay Area is pretty poor in comparison to other places I've lived. Perhaps such an idea is worth putting on the table.
Lastly- are you really stuck on living in the Bay Area? We've been spending a few years investigating other cities. Places like Austin, Raleigh, Nashville, Atlanta, and others are all pretty young, creative, vibrant cities. All of these have fairly healthy economies and affordable housing. You can easily buy a nice old historic home or maybe a new large house in the burbs in any of the above metros for under $150,000.
Good luck!
I can't speak for the other cities, but that is not true of Atlanta. That ship sailed shortly after the Olympics. For $150K, you'll get something waaaay out in the burbs (with no public transportation to speak of), but there's nothing historic for that amount around (closer to $700+K because there aren't many left). But I digress.
If you think it's ugly now, it's going to be a lot uglier when your debt has piled up and you're in danger of losing your home. If you can't do it on one income and have a good savings, don't do it. Your wife needs to get her head out of the clouds.
Rent for now. You still have time on your hand to decide if you want to commit to buying a house in the next 12 months or longer, depending on how the market turns out.
What you don't want to do is rush to a huge decision, and then hope your decision was the right one.
1.) They actually need a house itself, and no other object will do.
2.) The house is a good financial investment. If they had the chance to buy a mutual fund or some other security with the same financial/cashflow characteristics as a house, they'd buy it.
3.) They're trying to satisfy an emotional need by buying a house.
These reasons are not exclusive; some people do it for all three reasons.
Do you actually need a house itself? Will something else satisfy the same needs for housing, space, privacy, etc.? Or do you just really want a house, instead of actually needing one?
Does the house make good financial sense as an investment? Take the emotion out of it--would you recommend buying a house to someone who was just looking to invest some money? Would you buy it as an investment, even if you weren't living there? Or would you only buy a house if you could live in it? What are you trying to get out of it financially? Again, take the emotion out of it.
If the answer to #1 is no and the answer to #2 is no, then really, you're buying a house to satisfy some other, emotional need. And that's a really bad reason to buy something that's going to take over your time, money, flexibility, etc.
Granted, people do it all the time. That's part of how they got suckered into interest-only option ARMs and such. For some people, houses are one of the icons of adulthood: a career, a mortgage, a marriage, a child. Some people are trying to show others how much they have, or how far they've come from where they grew up. For some people it's a symbol of independence--the idea that no one can tell you what to do in your own home.
But if you don't need a house for physical reasons or financial reasons, you're buying it for emotional reasons. And again, that's a bad idea from the start.
The housing bust has affected places like Antioch and the Central Valley where a lot of middle-income people moved to buy cheap houses they couldn't afford, and prices have dropped a lot in these outer areas. But in SF and other nearby parts of the Bay Area, housing prices are still really high and haven't really dropped at all, because people weren't getting as many subprime mortgages plus places like Marin and Berkeley and SF are just wealthier areas compared to places like Antioch and Modesto etc.
I don't know how this will pan out but I would keep an eye on this and see what happens, you might see prices drop in the more central and more expensive parts of the Bay Area. Probably not, but you never know. You wouldn't want to rush into buying a house then see it drop in value.
I can't speak for the other cities, but that is not true of Atlanta. That ship sailed shortly after the Olympics. For $150K, you'll get something waaaay out in the burbs (with no public transportation to speak of), but there's nothing historic for that amount around (closer to $700+K because there aren't many left). But I digress.
Exactly how is that any different than the Bay Area? Except in the Bay Area you'd have to move wayyyyyyy wayyyy out and even then you'd still be paying $400,000 for a house and have one heck of an awful commute. At least in Atlanta there is such a thing as affordability. Perhaps Atlanta was a bad example. We visited Austin a year or so ago. Very cool city. The vibe felt very similar to the Bay Area. Lots of creative jobs and lots of young people. Tons of outdoor activities. Heck- it even has a nearby wine country. I looked at some houses within the city near downtown for well under $150,000.
Anyway- my point being that its entirely possible to live somewhere that has a lot of the same energy and character as the Bay Area and pay a fraction of what it costs to live here.
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.
I won't give my personal opinion on this one, but during my family's quest for house ownership in the Bay Area this blog was particularly helpful for us and quite insightful on all aspects of the decision making process. Good luck! (I admit however that his opinions still lean to one side of the argument)
Housing prices aren't going up any time soon, you have lots of time to find the right house and make it work. Try looking for a cheaper starter home, and don't rush into any decisions.
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.
I'm in favor of buying since you can afford it. However, I'd make sure your house payment will be around 25% of your gross monthly income, which would be around $3,125 per month. You have to factor property taxes and additional expenses, but as long as your mortgage payment is 25% of your monthly income, you'll be fine. Now is a good time to buy. Make your wife happy, but don't stretch your budget no matter what your agent says, the more expensive the house the bigger their commission.
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