Post # 1
So FH & I were pre-approved by a bank for an almost $400K mortgage (based on his salary from his temporary internship but not taking my actual earnings into account at the time, since I didn’t have a nursing job yet). Now that I have a F/T job as a nurse & FH still has his income, we could probably qualify for more. We have about $50K-$75K to put towards a down payment, depending on when we buy (now vs. August/Sept), and how much/whether or not our parents can/will contribute anything.
Despite this, we’re trying to stick to a $250K-$300K budget to buy a 2 bed 2 bath >900sqft condo downtown (not impossible in our city, By The Way, but you definitely aren’t going to find yourself inside a beautiful brand-new high rise for that price!). We were doing this to avoid becoming mortgage poor, and to shorten our amortization period (if we get a $250K mortage, we can easily do a 15 year amortization, and maybe even just 10 years) to avoid paying mucho $$$ in interest.
It just got me wondering, though, what popular opinion was on budgeting. Are you comfortable spending the big bucks on a house/condo, knowing that it’s an investment and/or you’ll be living in it for a long time; or did you try to stick to budget that was lower than what you could actually afford, but would allow you to “own” (without the bank) sooner?
Post # 3
Well, if I had a crystal ball in 2007 I would have said house-poor wasn’t such a bad idea. We went for the condo (215,000 mortgage) thinking it would be a temporary lving arrangement. Then the housing market tanked, and five years later, we’re still stuck living in a condo, and trying to figure out how to move ahead with family planning etc, and it’s definitely not ideal. I guess if we’d bought something larger to begin with, we’d at least be happier being “stuck” with it.
Post # 4
There are some questions you need to ask yourself.
1. How long do you plan on staying in the home?
If it’s less than five years don’t splurge, and don’t pay down the mortgage as quickly either. If you plan on being there at least more than five years, or even longer, you may want to splurge.
2. Can you afford the martgage payment of the higher priced homes with condo fees?
If the answer is no then do not buy the nicer condo. It’s not worth it to be in over your head.
3. Would you consider buying a home that needs a little work?
If you are planning on staying in a home it would smart to build equity in it. As long as it’s liveable you can get a great deal on the home, personalize it to your tastes, and be able to build equity at the same time.
Post # 5
PPs have some excellent points. Sometimes paying down the mortgage isn’t to your advantage!
Personally, I would rather buy a property that will be good for us 10 years down the road even if it means stretching the budget a bit.
Post # 6
We’re debating the same thing right now. We’re planning on getting a house, but it’s whether or not we’ll have an attached garage (at least right now, we haven’t seriously started looking yet).
It can go either way, being house poor for a little while wouldn’t be so bad. DH only graduated a year ago, so his salary will increase beyond inflation over the next few years. I’m in school, but will get a job soon. What might be a slight stretch for us as soon as we buy will be a more comfortable payment later one.
Buying a less expensive house would mean paying off the mortage that much sooner. We’re not young, and both of us have more than 1 degree. I just wonder if we go that route, if I will be happy in 5 years or if I’ll want to move.
I don’t think the market will tank much here. It might hold steady or even decrease slightly, but I would be shocked if it burst here (although it would be awesome if that happened before we buy!)
Post # 7
- Wedding: October 2011 - Bed & Breakfast
I’m a US gal, so my answer is based on our economic stability and still (slightly) sliding housing market. That said, we chose to buy a home that we can afford on the lower of our two incomes. That way, if one of us loses our job, we will still be able to keep current on our mortgage payments, eat, and pay the necessary bills. We’ve seen what happens when hard times hit good people, and we don’t want to lose everything. So we made the decision to be extra cautious with the financial commitments that we make. We gladly traded updates and luxury for financial security.
Post # 8
I’d splurge a bit. It sounds like your current budget is WAY below what you could actually afford (based on the fact you could pay it off so quickly). Spending a little bit more would likely get you guys a condo that you would be happy and comfortable in for a longer time. And it sounds like you’d still be able to make payments comfortably each month with an increased budget so you still wouldn’t be mortgage poor.
Honestly, with as low as interest rates are right now, it isn’t necessarily the smartest choice financially to pay off a mortgage so quickly. If you can invest your money in anything that makes more than your interest rate (which is pretty easy to do with interest rates as low as they are), you are better off investing “extra” money instead of throwing it at your mortgage.
Post # 9
We went on the low end of our budget at the time and that turned out to be a good idea because my husband has not been steadily working over the past year. Anything more and I don’t know how we would have afforded our payments.
I was always thrifty but since having this experience, I’m fully convinced that we should always stick to the low end of our budget with any big purchase.
Post # 10
Definitely go on the lower end. You will be able to afford the mortgage even if the job market crashes and one or both of you find yourself unemployed, and you have greater chance for property values to go up. A $200k condo may turn into a $350k condo in a decade or so, but a $400k condo probably won’t turn into a $700k condo in the same amount of time.
Post # 11
We’ve chosen to spend a little more to get a place with plenty of space that we can live in for a long time. It’s at the higher end of our budget but still well within it, and though we’ll be on a budget for the first couple of years we’ll be ok. I think it greatly depends on the stability of your jobs. We are both in jobs that aren’t going anywhere, so we aren’t too concerned about losing them.
Post # 12
Thanks for all your advice, bees!
I’l explain a litte more behind the $250K figure; the main reason we’re sticking to this is the size of our downpayment. We were told by FH’s financial advisor that unless you put 20% or greater down on the property, you have to pay fees (in case you default). That’s the biggest reason why we are trying to stick to a number around there. (Also, if we make a $50K downpayment in August, we will still have a decent cushion in case of job loss/increase in condo fees/etc.)
We would be planning to live as long as possible in the condo, which is why we’re gearing for a 2 bed 2 bath (otherwise I’d be happy with a 1 bed 1.5 bath). If we decide to have children, we are both comfortable raising them in a condo environment, SO if we get the right fit, this would possibly be our forever home, NOT just a starter.
Speculation is that interest rates are going to start rising soon here, so in order to avoid that as much as possible (as well as shrink the amount we have to pay overall), FH and I really want to pay off the mortgage ASAP. Both my parents & his parents are very gung-ho about this plan — his parents paid off their home in less than 10 years, and so did mine (granted, homes were a LOT less then, but still).
Post # 13
There are a lot of factors at play here. I woul never advocate that anyone be house poor beause you really never hvae any idea what could happen.
After reading the second half of your story as well, I would say a few things. One is that we have fee’s in case of default in the US too, its Private Mortgage insurance and you have to pay it until you have 20% equity in the home. If you don’t have to pay that it would make your monthly less for sure. If you are planning to make this a permament long term home (like 10+ years or longer) then I’d say it might be ok to stretch your budget just a tad to get what you want for the long haul, and it might make more sense to pay off the mortgage sooner rather than later if its a long term purchase. it’s really hard to say but I would still say, leave yourself enough of a monthly cushion for emergencies, splurges, or whatever else is important to you. you’ll probably want furniture, need paint, etc and if those things are important to you, its hard to get them if you’re house poor. not to mention the bank ALWAYS stretches what you actually should be able to afford because then you pay them more interest – they really can’t be trusted to do your budget for you.
Post # 14
I hate being house-poor, and would much rather spend money on interior decorating for a condo. I’ve seen nice places that look unfinished, and kinda junky places turned fabulous. If the location is good for you, you can do a whole lot with that extra money.
Post # 15
Are there loans in Canada that you can get where you don’t have to pay fees with less than a 20% down payment? I’m guessing things there are quite different than the US. We have FHA and USDA loans where we can pay as little as 0-5% down without penalty. We close on our first house in a few weeks. We went for the bigger house (within our budget) because we plan on staying there forever. It has plenty of room for us to grow, have kids running around and accommodate guests. The interest rates are so low right now, it would have been silly for us not to take advantage of them. Do they not have fixed rate mortgages in Canada? That way you don’t have to worry about your rates going up in a few years.
Post # 16
@Jenniphyr: In respect to interest rates rising soon, it’s still reasonable to not pay down your mortgage super fast. You’d want to invest it in something that’s either easy to liquidate or with a shorter term. Say you get a mortgage at 2.99 for five years, and can invest at a higher rate (say 3.5%) in the meantime, you’d do that and if rates are higher when you renogotiate youd liquidate and have even more to put down then.