Home buying mania
January 9, 2009
Another one acquaintance has succumbed to the I need to own a home NOW syndrome.
Recently engaged, she and her man have been seriously condo-hunting for a few months now, rejoicing in the fact that housing market is ripe with plums for the picking. She’s not made any PB & J declarations, but they’ve gotten pre-approval for a loan so they feel confident in their ability to secure a purchase of a short sale in the next few months before their summer wedding.
Again, in a purely hypothetical sense, if I were to be asked for my advice …. well, my mental alarms are working overtime.
I’m familiar with some aspects of their finances from a few get-togethers:
The fiance, X, is self-employed. A year into running his own business, he’s done well enough for himself that he’s able to cultivate long-term clients rather than taking every short or long term project that comes his way. That’s quite a good direction to develop. He’s made a good 5-figure income. Plus!
They both have retirement accounts – maybe not fully funded, but definitely funded. Plus!
They scaled back their entire wedding and turned it into more of a backyard affair because they didn’t have anything saved for the wedding, and didn’t want to take on another $10-15K of debt. Good move. Plus!
But, they didn’t have anything for the wedding because X spent about 20K on her ring. I’m not saying there’s a “right” amount to spend, just that they are out that much money that could have been for the wedding or their e-fund. Either way: Minus!
His ladylove, Y, is about to lose her job. She doesn’t know when, but a layoff is imminent. Minus!
Y also hasn’t had any success in landing another job that I know of, and because she’s entirely caught up in wedding planning and house-hunting, I can’t imagine that she’s devoted any time to a job search. Minus!
In my eyes, that’d be the most basic of needs in a three-priority situation like this: Find a job, then get married, then buy a home.
Then, too, my other concerns remain:
Tracking routine expenses – Y loves her clothes, accessories, and expensive tech equipment. She also has no head for caring about numbers. (Note: she doesn’t have to be an expert, just willing to pay attention.) That has to stop if they’re taking on a mortgage with one income while accustomed to two.
Health – Neither will have employer-sponsored health insurance after the job loss. They’re young and healthy, but can’t afford any emergencies or accidents (how well can any of us?). It’d be important to have a contingency plan, whether it be buying insurance or setting aside emergency health money. If nothing else, catastrophic health insurance would be a really good idea.
Moving costs – This would include closing costs and associated fees. I’d hope that they don’t end up paying for unnecessary points or junk fees, but as novice home-buyers, that’s always something to watch out for.
Also, while they may pass on purchasing new furnishings right into their new gates, some maintenance issues will probably come up. They’re looking at short sales, and the condition of those homes are not going to be the same as that of a new build.
Taxes – self-employment, primarily, for both. X, of course, will have planned better for his upcoming tax bill, and Y might have since she did have some contractor income. Those will have to be addressed some time this year.
And I don’t know when property taxes are assessed, but can they afford property taxes? Are they prepared?
Not to be the ultimate party-pooper, but I would strongly urge them to re-assess the commitment they’re about to make together. To the home purchase, not to each other! I think their relationship is fine, but can see how making a hasty, major purchase could strain even the strongest marriage.
What do y’all think? Have I missed anything else?
And what would you do in this situation? Do you think my caution, concern and conservatism are (perhaps, wildly) misplaced?
I agree 100% with you. I also have friends who are recently engaged to be married. They are looking for a condo in the most ridiculously expensive areas. My friend does not have a job (she says she is too busy with the wedding planning) and her fiancee managed to save up enough money over the past 4 years. But…she is spending all that money left and right! $10,000 Hermes bracelet here, a closetful of $600 pair of Manolos there, a couple of $2,500 Chanel purses, $36,000 engagement ring. He seems like the type who’s a doormat, and who’d be too afraid to tell her if funds were running out. She thinks she’s living in a dream world.
Some people just don’t have their priorities figured out.
I forgot to mention that their wedding will cost them at least $60,000. And she’s not planning on getting a job after the wedding either! I know how much her fiance earns, and it’s just mindboggling how he can cover it all.
I was reading this and nodding along with you.
I think they need to take it slow. One step at a time or else their house of cards could come tumbling down.
They should definitely take stock of their finances and see what happens when the dust settles with her job…
@losangelesdaze: $10,000 HERMES BRACELET!? Wow….. I’m.. wow.. in shock.
Fabulously Broke in the City
Just a girl trying to find a balance between being a Shopaholic and a Saver…
FB – I was in the store with her. She saw it, the sales person told her it was the only one on the West Coast, she immediately calls her mom and asks her to pay half, then calls her fiance and asks him to pay half.
I just stood there, floored. I mean…at our age (25) you shouldn’t have to call your parents for money anymore. And to call for something as silly as that? She’s only worn it once so far.
You have great thoughts on this! I too would like a very tiny home to call my own, but I’ve so far decided I need to ensure:
1. I have at least 7 months expenses saved that will not be tapped into or put towards the house – this if for if I lose my job and my job only!
2. I want at least a 15% deposit so that I have a lower interest rate, a buffer incase property prices go down.
3. I need to still be able to afford to save each month, even a small amount and put my money towards retirement.
losangelesdaze: Ok, that’s frightening. I mean, I know X is not spending in the thousands, at least, it looks like she’s already spending well into the the 6 figures and that’s before the condo!
And asking her parents for money? For a bracelet? Because … ???? Eeesh. Scary.
FB: I keep hoping they have some magic save cards up their sleeves, but I know that her parents don’t have the money (dad)/inclination(mom) to help out financially. His probably couldn’t afford a rescue either.
notesfromthefrugaltrenches: Having an untouchable emergency fund for true emergencies is critical, esp. when you’re the sole provider.
I keep forgetting how much money a 15 (or 20%) deposit really is; but it’s worth the security of having *some* equity in your new purchase.
And yes, I can’t see buying to the very limit of one’s income and losing the ability to save. Then you’re in trouble the second something unexpected comes up.
Well since I’ve been burned by real estate, I tell everyone to be cautious. Houses cost more than you think, way more. Condos you have the problem with shared walls and annoying neighbors without the ability to move. I wish I had waited to buy, oh well. I wish your friends luck.
Miss M: Too true. I mean, there are down payments, closing costs, initial maintenance and repairs, continued maintenance when leaks are sprung (see Sistah Ant for a new homeowner’s experiences!)
She doesn’t realize it’s not just 30k down, end of story.
Hmm, I agree with you: they should reconsider their financial status before they purchase a home. Home buying goes beyond making the down payment. There are lots of costs to expect, like taxes and maintenance.