All along, my plan has been this:
- Get Out of Credit Card Debt
- Pay Off my Student Loans
- Pay Off my Car
- Start Saving for a Down Payment on a House
But then, a few things happened to make me change my mind. The first was the end of a relationship. No longer was I “waiting to see” where things were going with an out-of-town boyfriend. I could make my own decisions, and I knew that I would stay in Portland long term, if not indefinitely.
The second thing was a note from my dad that said, essentially, hey listen, we can help you with a down payment on something if you wanted to buy now while the rates are so low. So, I reevaluated, spoke with a realtor, got pre-approved for a loan and started looking.
Now, after seeing all the options in my price range and coming away feeling really disappointed, I’ve found something I like. It’s a condo with a low HOA, really nice kitchen and all new everything.
It’s in my price range, which is a two-word phrase for some arbitrary math that someone else did, deciding what I could afford.
On One Hand
Rates have never been lower. I’ve read the home buying tips to save you thousands. According to everyone who works in real estate, now’s the time to buy. (According to everyone who works in real estate, any time is the time to buy!). I have to live somewhere, right? And since I’m paying rent right now that assists someone else in their mortgage payments, it seems like the thing to do.
My little sister is moving to Portland in June, and will pay me rent for a year. We’ve discussed this — she’ll sign a lease and everything!
I can afford the monthly mortgage+insurance+taxes+HOA even without my sister’s help, so having her rent payment will get me ahead quicker.
I could rent the second bedroom out on AirBnB when my sister moves out, and make back some of the money that way.
On the Other Hand
I have been so heads-down focused on getting out of debt that the entire process is scary. I mean, I have less than seven thousand dollars until I am completely and totally out of debt once and for all. I’ve been charting my progress every month — heck, I even started writing Frugal Portland to help get me motivated to get out of debt!
Getting Out of Debt is NOT a Goal
I think the “once and for all” mentality is what’s holding me back. If I’m honest with myself, I know that I’m not going to rent forever.
The problem is that I’ve had “get out of debt” as a finish line — and it’s anything but. Paying down debt is absolutely the right thing to do, but it’s not the end of the race. Anyone reading this blog knows that getting out of debt is simply step one (some might argue step zero!) toward financial success.
The Scariest Part
Buying a house (or even a condo!) is definitely one of the biggest financial decisions of a person’s life. Combine that with borrowing a great deal of money from your parents and wanting to repay their generosity within the shortest time frame, along with very real assumptions about projected income, and it’s signing up for years of debt.
All that said, I think I’m ready.
Do you think I should wait until I’ve paid off the last $7K? Am I being irresponsible for even looking now? Or can I go forward, as long as I’m clear-eyed about what this means?
About Kathleen
We bought a house when we had a car payment and student loans. I Don’t think it was a bad idea at all. We needed a place to live and our house costs the same as a rent payment around here. Now I do think it would be different if you had $50,000 in credi card debt and don’t have enough money in the bank though.
I dont think anything is wrong with having some debt and buying a home. I know very few people who don’t have any debt. I mean if you are saying you are not responsible and have 100K in debt left to me it just would make sense to add more. My wife and I have a car payment and a few credit cards with small balances on them but we are still looking to purchase a home. I think this is a problem for a lot of people having too much debt but I wouldn’t put you in that category from what I just read.
I don’t know that anyone should tell you what to do, but here are some things that I would consider. First, stability of your employment and income. Renters have much more flexibility regarding living arrangements and mobility. If that is a concern, get out of debt. Interest rates will likely remain low for a while since the economy isn’t all that strong. There is still a lot of slack so you have at least 6 months to think about it if not much longer.
On the other hand, I see nothing wrong with managing house payments and some debt. What is the difference between buying and renting? It may not be all that different.
Go forward and take the plunge! Congrats Kathleen; that’s super awesome! We bought our house 3 years ago after the market tanked even though we still had about $70k in debt at that time. I think you’re so close that the debt will get paid off quickly with or without the house payment – especially if your sister move in with you.
Often your mortgage payments are cheaper than rent, in which case, it’s a complete no brainer, and when you think about it, paying rent is even worse than debt, because when you repay debt, at least your financial situation is improved.
I think maybe the best question isn’t whether you should buy the condo before your debts are paid off, but rather after buying the condo, do you have enough income to service all of your debt, save for retirement, and still lead the sort of life you’d like?
It’s a personal call. Rates will be low for quite a while, from the looks of things, so you could probably pay the debt off and still get a low rate, but the risk is that prices might be higher, as they’ve been trending up in the real estate market. It’s all about whether you can afford all the payments and still have flexibility for what life throws at you.
I’d be more concerned about accepting the down payment from a relative than jumping the gun slightly on the debt repayment. Are you going to co-own the home? Are you going to add that down payment to your debt? If it is a gift are they going to owe gift tax? How might the financial entanglement change your relationship?
Make sure you are doing it for the right reasons. With only $7k in debt left, as long as you can afford everything and are doing it because you want to and not because it is a good deal then I say go for it. Are you going to have to pay your parents back for the down payment?
I say go for it! As long as you can handle the payments then I really don’t see anything wrong. Now, if you had $70k in debt I might say something else, but at $7k you’re more than likely seeing the end of the tunnel. With that in mind, I think there’s a great opportunity to take advantage of the awesome rates.
I would definitely wipe out all CC debt before buying a house. One has to show they can handle small debt before they can handle huge debt!
Sam
Thanks for the input, everyone! Turns out, the place I wanted is unwarranted, which meant the only person who would lend was someone offering a (pffft) 4.875% 5/1 ARM. No thanks. This may turn into less of an issue, as the longer it takes to find the right something, the less consumer debt I’ll have, and of course, Sam, I have no credit card debt!
Great insights here for advice. Please keep in mind though that Ben Bernanke has openly said he will keep rates low until 2015 so you have PLENTY of time to pay down your debt. I would recommend paying off your CC debt ASAP then look at purchasing a home. Please remember that you need to make decisions based on YOUR current situation and not what someone else recommends is “general practice.” Yes investing in a home right now maybe a good investment but NOT if you have debt and can’t afford it.
It depends! First, it presumes the ban kwill approve your loan. You need a plan to reduce your debt and execute it. Be careful because home ownership has a way of increasing such as util;ities, HOA fees etc.
Buying a home is scary!!! I really can’t give any advice because I haven’t gone through the home purchase process. We will be in a year or so though!
Can’t wait to see what you do.
I have to preface this with the fact that I am a real estate agent, and am disappointed I didn’t get to help you with your house hunt! But it is essentially a very personal decision. We still had some debt when we bought our house, but our payment (including taxes and insurance) and pre-planned maintenance was less than our rent was, and we’d saved enough for a down payment on an FHA loan. I don’t actually recommend buying a house for everyone, especially depending on where they live and what their life goals are. Unfortunately for all of us in Portland it is getting harder for first time homebuyers to enter the market as sales prices do go up. I wish you all the best, though!
I don’t think that there’s anything wrong with buying a new house while still having a $7K debt. As long as you have your financial goals planned out, and you have a stable salary to get you the funds, then go ahead with your plan. I’m sure it will all work out.