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I am in my mid 30s married with kids. We have been...
# general
f
I am in my mid 30s married with kids. We have been renters until now paying $2400/month. We really want to buy a house already for our family. Buying a home would wipe out all of our savings (we don't have investments) and significantly increase our monthly housing expenses. Our new payment would be at least $4,000. If the mortgage lender says we can afford it, why not do it? Any downsides? I think if we really push ourselves we can make the $4000 payment work and we could finally build equity.
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m
You'll have to get some finance advice from someone who can look at your whole financial picture. Your mortgage lender is one of the last people I'd ever rely on. Their whole job is to convince you to close a mortgage with them. I've had a lender tell me that spending 55% of my gross income on my mortgage + property taxes is "affordable". Without knowing more about your individual situation, a $1600 jump in housing being "really stretching" is probably not affordable unless you have a ton of discretionary expenses to eliminate from your budget. Also assume adding approximately 5-10% of your housing expense for maintenance and at least $1500/year to insurance with a $1000 deductible You may want to consider your housing needs. Perhaps something smaller as a starter home is more appropriate. This also means the home this time doesn't need to be your dream home in your dream location (but make sure the wife likes it and is on board)
You will also be in a risky situation of having no savings and not saving any more due to "stretching". What do you plan to do if Chas veshalom you lose your job? Have a maintenance expense? How will you save for your kids chasunahs?
w
I also used to think that building equity was important vs. tossing money down the rent tubes, until @mysterious-tomato-10057 set me straight 🙂 . If you really have $1600/mo surplus, you'll get far better returns long term by investing than by building equity. If you want the house because you want something that is yours that you can customize and improve that's another thing, but it doesn't sound like you'll have any money to do any of that.
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b
You can spend some time while still renting now to save the amount that would be the additional house payment to see if it's really feasible not spending that money on other needs, to feel how tight that really is, and to add to your savings
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t
mortgage lenders don't know about tuition and the other expenses of frum life. We are literally not making it month to month without dipping into savings, and our payment is half of what we officially qualify for
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w
Just FTR, I have not found frum mortgage lenders to be all that much more realistic...
t
however, I totally get you that renting for the long term is very much not ideal. Can you buy something with a rentable basement? or some other way of generating enough income?
c
Houses are money pits if you aren't careful. You often don't notice what needs to be fixed until living with it for a couple of months. You would need to budget $3-500/mo just for home maintenance (and thats on the low end for a house in relatively decent condition and doesnt include home improvement)
t
@witty-engineer-80805 right, because they underwrite according to official policy/ guidelines, not based on seichel.
c
Can you buy something with a rentable basement? or some other way of generating enough income?
Never rely on this. Be sure you can survive for a significant amount of time without a renter.
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t
on the devil's advocate side! when figuring out how much tuition you "can afford" , they take your housing payment into account. And if you buy a reasonable house, but the payment is high because of interest rates, your tuition payment will probably be lower. So you have to look at how much your overall financial picture would actually change
@curved-toothbrush-84425 yes, that's a good point
c
The best benefit of home ownership is that the payment never changes (except taxes and insurance). But thats a long term play.
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t
and the other benefit is that i've found it gives a feeling of "rootedness" which is worth quite a bit
IMO
and worth stretching for, a bit
m
But all of those benefits don’t outweigh the cost of putting yourself in a situation where you aren’t saving/investing enough to cover your KNOWN future expenses like tuition, chasuna, bar/bas mitzvos, etc. Which if you use up ALL your savings (which is the prompt), you will be starting with nothing. Kal Vechomer if you have a significantly higher monthly payment now will it be harder to save for one’s known goals.
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t
🤷‍♀️ very much a personal thing. Not a one size fits all. Obviously can't be irresponsible! Need to figure out what you can cut out to be able to afford the payments and a safety net. But if they'd rather make very simple bar mtizvas and stuff to own their own house I can respect that
m
And with no ability to save, what should they do when they can no longer work?
t
there's not enough details to know. maybe the 4k payment is a push, after employer matched 401k contributions. Maybe one of the spouses can train up for a more lucrative field, in a few years when their kids aren't so little. No idea. all I'm saying is that there are some non fincnaical considerations to buying a house too that can change the calculations a bit
m
I’ll add more details on the question because I know who anonymous is. There is no 401k.
b
Isn't part of home ownership the ability to pull equity if needed for weddings etc.
m
@bumpy-minister-26192 Yes that is a very real backup plan… Not a lehatchilah at all. If you are relying on a HELOC (your proposal) to weddings, and that is your only savings/investing vehicle, you still have 0 plans for retirement and now you are paying 8% interest (current HELOC rate) on the chasuna (not to mention you can’t pay it back because maybe you have another chasuna coming up next year!)
b
Better than paying for weddings with a cc
m
If anyone reading this has their only plan for chasunas as using a HELOC with no other savings/investing, please 🙏 go to https://frum.finance/planning and we can explore together why it may or may not be a viable option.
@bumpy-minister-26192 Actually, paying for a wedding with a 24 month 0% credit card is better than paying for it on a HELOC at 8%
but again, if your options are HELOC vs CC, then you go back to my answer that this is a BACKUP plan
The prompt is asking what he should do lehatchilah.
c
I would also say to hold off on buying a home right now. It seems to be one of the worst possible times to buy. Rates are high (relative to 1-2 years ago) and the home prices haven't fallen much. That makes the current amount spent on a mortgage realllllly high. Its a pretty risky time. I would personally wait 1-2 years just based on that alone.
b
Original prompt discussed building equity, so if you can't/ shouldn't pull it, is there any benefit to building that equity?
t
@curved-toothbrush-84425 how do you think purchase prices in established frum communities in two years will comapre to now?
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m
I didn’t say you shouldn’t ever pull from a HELOC. I personally would be comfortable using a HELOC because I have a financial plan, so if I needed a short term line of credit its a very valid option. But I have no plans to use it because I have actual investment plans for other known expenses. For example, I just had a son so I put x amount away into an investment account each month to cover the chasuna in 20+ years. Would I use my HELOC if I ran out of options? Yes. Should I plan to use it over proper long term planning? No.
c
Original prompt discussed building equity, so if you can't/ shouldn't pull it, is there any benefit to building that equity?
To this point. Because the rates are so high, most of it is going to interest. You would probably end up paying more in interest than you are in rent.
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b
Eventually equity would grow though
t
well appreciation is also equity. plus that's for teh first 5 years from whenever you start
c
@thankful-angle-58448 Its impossible to know, but I don't think its possible for them to go up with the rates this high (and likely going up a bit higher). Waiting a couple of years gives them a way to increase their salary a bit before buying so that they can afford it better. And if the prices do go down they can get a better deal.
b
If you have no other investments, a house purchase is a home and future savinngs plans. Maybe not great, but 2 birds with one stone
c
Eventually equity would grow though
The point is that they aren't saving anything on their rent. The equity is the same as saving the extra cash at the end of the month.
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t
house prices in frum areas almost never go down, and manage to keep going up even when it seems impossible. and the reality of frum living is that keeping your housing costs 1400 below what it owuld have been with a mortgage does not mean that money will be available for savings. Most likely a decent percentage of it will end up being spent on tuition, and the rest will get swallowed up in other ways. Whereas if you must spend it on a mortgage, you will find places to cut to make it happen. (Similar to the Robert Kiosaki "pay yourself first" approach). So, all in all I think it gets harder and harder to get into a house, the longer that you wait. 🤷‍♀️
m
By that logic you would essentially be telling anyone to buy as big a house as they want then… Maybe the family should be buying a cheaper house? The logic of buy what you want if you have the money and let others cover your tuition is a massive problem.
t
yes, its definitely not ideal. but telling a family they can never own their own house until they can save 1400/month is also really not ideal
c
They may not go down in nominal dollars, but in real dollars they definitely do. Also just want to clarify that I didn't say never buy a house. Just that it seems prudent to wait a bit in the current environment. There may be better opportunities in a couple of years.
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t
(if this family can get a house that's cheaper, they should definitely do that and keep their payments closer to what their rent is now)
b
I think it's reasonable to buy a house you need, take the tuition cut, and resolve to A) try to help the school in non-monetary ways and B) in later years when, g-d willing, you have more money saved up donate to the school
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*obviously not to abuse the tuition cut by buying a bigger house
t
i don't know just dont actually see it get much easier for families to buy a house when they wait, barring major career changes
m
How do you define a house you “need”? What if the family just likes a more expensive neighborhood?
t
obviously there's no objective definiton to what house is "needed". All factors , including financial, have to be weighed to arrive at a responsible decision.
b
It would be like any tuition cut - somehow there is a consensus on what is a definition of reasonable. Idk what a school would do if someone made a financial decision that makes them unable to pay - I assume it varies by school.
m
But should we be encouraging that behavior? buy a house you can’t afford and don’t plan for retirement so that you get free tuition? I don’t like it at all.
w
Also, I think it is healthier to rephrase it from "tuition cut" to "tuition fincanced by others" because it's not like the money you were going to pay was just a nice to have for the school - it's going to come from somewhere.
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m
I’m referring to the donors that are constantly bombarded to cover school expenses.
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I see two families in the same school with the same number of kids with the same salary where one is donating to the school and has a small house and one has a tuition cut and has a big house.
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b
I agree it's not ideal but if the alternative is to never afford a house then I think resolving to help in the ways I mention above is adequate enough. There will always be people who game the system and unfortunately it's not always people who can't afford it 🤷
m
Or encourage them to do financial planning?? That’s my vote. Maybe even start a non profit discouraging poor choices and offer free advising to avoid this.
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b
Can't think of anyone who would ever do something like that
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Just to clarify, that was a joke lol
I definitely agree that what you're saying is lechatchila. I hope your org can bring the necessary education and give hope to the masses that it's achievable. I think most people assume tuition cuts (or tuition financed by others) is the only viable option, even with reasonable financial habits
m
Well remember that the person reading this thread is working with me so let’s encourage them to take the lehatchilah advise instead lolsob He might message me after this, “SEE I told you I can buy a house and just get free tuition, why should I invest this money now??”
b
Fair enough. Upvote for Lechatchila approach
t
wait, for the record. If you, after looking at their finances, think that in a year or two they will be able to afford a house and the higher monthly payments more easily than they can now, then of course that makes more sense and is more responsible.
m
Well what if its more of a suffek? In that case they should buy a house that causes them to not be able to save any money each month?
t
If it's more like, well the next couple years are going to be much the same as now, except houses are getting more expensive, than I'd say jump in now and figure out how to to pinch enough to make it happen
yeah, i do feel like having a house is more important than saving 500/month 🤷‍♀️
m
we are talking about 1400+ month, if it was 500 i would agree.
not even including maintance
t
but again that 1400/month is not able to go into savings
because other things will eat it if its there
you don't get to thenumber of savings by saying mortgage cost- rent costs
m
if you setup automation, I don’t see how you can say that
t
for example, tax deductions on interest payment
tuition differences
m
inesting for retirement will also be considered by the school as a necessary expense
i fight for that on behalf of families
t
whether or not you like it, the reality is that if their housing payment is 1400 less, their tuition payments might be 500 higher. again, not saying its great. But htat doesn't mean that money is available for savings
i do not believe saving for retirement impacts tuition payment the same way housing costs do
m
I have found that it does so far, but I also think buying a house in the nicer neighborhood wont help you on tuition
t
right, as it shouldn't
w
(4000 - 2400 = 1600, FTR)
t
is that what we're talking about? a luxury home purchase?
m
I wouldn’t say luxury, but definitely more expensive than what it could be
yeah i guess that is important context
t
oh ok. given the finances, I would not say they should be splurging in any way.
m
“it’s not splurging for us, we feel like we need this kind of house”
m
From a hard-nosed Hashkafah perspective: 1. People raised 8 kids in 3 bedroom semi-detached houses in Baltimore with unfinished basements. My parents raised 4 kids in a 2 bedroom apartment with no yard. (I wouldn't wish it on anyone, but "needs" is a loose usage here 2. Setting up your finances to purposely take tzedakah (that includes purposely structuring for subsidized tuition) is not the way people should aspire to live their lives. Giving Tzedakah gives wealth. (I'm not talking about setting up your income in legal ways to get government benefits here, I have a very different opinion on that) 3. I'm not sure you can halachically set your finances up to be on a knife's edge. That's why Frum finance requires the first thing people do is to buy life insurance
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t
wait so are you suggesting that ppl should pay full tuition (15k/child) before they buy a house?
m
I certainly am not.
t
I don't think you are. So we're just disagreeing on where exactly the line is
c
You're making that sounds ridiculous but why is it? Do you think people should pay their full grocery bill before buying a house? Why is tuition expected to be received at a discount?
w
Full tuition is a red herring. Almost all schools bake into "full tuition" a cost above what education actually costs, to subsidize the breaks they give to others. So the point where you are no longer a taker is not actually at full tuition.
m
Are we though? I think you are assuming this is the cost of living where they are so they need to buy. I guess I am saying, if you want to have a mortgage payment higher than others, you better be maxing out your IRA first.
t
@curved-toothbrush-84425 its the logical conclusion of what @microscopic-psychiatrist-27869 said. I personally view it a different way. Schools are communal organizations that serve a communal purpose. and for some percentage of their funding to come from communally raised resources, with the rest filled in based on the ability of the parent body, is not so unreasonable
@mysterious-tomato-10057 yes, so the part that they want a more expensive house than what others have was added late to the conversation.
I was talking about buying a house at all
m
Need, then tuition (at least to where you not a taker), only then a house bigger than you need
t
I agree its inappropriate to be buying more expensive than the norm
"Need" in my book, can include owning a house 🤷‍♀️ (again, not an over the top expensive house, but the cheapest house you can get in a neighborhood that is good for your family)
m
why? if renting a house works fine
b
Keep in mind, the nicer house/neighborhood the more expensive keeping up with the jones is going to be, plus you'll need to spend more on landscaping to fit in.
t
as someone who is currently renting after owning for years (cross country move), I can tell you its not really fine
IMO
not for the long term, anyway
anyone here renting and want to give a different perspective?
b
I'm also a big believer in taking the plunge for home ownership, sometimes it's a leap of faith to take, but renting forever can happen and I personally don't think it's ideal. Just keep it affordable.
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w
@thankful-angle-58448 I owned and then rented for many years, and did not find it so bad. 🤷
m
having just spend 2500$ on a new water heater, i would prefer to rent if I didn’t have the capital to handle such situations. The stress would eat me alive knowing I can’t afford anything to go wrong.
m
I'd like to point out that this has moved far into a perspective conversation. The original question was whether the person can actually afford this house, which I don't think they can
t
yes, i hear that, I was never. inthat situation so I don't know how I would feel about it
part of the "can afford" has to do with costs/benefits. and these are things related to that
t
One overlooked advantage of buying is that your mortgage payment doesn't increase much year to year, only the insurance and tax, rent can increase much more.
w
@thankful-raincoat-91160 that was mentioned by @curved-toothbrush-84425 way back when.
m
I think we generally all agree that it's advantageous to own your home in most situations
But this is long-term. In the short term, stretching so far with no savings and no plan for savings runs a very high risk of not being able to afford basic maintenance repairs or other unforeseen costs
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m
Also I saw families home insurance literally double this year.
b
If you buy a home you could probably downsize during retirement and use the proceeds for retirement funds.
m
That is what we have monte carlo simulators for 🙂
t
I was just thinking about this more, and 1600 is a LOT more for a family that has no room in their budget. I was taking for granted the assumption that they could do it, based on him saying that they could but did they have a plan for hOW they would do it? Like, where is that extra 1600 going to come from? Did they have specific things they'd be cutting? Are they currently saving that money and going forward they wouldn't be? @mysterious-tomato-10057
b
It's not that they don't have $1600 yet, they just aren't spending it yet on rent. They have to stretch, but the stretch may only be the last hundred or two, the rest may be going to saving now for the down payment that would stop being available for savings once they buy 🤷🏼
m
i’ll clarify that there is no extra money in the current budget.
maybe just a bit
w
But maybe they have a rich uncle who is about to die?
m
the idea is maybe if they push themsleves, work overtime, keep pushing, maybe they can make it work so they can finally have the house they want.
b
That just sounds stressful, they should look for a cheaper place
t
yes, maskim
if alllll 1600 is a push, htat's pretty crazy
c
Look at the article from the voice a couple weeks ago. Seems like someone in a similar situation did that and they said that they can't sleep due to the stress.
t
especially cuz as their kids get bigger all their other expenses are going to get higher. And if they're already pushing to the max, what are they going to do then
my final recommendation: they should keep the goal of buying a house, but look for one that's much closer to their budget
m
as i said above, if it was 500$ maybe I would agree, but when its over $1000 i just can’t
t
and be willing to youtube/elbow grease something that looks a little ugly
I guess I don't think it's crazy for their housing payments to swallow up whatever surplus they've got now, plus a little extra they can push for. But if we're talking 1000 more than their total available funds, and all of that is a push, then yes, I'd agree its really not a good idea
m
Kk so we all agree it seems 🙂
c
Tell them not to lose hope!
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n
Full tuition is a red herring. Almost all schools bake into "full tuition" a cost above what education actually costs, to subsidize the breaks they give to others. So the point where you are no longer a taker is not actually at full tuition.
@witty-engineer-80805 this relates to the other discussion about schools' transparency. At least in my kids' school, this is not the case. If everyone paid full, the budget would be covered with no surplus. All fundraising is for scholarships.
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m
@nutritious-raincoat-28876 same is true for any school I've taken a hard look at. Fundraising is solely to cover the deficit that wasn't covered by tuition. But I haven't interrogated every school out there so I'm sure this isn't always the case.
n
I suspect the reverse may be more applicable with an "owned" school rather than a "community-run" school. No hard data whatsoever.
m
Interesting. I believe I am only familiar with community run schools.
w
I am personally familiar with a community-run school in which full tuition is 25% over the cost.
n
That's sad, for multiple reasons. At a minimum, people paying above cost should be getting a tax deduction. It's a donation, not tuition.
w
They were told that they could count it as maaser, FWIW
m
IRS doesn’t accept a psak though 😛
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c
Speak to more than one mortgage broker - the fees from some can be a percentage and some are a flat fee which can be a difference in thousands. There are many that have programs or work with gov programs for first-time homebuyers, teachers, etc. There is lag from rates rising and sellers repricing many deals starting to fall apart. Overall not worth to buy at the top - even with low rates. A loss of a job or need to move may have you end up with a 1099c. Would wait till end of year or 24 to see prices come down.
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