How much house can I afford? (First Home)

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boatguy17
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How much house can I afford? (First Home)

Post by boatguy17 » Sun Dec 10, 2017 6:29 pm

Hi everyone,

Long time lurker, first time poster. I am I my mid twenties and am looking to purchase my first home with my wife. Due to my HCOL area I do not know what the appropriate budget should be. A median 1 bedroom apartment within 10 miles of my current home is renting for $2000/month. My current 2 bedroom apartment is renting for $2500/month so I have been strongly considering purchasing a home to lower my monthly cost of living. Buying a home seems to be the only way of lowering our monthly housing expenses as crazy as that sounds. My wife would have to commute over 1 hour each day if we wanted to move further out, and even then the rent only drops to $2100 for a 2bedroom which isn't enough savings for me to justify the impact it will have on her school considering she needs to be in class by 8:00am Monday-Friday.

I have about $170,000 in cash that I am able to put down on a home. The average 2 bedroom condo in my area is selling for $350-400k with a $300-400 HOA fee. The average 2 bedroom townhouse is selling for $450-550k with a $300-400 HOA and the average 2 bedroom rambler home with a yard have been around $600k. Taxes in our area are fairly low. About $250/month on a $450k home.

I make about $5000 per month and my wife is currently in her first year of medical school accumulating debt through her student loans. She owes about $27k so far. We have no debt other than her student loans.

Including my down payment, I have $200,000 in Checking/Savings and my retirement funds are maxed out each year (401k and both Roth IRA's)

I'd like to keep my mortgage between $1000 and $1500 but it seems like I would only be able to get a condo with that budget. Should I increase my budget and buy a townhome/single family home instead? I want to buy something that can sell relatively quickly later on if we decide to move. I would prefer a home instead of a condo for this reason. What a reasonable amount to spend with my income and my down payment? What would you do?

My wife and I love the area we're in and we're going to be here at least six more years maybe more due to her medical school/residency situation. Long term our goals are to sell this property and use it as a down payment on a larger home for our future family.

Thank you for taking the time to read!
Last edited by boatguy17 on Sun Dec 10, 2017 6:51 pm, edited 2 times in total.

stan1
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Re: How much house can I afford? (First Home)

Post by stan1 » Sun Dec 10, 2017 6:44 pm

If your wife is in medical school asking her to commute over 1 hour each way for years is not a good idea. Professional school loans are painful, but that commute would be even worse. What does she think of this idea? How would you feel if you had a greater than one hour commute each way every day?

boatguy17
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Re: How much house can I afford? (First Home)

Post by boatguy17 » Sun Dec 10, 2017 6:47 pm

stan1 wrote:
Sun Dec 10, 2017 6:44 pm
If your wife is in medical school asking her to commute over 1 hour each way for years is not a good idea. Professional school loans are painful, but that commute would be even worse. What does she think of this idea? How would you feel if you had a greater than one hour commute each way every day?
I agree. That's why I am looking to purchase in our current area. Moving further out (which has been a common recommendation to me by friends/family) doesn't bring enough benefits for me to consider it strongly. I want to make her next six years as easy as possible.

KlangFool
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Re: How much house can I afford? (First Home)

Post by KlangFool » Sun Dec 10, 2017 6:49 pm

OP,

<<My current 2 bedroom apartment is renting for $2500/month >>

It is cheaper to rent. So, why are you buying a house or condo?

KlangFool

boatguy17
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Re: How much house can I afford? (First Home)

Post by boatguy17 » Sun Dec 10, 2017 6:54 pm

KlangFool wrote:
Sun Dec 10, 2017 6:49 pm
OP,

<<My current 2 bedroom apartment is renting for $2500/month >>

It is cheaper to rent. So, why are you buying a house or condo?

KlangFool
$2500/month for 6 years is $180,000 and I figured if it was being put towards equity in a home it would be better spent?

KlangFool
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Re: How much house can I afford? (First Home)

Post by KlangFool » Sun Dec 10, 2017 7:14 pm

boatguy17 wrote:
Sun Dec 10, 2017 6:54 pm
KlangFool wrote:
Sun Dec 10, 2017 6:49 pm
OP,

<<My current 2 bedroom apartment is renting for $2500/month >>

It is cheaper to rent. So, why are you buying a house or condo?

KlangFool
$2500/month for 6 years is $180,000 and I figured if it was being put towards equity in a home it would be better spent?
boatguy17,

1) You will spend a lot more than $2,500 per month to buy a house.

2) The interest that you pay for your mortgage will make sure that the amount of home equity will be minimal.

3) Your down payment is not being invested. The opportunity cost is at least 5% to 6% per year.

4) You will spend a lot more on housing if you buy. And, you probably will never get your money back. So, why are you doing this?

5) You can only be sure that you will be here for 6 years. So, why are you buying?

KlangFool

Grt2bOutdoors
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Re: How much house can I afford? (First Home)

Post by Grt2bOutdoors » Sun Dec 10, 2017 7:27 pm

boatguy17 wrote:
Sun Dec 10, 2017 6:54 pm
KlangFool wrote:
Sun Dec 10, 2017 6:49 pm
OP,

<<My current 2 bedroom apartment is renting for $2500/month >>

It is cheaper to rent. So, why are you buying a house or condo?

KlangFool
$2500/month for 6 years is $180,000 and I figured if it was being put towards equity in a home it would be better spent?
You buy a condo/house for $400k. You plunk down $150k, the balance is mortgage. You take a $250k mortgage, first years interest expense is $10k. Interest rate is 4%. Ninety percent of your mortgage payment is interest for years 1-10. You also have maintenance expense, let’s call it $4k per year. So in year 1, it costs you $18,533. Equity in year 1 is $3,833. You don’t say what annual property taxes run, so that is an additional cost. If housing market stays flat, you should do okay, but if housing prices decline you can lose money or worse, unable to sell house and now become involuntary landlords.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

tigerdoc93
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Re: How much house can I afford? (First Home)

Post by tigerdoc93 » Sun Dec 10, 2017 7:33 pm

If your spouse is in medical school how do you know you will be in same location for 6 years? Medical school is 4 years and residency match is a lottery system.

WL2034
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Re: How much house can I afford? (First Home)

Post by WL2034 » Sun Dec 10, 2017 7:35 pm

I would not recommend buying a new house when she is 3.5 years from graduating medical school. If you do buy something, I would find something inexpensive and nearby the medical school as reasonably possible. The hours are going to get longer and more intense for the next 2-3 years before she graduates. Living an hour away is definitely not a safe option. I would recommend within 10 minutes.

KlangFool
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Re: How much house can I afford? (First Home)

Post by KlangFool » Sun Dec 10, 2017 7:36 pm

Grt2bOutdoors wrote:
Sun Dec 10, 2017 7:27 pm
boatguy17 wrote:
Sun Dec 10, 2017 6:54 pm
KlangFool wrote:
Sun Dec 10, 2017 6:49 pm
OP,

<<My current 2 bedroom apartment is renting for $2500/month >>

It is cheaper to rent. So, why are you buying a house or condo?

KlangFool
$2500/month for 6 years is $180,000 and I figured if it was being put towards equity in a home it would be better spent?
You buy a condo/house for $400k. You plunk down $150k, the balance is mortgage. You take a $250k mortgage, first years interest expense is $10k. Interest rate is 4%. Ninety percent of your mortgage payment is interest for years 1-10. You also have maintenance expense, let’s call it $4k per year. So in year 1, it costs you $18,533. Equity in year 1 is $3,833. You don’t say what annual property taxes run, so that is an additional cost. If housing market stays flat, you should do okay, but if housing prices decline you can lose money or worse, unable to sell house and now become involuntary landlords.
<<I have about $170,000 in cash that I am able to put down on a home. The average 2 bedroom condo in my area is selling for $350-400k with a $300-400 HOA fee. The average 2 bedroom townhouse is selling for $450-550k with a $300-400 HOA and the average 2 bedroom rambler home with a yard have been around $600k. Taxes in our area are fairly low. About $250/month on a $450k home.>>

Grt2bOutdoors,

Tax about $3,000 per year.

KlangFool

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climber2020
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Re: How much house can I afford? (First Home)

Post by climber2020 » Sun Dec 10, 2017 7:42 pm

boatguy17 wrote:
Sun Dec 10, 2017 6:29 pm
My wife and I love the area we're in and we're going to be here at least six more years maybe more due to her medical school/residency situation.
Rent. I've been through the entire medical training process. You have no idea where you'll be after medical school wraps up. It's not worth buying a house now.

boatguy17
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Joined: Sun Dec 10, 2017 6:07 pm

Re: How much house can I afford? (First Home)

Post by boatguy17 » Sun Dec 10, 2017 7:47 pm

climber2020 wrote:
Sun Dec 10, 2017 7:42 pm
boatguy17 wrote:
Sun Dec 10, 2017 6:29 pm
My wife and I love the area we're in and we're going to be here at least six more years maybe more due to her medical school/residency situation.
Rent. I've been through the entire medical training process. You have no idea where you'll be after medical school wraps up. It's not worth buying a house now.
I appreciate the advice everyone, thank you. I'll see what I can do to find lower rent moving forward. Seems like in our area it's going to be trending closer to $3000/month as we move forward so we might just stay where we are and try to lock us in at the current rate.

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Meg77
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Re: How much house can I afford? (First Home)

Post by Meg77 » Sun Dec 10, 2017 7:54 pm

Rent!! This will give your spouse the utmost flexibility when it comes to selecting a residency program and ultimate job. Plus it's cheaper. Plus you could use your savings to enable her to graduate debt free and not accumulate a massive amount of student loans. Plus, you can't afford to buy in the price ranges you're talking about.

Just because you live in a HCOLA doesn't give you a pass on math. Even if you put down $150K (you'll need the rest for closing costs, furniture, and an emergency fund), your mortgage will be nearly 4 times your income in the lowest range you're talking about. That means not a lot of room for fun or savings - not including the massive debt your spouse will continue to snowball into. That's a recipe for incredible stress and relationship problems.

Why is she taking out student loans when you're sitting on $170k?? You can take out a post-nup if you're worried about paying for her school and then her dumping you, but in general it makes zero sense for you to sit on a cash pile while she racks up debt.

Sure you could buy a condo and live in it until she finishes school and endure a huge cash flow crunch while you rack up debt - which will ensure a cash flow crunch for years to come - but I'd only do that if you agree to buy something that would make a good rental and plan to rent it out when you ultimately move. In other words, you need a time horizon longer than 5-6 years to make it worth it. And I'd also only do that if your relationship is rocky enough that you don't trust it'll last 10 years. At least you could have the house/condo in a divorce versus losing it all on her tuition and then only getting possibly a bit of alimony (depending on your state laws).
Last edited by Meg77 on Sun Dec 10, 2017 8:00 pm, edited 1 time in total.
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Grt2bOutdoors
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Re: How much house can I afford? (First Home)

Post by Grt2bOutdoors » Sun Dec 10, 2017 7:58 pm

Rent! Use the money to reduce borrowing cost, at least you will benefit from lower debt burden and maximum flexibility in moving.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

2Birds1Stone
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Re: How much house can I afford? (First Home)

Post by 2Birds1Stone » Sun Dec 10, 2017 8:24 pm

Grt2bOutdoors wrote:
Sun Dec 10, 2017 7:58 pm
Rent! Use the money to reduce borrowing cost, at least you will benefit from lower debt burden and maximum flexibility in moving.
^+1, unless you don't see this relationship lasting.

Nate79
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Re: How much house can I afford? (First Home)

Post by Nate79 » Sun Dec 10, 2017 8:39 pm

Why do you have so much cash and yet are taking on student loan debt? Rent and finish school with no debt.

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StormShadow
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Re: How much house can I afford? (First Home)

Post by StormShadow » Sun Dec 10, 2017 9:21 pm

Rent.

Having flexibility with your wife's ability to re-locate is invaluable at this stage of her career. My 2 cents as a doc.

fuzzball
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Re: How much house can I afford? (First Home)

Post by fuzzball » Sun Dec 10, 2017 10:59 pm

boatguy17 wrote:
Sun Dec 10, 2017 6:29 pm
Hi everyone,

Long time lurker, first time poster. I am I my mid twenties and am looking to purchase my first home with my wife. Due to my HCOL area I do not know what the appropriate budget should be. A median 1 bedroom apartment within 10 miles of my current home is renting for $2000/month. My current 2 bedroom apartment is renting for $2500/month so I have been strongly considering purchasing a home to lower my monthly cost of living. Buying a home seems to be the only way of lowering our monthly housing expenses as crazy as that sounds. My wife would have to commute over 1 hour each day if we wanted to move further out, and even then the rent only drops to $2100 for a 2bedroom which isn't enough savings for me to justify the impact it will have on her school considering she needs to be in class by 8:00am Monday-Friday.

I have about $170,000 in cash that I am able to put down on a home. The average 2 bedroom condo in my area is selling for $350-400k with a $300-400 HOA fee. The average 2 bedroom townhouse is selling for $450-550k with a $300-400 HOA and the average 2 bedroom rambler home with a yard have been around $600k. Taxes in our area are fairly low. About $250/month on a $450k home.

I make about $5000 per month and my wife is currently in her first year of medical school accumulating debt through her student loans. She owes about $27k so far. We have no debt other than her student loans.

Including my down payment, I have $200,000 in Checking/Savings and my retirement funds are maxed out each year (401k and both Roth IRA's)

I'd like to keep my mortgage between $1000 and $1500 but it seems like I would only be able to get a condo with that budget. Should I increase my budget and buy a townhome/single family home instead? I want to buy something that can sell relatively quickly later on if we decide to move. I would prefer a home instead of a condo for this reason. What a reasonable amount to spend with my income and my down payment? What would you do?

My wife and I love the area we're in and we're going to be here at least six more years maybe more due to her medical school/residency situation. Long term our goals are to sell this property and use it as a down payment on a larger home for our future family.

Thank you for taking the time to read!

I wouldnt buy and be tied down to an area. She still needs to go through residency. No guarantee where she'll end up matching.

Olemiss540
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Re: How much house can I afford? (First Home)

Post by Olemiss540 » Mon Dec 11, 2017 3:57 pm

Was there an error in the original post? Seems awfully hard to believe you saved $200k, all while maxing out your 401k/IRA on a $60k/yr net?

Not knocking ya (amazing job btw), just wanted to make sure this wasn't a typo of some sort.

I also would NOT buy a house with your income. Not enough wiggle room, and the nest egg you have will ensure you can weather any storms during medical school until your spouse has an income. Also need to make sure you have a buffer for your upcoming relocation in 3.5 years in case you suffer job loss as a result. If you can get your spouse through medical school/residency with a rental apartment and $0 net worth, you will automatically join the 5% and never have to worry or stress about finances again given your track record. No need to risk it by leveraging up and giving up your considerable cushion....
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

boatguy17
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Re: How much house can I afford? (First Home)

Post by boatguy17 » Mon Dec 11, 2017 4:05 pm

Olemiss540 wrote:
Mon Dec 11, 2017 3:57 pm
Was there an error in the original post? Seems awfully hard to believe you saved $200k, all while maxing out your 401k/IRA on a $60k/yr net?

Not knocking ya (amazing job btw), just wanted to make sure this wasn't a typo of some sort.

I also would NOT buy a house with your income. Not enough wiggle room, and the nest egg you have will ensure you can weather any storms during medical school until your spouse has an income. Also need to make sure you have a buffer for your upcoming relocation in 3.5 years in case you suffer job loss as a result. If you can get your spouse through medical school/residency with a rental apartment and $0 net worth, you will automatically join the 5% and never have to worry or stress about finances again given your track record. No need to risk it by leveraging up and giving up your considerable cushion....
Nope, not a typo. I used to live in a much cheaper place and I inherited a bit of money. I'll leave it at that but I am trying to budget myself based on my current monthly income and not touch a lot of the money I inherited since it is currently in the market.

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Pajamas
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Re: How much house can I afford? (First Home)

Post by Pajamas » Mon Dec 11, 2017 4:07 pm

I would agree with everyone else that the timing isn't right to buy now with your wife in medical school, regardless of how the dollars work out.

You shouldn't plan on selling something you buy now in a few years for a profit or even at break-even. You could well take a loss. There is no way to predict where housing prices will be in a few years, especially when there are many indications that interest rates will be rising.

TheHouse7
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Re: How much house can I afford? (First Home)

Post by TheHouse7 » Mon Dec 11, 2017 6:19 pm

Rent!
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

MedSaver
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Re: How much house can I afford? (First Home)

Post by MedSaver » Mon Dec 11, 2017 7:08 pm

climber2020 wrote:
Sun Dec 10, 2017 7:42 pm
boatguy17 wrote:
Sun Dec 10, 2017 6:29 pm
My wife and I love the area we're in and we're going to be here at least six more years maybe more due to her medical school/residency situation.
Rent. I've been through the entire medical training process. You have no idea where you'll be after medical school wraps up. It's not worth buying a house now.
This ^^. She hasn't even started clinicals and you're planning for her to do residency/fellowship there? What if she decides she wants to do something extremely competitive like dermatology or radonc and the 1 residency slot gets filled by someone else?

wilked
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Re: How much house can I afford? (First Home)

Post by wilked » Mon Dec 11, 2017 7:22 pm

Nate79 wrote:
Sun Dec 10, 2017 8:39 pm
Why do you have so much cash and yet are taking on student loan debt? Rent and finish school with no debt.
I was wondering this too...

You trust her enough to buy a home together but not enough to pay down her debts?

hightower
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Re: How much house can I afford? (First Home)

Post by hightower » Mon Dec 11, 2017 7:36 pm

boatguy17 wrote:
Sun Dec 10, 2017 6:29 pm
Hi everyone,

Long time lurker, first time poster. I am I my mid twenties and am looking to purchase my first home with my wife. Due to my HCOL area I do not know what the appropriate budget should be. A median 1 bedroom apartment within 10 miles of my current home is renting for $2000/month. My current 2 bedroom apartment is renting for $2500/month so I have been strongly considering purchasing a home to lower my monthly cost of living. Buying a home seems to be the only way of lowering our monthly housing expenses as crazy as that sounds. My wife would have to commute over 1 hour each day if we wanted to move further out, and even then the rent only drops to $2100 for a 2bedroom which isn't enough savings for me to justify the impact it will have on her school considering she needs to be in class by 8:00am Monday-Friday.

I have about $170,000 in cash that I am able to put down on a home. The average 2 bedroom condo in my area is selling for $350-400k with a $300-400 HOA fee. The average 2 bedroom townhouse is selling for $450-550k with a $300-400 HOA and the average 2 bedroom rambler home with a yard have been around $600k. Taxes in our area are fairly low. About $250/month on a $450k home.

I make about $5000 per month and my wife is currently in her first year of medical school accumulating debt through her student loans. She owes about $27k so far. We have no debt other than her student loans.

Including my down payment, I have $200,000 in Checking/Savings and my retirement funds are maxed out each year (401k and both Roth IRA's)

I'd like to keep my mortgage between $1000 and $1500 but it seems like I would only be able to get a condo with that budget. Should I increase my budget and buy a townhome/single family home instead? I want to buy something that can sell relatively quickly later on if we decide to move. I would prefer a home instead of a condo for this reason. What a reasonable amount to spend with my income and my down payment? What would you do?

My wife and I love the area we're in and we're going to be here at least six more years maybe more due to her medical school/residency situation. Long term our goals are to sell this property and use it as a down payment on a larger home for our future family.

Thank you for taking the time to read!
DO NOT BUY A HOUSE WITH YOUR WIFE IN MEDICAL SCHOOL!!! Sorry, I rarely type in all caps, but this is important. Are you guys familiar with the residency match process? When she graduates she will have to participate in the match and apply for programs all over the country in her desired field of medicine. If she wants to go into a competitive field or wants to get a spot at a good program, she needs to apply all over the country. Chances are you will need to move somewhere else for residency. When this happens you will need to sell that house and if the market drops between now and then, you'll be in a very bad situation. Even if she already has a spot at a residency where you currently live, it doesn't make sense to buy a home in that scenario either because it's very common for new attendings to change jobs in the first couple of years or for plans to change. With so many unknown variables and a relatively short time before you might need to move, it's not good to buy real estate. Keep renting and saving and you guys will be in much better shape when she graduates. Also, why is she borrowing money for medical school when you have 200k in cash sitting in the bank? Makes no sense. Pay for her tuition and living expenses with that cash.

Bird Beard
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Re: How much house can I afford? (First Home)

Post by Bird Beard » Mon Dec 11, 2017 9:49 pm

Do not buy a home while in medical school!
Do not buy a home while in residency!
Do not buy a home while in fellowship!
Do not buy a home until your wife is comfortable with a first job after training!

What are the interest rates on her loans? Why not use some of the money to pay her medical school tuition? I would have enjoyed my residency a lot more if I didn't have close to $300k in debt hanging over my head. It would have also made transitioning to attending life that much better.

boatguy17
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Re: How much house can I afford? (First Home)

Post by boatguy17 » Mon Dec 11, 2017 11:44 pm

I really appreciate all the feedback and advice everyone!

I'm glad I made this post. I had my head set on us purchasing a home thinking that it would save us money, but obviously that is not the correct course of action. That's why I like this forum!

As for her student loans. I did plan on paying them off for her, but she has been very stubborn to accept my help so far. She wanted to go through school and pay them off on her own but I am going to try to convince her that is not the best route for us as a couple financially.

wilked
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Re: How much house can I afford? (First Home)

Post by wilked » Tue Dec 12, 2017 9:59 am

boatguy17 wrote:
Mon Dec 11, 2017 11:44 pm
I really appreciate all the feedback and advice everyone!

I'm glad I made this post. I had my head set on us purchasing a home thinking that it would save us money, but obviously that is not the correct course of action. That's why I like this forum!

As for her student loans. I did plan on paying them off for her, but she has been very stubborn to accept my help so far. She wanted to go through school and pay them off on her own but I am going to try to convince her that is not the best route for us as a couple financially.
You are married...there is not his and her finances, there is one common set of finances (unless you had a pre-nup or something like that?)

Sounds like you got good feedback...keep renting, get debt-free, stay mobile, and put some roots down (house) later in life

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