My daughter is 28 and pays $975 in rent. Her take home pay is $1388. She also has a $312 car payment, and her student loans are on deferment. She puts about $100 a month in savings every month but only has about $800. Instead of looking for a cheaper apartment, she has decided it would be better to buy a house. Her dad and I are trying to talk her out of it because she doesn’t have a down payment and won’t have the extra money in case of emergencies. What are your thoughts?
I don’t want to get in the middle of a family dispute, but I’m going to have to side with you, Christine — based on the information you’ve provided in your email, it’s probably not the best idea to buy a house at this stage in her life. Even if she could find a home with a mortgage that is less than her current rent, you have to take into consideration other costs — the down payment, as you mentioned, but also maintenance, which can average 1% of the home’s value each year. And I like to see home buyers have at least a bit of an emergency cushion — emergencies pop up more frequently when you own a home, because if the roof springs a leak or a tree falls across your yard, you have to foot the bill.
A rental also comes with more flexibility — if she were to be laid off, for instance, or even if she wanted to take a lower-paying job, she could pick and move to a cheaper rental, but she won’t have that option with a home she owns. I would encourage her to find a rental that is less expensive — she is paying almost 75% of her income toward housing right now, which is too high. Then she can get those loans out of deferment. She should look into income-based repayment, which ties your monthly payment to your income. And she can start saving more to have a cushion for emergencies and, eventually, a down payment on a house.