New house budget

[adlove]

We found a house that we love. It's at the very top end of our budget. The location is perfect, it's in the right school zone, the house is brand new, very well done, and we can see ourselves in it for the long term (it has plenty of room to grow).

My husband just started work in his new position and still is unsure of his exact take home pay, so we are estimating conservatively.

Take home: $6000 
This is after 20% to retirement (H only contributes 6%, rest is a match plus additional from company) 5k/yr in a share plus program, and health insurance.

mortgage $1787
utilities $250
car payment $283
car insurance $140
gas $300
groceries $600 (high end estimate)
cell $90
int/cable $110
baby $200
misc. $500 (incl dinners out, clothing, etc)
savings $1700

H gets an annual bonus in September of about $20k after taxes. We plan to use this amount to pay taxes and homeowners insurance ($13800/yr +o(). When our next tax payment is due at the end of next year, we will have 2 of these bonuses socked away so we hope that by always being ahead of the game we will feel more comfortable.

Also worth mentioning, after downpayment, closing costs, and 15k set aside for appliances, window treatments, and a few furniture pieces, we will have $40k in an emergency fund.

H gets a typical annual raise of 7% and has great job security. We know it will be tight for a little while but hopefully will be able to breathe easy before too long. 

What do you all think? Is this doable?

[rebekistan]

Does the $40k in your E Fund include those 2 bonuses? If I were you, I would put $1,150/month into an account earmarked for taxes and homeowners' insurance and $550 into savings instead of $1700/month straight into savings. Then, when the bonus comes in, put it into savings. I know you say that the bonus is stable, but that would make me feel better if I were you.

Do you have any particular plans for where the monthly savings needs to be spent in the next year? (car, baby, etc?)

Sorry, I'm new here, but do you plan to SAH with baby? Or will you have daycare costs?

[adlove]

Jan 16, 2013 12:03:11 GMT -5 rebekistan said:

Does the $40k in your E Fund include those 2 bonuses? If I were you, I would put $1,150/month into an account earmarked for taxes and homeowners' insurance and $550 into savings instead of $1700/month straight into savings. Then, when the bonus comes in, put it into savings. I know you say that the bonus is stable, but that would make me feel better if I were you.

Do you have any particular plans for where the monthly savings needs to be spent in the next year? (car, baby, etc?)

Sorry, I'm new here, but do you plan to SAH with baby? Or will you have daycare costs?

The current efund does not include any bonuses. I think the savings of $1700 is us taking the taxes and insurance into account but for some reason we feel better thinking that it will just be a lump sum out of the bonus. So that money will go into an ING account earmarked for taxes but it feels better to put it in with savings as opposed to just $550. If that makes sense haha.

Yes I will be staying at home so no child care expenses at this time. 

We just repatriated from abroad so there is another $20k coming to us in march as part of that process that is earmarked for a car for my H, so we won't be dipping into savings for that.

[rebekistan]

I think it looks OK, although I would budget a little more $$ per month for baby costs. I haven't done the math recently, but in addition to dipes, wipes, and food you will want to buy baby clothes, toys, books, and do some activities. Each season, we spend about: $150 on clothes, $50-150 on toys, $25 on books (library book sales, but if you buy new you will want a bigger budget for this), $50 for family activities like going to the zoo or children's museum.

It's always nicer to have a bigger E Fund, but it's also up to your comfort level.

[Deleted]

I think it is do-able. You have quite a bit left over for emergencies. And considering that the house is perfect and long-term, I think it's worthwhile to make whatever short-term sacrifices you need to in order to make it work.

[adlove]

H is on track for retirement, he currently has over 1 yr of his salary (age 26). The share plus plan is matched after three years too so that's another good investment for us. The plan is to open a Roth for me, we are going to use some of the annual bonus to fund that.

Also failed to mention we have life insurance policies through his work - would it be more beneficial to cancel these and find our own private insurance? I think I recall someone saying this before.

[SJ]

I think it looks doable.

What are your current housing costs? Do you have any retirement money in your name? I'd like to see a Roth IRA for you worked in there if possible.

Any debt other than the mortgage?

[rebekistan]

RE: life insurance: We have our own policies because we didn't anticipate staying at the same jobs for our entire career, the policy limits were too low, and we wanted to lock in a "premium" rate while we were still young and in good health. IDK what YH does, but if he doesn't anticipate staying with that company until retirement, I would consider getting private life insurance for both of you. The rates go up as you get older or if your health declines, but you can lock in a fixed rate while you're younger and healthier, for the term of the insurance.

[adlove]

Jan 16, 2013 13:46:50 GMT -5 SJ said:

I think it looks doable.

What are your current housing costs? Do you have any retirement money in your name? I'd like to see a Roth IRA for you worked in there if possible.

Any debt other than the mortgage?

We currently (and for the past 2 yrs) have no housing costs. We were abroad for H's job and all living expenses were paid. So basically that whole time we saved a large amount of money for the purpose of buying a good long-term home upon arrival. 

The only other debt we have is a car loan, which we will probably pay off in about a year or so. We got the loan to establish some credit for me, so once we get a larger cushion of money we will be paying it off. Total is just about $15k @ 5%. Monthly payment is $283.

[sillygoosegirl]

I'm concerned that you are counting on large bonuses and raises.  Is his company contractually obliged to give bonuses and raises like that?  Just because that's what he's gotten in the past doesn't mean he'll get it in the future; this stuff tends to change when a company hits hard times.  I would be a lot more comfortable saving each month for taxes and planning to spend the bonus money on something optional, just in case you don't get it.  I think you should also be asking yourself if you'd want this house even if he didn't continue to get large raises.  

[adlove]

Jan 16, 2013 14:12:18 GMT -5 sillygoosegirl said:

I'm concerned that you are counting on large bonuses and raises.  Is his company contractually obliged to give bonuses and raises like that?  Just because that's what he's gotten in the past doesn't mean he'll get it in the future; this stuff tends to change when a company hits hard times.  I would be a lot more comfortable saving each month for taxes and planning to spend the bonus money on something optional, just in case you don't get it.  I think you should also be asking yourself if you'd want this house even if he didn't continue to get large raises.  

This is definitely something we've been mulling over. We purposely left the $1700 out of the budget so that should we need it, we will have enough to cover taxes and insurance if heaven forbid there is no bonus. It would be highly, highly unlikely that there isn't one though. 

We have been weighing all of our options and really think this home is our best option for the long term. We're putting 20% down so should the need arise to sell it sooner than we want we will always have some equity. The location is a very popular one that is stable and will continue to rise in property value (if not significantly, it will hold value with inflation). I think ultimately we are ready for the lifestyle change we're facing. It's definitely scary but we feel secure.

[Deleted]

Is it a 15 year or 30 year loan?

[msmerymac]

I wouldn't, but I'm super conservative and not use to good public schools, lol. But I think it might be doable for a few years, if the following apply:

Will you go back to work once your baby is in school?
Are the schools in your area good?
Is there affordable pre-school in your area? How will you afford that if you aren't working at the time? That would make your budget pretty tight.
After school care costs once your children are in school?
Do you have pets?
When will you need to replace your cars?

If this is a 15 year mortgage another thing to consider would be either attempting to find a lender who will do a 20 year or doing a 30 year for a while and refi-ing in a few years.

Mostly I'm really worried about the taxes and insurance not being a part of that almost-$1800/month payment. If that mortgage payment was PITI, I'd be more into it. But where I am, that $1700 "extra" per month would easily be swallowed up by preschool/day care costs for 2 kids in the future.

[adlove]

The schools are great which is a big part of why we are more comfortable with it. If we were in another area we'd be paying for private/catholic schools. I do plan to return to work after our child is in pre-school. 

If we didnt get this home, we decided that we would drop our budget significantly. This would put us in either a small fixer-upper, in a not so great area (but one with potential for growth down the line) and we would need to pay for private schools. Or in a new town house style (3 stories) in another less desirable area. Both options would not take us very far into the future, which I worry about as far as mortgage rates and resale value. 

In our situation, would you be more inclined to choose something like these options, over stretching ourselves for a few years? We think that our budget lines are reasonable just because once baby is here we won't be going out much anyway so the grocery budget will be more important to us than say an entertainment, eating out budget.

[chessie]

I would not count on any bonuses. What happens if something happens? Will you have that money down the road to pay your taxes, etc, if something goes wrong? Too risky. Especially with kids. DH lost his bonus last 2 years due to the economy tanking, glad we never counted on it.

[kwynn]

Why not cut down a few spending categories like groceries and misc?

If you got rid of groceries and misc and maybe could trim $400-500 there, you'd be in a better place. You'd be in a more excellent place without the car payment.

Maybe don't use the whole 15k for appliances, etc, and save some of that?

Also, wow, those taxes are high! Is there anywhere locally that has lower taxes? I'm going to a place that has lower taxes to keep my monthly payment lower hopefully.

[adlove]

Jan 16, 2013 16:40:28 GMT -5 kwynn said:

Why not cut down a few spending categories like groceries and misc?

If you got rid of groceries and misc and maybe could trim $400-500 there, you'd be in a better place. You'd be in a more excellent place without the car payment.

Maybe don't use the whole 15k for appliances, etc, and save some of that?

Also, wow, those taxes are high! Is there anywhere locally that has lower taxes? I'm going to a place that has lower taxes to keep my monthly payment lower hopefully.

We intentionally made those categories larger to give us a bit of wiggle room. I am going to meal plan and see how far I can cut down reasonably in those categories.

I would really like to just pay off the car now and get that out of the way, but the whole point of having it financed was to build up some credit for me. My credit isn't back, I just literally have none. 

The 15k is also a high estimate, we will be spending as little of that as possible but just don't want to under budget and then really feel pressed for cash.

Taxes are pretty much standard in all of the areas we are looking at.

[kwynn]

Wow, and I was complaining about 3k-4k in taxes in Pittsburgh.

Do you feel you need credit built up? Some people say that's overrated. What about getting a credit card and just paying it off every month, would that be good for credit building?

[adlove]

Jan 16, 2013 16:58:28 GMT -5 kwynn said:

Wow, and I was complaining about 3k-4k in taxes in Pittsburgh.

Do you feel you need credit built up? Some people say that's overrated. What about getting a credit card and just paying it off every month, would that be good for credit building?

You know, I really don't to be honest. I did just open a card on my huaband's account so I can be a joint user and hopefully his credit history will transfer to me. I think that would be enough for me.

I think I'll take a closer look at this with him tonight and with the 15k budget and the remaining e-fund, we may find the room to pay it off a lot more quickly. Definitely something to think about.

[msmerymac]

With only one of you working, I know this is VERY conservative, but keep in mind that you only really have a 9 month e-fund, less if you count having to pay taxes/insurance during that time period. Without dual income, I find that to be a bit more precarious. Especially if another emergency eats into that money and you find it hard to replace.

[sillygoosegirl]

Jan 16, 2013 18:00:10 GMT -5 msmerymac said:

With only one of you working, I know this is VERY conservative, but keep in mind that you only really have a 9 month e-fund, less if you count having to pay taxes/insurance during that time period. Without dual income, I find that to be a bit more precarious. Especially if another emergency eats into that money and you find it hard to replace.

I think that depends on how employable the SAHP is.  If both people have marketable skills that could support the whole family, or close to it, they are potentially *less* precarious than a duel income family because they could immediately have two job seekers.  In some fields, time off is a career killer, but in plenty of others, it's not really a big deal.  

[adlove]

Jan 16, 2013 18:00:10 GMT -5 msmerymac said:

With only one of you working, I know this is VERY conservative, but keep in mind that you only really have a 9 month e-fund, less if you count having to pay taxes/insurance during that time period. Without dual income, I find that to be a bit more precarious. Especially if another emergency eats into that money and you find it hard to replace.

I know. This is a major consideration. The market here is so fast paced that we really feel the need to jump on this now. It's risky, without a doubt, but our hope is that the pros outweigh the cons (in our minds, they do) and since the house is a brand new build from a reputable builder, we hope to have no major home repairs or costs like that. 

There is always a possibility of job loss, of health problems or accidents, regardless of where we live. We are young, and I feel like it'll be good for us to learn to live on a tight budget for a little while. Sounds crazy but I'd rather jump on this, a "forever home" than be somewhere we don't love, don't feel safe walking around, sending our kids to the zoned school, etc. It just feels right. 

[gt7301b]

I think it doable IF you put aside the money for taxes and interest as you go. I wouldn't want to be counting on them and have to dip into the efund to pay the taxes.

[msmerymac]

Jan 16, 2013 18:17:55 GMT -5 sillygoosegirl said:

Jan 16, 2013 18:00:10 GMT -5 msmerymac said:

With only one of you working, I know this is VERY conservative, but keep in mind that you only really have a 9 month e-fund, less if you count having to pay taxes/insurance during that time period. Without dual income, I find that to be a bit more precarious. Especially if another emergency eats into that money and you find it hard to replace.

I think that depends on how employable the SAHP is.  If both people have marketable skills that could support the whole family, or close to it, they are potentially *less* precarious than a duel income family because they could immediately have two job seekers.  In some fields, time off is a career killer, but in plenty of others, it's not really a big deal.  

Right, I'm just thinking that with a dual income household, hopefully you could tighten up and live off of one person's salary (or salary plus UE of the other spouse) without touching savings, or with supplementing with savings. Perhaps by cutting your cable and stopping contributions to savings temporarily, you know? With one income if the only income earner is unemployed and, god forbid, doesn't qualify for UE, you're living completely off of your savings account. (In my case, if I was unemployed, we could live off of my husband's salary, even without UE. If he was unemployed and getting UE, we could also live off of that, though tightly. Without him getting UE we would use savings, but at a much, much slower rate than paying all of our bills out of savings.)

BUT that's not to say that this isn't a hard choice. I think if you asked people in the real word (not MM) about this, they would say absolutely go for it. After all, plenty of people bought houses with 80/20 mortgages and no savings in the last decade. So this is certainly much more cautious! And I can't say I wouldn't be swayed by the prospect of a move-in ready forever house in a good school district.