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The Tale of a Spouse and a House - Chapter 1

Joshua in buying a home

May|16|2008

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I promised myself I would write a post about budgeting for a house, but have managed to put it off for a while.  The fact is, I’m scared to write about this.  Why?  Because as I try coming up with a budget I’m not sure we can afford to buy a house…

Sonia and I decided to talk at the end of the year about buying a home.  We will talk about budgeting and priorities.  Do we want to get the most house we can possibly afford now with the plan of staying for many years (and possibly raising a family)?  Do we want something smaller, allowing us to save and invest but knowing we will need to move at some point?  Then there is the question of what neighborhood to live in.  Spend more for the best possible area or spend a little less in a “transitional” neighborhood? 

I’m a pretty conservative guy when it comes to buying a house.  I believe in 20% down.  I believe in a smaller home in a neighborhood with the best school system.  I believe in having an emergency fund which should only be used if someone loses a job.  A home isn’t a status symbol, it is a place to live and raise a family. 

That sounds great in theory, but doesn’t work so well in real life.  Take the 20% down.  Not going to happen in an area where a small home can cost $500,000 - and that isn’t even in a great neighborhood.  Not that neighborhoods matter when it comes to schools.  See, here in the Bay Area kids don’t always go to the school in their neighborhood.  Schools are based on a lottery system.  If our future kids don’t get into a decent public school we have to decide if we want to send them to a private school.  Private schools are a lot of money - $15,000 a year.  That’s half of my wife’s salary.

Still, if we are going to make any decisions, I needed to start working on 2 things - the true cost of owning a home and a budget.

Listing all the costs of home ownership was easy, but depressing: Mortgage, private mortgage insurance (we can only afford a 10% down payment), electricity, water, garbage, commuting costs, property taxes, insurance, closing costs, maintenance.  These are all the known costs.  But there are other considerations: What happens if/when we choose to have kids?  What about saving and investing?  We would probably also get disability insurance and life insurance (I have this, my wife does not).  Like I said, this was a depressing exercise.

Next was a budget.  When I working out our budget, I had two options on how to start:

Option 1 is the traditional, “best case scenario” method of listing out all expenditures and comparing it to your income.  Look at ways to cut back and see what is left.  Try and plan for emergencies.  Easy enough if you can stick to it. 

Option 2 is what I call the reality budget.  Basically, take all the money we spend on debt and add that to the amount we spend on rent since we should be debt free in 2 months.  The advantage to this is that we know that we can live within our means, continue saving for retirement and not be stressed about paying the mortgage and other bills.  The downside to this method is that by not cutting back on our savings or investing, we have a lot less to spend on a home.  For those who say there are always ways to cut back you are probably right, but we really don’t spend a lot of money - we bring bag lunches, drink the free coffee at work, etc.

I’m sure our budget will be a compromise between both options.  Ultimately, the answer as to buying a home may depend on what is available.  As much as I want to own my a house, I refuse to pay inflated prices and sacrifice our security, just to have one. 

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