A Reader Who Cares About My Home Purchase

Recently, after discussing my fears about a home purchase, I received a very thoughtful email from a reader that I wanted to share with all of you.

I love your site. I just discovered it and I pop in every day. I don’t usually respond but I have to tell you this….
You aren’t silly for not liking the mortgage set-up you described. I don’t think it is fear that is holding you back – it’s your common sense.
Now, as a 40 year old, mother of 7, I’m going to say something you can’t. Your wife is wrong. The house is too expensive and the ARM is too risky. After baby #2 comes along and wife wants/needs to stay home that house will sink you. She will hate you for not “letting” her quit her job and she will have totally forgotten that is was you that said the mortgage is too much.
All of that seems so unlikely but I’ve seen at least 5 couples overbuy on houses on the basis of it being a good investment. One couple divorced and another couple is up to their eyeballs in debt. The second couple had dental expenses (of all things) for three of their four children that will need expensive implants. The third couple isn’t in a happy place. They could swing the mortgage (barely) but then the furniture, lawn equipment, sprinkler system all had to be bought with payments. Not to mention eating out and daycare for the “oooops” 3rd baby.
Buy the house that you can afford on one income, save a decent down payment and skip the ARM. Some couples gamble on a ARM to qualify for too much house then don’t qualify later for a standard mortgage when they really, really need to convert.
Swallow your pride and don’t get caught up in thinking the kind of house you live in reflects the kind of person you are or how much you love your family. Oh, and don’t even consider buying a house until you have your debt gone.

I basically agree with everything she said here. I do not want to get caught up in a home purchase that will financially strangle me for most of my adult life. My fear is that this will happen, but I have set up several safeguards against this.

First, my wife agreed to not purchase a home that sells for more than 1.5 times our annual income. This puts a pretty clear cap on what we can even look at, obviously, because we’re not exactly raking in money by the bushel.

Second, we live in an area with very modest property values. We live in the midwest with no major cities near us; the closest one is Minneapolis, which is about a three hour trip. This means that house prices are quite reasonable and that we can find a decent house in our price range.

Third, rather than using an ARM to make the down payment, we can cover most of it with a zero-interest loan from my retirement plan. This is an avenue that we explored only because of our discussions with a close family member who helped us to find some avenues of fund raising that we had not previously examined. We may still need to get a small ARM, but we’re looking at an 80/3/17 situation, where the ARM will be trivial to pay off in three years.

It really is great to have readers who write in with such feeling and sincerity. Thank you, dear reader; you know who you are.

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  1. Tom says:

    I don’t know that I would do a traditional ARM as the down payment, but I would certainly look into a HELOC. Yes, the rates will move on you, but if you manage it correctly, it won’t have a negative impact on anything you hope to accomplish. In fact, it may make certain things even easier to accomplish (like buying a car, for example).

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