Foreclosure in 92104>Question Details

Kelly, Home Buyer in San Diego, CA

Should we consider buying even though we don't have a lot of income?

Asked by Kelly, San Diego, CA Fri Jan 4, 2008

My husband and I have been renting for awhile and with the market where it's at, we're considering buying. We have one daughter, and just want a small place to fit us 3. The problem is, our combined income is around $50000/year, before taxes. We have excellent credit, no debt, but are wary of all the costs associated with owning a home. Is it worth trying to buy before the market goes up, or should we just wait?

Help the community by answering this question:


Kelly: I am not a real estate PRO and don't know about the San Diego market, but I do know quite a bit about finances, so I will comment on that aspect.

First, in your situation, with a relatively tight budget / income for 3 people in an expensive area of the country (SoCal) - as Ally also believes - the decision should be cost of buy vs. rent.

When you own a home, these are your monthly recurring expenses:
- mortgage (interest + principal),
- insurance for the house,
- RE taxes,
- utilities.
(in some cases there might also be private mortgage insurance, depending on the terms of your mortgage, etc.

There will also be non-recurring charges similar to automobile maintenance, coming at unexpected times. There are ways to reduce them, e.g. by buying a condo, townhome, home warranty if possible, etc. But there will be some, undoubtedly, and these will be costs that you almost never have to pay as a renter.

Your typical renter's expenses are:
- rent,
- utilities (in some cases some of the utilities are included - depends on part of the country, lease, etc).

In your situation, you can work backwards, i.e. figure out how much you are ABLE / WILLING to spend monthly. It should probably not exceed what you are already spending on rent + utils, unless you have excess income right now that you are willing to spend on a monthly recurring basis towards a house.

With respect to mortgage interest deduction on your taxes, you should remember that when filing for your federal taxes, you can do ONLY ONE of the following two:

- claim standard deduction,
- itemize deductions.

A deduction is something that reduces your taxable income (i.e., it's not totally money into your pocket, but it helps to get some).

IN 2006, for a married couple filing jointly the standard deduction was $10,300, and in 2007 it is $10,700 (you probably can deduct more with a kid in your family). So in order to benefit from itemizing deductions, i.e. get benefit from mortgage interest, you will need to pay more than $10,700 in mortgage interest per year, and the only benefit will be the excess, i.e. the amount above the $10,000. Sure, you can increase the bucket of itemized deductions using state income taxes, donating clothes to Goodwill, etc, but don't be fooled, you are not going to get a massive tax advantage - those are peanuts.

With your income of $50K a year, say you are willing to pay 28% to mortgage, RE taxes, and house insurance. That's $14K a year, or $1,166 per month. The portion of mortage interest in that amt should be on the order of $800-$900 / month, or $9.6K - $10.8K per year, i.e. you will NO benefit from mortgage interest alone (your should add your state taxes to that bucket too, but I doubt you are paying more than $2K in state taxes per year).

Of course, you might decided that you are willing to pay more than 28% of your income. Choose your percentage, and do the math yourself and see if it works out for you.

I think many of the RE agents below have some good advice, e.g. loan programs for middle-income families like yours, and special programs for occupations for teachers, public workers, etc. You should probably do some math and see if the BUY decision is right for you. Once you do that, definitely get a buyer's agent to help you, preferably one that has a SOLID mortgage banker to help you with the financing.

Good Luck
2 votes Thank Flag Link Tue Jan 15, 2008

You sound like an excellent candidate for one of several loan programs, including Bank of America and Chase Mortgage's Acorn Loan (see link below). Your income is in the target range for this type of loan and San Diego home inventory levels haven't been this good in ages.

There are even properties in the San Diego area priced under $200,000--which wasn't even imaginable a couple of years ago. Please feel free to give me a call at 760-402-9101 if you have any questions.

Good luck!
2 votes Thank Flag Link Sat Jan 12, 2008
Roberta Murp…, Real Estate Pro in Carlsbad, CA
Hi Kelly,
As a young family, I would be very careful about buying... especially if you don't have much saved up and won't have a down payment. If your mortgage payments will be the same or less then your current rent, then go for it. The general rule I was told was to only take out a mortgage that is equal to or less than 3 times your annual income. There are many costs associated with maintaining a home and raising a kid. No one on this forum ever mentions this... but reality is that your whole paycheck can't go toward paying for the mortgage, insurance, property tax, and utilities. Real people have to buy groceries, gas, clothe their children, pay for childcare, pay for doctors and dental visits, go visit grandma every now and then. In the meanwhile, you also need to be saving for retirement and college fund. Believe me, in California, it is hard to make those dollars stretch. Some of those costs can be unpredictable. Right now there is not a rush to buy. I agree that maybe you can start saving up for a down payment. You should probably meet with a mortgage person or financial planner to discuss how much you can realistically afford, before you set out looking at houses. The worst thing is to fall in love with a house that you cannot afford. Good luck.
1 vote Thank Flag Link Sat Jan 12, 2008

We are an approved lender with the City of San Diego down payment assistance programs. Based on your family income you will qualify for 31% down payment assistance silent second program. For example a house that is $300,000 you would receive assistance of $93,000 for your down payment. Please let me know if you would like more information.
0 votes Thank Flag Link Sun Mar 16, 2008

You may want to check into the city sponsored first time homebuyer programs. In our area of California almost every city has them. Your Realtor can help you obtain more information. Some of them allow layers of assistance with downpayment and closings costs up to 80K with the different layers. Good luck.
0 votes Thank Flag Link Sat Mar 8, 2008
Pam Winterba…, Real Estate Pro in Danville, VA
Consider the Acorn program, any special first time homebuyer programs or grants. Wtih one of these programs, you may find a rate that can make owning a home within reach
0 votes Thank Flag Link Sat Mar 8, 2008
Deborah Madey, Real Estate Pro in Brick, NJ
Hello Kelly,
I would suggest a financial adviser , to help you in this manner. Security for your family is of most importance. Please take it serious before jumping into a market that is not stable and not at its lowest point. Stay positive, continue to save, and be patient, my only concern is if the interest rates rise in the future. This alone factor may work against us all, because our monthly payments will be higher. I say all this as a friend, but the best advise is from a professional adviser.
Thanks from Ron
0 votes Thank Flag Link Sat Mar 8, 2008
Here are a couple of links for you to understand how itemized vs. standard deductions work (to make sure I was not just making that stuff up in the previous post).

In that link, read the second paragraph carefully.
0 votes Thank Flag Link Tue Jan 15, 2008
You should really consider it. You probably qualify for CalHFA :-)
0 votes Thank Flag Link Fri Jan 4, 2008
Kelly, Why don't we sit down and talk? I am in your area, and right now there are some great buys out there. Depending on what you are currently paying for rent, you may find that you can buy. There are some first time buyer programs in some of our area cities, which help in many different ways- such as paying your down payment, silent seconds and lots of other things. It appears that you may qualify for some of those programs. Those programs, along with some of the short sale and foreclosure properties that are on the market just may get you comfortably into a home.

I'd like to look at what is the best for your family. I'd love to see you building some of your own equity, IF you are able to truly afford it.

Patti Phillips
0 votes Thank Flag Link Fri Jan 4, 2008
I agree with Rebecca, although I'd also point out that accumulation of assets is a process that propels people into the middle class. We have many programs in California to help teachers, firefighters, and those in your income bracket attain home ownership. I'd recommend that you begin educating yourself on the process, the market and the many lending programs out there. Good luck!
0 votes Thank Flag Link Fri Jan 4, 2008
I would suggest you first speak to a lender or Realtor to find out what you can afford comfortably with a traditional loan. Unless you have a large downpayment saved, it is probably better to wait until you either do have a large downpayment saved or have a higher income. Home ownership is expensive, besides the mortgage, there are property taxes, insurance and upkeep..none of which you are responsible for when renting.
0 votes Thank Flag Link Fri Jan 4, 2008
Search Advice
Ask our community a question
Email me when…

Learn more

Copyright © 2016 Trulia, Inc. All rights reserved.   |  
Have a question? Visit our Help Center to find the answer