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,
(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:
- 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.
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.
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.
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.
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.
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
In that link, read the second paragraph carefully.
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.