Should we buy a house, or wait?
Some highly pessimistic things worth noting to go alongside all the stability and tax break upside that homes generally provide: Negative equity is no joke and basically the only thing that bankrupts the middle classes consistently en masse. The UK is at the end of a huge housing bull run where rents are extremely cheap relative to buying (often in the 1% range within the M25), Brexit is looming and interest rates could well sky rocket with inflation. Borrowing ~500k to buy a highly illiquid asset you might have to fire sale in case of emergency/job loss etc for 300k in a few years when lots of (relatively) cheap rental housing is available to rent risk free, could be argued to be a highly lopsided and dangerous bet vs the alternatives. Locking in 'preferential' mortgage rates can be a huge trap: low interest rates generally increase asset values. If/when they rise, assets fall in value as the demand shrinks, making you highly exposed to huge losses if you need to sell before it is paid off. In the case of housing this can be exceptionally vicious as the liquidity dramatically dries up during falls, meaning fire sales become much more severe than they are for more liquid assets like stock.  Weirdly and unlike most products, people tend to buy the very best house they can get leverage for, rather than work out what they need/want and finding the best value equivalent. If a bank will lend you £20 a day to buy lunch, and you can just afford to pay it, do you hunt out the very best £20 lunch you can every day, or do you make some solid compromises so you can save money for other things etc? You seem to be hunting very close to the absolute peak amount you can spend on these numbers. Related to above, at that level of mortgage/salary you have very little margin for error if either of you lose jobs etc.  Houses are much more expensive to maintain/trade than most people think. You spend ~2-5% every time you buy and sell, and you can easily spend 2-20k+ a year depending what happens just keeping the thing watertight, paid for, liveable and staying up. You need to factor this in and be pessimistic when you do.  Most people don't factor in these costs to the apparent 'index' rise in house values and what they expect to sell for in x years. In reality no buy and hold investor can ever realise even close to the quoted house price returns as they are basically stocks you have to pay 5% each time you buy or sell and then 1-20% percent a year to own - they have to rise dramatically over time for you to even break even after all the costs.  In general you should buy homes to make memories, not money, and to buy them at prices that don't cause you sleepless nights in case of disasters. Advantages of buying: With every mortgage payment you build equity, while with rent, once you sign the check the money is gone. Eventually you will own the house and can live there for free. You can redecorate or remodel to your own liking, rather than being stuck with what the landlord decides is attractive, cost-effective, etc. Here in the U.S. there are tax breaks for homeowners. I'm not sure if that's true in U.K. Advantages of renting: If you decide to move, you may be stuck paying out a lease, but the financial penalty is small. With a house, you may find it difficult to sell. You may be stuck accepting a big loss or having to pay a mortgage on the empty house while you are also paying for your new place. When there are maintenance issues, you call the landlord and it's up to him to fix it. You don't have to come up with the money to pay for repairs. You usually have less maintenance work to do: with a house you have to mow the lawn, clear snow from the driveway, etc. With a rental, usually the landlord does that for you. (Not always, depends on type of rental, but.) You can often buy a house for less than it would cost to rent an equivalent property, but this can be misleading. When you buy, you have to pay property taxes and pay for maintenance; when you rent, these things are included in the rent. How expensive a house you can afford to buy is not a question that can be answered objectively. Banks have formulas that limit how much they will loan you, but in my experience that's always been a rather high upper bound, much more than I would actually be comfortable borrowing. The biggest issue really is, How important is it to you to have a nice house? If your life-long dream is to have a big, luxurious, expensive house, then maybe it's worth it to you to pour every spare penny you have into the mortgage. Other people might prefer to spend less on their house so that they have spare cash for a nice car, concert tickets, video games, cocaine, whatever. Bear in mind that if you get a mortgage that you can just barely afford, what do you do if something goes wrong and you can't afford it any more? What if you lose your job and have to take a lower-paying job? What if some disaster strikes and you have some other huge expense? Etc. On the flip side, the burden of a mortgage usually goes down over time. Most people find that their incomes go up over time, between inflation and growing experience. But the amount of a mortgage is fixed, or if it varies it varies with interest rates, probably bouncing up and down rather than going steadily up like inflation. So it's likely -- not at all certain, but likely -- that if you can just barely afford the payment now, that in 5 or 10 years it won't be as big a burden. You are very young, you make a huge amount of money, and you have (from what information you provide) very little debt. If you simply want to buy a house for whatever reason, sure, but be honest with yourself about why you want to buy it. I see a lot of people who think they're doing it for smart financial reasons, but then when I ask them about their pension savings and credit card debts and so on, there is no evidence that they are actually the kind of person who makes decisions for smart financial reasons. If you want a house because that seems like the thing that people do, maybe you could think more about what you actually want. If your concern is putting your money to work for you (you seem to dislike that you pay rent each month and after that month you don't have anything to show for your money, except of course that you didn't spent the last month living on the streets), you can do a lot better than getting a mortgage. For example, living frugally you should be able to dump 50k a year into investments; if you did that for a few years, you could reasonably expect the return to cover your rent and bills in a surprisingly small number of years (a lot less than a 25 year mortgage). Your question seems to be starting from the position that you should buy a house. You're asking if you should buy it now, or wait. You are rich enough now (and if your earnings keep going up, will be even more rich in a few years) that you should perhaps question your need to buy a house. With your kind of money, at this stage of your life, you can do a lot better.
Take the long term view.  Build up the cash.  Once you have enough cash in the bank, you don't need a credit score.  With 6 months living expenses in the bank after paying 20% down on a small house, he should have no issues getting a reasonably priced mortgage.   However, if he waited just a bit longer he might buy the same house outright with cash. When I ran the computations for myself many years ago, it would have taken me half as long to save the money and pay cash for my home as it did for me to take a mortgage and pay it off. "It depends on what your plans for the future are.. Taking out a loan is not a bad thing if it is at a good rate and under good terms and you are sure you can handle the payments. If you buy the car with cash you may be giving up the opportunity to later get a great rate on that $8k. However, you are probably not utilizing that $20k to make as much interest as you'd then be paying if you did take the $8k on loan. Since you say ""house fund"" I assume you are saving to make a down payment on a new house. If you plan to buy that house within the next 6 months the hard pulls on your credit report from applying for the car loan will probably ding your credit score for the next 6 months which might cost you on your mortgage rate. However, if you don't plan to buy for a few more years and if you've never had a car payment before then the auto loan would actually be adding diversity to your credit history and in the long run would help your score. Another factor to consider is the loan-to-value ratio you are shooting for. LTV affects the interest rate, requirements for private mortgage insurance, etc.. Mortgage rates are at an all-time low and lower than auto-rates, so depending on the terms of the house purchase that $8k might be better spent on the car than the house. In short, if you want to buy the house soon (rates are loooow, market is a buyer's market), and you need that $8k to get a better mortgage rate or prevent you from being required to buy PMI you should probably put it toward the house. Otherwise you should probably put it toward the car. Last piece of advice. If you absolutely must buy a house and a car in the same short time-frame, do them both on the same day so that your credit score is not dinged before applying for one or the other. With mortgages this may be difficult considering the longer closing procedures, but try to time it so that your credit is getting checked by the mortgage broker and the auto lender on the same day." My in-laws are pressuring me to buy a home.  I don't really have much financial experience. In fact, I'm a nightmare with finances. I almost have my student loans payed off from school.  My in-laws and husband are great with finances and with real-estate.  My husband has a good job and $200k in savings.  I have a good job too, and still have some debt from school. (approx $60k left of 180k).   They say the house will be available in Jan or February for purchase, and that we should really try to buy it (prob $2-3 mil).   My guess is they want to make it available to us off the market (which is a huge benefit in this area,  there are really no houses available lately) .   The problem is:  I am uncomfortable because I don't have all of my loans payed off,  I could divert money away from paying off the loans in order to save for a larger downpayment. I just got a bonus of $35k (after taxes)   I don't think I'll have all of my loans payed off by January. Should I save my money for the downpayment or focus on my loans, should I go for the house?  I don't know how to weigh these options against each other with such little experience. "I can only share with you my happened with my wife and I. First, and foremost, if you think you need to protect your assets for some reason then do so. Be open and honest about it. If we get a divorce, X stays with me, and Y stays with you.  This seems silly, even when your doing it, but it's important. You can speak with a lawyer about this stuff as you need to, but get it in writing. Now I know this seems like planning for failure, but if you feel that foo is important to you, and you want to retain ownership of foo no mater what, then you have to do this step. It also works both ways. You can use, with some limitations, this to insulate your new family unit from your personal risks. For example, my business is mine. If we break up it stays mine. The income is shared, but the business is mine. This creates a barrier that if someone from 10 years ago sues my business, then my wife is protected from that. Keep in mind, different countries different rules. Next, and this is my advise. Give up on ""his and hers"" everything. It's just ""ours"". Together you make 5400€ decide how to spend 5400€ together. Pick your goals together. The pot is 5400€. End of line. It doesn't matter how much from one person or how much from another (unless your talking about mitigating losses from sick days or injuries or leave etc.). All that matters is that you make 5400€. Start your budgeting there.  Next setup an equal allowance. That is money, set aside for non-sense reasons. I like to buy video games, my wife likes to buy books. This is not for vacation, or stuff together, but just little, tiny stuff you can do for your self, without asking  ""permission"". The number should be small, and equal. Maybe 50€.  Finally setup a budget. House Stuff 200€, Car stuff 400€. etc. etc. then it doesn't matter who bought the house stuff. You only have to coordinate so that you don't both buy house stuff. After some time (took us around 6 months) you will find out how this works and you can add on some rules. For example, I don't go to Best Buy alone. I will spend too much on ""house stuff"". My wife doesn't like to make the budget, so I handle that, then we go over it. Things like that." Does this plan make sense mathematically? - No not really.  The housing market can be fairly volatile (depending on your location), and it is really a good market for buying right now.  You're going to make 1 or 2% on your money over the next year and risk paying 10% more for the house (or more).  Even if you had a loan at 5% - that would be 5% of what you still owe, not the full value of the house. Does it make sense in terms of the common rules about paying a mortgage off early? - Yes, though make sure you have at least 80% of the house value so you don't get nailed with PMI (which may have a fixed duration). Is there a better strategy that I am overlooking? - Yes, investigate buying a house now.  I'm not saying rush into it - shop around and find a really good deal.  Get a 15-year mortgage (or less) and put what you're able to down (maybe 80% down).  You can then payoff the mortgage over the next year or two and not have the risk of the volatility of the market raising the prices on houses and you getting less for your money. "I think anyone who is seriously contemplating a real estate purchase needs to sit down and read some history -- in particular the accounts of the 1930's and what happened to people who jumped into real estate in the midst of the depression.    If you're not aware: by and large, what happened is they lost their asses: the property continues to fall in value, and then they're on the hooked for increasing taxes as local and state governments raise taxes in a desperate attempt to plug budget holes.  And, of course, interest rates are headed nowhere but up.  That will inversely impact your home's value, given that most people buy homes exactly like you're thinking about them: not how much the home is worth, but rather how much payment can you afford (as rates go up, you can afford less).  A contemporary piece which has lots of accounts of this over multiple years is [The Great Depression - A Diary](http://www.amazon.com/The-Great-Depression-A-Diary/dp/1586489011).  IMHO real estate is to be avoided until well after a bottom has been reached, and that's IMHO still some years away.  Someone coming out of college now should ferret away as much money as possible, live as cheaply as possible, and stay far, far away from thoughts of ""gee, it sure would be a good idea to go drop half a million dollars on a house when I'm making $70K.""  While you're predicting raises and employment, neither is safe to take for granted.  Indeed, many folks thought that in the late 00's and got absolutely destroyed financially as a result." The simple answer is that you are correct. You should not purchase a house until you are financially stable enough to do so. A house is an asset that you must maintain, and it can be expensive to do so.  Over the long term, you will generally save money by purchasing. However, in any given year you may spend much more money than a similar rental situation - even if the rent is higher than your mortgage payment. If you are financially stable with good cash savings or investments plus a 20% down payment, then anytime is a good time to buy if that is part of your financial plan. As of now in 2016, is is safe to assume that mortgage rates   would/should not get back to 10%?   Does this mean that one should always buy a house ONLy when mortgage   rates are low? Is it worth the wait IF the rates are high right now? The mortgage rates are not the primary driver for your purchase decision. That might be like saying you should buy everything on sale at Target... because it's on sale. Don't speculate on future rates. Also, keep in mind that back when rates were high, banks were also giving much better savings/CD rates. That is all connected.  Is refinancing an option on the table, if I made a deal at a bad time   when rates are high? You need to make sure you get a loan that allows it. Always do a break-even analysis, looking at the money up-front you spend to refi vs the savings-per-year you will get. This should give you how many years until the refi pays for itself. If you don't plan on being in the house that long, don't do it. How can people afford 10% mortgage? Buying a house they can afford, taking into consideration the entire payment+interest. It should be a reasonable amount of your monthly income - generally 25% or less. Note that this is much less than you will be 'approved' for by most lenders.  Don't let good rates suck you into a deal you will regret. Make sure you have the margin to purchase and maintain a home. Consider where you want to be living in 5 years. Don't leave so little financial breathing room that any bump will place you at risk of foreclosure.  That said, home ownership is great! I highly recommend it. "Short answer: NO.  Do NOT buy a house.  Houses are a ""luxury"" good (see Why is a house not an investment?).  Although the experience of the early 2000s seemed to convince most people otherwise, houses are not an investment.  Historically, it has usually been cheaper to rent, because owning a house has non-pecuniary benefits such as the ability to change things around to exactly the way you like them.  Consult a rent vs. buy calculator for your area to see if your area is exceptional.  I also would not rely on the mortgage interest deduction for the long term, as it seems increasingly likely the Federal government will do away with it at some point. The first thing you must do is eliminate your credit card and other debts.  Try to delay paying your lawyers and anyone else who is not charging you interest (or threatening to harm you in other ways) as long as possible.  Save enough money to maintain your current standard of living for 6 months should you lose your job, then put the rest in your 401(k). Another word of advice: learn to live with less.  Your kids do not need separate bedrooms.  Hopefully one day the time will come when you can afford a larger house, but it should not be your highest priority.  You and your kids will all be worse off in the end should you have unexpected financial difficulties and you have overextended yourself to buy a house. Now that your credit score is up, see if you can renegotiate your credit card loans or negotiate a new loan with lower interest."