We make $325K a year and live in a rent-controlled apartment in a high-cost-of-living area. Our rent is less than $2K a month. Our income only recently doubled after my SO finished school. We have minimal debt, just 2 car loans ($53K) and a student loan ($5K) with interest rates of 3.28-4.74%. We max out our 401Ks, have 529 plans, an ESPP, a Roth IRA and a brokerage account with minimal risk – total is $230K, mostly in the 401K. We also have $45K in a high yield savings account. Our biggest monthly expense is our 2 kids – around $4K per month for private school and extras. Even though homes in our area cost $1.3M on average, we don’t live in a good school district. We bring home $18K per month, and I expect a 15% raise soon.
Despite all this, we’ve struggled to buy a home. We’ve been focusing on saving for retirement and paying off high-interest loans. We’ve worked with a financial advisor and explored every scenario online, but it’s impossible to buy a house in our area without being house poor. We live comfortably – not extravagantly, but we can afford to eat out occasionally, buy quality items, go on family vacations, and fund our hobbies. We have around $3K per month extra to invest or save. Our main issue is the down payment.
My parents have offered $50K towards a down payment. Unfortunately, it won’t make a huge dent in a $1.3M loan. After closely following the housing market, we’ve decided to buy out of state in the state where my parents live, which is a low to medium cost-of-living area. They live in a cheap, old rental for $650 per month. We want to buy a $500K SFH for them, with them covering property taxes and utilities while we pay the mortgage and insurance. We’ll visit them at least once a year, and the kids can spend summers with them. This way, my parents are cared for, we build equity, and the house will be ours in the end.
My parents are taken care of, and we get to build equity. I have siblings nearby to take care of my SO’s parents. Am I financially sound enough to make this move?
What would you do? Would you commit to a mortgage that you can’t get out of without a plan for your parents first? Our current place is a bit tight but cozy: 1400 sq ft, 2 bedrooms, 2 bathrooms.
Response from THE MONEY MINDER:
Hello There,
First and foremost, it’s clear that the well-being of your parents is a top priority for you, and that is truly commendable. The plan you’ve outlined to purchase a home in a more affordable area for them while also building real estate equity is a practical and thoughtful approach to ensuring their comfort and security in the future.
Considering your current financial situation, which seems stable and well-organized, it makes sense to take advantage of the opportunity your parents are offering to help with the down payment. It’s crucial to assess the feasibility and sustainability of taking on a mortgage for the new property, especially considering your HCOL area and the costs associated with it.
Given that you’ve run through different scenarios and consulted with a financial advisor, it seems like you have a good grasp of your financial landscape. However, before committing to the purchase, you may want to further explore and analyze the long-term financial implications of carrying an additional mortgage, even with the support from your parents.
One practical step you could take is to create a detailed budget that includes all the expenses related to owning another property, such as mortgage payments, property taxes, insurance, maintenance costs, and any unforeseen expenses. This will help you get a clear picture of how this purchase would fit into your overall financial plan.
In addition, it might be beneficial to discuss with your parents the specific terms of the arrangement, such as how ongoing expenses will be shared, what happens in the event of unforeseen circumstances, and any legal considerations that need to be addressed.
Overall, it seems like you have a well-thought-out plan that aims to benefit both your family and your parents. By approaching this decision with a blend of practicality and compassion, you can make an informed choice that aligns with your financial goals and values.
Remember, financial decisions of this magnitude can be complex, so it’s always a good idea to consult with a financial advisor to ensure that you’re making the best choice for your unique situation.
Best of luck as you navigate this important decision.
THE MONEY MINDER
