One of my co-workers wants to buy a home. She has just calculated that atfer mortgage related expenses (I assume that means mortgage payment and property tax escrow) that they will have $500 per month left for EVERYTHING, as she put it. This is for a couple and their 8 year old son.
They live in Madison. If anyoe knows a site that shows comparative costs of living among mod-sized citied, that woud be great. They own a car, but they could commute to work by bus. Buying a cheaper home is not an option for them, as they are getting it from his parents at significantly under market value.
They most certainly can do it, but the relative amount of comfort will be affected by how ‘cheap’ they want to live. According to the U.S. Government, their poverty threshold is $14,810. In theory, this means that they are able to support themselves on about $1,234.17 per month.
I don’t know about the relative cost of living in Madison, but I know that in this area (central VA), it can be done.
Just looking at $500, though, it’s going to be very tough for them, unless they sacrifice certain things. Here, electricity and water would eat up at least $200 of that; throw in groceries for a family of three and you’re getting awfully close to the 500 mark. Add in luxuries like a telephone, gas, etc., and you see how close they’re going to cut it.
If they do it, I certainly hope that nothing happens that would require emergency money (car tire blowout, emergency room trip, etc).
Probably doable, but would require cutting out all nonessential items.
No toys for the son.
No cable TV or satellite dish.
No designer clothing. Heck, nothing beyond K-Mart or Target.
No DVDs, VCR tapes, or computer games.
No computer anythings.
No cell phones.
No books.
No vacations.
No furniture.
Personally, unless the family is expecting some more money in the near future, I’m not sure if I’d advise it. Living tightly for a while can be done, but doing it full time is just depressing in the long term.
Buying stuff in bulk and/or from a discount club (Costco, Sam’s Club) will help a bit, tho.
[QUOTE=rjung]
Probably doable, but would require cutting out all nonessential items.
You’d be surprised.
Oh, WAH WAH WAH. NO DESIGNER CLOTHING!!! Might as well commit suicide!
Been there, done that, could do it again.
Ever hear of a “library”? I knew that liberals were out of touch, but this really takes the cake.
For those of us who live in the real world rather than as pampered lapdogs, “vacation” means “time off to do housework that I didn’t have time to do otherwise”.
Wrong. It won’t be fancy, but it will be functional.
I’ve been in a very similar situation and did not feel horribly deprived over it. Then again, I also have known people even worse off than that. We had a “sitter” who was essentially watching our son for food and sofa space. Yes, it will be rough, but it won’t be utter misery. I’ve seen utter misery, firsthand and in my old neighborhood. I’m lucky to have never had to live it.
Barely, if at all. $500 is not very much for food, car, gas, entertainment, utilities, household upkeep & miscellaneous. College students only supporting themselves have trouble on $500 (minus rent) and thats just for one person.
Have they thought of a duplex, or renting out a room for a roommate?
At those incomes, are there any homeowners grants or deals they can get?
Is the house in good shape? Will they have to fix things up once they move in (new water heater, fix leaky roof, etc.)? They should consider that they may not have a big buffer if something catastrophic (heaven forbid) were to happen.
But to this frugal person, it seems like they could do it.
I’d be somewhat surprised if it were that tight that she could get a mortgage. Banks will lend mortagage money at almost impossible ratio’s … but almost is the operative word & that sounds tight even for a bank in 2004.
Assuming that it is all pre-approved & in the bag tho – I predict a second/weekend job is in her or her husband’s near future.
If “significantly under market value” leaves them with $500/month to live on in Madison, then IMO it’s still too expensive. A discount, even a deep one, is not necessarily a deal.
I’d like to live in (or at least closer to) Madison, too, but at this point it just ain’t happening . . .
I live in Wisconsin and probably have around the same costs for goods as the Madison area. I would say no way is $500 enough if they plan to own a car and probably not enough with no car. Even if they buy most of their clothes and essentials at Goodwill or garage sales there’s just not enough money there.
Even if they don’t have car insurance, repairs and maintenance to pay for there’s heating bills most of the year, copays for medications and doctor or dentist office visits. What if someone needs eyeglasses, there’s $150 right there. There are water and sewer fees if they live in the city, yearly costs (if they’re lucky) for septic tank care if they live in the country. A flat tire or broken faucet would drive them into bankruptcy. Laundry, electricity, shoes (not usually available second hand), shampoo, toilet paper, soap… you get the picture. Even with no non essentials it’s just not realistic. They would probably be miserable and still lose the house and all the money they put into it. They certainlay couldn’t keep it up so they could get their money back if they did have to sell.
Property taxes are so high in Wisconsin it doesn’t always make financial sense, even in the long run, to own a home.
$500 a month? I dunno. We budget about $50 a month for power (around $30 in winter and around $70 in summer), $37 for basic phone service (just a dialtone, about $20, voicemail $2, the rest is taxes and fees) and voicemail, $40 for water, $150 for food, and $40 for gas (for the apartment). And that’s $317. That’s just Morelin and I in a fairly small apartment, not including the car insurance, gas for the car, clothing, etc.
I guess you could do it. We slept on an old mattress and ate a box of Rice-A-Roni for dinner every night for a while. But it sucked and I can’t imagine bringing a kid into that situation. Crappy borderline living (at least semi-by-choice) is something for singles and couples. I’d have some savings put aside, cause you’re going to be on the One Emergency And You’re Screwed Plan. But if they had savings put aside, they could put down a bigger down payment and get lower monthly.
Could they consider a roommate? It’d help pay the mortgage and give 'em some breathing em.
ANy updates? is there even a mortgage company willing to give a mortgage knowing that a family of 3 will only have $500 left for everything after housing costs?
They will probably have to get 15hr/wk part time jobs and/or take on a roommate, this’ll raise income from 500 to about 1000 a month. $1000 for 3 is not hard at all if you are frugal.
No, I have no updates. This is some kind of complicated family deal that involves the husband’s parents building a new home, and selling them the old one. The new home will be finnished some time in mod-summer. I started a thread a couple of weeks back about whether she could get a loan at all, and the general sense was that she could. How good an idea it is in a whole 'nother question. As I noted in the other thread, this woman has long-term spending issues and considerable debt. The feeling around the office is that she is crazy to go into a deal like this, as she can’t keep within her budget even without a mortgage.
I also know her sister-in-law, who told me that the parents have written in a “right of first refusal” clause into the sale, because they are worried the kids might turn around and resell the house to pay off their debts. I’m not sure how this protects the parents – it seems to me it just gives them the right to-re-purchase the house for a lot more money should the kids sell. Also, I don’t know how the parents’ rights would be affected in the event of a default and foreclosure.
I’m troubled by this even though it’s not my business. We all see (or imagine we see) a nasty train wreck coming, but none of us has been willing to be really straight and tell her how strongly we feel about it. The farthest I’ve been willing to go is to say that I don’t think I could afford this deal, and I make a lot more money than she does.
If you don’t include house costs, AND loans or vacations, I survive on about $500 per month. Of course I’m a single guy in Florida (not the most expensive state for non-luxury items.)
… but that figure DOES include eating out and the occasional entertainment item (something that I have the money to spend on, but tend to limit my spending on due to wanting to save it for retirement instead. But entertainment and eating out is not non-existent.)
I sure wouldn’t do it, but I would say it might be ok if she didn’t have any other debt. From what you say, that is not so. I am also unsure how she would even get approved for this loan if she has significant other debt, but I know banks will give mortgages out to people who cannot realistically afford them. Banks know people will usually pay the mortgage first, at the expense of all other debts.
I would stress the amount of money it takes to keep a house in decent shape, especially if no one in the family is handy or a do-it-yourselfer. If they let the house go unrepaired for lack of funds they will not be making the most of their investment, even if they got a good deal on it.
I have seen people overspend on a house by a smaller margin than this, and it is not a happy experience. It’s not a good deal if you can’t afford it. I would feel very uncomfortable putting myself in a situation like this with a child involved.
I just noticed that you are in Wisconsin. Our winter heating bills here in Michigan can easily go to almost $200 a month, and we don’t crank the heat. We will need to keep it higher this winter when we have a baby in the house. You can go on a payment plan to spread the cost out over the year, but then you are paying all summer as well.
If they are used to utility bills from an apartment they are in for a shock.