My sister bought a house and now has too much debt

Miscellaneous and Personal Stuff I Must Share
1

Mundane and pointless, and I must share because I’m sort of flabbergasted. Warning for some number-crunching.

Okay, so, my sister and her husband make $100k. They don’t have much in the way of savings. They have a pleasant 3-bedroom 1.5 bath house they bought several years ago (I believe this house was a couple hundred thousand or so, but don’t remember) and for which (since not much savings) they borrowed the down payment ($40k, I think?) from our parents, and which they’ve mostly paid back.

They just bought a much nicer house (5bed/3bath) for about $550k, partially at the frenetic urging of my parents. The rationale was that they are thinking about having kids soon and my parents thought they should buy a house before having a kid. (Apparently they modeled this on us, as this is what we did, even though we knew the market was heading down. Eh. I hate moving. I might also point out that we bought a 4-tiny-bed/2bath.) My sister, I should say, is somewhat susceptible to being pushed around by my parents and not even realizing it. They borrowed $100k from my parents to do this.

I talked to my sister this morning, and she’s apparently just realized that they can’t afford to have a kid now because they don’t have any money to pay for childcare. How is this possible? I ask, with a mortgage payment of $24,000/year and an income of $100k. Even subtracting out 401k contribution and taxes, they should have plenty left over.

My sister is confused too (she doesn’t, um, pay as much attention to household finances as, say, I do) but later in the conversation she’s all "Oh, I may get this grant that will help with my med school debt."OH. Light goes on. They’re paying her med school debt as well! “Oh, yes, and my husband has school debt too.” OKAY. Now this is all making sense!

“Did Mom and Dad know you had this debt load?”
“Yes.”

It turns out all of their money outside of living expenses and 401k contribution is going to service their debt.

So I’m sort of flabbergasted at them, but mostly at my parents, who themselves have always been very thrifty and money-smart, and raised me the same way, and what were they thinking to encourage and even enable this? Oh, wait, I know. “Your sister’s income will only go up.” (It’s true. She’s a doctor. But her expenses will go up before that if they have a kid! This kind of reasoning worked for my parents because my mom stayed at home with us!) “House prices always go up.” (Well… except when you correct for inflation, they kind of don’t, even taking out the last couple of years.)

I mean… it’s true my parents have a bee in their bonnet about houses, for reasons I don’t understand. They tried to use the “Your income will only go up!” line on me, and I was all “…unless I quit my job when I have a kid? Or even go part-time?” Aaaaand… now they are trying to get us to buy a bigger house in anticpation of the idea that we could possibly maybe have another kid. GAH.

2

Until one or the other gets laid off and can’t find a job except one that pays half what they were making before. And that’s after being on unemployment for months. Then that house payment that was once easy to pay suddenly gets much, much harder.

3

Your parents are thinking these are the 1960s. The economy is in a greater state of flux these days, and income has remained flat for most Americans since the 80s.

One of the smartest things I ever did was hang on to my low-mortgage house. Payments were never more than $350 a month, and it’s now paid off completely. You make do with a small house until you have the money to buy a bigger one.

4

Why are you blaming your parents? Are your sister and her husband not able to think for themselves?

I’m surprised the bank approved them for that amount if they have such a high debt load.

5

Just because one is a doctor is no reason to assume income is going to go up in the way it used to. General practioners and probably some specialists already are squeezed tightly by insurance companies. It is not necessarily an easy lifestyle anymore. Even for the high paying specialists, it still is a risky profession facing an uncertain economic future.

This country needs to get away from thinking of homes as an investment, they are a living expense that almost always pays off as a good investment. But not always.

6

I honestly don’t understand the obsession with big houses. Or huge bedrooms and bathrooms. Or the “need” for a living room, formal dining room, family room, media room, and den. I quit watching HGTV househunting shows because I got sick of people whining that they couldn’t possibly survive in their 2000 sq ft house because they had one baby and were expecting another. Really?? Or the endless demands for gigantic spa bathrooms and walk-in closets that are bigger than the room I shared with my sister for 18 years.

Sorry, this is a hot button issue for me. Some people just don’t think. Not only do huge houses have big mortgages, but they cost more to heat and cool and furnish, take more time to clean and maintain, and I’m willing to bet in most cases, there are rooms that are never used. We used to have a 2400 sq ft house where half of the first floor was typically untouched - we rarely entered the formal dining room or the living room except to run the vacuum. And the master suite in that house was bigger than my first studio apartment!!! Way too much house for 3 people and 2 dogs. I was glad when we sold it.

7

If they are young this is not that big of a deal. They can earn more money over time and bring down their debts. It used to be much less of a problem because houses slow and steadily, or sometimes quickly would rise. They may have some time to go before the investment in their house pays off now. Since they don’t have children, they aren’t risking all that much. Probably just a lack of expendable income and some lean periods to cover unexpected expenses. So they have to wait a few years to have kids without additional monetary problems. It’s always a good idea to wait until you are ready.

8

A 3B isn’t big enough to have a kid in now? :smack:

9

My mom encouraged us to buy big. I’m thankful for her advice.

Obviously, it’s not for everyone, but the reason she encouraged us to buy big was that she knew our careers were just starting, and that there were two of us, and if bad things happened that she and Dad would be able to help. Oh, there’s also the bit where she wanted her own bathroom for when she visits.

I love my house.

10

Our house is probably tiny compared to US standards, 3 small bedrooms, 1 bathroom and certainly less than 1000 sq ft. and we have two young children.

I can’t see the attraction of a big house either, more to clean and heat and there are only so many rooms you can use.

I can easily afford a massive house but choose not to, I refuse to enter into a one-upmanship game. I see too many of my contemporaries do exactly that and end up with the house owning them and having to have both adults working just to pay a massive mortgage. Crazy.

11

$100,000 dollars per year is the new middle class that used to apply to people making $40,000 a few years ago. Of course people were buying houses that cost $40,000 or a little more.

Is their current 3 bedroom, 1 1/2 bath house even paid for yet? And they are already borrowing on their retirement account/401k, right?, how will that be recovered? Borrowing on your retirement is quite a desparate thing to do.

Raising a child to maturity costs close to a quarter of a million dollars now, spread out over 25 years of course.

Your sister is right, they cannot afford a child right now. And your parents are living in a dream of the past that no longer can be maintained. Your parents are pushing them towards bankruptcy or even divorce, because money problems take their toll on even the best relationships.

Keep the little house. Be frugal, pay down debt, and your sister will have enough to live a comfortable life while she raises a couple kids, puts them through school and runs into all the hidden costs that make having kids a wonderful experience.

Trying to keep that half a million dollar house, raise kids, pay dept, is a fairy tale. Give your parents a break, though, it all used to be possible, wages were always going up, a doctor was a golden job.

But times have changed and you are right to see the issue.

12

This,

and this.

When we sold our house and bought a different one almost three years ago, the first question everyone asked us was, “Did you get a bigger one?” No, actually, we didn’t. 1000 square feet is more than enough room for two adults and two cats - we don’t need 5000 square feet to rattle around in.

I guess the good part of your sister’s situation is that your parents seem willing and able to help them with the cost of the big, expensive house. For what that’s worth.

13

We did the big house thing too - 3600 sq. feet for two adults and a dog. Never again. We sold it after a year and now live in an 1100 sq. foot bungalow. SO much less maintenance and cleaning.

14

I’m totally with you. I was amazed at the OP. 5 bedrooms and they don’t even have kids yet??? Who needs that?

15

We’re doing the big house thing, so we can provide an apartment for my parents. I don’t particularly like this house. It’s got rooms we don’t use. The utility bills are high. The taxes are high. We pay more than we need to in mortgage interest (I’m less concerned about the principle.) And who wants to have to clean 5 bathrooms?

We knew all of this going in. It was a decision we made. I love my parents, and hope that they stay in good health for a long long time. But we do find ourselves occasionally saying “When we can sell this house…”

16

“Need” is the operational word here - there are a lot of people in the world who confuse “want” and “need.”

17

Wow. Wife and I bought a house five years ago. Together we made about $145K at that time and had no debt, and we didn’t feel comfortable exceeding $22K a year for house payments.

$24K a year on a salary of $100K sounds…uncomfortable. Add in student debt, and…ouch. That hurts.

18

I’m so glad I’m not the only one who thinks this is INSANE.

Exactly. This is what I told my parents, too, when they tried to use that line on me.

That’s a good point. They bought their house in the 60’s.

I’m not blaming them, I’m just sort of flabbergasted that the same people who raised me to be thrifty and debt-free (well, we have a mortgage but it’s well within our means) are encouraging and enabling this kind of thing.

And yes, my sister has problems thinking for herself when my mom starts screwing up the pressure, as she was doing here.

Yup. And my sister wants to do research part-time, which will also decrease the amount she will be making.

19

House values will only go up!

Your income will only go up!

You can get a job anywhere you like because you can operate a computer!

You can get a job anywhere because you are certified to teach!

You have a PhD, you will always have a good job!

Those and many other things are on the list of things my wife and I have heard from foolish old people.

Yeah, that’s what I said. Foolish. Old. People.

20

Yeah, that’s true (except the part where my sister’s husband wants to have kids NOW, but I think he’s starting to realize they had to choose between house now and kids now, and they’ve already chosen).

I know, right?

There is that. I think that was a large part of the pressure.

No, it’s not even close to paid for. Now, the one thing that is financially responsible is that sister’s husband is still contributing the max to his 401k, so that’s a good thing. But they’re making up for that by borrowing more than that from the Bank of Mom and Dad, so in the end I suppose it more or less comes out the same, except that mom and dad don’t charge interest, which is nice. (They make up for it by charging emotional interest in other ways, mind, so overall my husband and I, say, would far prefer to borrow money from a real bank.)

Yeah. To be fair to my sister and parents, that was part of the plan: my mom and dad were planning to live-in for a while to take care of the hypothetical kid(s). But somehow they all overlooked the fact that my sister and mom will kill each other if they’re in the same place together for too long.