Q. I am starting a new job in several weeks, where I will be earning double what I make now. I intend to buy a house as soon as possible, but I have a probation period with my new job that could last upwards of 2 years. I want to take advantage of the market and get a nice house for about 160k. My fear is if I take advantage of the market and then lose my job, I'll be stuck, unable to sell and unable to make payments.
Would it be more wise to buy soon, within 6 months, with a small down payment, or risk prices going up by the end of 2 years, but have a larger down payment and hopefully pass the probationary period? I foresee no problems with my probationary period, but I know that there is always a chance of something happening.
A. First things first, congratulations on the new job!
Given the fragile state of the economy, it's unlikely that home prices will be rising dramatically any time soon, ditto for mortgage interest rates, so don't be in a big hurry to make such a large financial commitment.
You should wait until you have a better understanding of your new job responsibilities, how you fit in within the organization, and last but not least, the financial health of your new company. A great job that pays well is less valuable if the company is in financial trouble, which could lead to a job loss in short order.
Waiting to buy a new home will provide the following advantages:
• You are more likely to perform better on your new job, which is particularly important when you are just starting out, if you are not stressed out about buying a home. Believe me, buying a home is stressful. Demonstrating your capability to your new employer early on may eliminate or reduce the probation period.
• Lending institutions look at your ability to pay them back, so a longer work history makes them more likely to loan you the money for your mortgage.
• You will be able to build a stronger credit history, which may allow you to get a lower mortgage interest rate.
• You will be able to save more for the down payment, which will reduce your mortgage payment, and maybe eliminate the need for Private Mortgage Insurance (PMI). Generally speaking, you must pay for PMI if your down payment is less than 20%.
Suggest you make a budget for yourself and try to stick to it. Save as much as you can and obtain your credit report to see if there are any errors or issues that you need to work on.
If you haven't owned a home before, familiarize yourself with the other costs that come with home ownership, e.g., property taxes, insurance, maintenance, landscaping and general upkeep.