Should Couple Continue to Live Rent-Free or Buy a House?
Author: Lindsay Gellman/ WSJ/13.Apr.2014
Steve Dogiakos, 29, and his wife, Sandra, 30, hope to start a family soon. But they’d rather do so as home owners than as renters; the couple rents a three-bedroom house from Ms. Dogiakos’s mother in Choteau, Mont.
The couple expects to pull in a combined $43,000 this year. Mr. Dogiakos earns about $36,000 as a full-time political operative, and makes another few thousand a year with his Web-design business, he says. Ms. Dogiakos earns $3,000 to $4,000 a year also from political work.
Instead of paying rent, they pay the property taxes, about $1,200 a year, and renters insurance, $75 a year. Utilities run about $80 a month in summer and about $250 a month in winter. Living expenses including food total about $1,700 a month, Mr. Dogiakos says.
The couple recently paid off about $40,000 in student-loan and credit-card debt; they are now debt-free. They have about $1,000 in an emergency fund, which they hope to increase to $10,000.
For retirement savings, Mr. Dogiakos has about $6,400 in his 403(b) account. He’s not currently contributing, but his employer puts in $166.16 a month. He also has a $300,000 term-life insurance plan through work.
The Dogiakoses plan to travel to Ireland this summer, and are in the process of saving $2,500 to cover the costs.
Ms. Dogiakos’s mother recently offered to sell the house to them and to help cover the down payment. She bought it in 2003 for about $40,000 and made some renovations. The house hasn’t been appraised.
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Advice from the pro: The Dogiakoses are doing an “awesome” job, says Alan Moore, founder of Serenity Financial Consulting LLC in Bozeman, Mont. The fact that they’ve paid off their debt is “huge,” Mr. Moore says.
Now it is time to start beefing up their emergency fund, and to take a close look at their real-estate and life-insurance options, he says.
Mr. Moore says the couple certainly deserve to reward themselves for good financial behavior with the Ireland trip. They should continue to put aside cash for it to be sure they stay debt-free, he says.
After the trip, they should focus on their emergency savings, with the goal of reaching $10,000 within 18 to 24 months. (This could carry the couple for four to six months should Mr. Dogiakos be unable to work, he says.)
Mr. Moore advises getting the house appraised. While Ms. Dogiakos’s mother’s offer is generous, he says, “many banks won’t allow the down payment to be a gift.” He suggests the family consider taking out a loan with a local credit union that keeps the loans in-house, or a Federal Housing Administration loan; in both cases, gifts are typically permitted as down payments, he says. Much depends, too, on the monthly payments and how they feel about staying put a few more years, Mr. Moore says.
Mr. Dogiakos should be insured for at least $1 million, Mr. Moore says, so he should look to supplement his current policy.
