Question: My girlfriend and I want to buy a house soon. My credit is great, I have no debts, but I have been unemployed living on my savings since 2006, continuing my good credit history with the use of a credit card. Together, we have about $20,000 in savings and $7,000 in a Roth IRA. She also has great credit that she built with Macy’s and personal loans. She has secured full time employment in the LA County, making about $37000 a year. She just earned her MPH with potential for a better position that pays $52800 a year. She has $13,000 in student loans. Should she pay her loans off before we apply for a home loan? Should she get a credit card to continue her good credit history? Should we wait for her to get a higher position? Gerardo, Los Angeles, CA
Answer: A house is expensive to buy and to own. My concern is that your finances are too fragile for homeownership, and you’ll end up buying financial trouble. The lesson of the recent real estate boom and bust is that stretching to own is truly risky.
Now, it’s wonderful that your partner has landed a good job with the prospect of a promotion. I would wait until the promotion came through. I wouldn’t buy anticipating that she’ll get the higher paying job, especially with all the state and local government financial problems in California. She doesn’t need a credit card, either.
Instead, I’d focus on paying off loans and building up savings. I’d let your partner get established in her job and, hopefully, you’ll find one soon. This will put you in a much stronger financial situation whether you end up buying or not.
To be sure, you might miss being able to take advantage of this year’s first-time homebuyer tax credit of $8,000. That’s a lot of money. But I don’t believe home prices will skyrocket anytime soon, either. The latest figures show home prices continuing to decline both nationally and in Los Angeles. And I don’t want to see your finances stretched too far.
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