Tuesday, May 7, 2013

Homebuying After Prolonged Unemployment

House hunting brings on a number of challenges, and one of the challenges is that there is a good chance your mortgage will be higher than your rent.  So the question is, how much can you swing as a monthly payment?

I think for a lot of people, they have been saving towards a house for a long time, and so their monthly payment is their rent + what they have been saving, so the idea of a higher monthly mortgage payment isn't crazy to them.  There are also people who are of the school of thought that since you are paying money into "your house", it's worth it and that your house is an investment and a savings of it's own.  Nobody has explained this to me yet in a way that makes me feel like my house is a savings or an investment and not a money pit of interest, insurance, and taxes.  But that's another post.

Anyway, we sat down to try to figure out what we were willing to pay in a monthly payment.  We started by asking ourselves what we were comfortable with.  Then we realized that what we were comfortable with was an unreasonably low number, so we moved on to "what can we afford?"  Which is a much harder question.  It's an even harder question when you come into it after a period of prolonged unemployment.  Because is it, "what can we afford?" or "what can we afford on your salary and my unemployment if I get laid off?" or "what can we afford if one of us isn't working?"

I didn't drink the kool-aid about BigLaw jobs and how I'd make six figures, no problem, but there's a lot of assumptions about non-profit jobs being easy to get, especially if you have a demonstrable commitment to public interest work, so when I graduated from law school, I fully expected to be able to find a job doing something that I liked, that I was good at.  As the months wore on, I expected to be able to find a job, period.  And I went on interviews and I sent out resumes and I wrote cover letter after cover letter and there was nothing.  The firms wouldn't hire me because I was too public-interest-y, the public interest orgs had no funding, the non-profit organizing jobs thought I was overqualified, and the retail jobs just threw my applications in the trash.  I was financially dependent on my husband during that time period, something which gave me endless guilt, feminist and otherwise, and we spent a long period of time living very strictly within our means.

Having come through that and out on the other side, it's not hard to recognize how lucky we are.  How lucky we were to not be depending on credit cards to get us through the rough patches, how we still managed to pay our bills, how we did not have to dip into our savings.  It's also a scary reminder for the future, because I'm keenly aware that if one of us loses our job, we might not be able to find another one quite so fast.  That prolonged unemployment is a possibility in this economy.

So how do you commit?  Not just to a big monthly payment, but to a monthly payment at all? Has anyone else done this?  Does anyone have any advice or how to tackle the uncertainty of finances?  Or do you just pretend everything is fine, everything is going to be fine, and life will go on?


  1. I do think, for most big life decisions, you have to at some level just accept that things could go wrong but life will go on. Of course, I would not advise buying a house just because it seems like everyone else is -- wait to find a house you really love in an area you can see yourself living in for at least a few more years. (Yes, I know this sounds obvious, but it can be tough to remember amidst all the peer/societal pressure to own a home!)

    As for worst case scenarios, they are unlikely, but it's always good to try to have six months' worth of mortgage payments saved up in case one of you loses your job, gets ill, takes time off for a new baby, etc. That gives you a pretty good amount of time to find a new job or sell
    the house if need be.

    Monthly mortgage payments can seem scary, but one reassuring thing about them is that they stay the same (or can even go down, if you decide to refinance at some point), while rents will always continue to climb and be adjusted for inflation. So it may seem like a lot now, but as your savings rate and salaries increase over time, your monthly payment will become a lot less intimidating. And you may find this happens a lot sooner than you think it will.

    Good luck! And whatever happens, just enjoy the fun of poking in other people's houses as you do your search!

  2. To commit to a mortgage one has to walk the fine line between buying into "home as investment" crap and understanding how equity in a home can work for you. If you overpay for something/don't have much of a down and spend most of your mortgage payment on interest then you've overpaid and you might as well be paying rent because you're still just paying for the privilege of living there rather than building equity. (And that all sounds really obnoxious and I don't mean it to sound that way...that's just the callous calculus we use when buying.)

    I know this doesn't apply to most people or most locations, we also have been careful to try and have a mortgage that we could pay with a single low wage (if not minimum wage) job. Since our employment situation is *better* than that, we paid what we perceived to be a reasonable (or more) payment for our income anyway (approx. 100% more than what we *had* to be paying). If you can do this and your mortgage allows for re-amortizing once or twice then if something happens your required payment will be even smaller than before.

    We pretty well tapped ourselves out to put a big down on our property in Colorado. It really freaks me out sometimes but because we can make ends meet (mortgage, food, bills, food) on a single full-time minimum wage job I know it will be okay. And within a few months if one of us does better than minimum wage we'll be looking good.