Not Quite Ready For a House

Peter and his wife are living with Peter's brother and sister-in-law and tired of it. They've considered buying a home, but rent is cheap in their area. His brother has offered to co-sign for him.

QUESTION: Peter in Los Angeles and his wife just bought a business with cash. They are living with Peter’s brother and sister-in-law and tired of it. They’ve considered buying a home, but rent is cheap in their area. His brother has offered to co-sign for him. Dave advises Peter to slow down, rent something cheap, and save up to buy a house.

ANSWER: Just go rent. You’ve got to move if you buy. You just bought a business. You don’t even know if the business is going to work. It’s a new business for you, and that’s the income you’re going to use to qualify for a loan. You’re going to have to have two years of tax returns to be able to get a mortgage unless you get ripped off with some kind of subprime mortgage.

We’re not dragging family into this. You’ll get yourself into a mess from now on. Then all of a sudden, your other brother is looking down your ear hole every time you decide to buy something or go on vacation because he’s got his name stuck on your mortgage.

Just slow down a little bit, dude. Go a little slower, get your business up and running, go rent you something cheap so you get out of the crazy people’s house, and sit over there and make you some money. Have two good, solid years of tax returns and then look at buying. Of course, in the meantime, make sure you’re debt-free, have a good emergency fund in place, and those kinds of things.

I don’t have any problem with you getting out of crazy people’s house. Just go rent something inexpensive. Take your time. When you rush, you go into stupid deals like co-signing and subprime. You’re just not ready yet. Give yourself a little margin. Give yourself a little wiggle room. You’re on track, and I don’t blame you for wanting to get out of there.

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