We're in Our 20s, Have $65,000 in Savings, and Want to Buy a Home. Can We Afford It?
![](https://money.com/wp-content/uploads/2018/06/180628-money-makeover-lehenbauers-home.jpg?quality=60&w=320)
Mallory Lehenbauer, 26, and her husband Jacob, 27, love living in downtown Austin. The problem? So does everyone else.
The pair currently rent a 564-square-foot apartment for $1,215 a month. They feel they could be putting that money to better use by investing it in a property of their own — but homes in this Southern tech hub carry an average value of $344,325, according to Zillow. (A 30-year mortgage at the current average of 4.34% wouldn't change their monthly outlay much — payments would be just under $1,200 — but they'd need to come up with about $70,000 for a 20% down payment, plus a bit more for closing costs and any repairs.)
And the longer they wait, the more costs are set to increase. Home values jumped 7.5% in this hot market over the year ending in April 2018, and Zillow predicts they will rise another 3.5% by spring 2019.
Those prices have the Lehenbauers feeling discouraged by their options and unsure if buying a home right now is indeed the best move for them — no matter how much they would like a larger place of their own.
“We don’t know what is a good home budget for us, what we should actually be willing to spend. We met with a realtor who told us in this highly competitive market we could buy a fixer-upper for around $300,000, but the market seems so unpredictable. We worry we’re looking to buy in a bubble,” says Mallory.
Adding to the uncertainty have been recent changes to the couple's income. As a private school teacher, Jacob has a steady annual salary of $48,500. But late last year Mallory quit a $46,000-a-year job to launch her own business as a freelance marketer/writer. She expects to make $24,000 this year, but the move has already hit both their day-to-day budget and retirement savings.
The Lehenbauers are now struggling to afford their current lifestyle; their credit card debt tops $8,000, and the couple are on track to spend about $2,500 more a year than they'll earn. Add in Jacob’s $10,000 student loans, and the decision to take on a mortgage as well as property taxes becomes even hairier.
On the plus side of the ledger, the couple says they have a small emergency fund of $1,000, around $30,000 saved for a home down payment, and retirement savings totaling just under $35,000.
What to Do Now
To help the Lehenbauers figure out whether (and when) to buy a home, Money called on local expert Kacie Swartz, a financial planner at Stone Asset Management in Austin. Below are her recommendations on how the pair can finance their home-buying dream as well as their other goals.
—> Get Organized
Swartz’s meetings with the Lehenbauers led to one shocking revelation: The couple didn't fully grasp what assets they already owned. After an initial look at the couple's finances, Swartz strongly advised that they delay home-buying for at least a couple more years, to shore up their savings and pay off their credit card debt.
But as they were preparing to meet with Swartz, Mallory suddenly remembered that she had inherited stock from her grandfather—and when they unearthed the documents, they realized they were actually sitting on more than 332 shares of First Citizens Bank stock, currently valued at around $428 a share. That added up to more than $140,000.
“It’s like Antiques Roadshow in here today,” Swartz remarks when they calculate the sum. “It changes the frame of everything,” she adds. “It gives you the opportunity to help fund Mallory’s company over the next few years as it grows and fund a retirement plan.” It also could help them realize their dream of buying a home in the next year — if they're willing to cash in at least some of the holdings.
It's also a good reminder for everyone: It pays to know exactly what you own and owe.
—> Take Advantage of Low Income
Dips in income can put a squeeze on a budget, but create opportunities for smart tax planning. Because the Lehenbauers expect to earn roughly $70,000 this year (down from almost $90,000 last year), Swartz recommends they sell at least some of their stock now. Doing so in a low-income year lets them pay 0% capital gains tax on the sold stock, as long as their adjusted gross income—total pay minus major deductions, such as student loan interest and retirement account contributions—doesn’t exceed $77,200, as a married couple filing jointly.
To help keep them below the limit, Swartz recommends Jacob switch from funding his workplace Roth 401(k) to a traditional 401(k), lowering his taxable income by the $4,592 a year he usually contributes. She also suggests that the pair meet with a CPA to work out details of the stock sale. (Any stock sales that push the couple's income above the threshold will be subject to a 15% capital gains tax.)
—> Use the Stock Sales Strategically
But Swartz actually recommends the two sell a bit more of the stock, even if they wind up having to pay some capital gains tax.
Because of both their cash flow problems and the fact that Mallory isn't currently saving any money in a retirement account, Swartz wants the Lehenbauers to sell shares equivalent to $31,500 in 2018, and use the proceeds to reboot their finances.
Doing so would let her begin funding a Roth IRA up to the annual maximum, or $5,500, and let them pay off their roughly $18,000 in debt. That in turn will help them cut ongoing expenses — between 12.49% and 23.49% in interest on their variable rate credit card debt and 3.15% in interest on Jacob’s student loans.
It will also leave them with reserves of more than $100,000 in stock, at current share prices.
—> Hold Off on Buying
If the Lehenbauers don't tap any more of the stock windfall, Swartz warns against buying a home within the next few years. “At your current income, it is not prudent to take on additional housing expenses of a mortgage, renovation expenses, and property taxes," which could increase as much as 10% each year, she says.
But if Mallory’s income stays at $24,000 for 2019 and if the pair do decide to buy, they could do so by selling about $48,000 of stock next year, Swartz says. That would give them $11,000 for their Roth IRAs, $6,000 for the first year's property taxes, and $30,000 toward either a home down payment—bringing them closer to 20% down on a $300,000 property—or repairs on a cheaper fixer-upper.
Reality Check, and Next Steps
Seeing Swartz's detailed assessment of their finances shakes up the Lehenbauers. Not only were the stock holdings a surprise; they also hadn't realized how far they were living above their means.
“It was an eye-opening process but so beneficial, because it made Jacob and I get on the same page about our finances,” says Mallory.
The first thing the pair intend to do is review their budget and see if there are any expenses they can trim or remove to bring their spending back in line with their income.
Next up will be some big decisions about their stock holdings. Despite their wariness, the pair intend to set up a meeting with a local CPA to discuss the strategies for tapping the bank stock and the tax implications of doing so. They’re also eager to follow Schwartz’s advice and seriously fund their Roth IRAs — either though savings or from the sale of some bank stock.
Finally, there's the question of the home purchase, which the Lehenbauers say they are reconsidering — for a variety of reasons.
On the one hand, the pair say, using the stock to buy a home isn't just a big-ticket expense — rather, it's a way to diversify their holdings. “During our conversation with Kacie, I began to realize it wasn’t us spending it, but rather shifting those savings to other assets,” Jacob explains. “Instead of it all being held in stocks, we can spread that money out to different assets, such as retirement savings or a home. When we [realized] that these are investments too — and not just a large purchase — it makes it more feasible to use that money.”
Yet the two still have broader concerns. “We’re thinking about whether Austin is right for us long term," says Mallory. "Looking at the cost of living and property taxes here has made us pause.”
So for now, the pair intend to continue renting and tackle some of the other goals Swartz outlined; they say they'll reevaluate the home-buying decision next year. (They're also weighing an alternative idea — using the savings currently set aside for a home to tackle their credit card debt, and leaving the bank shares untouched.)
“It makes sense to wait,” Jacob Lehenbauer says. “It seems like too much to try and do with Mallory just starting her business. I really want to support Mallory in what she is doing and focus on one thing at a time so we can be successful.”