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...I'm not even sure ... how to respond...

Well, if your initial response was, "Oh, that's a terrific opportunity! Thanks! Give me a couple weeks to think it over and figure out what our position is, and we'll discuss it again."
then you've done Step 1 right.

...We like the area and my children are well planted in school...

I take from this that you would like to stay where you are for at least another 5-10 years, correct?

The questions then are:

1. Would you prefer to buy or continue renting? The usual pros and cons of buying vs renting apply; for example:
- If your husband's job is not particularly secure, better to rent so if/when you relocate again it's easier to move.
- If you buy, you can renovate/decorate how you like (budget permitting).
- If you buy, you become responsible for repairs.
- A useful mental exercise is: if you were suddenly evicted from your current house (if, for example, the landlord wanted it back so a relative could move in), would you look for another rental or see it as an opportunity to start hunting for something to buy?

2. If you'd like to buy, would you like to buy *this* particular house?
- Do you like this house? You seem to like it, so I would guess that if you buy, you'd be interested if the price is right. So:
- What's the price? If I were in your shoes, I'd poke around on the internet and also visit a few open houses to get a sense of what other houses in the neighborhood are selling for. Other houses will be better or worse, so you can mentally adjust the price to arrive at a ballpark of what "your" house is worth.
- Can you afford it? We don't have money for a downpayment... Do you have any cash? Because if the PITI will be higher than rent, then given that you haven't been saving, you don't have any extra cash available for a higher monthly payment, much less for repairs.

3. If you can't afford to buy *this* house, can you afford to continue renting it, with the increased rent?

Good luck!
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