Quote:
Originally Posted by jIM_Ohio
I think you need to reanalyze the situation with what you have presently. I would not worry about the budget of a house you will purchase in 5-15 years. I would emphasize the "how to get into house with least investment but most financial stability".
You do not have a $2500 house payment now do you? what is that payment on current residence now?
If renting and cost is $1100/month, you should be setting aside the other $1400 for the house.
5% to retirement accounts is not enough, think 10 or 15% long term. The more money put in earlier the better.
$575/month added to the house fund makes sense.
When you pay off the student loan in 6 years, add that $600 into mortgage savings too.
You should put a timeline on things, create a spreadsheet to track "if thens".
Price out a house you want, maybe 300k. Go new house hunting in places where you may want to live and see what houses cost new. 300k would mean a $75,000 down payment.
For example, have one example where you put 15% to retirement starting now. 15% of gross pay, then figure out how much is left for house savings and list how long it takes to get to $75000 with deposits only. If 15% to retirement allows only $500/month towards house savings, then $75,000/$500=150 months=12.5 years. Remember to factor in another $600 in 6 years when student loans are paid off, that would make (6 years*12 months)72*500=36000; 39000 left. 39000/1100=36 months (3 years)=9 years to get money in cash.
Then use the timeframe with no interest to find an investment timeframe. More than 7 years suggest stocks are an option. Run the $500 deposits into a mutual fund which returns 10%. The see that $500 compounded each month gives $85,000 in 9 years. So that situation would have a 9 year window depending on risks taken, with a $7200/year cushion coming from student loans in cash. Take the 15% retirement contribution and compound this out for 15 years as well.
Then repeat same analysis with retirement at 10%. Then again with 5%.
Then repeat all of above with tax implications of a mortgage post move. Because the mortgage interest is deductable, make sure you factor more take home pay into calculations once you get the house.
Then repeat the above analysis with a mortgage at less than 20% down. Maybe 15%, maybe 10%.
The results will show the following-
saving 5% for retirement gets you house sooner, but you will need to work longer to get a similar retirement account balance and it will also take significantly more investment (in dollars) from you.
saving 15% more for retirement delays getting into house maybe 2-3 years, but the overall investment you put forward (in dollars you earn) is much less. Because - By investing early for retirement, compounding kicks in over a larger amount of time on a larger initial amount of money
- By delaying house purchase around 2 years, you gain some investment options (equities) which will also compound and provide more down payment for you with less money actually set aside.
- By lowering down payment you get tax advantages sooner and could use these tax advantages to pay down mortgage to 20% if needed.
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Hey Jim,
I want to personally take the time and thank you for writing this up. I'm sure it took a lot of your time and I do appreciate it. With that being said, maybe there are some things I wasn't being specific.
Currently, I have 5% deducted from my pay and my company matches it. My wife (higher income of the two) also has 5% deduct from her paycheck and company matches. So you can say that we both have 10% and combine at 20%.
Right now, we live in a townhouse. We pay 900.00 a month(so we set aside a lot). As of today, we have $78,000 combine cash, so if we decided to go with an 318,000 loan, we can pay 20% down(no time to wait). The house would be $396,000.
Base on the feedbacks here and our families, we shouldn't have issues living comfortable now. But we're planning to have a kid in 3 years so by then, if there's no issues with the new built home, we should have ($700.00nest savings x 36months= $25,200). And that won't include our 2 other accounts: mad money account and combine funds account which include leftover from paying mortgage,debt, bills, and other payments.
My concern and I think you've address this. What happens if one of us drops to part time? We could still gross 113k-120k,but with all the savings we've accrued, could we still travel and do things? I wouldn't consider dropping part time until the kid is 2 or so. So that could be a total of 6 years of saving.
We've both been blessed with great families who will donated some of there furnitures,bbq grill etc etc.
Again, being a 1st time home buyer thank you for your patiences. I know this process can be frustrating.