How much should I have in my EF?

[ScrimpAndSave]

I currently live at home and pay $400 rent. I am planning to buy a house in the beginning of 2010 and probably have a $200,000 mortgage. With PITI and a 15 year note, it will be around $2,000 a month. Utilities and other bills are about $1000.

Should I save about $10,000-$15,000?

Thanks!

[maat55]

15,000 to 20,000. Are you relying on two incomes? if so, you should do 20,000. If one, 10,000 to 15.000 is ok.

[disneysteve]

Are you asking how much you should have right now or how much you'll need after you are in the home 2 years from now? If sounds like the latter. If so, with anticipated expenses of $3,000/month, a 6-month EF would be $18,000. I think that would be a comfortable spot to be in.

[ScrimpAndSave]

Well..plans have changed a bit.

It looks like we will be buying my father's house in the beginning of 2010. He will be giving us a gift of equity and also a $48,000 downpayment (part of my inheritance since he is selling the house). He will be giving us each $12,000 in 2009 and $12,00 in 2010 (to avoid getting taxed - that is how we get $48,000).

He will also be taking 6% off of the purchase price because that is how much he would be giving a realtor if he was selling it to someone else.

SO...I am trying to make sure that I will have enough of a downpayment and also enough in my EF once we are ready to buy it.

According to my money plan, we will have $40,000 saved in January 2010...so I think we will be ok.

[jIM_Ohio]

$48000 down payment is larger than $40k you will save- remind me again how you are "OK"?

[disneysteve]

OP - Can you do us all a favor? You've posted a bunch of times about different possibilities with the house, buying, staying in dad's house, buying dad's house, etc. Can you give us a clear review of the current plan? What will you be buying? When? How much will you be paying? How much will you put down? What will your father be gifting you? Etc. I think a bunch of us have gotten confused - I know I have.

[gamecock43]

I think she is planning to save $40,000 in addition to the $48,000 her father is giving them.
I am curious about how it will all go down too though. I think this could be fascinating with all the equity gift?, gift tax laws?, and psychological impacts on the siblings and inheretence division too.

[DebbieL]

Can I ask if he's giving EQUAL amounts to your siblings (and if not why)? I can really see this whole situation causing bad blood between family members. I just feel like it would be better to find your own place. It's your life though. Personally, buying my parents house (which it sounds like he is almost giving it to you) would seem like being stuck in childhood to me.

[ScrimpAndSave]

Hey thanks for caring about my situation! The current situation seems to be the most likely.

My father is going to give each of is $48,000 during the end of 2009 and the beginning of 2010 ($12,000 to each person - so my soon-to-be hubby will be getting $12,000 and I will too...and so one with my siblings.)

I will have $48,000 PLUS $40,000 saved (this is a conservative estimate - I should have closer to $50,000). So, I will have approx. $90,000 saved in cash towards my downpayment and emergency fund.

When it comes to gift equity - that is where it gets a little hairy and we are just going to consult with a tax attorney. If the house appraises for around $300,000 (which is what we estimate), my dad is going to either cut the price about $18,000 (6% that would go to a realtor if he were selling it that way). OR he will give us the gift of equity - but I would rather not go that way because of tax ramifications (again, we are going to consult with a tax attorney).

So it looks like we are going to put about $50,000 down (gift from my father) and then have $40,000 in the EF (what we have saved now). The house does not need major repairs...but I of course would love to update it. My fiance feels as though we should hold on on updating things...I can be patient.

As far as salary, my salary will be $57,725 the school year we buy the house.
The upcoming years will be like this:

2010-2011: $67,232
2011-2012: $75,849
2012-2013 $84,894
(We signed an AMAZING teaching contract!!!)

My fiance finishes law school in May 2009...his first job will probably be around $45,000 a year (law clerk). After that, it will hopefully increase.

So BASICALLY...we are looking at:

Joint Salary of $110,000
Law Student Loans $120,000
Mortgage of $200,000
NO Credit Card Debt
Cars Paid Off

::whew::

Is that a pretty good run down?

My siblings are supportive of the decision. I have a very successful sister making millions in Atlanta and she's just happy for us, my other two siblings are happy with the situation as well - because they would love for the house to stay in the family in order to have a place to gather together.

Looks like a 30 year mortgage would be around $1,600 (with PITI) and a 15 year mortgage would be around $2100 (with PITI). I would LOVE to take out the 15 year mortgage and throw extra $$ at it and get it paid off!

I have a fully funded ROTH IRA, and annuity (with only $3,500 and not adding anymore - from a previous job) and a pretty sweet pension.

We are both 27.

Here's a pic of it.


http://img.makeupalley.com/7/1/5/6/1007133.JPG

[ScrimpAndSave]

And is definitely not even *almost* giving it to me.

[gamecock43]

How is your dad getting $25,000 a year for 2 years to give away? Do people really have that kind of money sitting around liquid just before or (during?) retirement?

[ScrimpAndSave]

Yeah...I think he has about $400,000 in his portfolio (conservative, safe growth)...so he may take it from there. Or, he will take out a home equity loan from the last week of December to the first week of January and pay it off when he sells the house to us. There are 4 couples, so he would end up giving a total of $192,000 to all of the kids and then he would have to rest to invest in a fixer upper in Hilton Head Island, SC...that's what he wants to do - haha.

He's 74.

[gamecock43]

hilton head SC. Hilton is verrrryyy expensive. But georgeous. And wow for him being able to give that money away!

[ScrimpAndSave]

Well, he has found places for around $200,000 - $250,000. Price of living there is actually cheaper in Hilton Head Island.

[disneysteve]

Originally Posted by ScrimpAndSave

I will have $48,000 PLUS $40,000 saved

my dad is going to either cut the price about $18,000

So it looks like we are going to put about $50,000 down (gift from my father) and then have $40,000 in the EF (what we have saved now).

Just so I'm clear, your father will give you and your husband a total gift of $48,000. To keep things fair, he will do the same to each of your 3 siblings. You will then turn around and give him back that money as your down payment. Plus, he will discount the purchase price by $18,000. So all together, his gift to you will really be $66,000. If he gives each of your siblings and their spouses $48,000, you are still getting $18,000 more than them in the form of the discounted purchase price.

I hate to be pessimistic, but I prefer to think of it as realistic. I have seen way too many families torn apart by battles over money after the parents died. I would be very concerned that this deal is going to come back to bite you when your father ultimately passes. Somebody is going to say, "We should get a bigger share of the pot because you got more than us when he sold the house to you." Everybody may deny thinking that today, but when the money is actually on the table to be divided, people change. I've seen it happen many, many times.

I'd suggest working the deal so that each sibling gets an exactly equal amount. You shouldn't get $18,000 more than your other siblings.

[LivingAlmostLarge]

What if your father needs the money? He's only 74 and he's giving away right now almost $50k of a $400k portfolio. That's a huge chunk

Plus would you feel right taking an inheritance and then having US taxpayers foot the bill for your dad's care in a nursing home? Because he gave away all his retirement money to you and your siblings early then he goes on welfare or medicaid (not medicare) and he could have been paying for a good portion of it?

It seems very loopholey to me. Plus I wouldn't want my mom to give me money knowing that it could make a difference between a FANTASTIC nursing home and just an okay one.

Knowing that she could have afforded instead of giving all 4 kids $50k each, she could be living in a very expensive, exclusive assissted living facility.

But maybe I'm a weirdo. I don't want my mom's money, I think she should spend it on herself. And yes I might turn down help like $50k depending on how much she had and if she could afford a great facility with the extra money.

Oh and Disneysteve is right about the $18k being a difference in what you are getting and your sibs are getting.

[disneysteve]

Originally Posted by LivingAlmostLarge

What if your father needs the money?

Plus I wouldn't want my mom to give me money knowing that it could make a difference between a FANTASTIC nursing home and just an okay one.

Knowing that she could have afforded instead of giving all 4 kids $50k each, she could be living in a very expensive, exclusive assissted living facility.

But maybe I'm a weirdo. I don't want my mom's money, I think she should spend it on herself. And yes I might turn down help like $50k depending on how much she had and if she could afford a great facility with the extra money.

Thank you for posting this. This is a dilemma that my wife and I face constantly and I don't think I've ever posted about it here. My mom, who will be 78 on Saturday, is always wanting to give us money. She sees no reason to keep it sitting in bank accounts and investments when we could be using it now rather than waiting until after she dies to get it. It is very generous of her, and I appreciate that, but the fact is I don't want her money. There is no way to know if she will need those funds during the remainder of her life. If she gives it to us now and we park it in savings, we could always return it later if needed. But if she gives it to us and we spend it, then what? I do like the idea of getting it in my name sooner rather than later to avoid it all ending up paying for a nursing home, but she does have LTC insurance so that isn't quite as big an issue (though I know the policy wouldn't cover 100% of costs).

[ScrimpAndSave]

So I should trash the whole idea? Without his $50,000 - we could not afford the house at the time that he wants us to buy it. If we lived with him for another year - or rented cheap elsewhere for another year (2011), we would have enough saved up for it.

I think he is also concerned about the current market crisis and the fact that if he wants to sell in the beginning of 2010, the house will be on the market for a while and he would be paying different selling fees...I think he wants to do it because it is just easier for him as well.

But if you all really think it is a bad idea, I understand...maybe I just need to forget about it.

[aida2003]

Originally Posted by ScrimpAndSave

So I should trash the whole idea? Without his $50,000 - we could not afford the house at the time that he wants us to buy it. If we lived with him for another year - or rented cheap elsewhere for another year (2011), we would have enough saved up for it.

I think he is also concerned about the current market crisis and the fact that if he wants to sell in the beginning of 2010, the house will be on the market for a while and he would be paying different selling fees...I think he wants to do it because it is just easier for him as well.

But if you all really think it is a bad idea, I understand...maybe I just need to forget about it.

I also agree with others that your father's retirement fund is not that large at $400k and then he wants to give a good chunk of it away and move to an expensive area. Does he need to touch his retirement fund at all as far as his current living expenses go or are his SS and pension sufficient?
Has he calculated/estimated how much it'll cost him to get a fix-upper repaired in Hilton Head because I'm kind of surprised he could even find such a cheap house there (only for up to $250k?).

As regards to giving money, I agree with DS, that it's kind of sticky. Are your siblings married? To be honest I either count money wrong, or otherwise the math to get equal shares for all of you would be like this:

You and your future DH - $12k/each in 2009 & 2010 = $48K
3 siblings - $12k/each in 2009 & 2010 = $72k

If only one sibling will be taking money right now, will she get $12k in 2009, but nothing for 2010?

And all this doesn't account for your extra $18k discounted price on the house. Another scenario is to think how your siblings will view your DH down the road. Maybe they won't be happy that your family got $12k extra a year because you got married, and they got only $12k gifts.

Money can break even very stong families, IMO.

[ScrimpAndSave]

I guess I should just forget all of this? I don't know. My father feels as though...if any of us want to buy the house - it is up for grabs. I have the conversation with him about my other siblings and he explains that they don't mind at all and they are happy with their shares. But I completely understand what you are saying.

I'm not sure what to do. Do I just avoid it all, let him sell the house, rent cheap for a few years when he gets out of law school and look at other real estate all together?

As far as I know, he just lives off of the dividends of his $400,000...it's been doing well.