So, in a perfect world, is this how much I should have saved up for a house?

[ScrimpAndSave]

Price of House: $300,000
Down Payment: $60,000
Closing Costs: $10,000 (Hopefully get seller assist and put this in the EF)
Emergency Fund: 10,000
Furnishing: $20,000

Goal $100,000

According to my money plan, it will take me until July 1st 2011 to reach $100,000.

[maat55]

Looks like a great plan.

[jIM_Ohio]

You are on the right track. If you can save $100k in 3 years that is EXCELLENT. How reasonable is that for you?

FYI payment on the 300k house at 6% is $2000/mo for 30 yr fixed. $17k of interest paid, 25% of this is 4250- so tax return in 25% tax bracket would increase $4250 from previous year, without factoring in property taxes.

FYI2- I did what you are suggesting backwards- I got house with less down (5%) and then saved the EF after I moved in. Much riskier strategy, but I am also ahead on when the house will be paid off (30 year clock starts ticking when you move in, not when you start saving).

[ScrimpAndSave]

I can do it...but my fiance and I will have to be very frugal. The money is in an ING account...so I will actually reach that a little sooner, counting the interest. I'm going to WANT to move out earlier though...

We are getting married in September 2009, and I would like to stay at home for about a year...I heard that it is great to put a bid in on a house on Christmas! Apparently sellers feel more "generous". If we move in January 2011, we will have about $80,000 (not too shabby).

[ScrimpAndSave]

$2000 a month? I think I have different calculations...

Price of home: $300,000
Downpayment: $ 60,000
Interest rate: 6%
Yearly property taxes: $4500
Yearly homeowner's insurance:481

Principal and Interest: $1,438.92
Taxes and Insurance: $ 415.08
Total: $1,854

I have to make sure this is feasible given the fact that we will have a gross annual income of $110,000 and $130,000 in student loan debt (that will be around a $800-$900 monthly payment). No credit card debt and no car loans.

We could live in a more modest home...but would probably need to move in a few years. If we can afford something around $300,000 - we could stay in it indefinitely.

[jIM_Ohio]

edit- 300k financed for 30 years is $1700/mo
240k financed for 30 years is $1400/mo

240k has $14k in interest paid year 1, plus $4500 in taxes is $18500, you will get 25% of this back at tax time= $4625 which is almost $400/month.

[ScrimpAndSave]

Jim, thanks!

::Waits for DisneySteve to give me meds for my house fever::

[jIM_Ohio]

Originally Posted by ScrimpAndSave

Jim, thanks!

::Waits for DisneySteve to give me meds for my house fever::

I have a question which is tough to read from the original post- is the 100k goal easy or tough.

Read the post once, it sounded like that was the plan
Read it a second time and it sounded like you were stating OMG I can't save that much so quickly.

Which one was it?

[ScrimpAndSave]

Oh, I have a plan made out. Since I am a teacher, I know how much I will making every year up until the 2012-2013 school year. My salary will be:

2008-2009: $48,696/$50,296
2009-2010: $59,525
2010-2011: $67,232
2011-2012: $75,849
2012-2013 $84,894

Plus $2500 each year for a special committee that I am on.

I now contribute $1000 a pay (every two weeks) to my savings(which is a huge because my paychecks are only about $1350)...but I live at home and only pay $400 a month for rent and also around $100 for groceries. I figured out how much I will be able to contribute per year based on my salary.

So - yes, I can save this...but it is a large percentage of my income. My father is inviting us to stay and rent cheap for two full years (which would bring me to September 2011 ($155,000 of savings according to the plan).

But...I know I am going to get itchy and want to buy a home way before that.

I'm just trying to time it. I'm excited to buy...but I realize the amazing opportunity my father is giving me.

[jIM_Ohio]

You may want to call a mortgage broker about a year before you make the purchase and run some numbers:

20% down as you listed (make sure you add up the first year's interest and add 25% back into take home).
10% down and use the other 10% to buy points on the mortgage (lower interest rate but more equity). You get to deduct the points and would also have more interest (because principal is higher). I never had that much cash when I closed, so not an issue for me, but it was a discussion here back around 18 months ago- pay points or get equity. Paying points makes payments lower so when you do pay down the principal, you pay off much faster (compounding in reverse).

Something to think about.

[ScrimpAndSave]

Wow I never thought about that...10% would certainly be MUCH easier to save up for. And I like the idea of having a much lower interest rate. We have great credit scores (above 750), so I am hoping that getting a good rate is no prob.

[disneysteve]

Originally Posted by ScrimpAndSave

::Waits for DisneySteve to give me meds for my house fever::

I'm not sure we have a treatment for this malady.

I would still vote for the 20% down payment. Just my personal preference.

As for your original numbers, I see no reason why you need to have $20,000 saved for furnishings before buying a house. We sure as heck didn't. In fact, after 14 years, I don't think we've spent $20,000 total on furnishings.

We got numerous hand-me-downs, bought some second-hand items and filled in with some low end but decent quality stuff (gotta love IKEA). We were in our house for about 6 or 7 years before we got a real, brand new, matching bedroom set. Our newborn daughter had a bedroom set before we did.

If you buy new construction, you will need more money sooner since you'll need window coverings and fixtures and things you likely wouldn't need if you buy an existing home (or your dad's house) but I still don't see why you couldn't manage with far less than $20,000 to start out.

[jIM_Ohio]

20% down is a guideline and a good one. But know the two houses I have purchased have been with much less than 20% down. 10% in one case and 5% in another. Basic leverage- I prefer to invest 20% of my salary rather than save cash to use on an illiquid asset which appreciates with inflation, but not faster than inflation.

Now that we have hit the 20% savings rate (2008 was first time that happened), we are looking to pay down the mortgage some, but still want to keep liquidity as well.

[ScrimpAndSave]

Thank you Jim and Disneysteve,

I guess I want the 20% down in order to avoid PMI. I just don't want to have to pay that.

As far as $20,000 for furnishings...I guess I was just being VERY conservative. We could get by with a lot less than that.

I am seriously considering new construction. I would love to have everything new and there are a lot of quality builders around here. I also think it will be more energy efficient.

Oh how I love to dream about houses and the possibilities. If we buy my dad's house, it would be for less...probably around $260k. He pays around $100-$150 for electricity every month depending on the season. It also has gas heat which is great. I just feel like I would have to update it a lot...not sure how much it would cost (rip out wood paneling and some old bathroom fixtures).

I'm not buying anytime soon. It looks like it is two years away. But it is soon enough that I have to make sure my credit score is in check and I understand information about mortgages and other first home issues.

[LivingAlmostLarge]

You don't have to have PMI if you get a HELOC or 2nd mortgage. I too have done 10% DP and no PMI. One thing about the second is that we made it a point to pay it off asap.

So it's not always a bad idea. Our neighbors bought with 5% DP but have paid 15% in 2 years mostly because they are hugely bonus/commission based. They were telling us they refinanced to under a jumbo mortgage because they had paid off so much.

Very smart for them.

[ScrimpAndSave]

Livingalmostlarge,

I never considered a 2nd mortgage. Does this 2nd mortgage be sort of like an 80/20 mortgage?

[LivingAlmostLarge]

Yes, but remember all circumstances are different and it's based on what you can afford and why you are doing it. Our neighbors wanted to get into a house, but didn't have a substantial DP. They could afford the house on just their base salaries, but they are largely bonus based as well, both MBAs.

So they bought with the intention of refinancing after they paid a large chunk off and they have. They went from $500 to $400k in about 2 years. But like she was telling us they have large bonuses, but smaller salaries.

[PrincessPerky]

I will ditto the not needing 20K to furnish, If ou have house fever that bad, skip the furniture save up, I would guess Dad will let you take your bed with you, add in some cheap kitchen 'stuff' and you can survive just fine, while using some of the previous savings for the furniture.

No need to move in and have a display house the next day IMO.

[jIM_Ohio]

If you do not put 20% down, doing an 80-15-5/80-10-10 type loan is probably cheaper than paying PMI. Payments will be slightly higher, but the tax return will get you the money back.

We are in an 80-15-5 right now. 5% DP. We have a plan to pay down the second mortgage soon. Obviously there are risks to this, especially with house prices falling. If you do an 80-15-5 like we did, I suggest you invest significantly- to let the leverage work for you. If you just do an 80-15-5 to get in to the house, but are not saving 20% of your paychecks, I would argue the house is too much.

[noppenbd]

It is my understanding that PMI may be tax-deductible, at least for the next few years: Tax Tip: Deducting private mortgage insurance payments

If this is truly correct, then it makes the 80-10-10 option less attractive.