Question on saving for a down payment

[Scallywag]

In 2 months (after going "Scorched Earth") we will have 6 months of expenses in a cash account that is with a credit union several cities away.

We will then begin saving for the down payment on a home. I have a question regarding this - as I have mentioned before, I absolutely do not want to take on "problems" because of my son's needs. I want to make sure that we avoid PMI of course but even if we continued "scorching the Earth" for the whole 2019 (with a purchase date of 2020) we would still only have about 10% saved up. Here's where it gets really dicey. My spouse now thinks we must withdraw some of the contributions to our Roth and use it to put down 15% and then get rid of PMI by paying extra on principal for the first 12 months.

i am really not comfortable pulling contributions (tax free or not) from our retirement accounts but I am in tears thinking of not being able to get into a house until 2021 (due to my son's needs). Plus, there's no telling that houses prices or interest rates won't go up making home ownership still out of reach ?

Does anyone have any advise for me ? Is there any time when you'd pull any money out of a Roth to use as a down payment on a home ? Or is this just down awful idea ? Please help !

[disneysteve]

I'm a firm believer that retirement accounts are for retirement. That said, it does depend on how much you are saving for retirement overall. What are you putting away besides the Roth? If you have 15% of income going into a 401k, then taking some money from the Roth might not be such a big deal. If, however, the Roth is your main retirement account, I'd consider it off limits. You can't ever replace the money you take out so you lose that tax free growth forever. You'd be sacrificing your future financial stability to buy the house.

[Jluke]

Given your situation and needs you will have to pay PMI. I wouldn’t touch the Roth for a house.

Have you actually calculated/determined you can get rid of PMI in just 12 months?

[greenskeeper]

what's the loan to value ratio these days for PMI in your area?

[disneysteve]

even if we continued "scorching the Earth" for the whole 2019 (with a purchase date of 2020) we would still only have about 10% saved up.

It sounds like buying this house is really a stretch. How much do you need to put down to comfortably handle the payments and carrying costs? Are the houses you're considering within the 2-3 times income range?

[scfr]

I probably wouldn't buy a home with the intention of eliminating PMI in 12 months. Why? Because the lender may require you to pay for an appraisal in order to eliminate the PMI, and that might feel like money down the drain. It may not matter to the lender if you are above 20% (or whatever the threshold his for elimination of PMI) of the original purchase price. The lender will want to be sure that you are above the PMI threshold based on the current value of the house.

Have you thought about continuing to save until you have at least 15% of a down payment, and then revisiting the question of whether or not to pull money from the Roth to pay for the down payment, but with the Roth withdrawal being what pushes you over the PMI threshold?

At the very least, I'd look in to what the requirements/costs (in terms of both dollars and time spent) would be for eliminating PMI.

[Scallywag]

Thanks everyone

The loan to value ratio is 4:5 or 20% equity in the house. We will definitely have 10% down but it is the additional monies we would have trouble coming up with, within the year -- there is simply just not enough room in our budget to squeeze it out anymore.

We ate definitely able to come up with 10% in the following year (2020) to be PMI-free in 2021. The math works but I am just not sure what the right decision would be as we cannot wait.

[LivingAlmostLarge]

If you buy now much more than renting is it? How much are you renting for? How much will your new mortgage plus PMI? Does it makes sense to buy? That's a more important that anything else> If you can afford a mortgage with 10% down I don't see a problem. Leave the Roth IRA alone. If you can't then that's a difference. Are you the one who sold everything?