Advice needed on moving out!!

**red92s** · 09-22-2009, 05:28 PM

Depending on the area you live in, you may find it difficult to buy a home at your current income level.

With no downpayment and a 5.5% rate, this calculator suggests you could afford a home in the mid-$80k range. In many areas, those simply do not exist.

I'd add that you don't have the emergency savings to buy a home. I'd want to see at least 5 or 6 months of expenses in the bank.

**disneysteve** · 09-22-2009, 05:50 PM

If you currently have $1,113/month free after your expenses, where is it going? How much do you have in savings now other than the $1,000 EF? You should be shooting for a 20% down payment when buying a home. You also should have at least a 6-month EF.

There will be many more expenses when you move out on your own. Your expense list doesn't mention food. I'm assuming your parents provide that now. You also don't mention rent. Are you paying your parents to live there? As a homeowner, you'll have property taxes, insurance, lawn care, utilities, maintenance and repairs, etc. You'll need to get furniture and appliances and other things needed to run a household.

Tell us more about your current savings besides the EF and the 401k.

**Seeker** · 09-22-2009, 06:36 PM

Six months ago he asked the same question. Looks as if he's been using the $1k each month to pay off his 7k credit card debt.

Vic, in your past posting you are quite "against" renting. Why?

Most of us do rent before we purchase. In these times, and at your age, I wouldn't recommend buying.

What profession are you in?

Do you intend to stay in Kentucky for greater than 5 years?

Essentially, you need to have at least 6K of an Emergency fund.

In addition, IF houses run like 200k in Louisville KTY. A 20% down payment would mean a $40k down payment. I have no idea how much houses do run, but consistently in order to avoid paying PMI (private mortgage insurance), you will need 20% of the price of the house for a down payment.

If you stay with your folks, that would mean another 6 months of saving for your EF. And another 40 months for a 40k downpayment.

There's a middle ground... renting...

Renting a room with other people owning (look especially near colleges) is not a bad option for saving.

Yes, in another room may be a student renter, but this is not a "bad" option. Buy a little fridge and microwave.

You "save" during this time, you're out from your folks home, you continue working, and it's not a terrible way to step into ownership.... only look to purchase a home if you plan on staying in the area for 5+ years, your work is stable, you have the money, etc.

**BigVic** · 09-22-2009, 07:34 PM

I just recently got out of my cc debt so that is why I do not have much savings right now and I am working on building a larger EF.

This was my plan even though it probably is not the best route. I am aware that it is best to have a 20% down payment but was thinking about using the $8,000 tax credit + $2,000 for a down payment on a $100,000 condo. Looking at the rates I could get, it seems like the mortgage for that wouldn't be too much more than rent. Yeah I would have a condo fee, groceries, electric, etc. but I would also have a roommate to help with the costs. It seems as though I would be wasting money on rent when I could be investing in a property. I could then turn around and sell in 3 years and also have the money I had been saving for a down payment on a home. Also I have lived on my own before so I have all of the furnishings I will need for a while. What do you all think?

**Seeker** · 09-22-2009, 07:52 PM

Originally posted by BigVic View Post

I just recently got out of my cc debt so that is why I do not have much savings right now and I am working on building a larger EF.

This was my plan even though it probably is not the best route. I am aware that it is best to have a 20% down payment but was thinking about using the $8,000 tax credit + $2,000 for a down payment on a $100,000 condo. Looking at the rates I could get, it seems like the mortgage for that wouldn't be too much more than rent. Yeah I would have a condo fee, groceries, electric, etc. but I would also have a roommate to help with the costs. It seems as though I would be wasting money on rent when I could be investing in a property. I could then turn around and sell in 3 years and also have the money I had been saving for a down payment on a home. Also I have lived on my own before so I have all of the furnishings I will need for a while. What do you all think?

Hmmm,

1) Paying your mortgage on a condo + association fees + property taxes + PMI... how many dollars do you "expect" to be saving toward a down payment on a house?

2) Where do you expect to live while your condo is "selling" and you are looking for a home? It's very difficult to coordinate these things.... often people end up paying on both properties for awhile.

Please don't take this wrong, but it's very likely that you will spend more than you will gain in those three years.

The fees associated with buying a condo, are not insignificant. It takes longer than 3 years to recoupe those fees and charges.

And what happens if housing does not go up during this time, and in fact, goes down? You can end up upside down on a loan under these terms as well.

You are talking about a 2k down payment;a 2% down payment. If you can find a loaning entity to work through, then the Housing/Mortgaging Industry problem has not ended... people need to think these things through. Vic, you cannot afford it.

**BigVic** · 09-22-2009, 08:23 PM

Thanks for the honesty. That is all I am looking for and I would never take it personally, after all I asked for it but I have a question. Wouldn't the $2,000+$8,000 be 10%? I know that doesn't make it better because of the reasons you listed above and I know I should have 20%.

So basically this is what I should be aiming for...

1. Rent for now with a roommate because it is too risky to own a property with such a small EF and I really won't be able to save enough while paying mortgage, utilities, cable, food, PMI, taxes. Oh and I pretty much can't afford it :-)

2. Save 6 months EF

3. Save 20% down payment

**BigVic** · 09-22-2009, 08:32 PM

So how am I supposed to save for my retirement during these times? Should I just keep with the 5% in the 401k and then stuff my EF and down payment funds? I would really like to save more than that. Also I don't plan on making 35K for the rest of my life so I guess it should get easier to save in the future.

**creditcardchaser** · 09-22-2009, 09:33 PM

If you can discipline yourself to stick to your retirement savings goals now while your income is (hopefully) rather low compared to what you will be making down the road then you will be putting yourself in a great position to maintain that discipline as you make more money. Keep sticking at it!

**Seeker** · 09-22-2009, 10:21 PM

Originally posted by BigVic View Post

Thanks for the honesty. That is all I am looking for and I would never take it personally, after all I asked for it but I have a question. Wouldn't the $2,000+$8,000 be 10%? I know that doesn't make it better because of the reasons you listed above and I know I should have 20%.

So basically this is what I should be aiming for...

1. Rent for now with a roommate because it is too risky to own a property with such a small EF and I really won't be able to save enough while paying mortgage, utilities, cable, food, PMI, taxes. Oh and I pretty much can't afford it :-)

2. Save 6 months EF

3. Save 20% down payment

The 2k + 8k does indeed add up to 10k.... but you do not get the 8k until you file taxes at the end of tax year 2009 (in other words April 2010, more or less). You cannot use future dollars for a down payment (well I suppose you can with the type of deals that are being structured lately), but, it may not necessarily be 8k refunded. It's a "credit" on your taxes and it's dependant on other factors as well (do you generally pay for federal/state or owe?).

In other words, though it's possible to find a loan that will take the 8k as 8% part of the down payment, I would look very closely at the terms of such a loan. Be careful... because it may be that come April '10.... many people without refunds or with lower refunds than they expected, may find themselves in trouble if the loan terms with this "conditional" is not met.

Originally posted by BigVic View Post

So how am I supposed to save for my retirement during these times? Should I just keep with the 5% in the 401k and then stuff my EF and down payment funds? I would really like to save more than that. Also I don't plan on making 35K for the rest of my life so I guess it should get easier to save in the future.

Keep meeting the match from the company you work for. For as long as possible. You get 50% interest from the company match on what you deposit. Even though the money is in venues that are risky... an immediate 50% return makes it usually a gain in the end.

Nobody plans on staying making 35k a year forever. But, basically if you can raise your income, without raising your expenses, your savings will grow faster and you'll be closer to your goal.

Vic, at 24 years old (and single), you should want to be mobile. If a job were to open up in your industry in another state at a greater pay, say Tennessee, wouldn't you want to investigate it? That's why at your age, I wouldn't want to tie myself down with home ownership. Your whole life is still ahead of you.

I have no idea what industry you are in, nor whether or not 35k is a good salary for what you do. But yes, the more you make, and provided you don't spend more as you earn more, means that you will someday be an owner.

**red92s** · 09-23-2009, 04:11 AM

Originally posted by BigVic View Post

This was my plan even though it probably is not the best route. I am aware that it is best to have a 20% down payment but was thinking about using the $8,000 tax credit + $2,000 for a down payment on a $100,000 condo.

In order to qualify for the homebuyer credit, you have to close on the property before November 30th 2009. That's about 2 months off, and is not a ton of time to look at properties, do the due dilligence, and complete the sale.

Originally posted by BigVic View Post

It seems as though I would be wasting money on rent when I could be investing in a property. ?

I suggest you reevaluate this line of thinking. Seems you've bought into the commercials on TV that say "buying a home is the best way to build wealth, and prices are at all time lows!". Renting is NOT "wasting" money. It can often be better financially to rent instead of buying.

In most markets, condos rarely appreciate in value much. They only command high prices when they are new and have the coolest amenities. Within 6 months there is another building opening up with cooler finishes, better floorplans, and better views.

Honestly it sounds like your major motivation to buy is because you are planning on flipping the place in 3 years in hopes of turning a profit. After closing costs, association fees, utilities, taxes, PMI . . . you'd need to see an annual appreciation rate of like 10% to recoupe all that in 3 years. Maybe that would be realistic if it were still 2005, but not now. I really think if you bought a condo right now and sold it again in three years, you'd loose a significant amount of money on the deal.

**wincrasher** · 09-23-2009, 04:13 AM

You are not in a position to buy a house at your income level.

Rent a 2 bedroom apt and get a roomate that you can rely on. Renting on your own will be a stretch with the budget you've shown and you'll end up in trouble.

Look at your tax situation - at $35k, you should not be paying much, if any income taxes. Reduce your withholding to boost your take-home pay.

**BigVic** · 09-23-2009, 05:23 AM

Thanks everyone for the info on this. I really appreciate it. I didn't buy into a commercial. I guess I Just figured if I lost some money in 3 years with a condo, it would be less than what I would have thrown away in rent.

Overall I know that anything can happen in 3 years and I am not prepared enough right now to handle owning. I will take your advice and thanks again.

**Hot dog** · 09-23-2009, 06:03 AM

You could fast forward the whole thing if you got a 2nd job. I'd stay at home a little longer and work on a bigger emergency fund. Believe me once you leave you will not want to go back so this is the only time in your life you will not have lots of bills. Save save save while you can

**disneysteve** · 09-23-2009, 07:27 AM

Originally posted by BigVic View Post

I guess I Just figured if I lost some money in 3 years with a condo, it would be less than what I would have thrown away in rent.

You need to get out of the mindset that renting is throwing away money. It is not. It is paying a fee for a service.

When you take a vacation out of town, do you buy a car? No. You rent one.

Every time you want to watch a movie at home, do you buy a DVD? No. You rent one.

Sometimes, renting simply makes more sense than buying. A home is no different.

Advice needed on moving out!!