Impatient Saver

[JenniferG]

I recently graduated college and now I'm in the position to save for a new home. In Jan of this year I decided to really start working towards my goal. When I first started saving I had 1k in credit card debt that I have since payed off and a measly 300 in EF.

As of today here's what I have saved up:
EF 2100
New home Savings 2400
Checking account buffer 1,000

Problem you ask?

I have no idea how to allocate my savings, what goes to EF vs what goes to Home savings. I aslo have some debt I need to pay off, should I focus on paying that off and then start saving?

Net Montly Income: 2700 - 3000

Debt:
Car 14869 330month payment
Ashley furniture Citi 1200ish (0% financing for 2 years) I'm paying 100-150 a month on it, the minimum is 50 a month.
Student loan 4800 (I'm paying 200 a month on it the minimun is 50 a month)

I'd really like to purchase a home within the next year, should I pay the minimum on my debt and contribute all extra cash to savings, or go ahead and keep contributing a little extra a month to pay off debt earlier?

For those of you that have purchased a home lately:
How much of an EF did you have saved up when your purchased your home?
How much of a Down payment and extra cash (closing etc.) did you have saved up?

I was PreApproved for 130k, I'm looking in the 85k to 115k price range Ideally somewhere around 90k.

[jpg7n16]

1st - stop paying extras on the student loans, keep paying extra on the furniture (avoids the gotcha clause), start paying extra on the car. Student loan interest is tax deductible, car interest isn't - and likely has a higher interest rate anyways (looks like maybe you got your car for 15-16k on a 5yr loan, so about 8.5-11.5% right? something around there?).

2nd - why do you want to purchase a home? have you received job offers since graduation? are you settled into the area? how long will you keep the home?

basically, since we don't have too much info about who you are and what's important to you, I'm trying to find out if you're buying a home because you think "that's just what you're supposed to do" or if you have a legitimate need for a house.

I'm a recent grad. I live with 2 roommates and keep rents as low as possible for good neighborhoods. I paid off all my debts - except certain 2.5% student loans, then started saving. If I need to move for any reason, I don't have to worry about having a house to sell.


If it were me, I'd keep renting, pay off the furniture with the money saved up for "new home savings", pay minimums on the student loans, and the most I possibly could on the car debt. I wouldn't get a house just cause I was in the financial position to afford it (like I am right now), but only if I had a legitimate need for a house.

[JenniferG]

To be honest with you I'm just tired of renting and I want something to call my own.

Job front wise, Ive worked at the same place for going on 5 years, basically graduation was a "promotion".

I was able to negotiage a fairly low 6% intrest on my car loan for 60 months, been paying on it for a year now. The student loan is around 5%.

[Ima saver]

I bought a house at age 21, paid it off at age 32 and it was the best decision I ever made. I have been mortgage free since then.
You should save up until you get 3-6 months of net income in your emergency fund. Then I would put as much into saving for a house down payment as you can. Ideally, you should have about 20% to put down on a house. In your case, that would be about $18,000 for a $90,000 house.

[creditcardfree]

My experience says it is much better to have the least amount of debt going into a home purchase as possible. An emergency fund and large down payment are important, too.

I think you should consider focusing on one thing at a time. You will see faster progress. Make minimum payments on all but one debt, and put all the extra cash on one debt at at time. In your case, I would go with the furniture, then student loan and then the car. Others will have you pay off the car first because of the higher interest, but it is your largest loan and it will take longer to get to the others if you start this first. If you do this in less than a year, the interest is neglibile.

Make sure now is really the right time for a house. Houses have much more maintenence costs then renting. If you decide it is now, I probably wouldn't harp on you too much for not making extra payments on the car, while you build up your emergency fund to three months of expenses and then save for the house.

Great job on your progress so far!

[MonkeyMama]

When we bought our home, no debt, 20% down, not much in emergency savings. Paid closing costs in cash.

I wouldn't do it with any less.

For us, the house down payment ($50k for a modest condo) doubled as an emergency fund until we bought the home. I wouldn't recommend going into buying a home without much savings leftover. In our case, condo was very low maintenance compared to a house, and we were saving about $3k per month. So, we had an ample efund/savings built up again very quickly. If we were buying an actual house, would have waited a little longer to have more savings. Just a lot more to maintain and a lot more than can go wrong with a single family home. (I really don't recommend the little savings thing at all - but our situation was unique for a variety of reasons that don't matter here).

We actually bought our first home shortly after college, but it didn't happen overnight. I'd say literally, we saved up for it about 7 years (my spouse had no expenses in college but worked and saved every dime - we both had savings from high school, etc.). This day and age people expect to save up a few months for a house. It's not realistic and has spelled disaster for many people - just read the news.

[jpg7n16]

To be honest with you I'm just tired of renting and I want something to call my own.

Job front wise, Ive worked at the same place for going on 5 years, basically graduation was a "promotion".

I was able to negotiage a fairly low 6% intrest on my car loan for 60 months, been paying on it for a year now. The student loan is around 5%.

Ok cool I hope you find a good house then. You just don't want the home purchase to lock you in to somewhere you don't want to be - but it looks like thats not an issue for you. So, I 2nd the advice above: 20%+ as a down payment, paying all closing costs in cash - with a decent sized emergency fund on the side (say 3 months expenses). Good advice!

Ok so they're about the same then. Good work on getting the lower rate But since the student loan interest is tax deductible, I'd still pay minimums on it and pay the extra towards the car loan.

Then as far as how to allocate savings between the 2, I would put your savings allotment towards the EF until it's up to the 3 months. Then start the home savings. Why? Well, it's preferrable to have both an EF and a down payment when you buy the house, so you'll ultimately have to save for both. So since an emergency fund is a good thing to have whether or not you own a house, why not build the EF 1st and get that covered, then work on the house?

Seems like you're on a good path. Good luck!

[JenniferG]

Thanks for the suggestions everyone.

I've decided to transfer my new home savings into my Emergency Fund account, which would roughly total 4500 dollars. My goal will be an Emergency fund of $5,000 (3 months of living expenses) Eventually (after moving) I'd like to save up at least $8,000 in my Emergency Fund.

So, after the Emergency fund reaches $5,000 I will then allocate all additional money towards saving for a new home, goal will be to save up $12,000. I'm thinking I should be able to save 800 a month after the citi card is paid off.

I'll pay 400/month on the citi card to have it paid off by July.

Does this sound reasonable? I'd like to have part of my Emergency fund earn a higher yield, any suggestions? Currently $1,000 of my EF is in my Wells Fargo Savings earning .05% interest and the other $3,500 is in an online ING account earning 1% interest.

[jIM_Ohio]

I recently graduated college and now I'm in the position to save for a new home. In Jan of this year I decided to really start working towards my goal. When I first started saving I had 1k in credit card debt that I have since payed off and a measly 300 in EF.

As of today here's what I have saved up:
EF 2100
New home Savings 2400
Checking account buffer 1,000

Problem you ask?

I have no idea how to allocate my savings, what goes to EF vs what goes to Home savings. I aslo have some debt I need to pay off, should I focus on paying that off and then start saving?

Net Montly Income: 2700 - 3000

Debt:
Car 14869 330month payment
Ashley furniture Citi 1200ish (0% financing for 2 years) I'm paying 100-150 a month on it, the minimum is 50 a month.
Student loan 4800 (I'm paying 200 a month on it the minimun is 50 a month)

I'd really like to purchase a home within the next year, should I pay the minimum on my debt and contribute all extra cash to savings, or go ahead and keep contributing a little extra a month to pay off debt earlier?

For those of you that have purchased a home lately:
How much of an EF did you have saved up when your purchased your home?
How much of a Down payment and extra cash (closing etc.) did you have saved up?

I was PreApproved for 130k, I'm looking in the 85k to 115k price range Ideally somewhere around 90k.

I have not read other posts yet... here was my first two comments:

1) you listed income, what are your total monthly expenses? Do you spend less than you earn?
2) Do not put a timeframe on the house purchase until you run the numbers in detail. The expectation of "purchase house within 1 year" might lead you into a bad decision. Don't force the time on the decision, force the money on the decision.

If you plan to borrow 90k, you should plan to save 20k (20% down). Focus on getting the 20k.
The bank pre-approved you for a loan (when?)... make sure its with the current debt not paid off...

then work on 3 things

1) spend less than you earn
2) a 100k mortgage borrowed at 6% is a payment of just less than $600/month (30 year fixed). Did you know this? How much is your rent? You need to budget now like you live in the house, so here is what I would do...

if you pay $400/mo in rent
keep paying the $400
and put $200 into savings (so your payment looks like $600/mo)
make sure you are saving 20% of gross... so if you gross $3000/mo, you should be saving $600/mo... put $300 of this into a retirement account, and put $300 of this into savings account
and still pay extra on the car and furniture payments too

If you then do the math
savings is getting $300+$200 (the $200 is a guess at difference between rent and new mortgage payment) which is $500/mo and $6000/year.

In 3 years you will have enough saved for house AND the debts should be paid off then as well.

If you did not like that math, tweak my variables... try savings 30% of gross with $600/mo going to savings- you might have $20k in 2 years (you will be just short of 20k).

If you did not like that math, tweak the variables again- try savings 50% of gross ($1200/mo to savings). This would get house down payment in about 18 months.

As you can see, even with big changes to savings rate (doubling it) you need some time to accumulate- time is single factor to achieving goal unless you plan to cut back expenses considerably.

[maat55]

Don't be in a hurry, home prices have nowhere to go but down for a couple of years or more. I would just payoff consumer debts, then build your house fund, so later you can get in at the bottom.

[jpg7n16]

...Does this sound reasonable?

Yes it does

...I'd like to have part of my Emergency fund earn a higher yield, any suggestions? Currently $1,000 of my EF is in my Wells Fargo Savings earning .05% interest and the other $3,500 is in an online ING account earning 1% interest.

Wouldn't we all?? hah The key for the emergency fund is liquidity not yield. If you have an emergency, you need access to it - fast. You're never really going to get a good yield on that money. According to BankRate, the national average for a low balance money market account is 0.889% APY.

So as long as you have really easy access to the money in the ING account, that seems like a good deal right now.

You might be able to find a higher yield for that $1000, but keep in mind that 1% of 1000 is $10. For the year. That's less than $1 a month. If that's worth the hassle of switching banks, well that's for you to decide. Personally I would keep it as is (for extra easy liquidity) and save up in the ING account.

[JenniferG]

I have not read other posts yet... here was my first two comments:

1) you listed income, what are your total monthly expenses? Do you spend less than you earn?
2) Do not put a timeframe on the house purchase until you run the numbers in detail. The expectation of "purchase house within 1 year" might lead you into a bad decision. Don't force the time on the decision, force the money on the decision.

If you plan to borrow 90k, you should plan to save 20k (20% down). Focus on getting the 20k.
The bank pre-approved you for a loan (when?)... make sure its with the current debt not paid off...

then work on 3 things

1) spend less than you earn
2) a 100k mortgage borrowed at 6% is a payment of just less than $600/month (30 year fixed). Did you know this? How much is your rent? You need to budget now like you live in the house, so here is what I would do...

if you pay $400/mo in rent
keep paying the $400
and put $200 into savings (so your payment looks like $600/mo)
make sure you are saving 20% of gross... so if you gross $3000/mo, you should be saving $600/mo... put $300 of this into a retirement account, and put $300 of this into savings account
and still pay extra on the car and furniture payments too

If you then do the math
savings is getting $300+$200 (the $200 is a guess at difference between rent and new mortgage payment) which is $500/mo and $6000/year.

In 3 years you will have enough saved for house AND the debts should be paid off then as well.

If you did not like that math, tweak my variables... try savings 30% of gross with $600/mo going to savings- you might have $20k in 2 years (you will be just short of 20k).

If you did not like that math, tweak the variables again- try savings 50% of gross ($1200/mo to savings). This would get house down payment in about 18 months.

As you can see, even with big changes to savings rate (doubling it) you need some time to accumulate- time is single factor to achieving goal unless you plan to cut back expenses considerably.

Thanks for the Suggestions!

Heres a Rough Breakdown of my Budget as of now:

Net/Month: 2800

7% to 401k employer matches 5% (net is after 401k deductions)

Rent: 575
Electric: 100
Phone/internet:50
Car: 330
Gas: 100
Student loan: 50
Groceries/Household/Pets: 300
Eating Out:75 (would like to trim this down to 50)
Gym: 30
Netflix: 10
Ashley furniture:400 (Should have this paid off by July)

Savings: 600 (once I reach 5,000 in my EF currently 4500 I'll start saving for a house)

Total: 2620

Once the Ashley Furniture is paid off I will contribute 1,000 to my New Home Savings/month. Things will be tight but I'm willing to make the sacrifice.

Heres is another question. Get out your crystal balls. With home prices so low and interest rates one the rise should I consider buying if I have a decent down payment say 10,000+ saved, if interest rates start to climb back to previous housing bust rates. Or will I save more money in the long run with a higher interest rate and larger down payment so I avoid PMI etc?

Long Term Goals:
Once I get my down payment for a house saved up I will work on paying extra on the car, then the student loan. After all debt is payed off I would like to increase my EF savings to atleast 6 months.

[creditcardfree]

The better your financial foundation the better you can afford a home. Prices and interest rates matter, but they matter far less than where you are financially. Avoiding debt and having an emergency fund are critical first steps.

[jIM_Ohio]

Thanks for the Suggestions!

Heres a Rough Breakdown of my Budget as of now:

Net/Month: 2800

7% to 401k employer matches 5% (net is after 401k deductions)

Rent: 575
Electric: 100
Phone/internet:50
Car: 330
Gas: 100
Student loan: 50
Groceries/Household/Pets: 300
Eating Out:75 (would like to trim this down to 50)
Gym: 30
Netflix: 10
Ashley furniture:400 (Should have this paid off by July)

Savings: 600 (once I reach 5,000 in my EF currently 4500 I'll start saving for a house)

Total: 2620

Once the Ashley Furniture is paid off I will contribute 1,000 to my New Home Savings/month. Things will be tight but I'm willing to make the sacrifice.

Heres is another question. Get out your crystal balls. With home prices so low and interest rates one the rise should I consider buying if I have a decent down payment say 10,000+ saved, if interest rates start to climb back to previous housing bust rates. Or will I save more money in the long run with a higher interest rate and larger down payment so I avoid PMI etc?

Long Term Goals:
Once I get my down payment for a house saved up I will work on paying extra on the car, then the student loan. After all debt is payed off I would like to increase my EF savings to atleast 6 months.

cc free has a post after this which is really good

creditcardfree The better your financial foundation the better you can afford a home. Prices and interest rates matter, but they matter far less than where you are financially. Avoiding debt and having an emergency fund are critical first steps.

Focus on your finances and not the timing of when this takes place... to often if people have a timeline for something they make bad or less than optimal decisions to live by the timeline. The timeline is important, but having a specific timeframe is bad...

for example, you know you want a house soon
if you reach that goal in 1 year or 3 years does it matter (really matter)? You took 4 years to graduate college (probably) and I bet that time flew by. The next 3 years will too.

A 100k mortgage will be about the same as your current rent payment. That 100k mortgage will have other bills you need to get used to. Property taxes and higher utilities are the two I can think of off top of my head.

What are the details of the car loan ($330/mo). Is this own or lease, when will it be paid off, when will you need to replace the car? What is interest rate?

In your house, you will likely have the following:

1) Gas bill (hot water heater and or furnace)
2) Electric Bill
3) Sewage Bill
4) Water Bill
5) Garbage removal

those are not shown above (electric is listed, the other 4 are probably covered with "rent"

If having more bills like that scares you, consider a condo (when I lived in a condo, I had electric bill only, the other 4 were covered by condo association fee, which was $130/mo).


I will make one other comment on your short and long term goals

Once the Ashley Furniture is paid off I will contribute 1,000 to my New Home Savings/month. Things will be tight but I'm willing to make the sacrifice.

Heres is another question. Get out your crystal balls. With home prices so low and interest rates one the rise should I consider buying if I have a decent down payment say 10,000+ saved, if interest rates start to climb back to previous housing bust rates. Or will I save more money in the long run with a higher interest rate and larger down payment so I avoid PMI etc?

Long Term Goals:
Once I get my down payment for a house saved up I will work on paying extra on the car, then the student loan. After all debt is payed off I would like to increase my EF savings to atleast 6 months.

I think you have a good budget if you actually follow it.
The only thing missing in current budget (IMO) is that 401k is too low (7%) and should be between 10 and 15% of gross income (currently 7% of gross with 5% match).

The cost of PMI will out weigh a 1% difference in interest rates or 10% increase in housing costs... I don't think the math is even close.

I did not rresearch PMI, but PMI is based off amount financed (I think 1% or 10%) which means on a $600 payment is $660 or $606.

And increase in interest rates moves payment from 100k/6% 30 yr fixed go from $600 at 6% to $645 at 7%. Is house goes up in cost and 10k more is financed, the payment is up $131. $600 for 100k/6% to $731 for 110k/7%.

7% is not a low rate (my first house was 8.25% in 2000). In the 1980s rates were double digit (think 15-20%). Rates have a long way to go before they are high by historical standards.
If you have PMI you will probably refinance once, so add the cost of closing the refinance into costs (it costs you $60/month and you will pay that for 12 years or so... if house appreciates or you pay more, you might be able to refinance after 2-10 years and take off the PMI.

[rizzmo]

My wife and I purchsased a home right at the start of the financial collapse. We put 20% down and paid closing costs in cash. We spent another 2k making minor repairs. This did not include appliances. we had almost no EF, but we had no debt other than deffered student loans. To come up with the down payment we saved (8k), my wife cash out her Roth IRA (4k) and we liquidated some stock (~14k).

After looking over your budget I would suggest the following:
1. Build 6 months EF
2. Pay off Ashley
3. Pay off Student loans
4. Pay off Car
5. Save for 20% down payment
6. Save an extra 2-3k for appliances and repairs

I would elect not to have your property taxes escrowed, but that is more of a personal preference. If I could do it agian we would not have cashed out her Roth.