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20 yrs old, First House
Old 01-29-2011, 10:09 AM   #1
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20 yrs old, First House

Hello,

I have been reading this forum for quite a while and have been observing all of the great advice given on this forum. I wanted to introduce myself as I am about to make a big financial decision here very soon.

Just some info on myself. I am 20 years old, in College, working towards by Bachelors in Business Management. I have zero debt. I have had two credit cards since 18 which are paid off every month.

I know I have quite a bit to learn about everything in general however watching my Father lose his job twice in two years after being with a company 16 years has made me very aware of how important it is the be financially squared away. Im currently working for a large university making about 27K a year.

I have saved close to 40K, and have realized that I am very close to being forced to be entirely on my own. (Dads house close to Foreclosure).

I have decided as of the beginning of the year that I would start looking for my own place. Apartments around here are renting for around 700 to 900/month for a decent place. I have figured out that I could buy my own house for under 100K, which I have actually put in an offer on and should know officially wednesday. The house is a foreclosure that is in amazing shape. It was built in 2006 and currently no house in the neighborhood is selling for under 130K.

I decided to do an FHA loan due to being able to hold on to a large part of my liquidity if anything were to happen. (loss of job etc)

I do have a Girlfriend that is going to move in with me, we have been dating for 2.5 years, however my Name is going to be on everything. I don't consider it a trust issue but more of a CYA thing. She makes about the same as me and our financials would most likely be put together.

Now I do have some questions and I would love to hear some advice on my current situation.

I don't have any of my money in investments. I am incredibly paranoid about the financial responsibility of purchasing a house, and would love to be able to pay off the house as soon as possible, and hold off on retirement investments until that is done. I would love to hear opinions on this.

Thanks for reading and I look forward to all of your thoughts.
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Old 01-29-2011, 10:21 AM   #2
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How, I applaud your financial discipline at your age. Sounds like you are off to an excellent start in managing your financial future.

It is interesting the lessons you are learning from your father's misfortune. I have a son-in-law who saw something similar happen to his dad and he is ultra-cautious when it comes to debt, savings and risk. A sad way to gain knowledge but it appears to be an excellent educational tool.

The only concern I have about your plans to buy a house is the constraints it will place on your mobility. Once you graduate you may find employment requires you to relocate and selling your house (or becoming an absentee landlord) can be difficult. At your age I would prefer to be "agile, mobile and hostile" as a long-time poster is fond of saying.
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Old 01-29-2011, 10:33 AM   #3
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Good job on having a job and saving at your age.

Investing vs. paying off. I'm sure there are a ton of threads on that subject. A few things to consider: does your employer offer any 401k match? what type of mortgage and rate can you get, i.e. arm/fixed, 15/30 year, etc. Be sure to factor in tax impact.

Do the math and make sure you have a decent emergency fund as home ownership increases your risk of new challenges.

Besides the math, is this area somewhere you plan to live long term (>10 years)? On average, it's 5-7% commission to sell a place plus closing cost. It might take a few years before the marekt gets better. Are there jobs in your field of study?

Best of luck
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Old 01-29-2011, 11:01 AM   #4
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+ what REWahoo said.

You should wait to buy a house until you are in your late 20s at least. You are at an age when sharing an a rental is very appropriate, in fact sharing a rental house could be an education about the costs and maintenance associated with home ownership. Live as frugally as possible, add to your savings.

Do not worry about 'missing a buying opportunity' in this soft housing market. We won't see escalating home prices again for many years.
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Old 01-29-2011, 12:15 PM   #5
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My 25-yr old daughter has an offer out on a short-sale townhouse. Her apartment rent is also about $700/month, and the cost of living in this townhouse might be about the same. She has a higher income, and also plans to live there for a while as she is pursuing a Master degree while working full-time. So, we actually encourage her to buy the home. We are of the type who like our own place, so of course we are prejudiced.

Do you see yourself living there for a while, after graduation?
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Old 01-29-2011, 01:04 PM   #6
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I like having my own place too but there is a time in your life when that is appropriate.
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Old 01-29-2011, 04:10 PM   #7
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Quote:
Originally Posted by howaldryan View Post
Hello,


I don't have any of my money in investments. I am incredibly paranoid about the financial responsibility of purchasing a house, and would love to be able to pay off the house as soon as possible, and hold off on retirement investments until that is done. I would love to hear opinions on this.

Thanks for reading and I look forward to all of your thoughts.
There are many threads here comparing paying the mortgage vs. saving for retirement. Read them and make up your own mind. I'm a "pay the mortgage" guy but part of that is because mortgage interest is not deductible where I live.

At your age, either choice allows for a lot of compounding, either of investment's value or interest you don't pay. When you start doing either is probably more important than which option you choose.

Good luck.
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Old 01-29-2011, 04:43 PM   #8
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If you buy a home, be sure to purchase an owner's title insurance policy. This is particularly important on a home with a foreclosure history.
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Old 01-29-2011, 06:22 PM   #9
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When looking at the cost of ownership be sure to include RE taxes & insurance as well as maintence. A conservative would look at it with no roomate $$ help. Of coarse there is also the tax benifit of owning if you can itemize deducts to consider. At your age and histrically low rates would not be as concerned about paying off mortgage before starting to invest. A bit of both would be good. With 27,000 income would talk to bank has to how much they will lend you as a monthly payment w tax and ins. of 700 would be 31% of your gross monthly income which may be boderline with current mortgage underwriting guidlines
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Old 01-29-2011, 11:25 PM   #10
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Thank you for all of your comments. Yes I can see myself living in this place for several years if not longer. It is close enough to school so that I could live there through graduation. I have two years left to graduate.

In the current field that I am in, I have the ability to transfer companies and do the same job making close to 33K. However my company is very flexible with my school schedule and offers unlimited overtime 6 months out of the year. That 27K does not include OT.

I am applying for my career job (this year) and it looks very promising. That job starts at 52K a year.

I have factored in Insurance, maintenance ect into the cost. I live very frugal as it is and currently have a vehicle that is paid off.

This house is something that I could see myself living in for quite some time. 10+ years. I love the location, it is close to all my job opportunities. This home is really larger then I need but it is something that i could grow into, (Family etc). It is in location with some of the best schools in my area.

I currently already have planned to have a year of expenses put aside by purchase/close date.
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Old 01-29-2011, 11:26 PM   #11
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Also I have been pre approved through chase bank for the house. So the approval should not be an issue.
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Old 02-01-2011, 05:37 PM   #12
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Sounds like you have thought this thru very well. Have fun and wish you the best!!!
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Old 02-01-2011, 05:52 PM   #13
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Quote:
Originally Posted by howaldryan View Post
I decided to do an FHA loan due to being able to hold on to a large part of my liquidity if anything were to happen. (loss of job etc)...

I don't have any of my money in investments. I am incredibly paranoid about the financial responsibility of purchasing a house, and would love to be able to pay off the house as soon as possible, and hold off on retirement investments until that is done...
As you have demonstrated the amazing ability to save up $40K at such a young age, I think you are a responsible person and will do fine as a home owner. I have always been frugal, but I was in my mid-20s and with a good job when my net worth was that much.

But the two paragraphs above appear contradictory. While pile more money into paying off the house mortgage if you worry about liquidity? And you need to overcome the fear of investing. Investing has its risk, but owning a house is risky too, as you have seen what happens with your father. Stocks do go down, but the liquidity is superior compared to real estates.
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