Buy House Now w/Low Down or Save Bigger Down?

[BigMoneyJim]

I desire to move back to the Dallas/Fort Worth area soon--preferably by late February (my sister's due date) and better yet by Christmas. I'm still in the very early stages of figuring out the particulars, but it appears I will need to change companies or go low-pay, part-time with my current company to do it. (With the latter option I would be looking to immediately increase my income with contract work or second job or similar; again, not planned out yet.)

I don't anticipate moving from the area in the forseeable future, at least 10-20 years, so I thought it may be time to consider buying a house. With the prospect of leaving my current job it occurs to me that if I buy a house soon it may be better for me to qualify for the mortgage and buy it before I change jobs and move.

One problem is that I don't have much available for a down payment. I may be able to borrow from my 401(k) to the tune of $7500 or $8k, but if I do I'll have to stay with my company (likely low pay and part time) while I pay the 401(k) loan back or have it treated as an early disbursement with tax and penalty. Besides that I may be able to save $2k - $3k between now and Christmas.

There is also the question of the current market level and loan rates.

Any comments on whether it would be better to buy now with little or no down payment (and, by the way, a new job situation) or wait to stabilize and build up a 10%-20% down payment and buy in one to five years?

I have in mind a detached house, probably a small 3-bedroom. I'd like to stay under $100k, but reality may be closer to $120k-$140k.

 

[Cut-Throat]

I may be able to borrow from my 401(k) to the tune of $7500 or $8k, but if I do I'll have to stay with my company (likely low pay and part time) while I pay the 401(k) loan back or have it treated as an early disbursement with tax and penalty.

Don't !

Don't be in a hurry - My first house purchase was because I thought it was a great financial move. It wasn't - I would have saved more if I would have stayed in the Apartment.

I then rented for 12 years and invested before I paid cash for my present place.

 

[azanon]

My suggestion would be to either save until you can afford a 20% down payment (to get out of PMI), or get one of those dual loans, where the second loan is money you use to pay down the 20% (again, avoiding PMI).  PMI is a serious chunk of cash.

Once you have the downpayment, i recommend buying.  The alternative is paying someone else's mortgage (aka renting).  

Offhand, i cant think of any loan superior to a home loan.  The interest rates are really low, and the interest is tax deductible.  And if you buy in a great location and stay put, you really shouldnt get hurt buying, even from a dollars and cents standpoint.  And that's to say nothing of the pride of being a homeowner.

 

[John Galt]

Yeah, right now it's hard to think of better debt than home equity debt. Now, I'm sitting on a bunch of real
estate, all unencumbered. I've been tempted to
borrow amd invest elsewhere, but psychologically
it doesn't feel right. My real estate provides a cushion
against inflation as well as a source of cash if I get
in a spot and really need it. Then, there are all kinds of ways to take the money out, but I won't do it unless
all my other options are exhausted first. As I said though, this is mostly psychological as opposed to
something analyzed to death like I have a tendency
to do.

John Galt

 

[Jane]

I waited until I have 25% downpayment, money for closing + furniture + emergency fund. (25% to get away from Canadian PMI). I agree with Azanon, PMI is a big chunk of cash.

Also what people seem to forget is that there is other cost associated with buying house other than downpayment such as closing cost (legal fees, tax, etc) and the cost of furnishing the new place (people usually underestimate this cost but it is natural tendency wanting to buy more new stuf for your brand new dig).

What happen if you lose your job (knock on wood) right after you buy? Or the basement got flooded promptly after you move? Or the heater decided to retire itself right then? Yup you got the idea, you need some sort of cash saved up to deal with this kind of emergency. (Or is this just me tending to always want a security net of savings?)

Other than that I say go for it. I bought my condo a couple of years back and it was a decision that I am very happy with.

Jane

 

[charlie]

Excuse me please. What is PMI? Never heard of it
in the mcgdog area by that acronym.

Cheers,

Charlie

 

[charlie]

Freaking fingers foiled me again. The above should
read "mcgdog" area.

Charlie

 

[charlie]

Hey, what gives. mcgdog (mcgdog) D-A-L-L-A-S

Charlie

 

[John Galt]

Hello Jane. Good post!

We bought our first house with 10% down, back in the
70s. I told people we took the seats out of our car to look for loose change for the down payment. We actually did sell my wife's piano. Sold the house 3 years later
for no profit really to buy a house about twice the size of our starter, also 10% down as I recall. Had that 3 years also and didn't make any money on sale there either. Anyway, here I am, 30 years later with two (2)
homes, both very adequate for us and both paid off.
The passage of time and lots of real estate
experience worked its magic in my case.

John Galt

 

[BigMoneyJim]

Well, the advice here seems unanimous, and it's what I started thinking when I posted the question. If I buy now it will cost more, leave me cash broke and increase expenses, so in effect the house would own me. I originally thought it might be my best chance in a while to buy, but if I'm going to do well enough to afford a house then I'll do well enough to rent a small apartment and save up a down payment. After saving 20% down they'll probably care less about how long I've been in my job, anyway.

I'm not ready for the grass-mowing commitment, anyway. Thanks for all the replies!

mcgdog? Is the profanity filter playing with us again? Test: Dallas (D-a-l-l-a-s) EDIT: Works for me; maybe it's your spell checker, Chuck-Lyn?

 

[wabmester]

Excuse me please.  What is PMI?

Everybody was so amused at your attempts to spell Dallas that your question got ignored.

PMI = Private Mortgage Insurance, required by some lenders if your down payment is less that 20%.

 

[charlie]

Thanks, wab. My freaking fingers were not the
problem. It was a computer glitch somehow.

Cheers,

Charlie