Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Clearing Out All Savings
Old 06-09-2013, 05:38 PM   #1
Recycles dryer sheets
 
Join Date: Apr 2013
Location: Jacksonville
Posts: 222
Clearing Out All Savings

Boyfriend and I have been discussing with his parents about buying his house. The house is valued at about $175k, and they're willing to sell to us for ~$160k, provided we make a 25% down payment of about $40k. That will be almost our entire savings come October or so, when this is supposed to take place.

We're very young, and our entire savings have been built pretty much within the last two years, so it wouldn't take us long to rebuild back to our position. It seems we're young enough to take a big hit like this for a good investment, but it's still very daunting. Once we make the down payment, we'll have $8k left together, $5k in his ROTH and $3k in mine.

Our emergency savings would be gone, but his parents agreed to support us for a short period of time if an emergency does strike within the first couple months, although it's not very likely, since we own our own business and have a good amount of contracts in from very different industries. It would take us about 6 months to rebuild our emergency savings after factoring in property taxes and all that. Most things in the home are new and won't need repairs for a while, as they were fixing it up with the idea of selling it at years' end before we started talking about this.

So, what do you guys think? Is it just never worth it to empty savings for something? We didn't start too long ago, so it doesn't seem like it's be too hard to start over right now while we're so young, but with a home, and one worth more than we're paying to boot. We both love the house, and were planning on buying one within the next two years anyway.
__________________

__________________
Arifriekinel is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 06-09-2013, 06:01 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,617
First question: Why this particular house? If you are buying a new home you can pick from a huge assortment of available houses (some with attractive prices). Would it not seem likely that at least one of those houses could be better for you guys than the one in which your boyfriend happens to be living?

Protection for you: Be sure your personal interests are entirely covered if anything should happen. You are his girlfriend, not his wife, and that can make a difference, particularly since you are buying this from his parents. People may remember thins differently about who paid what, etc, so get everything down in writing and I think you'd be well advised to get legal advice independent of your BF and his parents.

The only way to know for sure what a house is worth is to try to sell it on the open market. It looks like you guys are skipping that step here. Appraisals can be off by a significant amount, and it's possible this isn't the good deal it appears. That's not a knock on your BF's parents: Unless they've tried to sell it within the last few years they don't know what it is worth, either.

Financing: Are BF's parents carrying the note for you, or will you get a "real" mortgage? I'd argue for the mortgage. Rates are low, and it helps avoid a lot of the potential emotional pitfalls that can come with a deal like this.

If you are willing to put 25% down, you can probably get a pretty good deal on a LOT of different houses (unless you've got problems with your credit or your income won't support the payments). Having his parents involved is not a plus, it is a minus.
__________________

__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
Old 06-09-2013, 06:13 PM   #3
Recycles dryer sheets
 
Join Date: Apr 2013
Location: Jacksonville
Posts: 222
He and I have been living together in different apartments for the last couple of years, this is just his parents home. We like the house for its location a couple of minutes away from the beach, the layout, the screened in back porch, the fact that they've just replaced the roof, carpets, repainted, etc, that we're already very close with all of the neighbors, and the good yard size. We've both joked in the past about being upset that his parents already took our perfect house, so we'd have to just settle for something else.

The $175k was just an appraisal. It's in line with what other houses in the neighborhood have sold for recently, but getting a more accurate estimate is definitely a good idea.

We're definitely getting everything down in writing. We have no real way of knowing just exactly what I'm paying and Boyfriend is paying. All of our money is combined 50-50, and we take identical salaries from our business, so we plan on having the contract represent 1/2 ownership as well.

The mortgage is something we're still hashing out, and plan on doing a bit more detail on just how we'll execute it all if we decide to go ahead and do this. They've got a very good rate on their mortgage, and we have little credit history, so we're going to go more into that and see just which is the better deal with our almost nonexistent credit.
__________________
Arifriekinel is offline   Reply With Quote
Old 06-09-2013, 07:10 PM   #4
Full time employment: Posting here.
 
Join Date: Nov 2008
Posts: 728
at 1st look, this good be a good deal but it takes a lot of trust.

You're not married, just dating. Whenever you write a contract you should have an exit strategy. What happens if you break up? I'd put the solution in the contract as well.

You appear to have the financials to move ahead providing you can get a mortgage. Most mortgage companies will want to review your past income as proven by the taxes you paid in recent years. Do you have the income as proven by taxes paid?

My parents, years ago, wanted to make me the same kind of deal. I said no. They would have always felt like it was still their home and that I owed them for the good deal. On the other hand, if you truly believe you'll stay together, you can make the payments, the parents won't interfere with your privacy, go for it. I believe it's risky but no one on this blog can evaluate what you know in your heart to be true.

When I got married I had a pre-nup. both my wife and I brought assets to the marraige neither wanted to lose. That was nearly 30 years ago and we still are very happily married......it worked! But we had protections if it didn't. Good Luck and be happy.
__________________
jerome len is offline   Reply With Quote
Old 06-09-2013, 07:34 PM   #5
Recycles dryer sheets
 
Join Date: Apr 2013
Location: Jacksonville
Posts: 222
Most of what we have is in our corporation, so through discussions with him, if we break up, he'd keep the house and I'd pull my half out of the corporate savings, or continue paying my half if we still choose to live together, since we work very closely all day. We never planned on getting married until we had a home, unless the process was made more beneficial by us being married at the time.

We both came into the relationship with no assets but his $5k in his ROTH, and we've built up everything through our business. I don't have the income based on taxes, and I'd have to talk more with my regular CPA about how that would work. We started the business in early 2012, incorporated in late 2012, so 2013 was our first taxable year, and we took no salary at that time. So we're both coming in equal, and get 50% of everything coming out of the business, and were going to treat any other combined investments the same way.

A lot of that is why we plan on all getting together to discuss if they will keep the mortgage and we'll write up a separate contract paying them with our own lawyer, or see if we should get one, etc.

We're definitely getting it all written out in a contract with our lawyer too, where most of the gritty details about how exactly we'll proceed will be handled. But before we even get into that, I have to muster the courage to drain a lot of the last couple years' savings. A lot of it was specifically for a house one day, but whoa!
__________________
Arifriekinel is offline   Reply With Quote
Old 06-09-2013, 07:42 PM   #6
Thinks s/he gets paid by the post
MooreBonds's Avatar
 
Join Date: Aug 2004
Location: St. Louis
Posts: 2,091
Quote:
Originally Posted by Arifriekinel View Post
We started the business in early 2012, incorporated in late 2012, so 2013 was our first taxable year, and we took no salary at that time.
Are you doing a private mortgage from his parents? Most mortgage underwriters apply stricter requirements to self-employed people, and the fact that your official incorporation was in late 2012, AND you took no salary in 2012 (?), will make it much tougher to get conventional financing at the lowest rate. They often want 2 years of self-employed records, so just a few months for 2013 won't give them much to go on.

You should first try to find a financier before proceeding any further, given your limited self-employment history. All this will be for naught if you can't find a mortgage lender willing to lend to 2 self-employed people with a company just 5 months old (and just over a year old in total history) who aren't married.
__________________
Dryer sheets Schmyer sheets
MooreBonds is offline   Reply With Quote
Old 06-09-2013, 07:52 PM   #7
Recycles dryer sheets
 
Join Date: Apr 2013
Location: Jacksonville
Posts: 222
We're not sure Moore. We were considering doing a contract to just pay straight to them instead of a mortgage, doing our own mortgage, or any other possibilities we can explore. We didn't go deep into that aspect yet, because we weren't sure if we were going to take it with the down payment being the majority of our savings.

We briefly talked about the various possibilities, and we're going to go more into detail when we decide if we're even willing to look past the down payment taking such a high percentage of our NW. The four of us use the same accountant, separate lawyers, and plan on getting all of them involved as far as the best way to go about that portion of things.
__________________
Arifriekinel is offline   Reply With Quote
Old 06-09-2013, 08:27 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 5,328
We put most of our savings in a house when we were younger and it worked out. We stayed employed and our house went up in value and was never underwater.

Many families who did something similar in our area right before housing prices dropped 30% and unemployment rates went up weren't so lucky.

I don't really know the right course for you to take, but obviously not leaving a savings cushion is usually a bit risky.
__________________
daylatedollarshort is offline   Reply With Quote
Old 06-09-2013, 10:17 PM   #9
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,863
I would have been happy to deplete my savings in the right situation. I probably did at some point. It's a short-term risk and you have something like a fallback plan. It's up to you to decide.
__________________
Animorph is offline   Reply With Quote
Old 06-12-2013, 11:25 AM   #10
Full time employment: Posting here.
citrine's Avatar
 
Join Date: Mar 2007
Posts: 944
It will be very hard to find a mortgage lender. When my now husband and I bought a house in 2011, they only looked at his income since I did not have self employed income for 2 years prior. If both of you only have 5 months as self employed, I doubt you will get one. Is there any way his parents would accept 30K instead of 40K? That would leave you with some kind of cushion if anything were to happen. I also strongly suggest that you put everything in writing with the parents as well as the boyfriend...just in case
__________________
citrine is offline   Reply With Quote
Old 06-12-2013, 11:32 AM   #11
Recycles dryer sheets
 
Join Date: Apr 2013
Location: Jacksonville
Posts: 222
Citrine- We each have our own attorneys and will be getting everything in writing

They won't accept less than 40k, but they have agreed to give us back a bit if we have an emergency within the first few months, and my moms and dads will help out as well.

And yeah, we were going over it with them yesterday, and it's looking more and more like we're going to end up going through them instead of a mortgage lender, and just hasing it out with out own attorneys. Since the 4 of us share the same accountant, we're also going to have him go over everything just to make sure we're doing it in the way that's the most financially beneficial for us.

It looks like we are going to go through with it. It keeps his parents happy because their Florida home is staying in the family, my mom happy because it's around the corner from her, and us happy because we absolutely adore the house Things are going fantastic with all of our different contracts at work, so while it's not likely anything will happen that could somehow shut them all down at once, we both have great support systems behind us if anything does in the first few months while we rebuild the savings.
__________________
Arifriekinel is offline   Reply With Quote
Old 06-12-2013, 11:37 AM   #12
Full time employment: Posting here.
citrine's Avatar
 
Join Date: Mar 2007
Posts: 944
Then I think you should go for it! Now, when is the wedding
__________________
citrine is offline   Reply With Quote
Old 06-12-2013, 12:55 PM   #13
Full time employment: Posting here.
 
Join Date: Jan 2011
Location: Just North of Boston
Posts: 522
Are you just paying the mortgage they have? or are you taking out a mortgage with them? In other words... if you decide to sell the house in two years can you without your BF's parents permission? Whose name will be on the deed of the home?
__________________
ChiliPepr is offline   Reply With Quote
Old 06-12-2013, 01:14 PM   #14
Recycles dryer sheets
 
Join Date: Apr 2013
Location: Jacksonville
Posts: 222
Quote:
Originally Posted by ChiliPepr View Post
Are you just paying the mortgage they have? or are you taking out a mortgage with them? In other words... if you decide to sell the house in two years can you without your BF's parents permission? Whose name will be on the deed of the home?
Our names will be on the title of the home, and the way it's looking, his parents will be on the mortgage and we will be paying them through a contract with our lawyers. These are all our basic plans, and we'll be figuring out more of the specifics over the next 4 or 5 months. They already own their home up north, and the current renters' lease is up in October, so they plan on moving there on their own time afterwards. In the meantime, we have none of these plans set in stone until we speak with legal counsel and our accountants.

Citrine - who knows :P Marriage isn't a necessary thing, although all of our stuff is 50-50 anyway because of how we run our corporation. We've lived together for the last few years without being married and it's been tons of fun. So, I guess whenever we feel like it and if it becomes beneficial for us. Maybe the situation will change if one of us has a side business, maybe not. Plenty of forum-goers here skip that step and seem to love it :P So that's a decision that'll come when it comes
__________________
Arifriekinel is offline   Reply With Quote
Old 06-14-2013, 10:34 AM   #15
Thinks s/he gets paid by the post
 
Join Date: Aug 2006
Posts: 1,361
Can this actually work?

The way I understand things, you can't sell a house without paying off the mortgage that is secured by that house.

I wouldn't think that his parents' mortgage lender will allow this to happen.

Quote:
Originally Posted by Arifriekinel View Post
Our names will be on the title of the home, and the way it's looking, his parents will be on the mortgage and we will be paying them through a contract with our lawyers. These are all our basic plans, and we'll be figuring out more of the specifics over the next 4 or 5 months. They already own their home up north, and the current renters' lease is up in October, so they plan on moving there on their own time afterwards. In the meantime, we have none of these plans set in stone until we speak with legal counsel and our accountants.

Citrine - who knows :P Marriage isn't a necessary thing, although all of our stuff is 50-50 anyway because of how we run our corporation. We've lived together for the last few years without being married and it's been tons of fun. So, I guess whenever we feel like it and if it becomes beneficial for us. Maybe the situation will change if one of us has a side business, maybe not. Plenty of forum-goers here skip that step and seem to love it :P So that's a decision that'll come when it comes
__________________
Hamlet is offline   Reply With Quote
Old 06-14-2013, 10:57 AM   #16
Full time employment: Posting here.
 
Join Date: Jan 2011
Location: Just North of Boston
Posts: 522
Quote:
Originally Posted by Hamlet View Post
Can this actually work?

The way I understand things, you can't sell a house without paying off the mortgage that is secured by that house.

I wouldn't think that his parents' mortgage lender will allow this to happen.
+1
You also cannot change the title without paying off the mortgage.

But it sounds like the parents own the home and the will just be financing with the parents.
__________________
ChiliPepr is offline   Reply With Quote
Old 06-14-2013, 11:32 AM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,291
Quote:
Originally Posted by Hamlet View Post
Can this actually work?

The way I understand things, you can't sell a house without paying off the mortgage that is secured by that house.

I wouldn't think that his parents' mortgage lender will allow this to happen.

You can sell the house with a contract.... the person buying is not titled on the property, but 'owns' the house... now, if the parents stop paying on the mortgage they can be in trouble...



An interesting aside on this... the mega where I worked bought a piece of property that was part of a mall... but never had the property put in their name... because of new rules, they would have had to spend over $1 million for something (can't remember what, but something with water)... they built their building and have been in it for over 25 years...

There is a contract that keeps getting renewed.... even when the rest of the mall was sold, it had this requirement with it.... I think it has now been through three owners, but the contract for ownership is still valid...
__________________

__________________
Texas Proud is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 09:18 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.