Home Savings vs Retirement Savings

[podey]

Podey...My position is exactly like yours. I am paying student loans and am trying to get a down payment for a new home. Im about 85% to the down payment

I'm a little father behind you, but hoping to buy in 3 years or so.

 

[kcowan]

Avoid real estate for now. Be a contrarian investor in your 401k and Roth. When the market crashes in Chicago, shop the auctions and pick up a bargain. Use a mortgage broker to get the best financing. Good luck...

 

[ziggy29]

Avoid real estate for now. Be a contrarian investor in your 401k and Roth.

Wow. My crystal ball doesn't work this well. Can I borrow yours?

 

[brewer12345]

I am going through the same dilemma about saving for a house/apartment, although mine is a little different. My dilemma is between paying back student loans at 5.62% or putting money in an account now paying 4.88% to save for the down payment. The spread's not that big but I hate "losing money" by not paying down the student debt first. However, I realize I have to save so I am funneling 90% of the money towards the down payment. This is of course after maxing out company 401k and all (can't do a Roth).

Its such a tiny spread that you are better off remaining liquid so that you can take advantage of opportunities that might arise. Don't sweat it.

 

[seabourne]

I agree with Brewer. unless you have your emergency fund for 3-6 mo AND your downpayment ready, liquidity has a good deal of value to you. if you were forgoing matching funds, the liquidity probably wouldn't be worth the difference. You can't draw against the student loans again if you need to - a re-accessible line of credit would be different.

 

[biophase]

Rent for now

With regards to buying a house in Chicago vs renting. I would say that you should not purchase now. Being from Chicago and owning a rental property there, I cannot think of any part of the city in which the financial numbers will make owning vs. renting the same property worthwhile.

You mention that a property will cost about $300,000. Can I ask what your current rent payments are? I am assuming that this is a condo and not a single family home also.

We must remember that on top of mortgages are taxes and HOA and various other home maintenance costs.

Chicago property taxes are very high and HOAs for just 1 bedroom or studios will easily run above $250/mo.

Going with a standard $300k 1br 1ba condo in the city. I would expect that you taxes would be around $4,000/yr and HOAs $250/mo. This is an additional $583/mo. that you are getting no return on.

Assuming you went 0% down and got a 6% interest only loan, your mortgage would be $1,500/mo. Add your taxes and HOA and you are paying $2,083/mo. with $0 going to principle.

So even if you are renting for $2,083/mo today. Why would buying be worth it? Two reasons, appreciation and taxes.

In this market where there is no appreciation, that makes taxes the only other reason why you'd buy vs. rent in this scenario. To me, taxes is no a good enough reason to buy. Remember as an owner, you are stuck with all the maintenance bills, building issues and special assessments.

As a renter, you pay rent and that's it.

 

[podey]

Its such a tiny spread that you are better off remaining liquid so that you can take advantage of opportunities that might arise. Don't sweat it.

I agree with Brewer. unless you have your emergency fund for 3-6 mo AND your downpayment ready, liquidity has a good deal of value to you. if you were forgoing matching funds, the liquidity probably wouldn't be worth the difference. You can't draw against the student loans again if you need to - a re-accessible line of credit would be different.


Thanks for the reassurance guys. It was hard to switch from loan payback mode to saving for downpayment mode.

 

[spideyrdpd]

Hi Biophase.

Hi
If your willing to do the roomate thing then the #'s might work out better, but as others mentioned there are many costs involved with ownership. Somethings are small but repetitive. Things like Hoa', garbage, the lawn etc. Then there are the bigger less often items. Various maintaince costs. Its breaks its your responcibility to replace from the fridge to the roof.
Taxe breaks are nice property taxes no so nice.....
Rob

 

[Anne]

NYT has a great rent/buy calculator. Very easy to use but make sure you fill in ALL the assumptions and get the most accurate figures you can for the sale prices and rent prices.

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=1&oref=slogin#

 

[podey]

NYT has a great rent/buy calculator. Very easy to use but make sure you fill in ALL the assumptions and get the most accurate figures you can for the sale prices and rent prices.

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=1&oref=slogin#

Thanks! That's very useful.

 

[Tulsaboyw]

Doing any sort of 80/20,80/10/10,80/15/5 is a good idea...even the if the bank or loan person doesnt... gives u the flexibility to pay the smallest loan off quicker.

Despite commetns to the contrary.... some sort of 'avoiding' pmi is always going to be doable.. (if u can swing it).

Even if i u cant, u can still get loan#2/#3 to force the same anyway.
Ie; still doing 100% financining, but the 80/20 peices come from different sources.

 

[brewer12345]

Doing any sort of 80/20,80/10/10,80/15/5 is a good idea...even the if the bank or loan person doesnt... gives u the flexibility to pay the smallest loan off quicker.

Despite commetns to the contrary.... some sort of 'avoiding' pmi is always going to be doable.. (if u can swing it).

Even if i u cant, u can still get loan#2/#3 to force the same anyway.
Ie; still doing 100% financining, but the 80/20 peices come from different sources.

Um, have you been under a rock for the last 9 months? Mortgage money is a teensy bit tougher to come by these days.

 

[Tulsaboyw]

mortgage

for some in some areas.

but locally here in Tulsa Ok...nope.

My moms neighbors homes sold quickkly.. and the mortgages:
1. 1st one was below market but was per neighbor motivation to move.
2. 2nd one sold at $10k below market...

In my area.
5 houses sold in the last 6 months.
All normal mortgages.

Its really depends on the area. Tulsa is a somewhat median town on some things and way below national avgs on others.

What i said still applys, because some way of avoiding pmi is still the best thing to do... and can still be done even now.

Note, In my own case Ive never gone to the same bank or loaner to get the 20 part anyway...and if need be have even used existing equity to get the 20% In one case I bought a house with the 5% being my cc ($5k)

Naturally I didnt like that idea, but I needed $5k I didnt have and the house was worth it. (I borrowed $5k from my brokerage acct to pay the CC off in a hurry), and used my sources to lock that $5k down to a much lower rate. Since bank options were not there.

In another, 10% came from my credit union, 10% from the mortgage broker, 80% from the bank. Bank only knew about the broker.
Bank thought I put $12k in cash down.

 

[brewer12345]

In another, 10% came from my credit union, 10% from the mortgage broker, 80% from the bank. Bank only knew about the broker.
Bank thought I put $12k in cash down.

And you don't find that state of affairs ethically challenged?

 

[Tulsaboyw]

??

Whats unethical about it?

ALL people involved got their $$ ... except for pmi.

 

[brewer12345]

Whats unethical about it?

ALL people involved got their $$ ... except for pmi.

You lied to the bank and likely broke some laws re: fraud. Might give some of us pause.

 

[Tulsaboyw]

No lies.

Bank got both cash & loan on the 20 part
and did the 80% itself.

No lies....

Also not UNethical as it was a banker who told me what to do.

(EDITED, forgot the UN).

 

[Tulsaboyw]

also no fraud ... as the bank wanted to know were the cash came from and it came from my savings acct (the 10% from CU saving acct from the loan & was in savings for the duration of getting the house, and was actually in there for 5 weeks.


Btw, my brother is a lawyer too, and a past VP.

No laws broken, no ethics issues... as there was nothing wrong in the methods.

The fact that the bank doesnt know everything about a deal, is not unethical.

 

[REWahoo]

Also not ethical as it was a banker who told me what to do.

There's a statement I can agree with...

 

[Tulsaboyw]

OOPs... meant to say:

NOT UNETHICAL AS IT WAS A BANKER WHO TOLD ME WHAT TO DO>


Sorry, bub, but Ive been doing this for 25 years and my brother for 40.
And he in fact has gone after fraud himself.

Nothing in this is unethical or illegal.

Though the method used can be. That I would agree with.

My #1 method in doing 80/xxx is to use my own equity or at times access to $$ (cc,loans,etc).

 

[brewer12345]

OOPs... meant to say:

NOT UNETHICAL AS IT WAS A BANKER WHO TOLD ME WHAT TO DO>


Sorry, bub, but Ive been doing this for 25 years and my brother for 40.
And he in fact has gone after fraud himself.

Nothing in this is unethical or illegal.

Though the method used can be. That I would agree with.

My #1 method in doing 80/xxx is to use my own equity or at times access to $$ (cc,loans,etc).

Hey, you are the one that has to live with your conscience.

 

[Tulsaboyw]

There is no issue of ethics or concience..

Its simply:
1. 80 % bank.
2. xxx one or more loans or other sources to seperate into a 80/xxx or similar.
3. Full disclosure given at time of closing where the $$ is from.

The fact its orgin may have been noncash is not even relevant.

My 1st house in my marriage was bought with 80% loan and
$10k real cash savings Acct, and $10k I usedd from a line of credit on previous house. That cash was moved to checking and the house deal toook a extra 3 weeks per the homeowner needed more time.

At closing the disclosured showed everything as it should.

Sounds like you need to learn abit about morality and ethics as there was nothing done wrong..

 

[REWahoo]

 

[eridanus]

nm

 

[brewer12345]

There is no issue of ethics or concience..

Its simply:
1. 80 % bank.
2. xxx one or more loans or other sources to seperate into a 80/xxx or similar.
3. Full disclosure given at time of closing where the $$ is from.

The fact its orgin may have been noncash is not even relevant.

My 1st house in my marriage was bought with 80% loan and
$10k real cash savings Acct, and $10k I usedd from a line of credit on previous house. That cash was moved to checking and the house deal toook a extra 3 weeks per the homeowner needed more time.

At closing the disclosured showed everything as it should.

Sounds like you need to learn abit about morality and ethics as there was nothing done wrong..

That's all ultimately between your Flying Spaghetti Monster and you (ramen), assuming nobody called out the law. Let's just say that I have seen many a highly leveraged business deal end in tears.