Backstory: I'm moving from my current job in OH to a new job in ID starting in August. I’m looking to buy a house in Boise, ID in walk/bike distance to downtown, the foothills, the river, and BSU campus, which is expensive (up to 600K for at least a 2 bed 1 bath plus yard, that doesn’t require a lot of work, and will either have good resale value or good AirBnB potential in the 5+ year time frame). I need advice on strategizing funding source and amount of my down payment and the mortgage structure to minimize negative tax implications, lost growth potential in retirement and/or brokerage accounts, and bad things like mortgage insurance and early withdrawal penalties, and also maintaining a good safety net.
Life Situation: IRS filing single, no dependents, age 34, living in OH moving to ID, excellent credit score
Annual Salary: ~107K in OH, will be 82K first 2 years then 91K after in ID (with summers off)
Pre-tax deductions per month: 1875 to 403b, 1875 to 457b, 1203 to ARP, and 85 to health/dental insurance. All these deductions keep my taxable income mostly in the 10% bracket
Taxes per month: 124 medicare, 234 federal, 77 state, 214 city
Monthly expenses: Rent+insurance: ~1500, Everything else: ~2500
Assets: No debts / mortgage / car payment / etc). Own a 2016 Toyota Prius.
Cash / Savings accounts:
• 5K in SoFi savings (3.75% APY)
• 6K in other low interest checking/savings
• 10,387 in Series I bond
• 13,860 life insurance cash value (yes, I know a horrible investment, gifted to me by my parents)
Retirement accounts:
• 89,624 in 403b
• 113,982 in 457b
• 120,783 in ARP
• 23,103 in 401a
• 78,166 in Roth IRA
• 686 in SEP IRA
Brokerage account:
• 124,495 in Vanguard
Down payment question: What combination of sources and in what amount should I use to get cash for the down payment while minimizing tax implications, paid interest / insurance fees, and missed investment growth opportunities?
• Max out savings/ cash accounts over next several months (stop contributions to supplemental retirement accounts which increases taxable income)
• Cash out series I bonds and lose last 3 months of interest
• Loan up to 50K from my 403b and pay ‘myself’ back interest at 8.5% over 10 years (side note: can someone please explain this to me like I’m in 1st grade) (would need to more aggressively contribute to this over next few months to maximize loan)
• Withdraw up to full account balance from the 457b with no early withdrawal penalty but taxed at 20%, only after I leave my OH employer (end of July) (could be used to increase equity in home to 20% and end PMI early)
• Life insurance: withdraw dividends (8,123), cash out (net value of 12,598 after tax), or take loan (max 13,624 at 5.3%...term not specified…not sure if the interest goes to ‘me’ or the life insurance company)
• Withdraw from roth, 401a, ARP with penalties and taxes (seems like a terrible idea)
• Sell Vanguard stocks and pay capital gains (basis ~102K, primarily long term, feels like a bad idea to sell when the stock market is low)
Mortgage question: How much % down and what loan structure would optimize my mortgage, considering above how I would need to generate the cash? Potential lenders I've spoked to so far have mentioned a max 49% debt to income ratio, and interest rates have ranged from 5.875 - 6.125 %.
• 30 year fixed rate 20% down
• 30 year fixed rate 10% down with PMI monthly
• 30 year fixed rate 10% down with PMI upfront
• 30 year fixed rate with 10% down + piggyback 10% loan @ 8.5% interest
• 30 year fixed rate with 13% down + 15 year Idaho Hero 7% loan down payment assistance @ 7% interest
• 5 year ARM?
Thanks in advance for your consideration and advice! I have zero confidence in this large financial decision.