First Home Buying Advice

[MgoSam]

Hello,

I am ready to purchase my first home. There is a neighborhood that I am looking at, it is a few miles from work which will allow me to bike to work, safe, and has plenty to do during the night. I have seen several listings online and can afford to put down a sizable down-payment and pay off a 30 year fixed mortgage early.

Right now nearly all of my money (about 195,000) is tied up in Vanguard funds. I am 26 and would like advice on what to look for. There are some houses that may take some work in that neighborhood that I think I could get for $150,000. Would it be good to put down 25% and the rest as a 30 year mortgage, or should I pay cash? That would enable me to own the home outright? Of course I haven't seen the house, this is just an example.

Thank you for your advice.

[Frankies Girl]

I'd check out a few banks/credit unions to see what sort of mortgage interest rate you'd be able to get.

Using your savings/investments for a house purchase doesn't make sense if you can get a cheaper interest rate for a mortgage than you'd earn on your investments.

By all means, do a 20% downpayment to avoid PMI, but if you can get a great rate, it makes more sense to get a mortgage.

And don't forget to check into any first time homebuyer incentives. Check with the banks and with a realtor (or do some googling for your area on first time homebuyer stuff).

[apennysaved]

Even though you have the cash, I agree that with interest rates so low, you can probably invest elsewhere or keep your money in Vanguard and make more money.  I think you may also want to hold back some cash if the home needs work as you mentioned to help cover those expenses.

Your final decision may depend on how much risk you want. I compromised with my husband. We have different levels of risk.  We got a 15 year mortgage at a very low rate last year.  We are making additional payments to pay off the home in 5 years.  This allows us to continue to invest in other things that have a better return, but we both agree that it will be a huge relief when the mortgage is paid. Also, we have somewhat liquid funds if we have some emergency.  If you do decide to pay cash, you can get a HELOC on the home that you can draw on if needed.

[catccc]

with rates up 1% since May, but still at historic lows, what would be considered a great rate? 

[scorpionking]

Right now nearly all of my money (about 195,000) is tied up in Vanguard funds. I am 26 and would like advice on what to look for.

Need more information. 

Is the $195K tied up in retirement accounts or taxable accounts?
What's your income level/marginal tax rate?
Do you have an emergency fund?
What are your long-term plans for living in the area/career? 
Would you want a fixer upper or move in ready? 

General Advice, I would suggest finding a place that's a single family home with 2 beds+ & 2 full baths+.  The resale will be easier.  I don't recommend getting a one bedroom or a condo.  The resale is much harder, unless you move right next to a very pricey, high foot traffic area.  Many 1st time home buyers become reluctant landlords due to not doing the right research about location, cost, ect.  If you have more information about your area and costs, better advice can be given.