Hello:
I am trying to decide on what I should do in regards to purchasing a home and how that is going to affect my future retirement contributions and I would like some input on the matter.
More specifically, I am 40 years old and do not own a home. I rent a condo and it has worked well for my lifestyle over the last few years. I like not having the commitment to fix anything when it breaks, to not have to do any regular house maintenance, worry about rising property taxes, HOAs, etc. Over the last couple of years, the city where I live has seen explosive growth in population and thus property value & costs increase. We have people from many states moving here since the cost of living is low and housing, comparatively, was also low. However, this has caused housing prices to skyrocket. Homes were usually selling in less than day with out-of-state people having bidding wars and offering to pay cash. This has slowed down just a bit since but homes are definitely still overpriced and along with that so are property taxes. Many of my neighbors that own have seen their taxes go over 150%! Unfortunately, I think that although the rapid growth and demand will eventually subside, I don't think that prices will really come down. Along with purchasing prices rent has gone up as well. With out-of-state investors coming in, purchasing existing rental properties and at times upping the rent 100% on their tenants. So although I don't necessarily want the commitment of owning a home I also don't want to be paying rent when I could just as easily be making a mortgage payment for about the same amount and not have to worry about my rent rising in a year when my lease is up. Looking at the stats over the last year, the price-to-rent ration for my city is about 18 which from what I understand it means that it is still OK to rent versus buying but for some reason, this does not feel right. I also should mention that although it may sound like I don't want to own a house, I have in the past and perhaps it is just that I am well aware of the hidden costs that go with owning a home versus renting. My hope is to eventually own a small apartment, condo, studio or tiny home somewhere in the city.
My current financial situation is that I am trying to put as much in my retirement accounts as I can. Through my work, I have access to a 401K/403b and a 457b and I max out all plans. My work contributes 9.25% to my 401K and they make me contribute automatically 6.97% to the same plan. I contribute the remaining difference to my 403b to max those out and I also max out my 457b. I currently have just north of 250K in my retirement account and for the last couple of years I have also been maxing out a Roth IRA. I also have about 30K in savings in investments and part of that is in low risk liquid funds as an emergency fund. I currently save on average about 40 to 45% of my gross income in retirement (this includes my employer's contributions) or my ROTH, sometimes higher. It has taken me a bit of time to save the after-tax money that I have. My dilemma is that in order to buy a house I am looking to spend at least $350K for the homes in the area that I want to buy. I would like to put 20% down to avoid PMI. That means that I would need at least 70K. I've run some numbers and there is no way that I can save enough to have the 20% down payment in the near future and not incur the expenses of rising rent. My plan, nonetheless, for the next year was to only contribute enough to my retirement to get my max employee match and to max out my 457b, so no contributions to my 403b. The excess after-tax money I would put in after-tax investments and save for the down payment for the house. But this still does not seem like I'd have enough even with what I have saved. I also don't just want to put everything in my savings in a down payment and NOT have an emergency fund. My questions are:
1. Should I just eat the PMI for now and just refinance in a year or two when I have enough saved then to make the 20%?
2. Should I just stop all retirement contributions (except the mandatory contributions that my employer requires) and put everything in the down payment fund?
3. Should I just pay the rising rent payments for the next year and avoid the home buying hype for now?
4. Is there a better option that I am not seeing?
I'd really appreciate some guidance.