Author Topic: House downpayment setting back plans  (Read 5350 times)

cabeasle

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House downpayment setting back plans
« on: December 25, 2013, 06:58:14 AM »
Good morning, everyone.

So, I'm thinking about buying a house.  Well, thinking about thinking about it is more likely.  I'm doing pretty well with my savings right now, putting away around 50% of each paycheck, but in order to save for a home, I will need to divert all of those savings to a downpayment fund.  Likewise, it will take about a solid year of saving to reach 20% down on any home that I'd be comfortable with living in (read: not necessarily love, but a fair merger between size/location and price). 

By my thinking, this will set me back an entire year in my early retirement goal.  This has made me hesitant to direct my funds outside a 401/IRA and into a savings account...

Is this basically the case?  Is it a situation where, if I want the house, I simply have to accept slowing down early retirement by a year?  Or is there another way of looking at it that I'm just not seeing yet?



ender

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Re: House downpayment setting back plans
« Reply #1 on: December 25, 2013, 07:05:29 AM »
What's your income? Can you support a combination of 401k/IRA and cash savings?

I thought through a very similar situation recently and instead of saving as much for a house I actually lowered my 2014 savings goals for a house downpayment in order to max out my 2014 HSA/401k/Roth IRA.

I'm just planning on buying a house further into the future. I'm not dying to buy one, anyways.

cabeasle

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Re: House downpayment setting back plans
« Reply #2 on: December 25, 2013, 09:10:36 AM »
Income is not bad, but not stellar.  I teach at a High School, so it is essentially max a 403(b), or put nothing into investments and instead save for a house. 

_JT

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Re: House downpayment setting back plans
« Reply #3 on: December 25, 2013, 09:19:18 AM »
If you're a teacher, you qualify for several home buying programs, as well as FHA properties that can be bought with 3% down.

Another Reader

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Re: House downpayment setting back plans
« Reply #4 on: December 25, 2013, 09:44:49 AM »
You need either to increase your income or reduce your expenses.  Your net needs to increase for you to save more.  Do you have step increases coming?  Can you take on summer school or tutoring?  Work weekends at another job?  Pick up something in an unrelated field over the summer?  How about your expenses?  Anything you can cut?

There are programs for teachers to buy.  As was pointed out, you may not have to come up with a 20 percent down payment.  Look into those programs. 

If you can't increase your income or reduce your expenses and you can't find an acceptable program with a small down payment, then you will have to balance home ownership with FIRE and decide which is more important to achieve first.

eyePod

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Re: House downpayment setting back plans
« Reply #5 on: December 25, 2013, 10:05:28 AM »
My wife and I are in a similar situation.  We don't want to lose the opportunity of IRA contributions but we also want to save up for a house.  The only saving grace is that my wife is applying to internships, and we may move depending on where she ends up.  So basically, we don't want to settle down until we really know where we are going to end up.  It's tough to delay the gratification though and think more long term!

Jamesqf

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Re: House downpayment setting back plans
« Reply #6 on: December 25, 2013, 11:44:59 AM »
By my thinking, this will set me back an entire year in my early retirement goal.

That depends on how you look at it.  When you retire, you'll need a place to live, no?  Let's for simplicity's sake assume that you'll have your mortgage paid off the day you retire.  So if you buy a house, your stash needs to produce income that covers personal spending plus taxes & insurance.  If you don't buy, you'll need a larger stash to cover your spending plus rent.

justchristine

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Re: House downpayment setting back plans
« Reply #7 on: December 25, 2013, 11:55:21 AM »
If you can't save for retirement and a house at the same time, I would seriously go through the budget and consider if you can really afford to buy right now.  Say you do stop retirement savings to put a down payment together.  After you buy the house, you are still going to need to put more money aside for maintenance and emergency fixes which will further put off retirement.

MKinVA

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Re: House downpayment setting back plans
« Reply #8 on: December 25, 2013, 05:23:26 PM »
I would seriously consider whether buying a house is the best investment right now for several reasons. Are rents so high in your area that owning would be a savings (remember to include taxes, insurance, and upkeep)? Are you in an area where houses are very likely to increase in value (building equity without increasing payments)? Is this where you want to retire (live in this house paid off for the rest of your life, if it doesn't work out that you sell it for a profit).

We don't all live in areas where investing in a house is a good financial decision. We may feel more comfortable, live in a better neighborhood than a rental, be able to do what we want with the place, etc., but many times it is a bad financial choice. If part of your financial freedom is living off the profits of a house sale, or pulling equity out of a house, beware. This last crash of the real estate market was the worst since the depression, but by no means the only one. I've been around long enough to see mini crashes, regional down turns, so called buyers markets, sellers markets, and the like.

If you really want to be financially independent, and at a young age, don't tie yourself down to a house. Find a really good rental and keep packing away the cash!

arebelspy

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Re: House downpayment setting back plans
« Reply #9 on: December 25, 2013, 08:23:00 PM »
Hmm, looks like the original question got sidetracked by suggestions on whether or not to buy, how to put less down, etc.  James's answer was closest, but obviously simplified with the mortgage paid off idea, which doesn't seem like it will be the case.

The math answer is: it will not slow you down if renting is better than buying.  It will speed you up if buying is better than renting.

This is assuming you're planning on living in the same area in retirement and not downsizing or moving to a cheaper area.

Use the NYT Buy vs. aren't calculator and see.  http://www.nytimes.com/interactive/business/buy-rent-calculator.html

If it's better to buy, then even saving up the down payment will save you time, as you'll need less in the stache to cover the housing expense in retirement.  If renting is better, it will set you back (though not as much as you're thinking).

If we had more specific numbers we could talk scenarios about how much it will speed you up or set you back, but that's the basic answer: it depends on if buying or renting is better for your area.
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cabeasle

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Re: House downpayment setting back plans
« Reply #10 on: December 25, 2013, 08:54:32 PM »
Playing with the rent vs. buy calculator, it looks like for my area it is a clear favorite to buy.  The calculator says I'm looking to save quite a bit over a six year period if I buy rather than rent.  Now, I don't intend to stay in this area forever, but it is currently where my job is, so I would bet another five or so years is not out of the question...

Looks like I might need to shift the savings towards a down payment and see what sorts of programs are available for educators in my area.

RobertBirnie

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Re: House downpayment setting back plans
« Reply #11 on: December 26, 2013, 01:11:46 AM »
You need either to increase your income or reduce your expenses.  Your net needs to increase for you to save more.  Do you have step increases coming?  Can you take on summer school or tutoring?  Work weekends at another job?  Pick up something in an unrelated field over the summer?  How about your expenses?  Anything you can cut?

My wife is also a teacher. She does lunch duty and does homework center at school two times a week for an hour, together that adds to about $850 a month or roughly a 15% raise.