How to split up money.

[Zoe]

Since our cash deal trailer fell through, my husband and I have been looking at some houses that would require a mortgage. We are only looking at ones that we could afford on a 15 year mortgage at 1/4 or less of our take home pay. Our net take home is $2,988. We still have the $10K that we pulled from our Roth's and will use that for a down payment. We looked at one yesterday and are seriously considering making an offer. It's listed at $65K. We won't quite have 20% to put down, but we could quickly and easily pay down the mortgage enough to get rid of PMI. Taxes are super cheap in this county as well. Something like $500/yr or so. Maybe less.

The payment on $55K would be $395.89 (not including taxes and insurance) and add about $14 for PMI (according to a quick Google search on what PMI would be).

So a mortgage payment of $409.89 (plus a little more for taxes and insurance).

An estimated monthly budget leaves us with about $1K. But we'd need $916 each month over 12 months to max our Roth's. So I guess we should do that first.

As I was writing this post I had forgotten about maxing our Roth's. I was GOING to ask how we should split the $1K each month between paying down the mortgage and investments.

So, is maxing our Roth's the best option each month? Or would y'all suggest some other kind of split?

[Fyction]

If you decide to go with the house, I would definitely choose to focus on maxing the Roth's first. If your income goes up, you can then look at paying down the house to remove PMI, and from there seek additional investments.

How much longer would it take to save up the 20% down and avoid PMI altogether?

[Zoe]

Thanks!

If they didn't come down on the price at all, we'd need probably another 4 months, give or take a month. We have $4K in savings which I'd like to leave there. And we'll have to pay for all the stuff that comes with buying a house...you know, inspections, closing costs etc. Or, we tap the savings to avoid PMI and then build it back up asap. But, being a homeowner with no savings equals shit breaking right off the bat. Or a car dying. Or some other financial catastrophe.

[Rural]

We went pretty close to all-in to get this place when we did. I don't remember what EF we left, but it may have been n=0, since we did have a credit card with no balance and a generous limit, and we had paychecks coming in two weeks later that would cover the bills and put us back in small EF territory. Come to think of it, I know we didn't touch a Navy Federal savings account, though it had only about $500 at that time. It was a stretch, but we had to come up with 25% down to be able to buy; our was a farm loan that required it, and we couldn't get a conventional mortgage with no house on the property.

It worked for us and was worth it, but we knew we had some slack. I think we were in a comparable area to yours with comparable taxes, etc. Our mortgage was $39,000 and payments were $337 with no PMI and no insurance (since it was empty land as far as the bank was concerned). If it helps, our closing costs, which were rolled into the mortgage, were $2400. This was 2009. Our interest was probably much higher than yours: 7.5%.

Here's a thought: Can you move yourselves, everything you have? If so, figure in fuel for your truck. If you don't have one, figure in a rental truck. Etc. When you're close to the line, you have to figure in everything so you can plan for it. I'm all for keeping some EF or some sort of substitute. The transmission went out on our big truck as we were heading out for the last trip... That was no fun, and that truck sat for a year because we had other priorities for our money. A few last-minute items that were never meant to be moved in a Jeep got here that way, anyway! (And we borrowed a pickup from a relative soon after). Figure out your backup plan (and be sure you have one, whether it's money or something else that can do the same things as money) before you decide for sure.

[Zoe]

We cancelled all our credit cards back when we were fans of a certain other financial guru, so we wouldn't have that to fall back on until we got the EFund back up. And of course, I don't want to open one right now. We're working on getting prequalified right now. It might not happen since my husband is still a temp. But he's been there 2.5 years, so I don't think it will be a problem. I'm waiting on the mortgage guy to call me back right now.

That's pretty high interest! Ours should be in the 3.6% territory. I might see about getting closing costs rolled into the mortgage. That's what's going to get us if they don't come down on the price much. We could pay the 20% down, but that would take nearly all our savings.

We don't have a truck, so we'd probably rent one to get it all done in one or two trips. It's a half an hour one way, so I don't want to be making a million trips. One good thing is that we don't have a certain date to move by.

[Rural]

Our rate was that high because of the farm loan, not true mortgage, business. We didn't have many options on empty land.

Here's another thing: try to get the loan paperwork before closing and read it so you'll know if there are any nasty surprises (and compare what you're handed at closing to the preview if you're asked to sign a different copy). We got a nasty surprise; what was supposed to be a 15-year loan was actually a 5-year balloon ("but you can refinance at the end of five years, no problem!"). We signed anyway since we'd intended to pay it off fast, but we had to make a last-minute decision there.

[MoneyLifeandMore]

I heard a rumor that starting this year FHA PMI on 15 year mortgages won't go away when you get to 78% equity. If you're looking at an FHA loan I would check with your mortgage broker. I know when I refi'd last year 30 year FHA loans kept PMI for a minimum of 5 year regardless of if you got below 78% before then and 15 years didn't have a minimum time but these regulations change constantly so just make sure

The rules have changed and PMI doesn't go away from what I remember. Of course, if you get a non-FHA loan it might be different. Just make sure you read your mortgage and make sure you understand everything about PMI and how it goes away before you sign anything.... you should read everything you sign before you sign it anyway, but this is one of the most serious documents you'll sign in your lifetime.

[Zoe]

Our rate was that high because of the farm loan, not true mortgage, business. We didn't have many options on empty land.

Here's another thing: try to get the loan paperwork before closing and read it so you'll know if there are any nasty surprises (and compare what you're handed at closing to the preview if you're asked to sign a different copy). We got a nasty surprise; what was supposed to be a 15-year loan was actually a 5-year balloon ("but you can refinance at the end of five years, no problem!"). We signed anyway since we'd intended to pay it off fast, but we had to make a last-minute decision there.

I'd definitely say that was a nasty surprise! I can't believe that happened.

[Zoe]

I had not heard that about PMI. Good to know! I guess we will go all in to avoid it, and hopefully the seller's come down on the price a bit. I'm still waiting on our amended return refund to come back as well. That will be a little extra money. And we're hoping to get a conventional mortgage. From what I understand, a conventional mortgage can be had when you have 5%+ to put down. FHA's are the low to no down payment deals.