Nervous first-time homebuyer

[LadyStash]

Hi all! I appreciate the advice you all have given me previously on the forum, so here's my latest issue. I've just accepted a new job in FL (where I'm from originally) that provides a 10% raise over my current job (yay!). I'm excited to move back to my home state, especially since the area I'll move to has a lower COL than where I am now. Case in point, the condos/townhomes in FL that I'm checking out are about half of the price of condos/townhomes in NC!

I have my eye on a nice townhome listed at $72,000 in FL. I could put 40% down (about $29,000) and have still have about $10,000 in my money market account (which I have in addition to a Roth with $65,000 and 403b with $35,000). I'm nervous, though, about (a) spending so much when I'm used to NOT throwing money around and (b) seeing my nest egg go from $40,000 to $10,000. I seriously love seeing all of my money in my account - it makes me feel secure. Logically, I know it's better to have a $225/mo mortgage (with $175 HOA fee) than pay over $800 in rent and to pay off the mortgage in 5-6 years. I know! But I just can't shake these nerves! HELP!

[thedayisbrave]

If it helps any, I don't really think of money in a house as "spending".  Technically it is but you still have that equity in your house so it's not like that money is just poof - gone.  Of course it is if the market does its thing but it's not like you are "losing" the money.  Hope that helps..?

[pagoconcheques]

Unless you know the target area really well, think about renting for a few months.  Sometimes that condo a few blocks from the one with the pretty pictures on the internet is a much better choice for reasons you can't discern until you are there.

[Ricky]

Is $225 inclusive? All of PITI?

Housing is a necessary expense, so you're not really "spending" anything. It's just part of your fixed costs. The differences arise in opportunity costs. Your costs of $225 + $175 + $96 (opportunity costs of investment gains @ 4% on $29k) = $496 so you're saving $304 a month. That's a 12% return on your $$ vs renting.

[Dicey]

My advice is NOT to put 40% down. Buy with 20% and get used to paying the mortgage and maintenance for a year or two. If you encounter unexpected expenses, you'll have enough cash to manage them. Believe me, this will help you sleep at night. Once you get used to being a homeowner, you could pay down a big slug of the mortgage, but by then you might be more interested in using the money to buy your next property and making the first one a rental. Lather+rinse+repeat=FIRE.

BTW, before you buy anything with an HOA, be sure to obtain, read and understand at least a year's worth of minutes plus the financials. You never want to buy into an association that's underfunded or you could be looking at "surprise" assessments.

[Dabblingman]

DianeC gave you the advice I was thinking:
1) put down just 20 percent
2) check HOA docs carefully, though probably less risk than in a condo building

If it helps, you would be paying 4 to 6 times that much for the town home in Seattle!

The downside risk is probably not that much, all things considered.

[frugaliknowit]

Unless you are intimately familiar with the area you are moving to, I advise you to rent for about one year.

[Jack]

Don't put down more than 20%. Why?

• Mortgage rates are much lower than investment returns, so you should be investing that money instead
• $72,000 * 60% is only $43,200. You'll have a hard time getting a mortgage for a balance less than $50K, because many lenders don't find it profitable enough for them to be worth doing.

[LadyStash]

Thanks so much for the advice, everyone! I had thought about putting a big chunk down since I'd like to pay any home I buy in less than 10 years, but I see the reason in putting the standard 20% down and adjusting to being a homeowner before throwing down more cash. I'm visiting the town next week, and I'll see a mix of rentals and homes for sale in an identified desirable area. I figure that seeing places and talking numbers will really help me decide which path to take.

[frugaldrummer]

Also make sure any loan you get has no prepayment penalty.

[kpd905]

Are you originally from this city?  Or just originally from Florida?

If you haven't lived in this city before, and you don't even know if you are going to like this job yet, you shouldn't rush into buying a house.

[MikeBear]

It doesn't matter what the payment terms are, as you can always run your own amortization chart, and pay a bit higher (or complete extra principal payments) at any time.

So, get financed for 15 year, but pay on a 10 year schedule.

I've used this one for years, I like it a lot: http://www.bretwhissel.net/cgi-bin/amortize