Author Topic: What would you do in my situation? I want to buy a house.  (Read 1786 times)

Polak_maly

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What would you do in my situation? I want to buy a house.
« on: March 27, 2014, 07:48:56 AM »
I was debating whether to post this question here, or bogleheads forum. But since I'm early-retirement oriented myself, I figured this is the place.

Here is my situation:

Age: 26
401k/Roth IRA: So far this year I focused on maxing out both vehicles and I'm 1 and 1/2 paycheck away from full 401k max contribution, and used last year's bonus to max out Roth IRA already. So from May 1, I will be getting $4.1k/month after taxes for the reminder of the year.

HSA: I'm on track to fully max out HSA in '14

Income: $72,000/ or $~4100/month net after taxes/health insurance/HSA contribution.

Total expenses distributed per month (rent/food/utilities/lavish travel): ~$1000

Cash on hand at Ally savings account: $64k
Post-tax investments: $15.6k (Vanguard Target Funds) + $29k (VTI) + $11.4k (Bonds at Hartford)
Pre-tax: 401k: $83k, Roth IRA: $35k

I will be eliminating Post-tax target funds and bonds investments as soon as I find a house (stupid me for investing in those funds but I didn't know much about investing couple years ago). It does not seem to make sense to eliminate them now and take a tax hit.

I'm pre-approved for the mortgage (790/800/798 credit scores) of up to $420k. I plan to purchase at least 2-unit house so that renters will cover my mortgage OR have roommates myself. Either way I'm shooting for my mortgage to be paid off in total rent and live for free. Since I live in high cost city, there is no house under 370k that meets my rentability crieria (they are in 380k and up but under 420 is doable). I know how to fix up houses / typical issues so this will save me some $ over long term.

I'm in no rush finding a great potential house, but I'm confident I want to get one within next 1-3 years.

What would you do with cash if you were in my situation until I actually find the house?

Any other general recommendations / suggestions?

Greatly appreciated for your input.


sherr

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Re: What would you do in my situation? I want to buy a house.
« Reply #1 on: March 27, 2014, 08:49:10 AM »
I think you have the right idea keeping it in the savings account. 20% of $400k is $80k, which is a huge amount of money to have in a savings account, but I don't know of any better options out there for liquidity and security of the principle over the short term.

Keep contributing to the savings account until you're up to $80k, and then invest after that.

nereo

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Re: What would you do in my situation? I want to buy a house.
« Reply #2 on: March 27, 2014, 10:36:59 AM »
Quote
.
What would you do with cash if you were in my situation until I actually find the house?

Any other general recommendations / suggestions?
Things look really good from my perspective.
Regarding the cash: if you're planning on using it for a downpayment in the next 0-2 years I'd leave it where it is.  I hate cash sitting idle earning virtually no interest, but you're too needing it to risk putting it in the market.  Historically the markets lost value ~40% of the time over any six month period. Like sherr said, keep contributing until you hit the ~$80k mark for 20% down.

Other general recommendation: if you can get renters to cover all of the monthly costs that's fantastic!  If not, at least shoot to have the renters cover the entirety of the interest, HOA's fees and taxes.  Then everything you put in will go entirely toward principle.