Houses and salaries (Howe, Ross: real estate, day care, student loan)

[MovingtoDFW]

Despite my screen name, I have been in the city for 10 months now : ) , renting. My lease ends in 2 months and am looking for a home by then.

At this time, we have only saved 50k in cash - available for cash down (we have invested ~ 25k internationally, just refunded Uncle Sam 7k a few weeks ago, and there was a 7-8k annual expense recently).

Given the above - is it better for me to put 12-15% down, pay PMI and maybe a higher interest rate; or take the 401k loan and put 20% down? After reading here, I am dropping the car purchase with 401k funds part- but is the rest of it still a bad idea? I am pretty sure we can repay the 401k in 6-12 months time. Good credit: median 800, range 780-810, for the 6 scores between the 2 of us.

[fromslila]

Originally Posted by kygirlintx

"We ended up buying a $200k house and our monthly payments are roughly $1337/month."


Just to show how home loans differ we purchased a 200k home and our monthly payments are $1053.00/month. We didn't put any money down.

Does this include insurance and taxes in the monthly payments?

[frenzyrider]

Originally Posted by MovingtoDFW

Despite my screen name, I have been in the city for 10 months now : ) , renting. My lease ends in 2 months and am looking for a home by then.

At this time, we have only saved 50k in cash - available for cash down (we have invested ~ 25k internationally, just refunded Uncle Sam 7k a few weeks ago, and there was a 7-8k annual expense recently).

Given the above - is it better for me to put 12-15% down, pay PMI and maybe a higher interest rate; or take the 401k loan and put 20% down? After reading here, I am dropping the car purchase with 401k funds part- but is the rest of it still a bad idea? I am pretty sure we can repay the 401k in 6-12 months time. Good credit: median 800, range 780-810, for the 6 scores between the 2 of us.

I agree with Turtlecreek and others. Have a little patience. If you cannot wait to save 20% of down payment then do a 10% down and structure a secondary loan. Yes, you will pay PMI and higher secondary loan interest but it is way better than taking out a 401k loan. However, it will be prudent to make a 20% down. Most importantly, you must have 8 months of cash reserve for unforseen circumstances. Do not let that guard down. With your income level, you will be good within a year for all the above. Buy this time next year. Interest rates are not going anywhere till the end of the year. Inflation will pick up may be later next year but not that will break your bank account.

PS: Not a financial advice but just my 2 cents

[TurtleCreek80]

Originally Posted by MovingtoDFW

Despite my screen name, I have been in the city for 10 months now : ) , renting. My lease ends in 2 months and am looking for a home by then.

At this time, we have only saved 50k in cash - available for cash down (we have invested ~ 25k internationally, just refunded Uncle Sam 7k a few weeks ago, and there was a 7-8k annual expense recently).

Given the above - is it better for me to put 12-15% down, pay PMI and maybe a higher interest rate; or take the 401k loan and put 20% down? After reading here, I am dropping the car purchase with 401k funds part- but is the rest of it still a bad idea? I am pretty sure we can repay the 401k in 6-12 months time. Good credit: median 800, range 780-810, for the 6 scores between the 2 of us.

At your income level, you are not ready to buy a home yet. Someone with $300k/yr should not be emptying out their entire piggy bank to buy a $400k home or taking a 401k loan to financ the purchase. Seriously, why do you need it RIGHT NOW vs another year from now? You have a great income; you need more savings....which you'll have soon. It's not like you have $500 leftover every month to save; you probably have $5k or more left over every month. It will build quickly.

401k / IRA/ etc are FOR RETIREMENT. No one, and I mean NO ONE, should be taking loans or borrowing early from these vehicles unless you are going to be homeless and can't feed yourself or your family. Just pretend the money doesn't exist. Forget about it completely (except when you rebalance funds or check your balance). You'll be glad someday - or your surviving spouse will!

[happycrow]

Not an upper-middle-class one, anyway. With a little discipline, etc, he could get into a 3/2 starter home like I"m in without any problems. I don't think he'd want to be locked into one of those in case of sales troubles, and thus tend to agree with TurtleCreek80.

[Keepingitsimple]

Things happen when we least suspect them. Be patient and save before you jump into a big commitment. Keep it simple, why complicate life more than it naturally is?

[GripeWater]

DO NOT touch 401K. Rent, enjoy freedom and save money before you dedicate your lives to a house.

[Lakewooder]

Please hold off and save your money - be frugal and just see how you do - wait until at least the holidays in November and December until the market settles down and you have more downpayment. If you are worried about your job at all, I would just keep renting.

Saving money can be fun - when you discover this you will find a great comfort!

[MovingtoDFW]

Thanks for all your replies and advise. I understand the good intentions behind suggestions to not borrow from a 401k and the general prudence of never dipping into a 401k.

But there are several reasons we need to get into a home soon. By the time we buy, we would have rented for 12 months, and by now have a good sense of the city and our jobs. If we renew the rental month to month after that, our rent goes up 25% (discontinuation of 'discount' and addition of some unheard of fees). To keep the rent the same, we will have to renew for a whole year which we do not want to do. Then, there are issues relating to being in the new school district at the start of the school year.

And since we are only buying a home between 1.2 to 1.5 annual gross (and borrowing 1 to 1.2x) - it gives us room to repay not just the 401k very quickly but also prepay on our 15 year mortgage. And since by closing time (hopefully in 4-6 weeks) we will be at 75k for down payment, we may end up borrowing only 20k from the 401 k. We can actually pay that loan back within 2-3 months. Thanks to some of your replies, we have given up on taking out the max 50k allowed for a 401k loan to use for other things- that got driven in well!

But I think we are not postponing a home purchase just because we will need to dip into the 401k for 20k. We have zero debt otherwise, and even if we took a 401k loan for the full 50k, our DTI ratio would only be 16%. And I was just informed by my pre-approver that many / most lenders do not consider 401k loans as debt for DTI calculations.

[ChristieP]

Originally Posted by GripeWater

DO NOT touch 401K. Rent, enjoy freedom and save money before you dedicate your lives to a house.

NEVER touch your 401k unless you need it to survive!

If you don't believe us, please speak with a financial planner.