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OK, this is going to get a little personal and I'd like some sage advice here.
I want my first house nice enough to be my last. I like where I'm living, have a recession proof job, and am going nowhere. I'm 37, take home $5100 a month, have $350K I've saved the long and hard way, and am completely fed up with my living situation. I want, and think, I deserve an upgrade at this point in my life. I'm approaching 40 and am starting to realize I'm probably halfway done and should start enjoying my savings.
I could buy a ~300K house here but there is always going to be something about a house in this price range that doesn't sit well with me - the size, location, condition, etc. I've come close to sealing the deal a couple of times but have always backed out because "it didn't feel right."
I know for a fact if I was looking at homes between $350k and $400K the options would increase dramatically and I'd find something I'd be happy with. Like one of those cute, quaint older homes in one of our core neighborhoods...sigh...
What I'm wondering is...with my financials and savings, would *most* people be buying homes in this price range? Is there any reason I shouldn't tie up $200K in a down payment, especially considering the lousy interest rates these days on all the different types of savings accounts? My saved money isn't doing anything for me, in fact, it's probably losing value due to inflation.
I have no debt, no interest in nice cars, etc. I just really, truly want a place to call my own and one that I look forward to coming home to at the end of the day. Is there any reason I shouldn't sink a lot of my money into this if I don't foresee myself spending it on much else?
My wife and I always lived below our means when it came to homes. We had nice and in several cases newly built homes but we stayed below our ability to afford such. We saw many friends become house poor. All they could do was afford the payments.
My advice to you would be stay below your means.
Buy classy, but not ostentatious.
Never assume it will be your last place.
Put down only enough to make any payments comfortable. Use "their" money. Invest your extra money in solid, long term proven mutual funds.
There used to an old time adage that one could afford a home 2.5 to 3 times their annual income. Also heard one could afford a monthly mortgage payment equal to one weeks take home pay. Bear in mind with a large amount down these suggestions might still be valid. A $400K house with $200K down is financing a $200K house.
I personally think that only one person living in a large (say over 2000sq ft) home is a waste of space and money. I say go small and spend on options/amenities to make it comfortable and looking good.
Although I agree with Accufitgolf's statement personally, only you can make the decision. Either way can work for and against you (as I'm sure you know) so you might as well make the choice that will give you the greatest sense of well being.
You said "I could buy a ~300K house here but there is always going to be something about a house in this price range that doesn't sit well with me - the size, location, condition, etc. I've come close to sealing the deal a couple of times but have always backed out because "it didn't feel right.""
Why not buy one of these in a good location and at a good price and completely remodel it?
I vote for buying the best location as that can't be changed. Then do whatever you have to do to make it your dream house. You can completely gut it and make it all open if you so desire, provided you bought it cheaply enough. Or tear it down and build new. Land is the premium in a city, not the house on it.
You are asking if you should put approx $200k down payment. If I was in your shoes, I would. Interest rates are now approx 4% more or less for a morgage. In a safe investment, let's say a 1 year CD, you would earn under 1%. By putting your $200k as down payment, it is like earning 4% on your money.
I was in similar situation. I was looking at my savings and the interest rates for CDs and money markets. I decided to pay off my mortgage which was in the 4% range. It has been several years and I am very, very happy with this decision.
If you did this and eventually wanted to access the money, you could always refinance or get a home equity line of credit, IF you are still working and have good enough credit and if the home does not fall in value.
I suggest you decide the price range of home you want and feel comfortable with. But go ahead and use a large lump sum as down payment to make the monthly mortgage payment much more reasonable.
Watch out for high tax bills and high homeowners insuranc and also HOA fees. The home price is just one part of the puzzle.
Last edited by sware2cod; 05-19-2012 at 01:08 PM..
We like living in a nice house - we have friends who spend a lot on clothes, toys and cars but for us our home is a huge source of pride and enjoyment and we feel that money we spend on it is an investment.
I am pretty frugal, but I can tell you with a deent down payment, a recession proof job and a good monthly income I would feel comfortable spending more than $350,000 - $400,000.
HOWEVER I do agree that with a higher priced home comes higher expenses such as taxes and utilities, so just make sure you are taking the whole picture into account.
Also don't buy the prettiest home on the block. Pick the neighborhood and buy the best value home you can find in the best neighborhood. Then make updates. That way you add value to the house over time, get to live in a phenomenal area and still be comfortable financially.
We just bought a second house in an amazing neighborhood - it was a short sale so it was a pain in the butt to close, but a great value and we're updating the house as we go.
We felt as you do that having a lot of money in the bank at the minute was an exercise in futility with interest rates having plummeted, so we decided to take the plunge and buy another place.
Good luck with your decision, I hope you find a place that makes you very happy!
i assume you're asking if you should stick with your cash budget and get a house that's within that budget or use part cash and part mortgage to get a better house?
i'm in the same situation and i'm choosing to go with buying whatever i can get with the cash. i do not wish to get a loan and to incur interests on it. i'm surprised that many people think 4ish% is considered LOW but that's just me.
i do hope however to find a house which has the potential to be slowly "upgraded" through the years even if it doesn't look that impressive right now.
in this current state of economy...i'm not sure if any job is truly recession proof. and even if the job is secure....there could be other changes in life that could affect one's income level (disability/illness/other unforeseen circumstance).
i'd rather go with safe that's what i'm saying....be mortgage/commitment free so that i can choose to do whatever i please, perhaps an earlier retirement, new job, relocation etc. or perhaps if there's capital appreciation on the house when the property market picks up &/or after some home upgrades have been done....i could choose to sell and buy something fancier at that point in time.
I think this is a personal decision. Some people just need to have tons of extra money in their life and prefer a modest home. Others prefer to have a nice house and are more modest in their consumption habits. Neither is a gold standard. They are both just personal choices.
Personally, I like a nice house. It is my family's home and I cannot think of a better place to spend my money. It may surprise you to find out that I drive a 7 year old modest car and my husband drives a 5 year old modest car but we paid over $1mil for our house. We have friends that drive a brand new BMW M3 and live in a much more modest house. To me, we just have different preferences as to how to spend our money.
To that end, nobody else can really tell you what is right for you.
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