Announcement

Collapse
No announcement yet.

House Savings Account?

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Dr. Financial Freedom
    replied
    Your plan for aggressive saving in retirement and delaying a nicer house is right on.

    I am in a similar situation as you, early into attendinghood.  My plan to save for our forever home after maxing out all retirement accounts is to aggressive pay off all debt, including our current mortgage.  If you applied this extra $1200 a month towards your current mortgage you would have paid down over $100,000 extra on your mortgage over that 7 years, effectively "saving" at the mortgage interest rate (3.5% or so), rather than in a savings account at 1%.  This better protects your money from you using it on other items as well.  When you sell your home, you should have $120,000 or more once you sell it that you can apply towards your next home.

    Another option is to use a Betterment or other stock market account hoping to earn a better yearly interest rate.  This keep the money liquid, but it is much more risky not knowing when the next big market downturn will be.  Buying a new house earlier is enticing, but this comes with larger property taxes, utilities, new furniture, keeping up with the neighbors, etc.

     

    Leave a comment:


  • StarTrekDoc
    replied
    One other thing to consider -- property taxes vary from state to state.   We live in Cali and the property tax is fixed at 1% of property value and valuations appreciate quite a lot.

    eg:  after ten years in a house, it appreciated from 450k to 950k (with an addition to it to boot) with taxes 4500/yr.  We moved to a home 1200k with $12000/yr taxes with only a 250k cost step up, but the YEARLY taxes were 7500 MORE.

    So it's actually an argument to get into your 'forever home' early in California vs other places where property taxes vary annually with taxes approved.

    Leave a comment:


  • Frenchy1011
    replied
    What about only saving a 5% down payment a few years before I intend to buy, but then using whatever we make from selling our current house and applying that towards the mortgage as well? Seems that this way we don't need to save tons of money before we buy the house, thus allowing us to put more money toward retirement. And hopefully we can put the 6 figures we make from the current house and apply that to the new house to lower our monthly mortgage payments. And in the off chance that we don't make any money when we sell our current house, we'll still have that 5% saved down payment. Seems reasonable to me but not sure if I'm missing something.

    Leave a comment:


  • Donnie
    replied




    I’d say this is where you should do the math. What is the actual difference between a down payment and a higher mortgage? How much will you be losing to inflation over this time, how much will this 500k house cost then?

    You can save up for 7 years and put the large down payment up, or you can buy much sooner and accumulate that down payment while living in the house and benefit from any appreciation, tax write offs and inflation in your favor. I really dont see much benefit to waiting so long when the realities of the cash are really straight forward.

    500k home, 20% down.

    PITI: 2184

    500k home, 5% down (20k).

    PITI: 2934

    Difference is 750/month and to not have 80k (222/mo/360 months) up front. 300ish is pmi which will go away in 7-8 years (68 months @0.9% appreciation). You are essentially accumulating your down payment while living in the house and obtaining the tax/any appreciation/inflation/life benefits while being there.

    You can see that your 1000/mo savings is made up for by the cost of being in the house at the same time earlier in the payment. Its just where it goes and fringe benefits. Its possible but far from guaranteed to end up ahead due to taxes/inflation/appreciation going in your favor by being earlier.
    Click to expand...


    I agree that the 0.9% PMI is lower than the expected inflation in housing prices over this time period, so if the choice is between either buying the house now or buying the house later after accumulating the down payment, buying the house now is probably best.

    That said, buying a house when you can't afford the normal down payment is almost the definition of lifestyle creep and living beyond your means. Personally, I wouldn't feel comfortable having a $3k mortgage payment on $175k salary, but I am pretty conservative and awfully cheap.

     

     

    Leave a comment:


  • Zaphod
    replied




    I agree with your conservative notion. There is no rush to buy a huge forever house immediately. Your expenses will go up. It’s more property taxes, more upkeep and richer neighbors to keep up with. Lesson from last 10 years is don’t count on making money on your house.

    Your income stream is relatively secure and you’re saving extra anyway. I’d put it in whatever long term allocation you favor (high equity%) If the market tanks, house prices will too. Then take out a bigger mortgage at the bottom. If market was great then you grew your savings, likely at higher rate than real estate appreciation.

    If you want more risk and more expense now (and a bigger house) then take the 5% down mortgage. You’ll just shift your down payment savings into market exposure. It is leverage even if at a low interest rate cost – there is more risk. In case of a severe downturn, your (bigger) house loses value along with your leveraged investment. Your mortgage debt, of coursel does not change – voila underwater because you put 5% down.

     
    Click to expand...


    You have a lot more time and ability to pay down a mortgage during a downturn than the similar analogy in the market however. No one is going to foreclose on a house that is getting on time payments, and a simple over payment here and there will take whatever underwater position closer to safe pretty quickly (a 500k house is not a dangerously expensive one for the poster). You are simply not at risk of getting pulled out of your house in the middle of the night because of a spurious tick that cuts your Zestimate in half, which most certainly can occur in your brokerage account. These risks are not an apples to apples comparison.

    We should remember that is it highly unlikely the next crisis hits the housing market like last time, that is the last battle and will not be either the primary source of nor the most affected sector of the economy in the next recession. Will it get hit? Sure, but will be much more normal. That is normal disaster imprinting/myopia that leads everyone (I mean everyone!) fighting the last battle and totally missing what shakes up the economy next.

    All that said, and is really just for the being grounded and rational, I agree there is no rush to buy a home. I often have a hard time being convinced its necessary at all, it is extremely expensive from a maintenance and opportunity cost perspective and very very good arguments can be made against it.

    Leave a comment:


  • beagler
    replied
    I agree with your conservative notion. There is no rush to buy a huge forever house immediately. Your expenses will go up. It's more property taxes, more upkeep and richer neighbors to keep up with. Lesson from last 10 years is don't count on making money on your house.

    Your income stream is relatively secure and you're saving extra anyway. I'd put it in whatever long term allocation you favor (high equity%) If the market tanks, house prices will too. Then take out a bigger mortgage at the bottom. If market was great then you grew your savings, likely at higher rate than real estate appreciation. Equity and housing market are highly correlated. You are not asset poor nor uncertain income stream - no need to maturity match.

    If you want more risk and more expense now (and a bigger house) then take the 5% down mortgage. You'll just shift your down payment savings into market exposure. It is leverage even if at a low interest rate cost - there is more risk. In case of a severe downturn, your (bigger) house loses value along with your leveraged investment. Your mortgage debt, of coursel does not change - voila underwater because you put 5% down.

     

    Leave a comment:


  • Zaphod
    replied




    I do currently own a house, and we are definitely happy in this house. I am 30yrs old, and essentially don’t plan on moving until closer to 40. Now if that’s 37 or 40, it doesn’t really matter, but definitely not moving now. When I start saving for the house, it will not affect my 35% savings rate, it will definitely be above and beyond that. My current mortgage is $1500 monthly on a 225k mortgage. I currently have a physician mortgage with a 3ish% rate. Just trying to plan out the next 10ish years as much as possible.

    Still sounds like maybe delaying my start for housing savings and putting all I can into retirement until maybe 3-5yrs before I think of moving, and then not saving much more than 5% downpayment?
    Click to expand...


    Unless you plan on keeping that house, you should have about the right amount of equity to put right into the next opportunity anyway. Even assuming a 0% loan and no appreciation you'd be about 66k equity.

    Leave a comment:


  • Frenchy1011
    replied
    I do currently own a house, and we are definitely happy in this house. I am 30yrs old, and essentially don't plan on moving until closer to 40. Now if that's 37 or 40, it doesn't really matter, but definitely not moving now. When I start saving for the house, it will not affect my 35% savings rate, it will definitely be above and beyond that. My current mortgage is $1500 monthly on a 225k mortgage. I currently have a physician mortgage with a 3ish% rate. Just trying to plan out the next 10ish years as much as possible.

    Still sounds like maybe delaying my start for housing savings and putting all I can into retirement until maybe 3-5yrs before I think of moving, and then not saving much more than 5% downpayment?

    Leave a comment:


  • Zaphod
    replied







    I’d say this is where you should do the math. What is the actual difference between a down payment and a higher mortgage? How much will you be losing to inflation over this time, how much will this 500k house cost then?

    You can save up for 7 years and put the large down payment up, or you can buy much sooner and accumulate that down payment while living in the house and benefit from any appreciation, tax write offs and inflation in your favor. I really dont see much benefit to waiting so long when the realities of the cash are really straight forward.

    500k home, 20% down.

    PITI: 2184

    500k home, 5% down (20k).

    PITI: 2934

    Difference is 750/month and to not have 80k (222/mo/360 months) up front. 300ish is pmi which will go away in 7-8 years (68 months @0.9% appreciation). You are essentially accumulating your down payment while living in the house and obtaining the tax/any appreciation/inflation/life benefits while being there.

    You can see that your 1000/mo savings is made up for by the cost of being in the house at the same time earlier in the payment. Its just where it goes and fringe benefits. Its possible but far from guaranteed to end up ahead due to taxes/inflation/appreciation going in your favor by being earlier.
    Click to expand…


    I’m not arguing with your math, but as you mentioned it’s “possible but far from guaranteed to end up ahead…”  Another 2008-like housing market crash during the next 7-8 years could make him wish he would have waited.  The benefit of waiting and saving cash is that you might get a big discount on your house if you wait.  Of course, there’s no guarantee of that either.  The only argument I would buy for moving now, would be one that involves selling your current house if the price is better than expected due to current real estate conditions.  But, I don’t know if he owns a house or not.
    Click to expand...


    That is a definite risk, but much depends on his particular market as well. Its likely a lower risk than it being slightly more expensive at that time, even with a normal small recession and dip that could be expected within that time frame.

    Everythings a trade off, no guarantees.

    Leave a comment:


  • hightower
    replied




    I’d say this is where you should do the math. What is the actual difference between a down payment and a higher mortgage? How much will you be losing to inflation over this time, how much will this 500k house cost then?

    You can save up for 7 years and put the large down payment up, or you can buy much sooner and accumulate that down payment while living in the house and benefit from any appreciation, tax write offs and inflation in your favor. I really dont see much benefit to waiting so long when the realities of the cash are really straight forward.

    500k home, 20% down.

    PITI: 2184

    500k home, 5% down (20k).

    PITI: 2934

    Difference is 750/month and to not have 80k (222/mo/360 months) up front. 300ish is pmi which will go away in 7-8 years (68 months @0.9% appreciation). You are essentially accumulating your down payment while living in the house and obtaining the tax/any appreciation/inflation/life benefits while being there.

    You can see that your 1000/mo savings is made up for by the cost of being in the house at the same time earlier in the payment. Its just where it goes and fringe benefits. Its possible but far from guaranteed to end up ahead due to taxes/inflation/appreciation going in your favor by being earlier.
    Click to expand...


    I'm not arguing with your math, but as you mentioned it's "possible but far from guaranteed to end up ahead..."  Another 2008-like housing market crash during the next 7-8 years could make him wish he would have waited.  The benefit of waiting and saving cash is that you might get a big discount on your house if you wait.  Of course, there's no guarantee of that either.  The only argument I would buy for moving now, would be one that involves selling your current house if the price is better than expected due to current real estate conditions.  But, I don't know if he owns a house or not.

    Leave a comment:


  • Golfing Doc
    replied
    I am/have been in a similar situation. Tough decision on whether or not to upgrade housing or move in to a forever house. Only you know how comfortable you are or will be with your current employer and how good or bad your savings habits are

    One additional item to zaphod's response. If you go with a physician's mortgage, there won't be any PMI, which will save $200-$500 a month. Use wci's list of physician mortgage available in your state and shoot each an email asking them for their rates and see who is willing to beat another's rate.

    Leave a comment:


  • hightower
    replied
    Are you currently renting or do you own another house/condo?

    Do you really need or want to move right now?  If you were originally ok with a 7 year timeline, then I would assume you are happy where you're at right now? If that's the case, I wouldn't move until you feel like you're ready.  Also, will the new house mean bigger monthly payments for you?  If so, I wouldn't rush into it.  Remember, a house is more expensive then just the minimum monthly payments that you'll owe on the mortgage.  You're able to save 35% of your current income for retirement.  I would encourage you to keep doing this since you're still relatively young.  Now is the time to be pouring as much as possible into retirement accounts. I would only consider moving if you would be able to maintain or increase your current savings rate.

    Leave a comment:


  • StarTrekDoc
    replied
    Zaphod hit it right on the nose. Get into your house sooner than later pays for itself in almost all cases.

    The drawback or hesitation to lurxhasr is if you don't KNOW the circumstances around the purchase....job, size, location. If you know as certainty permits, in most cases ownership beats rental.

    Leave a comment:


  • Frenchy1011
    replied
    Thank you for this response. Very informative. Gonna have to sit on that for a while haha. Sounds like by getting into the house earlier and only putting 5% down I would essentially come out better in the long run. Or I guess another way to look at it would be if I still want to move into a new house in 7 years or whatever number it is, to delay the savings to a point where I only get 5% down payment and use the savings that I wouldn't needed for the 20% on something better like throwing it towards retirement etc. If that makes sense.

    Leave a comment:


  • jfoxcpacfp
    replied


    When you talk about the 70/30 mix, is that in a taxable account? One that is separate from my current taxable account? Or where would that be held?
    Click to expand...


    Yes, that would be a separate taxable account, but see  Zaphod's comments.

    Leave a comment:

Working...
X