Wow. A housing-based thread with no political commentary and good advice. It’s like it is 2005 on Piggington again.
Late to the party. Advice I always give is this: Calculate the monthly payment (including ins, p&i, taxes, maintenance – everything) for the house you want with 20% down. Say, it is $3,500 / month.
Subtract from that from your rent and make sure you put that much into the housing fund every months. So, if rent is $2000/month, you put $1500 per month away. When you get to 20%, buy your house.
So, if you have 65K in cash and you need 110K, you need to save another 45K. At 1500 per month, with no growth, you could be there in 30 months.
Think about it for a while and you will realize what a great plan it is.
Admittedly, it is a bit of a moving target. As prices, interest rates and savings rates fluctuate, your buy date moves. But, it gives you a concrete plan that will ease your mind about being stuck in rental land forever.
It gives you an “out” with the wife, too. It shows her light at the end of the tunnel and gives you an explicit way of determining when to buy so there is no arguing. It is something you can work towards, watch, and achieve together. If you have to cheat a little with the 401K plan, maybe throw that into the picture to make the purchase a year earlier or so.
One thing that nobody has mentioned is the fact that, for the same monthly payment, it is better to buy with higher rates and a lower price than a higher price and lower payments for many reasons:
1) Higher tax deduction
2) More chance of appreciation, or lower chance of depreciation.
3) Can refinance to a lower rate if rates come down.
When you buying at a high price and low rates, you are stuck both ways.
I would put some justification to your comment that rates will rise but prices will not drop. Sounds like an unjustified position to me that you are using to rationalize a purchase.
From an analytical point of view, PMI is a disaster. Do what you can to avoid it.
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Borrowing from 401K is an interesting idea I hadn’t considererd.
I am an independent, incorporated contractor. All my retirement money has been rolled over to a rollover IRA that I manage. Does anyone know if I can borrow from that or does it have to be a 401K within an employer ?
Can you borrow from a Roth IRA, pay yourself %20 interest, write off the interest you pay on the loan, and not pay taxes on the growth of the Roth IRA due to the interest ?
