How shall we buy our first house?

[UCguy]

Hello all,

I am long time lurker here. I’ve learned many, many useful things here over the years and I am very grateful to all the Piggs for their insight, opinions and shared experiences. We have always rented and thought that now might be a good time for us to jump in as we are getting older, kids are growing up and want to pay off the mortgage by the time we retire. But we need some advice.

First let me give you some background about us. We are in our early-mid 40s, both work and have 2 kids in elementary school.

Here is our financial situation. Our combined income is 185K. Credit scores right around 800. We have paid off all our student debts and one of the cars; we have one car loan and no other debt. We have about 65K in cash, 120K in 401Ks, 50K in Roth and IRAs, 15K in 529 funds. (If you wonder why so little savings, it’s because we both got our PhDs and 4-5 years postdoctorate fellowships – so it wasn’t until we were in our mid 30s that we reached HH income 100K – and we recently had to help our families as well (so no help from families ever, on the contrary).

Since we are getting older, we thought it’s best start buying and paying mortgage so we can pay it off in 20-25 years by the time we retire and at least have the means to live rent free at that point.

Our target is a 525-550K house – 3 times our gross income with 10% down. So at least the rule of thumb about house price vs income we are going to abide by. We know the conventional wisdom is to save first 20% down AND have 6 months of PITI cash reserves. But to save that will take probably another 4-5 years for us (if we also contribute to 401K and 529)and in the mean time, we get older, our kids grow up, and we pay low 2000s per month for rent. Besides, we think the rates will go up and prices will still not go down enough to compensate.

We have two options of putting 10% down – use up basically all the cash in the begining or put only 5% down from cash and for the other 5% get a 10 yr loan from our 401K (4.25%rate, $260/mo).

What shall we do? We expect some will say to wait and save first, but I hope that those people willl take into consideration our age and family situation. Nevertheless I’m grateful for all the advice, because I’ve learned over the years how much of an eye opener are advices – even not so good ones – which make you think outside the box or think hard to refute them.

Many thanks!

[sdrealtor]

Here is my two cents so take it for what it is worth. With 185K income you should target about 30% of gross income for Principal, Interest, Taxes and Insurance which gives you a budget of $4500/month. With your income that will still leave plenty for retirement savings, college funds and all the fun you could want to have.

On a $550K home plan on a max $600 month taxes and $100 for insurance (assumes you buy close to UC and have low or no Mello Roos). That leaves you $3800/month. You will likely be getting an older home and will want some of your savings for remodelling so in your position I’d put the 5% down (that is what I would do). Borrowing $525K would cost you $2900/month Principal and Interest even if you got a 5.25% rate. If you got a better rate or a less expensive home it would be lower. That puts you close to $1,000 below budget which is good thing. Borrow the $25K from your 401k and use that extra to pay it back in 2 years. After that you could use it for extra principal payments, retirement funds or college for kids. Sounds like you have a good situation and a level head. Find a good house that can meet your needs for the next 10 to 20 years and you will be fine.

Best of Luck to you

sdr

[sdrealtor]

Here is my two cents so take it for what it is worth. With 185K income you should target about 30% of gross income for Principal, Interest, Taxes and Insurance which gives you a budget of $4500/month. With your income that will still leave plenty for retirement savings, college funds and all the fun you could want to have.

On a $550K home plan on a max $600 month taxes and $100 for insurance (assumes you buy close to UC and have low or no Mello Roos). That leaves you $3800/month. You will likely be getting an older home and will want some of your savings for remodelling so in your position I’d put the 5% down (that is what I would do). Borrowing $525K would cost you $2900/month Principal and Interest even if you got a 5.25% rate. If you got a better rate or a less expensive home it would be lower. That puts you close to $1,000 below budget which is good thing. Borrow the $25K from your 401k and use that extra to pay it back in 2 years. After that you could use it for extra principal payments, retirement funds or college for kids. Sounds like you have a good situation and a level head. Find a good house that can meet your needs for the next 10 to 20 years and you will be fine.

Best of Luck to you

sdr

[sdrealtor]

Here is my two cents so take it for what it is worth. With 185K income you should target about 30% of gross income for Principal, Interest, Taxes and Insurance which gives you a budget of $4500/month. With your income that will still leave plenty for retirement savings, college funds and all the fun you could want to have.

On a $550K home plan on a max $600 month taxes and $100 for insurance (assumes you buy close to UC and have low or no Mello Roos). That leaves you $3800/month. You will likely be getting an older home and will want some of your savings for remodelling so in your position I’d put the 5% down (that is what I would do). Borrowing $525K would cost you $2900/month Principal and Interest even if you got a 5.25% rate. If you got a better rate or a less expensive home it would be lower. That puts you close to $1,000 below budget which is good thing. Borrow the $25K from your 401k and use that extra to pay it back in 2 years. After that you could use it for extra principal payments, retirement funds or college for kids. Sounds like you have a good situation and a level head. Find a good house that can meet your needs for the next 10 to 20 years and you will be fine.

Best of Luck to you

sdr

[sdrealtor]

Here is my two cents so take it for what it is worth. With 185K income you should target about 30% of gross income for Principal, Interest, Taxes and Insurance which gives you a budget of $4500/month. With your income that will still leave plenty for retirement savings, college funds and all the fun you could want to have.

On a $550K home plan on a max $600 month taxes and $100 for insurance (assumes you buy close to UC and have low or no Mello Roos). That leaves you $3800/month. You will likely be getting an older home and will want some of your savings for remodelling so in your position I’d put the 5% down (that is what I would do). Borrowing $525K would cost you $2900/month Principal and Interest even if you got a 5.25% rate. If you got a better rate or a less expensive home it would be lower. That puts you close to $1,000 below budget which is good thing. Borrow the $25K from your 401k and use that extra to pay it back in 2 years. After that you could use it for extra principal payments, retirement funds or college for kids. Sounds like you have a good situation and a level head. Find a good house that can meet your needs for the next 10 to 20 years and you will be fine.

Best of Luck to you

sdr

[sdrealtor]

Here is my two cents so take it for what it is worth. With 185K income you should target about 30% of gross income for Principal, Interest, Taxes and Insurance which gives you a budget of $4500/month. With your income that will still leave plenty for retirement savings, college funds and all the fun you could want to have.

On a $550K home plan on a max $600 month taxes and $100 for insurance (assumes you buy close to UC and have low or no Mello Roos). That leaves you $3800/month. You will likely be getting an older home and will want some of your savings for remodelling so in your position I’d put the 5% down (that is what I would do). Borrowing $525K would cost you $2900/month Principal and Interest even if you got a 5.25% rate. If you got a better rate or a less expensive home it would be lower. That puts you close to $1,000 below budget which is good thing. Borrow the $25K from your 401k and use that extra to pay it back in 2 years. After that you could use it for extra principal payments, retirement funds or college for kids. Sounds like you have a good situation and a level head. Find a good house that can meet your needs for the next 10 to 20 years and you will be fine.

Best of Luck to you

sdr

[outtamojo]

Hi, it would help to know which area you are looking at as children of 2 PhD’s are involved I suspect school performance would be important and a 525-550K price range kind of restricts where you could buy and some areas are in more distress than others so waiting may not cost you.

[outtamojo]

Hi, it would help to know which area you are looking at as children of 2 PhD’s are involved I suspect school performance would be important and a 525-550K price range kind of restricts where you could buy and some areas are in more distress than others so waiting may not cost you.

[outtamojo]

Hi, it would help to know which area you are looking at as children of 2 PhD’s are involved I suspect school performance would be important and a 525-550K price range kind of restricts where you could buy and some areas are in more distress than others so waiting may not cost you.

[outtamojo]

Hi, it would help to know which area you are looking at as children of 2 PhD’s are involved I suspect school performance would be important and a 525-550K price range kind of restricts where you could buy and some areas are in more distress than others so waiting may not cost you.

[outtamojo]

Hi, it would help to know which area you are looking at as children of 2 PhD’s are involved I suspect school performance would be important and a 525-550K price range kind of restricts where you could buy and some areas are in more distress than others so waiting may not cost you.

[UCGal]

Hey – you stole my name. Just kidding.

So you’d be putting $55k down, and financing $495k if you stay at $550k house.

The $65k you have liquid will be eaten up entirely by the purchase if you put 10% down. $55k for the down, and $10k for various closing expenses and the inevitable trips to home depot once you purchase.

In an ideal world I’d try to figure out a way to stay with financing at $417k or less. I know that’s very hard to do in San Diego. Maybe impossible in your timeframe.

Your income is good… What is your job stability? Are you working in areas that are grant based – where funding could go away? (I’ve got friends who are both PhDs – and one or the other is always scrambling for the next gig when the grant runs out.)

Since you have good income, but less cash… I’d look at areas that are lower cost. I’d rule out most of north county coastal and Carmel Valley. I’d consider larger townhomes even though that may feel less than optimal… you can sometimes get more bang for your buck in attached homes vs detached. I’d look for good pockets in more blue collar areas… Showing my bias towards central San Diego here – I’d be looking in Clairemont, Tierrasanta, PQ, Allied Gardens/Del Cerro, and Poway. Schools are important – but parental involvement is MORE important in the outcome of a kids academic journey.

[UCGal]

Hey – you stole my name. Just kidding.

So you’d be putting $55k down, and financing $495k if you stay at $550k house.

The $65k you have liquid will be eaten up entirely by the purchase if you put 10% down. $55k for the down, and $10k for various closing expenses and the inevitable trips to home depot once you purchase.

In an ideal world I’d try to figure out a way to stay with financing at $417k or less. I know that’s very hard to do in San Diego. Maybe impossible in your timeframe.

Your income is good… What is your job stability? Are you working in areas that are grant based – where funding could go away? (I’ve got friends who are both PhDs – and one or the other is always scrambling for the next gig when the grant runs out.)

Since you have good income, but less cash… I’d look at areas that are lower cost. I’d rule out most of north county coastal and Carmel Valley. I’d consider larger townhomes even though that may feel less than optimal… you can sometimes get more bang for your buck in attached homes vs detached. I’d look for good pockets in more blue collar areas… Showing my bias towards central San Diego here – I’d be looking in Clairemont, Tierrasanta, PQ, Allied Gardens/Del Cerro, and Poway. Schools are important – but parental involvement is MORE important in the outcome of a kids academic journey.

[UCGal]

Hey – you stole my name. Just kidding.

So you’d be putting $55k down, and financing $495k if you stay at $550k house.

The $65k you have liquid will be eaten up entirely by the purchase if you put 10% down. $55k for the down, and $10k for various closing expenses and the inevitable trips to home depot once you purchase.

In an ideal world I’d try to figure out a way to stay with financing at $417k or less. I know that’s very hard to do in San Diego. Maybe impossible in your timeframe.

Your income is good… What is your job stability? Are you working in areas that are grant based – where funding could go away? (I’ve got friends who are both PhDs – and one or the other is always scrambling for the next gig when the grant runs out.)

Since you have good income, but less cash… I’d look at areas that are lower cost. I’d rule out most of north county coastal and Carmel Valley. I’d consider larger townhomes even though that may feel less than optimal… you can sometimes get more bang for your buck in attached homes vs detached. I’d look for good pockets in more blue collar areas… Showing my bias towards central San Diego here – I’d be looking in Clairemont, Tierrasanta, PQ, Allied Gardens/Del Cerro, and Poway. Schools are important – but parental involvement is MORE important in the outcome of a kids academic journey.

[UCGal]

Hey – you stole my name. Just kidding.

So you’d be putting $55k down, and financing $495k if you stay at $550k house.

The $65k you have liquid will be eaten up entirely by the purchase if you put 10% down. $55k for the down, and $10k for various closing expenses and the inevitable trips to home depot once you purchase.

In an ideal world I’d try to figure out a way to stay with financing at $417k or less. I know that’s very hard to do in San Diego. Maybe impossible in your timeframe.

Your income is good… What is your job stability? Are you working in areas that are grant based – where funding could go away? (I’ve got friends who are both PhDs – and one or the other is always scrambling for the next gig when the grant runs out.)

Since you have good income, but less cash… I’d look at areas that are lower cost. I’d rule out most of north county coastal and Carmel Valley. I’d consider larger townhomes even though that may feel less than optimal… you can sometimes get more bang for your buck in attached homes vs detached. I’d look for good pockets in more blue collar areas… Showing my bias towards central San Diego here – I’d be looking in Clairemont, Tierrasanta, PQ, Allied Gardens/Del Cerro, and Poway. Schools are important – but parental involvement is MORE important in the outcome of a kids academic journey.

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