How shall we buy our first house?

[Scarlett]

We are in a very similar situation. My DH works at UCSD as well and I am also in biotech.

We actually talked with HLS recently and he strongly recommended to do whatever we can to escape that pesky PMI – and indeed borrowing from 401Ks is what he suggested. He doesn’t think 401Ks are such a good investment, so it’s better to have those money working for you by avoiding PMI. Now, the risk is there, but, if you keep some cash reserve just for that (repayment if you leave the job) you should be ok in most cases IMHO. You need to put at least 5% cash down, HLS said.

Unlike you, we bought unwisely a house during the bubble and (almost) got burned before unloading it. Not just a figure of speech. But we literally sold our place in RB a month before the fires went through the neighborhood in Fall 2007. Once burned, twice shy, you know what I mean? For a couple years now we’ve been looking and looking and trying to optimize different parameters. We went all over the map with our searches. We’ve settled on PUSD as well, though our criteria are slightly less than yours, so hopefully we won’t compete 🙂

Back to the OP – IF you put only 10% down, then I’d keep 5% cash and borrow the rest from 401k.

But if you can avoid PMI by borrowing from both your 403b and 401k. AND keep enough CASH reserve to cover the principal of ONE of the two 401k loans (the riskiest – yours, I presume, since your wife’s job is more stable) then I think THAT would be the optimal solution, that also minimizes the risks. If you are looking for 550K house, then you may have to wait and save for afew months up to 1 yr. Even better if you can keep the financing under 417K, like UCGal suggested. I don’t think the rates will start picking up that fast that soon, but that’s just my guess (hope???).

[all]

I’m with SD R. I dislike guaranteed loss due to PMI and higher interest more than potential loss due to money not being in your 401k.

Since you are a first-time buyer you should be able to withdraw $10K from your IRA with no penalty. Your can always tap into your Roth IRA if the things get real bad. Also, some of your monthly payment will go towards the principal and the difference in cost between buying and renting less dramatic. And you can think of the principal as a form of contribution to your retirement fund – the house today is more tangible than 401k distribution 25-30 years from today.

[all]

I’m with SD R. I dislike guaranteed loss due to PMI and higher interest more than potential loss due to money not being in your 401k.

Since you are a first-time buyer you should be able to withdraw $10K from your IRA with no penalty. Your can always tap into your Roth IRA if the things get real bad. Also, some of your monthly payment will go towards the principal and the difference in cost between buying and renting less dramatic. And you can think of the principal as a form of contribution to your retirement fund – the house today is more tangible than 401k distribution 25-30 years from today.

[all]

I’m with SD R. I dislike guaranteed loss due to PMI and higher interest more than potential loss due to money not being in your 401k.

Since you are a first-time buyer you should be able to withdraw $10K from your IRA with no penalty. Your can always tap into your Roth IRA if the things get real bad. Also, some of your monthly payment will go towards the principal and the difference in cost between buying and renting less dramatic. And you can think of the principal as a form of contribution to your retirement fund – the house today is more tangible than 401k distribution 25-30 years from today.

[all]

I’m with SD R. I dislike guaranteed loss due to PMI and higher interest more than potential loss due to money not being in your 401k.

Since you are a first-time buyer you should be able to withdraw $10K from your IRA with no penalty. Your can always tap into your Roth IRA if the things get real bad. Also, some of your monthly payment will go towards the principal and the difference in cost between buying and renting less dramatic. And you can think of the principal as a form of contribution to your retirement fund – the house today is more tangible than 401k distribution 25-30 years from today.

[all]

I’m with SD R. I dislike guaranteed loss due to PMI and higher interest more than potential loss due to money not being in your 401k.

Since you are a first-time buyer you should be able to withdraw $10K from your IRA with no penalty. Your can always tap into your Roth IRA if the things get real bad. Also, some of your monthly payment will go towards the principal and the difference in cost between buying and renting less dramatic. And you can think of the principal as a form of contribution to your retirement fund – the house today is more tangible than 401k distribution 25-30 years from today.

[UCguy]

[quote=jstoesz] Sorry, I didn’t mean to upset you. I understand your situation, and my comments are coming from my own personally bitterness with SD. Hell, you make 3 times the median, and you are looking at how you can scrape together enough for a far flung cookie cutter home (there is something severely wrong still, even in light of “historic” affordability). I should not have said “demand more.” That was probably not exactly what I meant…how’s “going galt” on the home market. I was also not disparaging your income, I find 180k for a household to be a good chunk of change (nationally I think that is the 95th percentile), and I commend your ability to pull that together. I also find your stockpile of savings/retirement to be pretty decent by the average American’s standards. I bet 95% of your fellow citizens would trade with you in a New York Minute.

You were very clear about wanting to buy a home, but I figured what was the harm in throwing an oddball idea out. I can completely understand that feeling. I was not intending my comments to be antagonizing, in any way. My wife and I have talked about doing this on numerous occasions. And we often think we would rather rent a crappy home and own a sweet cabin. Granted the rubber has not yet met the road on this decision yet. For the record when I lived in SD, I lived on a boat. I have lived in my car, on a ranch, in a tent…and a couple houses along the way. So I am not a straightforward practical guy, and I do not want to be one.[/quote]

No problem, man! We are good. No need to apologize. And thanks, I appreciate your comments and now that you made it clear what you meant…I wish I could do something like that and I envy the guys that did. Must have been really fun. I am more of a conventional guy. I sure think that kind of life would be 100 times more interesting…I share your bitterness and disappointment with the house market in SD. I wish I could say something like: – F*** this house market, I am not gonna buy in the debt slavery sh–t. If I wouldn’t have the (extended) family responsibility and I wouldn’t pay so much in rent I’d consider seriously buying a nice, smaller rental somewhere for cheap, and keep renting. It wasn’t a bad idea at all. I’ll sleep on it. 🙂

I agree the market is overpriced still. Which is why, I was thinking that maybe, if I wait a few years until I save the 20% down, the house market prices will be where I think should be. Which for RB, PQ, and such currently at 500K would be 20-30% down at least. But who knows if that will happen, and when?

[UCguy]

[quote=jstoesz] Sorry, I didn’t mean to upset you. I understand your situation, and my comments are coming from my own personally bitterness with SD. Hell, you make 3 times the median, and you are looking at how you can scrape together enough for a far flung cookie cutter home (there is something severely wrong still, even in light of “historic” affordability). I should not have said “demand more.” That was probably not exactly what I meant…how’s “going galt” on the home market. I was also not disparaging your income, I find 180k for a household to be a good chunk of change (nationally I think that is the 95th percentile), and I commend your ability to pull that together. I also find your stockpile of savings/retirement to be pretty decent by the average American’s standards. I bet 95% of your fellow citizens would trade with you in a New York Minute.

You were very clear about wanting to buy a home, but I figured what was the harm in throwing an oddball idea out. I can completely understand that feeling. I was not intending my comments to be antagonizing, in any way. My wife and I have talked about doing this on numerous occasions. And we often think we would rather rent a crappy home and own a sweet cabin. Granted the rubber has not yet met the road on this decision yet. For the record when I lived in SD, I lived on a boat. I have lived in my car, on a ranch, in a tent…and a couple houses along the way. So I am not a straightforward practical guy, and I do not want to be one.[/quote]

No problem, man! We are good. No need to apologize. And thanks, I appreciate your comments and now that you made it clear what you meant…I wish I could do something like that and I envy the guys that did. Must have been really fun. I am more of a conventional guy. I sure think that kind of life would be 100 times more interesting…I share your bitterness and disappointment with the house market in SD. I wish I could say something like: – F*** this house market, I am not gonna buy in the debt slavery sh–t. If I wouldn’t have the (extended) family responsibility and I wouldn’t pay so much in rent I’d consider seriously buying a nice, smaller rental somewhere for cheap, and keep renting. It wasn’t a bad idea at all. I’ll sleep on it. 🙂

I agree the market is overpriced still. Which is why, I was thinking that maybe, if I wait a few years until I save the 20% down, the house market prices will be where I think should be. Which for RB, PQ, and such currently at 500K would be 20-30% down at least. But who knows if that will happen, and when?

[UCguy]

[quote=jstoesz] Sorry, I didn’t mean to upset you. I understand your situation, and my comments are coming from my own personally bitterness with SD. Hell, you make 3 times the median, and you are looking at how you can scrape together enough for a far flung cookie cutter home (there is something severely wrong still, even in light of “historic” affordability). I should not have said “demand more.” That was probably not exactly what I meant…how’s “going galt” on the home market. I was also not disparaging your income, I find 180k for a household to be a good chunk of change (nationally I think that is the 95th percentile), and I commend your ability to pull that together. I also find your stockpile of savings/retirement to be pretty decent by the average American’s standards. I bet 95% of your fellow citizens would trade with you in a New York Minute.

You were very clear about wanting to buy a home, but I figured what was the harm in throwing an oddball idea out. I can completely understand that feeling. I was not intending my comments to be antagonizing, in any way. My wife and I have talked about doing this on numerous occasions. And we often think we would rather rent a crappy home and own a sweet cabin. Granted the rubber has not yet met the road on this decision yet. For the record when I lived in SD, I lived on a boat. I have lived in my car, on a ranch, in a tent…and a couple houses along the way. So I am not a straightforward practical guy, and I do not want to be one.[/quote]

No problem, man! We are good. No need to apologize. And thanks, I appreciate your comments and now that you made it clear what you meant…I wish I could do something like that and I envy the guys that did. Must have been really fun. I am more of a conventional guy. I sure think that kind of life would be 100 times more interesting…I share your bitterness and disappointment with the house market in SD. I wish I could say something like: – F*** this house market, I am not gonna buy in the debt slavery sh–t. If I wouldn’t have the (extended) family responsibility and I wouldn’t pay so much in rent I’d consider seriously buying a nice, smaller rental somewhere for cheap, and keep renting. It wasn’t a bad idea at all. I’ll sleep on it. 🙂

I agree the market is overpriced still. Which is why, I was thinking that maybe, if I wait a few years until I save the 20% down, the house market prices will be where I think should be. Which for RB, PQ, and such currently at 500K would be 20-30% down at least. But who knows if that will happen, and when?

[UCguy]

[quote=jstoesz] Sorry, I didn’t mean to upset you. I understand your situation, and my comments are coming from my own personally bitterness with SD. Hell, you make 3 times the median, and you are looking at how you can scrape together enough for a far flung cookie cutter home (there is something severely wrong still, even in light of “historic” affordability). I should not have said “demand more.” That was probably not exactly what I meant…how’s “going galt” on the home market. I was also not disparaging your income, I find 180k for a household to be a good chunk of change (nationally I think that is the 95th percentile), and I commend your ability to pull that together. I also find your stockpile of savings/retirement to be pretty decent by the average American’s standards. I bet 95% of your fellow citizens would trade with you in a New York Minute.

You were very clear about wanting to buy a home, but I figured what was the harm in throwing an oddball idea out. I can completely understand that feeling. I was not intending my comments to be antagonizing, in any way. My wife and I have talked about doing this on numerous occasions. And we often think we would rather rent a crappy home and own a sweet cabin. Granted the rubber has not yet met the road on this decision yet. For the record when I lived in SD, I lived on a boat. I have lived in my car, on a ranch, in a tent…and a couple houses along the way. So I am not a straightforward practical guy, and I do not want to be one.[/quote]

No problem, man! We are good. No need to apologize. And thanks, I appreciate your comments and now that you made it clear what you meant…I wish I could do something like that and I envy the guys that did. Must have been really fun. I am more of a conventional guy. I sure think that kind of life would be 100 times more interesting…I share your bitterness and disappointment with the house market in SD. I wish I could say something like: – F*** this house market, I am not gonna buy in the debt slavery sh–t. If I wouldn’t have the (extended) family responsibility and I wouldn’t pay so much in rent I’d consider seriously buying a nice, smaller rental somewhere for cheap, and keep renting. It wasn’t a bad idea at all. I’ll sleep on it. 🙂

I agree the market is overpriced still. Which is why, I was thinking that maybe, if I wait a few years until I save the 20% down, the house market prices will be where I think should be. Which for RB, PQ, and such currently at 500K would be 20-30% down at least. But who knows if that will happen, and when?

[UCguy]

[quote=jstoesz] Sorry, I didn’t mean to upset you. I understand your situation, and my comments are coming from my own personally bitterness with SD. Hell, you make 3 times the median, and you are looking at how you can scrape together enough for a far flung cookie cutter home (there is something severely wrong still, even in light of “historic” affordability). I should not have said “demand more.” That was probably not exactly what I meant…how’s “going galt” on the home market. I was also not disparaging your income, I find 180k for a household to be a good chunk of change (nationally I think that is the 95th percentile), and I commend your ability to pull that together. I also find your stockpile of savings/retirement to be pretty decent by the average American’s standards. I bet 95% of your fellow citizens would trade with you in a New York Minute.

You were very clear about wanting to buy a home, but I figured what was the harm in throwing an oddball idea out. I can completely understand that feeling. I was not intending my comments to be antagonizing, in any way. My wife and I have talked about doing this on numerous occasions. And we often think we would rather rent a crappy home and own a sweet cabin. Granted the rubber has not yet met the road on this decision yet. For the record when I lived in SD, I lived on a boat. I have lived in my car, on a ranch, in a tent…and a couple houses along the way. So I am not a straightforward practical guy, and I do not want to be one.[/quote]

No problem, man! We are good. No need to apologize. And thanks, I appreciate your comments and now that you made it clear what you meant…I wish I could do something like that and I envy the guys that did. Must have been really fun. I am more of a conventional guy. I sure think that kind of life would be 100 times more interesting…I share your bitterness and disappointment with the house market in SD. I wish I could say something like: – F*** this house market, I am not gonna buy in the debt slavery sh–t. If I wouldn’t have the (extended) family responsibility and I wouldn’t pay so much in rent I’d consider seriously buying a nice, smaller rental somewhere for cheap, and keep renting. It wasn’t a bad idea at all. I’ll sleep on it. 🙂

I agree the market is overpriced still. Which is why, I was thinking that maybe, if I wait a few years until I save the 20% down, the house market prices will be where I think should be. Which for RB, PQ, and such currently at 500K would be 20-30% down at least. But who knows if that will happen, and when?

[an]

I might be on the conservative side but if I’m in your shoes, I’d buy a cheaper house (~$350k) that would be at or close to cash flow neutral. If I have $52k to down right now, downing 20% for a $350k would mean you’d have to borrow ~$20k from your 401k. It’ll be much easier to pay off $20k than $50k. In the mean time your payment will be fixed at a relatively low number. With your income, I’m sure you can save another $100k easily over the follow 5 years. In 5 years, you can always move up and either sell your current place or rent it out if the price drops too much. Also, with a $350k house, it’ll give you breather room if one of you lose your job.

I tend to try and plan for worse case scenario and hope for the best. Although the above is not worse case, it’s still very conservative. With your hind of HH income, it would be too long before you save enough to buy a bigger house.

[an]

I might be on the conservative side but if I’m in your shoes, I’d buy a cheaper house (~$350k) that would be at or close to cash flow neutral. If I have $52k to down right now, downing 20% for a $350k would mean you’d have to borrow ~$20k from your 401k. It’ll be much easier to pay off $20k than $50k. In the mean time your payment will be fixed at a relatively low number. With your income, I’m sure you can save another $100k easily over the follow 5 years. In 5 years, you can always move up and either sell your current place or rent it out if the price drops too much. Also, with a $350k house, it’ll give you breather room if one of you lose your job.

I tend to try and plan for worse case scenario and hope for the best. Although the above is not worse case, it’s still very conservative. With your hind of HH income, it would be too long before you save enough to buy a bigger house.

[an]

I might be on the conservative side but if I’m in your shoes, I’d buy a cheaper house (~$350k) that would be at or close to cash flow neutral. If I have $52k to down right now, downing 20% for a $350k would mean you’d have to borrow ~$20k from your 401k. It’ll be much easier to pay off $20k than $50k. In the mean time your payment will be fixed at a relatively low number. With your income, I’m sure you can save another $100k easily over the follow 5 years. In 5 years, you can always move up and either sell your current place or rent it out if the price drops too much. Also, with a $350k house, it’ll give you breather room if one of you lose your job.

I tend to try and plan for worse case scenario and hope for the best. Although the above is not worse case, it’s still very conservative. With your hind of HH income, it would be too long before you save enough to buy a bigger house.

[an]

I might be on the conservative side but if I’m in your shoes, I’d buy a cheaper house (~$350k) that would be at or close to cash flow neutral. If I have $52k to down right now, downing 20% for a $350k would mean you’d have to borrow ~$20k from your 401k. It’ll be much easier to pay off $20k than $50k. In the mean time your payment will be fixed at a relatively low number. With your income, I’m sure you can save another $100k easily over the follow 5 years. In 5 years, you can always move up and either sell your current place or rent it out if the price drops too much. Also, with a $350k house, it’ll give you breather room if one of you lose your job.

I tend to try and plan for worse case scenario and hope for the best. Although the above is not worse case, it’s still very conservative. With your hind of HH income, it would be too long before you save enough to buy a bigger house.

[Author]

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