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Old 02-07-08, 07:28 PM   #1
jschen
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a money question

I know what they say about free advice, but nonetheless, here it goes...

I don't know where I'll be in a few years, but it's likely that I'll be looking to buy a house. Since I don't know where I'll be, I have no clue what size down payment I'll be looking at. (For example, $50k isn't much in many places in SoCal, but it is a comfortable down payment in many places in the Midwest.) And when buying a house, I really should have a decent amount of emergency cash on hand after making the down payment. So how much money should I aim to have saved up by then? One thing's for sure. I can't save up that kind of money overnight. I figure I have three years. Any thoughts? People who have been making their first home purchases recently, what amount of money does one need on hand before buying a house is a financially sound proposition?

The "real world" is so much more complicated. Can I just stay a student forever?
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Old 02-07-08, 07:36 PM   #2
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Haven't you heard? Down payments are passe! The key to living the dream in the oversized, poorly-built house that you can barely afford is the variable rate, interest-only loan!
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Old 02-07-08, 07:38 PM   #3
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But seriously, though, I seem to remember that in saner times, the standard down payment on a home was ten or twenty percent. Assuming it's twenty, and you end up in a $200k house, $50k in your pocket seems like a pretty good place to be.

Of course, as you mention, if you plan to buy a house in southern California, or in the areas surrounding SF or Sacramento, $50k is hilariously worthless these days.
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Old 02-07-08, 07:41 PM   #4
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I have no clue where. That's one of the big problems. It's wherever a college hires me.

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Haven't you heard? Down payments are passe! The key to living the dream in the oversized, poorly-built house that you can barely afford is the variable rate, interest-only loan!
That's so yesterday! It's the negative amortization loan FTW.
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Old 02-07-08, 07:43 PM   #5
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I have no clue where. That's one of the big problems. It's wherever a college hires me.
Yeah. Here's hoping for the job offer from the University of Middle Of Nowhere. Buy that house of your dreams for $40k cash.
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Old 02-07-08, 07:46 PM   #6
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What you really need to have on hand his 5% of the house value. Fifteen or twenty is great, but most first-time home buyers in this day and age don't do that. All you pay for to put up the smaller amount is purchase insurance, which is a pretty negligible sum (we're talking less than $50 per month if you have good credit). Frankly, 50k would put you in extremely good shape in most places, but I think you really need to base this on your expectation of earnings. Figure out what you can reasonably expect to make on a monthly basis and that will tell you how much house you can afford. Figure out your down payment from that.
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Old 02-07-08, 07:59 PM   #7
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I dunno... $6k/mo pre-tax would probably be a decent ballpark estimate. I haven't the foggiest idea what that works out to in take-home pay or housing budget.
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Old 02-07-08, 07:59 PM   #8
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This is a tough question to answer. Too many variables. However just a reminder that the down-payment is just part of the money you will need at the time of purchase above and beyond your emergency fund. Not sure about the US, however in Canada we have:

- Lawyer costs
- Land Transfer fees
- Cost of Survey Certificate
- Do to the timing of our home purchase we needed to pay 1/2 of our yearly Land Tax up front.
- In Canada, if your down-payment is less than 20% you have to purchase CMHC Insurance which adds up to a large amount. Not sure if you have something similar in the US. This basically ensures the bank that if we default on our mortgage, they still get their money from the CMHC.
- Home inspection

Some additional costs are:

- moving costs (unless you're company pays for your move)
- the inevitable new furniture or fixing costs
- etc .... and there are lots of etc's

These costs add up very quickly and should be taken into account when budgetting / saving for a new home.
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Old 02-07-08, 08:12 PM   #9
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20% down will help you avoid PMI's and some other fees plus it will get you a better interest rate. We live in the midwest and around here 150k will get you a nice starter home while 300k will buy you 3,000sq ft in a nice neighborhood.
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Old 02-07-08, 08:24 PM   #10
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Good point, Alfster. Suddenly, the $100k suggested by someone the other day (which is what prompted this thread) doesn't sound so rediculous if I'm hoping to put 20% down if possible. I figured that guy's perspective is a bit skewed since he handles money for people who generally have quite a bit of money, but maybe it's not all that skewed.

20% down payment (maybe less if in a really expensive area)
closing costs
moving/furnishing/fixing costs
emergency cash
savings toward replacing car that will likely be replaced in 2013

These numbers are scary. Can I just stay a student forever and never grow up?
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Old 02-07-08, 08:31 PM   #11
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20% down will help you avoid PMI's and some other fees plus it will get you a better interest rate. We live in the midwest and around here 150k will get you a nice starter home while 300k will buy you 3,000sq ft in a nice neighborhood.
Well, I guess here's hoping for a good job in the Midwest. A $150k house doesn't sound too scary.
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Old 02-07-08, 08:33 PM   #12
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Well, I guess here's hoping for a good job in the Midwest. A $150k house doesn't sound too scary.
Depending on what you do for a job may or may not dictate where you will live. We had a house in middle Tennessee not long ago that we paid $60k for. 1,800sq with 1 acre over looking a pond and all the country roads your heart desired. Not many jobs though.
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Old 02-07-08, 08:33 PM   #13
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Good point, Alfster. Suddenly, the $100k suggested by someone the other day (which is what prompted this thread) doesn't sound so rediculous if I'm hoping to put 20% down if possible. I figured that guy's perspective is a bit skewed since he handles money for people who generally have quite a bit of money, but maybe it's not all that skewed.

20% down payment (maybe less if in a really expensive area)
closing costs
moving/furnishing/fixing costs
emergency cash
savings toward replacing car that will likely be replaced in 2013

These numbers are scary.
Can I just stay a student forever and never grow up?
Actually yes you can. Plenty of professional full-time students out there. But not nearly as fun as getting out into the real world. $100K seems like way more than you would actually need to purchase a home comfortably. If you were to purchase a $250K home you would want a 50K down-payment if at all possible with approx 12K set aside for all the other associated costs. Anything after that is emergency fund.

Not that I'm suggesting this is right for you, however my first house was approx 20 years old which made it a great fixer-upper. It also made it relatively inexpensive and didn't drown me in debt. Quality of life to me is way more important than an expensive, big home. I was also able to learn how to make common home repairs that I wouldn't have been able to do if I bought a new home. Within 5-10 years of working you will easily be able to afford something better.
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Old 02-07-08, 08:37 PM   #14
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Good point, Alfster. Suddenly, the $100k suggested by someone the other day (which is what prompted this thread) doesn't sound so rediculous if I'm hoping to put 20% down if possible. I figured that guy's perspective is a bit skewed since he handles money for people who generally have quite a bit of money, but maybe it's not all that skewed.

20% down payment (maybe less if in a really expensive area)
closing costs
moving/furnishing/fixing costs
emergency cash
savings toward replacing car that will likely be replaced in 2013

These numbers are scary. Can I just stay a student forever and never grow up?
You do what you can. 20% will get you out of PMI, the best move in buying a house is shorter term. We are on a 15 year note, but 12 and 10 years are even more attractive. Also look at 26 payments a year (tracking with your bi-weekly pay) instead of 12 payments, that basically gets you an extra principle payment each year.

Some closing cost can be paid by the seller.

Often moving cost are part of an employment offer, many will give a flat $10,000 for a professional position around the mid-west.

For other cost just budget the best you can. Right now our major home improvements have taken a back seat to biking and fitness pursuits, figure it's a better investment. We are starting to focus back on the house, but they can be a money pit if you don't watch close.
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Old 02-07-08, 08:37 PM   #15
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20% would go a long way towards giving you a smaller mortgage payment and eliminate some fees. But as a first time buyer you won't need that much. Probably more like 10% or less....if your credit is good. One piece of advice is to try and not overbuy for your first home. More than 90% of people don't stay in their first home( I read that when I bought my first home), so consider what your short and medium term needs are in a home and start there.
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Old 02-07-08, 08:43 PM   #16
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I figure I have three years. Any thoughts?
I think the amount of money you make during these 3 years will dictate how much you can save. It's not like you can just choose to save up a half million dollars. If you put a reasonable fraction of your net income in savings that is basically all you can do. Don't be a total cheapskate; enjoy life too.
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Old 02-07-08, 08:45 PM   #17
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Can I just stay a student forever and never grow up?
I have a friend who's pushing 50 who sort of did-- he has a nice house on a hill in Pasadena, a couple nice sportscars, a bunch of nice bikes, and his furniture looks like he's a grad student.
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Old 02-07-08, 08:49 PM   #18
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Often moving cost are part of an employment offer, many will give a flat $10,000 for a professional position around the mid-west.
It varies a lot in academia. When my GF got a job at a pretty good university in another country they just took care of it. I don't think they ever mentioned a number. I know other people who got faculty jobs at smaller places who had smaller moving allowances (and salaries) than I got as a post-doc.
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Old 02-07-08, 08:57 PM   #19
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20% down is still the standard. Since you don't know where you'll wind up, I'd target $300K as the purchase price. You may wind up much better off, you may wind up in an area where you simply can't afford to buy.

You also need to consider your time frame. Under 5 years might be tough right now to get out in the black. I opted to rent on this tour because I think the market still has some shaking out to do and I won't be here long enough to realize any positive return. If I were to be here >5 years, I'd have bought. That will depend on your location, too, to some degree.

If you're thinking a $300K home, a $100K goal is a good target. 20% = $60K, some closing costs which should amount on only another percent or less (as a buyer... when you sell, figure 10% closing costs including real estate commission!) and any repair/upgrade funds you think you might want. And trust me, no matter what house you buy - new, used, freshly upgraded, whatever - you'll be spending a bunch at Home Depot/Lowes the first year to make it your own home.

As for not putting 20% down, you can go 5 or 10% but, these days, only if you have absolutely sterling credit. That said, there are many programs out there for first time home buyers that might let you get in for as little as 5% down with no PMI (someone else will cover the MI as part of the 1st time program). If you go that route, though, remember that on the selling side, if your house doesn't appreciate, you might be bringing cash to the closing table.

I've bought two houses with no money down and two with 5% down. The two 5% ones, I did a 5/15/80 meaning I put down 5%, took a second for the 15% and a conventional 80% mortgage with no PMI. At the time it worked but with interest rates these days, I'd be better off after about 2 years with PMI since seconds (Home Equity loans) have pretty high rates now.

With all that in mind, you have to put a value on owning your own home and factor that into the equation. Let's say, for example, that you can save the 100K and find a house where that allows you to comfortable purchase/move in. In 5 years you decide to sell, but your house is only worth $335K or so, so you'll come out net $5K in the black. Had you put your $100K in some investment for 5 years, where would you be on your down payment then? Your rent payment will likely be the same or less than your mortgage payment, so those are a wash in this comparison; you've spent them in either scenario, but in one you've got your 100K + in the bank, the other you get $5K back from the deal.

How much is owning your own place worth to you?
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Old 02-07-08, 11:45 PM   #20
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Thanks for the input, peeps. I really appreciate it.
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Old 02-08-08, 02:34 AM   #21
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...Not that I'm suggesting this is right for you, however my first house was approx 20 years old which made it a great fixer-upper. It also made it relatively inexpensive and didn't drown me in debt. Quality of life to me is way more important than an expensive, big home. I was also able to learn how to make common home repairs that I wouldn't have been able to do if I bought a new home. Within 5-10 years of working you will easily be able to afford something better.
Pah! your house is new. Mine (which is my first house) is approx 80 years old in the front half and 50 years old in the back half. I've done up the lounge so I could have a warm fire and am currently working on the kitchen.


I wil have almost doubled my money in this house, due solely to the real estate boom of the last five or six years. Our boom is over, fixed term interest rates are getting close to 10% and house affordability has dropped to one of the worst in the world. In Auckland, our biggest city, the average mortgage repayments on an average value house are over 100% of the average wage!
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Old 02-08-08, 08:33 AM   #22
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Check out Bank of America. Requires a 5% down payment. You get a good rate and they pay of lot of the fees. Guy I work with just went through them and its probably the best deal in town for someone with our income. I know NJ/NY real estate is overpriced, but SoCal is ridiculous. If I didn't have family/friends here, I'd be gone...
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Old 02-08-08, 08:46 AM   #23
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For example, $50k isn't much in many places in SoCal, but it is a comfortable down payment in many places in the Midwest.
Um, Jason, $50k would buy more than half my house. However, salaries are also lower here, so that's another thing to consider. Maybe consider saving up as much as you can out there in Cali with a higher salary and then move to the Midwest.

Anyway, I bought my house at 24 years old and put 0 down. Getting the loan was no problem, and I got a decent interest rate. However, I now realize it may not have been the smartest thing to do... if I were to sell my house now, I doubt I would make much, if any, money out of it. I even pay more towards the principle than what I'm required, and I still only own 3% of my house. And the headaches of maintaining an old house isn't worth it for a single girl (not sure if you'd be willing to do that or not)--I sometimes wish I had just rented an apartment. Grass is always greener.

I guess my advice to you is, save up as much as you can now, but don't chastise yourself if you can't put 20% down. Anything is better than nothing.
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Old 02-08-08, 08:53 AM   #24
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I'm always amazed to read about real estate in other markets. Here in Indy, I came to the table with zero money down a downtown house that cost less than $100,000. I couldn't imagine paying some of the prices I hear about.
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Old 02-08-08, 09:32 AM   #25
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6K - translates to roughly 4000 a month for take home pay after SS,Medicare and State Taxes(varies a bit though). This would be higher since you can claim a couple(?) of exemptions if you own a house but 3900-4200 would be the ballpark estimate.

I have no advice on the house front though. For some reason I feel that its probably a 4-5 year commitment to one place. I am not sure if I can do that. But in your case, if you like the U and wanna be tenured, you probably could make a case for it.
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