[Should I Buy a] House?

[xynder]

Age: 27
Income: About $95k
Employment: Federal government/tenured civil service, very good job stability
401K: About $46,000
Roth IRA: $15,000

I max my Roth IRA and 401K every year.

I am currently renting for about $900/month. However I am wondering if it is a good idea to buy a house as the payment would be the same or less for a reasonably priced home. I do not have an emergency fund or down payment saved, but I can withdrawal my basis from the Roth IRA (about $13,000) to cover the 3.5% for a first-time homebuyer loan, or I could take a loan from my TSP for the full 20%, eliminating PMI. TSP loans are not subject to any penalty, and the interest (1.5%) on the loan is paid back to me, so the loan is free (except the opportunity cost of having it invested).

Thoughts?

[zebrafish]

I'm a little more conservative than some on this board, but I would NOT take money out of retirement to purchase a home OR buy a house w/o putting 20% down.

This 20% protects you against the risk of unforseen life changes/market changes, etc. that leave you the flexibility to sell and leave the house if necessary. If you over-leverage to rush into a house and you need to leave for some reason (you get married and the Mrs. hates the house, the house has some issue you hate, the neighbors are insane, etc.), you could really be in a pinch if you have no equity in the house.

Take your time and you lessen the chances of getting really burned. I cannot tell you how many times I've had "house" fever, "computer fever", this fever or that fever, and I've learned to slow down and this has really benefitted me over time.

[zebrafish]

Also, you have no emergency fund.

If you put no equity on the house and borrow everything to get in and have no cash, the first thing that will happen is that you have a roof leak that will require $10,000 in repair costs that you don't have...

[Clark & Addison]

If I were in your shoes, I would cut back for a short period on the retirement savings in order to build an emergency fund and save for the down payment on a house.

[Rainier]

Agree with the above. You need more money for a down payment and e fund first.

[DiscoBunny1979]

In my opinion, one should not buy a house just because interest rates are low. One buys are house because they have a need or want to own one. What would qualify as a need or want? I would buy house if I had owned a collection that needed a nice place to be displayed (like a doll collection or art work), buy a house if you own a dog, buy a house if you have children and want them to have 'stability' in a home life, buy a house if you enjoy gardening, buy a house if you need to protect assets because in the state you live there's a Homestead exemption against lawsuits, buy a house if you anticipate needing State or Federal Medical Benefits whereas the State/Federal program allows for home ownership, like California, buy a house because you want to paint the walls black because you're into Goth and your current landlord says they won't allow any cosmetic changes.

There are lots of reasons to buy a house, but interest rates, for the sake of rates being low is not one of them.

[greg24]

IMO, buying a house is a lifestyle decision. Your only stated reason for buying a house was financial. What are the odds that you'll want to move sometime in the next 5 years? What if you get married, and your new partner wants a different kind of house than the one you own? Losing 6% of the sales price in transaction fees is a killer.

[celia]

I am currently renting for about $900/month. However I am wondering if it is a good idea to buy a house as the payment would be the same or less for a reasonably priced home.

If you plan to stay in the house at least 5 years after buying it and you can get the payments to be $900, you might as well be building equity. Of course, there will be expenses in addition to your mortgage: maintenance/upgrades, insurance, property taxes.

Now for the down payment:

Age: 27
Income: About $95k
Employment: Federal government/tenured civil service, very good job stability
401K: About $46,000
Roth IRA: $15,000

I max my Roth IRA and 401K every year.

This implies you have been building your accounts for 3 years. If you decrease your 401k and Roth contributions, you should easily be able to save $40-50k in 3 more years, or even more if you look at this as your short-term goal. That will make a good down payment and emergency fund. During that time, you should realize WHY you want the house, for other than financial reasons.

[ExcelJunkie]

I'm a little more conservative than some on this board, but I would NOT take money out of retirement to purchase a home OR buy a house w/o putting 20% down.

This 20% protects you against the risk of unforseen life changes/market changes, etc. that leave you the flexibility to sell and leave the house if necessary.

Agree with zebrafish. The wife and I did not put 20% down and are now stuck. Won't make this mistake ever again, and hope you don't either.

Also, I am not aware of your expenses, but would advise that saving for your emergency fund and a downpayment should happen while continuing to max your IRA and 401k.

Best of luck!

[Default User BR]

buy a house if you have children and want them to have 'stability' in a home life

You don't have to have kids to want stability. Some of us like it for ourselves.


Brian

[porcupine]

I'm a little more conservative than some on this board, but I would NOT take money out of retirement to purchase a home OR buy a house w/o putting 20% down.

This 20% protects you against the risk of unforseen life changes/market changes, etc. that leave you the flexibility to sell and leave the house if necessary.

Agree with zebrafish. The wife and I did not put 20% down and are now stuck. Won't make this mistake ever again, and hope you don't either.

Also, I am not aware of your expenses, but would advise that saving for your emergency fund and a downpayment should happen while continuing to max your IRA and 401k.

Best of luck!

I am definitely on the side of the 20%ers. In fact, with that good an income, I am a bit surprised that OP has nothing saved in either an EF and/or house down payment fund.

That said, don't forget that at the top of the market, even a 20% down failed to prevent folks from being stuck in many segments of the market. On the flip side, those who did not even have a down payment managed to wiggle out home free, as they had (literally) nothing to lose.

- Porcupine

[Harold]

I am currently renting for about $900/month. However I am wondering if it is a good idea to buy a house as the payment would be the same or less for a reasonably priced home.

http://www.bogleheads.org/forum/viewtopic.php?f=2&t=100993