Home buying/interest rates/nervous

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Paddington79
Posts: 50
Joined: Sun Jun 23, 2013 12:51 pm

Home buying/interest rates/nervous

Post by Paddington79 »

Hello All,
New to the board and hoping to get good insights here!
My husband and I are 34 and looking for our first home, in the Northeast. We are in a rather pricy area with low inventory right now.
As for us: We have saved $120,000 in a liquid account.
We are looking at homes in the $450,000 range.
My question:

1. Is $20,000-$30,000 enough to keep in an emergency fund? We make roughly $170,000 per year but it varies slightly as my husband owns his own business. We are aiming to put $100,000 down.
2. How fast do you think interest rates will rise? We really want to wait to accumulate a good down payment and a cushion for emergency savings, but as I read more about interest rates creeping up, I get nervous that we've "missed out" by waiting too long -- or that we need to act fast before they skyrocket.

This is our first home purchase so we're antsy and want to make sure to buy responsibly--but not lose out on low rates. Any advice is helpful! Thank you.
Twins Fan
Posts: 2775
Joined: Fri Mar 08, 2013 12:02 pm

Re: Home buying/interest rates/nervous

Post by Twins Fan »

Welcome tothe forum!

We can't really answer those questions for you... Is $20-30K enough of an emergency fund, we don't know your situation. It is better than many folks out there have. How fast will interest rates rise, no one in here knows for certain.

If you're not quite comfortable buying yet, wait a year, and end up with a 4.5% mortgage, it's not the end of the world. Ask the folks that paid 15-18% back in the day if you missed out on low rates. :D

I'd say it's more of a comfort deal, as in buy when you're comfortable buying and don't feel like you're rushing into anything.
lhl12
Posts: 728
Joined: Mon May 27, 2013 8:24 am

Re: Home buying/interest rates/nervous

Post by lhl12 »

How much do you think you will save each year on your $170,000 income? If you think you will be saving $20,000 or more annually, then I think $20-30,000 in your emergency fund is fine in the short term. I would aim to build it back up some more, but within a year you should be fine. (As important, if not more so, is building your retirement accounts).

If you are breaking even or only saving a little (which seems unlikely given how much you've saved already) then $20-30,000 might be pushing it a bit.

It does seem that rates are headed higher over the next year or so, but it is very hard to predict how much they'll move, how quickly, and what short-term effect that will all have on home prices in your area. My advice would be to wait for the home you really want rather than jump at something you might not be 100% happy with. Even if it comes with a slightly higher interest rate, it will be worth it to you in the long run.
squirm
Posts: 4239
Joined: Sat Mar 19, 2011 11:53 am

Re: Home buying/interest rates/nervous

Post by squirm »

Nobody can predict where interest rates will go with certainty. It's usually some sort of educated guesswork, which is what I'll give you.

Rates could rise further if the fed is losing control of the bond and MBS market. But I would think rates to cool off for a while they've rising over 30basis points, but again, just a technical guess...it would be very unusual for rates to continue to increase without some sort of pull back in yield. There is also the notion that if rates continue to increase, home prices will cool off, so take that into account too. Although on the other hand our fed chair said they believe housing can absorb the increase in rates without a decrease in demand, so maybe prices won't be affect by much. I just bought a house myself, but was fortunate enough to lock in the rates before the big increase...it was just lucky timing. Although you have to ask yourself what would you do if rates continue another half a point higher, would you be able to buy the house you want? If yes, then perhaps you can continue to search, if no perhaps you can speed up your search.

An emergency fund is about 8 months of needed expenses, so do you have that? When we bought our house, I wanted to put the least down payment that was allowed without any penalty or additional fees. I was able to go slightly over the conforming rate. I did this because I believe mortgage rates are artificially low, and believe that in time, those extra dollars I didn't put down will be able to put to use somewhere else earning a higher yield. I also got a 30 year loan, usually I like the 15 year, but again with rates artificially low, I wanted to take advantage of paying back with inflated dollars. In addition, I think the extra money can be put to better use.

Rates are still low, but keep an eye on them while you shop. The data that will have the biggest impact on rates will be the monthly jobs reports.
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Phineas J. Whoopee
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Joined: Sun Dec 18, 2011 5:18 pm

Re: Home buying/interest rates/nervous

Post by Phineas J. Whoopee »

Welcome to the forum!

To get this out of the way: neither I nor anybody else can accurately predict movements in the credit markets.

Two things in your posting make me want to respond:

1) Closing costs. Between your cash, your intended down payment, and your intended emergency fund I don't see any provision for closing costs. They vary locally, but be prepared for them to be a lot. Tens of thousands of a lot, potentially.

2) You're feeling pressured to act. That's a bad psychological place to be when entering negotiations. I'd step back until you're not feeling the pressure. A poor bargain on a purchase price, or buying the wrong house or in the wrong neighborhood, will be much more costly than a higher interest rate - and that's if they in fact go up materially.

Hope that helps.

PJW
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