First Home- Plan Me

[AllLongMoney]

Hello,

I know y’all are my people, and can help.
Want to buy my first home, with goals and details below:

Want to maintain 25%+ savings towards retirement
Want to purchase, if staying 5+ years is better than renting
(Used various calculators, and that’s the conclusion). Basically believe there’s a 4 year break even, with rents projected to increase and my neighborhood a place private equity/investors are starting to buy up/drive prices up.

35, single, no kids
130k income- steady, and conservative est. 3% annual increase
220k Retirement accounts
130k taxable (55k money market, remainder VTI)
Currently max 401k and Roth IRA, 16k taxable (8k to VTI, 8 to mm)

I’m overwhelmed in the HomeBuying process.
Considering 270k-330k to be conservative, and still maintain my savings rate as well as wiggle room for increases in tax, home repair, etc. 20% down.

Anticipating on 300k home that’s 60k, plus 6% close cost ~80k.
With high interest rates, is it better to put down a larger down payment (still have another 30-40k)?
I could use from taxable account VTI with 10k emergency fund remaining.

Or should I think of the opportunity cost /rate of return delta - 8-9% on VTI being more advantageous, and only 20% down on home to avoid mortgage insurance?

Any other things I’m overlooking in my assumptions?

Thank you.

[LittleGreenSoldiers]

Don’t be overwhelmed in the home buying process. Home ownership, I believe is an important part to building wealth.

You should be able to deduct any mortgage interest from your gross income. You most likely already know this.

You will always need someplace to live. Unless foreclosed on you can alway live in your primary residence. I consider myself a true Boglehead, but it’s hard to live in a 3 fund portfolio if/when things get rough. Consider your primary residence as the “hidden fourth pillar" of our portfolio for wealth building.


“Any other things I’m overlooking in my assumptions?” You are most likely more restricted on what you can do with a remodel. i.e. Remodel to your liking, or decide to turn the property into a rental investment.
Sell your primary residence and purchase a new another property with a huge capital gain exemption.
At some point later your children, or any other beneficiaries will not be able to inherit a property you are renting.
Just to name a few.

[2022_FIRE]

Sounds like you’re starting to have a bit of paralysis by analysis. Looks like you understand that the payback is likely to be in the five year (+/-) range. Your decision whether to buy should be based on your best guess of the likely number of years you’ll be in that house.

If you decide to buy, keep it simple. Put down 20% and take out a 15 year mortgage. Find the sweet spot (for you) on points vs rate.

Also don’t underestimate the emotional security and positive behavioral incentives that homeownership can bring about.

[Shawn_]

I went with a 15 year mortgage, that has kept me from making bad decisions with money I would have kept.
I know a banker who had a client thank them suggesting a shorter term mortgage.

But then on the opposing side...
My mortgage rate was locked in low, I could have easily stuck with a 30 year and made sound investments.
And it's easier to pay of a longer term mortgage sooner by paying additional principle than it is to squeeze finances for a shorter term mortgage.

And in hindsight from my own home buying/ownership journey:
1) Take your time and make sure you have a Realtor who works for you (and not themselves).
2) Don't wait (in a general sense), I missed out on some very excellent home ownership opportunities and have settled for a slightly smaller house than I would like as a result (I suppose I could describe it as I got priced out).
3) Consider compound equity and home value growth.
4) Set aside funds for repairs, anticipate them in general. Worst case, you fix them as they come and they don't return (if done right). Best case, you don't encounter any big issues.
5) If buying in a HOA, get a copy of the HOA agreement early to see restrictions/etc.
6) Get set up in a realtor's portal early even just for browsing/alerts, most realtors are happy to set you up to passively look as a prospective client.
7) Look for small touches that indicate build quality/care. Door frames, appliance grades, maybe take a close look at what's going on the attic. I'm constantly finding corners cut in my home's build and some are shocking.

[invest4]

* Calculators work under certain assumptions / inputs…reality may turn out differently.

* The metric I use for buying a house is no more than 3x income and 20% down.

* In most cases, I strongly prefer a 30 year mortgage and the benefits it provides.

* Hedge against inflation

* Liquidity

* Leverage for further investments

A 15 year mortgage puts more pressure on your finances. The 30 allows you to pay more if you like, and throttle back if needed. Furthermore, I would also take the bet that interest will start moving downward and you will have opportunities to refinance at lower interest rates.

Take command of your transaction costs. You do not need a broker. The most important person for you is a real-estate attorney and getting inspection, etc.

Make sure you also consider the additional costs that may come with a home…furniture, appliances, technology, yard machines, etc.


Best wishes.