Need Review Help-New Home buy situation -first time thread

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Topic Author
zeal4thil
Posts: 16
Joined: Tue May 16, 2017 10:55 am

Need Review Help-New Home buy situation -first time thread

Post by zeal4thil »

This is a great forum and I learned a lot . Please review my situation and provide comments .
Age :39 ,DW : 35
Current Salary 154K + 35K bonus (Average Yearly payout is around 20K due to company performance .I always get the max limit for the best performance) .Stable job and expecting a 20K increase in next 12-18 months in the base salary.
401K : - Max out 18K + 6 K Company contribution ( I have about 80K in 401k Just started 3 years back :-( )
Family : 1 Kid 8 years old
Spouse : Not Working and probably not will not for next few years due to her personal choice (which i support )
Savings Account :- 90K (contributing 3k per month )
Emergency Fund : 10K
Spousal IRA : 13K (maxing out last two years )
Stocks : 12K
1 Car Paid and other one is about 20K left at great 1.49% interest (600 per month, since i travel need a dependable car and company reimburse mileage @ $ .7 per mile which is a extra 200-250 per month additional income )
No other debit
Take Home after Tax and 401k max : ~ 100K + Bonous (15k after tax )
Currently Rental apartment : 1900 per month and expected the rent will go up due to high demand school district
What I am looking for
New Construction Town home (due to my work travel want to have the home in a closed community )
Home Price : 400K (In one of the best school district in IL and hard to find new construction in this price range .all single home gated community go north of 500-600k)
I am planning to put 20% so no PMI and less monthly outflow
As per Mortgage calculators All inclusive (PITI) is close to 2550 (My FICO score is 829)
All other expense for the month is close to 2500 ( including Car EMI)
So monthly expense from current (2000 Rent + 2500 other) is going to go up by 500 bucks (but 450 of this going back to principle as equity )
Keeping in mind of some un expected expense ,i believe my monthly Savings will be around 2500 after 401k max out ,PITI and other expenses

Please let me know the comments ,is it wise to go for this or wait for another year or two to build more savings before buying .

Are we stretching too much . any advice will be great .
Last edited by zeal4thil on Sat Feb 24, 2018 9:55 am, edited 1 time in total.
kaudrey
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Re: Need Review Help-New Home buy situation -first time thread

Post by kaudrey »

I'd go for it if I were you-seems like you are saving well and will continue to do so after this purchase.
Compound
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Joined: Mon May 26, 2014 1:32 pm

Re: Need Review Help-New Home buy situation -first time thread

Post by Compound »

I don’t see any reason to wait to buy. You’re monthly cash flow will only change by $500, allowing you to rebuild your savings or start taxable investing at a $2500/month clip. While it may not work out to exactly that if there are unforeseen housing expenses, it seems as though you have a sizable cushion for error.
Olemiss540
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Re: Need Review Help-New Home buy situation -first time thread

Post by Olemiss540 »

Seems like a stretch, but only because you have done a pretty poor job of savings up to this point. 40 and not yet 1x income for retirement? Barely enough savings for a down payment? 10k EF for a single income family of 3 in higher cost of living area? What about college costs for the 8YO?

This would be a much easier YES if you were 29 instead of 39, what has changed in the last 2 years to allow you to start accumulating savings all of a sudden? Consider funding Roth IRA for yourself as you can invest it in a safe investment and use the contribution amount in case of emergency while you build retirement funds without missing out on tax advantaged space.

Your spouses income (flowing directly to retirement and college savings) would certainly help make your financial future brighter, maybe buy at that point?
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
chevca
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Joined: Wed Jul 26, 2017 11:22 am

Re: Need Review Help-New Home buy situation -first time thread

Post by chevca »

You can afford it. If you can still save $2500/month, I'd say you're doing well. If the spouse goes back to work in a few years, that would only help things affordability wise. If it's what you guys really want, go for it.
Topic Author
zeal4thil
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Joined: Tue May 16, 2017 10:55 am

Re: Need Review Help-New Home buy situation -first time thread

Post by zeal4thil »

Olemiss540 wrote: Sat Feb 24, 2018 6:30 am Seems like a stretch, but only because you have done a pretty poor job of savings up to this point. 40 and not yet 1x income for retirement? Barely enough savings for a down payment? 10k EF for a single income family of 3 in higher cost of living area? What about college costs for the 8YO?

This would be a much easier YES if you were 29 instead of 39, what has changed in the last 2 years to allow you to start accumulating savings all of a sudden? Consider funding Roth IRA for yourself as you can invest it in a safe investment and use the contribution amount in case of emergency while you build retirement funds without missing out on tax advantaged space.

Your spouses income (flowing directly to retirement and college savings) would certainly help make your financial future brighter, maybe buy at that point?
Had some bad personal episodes in the initial working years and revamped my life in the past 3-4 years . anyway better now than never so started saving and planning now . I know i will be almost depleting my savings for the down payment and will be reducing the cash flow by 500 .but i believe I still some more room to regroup in few years that's why i want to discuss this here to get opinions

Thanks for the feedback .I never want to be house poor situation .
Olemiss540
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Re: Need Review Help-New Home buy situation -first time thread

Post by Olemiss540 »

You have definately turned it around recently, but the hardest part of maintaining your recent success is patience with regards to personal finance and delayed gratification.

Just because you can justify a decision doesn't make it a smart one, and I would rather be a year late (with a bigger savings account) than a year early (and go back to being broke).

Good luck!
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
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Watty
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Re: Need Review Help-New Home buy situation -first time thread

Post by Watty »

Financially you should be fine and if you are careful with your spending for the first six months you should be able to quickly replenish your liquid cash. If the townhouse is still under construction then it could be a few months until it is completed and if you live on a tight budget until then your cash situation could be a bit better by the time the sale closes.

You will also need to wait a while to buy more furniture for your new place and if it does not come with curtains then you may need to use inexpensive window blinds for a while.

The only thing that I might question would be.
zeal4thil wrote: Thu Feb 22, 2018 9:00 pm Home Price : 400K (In one of the best school district in IL and hard to find new construction in this price range .all single home gated community go north of 500-600k)
A big question would be if you will be happy living in the townhouse for the next ten+ years until your kid is through high school. Some people have strong preferences for single family homes and if you are likely to want to move to a single family home when you can afford it then it might be better to wait another year to buy a single family home.

In your long term planning you should expect the HOA fees to increase substantially. New developments often have few large expenses in the first ten years and the developer will often set the HOA fee as low as possible to make it look more attractive. The problem is that it may not be building up adequate reserves for future large expenses like new roofs in 25 years.
Topic Author
zeal4thil
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Joined: Tue May 16, 2017 10:55 am

Re: Need Review Help-New Home buy situation -first time thread

Post by zeal4thil »

Watty wrote: Sat Feb 24, 2018 7:51 am Financially you should be fine.

A big question would be if you will be happy living in the townhouse for the next ten+ years until your kid is through high school. Some people have strong preferences for single family homes and if you are likely to want to move to a single family home when you can afford it then it might be better to wait another year to buy a single family home.

In your long term planning you should expect the HOA fees to increase substantially. New developments often have few large expenses in the first ten years and the developer will often set the HOA fee as low as possible to make it look more attractive. The problem is that it may not be building up adequate reserves for future large expenses like new roofs in 25 years.
Thanks for the insights . As of now we are fine with the town home as we have just 3 in the family and no more additions planned .but I can't predict whether this will be enough for us in the future for ever . My Plan is if we decided to move for another home in 5-6 year i would have saved around 130-150k by then and use that for down payment and let this as rental .I know lot of ifs and buts in this plan but i beliive its possible if i plan careful .

My Kids college fund is something i already secured as anproperty investment in overseas (close to 250K fully paid and generating close to 500 per month).I am not counting anything from this for my plan by design as i fully reserve this and any future earnings out of it to go to my kid
cherijoh
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Location: Charlotte NC

Re: Need Review Help-New Home buy situation -first time thread

Post by cherijoh »

zeal4thil wrote: Thu Feb 22, 2018 9:00 pm Currently i do not have
Did you forget to finish your thought?
Topic Author
zeal4thil
Posts: 16
Joined: Tue May 16, 2017 10:55 am

Re: Need Review Help-New Home buy situation -first time thread

Post by zeal4thil »

cherijoh wrote: Sat Feb 24, 2018 9:30 am
zeal4thil wrote: Thu Feb 22, 2018 9:00 pm Currently i do not have
Did you forget to finish your thought?
Oops my bad .didn't realize it was not deleted .
nothing more than what i have said in the above posts .Fixed in the first post .
Topic Author
zeal4thil
Posts: 16
Joined: Tue May 16, 2017 10:55 am

Re: Need Review Help-New Home buy situation -first time thread

Post by zeal4thil »

Thanks for all the advice guys . I finally went with the home and the closing is tomorrow . Got some extra bonus this year etc...and after closing my situation cash reserve will be 35K (not including the Stocks ,401k etc) and expecting a 2500 per month free cash flow after all expenses (plus avg 20k bonus per year with 401k max out ) . i could have stretched and gone for 15 Yr Mortgage ,but that will add another 800 per month to the cash flow which i want to avoid now to have the flexibility of cash flow . I do want to convert to 15 year as soon as possible (may be in a year max) .

Now want to focus to build some more investment portfolio to balance .will start reading more to understand the various investment options .
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