Life Changing Decision [Mortgage Down Payment]

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Topic Author
bg5
Posts: 171
Joined: Mon Jan 15, 2018 11:07 am

Life Changing Decision [Mortgage Down Payment]

Post by bg5 »

Guys and Gals....I really could use your advice as we just sold our house and are walking with $191,000 after closing. My Grandma just died and left me about $60,000 so in total we have around 250k liquid cash and my wife and I want to know what to do with it.

We just have signed paperwork to buy a house for $315,000 and we are not sure how much to put down. My thought was to put down 250K which would leave us with a house payment of $700 a month. After figuring out our expenses we could easily save 3K a month and probably 4K if we really tried hard. With this amount of savings each month we could vacation and do fun things but still allow us to easily contribute to our retirments. We currently contribute about $32 annually (combined) into Roth IRA, 403b, and 457B and have no plans to stop and might bump that up a bit to the $38,000 range. Kids will go to state universities and we think we can easily cash flow their college and hopefully the youngest will be able to use alot of what we have saved now.

I have also thought about investing 100K and putting the rest down but part of me just wants to put it on the house and eliminate alot of debt. I understand interest rates are very low but the bottom line is that we can probably easily live off our pensions and SS alone in retirement and most likely will give alot of our retirement accounts to the kids someday. I am sure we will spend some but our income will be very high just on pensions and SS when we get older.

I know that many here will say to invest some of it which I agree may not be a bad idea but I always hear people say that the key to retirement for many is a paid off house and we could probably achieve that in 5 years while still contributing $32 annually into retirement accounts. I feel like I have alot in the market now and my pension is heavily based off market returns as well to keep it stable.

Here is some info below

Im 39 and wife is 35

Combined Income = $145,000 annually with a 2% increase each year
Combined Retirement Accounts = $250,000
Debt = none other than mortage on new house that I discussed above
Children - Ages 12,8 and 1
College savings = $20,000
HSA = $6000
Emergency Fund = 20K

Estimated monthly expenses next 2 years = $3500-$3900

WE are both teachers and will hopefully recieve pensions of our highest 3 years with COLA and if either dies the other gets it for life. We are also allowed to get SS.

Part of me says put it all on mortage and continue to invest what we normally do but the part says maybe I should invest alot more and have a higher mortage rate.

Any thoughts would be helpful
Last edited by Flyer24 on Sat May 16, 2020 11:24 pm, edited 2 times in total.
Reason: title
System1
Posts: 18
Joined: Thu Sep 12, 2019 10:08 pm

Re: Life Changing Decision

Post by System1 »

Based on your retirement and pension plans, I would agree with the high down-payment on the mortgage. Its a guaranteed return of 3% on that money and it allows you liquid flexibility as your kids get older.
BeneIRA
Posts: 843
Joined: Sat Nov 29, 2014 8:43 pm

Re: Life Changing Decision

Post by BeneIRA »

You can absolutely afford this house without question even setting aside the inheritance and the equity from your home sale. Good for you living below your means. My first instinct is that you should go ahead and put down the $250,000 on the house as a down payment. With interest rates collapsing, a guaranteed 3% or so return on your money is not something to sneeze at in this market. Investing that money is far from certain to yield a greater return. You will quickly be able to save a bunch of money since your mandatory expenses are so low. With your retirement combined with generous pensions, you are in great shape for retirement.

My only question would be if this house is move-in ready or are there tens of thousands of dollars in repairs or improvements that you plan on doing? The calculus changes if you are going to be doing an extensive renovation, but outside of that, I approve your plan. Congratulations.
Topic Author
bg5
Posts: 171
Joined: Mon Jan 15, 2018 11:07 am

Re: Life Changing Decision

Post by bg5 »

The house we are buying is very nice but dated.....with that being said we have 3 kids who at times can tear things up a bit. So my wife and I want to update a few things eventually but not right now.

My thought was I could easily save money when we want to do things like floors...kitchen...etc.

We are moving out of a beautiful lake home that we completely redid.....one thing we realized is when your house is super nice you gotta watch kids and their friends like hawks so things do get messed up.

I am kind of liking the idea of letting kids grow up a bit before we redo some of those things
TMQ206
Posts: 20
Joined: Wed Jan 15, 2014 6:59 pm

Re: Life Changing Decision

Post by TMQ206 »

When I’ve faced decisions like this (including a very similar scenario recently), and the options seem equally reasonable and mostly up to personal preference, I’ve typically committed to a bit of each. Maybe put down 125k for the new home, invest 75k, and twiddle your thumbs with the remaining 50k, free to apply how you see fit as circumstances change in the future. Then, if you change your mind, you’ve only partially committed to the previous path.
Last edited by TMQ206 on Sat May 16, 2020 11:30 pm, edited 1 time in total.
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Watty
Posts: 20889
Joined: Wed Oct 10, 2007 3:55 pm

Re: Life Changing Decision

Post by Watty »

bg5 wrote: Sat May 16, 2020 10:20 pm Combined Retirement Accounts = $250,000
Debt = none other than mortage on new house that I discussed above
Children - Ages 12,8 and 1
College savings = $20,000
HSA = $6000
Emergency Fund = 20K
You did not mention having an emergency fund. With three kids and all this oddness in the world having a hefty one would be good and it should be invested in something very conservative.
e5116
Posts: 619
Joined: Mon Oct 05, 2009 11:22 am

Re: Life Changing Decision

Post by e5116 »

Watty wrote: Sat May 16, 2020 11:08 pm
bg5 wrote: Sat May 16, 2020 10:20 pm Combined Retirement Accounts = $250,000
Debt = none other than mortage on new house that I discussed above
Children - Ages 12,8 and 1
College savings = $20,000
HSA = $6000
Emergency Fund = 20K
You did not mention having an emergency fund. With three kids and all this oddness in the world having a hefty one would be good and it should be invested in something very conservative.
I agree in theory, but if they're both teachers with tenure, that's basically the most stable job you can have in this current job market. Still having an EF is wise, but might not need to be outsized if that's the case. I think I agree with poster above about splitting the difference ($125k down payment) to give flexibility for future. Can always contribute a lot more later if desired.
ModifiedDuration
Posts: 165
Joined: Sat Dec 05, 2015 4:33 pm

Re: Life Changing Decision

Post by ModifiedDuration »

Watty wrote: Sat May 16, 2020 11:08 pm
bg5 wrote: Sat May 16, 2020 10:20 pm Combined Retirement Accounts = $250,000
Debt = none other than mortage on new house that I discussed above
Children - Ages 12,8 and 1
College savings = $20,000
HSA = $6000
Emergency Fund = 20K
You did not mention having an emergency fund. With three kids and all this oddness in the world having a hefty one would be good and it should be invested in something very conservative.
Isn’t the last line item listed an Emergency Fund of $20,000?
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JoeRetire
Posts: 5966
Joined: Tue Jan 16, 2018 2:44 pm

Re: Life Changing Decision [Mortgage Down Payment]

Post by JoeRetire »

bg5 wrote: Sat May 16, 2020 10:20 pm Guys and Gals....I really could use your advice as we just sold our house and are walking with $191,000 after closing. My Grandma just died and left me about $60,000 so in total we have around 250k liquid cash and my wife and I want to know what to do with it.

Im 39 and wife is 35

Combined Income = $145,000 annually with a 2% increase each year
Combined Retirement Accounts = $250,000
Debt = none other than mortage on new house that I discussed above
Children - Ages 12,8 and 1
College savings = $20,000
HSA = $6000
Emergency Fund = 20K

WE are both teachers and will hopefully recieve pensions of our highest 3 years with COLA and if either dies the other gets it for life. We are also allowed to get SS.
Sorry about your grandma's passing.

Put 20% down on the new home.

Consider beefing up the college savings for your children. That would be a nice "present" from grandma.
Consider increasing your emergency funds. In these times, the flexibility provided by these funds can be very important.
Invest the rest according to your asset allocation plan.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
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Watty
Posts: 20889
Joined: Wed Oct 10, 2007 3:55 pm

Re: Life Changing Decision

Post by Watty »

ModifiedDuration wrote: Sun May 17, 2020 5:29 am
Watty wrote: Sat May 16, 2020 11:08 pm
bg5 wrote: Sat May 16, 2020 10:20 pm Combined Retirement Accounts = $250,000
Debt = none other than mortage on new house that I discussed above
Children - Ages 12,8 and 1
College savings = $20,000
HSA = $6000
Emergency Fund = 20K
You did not mention having an emergency fund. With three kids and all this oddness in the world having a hefty one would be good and it should be invested in something very conservative.
Isn’t the last line item listed an Emergency Fund of $20,000?
:oops: Yep.

With three kids it would still be good to have six months expenses in an emergency fund even though their jobs seems secure. It would also be good to have a car fund to be able to pay cash when they need to replace a car.
ModifiedDuration
Posts: 165
Joined: Sat Dec 05, 2015 4:33 pm

Re: Life Changing Decision [Mortgage Down Payment]

Post by ModifiedDuration »

I guess I would take a different path than what some of the others suggest.

With two relatively secure jobs and only $3,500 -$3,900 in monthly expenses, I would go along with your first thought and put the whole $250,000 in the down payment.

With your emergency fund of about 6 months expenses already in place, I would then use the additional $3,000 a month you will have to pay off the mortgage within 2 years.

After that is done, I would then use the additional $3,000 a month to build up your college savings accounts.

After you get the college situation squared away (and since you have your retirement in good shape), you’re really on Easy Street.

If the need for a new car or house repair/renovation arises, than just plan for it and delay the extra $3,000 a month to the mortgage or college savings for a while.

You’re in a great position. Nice job. Congrats.
Last edited by ModifiedDuration on Sun May 17, 2020 8:58 am, edited 1 time in total.
supersecretname
Posts: 143
Joined: Tue Sep 01, 2015 2:33 pm

Re: Life Changing Decision [Mortgage Down Payment]

Post by supersecretname »

I would not put the full 250k as a down payment. It's just not necessary.

Your cash flow is not a problem, so there isn't a need to only have a $700 monthly payment. I like the idea of putting the 60k towards college for the 3 kids now.

how about 100k down, 60k college, 20k savings for new car, 25k house renovations, 10k more efund, 5k vacation (when appropiate), 30k taxable.
Golf maniac
Posts: 586
Joined: Wed Dec 27, 2017 2:02 pm
Location: Florida

Re: Life Changing Decision [Mortgage Down Payment]

Post by Golf maniac »

If it were me I would put down 40%, get a 15 year mortgage, and invest the rest. One thing I learned is time is a great ally for making money. While the money I invested in my 20’s and 30’s was a lot less than what I invested in my 40’s and 50’s I made a lot more on those early investments.

40% down gets you the best rates and a 15 year mortgage gets it paid off by the time you are 55. You need to be maxing your retirement and if anything is left save for college. Don’t let this time slip away, you may not need the money in retirement but think of what you can do with the money to help family or charities. Plus can any of us save enough for potential medical issues? It is a great feeling to be able to help others and be secure enough to do what you want as you get older.
babystep
Posts: 245
Joined: Tue Apr 09, 2019 9:44 am

Re: Life Changing Decision [Mortgage Down Payment]

Post by babystep »

bg5 wrote: Sat May 16, 2020 10:20 pm Guys and Gals....I really could use your advice as we just sold our house and are walking with $191,000 after closing. My Grandma just died and left me about $60,000 so in total we have around 250k liquid cash and my wife and I want to know what to do with it.

We just have signed paperwork to buy a house for $315,000 and we are not sure how much to put down. My thought was to put down 250K which would leave us with a house payment of $700 a month. After figuring out our expenses we could easily save 3K a month and probably 4K if we really tried hard. With this amount of savings each month we could vacation and do fun things but still allow us to easily contribute to our retirments. We currently contribute about $32 annually (combined) into Roth IRA, 403b, and 457B and have no plans to stop and might bump that up a bit to the $38,000 range. Kids will go to state universities and we think we can easily cash flow their college and hopefully the youngest will be able to use alot of what we have saved now.

I have also thought about investing 100K and putting the rest down but part of me just wants to put it on the house and eliminate alot of debt. I understand interest rates are very low but the bottom line is that we can probably easily live off our pensions and SS alone in retirement and most likely will give alot of our retirement accounts to the kids someday. I am sure we will spend some but our income will be very high just on pensions and SS when we get older.

I know that many here will say to invest some of it which I agree may not be a bad idea but I always hear people say that the key to retirement for many is a paid off house and we could probably achieve that in 5 years while still contributing $32 annually into retirement accounts. I feel like I have alot in the market now and my pension is heavily based off market returns as well to keep it stable.

Here is some info below

Im 39 and wife is 35

Combined Income = $145,000 annually with a 2% increase each year
Combined Retirement Accounts = $250,000
Debt = none other than mortage on new house that I discussed above
Children - Ages 12,8 and 1
College savings = $20,000
HSA = $6000
Emergency Fund = 20K

Estimated monthly expenses next 2 years = $3500-$3900

WE are both teachers and will hopefully recieve pensions of our highest 3 years with COLA and if either dies the other gets it for life. We are also allowed to get SS.

Part of me says put it all on mortage and continue to invest what we normally do but the part says maybe I should invest alot more and have a higher mortage rate.

Any thoughts would be helpful
I like the idea of bumping up retirement contributions. Do your plans allow going up-to 19500*2+6000*2 = 51,000 ? I would try to bump-up as much as I can. I would consider 60k for college (matches from Grandma). If you match equity in the new house vs the previous house then you could down-payment 191 but I would rather do 150k down for mortgage + 40k to savings. These larger savings would increase the EF and make it more comfortable to do retriment contributions. Given your pensions and SS, post-tax accounts will be extremely valuable in the long run. I would make sure Roth and HSA get the full attention they deserve.
Topic Author
bg5
Posts: 171
Joined: Mon Jan 15, 2018 11:07 am

Re: Life Changing Decision [Mortgage Down Payment]

Post by bg5 »

As teacher we can both contribute up to $39,000 in tax deffered accounts. We both have a 403b and 457b. We also both max out our Roth IRA and HSA.

My thoughts are starting to be in the area of putting down $190k which would leave us a payment around $900 a month and use the $60,000 for income replacement and basically put $60k down in our tax deffered accounts this year starting now by Dollar Cost Averaging every two weeks with our pay checks.

So I would put 30k into my 403b and 457b

She would put 30K into her 403b and 457b

WE already maxed out our Roth IRA's this year and will have maxed out the HSA by the end of the year..


Does that seem like a decent plan???

We think we can have the house paid off in 7 -10 years max but that is not a huge priority now but want it paid off by the time I am 50. College is not a huge concern because we feel we can easily cash flow it with all of them going to local state univ in Michigan which has alot of great univ.
gch
Posts: 88
Joined: Thu May 30, 2019 2:47 pm

Re: Life Changing Decision [Mortgage Down Payment]

Post by gch »

OP, completely unrelated to your initial mortgage question, but do be careful about contributing too much to traditional IRA/403/457.

My parents were in a similar situation to you (good savers+SS+teacher pension) and have so much money in trad IRA/457/403 that when RMDs kick in in a few years they will be making more than they did over their lives and thus paying more in taxes. We’re actually doing Roth conversions all the way up to the 22% bracket.

I will say they had a fairly sizable inherited IRA (~400k) and my mom was a CPA for the school district so her highest 3 years salary is higher than norm so not exactly apples to apples, but they also didn’t contribute to the 457/403/IRA as young as you are so just make sure you try to fully calculate the overall tax picture (although the future is clearly unknown).
babystep
Posts: 245
Joined: Tue Apr 09, 2019 9:44 am

Re: Life Changing Decision [Mortgage Down Payment]

Post by babystep »

bg5 wrote: Sun May 17, 2020 7:43 pm As teacher we can both contribute up to $39,000 in tax deffered accounts. We both have a 403b and 457b. We also both max out our Roth IRA and HSA.

My thoughts are starting to be in the area of putting down $190k which would leave us a payment around $900 a month and use the $60,000 for income replacement and basically put $60k down in our tax deffered accounts this year starting now by Dollar Cost Averaging every two weeks with our pay checks.

So I would put 30k into my 403b and 457b

She would put 30K into her 403b and 457b

WE already maxed out our Roth IRA's this year and will have maxed out the HSA by the end of the year..


Does that seem like a decent plan???

We think we can have the house paid off in 7 -10 years max but that is not a huge priority now but want it paid off by the time I am 50. College is not a huge concern because we feel we can easily cash flow it with all of them going to local state univ in Michigan which has alot of great univ.
That sounds like a great plan. I agree with gch below that you may be lucky enough that you may pay slightly more in taxes.

But let us take an example to see what might be an additional tax. MFJ tax brackets as of now.

Code: Select all

 Tax Rate  Income Range
 22%         78k-168k
 24%         168k-321k
Currently, you are saving 22% in federal taxes on your 39k contributions. Let us say your retirement income is 268k then additional tax paid will be 24%-22% = 2% of 100k which will be 2k. Not a big deal. But as the saying goes don’t count your chickens before they hatch. Anything can happen from now till you retire so keep saving rather than giving to uncle sam.
Findourway1
Posts: 51
Joined: Tue Apr 02, 2019 8:18 am

Re: Life Changing Decision [Mortgage Down Payment]

Post by Findourway1 »

My uncle was an educator and was a good source for information in the past. Per his research, his 403b plan was to be avoided due to fees and I learned more details from https://ritholtz.com/2019/03/401ks-versus-403bs/. So check the fees on your accounts first.

Others have given good info and I would echo that below:

- Pay a down payment ~20-25%
- Beef up your emergency fund to ~6 months living expenses
- Rest in a mix of tax deferred and taxable accounts

Good luck!
babystep wrote: Sun May 17, 2020 9:38 pm
bg5 wrote: Sun May 17, 2020 7:43 pm As teacher we can both contribute up to $39,000 in tax deffered accounts. We both have a 403b and 457b. We also both max out our Roth IRA and HSA.

My thoughts are starting to be in the area of putting down $190k which would leave us a payment around $900 a month and use the $60,000 for income replacement and basically put $60k down in our tax deffered accounts this year starting now by Dollar Cost Averaging every two weeks with our pay checks.

So I would put 30k into my 403b and 457b

She would put 30K into her 403b and 457b

WE already maxed out our Roth IRA's this year and will have maxed out the HSA by the end of the year..


Does that seem like a decent plan???

We think we can have the house paid off in 7 -10 years max but that is not a huge priority now but want it paid off by the time I am 50. College is not a huge concern because we feel we can easily cash flow it with all of them going to local state univ in Michigan which has alot of great univ.
That sounds like a great plan. I agree with gch below that you may be lucky enough that you may pay slightly more in taxes.

But let us take an example to see what might be an additional tax. MFJ tax brackets as of now.

Code: Select all

 Tax Rate  Income Range
 22%         78k-168k
 24%         168k-321k
Currently, you are saving 22% in federal taxes on your 39k contributions. Let us say your retirement income is 268k then additional tax paid will be 24%-22% = 2% of 100k which will be 2k. Not a big deal. But as the saying goes don’t count your chickens before they hatch. Anything can happen from now till you retire so keep saving rather than giving to uncle sam.
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