Coming up with mortgage down payment

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Topic Author
zagurit
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Coming up with mortgage down payment

Post by zagurit »

Hi,

We (married filing jointly + 1 kid; $220k combined income) are in the market to buy a house. We have very little cash, and have to liquidate almost all our after-tax investments to pay for the down payment ($50-$70k)

I need help figuring out what should go first, and what last.

Here's a list of assets I consider "liquid", although they may really not be. I'm not saying selling/converting them all makes sense. That's the point of this post.

1. Cash (Yes, in bank!): $30k
2. ROTH IRA: ~$11k principal ($13k total value, 2 years age)
3. Taxable account: 3 stocks and ETFs (short term gains: $~$6k), one mututal fund with a little dividend and gains (negligible for our purposes). Total $27k. Liquidating the stocks, I would lose ~$2500 to short term cap gains right? Am I thinking right about short term cap gains?
4. 529 College savings acccount: No, I'm not straight up liquidating it. They told me if I transfer it to my wife's name, I can pay for her student loan debt from there. That would protect our current cash. Anybody had experience doing that? $7k princiapl, $2k gains.
5. HSA: $4k. I can go back and pull out all my health care costs and start claiming them (~$2k). Barely worth the hassle.

So what should the order be? 1-2-3-4? 1-3-2-4? 1-4-3-2?

Thank you!
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Nate79
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Re: Coming up with mortgage down payment

Post by Nate79 »

6. None of the above. Save up the money instead and then you will be ready to buy. You make a lot of money and I don't understand why you can't actually save up a down payment.

Edited to add: downpayment should exclude a healthy emergency fund, maybe 6 months of expenses.
Last edited by Nate79 on Sat Jan 02, 2021 4:02 pm, edited 1 time in total.
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JoeRetire
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Re: Coming up with mortgage down payment

Post by JoeRetire »

zagurit wrote: Sat Jan 02, 2021 3:50 pm We (married filing jointly + 1 kid; $220k combined income) are in the market to buy a house. We have very little cash, and have to liquidate almost all our after-tax investments to pay for the down payment ($50-$70k)

So what should the order be? 1-2-3-4? 1-3-2-4? 1-4-3-2?
1+wait+1+wait... repeat as necessary.
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.
rr2
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Re: Coming up with mortgage down payment

Post by rr2 »

Wait it out.

Is the 50-70K downpayment 10% or 20%? What is the house price you are aiming for?

You are making $220K and have around $80K all put together in NW. I assume that this income is very recent. Make a savings plan. Start a savings plan with IRA/401K/Taxable/and a down payment fund.
Topic Author
zagurit
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Re: Coming up with mortgage down payment

Post by zagurit »

rr2 wrote: Is the 50-70K downpayment 10% or 20%? What is the house price you are aiming for?
7% of $800k.
To provide a better picture of finances:
DEBT: 30k student loan (@3.6%), $10 car loan (@2.9%), $3k credit card 0% (paid down each month, but I'll let this grow a bit so I build up cash)
ASSETS: Post tax is noted before. Pre-tax: $125 401K, $12k IRA,
Nate79 wrote: Sat Jan 02, 2021 3:55 pm ... You make a lot of money and I don't understand why you can't actually save up a down payment.
Well, that's a great point, and actually something I was wondering: In the past 5 years (with a combined salary that was 25% less), we've tried to max up our retirement accounts ($125k now) and pay down student loan debt ($220k down to $30k now). In the meantime, a friend of ours skipped all the retirement savings, and saved post tax (and had no student loan, thank you foreign education). Now he has a down payment, and we don't (unless we take a loan against the retirement account).

So to answer your question: because (a) we've been saving for retirement and (b) we've paid down student loan debt.

Regarding waiting: I don't agree. Wait for what? Housing grew at >10% last year, and more than 5% each year in the past 5 (excluding 2019). We paid down debt, saved for retirement, increased our income by 25% and saved ~$30k for emergencies, and now we are priced out of the house we really want and at the mercy of a landlord to fix a broken appliance. It can be years before a correction and I'm not counting on that, while I see home prices grow faster than double my salary increases.

While I appreciate the response, my question was about the mechanics of converting the assets to cash, not whether to do it or not.
KlangFool
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Re: Coming up with mortgage down payment

Post by KlangFool »

Nate79 wrote: Sat Jan 02, 2021 3:55 pm 6. None of the above. Save up the money instead and then you will be ready to buy. You make a lot of money and I don't understand why you can't actually save up a down payment.

Edited to add: downpayment should exclude a healthy emergency fund, maybe 6 months of expenses.

+1,000. You cannot afford the house.


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tashnewbie
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Re: Coming up with mortgage down payment

Post by tashnewbie »

Even assuming you liquidate everything (doesn’t include the 529, because that’s just shifting the source of your student loan payment; it doesn’t generate cash for the down payment if you’re buying really soon), it looks like you have $70k before paying CG taxes.

You didn’t state what your tax brackets are. Assuming a combined 30%, if all CG in taxable are short term, you’d owe $1800 in STCG taxes.

Are any of the taxable gains long term?

I don’t see how you’d have enough to make an adequate down payment AND keep sufficient cash reserves. What would you do if you needed to repair something in the house or some other emergency occurred?

I don’t think you can afford the house, but if you’re going to make a $50-70k down payment, it seems you’d have to liquidate everything you listed above (sans 529). Definitely the cash and taxable accounts. If that’s not enough, then you’d have to go Roth IRA contributions.

I’d look for another place to rent and keep saving. Or look for a cheaper house.
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anon_investor
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Re: Coming up with mortgage down payment

Post by anon_investor »

Nate79 wrote: Sat Jan 02, 2021 3:55 pm 6. None of the above. Save up the money instead and then you will be ready to buy. You make a lot of money and I don't understand why you can't actually save up a down payment.

Edited to add: downpayment should exclude a healthy emergency fund, maybe 6 months of expenses.
+1!
KlangFool
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Re: Coming up with mortgage down payment

Post by KlangFool »

zagurit wrote: Sat Jan 02, 2021 4:35 pm

So to answer your question: because (a) we've been saving for retirement and (b) we've paid down student loan debt.

Regarding waiting: I don't agree. Wait for what? Housing grew at >10% last year, and more than 5% each year in the past 5 (excluding 2019). We paid down debt, saved for retirement, increased our income by 25% and saved ~$30k for emergencies, and now we are priced out of the house we really want and at the mercy of a landlord to fix a broken appliance. It can be years before a correction and I'm not counting on that, while I see home prices grow faster than double my salary increases.

While I appreciate the response, my question was about the mechanics of converting the assets to cash, not whether to do it or not.
zagurit,


<<So to answer your question: because (a) we've been saving for retirement and (b) we've paid down student loan debt.>>

1) And, to celebrate almost paying off the student loan debt, you choose to take on bigger mortgage debt. Why is this a good decision?


2) Since you will be using all your savings for the down payment, essentially, you had saved nothing for the past few years after buying the house.

<<Regarding waiting: I don't agree. Wait for what? Housing grew at >10% last year, and more than 5% each year in the past 5 (excluding 2019).>>


3) And, why do that matter? Did your rent increase at that level? Obviously not. If renting is so bad, you would not be saving any money.

<<7% of $800k.>>


4) You paid off 190K of the student loan in 5 years. Now, you choose to pay a lot more than the student loan every year in a mortgage by buying an 800K house. What is the PITI of this 800K house?


5) Why do you think you would not be living paycheck to paycheck after buying the house?


You cannot afford the 800K house. You do not have enough annual savings in your budget to pay for the 800K house.


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nps
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Re: Coming up with mortgage down payment

Post by nps »

Are you also considering closing costs and reserve requirements?
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yangtui
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Re: Coming up with mortgage down payment

Post by yangtui »

KlangFool wrote: Sat Jan 02, 2021 4:40 pm +1,000. You cannot afford the house.


KlangFool
+1
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geerhardusvos
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Re: Coming up with mortgage down payment

Post by geerhardusvos »

zagurit wrote: Sat Jan 02, 2021 3:50 pm Hi,

We (married filing jointly + 1 kid; $220k combined income) are in the market to buy a house. We have very little cash, and have to liquidate almost all our after-tax investments to pay for the down payment ($50-$70k)

I need help figuring out what should go first, and what last.

Here's a list of assets I consider "liquid", although they may really not be. I'm not saying selling/converting them all makes sense. That's the point of this post.

1. Cash (Yes, in bank!): $30k
2. ROTH IRA: ~$11k principal ($13k total value, 2 years age)
3. Taxable account: 3 stocks and ETFs (short term gains: $~$6k), one mututal fund with a little dividend and gains (negligible for our purposes). Total $27k. Liquidating the stocks, I would lose ~$2500 to short term cap gains right? Am I thinking right about short term cap gains?
4. 529 College savings acccount: No, I'm not straight up liquidating it. They told me if I transfer it to my wife's name, I can pay for her student loan debt from there. That would protect our current cash. Anybody had experience doing that? $7k princiapl, $2k gains.
5. HSA: $4k. I can go back and pull out all my health care costs and start claiming them (~$2k). Barely worth the hassle.

So what should the order be? 1-2-3-4? 1-3-2-4? 1-4-3-2?

Thank you!
You cannot afford a $800,000 house. You need to continue focusing on your investments and not think about buying a house for a while. On your income level a $500,000-$600,000 house would make more sense. But doesn’t seem like you’re even ready for that. Do not sacrifice retirement investments to buy a house. Consider putting 80% of your monthly savings into investment and the other 20% towards saving up for a house. Do not touch any of your retirement savings for a house purchase.

When considering house buying: Check this out for starters
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Triple digit golfer
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Re: Coming up with mortgage down payment

Post by Triple digit golfer »

Just here to pile on. You absolutely cannot afford this house. Yet. Come back when you have $140k+ in cash. Minimum $80k down payment plus closing costs and some extra cash for the inevitable things that will break in the first year.

You have a great income. Save, save, save!
59Gibson
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Re: Coming up with mortgage down payment

Post by 59Gibson »

Sorry. I agree with others. You cannot afford it. I do not know your age but OP reads as if you're a fairly young family. Save and invest your income. The house will still be there in 5-7 years.
Triple digit golfer
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Re: Coming up with mortgage down payment

Post by Triple digit golfer »

geerhardusvos wrote: Sat Jan 02, 2021 4:58 pm
zagurit wrote: Sat Jan 02, 2021 3:50 pm Hi,

We (married filing jointly + 1 kid; $220k combined income) are in the market to buy a house. We have very little cash, and have to liquidate almost all our after-tax investments to pay for the down payment ($50-$70k)

I need help figuring out what should go first, and what last.

Here's a list of assets I consider "liquid", although they may really not be. I'm not saying selling/converting them all makes sense. That's the point of this post.

1. Cash (Yes, in bank!): $30k
2. ROTH IRA: ~$11k principal ($13k total value, 2 years age)
3. Taxable account: 3 stocks and ETFs (short term gains: $~$6k), one mututal fund with a little dividend and gains (negligible for our purposes). Total $27k. Liquidating the stocks, I would lose ~$2500 to short term cap gains right? Am I thinking right about short term cap gains?
4. 529 College savings acccount: No, I'm not straight up liquidating it. They told me if I transfer it to my wife's name, I can pay for her student loan debt from there. That would protect our current cash. Anybody had experience doing that? $7k princiapl, $2k gains.
5. HSA: $4k. I can go back and pull out all my health care costs and start claiming them (~$2k). Barely worth the hassle.

So what should the order be? 1-2-3-4? 1-3-2-4? 1-4-3-2?

Thank you!
You cannot afford a $800,000 house. You need to continue focusing on your investments and not think about buying a house for a while. On your income level a $500,000-$600,000 house would make more sense. But doesn’t seem like you’re even ready for that. Do not sacrifice retirement investments to buy a house. Consider putting 80% of your monthly savings into investment and the other 20% towards saving up for a house. Do not touch any of your retirement savings for a house purchase.
This is excellent advice. Retirememt savings should always be the priority. 20% of your savings toward the house is very reasonable. Save $120k a year and buy a $600k house in five years. You'll have 20% down and an investment balance more than the amount of your mortgage.
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geerhardusvos
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Re: Coming up with mortgage down payment

Post by geerhardusvos »

Looked back at your older posts. Still have the student loans? The car loans? Sounds like you already own, is it a condo? I highly recommend staying in the condo and being out of debt and saving aggressively for investing. It sounds like you are now getting close to or are around 40 years old and your investment levels are atrocious, especially given your income level. Use the next 10 years to change that, you can do it!

You should not be buying a house in California in your position, and you may never be ready given the catching up you need to do on investing. Terrible time to buy a house in California anyways, so count yourself lucky to already have the place you live in now.

viewtopic.php?f=2&t=222647&p=3435548#p3435548
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checkyourmath
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Re: Coming up with mortgage down payment

Post by checkyourmath »

I would go with 1-4-3-2

Kids can fend for themselves and parents don't need to save for their college. I do like the idea of liquidating the Roth IRA only because you can't contribute to the lost years as a backup option. Cashing out on a taxable account for short term capital gains is a no brainer. Like you I am also very bullish on the housing market. 2021 is going to be much more of the same with 10% gains coming. I think the total market cap for the US housing market is right around 35 trillion. The big a number gets the easier it is for it to grow. I view it as critical mass similar to an investment account. The contributions are almost irrelevant at this point.
tashnewbie
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Re: Coming up with mortgage down payment

Post by tashnewbie »

geerhardusvos wrote: Sat Jan 02, 2021 5:14 pm Looked back at your older posts. Still have the student loans? The car loans? Sounds like you already own, is it a condo? I highly recommend staying in the condo and being out of debt and saving aggressively for investing. It sounds like you are now getting close to or are around 40 years old and your investment levels are atrocious, especially given your income level. Use the next 10 years to change that, you can do it!

You should not be buying a house in California in your position, and you may never be ready given the catching up you need to do on investing. Terrible time to buy a house in California anyways, so count yourself lucky to already have the place you live in now.

viewtopic.php?f=2&t=222647&p=3435548#p3435548
OP should confirm but I don’t think he owns a condo. He said he’s waiting on a landlord to fix an appliance. I assume he’s currently renting.

OP how old are you? I’m assuming late 20s/early 30s.
TheDDC
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Re: Coming up with mortgage down payment

Post by TheDDC »

zagurit wrote: Sat Jan 02, 2021 4:35 pm Regarding waiting: I don't agree. Wait for what? Housing grew at >10% last year, and more than 5% each year in the past 5 (excluding 2019). We paid down debt, saved for retirement, increased our income by 25% and saved ~$30k for emergencies, and now we are priced out of the house we really want and at the mercy of a landlord to fix a broken appliance. It can be years before a correction and I'm not counting on that, while I see home prices grow faster than double my salary increases.

While I appreciate the response, my question was about the mechanics of converting the assets to cash, not whether to do it or not.
So what? Housing is like this in my area as it is in any desirable area right now. We would be interested in a new place to replace our existing house, but we are not interested in paying inflated housing prices. Yes, it's a bubble. Wait it out. Jumping fast is a recipe to overpay and get ripped off.

You make good money... good golly. The Boglehead BUBBLE I tell ya! Save HALF of it and wait the year out. Heck, save 3/4 for a down payment. You should still be able to fully fund your retirement vehicles, too. Where is all the money going?

-TheDDC
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deyrup
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Re: Coming up with mortgage down payment

Post by deyrup »

If you are like most young families you are only going to live in your first house for a couple of years. Do you think that the house will appreciate more than your closing costs + selling fees + lost returns from an alternative investment when you move? Let's say you have 6% selling fees on 800k that is 48k in transaction costs just from selling it if there is no appreciation.

Expected costs from buying this house with 70k down
Monthly
Mortgage at 3%: 3078
Property tax ~1%: 600
Water: 100-200
Heating/Electricity: 100-300
Maintenance: 400-800

Total monthly: 4728-4978

Transaction costs
Closing costs: 6k (costs more, but this is the fees excluding prepaids)
Selling house in 2 years: 50k
Total loss: 56k
Lost returns on 70k in market at 7%: 30k

Total cost of owning the house over 4 years assuming comparable rental in a luxury apartment 3000/month. 225,600(monthly costs) + 56k = 281k or 77k a year vs 36,000/year in a luxury apartment. You can get the numbers more accurate if you put in the exact amounts, but I tried to be very generous here with the costs so you are likely to pay more. What is the personal benefit that you expect to get out of paying 77k/year, because there is certainly no financial benefit out of this unless the house price goes up 1,000%?

Did I miss any other big costs?
Topic Author
zagurit
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Re: Coming up with mortgage down payment

Post by zagurit »

Question: If you have cash flow (salary), is it better to invest with borrowed money today (free money- 2.5%!? - see below), than to invest tomorrow with your own money and risk inflation (I wonder where all the money the fed printed will go?). How is this different from leveraged investing in the (more volatile) market, exccept that real estate has lower volatility ? With a house I'm at least lving in it. I can't live in my retirement account when the market crashes 50% and I'm out of a job, and I can certainly not cash out at the bottom (I'm assuming I can drag out forebearance and foreclosure enough to find another job in both scenarios)!

I appreciate the candid responses, but I'm not convinced that we can't afford it due to cash flow issues. I agree waiting a bit and saving more down payment may be reasonable, but on the other hand, I'll be chasing a (currently) fast appreciating asset (which I may never catch). Hence my scramble to come up with cash. Whether we buy or rent, retirement acccounts are treated the same (maxed out), so I don't get why those matter? I simply can't go above IRS limits to make up for our late start! Putting a rent-v-buy budget together, what I see if we buy, we are still positive each month (after maxing out everything) and can still save.

I consider my primary residence as an emotional investment, not an asset. As such, I don't consider its longterm appreciation (which tracks or -more recently beats- inflation anyways)
. As long as I'm living in it, why would it matter if as an asset it goes up or down? Renting long term will detach me from this relatively low-volatility market . Isn't the wholepoint of a primary residence not being homeless at retirement?
nps wrote: Are you also considering closing costs and reserve requirements?
I should've been more precise about the (currently hypothetical) mortgage: The 7% I mentioned is the total cost to close (5% down + points + escrow + random fees).

Also with income: $216 is current income. Expected to grow to 240 in Jan, and then >$250 once the COVID restrictions resolve (I'm not including 10-20k in bonuses). All my numbers are based on $216 (the value in December), but my risk tolerance is based on $250k.
tashnewbie wrote: Are any of the taxable gains long term?
No. All short term.
tashnewbie wrote: I don’t see how you’d have enough to make an adequate down payment AND keep sufficient cash reserves. What would you do if you needed to repair something in the house or some other emergency occurred?
Considering the total cash available (~$70k), I thought $10k in reserve today is acceptable. I have access to another $20k in cash (parent's money I manage) if I really REALLY had an emergency that could'nt be managed with a credit card. Plus, according to Bogleheads , the emergency fund can include credit cards and the amount is not set in stone (I consider 3 months expense enough). Since we'll have cash flow from income, we should be able to build our cash funds back quickly.
KlangFool wrote: 2) Since you will be using all your savings for the down payment, essentially, you had saved nothing for the past few years after buying the house.
By my definition, our retirement account is our savings. I agree it's small, but only one of us had access to a real retirement account since graduation (5 years ago) and we maxed it out in 3 out of those 5 years. If you define "saving" as cash in the bank, then yes, you are right.
geerhardusvos wrote: You cannot afford a $800,000 house. [...] On your income level a $500,000-$600,000 house would make more sense. But doesn’t seem like you’re even ready for that. Do not sacrifice retirement investments to buy a house. Consider putting 80% of your monthly savings into investment and the other 20% towards saving up for a house. Do not touch any of your retirement savings for a house purchase.

When considering house buying: Check this out for starters
Thank you for sharing your post above. It was a nice read. The points in it themselves, and the NYT calculator STRONGLY! suggest I should buy a house (the calculator was the first thing I checked a while back when considering it) !?

Even if I agreed with all the points in that thread (which the comments under it suggest are not gospel), we still either meet or WILL meet them ALL.
Triple digit golfer wrote: [...] 20% of your savings toward the house is very reasonable. Save $120k a year and buy a $600k house in five years. You'll have 20% down and an investment balance more than the amount of your mortgage.
I'm sorry but I can't make the math work: Save $120/year x 5 years = 600k in cash. OK. And then buy a house ... for cash? Then what's the 20% down for? a $3 mil hous?

I won't get into why saving $120k a year is not possible/desirable FOR ME (I'm sure people who achieve FIRE do that all the time), but I'm curious to see what your suggested plan is.
geerhardusvos wrote: Looked back at your older posts. Still have the student loans? The car loans? Sounds like you already own, is it a condo?
tashnewbie wrote: OP should confirm but I don’t think he owns a condo. He said he’s waiting on a landlord to fix an appliance. I assume he’s currently renting.

OP how old are you? I’m assuming late 20s/early 30s.
Sold the condo as part of a corporate-funded relocation which paid for the realtor fees. Used the proceeds to pay down student loan . Car loan is reduced to <$10k. 40 y/o. This is not our starter house.
checkyourmath wrote: I would go with 1-4-3-2. I do like the idea of liquidating the Roth IRA only because you can't contribute to the lost years as a backup option.
Thank you for the straight up answer.

Did you mean you don't like the ROTH liquidation beccause of the time factor? I can't go back and fund the ROTH in time again (it gained something while it was sitting there anyways). On the other hand, taking the principal out is free money and beats the STCGs tax on the taxable acccount.
checkyourmath wrote: [...] The contributions are almost irrelevant at this point.
Can you elaborate?
TheDDC wrote: Wait it out. Jumping fast is a recipe to overpay and get ripped off.
[...]
Save HALF of it and wait the year out. Heck, save 3/4 for a down payment. You should still be able to fully fund your retirement vehicles, too. Where is all the money going?
I'm NOT completely convinced I should buy now v next year (even with the projected 10% growth next year) exactly because of the rush factor. Anything that's come to the market has evaporated in 2 days during the past year, regardless of quality.

Saving 50% of income for a family in coastal California is not possible without the FIRE mentality, which I'm not a fan of, and am not going to practice.
Topic Author
zagurit
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Re: Coming up with mortgage down payment

Post by zagurit »

deyrup wrote: [...] when you move? Let's say you have 6% selling fees on 800k that is 48k in transaction costs just from selling it if there is no appreciation.

Expected costs from buying this house with 70k down (it's ~40k down, but ok)
Monthly
Mortgage at 3%: 3078
Property tax ~1%: 600
Water: 100-200
Heating/Electricity: 100-300
Maintenance: 400-800

Total monthly: 4728-4978
I relied on the NYT calculator to answer the Rent-v-Buy question, which made a strong point for buying, with different assumptions than yours. But I'll give you my numbers (what my mortgage broker gave me):

Home value $793k, 5% down, 2.5% rate: PITI = 2976 (PI) + 826 (T) + I (132) + MIP (144) = $4078
Then we add maintenance (let's say 1% of the house value, to go with NYT calculator) = 660

which leads to the lower range of your numebrs. Fine, close enough. Note that home value is ALMOST 800k, as I've asked the broker to go with a strict 5% down, but that's not a big deal.

Utilities are the same between own/rent. Why not? Apples to apples.
deyrup wrote:
Transaction costs
Closing costs: 6k (costs more, but this is the fees excluding prepaids)
Selling house in 2 years: 50k
Total loss: 56k
Lost returns on 70k in market at 7%: 30k
I'm not planning to move before the average moving time in the US (7 years). This is NOT our first house and we have every intention to stay in this city long term (family ties), after our moving experience detailed in the post above.

So what I'm going based off of is 3% price appreciation and moving in >7 years. In that time, with 3% appreciation (why do you consider appreciation zero? That's almost half the value of owning?!) and considering -6% (realtor fees) -maintenance/month (1% for 7 years), the lump sum is still ~$240k? Did you factor in the principal part of the mortgage?
deyrup wrote: Total cost of owning the house over 4 years assuming comparable rental in a luxury apartment 3000/month. 225,600(monthly costs) + 56k = 281k or 77k a year vs 36,000/year in a luxury apartment. You can get the numbers more accurate if you put in the exact amounts, but I tried to be very generous here with the costs so you are likely to pay more. What is the personal benefit that you expect to get out of paying 77k/year, because there is certainly no financial benefit out of this unless the house price goes up 1,000%?

Did I miss any other big costs?
Your monthly costs are off because you are using a different interest rate (3%) v the offer available (2.5%). Your 56k loss is based on 2 years? ...

I GENUINELY appreciate you puncching in the numbers for me, but I trust the NYT calculator to do what you have estimated above. I made an Excel sheet myself, but I think going over those details may be pointless. Why reinvent the wheel? So instead of that, let me tell you what I've used on the NYT calculator and you tell me if something is off:

$800k house, 7 years to stay, 2.5% mortgage, 5% down payment, 30 years, 3% home appreciation, 5% rent growth (California caps it at 10% I think, but let's say my landlord is an angel!), 7% investment return (I've read multiple articles, even from Vanguard, about predicted real future returns of 4%, not 7% which is the historical value), 2% inflation (we'll see about that post-COVID and with people swimming in cash), 1.2% taxes, 4% closing costs (cash to close is $57 accorind to the broker -including down-, so I don't know where this number is coming from), 6% cost of sale, 1% maintenance, 0.46% homeowners insurancce, $500 utilities (egregiously high, but ok), $0 common monthly fees, 0% common fees deduction, 1 month secdeposit, 0% brokerage fee and 1.32% renter's insurance.

Based on allthe above, 7 years is my break even point: $287k cost for both scenarios. Note that I have put in some worst case scenarios for buying (3% appreciation in coastal california, 5% rent increase, 7% return in the markets.
manatee2005
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Re: Coming up with mortgage down payment

Post by manatee2005 »

zagurit wrote: Sun Jan 03, 2021 3:56 am
deyrup wrote: [...] when you move? Let's say you have 6% selling fees on 800k that is 48k in transaction costs just from selling it if there is no appreciation.

Expected costs from buying this house with 70k down (it's ~40k down, but ok)
Monthly
Mortgage at 3%: 3078
Property tax ~1%: 600
Water: 100-200
Heating/Electricity: 100-300
Maintenance: 400-800

Total monthly: 4728-4978
I relied on the NYT calculator to answer the Rent-v-Buy question, which made a strong point for buying, with different assumptions than yours. But I'll give you my numbers (what my mortgage broker gave me):

Home value $793k, 5% down, 2.5% rate: PITI = 2976 (PI) + 826 (T) + I (132) + MIP (144) = $4078
Then we add maintenance (let's say 1% of the house value, to go with NYT calculator) = 660

which leads to the lower range of your numebrs. Fine, close enough. Note that home value is ALMOST 800k, as I've asked the broker to go with a strict 5% down, but that's not a big deal.

Utilities are the same between own/rent. Why not? Apples to apples.
deyrup wrote:
Transaction costs
Closing costs: 6k (costs more, but this is the fees excluding prepaids)
Selling house in 2 years: 50k
Total loss: 56k
Lost returns on 70k in market at 7%: 30k
I'm not planning to move before the average moving time in the US (7 years). This is NOT our first house and we have every intention to stay in this city long term (family ties), after our moving experience detailed in the post above.

So what I'm going based off of is 3% price appreciation and moving in >7 years. In that time, with 3% appreciation (why do you consider appreciation zero? That's almost half the value of owning?!) and considering -6% (realtor fees) -maintenance/month (1% for 7 years), the lump sum is still ~$240k? Did you factor in the principal part of the mortgage?
deyrup wrote: Total cost of owning the house over 4 years assuming comparable rental in a luxury apartment 3000/month. 225,600(monthly costs) + 56k = 281k or 77k a year vs 36,000/year in a luxury apartment. You can get the numbers more accurate if you put in the exact amounts, but I tried to be very generous here with the costs so you are likely to pay more. What is the personal benefit that you expect to get out of paying 77k/year, because there is certainly no financial benefit out of this unless the house price goes up 1,000%?

Did I miss any other big costs?
Your monthly costs are off because you are using a different interest rate (3%) v the offer available (2.5%). Your 56k loss is based on 2 years? ...

I GENUINELY appreciate you puncching in the numbers for me, but I trust the NYT calculator to do what you have estimated above. I made an Excel sheet myself, but I think going over those details may be pointless. Why reinvent the wheel? So instead of that, let me tell you what I've used on the NYT calculator and you tell me if something is off:

$800k house, 7 years to stay, 2.5% mortgage, 5% down payment, 30 years, 3% home appreciation, 5% rent growth (California caps it at 10% I think, but let's say my landlord is an angel!), 7% investment return (I've read multiple articles, even from Vanguard, about predicted real future returns of 4%, not 7% which is the historical value), 2% inflation (we'll see about that post-COVID and with people swimming in cash), 1.2% taxes, 4% closing costs (cash to close is $57 accorind to the broker -including down-, so I don't know where this number is coming from), 6% cost of sale, 1% maintenance, 0.46% homeowners insurancce, $500 utilities (egregiously high, but ok), $0 common monthly fees, 0% common fees deduction, 1 month secdeposit, 0% brokerage fee and 1.32% renter's insurance.

Based on allthe above, 7 years is my break even point: $287k cost for both scenarios. Note that I have put in some worst case scenarios for buying (3% appreciation in coastal california, 5% rent increase, 7% return in the markets.
Hey Zagurit,

It’s easy for people who live in houses to tell you not to buy a house. They don’t know how it feels to rent and watch the house prices go up year after year. I bought a 600k house on 100k income without 20% down, a lot of people would have told me not to buy, but it’s been a great decision. Also my income tripled since then and house doubled.


As far as down payment, did you get preapproved yet? What did the mortgage broker say where your money should come from?
JBEB
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Re: Coming up with mortgage down payment

Post by JBEB »

While not reading all the responses, here is my 2 cents...

As much as you wanted to save for retirement, you kind of shot yourself in the foot for not allocating for a house.

I do believe the Fed has said rates will stay low for a while.

Slow down your retirement savings (dont touch it) and save the money for a down payment....

(also I did see you made the statement housing has gone up, which it has....but a lot of that is lower inventory. Sadly, once stimulus ends, I do not think that will be the case)

Good luck
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Re: Coming up with mortgage down payment

Post by BlueCable »

zagurit wrote: Sun Jan 03, 2021 3:54 am
I have access to another $20k in cash (parent's money I manage) if I really REALLY had an emergency that could'nt be managed with a credit card.
I don't understand. Your emergency plan is to use your parents' money that you manage?
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Re: Coming up with mortgage down payment

Post by Amanda999 »

Not going to repeat above responses - just want to make sure OP knows:

1. Houses are money pits. An $800k house has costs you haven't thought of. And time (yard work, finding/hiring repair people, etc.)
I live in a HCOL area (prices still climbing during Covid) and calculated the actual return a friend realized when she sold her house here for about triple what they paid 10 years ago. They did their own reno work (handy people.) Even with that, they only realized about $5k/year after you add in everything (on a $1.2mm house sale price.) I used $0 cap gains (i.e., would have been lower return if I had.)

Not to mention if you are $220k income, want an $800k house, I'm guessing you or spouse might be the type who will want to renovate, or change the decor. Google 2020 House vs. Cost Reno Report. Renovations basically never ever realize net return unless you are a contractor yourself.

2. Congrats on the aggressive student loan pay down!
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Re: Coming up with mortgage down payment

Post by galawdawg »

zagurit wrote: Sun Jan 03, 2021 3:54 am I have access to another $20k in cash (parent's money I manage) if I really REALLY had an emergency that could'nt be managed with a credit card.
:shock:

I certainly hope that I am misinterpreting this statement made by OP....
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Re: Coming up with mortgage down payment

Post by KlangFool »

OP,

1) What is your current rent?

2) What is your annual expense?

3) What is your annual savings?

4) Why do you think you have the extra money to buy the house?

I can justify buying any house using any calculator by assuming a high housing appreciation rate. But, in your case, it won't matter anyhow. You cannot afford to keep paying for the house. You do not have the budget for the extra housing expense.

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Re: Coming up with mortgage down payment

Post by geerhardusvos »

zagurit wrote: Sun Jan 03, 2021 3:54 am Question: If you have cash flow (salary), is it better to invest with borrowed money today (free money- 2.5%!? - see below), than to invest tomorrow with your own money and risk inflation (I wonder where all the money the fed printed will go?).
geerhardusvos wrote: You cannot afford a $800,000 house. [...] On your income level a $500,000-$600,000 house would make more sense. But doesn’t seem like you’re even ready for that. Do not sacrifice retirement investments to buy a house. Consider putting 80% of your monthly savings into investment and the other 20% towards saving up for a house. Do not touch any of your retirement savings for a house purchase.

When considering house buying: Check this out for starters
Thank you for sharing your post above. It was a nice read. The points in it themselves, and the NYT calculator STRONGLY! suggest I should buy a house (the calculator was the first thing I checked a while back when considering it) !?

Even if I agreed with all the points in that thread (which the comments under it suggest are not gospel), we still either meet or WILL meet them ALL.
geerhardusvos wrote: Looked back at your older posts. Still have the student loans? The car loans? Sounds like you already own, is it a condo?
Sold the condo as part of a corporate-funded relocation which paid for the realtor fees. Used the proceeds to pay down student loan . Car loan is reduced to <$10k. 40 y/o. This is not our starter house.

I'm NOT completely convinced I should buy now v next year (even with the projected 10% growth next year) exactly because of the rush factor. Anything that's come to the market has evaporated in 2 days during the past year, regardless of quality.

Saving 50% of income for a family in coastal California is not possible without the FIRE mentality, which I'm not a fan of, and am not going to practice.
Hey, to be honest, it doesn’t sound like you are open to feedback, so I won’t waste much more of my time here. The truth is, you don’t have a good philosophy around money. You need to educate yourself and realize that this isn’t about the FIRE movement, but this is about managing your money well and setting yourself up well for retirement. You are 40 and you think you deserve something other than a starter home. You don’t. Your decisions and habits have put you in the place where you are 40 years old and don’t have much retirement savings, which by definition means you only deserve a starter home. If we judge whether or not a thread is gospel based on its comments, this current thread of you trying to come up with a mortgage down payment, would go down as gospel for you not to buy. There is strong consensus here, and if you don’t wanna follow the consensus, why did you post here in the first place? We’re here to help, but we can only help someone who wants help.

For what it’s worth, I ran your numbers in the rent versus buy calculator and it says if you rent anything under $4500 per month, you are in good shape. I don’t think you realize how strongly that suggests you should rent, and yes, I am familiar with the California market. In fact, so familiar that I would strongly suggest that you not buy in California right now for market reasons not just your financial issues. The calculator also doesn’t understand your location and your current financial situation. We have many relatives in California with properties ranging from $1,500,000 to $10,000,000, so I am well acquainted with how little $800,000 gets you, and again, that’s why you should rent while you get out of debt and push hard on your retirement savings.

If you are not willing to look yourself in the mirror and say I am a 40-year-old who makes almost $200,000 who has made bad financial decisions and won’t be able to support my current lifestyle in retirement, then no one is going to be able to help you, and you are going to have to sleep in the bed you made.
Last edited by geerhardusvos on Sun Jan 03, 2021 10:37 am, edited 1 time in total.
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Re: Coming up with mortgage down payment

Post by KlangFool »

geerhardusvos wrote: Sun Jan 03, 2021 10:19 am

If you are not willing to look yourself in the mirror and say I am a 40-year-old who makes almost $200,000 who has made bad financial decisions and won’t be able to support my current lifestyle in retirement, then no one is going to be able to help you, and you are going to have to sleep in the bed you made.
geerhardusvos,


OP cannot support his current lifestyle. So, what is the point of talking about retirement? All it takes is short-term unemployment to wipe him out.

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Re: Coming up with mortgage down payment

Post by geerhardusvos »

KlangFool wrote: Sun Jan 03, 2021 10:36 am
geerhardusvos wrote: Sun Jan 03, 2021 10:19 am

If you are not willing to look yourself in the mirror and say I am a 40-year-old who makes almost $200,000 who has made bad financial decisions and won’t be able to support my current lifestyle in retirement, then no one is going to be able to help you, and you are going to have to sleep in the bed you made.
geerhardusvos,


OP cannot support his current lifestyle. So, what is the point of talking about retirement? All it takes is short-term unemployment to wipe him out.

KlangFool
I couldn’t agree more; that’s definitely the tune I’m whistling above...
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Triple digit golfer
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Re: Coming up with mortgage down payment

Post by Triple digit golfer »

zagurit wrote: Sun Jan 03, 2021 3:54 am
Triple digit golfer wrote: [...] 20% of your savings toward the house is very reasonable. Save $120k a year and buy a $600k house in five years. You'll have 20% down and an investment balance more than the amount of your mortgage.
I'm sorry but I can't make the math work: Save $120/year x 5 years = 600k in cash. OK. And then buy a house ... for cash? Then what's the 20% down for? a $3 mil hous?

I won't get into why saving $120k a year is not possible/desirable FOR ME (I'm sure people who achieve FIRE do that all the time), but I'm curious to see what your suggested plan is.
The math is save $120k a year with $96k to retirement and $24k to the house down payment. After five years you'll have $120k in house savings which will get you 20% down on a $600k house.

If you can't save that much, then buy in 7 or 10 years. The principle remains. The point is save money first.

You are attempting to buy something you can't afford because you fear it will increase in value faster than your ability to afford it. That is illogical. Save for 5 years and see what you can afford at that time. Don't pontificate about markets 5 years from now.

You have very little in retirement savings and want to compound the problem by buying an expensive house that you can't afford. That is a bad idea.

You make a good salary. Save money and reassess in 5 years. Maybe your salary will double. Maybe the housing market will crash 30%. Maybe you'll get a job in another state. Who knows? The important thing is to save and put yourself in a better financial position. You have the earnings to do so. Now you just need to do it.
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Re: Coming up with mortgage down payment

Post by MedicatedMoney »

zagurit wrote: Sat Jan 02, 2021 3:50 pm Hi,

We (married filing jointly + 1 kid; $220k combined income) are in the market to buy a house. We have very little cash, and have to liquidate almost all our after-tax investments to pay for the down payment ($50-$70k).....
Thank you!
Nate79 wrote: Sat Jan 02, 2021 3:55 pm 6. None of the above. Save up the money instead and then you will be ready to buy. You make a lot of money and I don't understand why you can't actually save up a down payment.

Edited to add: downpayment should exclude a healthy emergency fund, maybe 6 months of expenses.
rr2 wrote: Sat Jan 02, 2021 4:12 pm Wait it out.

Is the 50-70K downpayment 10% or 20%? What is the house price you are aiming for?

You are making $220K and have around $80K all put together in NW. I assume that this income is very recent. Make a savings plan. Start a savings plan with IRA/401K/Taxable/and a down payment fund.
KlangFool wrote: Sat Jan 02, 2021 4:40 pm
Nate79 wrote: Sat Jan 02, 2021 3:55 pm 6. None of the above. Save up the money instead and then you will be ready to buy. You make a lot of money and I don't understand why you can't actually save up a down payment.

Edited to add: downpayment should exclude a healthy emergency fund, maybe 6 months of expenses.

+1,000. You cannot afford the house.


KlangFool
As someone who was once in your shoes, I would strongly recommend waiting as many smart posters have already stated. One of my biggest personal financial mistakes was purchasing a house in a rising market we could not afford just starting my working career and with a young family. On top the high monthly PITI payment, the housing market crashed shortly after we settled. The realtor forgot to tell me that could happen!

This decision made us house poor at the time and limited our debt payback and ability to invest. Looking back, we would be much further ahead today had we stayed in our condo that felt tight for our family of 3 but in hindsight was perfectly fine (I now know this as a family of 6!). Learn from the smart advice on this board and previous experiences of others.

However, this is just anecdotal advice - you need to make that decision for yourself!
Last edited by MedicatedMoney on Sun Jan 03, 2021 11:01 am, edited 1 time in total.
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Re: Coming up with mortgage down payment

Post by goodenyou »

What this illustrates is that you cannot have it all. More people today with a "high income" live in over-inflated real estate markets than ever before. In the past, living the American dream of comfortable home ownership was not out of reach for these workers. The expectations have not been reset, and unfortunately, many will pay a dear price for overpaying and overextending for real estate. I may be wrong, and the real estate market may continue to go to the moon. Logic will tell you that it unsustainable now and will continue to get more unsustainable at the current trajectory. That is why my state of Texas is booming with Californians seeking real estate asylum (and tax relief).
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Re: Coming up with mortgage down payment

Post by Olemiss540 »

OP,

At 40, you are WAY behind on savings due to the massive student loans and late start to income earning it would appear. Buying this house will ensure you remain that way for the next 10 years most likely.

Given your income this is going to tighten cashflow an incredible amount especially with the other payments you have (car, SL, CC, etc).

I highly recommend Dave Ramsey if you want to dig out of this hole. If you are set on moving forward, consider using the cash you are drawing out to knockout your loans to atleast put you in the green on a monthly basis. You are going to be broke regardless so you might as well put yourself in a positive cashflow position to be able to cover monthly expenses......
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Re: Coming up with mortgage down payment

Post by epictetus »

some people may have missed you have paid down almost 200,000 in student loans in the last 5 years and at the same time have been maxing your retirement accounts. on 25% less income than you make now. that is great!!

that doesn't mean you can/cannot/should/should not buy the house.

just that you haven't been squandering money/goofing off financially the last few years.
Focus on what you can control
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Re: Coming up with mortgage down payment

Post by KlangFool »

epictetus wrote: Sun Jan 03, 2021 11:07 am some people may have missed you have paid down almost 200,000 in student loans in the last 5 years and at the same time have been maxing your retirement accounts. on 25% less income than you make now. that is great!!

that doesn't mean you can/cannot/should/should not buy the house.

just that you haven't been squandering money/goofing off financially the last few years.
epictetus,

As per my post.

<<1) And, to celebrate almost paying off the student loan debt, you choose to take on bigger mortgage debt. Why is this a good decision?>>

I did not miss that. If you go through the numbers, the new mortgage will overtake the annual student loan payment over the last few years plus the retirement saving.

Aka, OP does not have enough slack in his annual budget to pay for this house.


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Re: Coming up with mortgage down payment

Post by H-Town »

zagurit wrote: Sat Jan 02, 2021 3:50 pm Hi,

We (married filing jointly + 1 kid; $220k combined income) are in the market to buy a house. We have very little cash, and have to liquidate almost all our after-tax investments to pay for the down payment ($50-$70k)

I need help figuring out what should go first, and what last.

Here's a list of assets I consider "liquid", although they may really not be. I'm not saying selling/converting them all makes sense. That's the point of this post.

1. Cash (Yes, in bank!): $30k
2. ROTH IRA: ~$11k principal ($13k total value, 2 years age)
3. Taxable account: 3 stocks and ETFs (short term gains: $~$6k), one mututal fund with a little dividend and gains (negligible for our purposes). Total $27k. Liquidating the stocks, I would lose ~$2500 to short term cap gains right? Am I thinking right about short term cap gains?
4. 529 College savings acccount: No, I'm not straight up liquidating it. They told me if I transfer it to my wife's name, I can pay for her student loan debt from there. That would protect our current cash. Anybody had experience doing that? $7k princiapl, $2k gains.
5. HSA: $4k. I can go back and pull out all my health care costs and start claiming them (~$2k). Barely worth the hassle.

So what should the order be? 1-2-3-4? 1-3-2-4? 1-4-3-2?

Thank you!
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Re: Coming up with mortgage down payment

Post by BlueCable »

OP has done a great job getting debt under control. I'm sure it's tempting to see this as the finish line, but the reality is that the OP is now at the starting line. OP has a small positive net worth but the wrong decision on an $800k mortgage with almost no down payment will send the OP backwards again.
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Re: Coming up with mortgage down payment

Post by MishkaWorries »

zagurit wrote: Sun Jan 03, 2021 3:54 am I have access to another $20k in cash (parent's money I manage) if I really REALLY had an emergency that could'nt be managed with a credit card.
:shock:

I'm out. Do what you want. Your friend has a nice shiny new house and you are envious. Your mind is obviously made up.
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Re: Coming up with mortgage down payment

Post by deyrup »

zagurit wrote: Sun Jan 03, 2021 3:56 am
I relied on the NYT calculator to answer the Rent-v-Buy question, which made a strong point for buying, with different assumptions than yours. But I'll give you my numbers (what my mortgage broker gave me):

Home value $793k, 5% down, 2.5% rate: PITI = 2976 (PI) + 826 (T) + I (132) + MIP (144) = $4078
Then we add maintenance (let's say 1% of the house value, to go with NYT calculator) = 660

which leads to the lower range of your numebrs. Fine, close enough. Note that home value is ALMOST 800k, as I've asked the broker to go with a strict 5% down, but that's not a big deal.

Utilities are the same between own/rent. Why not? Apples to apples.
Is 2.5% really the rate the lender offered for the house including the mortgage insurance premium? The fact that you have to pay a mortgage insurance premium should set off alarms bells. The reason you have to pay that is because you are buying a house you cannot afford; the bank sees you as more likely to be unable to pay and charges you extra to offset their risk. They are literally telling you hey you can do this, but on aggregate this normally doesn't go well.

As far utilities it varies from state to state, in my state the landlord will pay the water utility and is not separated from the rental cost. Your state may be different feel free to separate out the duplicate costs. Note that when you own a house your utilities will almost certainly be higher than what you paid as a renter.
zagurit wrote: Sun Jan 03, 2021 3:56 am I'm not planning to move before the average moving time in the US (7 years). This is NOT our first house and we have every intention to stay in this city long term (family ties), after our moving experience detailed in the post above.

So what I'm going based off of is 3% price appreciation and moving in >7 years. In that time, with 3% appreciation (why do you consider appreciation zero? That's almost half the value of owning?!) and considering -6% (realtor fees) -maintenance/month (1% for 7 years), the lump sum is still ~$240k? Did you factor in the principal part of the mortgage?
No one plans to move, but as a young family you are likely going to do so. What if you get a new job that pays 50k more? What if you lose your job? What if you get divorced? All of these things are more likely in a young family. By buying a house you have locked yourself into an area, and you don't allow any flexibility in moving without taking a huge loss. I did not take into account any appreciation or principal payment feel free to get the exact numbers on costs. Try to get an exact number on the cost of ownership without taking into account any speculation; it will leave you in a better situation to evaluate the tradeoffs.

Personally I love doing DIY stuff and have no objections to managing contractors, but owning a house is work; either you do it yourself or you hire someone to do it, which is still work; you have to interview contractors sometimes they do a bad job and you have to hire another contractor. Owning a house and especially renovating a house, which you will almost certainly do, puts a lot of strain on your marriage and family, and you are adding crushing debt on top of that. Doing this is like throwing a bomb into your family, unless you have a rock solid relationship you are going to blow up your family.


zagurit wrote: Sun Jan 03, 2021 3:56 am
I GENUINELY appreciate you puncching in the numbers for me, but I trust the NYT calculator to do what you have estimated above. I made an Excel sheet myself, but I think going over those details may be pointless. Why reinvent the wheel? So instead of that, let me tell you what I've used on the NYT calculator and you tell me if something is off:

$800k house, 7 years to stay, 2.5% mortgage, 5% down payment, 30 years, 3% home appreciation, 5% rent growth (California caps it at 10% I think, but let's say my landlord is an angel!), 7% investment return (I've read multiple articles, even from Vanguard, about predicted real future returns of 4%, not 7% which is the historical value), 2% inflation (we'll see about that post-COVID and with people swimming in cash), 1.2% taxes, 4% closing costs (cash to close is $57 accorind to the broker -including down-, so I don't know where this number is coming from), 6% cost of sale, 1% maintenance, 0.46% homeowners insurancce, $500 utilities (egregiously high, but ok), $0 common monthly fees, 0% common fees deduction, 1 month secdeposit, 0% brokerage fee and 1.32% renter's insurance.

Based on allthe above, 7 years is my break even point: $287k cost for both scenarios. Note that I have put in some worst case scenarios for buying (3% appreciation in coastal california, 5% rent increase, 7% return in the markets.
Don't trust an online calculator to make this decision for you; it is a fine starting point to get you thinking, but it should not be used to make a decision. This is one of the biggest decisions you will make in your life. It can either make you and your family happy or blow up your marriage, and make you unable to retire.

Your assumptions are wildly optimistic. I don't know why you assume that California can support having 3% home appreciation and 5% for even another 5 years, people are already net migrating out of California because it is too expensive. You expect that people are going to be able to pay 40% more in rent in seven years in California on top of the already crushing housing costs there? It is possible that it will blow up after you sell, but you are putting yourself in a situation where the only options are that there is no political solution and that people just keep eating the rising housing costs.

What you have done here is start with a conclusion and then gone back and try to fudge the numbers so that you can justify that conclusion. I say this as a person who owns a house and enjoys owning a house; owning a house isn't what you think it is, and the financial benefits are wildly overstated in most areas especially on the coasts.
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anon_investor
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Re: Coming up with mortgage down payment

Post by anon_investor »

MishkaWorries wrote: Sun Jan 03, 2021 11:26 am
zagurit wrote: Sun Jan 03, 2021 3:54 am I have access to another $20k in cash (parent's money I manage) if I really REALLY had an emergency that could'nt be managed with a credit card.
:shock:

I'm out. Do what you want. Your friend has a nice shiny new house and you are envious. Your mind is obviously made up.
Maybe the OP's parents can help with the down payment... :shock:
Golf maniac
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Re: Coming up with mortgage down payment

Post by Golf maniac »

It is all a lifestyle choice. I think what most of the posters are telling you is continue to save and build up for the down payment and closing costs while maintaining a 6 month emergency fund. This is pretty standard Boglehead logic so you should not be surprised at the responses if you read similar postings.

You are at a crossroads, you have done a fantastic job of getting rid of the student debt and maximizing retirement savings. But that house lifestyle is calling to you. Just remember this will be the largest financial transaction you will ever complete and will have an impact on your lifestyle for decades. It can impact how long you have to work and how much you have in retirement accounts when you decide to retire. You are free to make the decision and liquidate the accounts however you choose, it really doesn’t matter does it? Good luck with your decision and I hope it all works out for you.
MedSaver
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Re: Coming up with mortgage down payment

Post by MedSaver »

I don’t think you should do this, but based on your responses it seems you aren’t that open to other opinions. I will say that 2.5% rate (I assume fixed 30 yr) is amazing given your particulars (not great DTI, low down payment, low savings). As an anecdote, I couldn’t find anything less than 2.75% on a similar sized jumbo in CA with higher income, no debt and 20% down.
grettman
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Re: Coming up with mortgage down payment

Post by grettman »

Insanely bad idea. RISKY. RISKY. RISKY.

It works until it doesn’t. There is little margin for error.

Some very smart, regular posters have given you their advice.

I’d rethink this.
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JoeRetire
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Re: Coming up with mortgage down payment

Post by JoeRetire »

zagurit wrote: Sat Jan 02, 2021 4:35 pm 7% of $800k.

Regarding waiting: I don't agree. Wait for what?
If you can't afford a 20% down payment, you can't afford the house.
While I appreciate the response, my question was about the mechanics of converting the assets to cash, not whether to do it or not.
Would not suggest making yourself house poor rather than getting your finances in order.
1-2-4-3 if you must.
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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JoeRetire
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Re: Coming up with mortgage down payment

Post by JoeRetire »

zagurit wrote: Sun Jan 03, 2021 3:54 am I consider my primary residence as an emotional investment
Yup.
Isn't the wholepoint of a primary residence not being homeless at retirement?
No, that's not even a point at all. Do you consider renters "homeless"?
Considering the total cash available (~$70k), I thought $10k in reserve today is acceptable.
If you included the mortgage, how many months of expenses would $10k buy you? Doesn't seem like enough to me.
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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sergeant
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Re: Coming up with mortgage down payment

Post by sergeant »

epictetus wrote: Sun Jan 03, 2021 11:07 am some people may have missed you have paid down almost 200,000 in student loans in the last 5 years and at the same time have been maxing your retirement accounts. on 25% less income than you make now. that is great!!

that doesn't mean you can/cannot/should/should not buy the house.

just that you haven't been squandering money/goofing off financially the last few years.
Seems like he got a 100k relocation payout and used that and some profit from the condo sale to payoff part of the student loan. I don't think his debt reduction is all that impressive. His friend got a new house and he wants one too. Planning on using his parent's 20k estate, which he manages, in case of financial need is a warning sign. Having to liquidate his own small savings and retirement funds to put up a small down payment is another. I also don't think he can get the 2.5% mortgage but OP is going to do what he wants. I wish him good luck.
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.
Detroittl
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Re: Coming up with mortgage down payment

Post by Detroittl »

I see that 3 percent average appreciation number thrown around. I believe it’s more like 1 percent unless you’re renovating as it ages. Something to think about. Location location location though...
Admiral
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Re: Coming up with mortgage down payment

Post by Admiral »

Do not buy a house unless you can come up with AT LEAST 20% down. It's that simple. You'll be on the treadmill the rest of your life if you complete this purchase as planned.
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