[House] Buying Options

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Topic Author
Broadway2018
Posts: 275
Joined: Sat May 13, 2017 3:34 pm

[House] Buying Options

Post by Broadway2018 » Mon Jul 01, 2019 10:14 am

Situation
Relocated to HCOL and want to buy
Target Price - $600-$700k
Downpayment - We have $30k savings and another $30k from a home sale
Income - $200k, this is a recent bump from $120k
401k - $140k
Age - 34 yr old

I am trying to figure out options to get the 20% downpayment. I could borrow money from my 401k but really don't like that idea. Although I could pay it back in 6 months. Basically I have to buy by November or rent something and try again next year. The reason I want to buy is I do not want to move again and I have a house of furniture. Renting is not optimal since its about $3k a month to rent something worse.

Are there loan options or should I look into a heloc? Or pay PMI? Not sure what the options are now a days.

bloom2708
Posts: 6348
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Buying Options

Post by bloom2708 » Mon Jul 01, 2019 10:26 am

I would rent for a year.

I know moving again isn't fun, but buying too much house with not enough down payment in a HCOL area is really no fun. All housing related costs and taxes, insurance will be much higher with the more expensive house.

Do you have an Emergency fund on top of the $30k savings?

The year would allow you to familiarize yourself with the area and figure out what your costs are and save more. A good chunk of the raise goes to taxes.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

Topic Author
Broadway2018
Posts: 275
Joined: Sat May 13, 2017 3:34 pm

Re: Buying Options

Post by Broadway2018 » Mon Jul 01, 2019 11:47 am

bloom2708 wrote:
Mon Jul 01, 2019 10:26 am
I would rent for a year.

I know moving again isn't fun, but buying too much house with not enough down payment in a HCOL area is really no fun. All housing related costs and taxes, insurance will be much higher with the more expensive house.

Do you have an Emergency fund on top of the $30k savings?

The year would allow you to familiarize yourself with the area and figure out what your costs are and save more. A good chunk of the raise goes to taxes.
This would be for a small condo. It is 1/2 the size of our house on the east coast. So from a space perspective we are buying a much smaller place. Also, our worry is in 1-2 years the same condo will continue to rise in value so we are going to be chasing the downpayment number. We would be spending $3000 to $3500 a month in rent. Which would be the same mortgage value.

Just trying to think through as renting for one year is $40k. Even with a $3500 mortgage we could save $4k or so a month.

onourway
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Joined: Thu Dec 08, 2016 3:39 pm

Re: [House] Buying Options

Post by onourway » Mon Jul 01, 2019 12:10 pm

With your $30k in cash (assuming the $30k savings is really your emergency fund) you don't even have 5% down plus closing costs. I think it's a big risk to take on that much mortgage with that little savings. You also don't know that house prices will continue to rise the next couple of years. Many markets are already cooling. Something bad could happen and the market could tank and one of you loses their job and you'd be stuck. Borrowing from the 401k only adds yet more risk.

bloom2708
Posts: 6348
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Buying Options

Post by bloom2708 » Mon Jul 01, 2019 12:12 pm

Broadway2018 wrote:
Mon Jul 01, 2019 11:47 am
This would be for a small condo. It is 1/2 the size of our house on the east coast. So from a space perspective we are buying a much smaller place. Also, our worry is in 1-2 years the same condo will continue to rise in value so we are going to be chasing the downpayment number. We would be spending $3000 to $3500 a month in rent. Which would be the same mortgage value.

Just trying to think through as renting for one year is $40k. Even with a $3500 mortgage we could save $4k or so a month.
The mortgage payment is only part of the expense of owning. I completely understand where you are at.

You are willing to pay $600 to $700k for a small condo which is not what you really want. That is approaching 4x your salary which is new. Taxes will be high. Insurance will be expensive. If you buy, you will want to start fixing/updating because that is just how it works.

Do you have enough cash to do 10% down with closing costs? I guess you can start seeing what your local bank/credit union will borrow you.

If you have to borrow to take out a mortgage, that just doesn't scream "I am ready" to me. But, if you search on this topic there are a ton of threads where people in HCOL do financial gymnastics to get into a house because they want it now.

Maybe the bank will give you a 80% loan with a 10% HELOC maxed out so you can buy with 10% down. Rates are trending down.

The key is, can you meet your financial goals (saving) renting? If so, that is a reasonable option. Can you meet your financial goals buying? It might be very tight for a number of years, but it may work out if home prices keep rising.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

Topic Author
Broadway2018
Posts: 275
Joined: Sat May 13, 2017 3:34 pm

Re: Buying Options

Post by Broadway2018 » Mon Jul 01, 2019 12:33 pm

bloom2708 wrote:
Mon Jul 01, 2019 12:12 pm
Broadway2018 wrote:
Mon Jul 01, 2019 11:47 am
This would be for a small condo. It is 1/2 the size of our house on the east coast. So from a space perspective we are buying a much smaller place. Also, our worry is in 1-2 years the same condo will continue to rise in value so we are going to be chasing the downpayment number. We would be spending $3000 to $3500 a month in rent. Which would be the same mortgage value.

Just trying to think through as renting for one year is $40k. Even with a $3500 mortgage we could save $4k or so a month.
The mortgage payment is only part of the expense of owning. I completely understand where you are at.

You are willing to pay $600 to $700k for a small condo which is not what you really want. That is approaching 4x your salary which is new. Taxes will be high. Insurance will be expensive. If you buy, you will want to start fixing/updating because that is just how it works.

Do you have enough cash to do 10% down with closing costs? I guess you can start seeing what your local bank/credit union will borrow you.

If you have to borrow to take out a mortgage, that just doesn't scream "I am ready" to me. But, if you search on this topic there are a ton of threads where people in HCOL do financial gymnastics to get into a house because they want it now.

Maybe the bank will give you a 80% loan with a 10% HELOC maxed out so you can buy with 10% down. Rates are trending down.

The key is, can you meet your financial goals (saving) renting? If so, that is a reasonable option. Can you meet your financial goals buying? It might be very tight for a number of years, but it may work out if home prices keep rising.
Thank you for the insight and write up. I have enough for 10% down. The mortgage with taxes, hoa, and insurance would be $3700. A small 1 bedroom would be $3000 and something comparable to rent $3500+.

The HCOL is definitely a challenge. Also my partner will work however I excluded her income since we don't know what it will be once she relocates. Right now she makes $95k. At minimum she will make that here or more.

Topic Author
Broadway2018
Posts: 275
Joined: Sat May 13, 2017 3:34 pm

Re: [House] Buying Options

Post by Broadway2018 » Thu Jul 11, 2019 9:04 pm

Update: Accepted the condo for $675,000 with 2% closing costs paid by seller. Got approved to put as little as 5% down but think we will do 10%. Also, debating between 30 or 15 year mortgage. I feel like we could swing the 15 year but I think I would rather get my savings up instead.

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