Decisions, Decisions
Posted on January 22, 2012 8 Comments
In this limbo life, I vacillate between wanting desperately to move on to the next stage in my life, and being perfectly excited about the possibilities of a life less roadmapped. Some days, I find myself browsing prices of housing close to home. Other days, I enthusiastically browse positions for me in markets where man-friend has a better shot of full-time employment. It’s hard to explain the duality of these conflicting states of being. On one hand, I feel optimistic and full of life, discovery, and exploration, ready to try something new; on the other hand, I feel totally frustrated with no clear path for the future. We talk often about these feelings; we both want out of this apartment, we know our lease is up in April, and we both recognize the opportunities to purchase property for a great price in our area – which means locking us both into this job market – or to stay unencumbered, without property, until we hear positive news about B’s employment, which could happen tomorrow (here or elsewhere), or could take another six months or more.
Yesterday I was falling on the side of buying property. I was browsing on Trulia, and noticed that a huge group of single-family homes are now available for less than $200,000 in nearby suburbs. Many of these properties are short sales and foreclosures, and a number have recently dropped significantly in price. If I put down 20 percent on one such house, which I could do, we could be paying less monthly for a mortgage than we do for our rent. That got me going. I started thinking about reducing my retirement contributions between now and April to give myself a quick infusion of cash for closing costs, home improvements, etc. I mentioned to man-friend that even if he moved elsewhere, I wouldn’t go automatically; he’d need to spend six months to see if it was a good fit, which would give me time to see the place if I bought it. I wouldn’t care about making money on the sale, if I could sell it for the same price as I bought it, that would be fine; it’s just the cost of living. So, yesterday I was humming along with this plan in my head, looking forward to April, when my apartment lease is up.
But then last night as I was talking to my home-owning brother, he asked about taxes, fees, and points, and basically said I needed to factor a whole bunch of other costs into my monthly mortgage bill and into the initial payment. All of which I knew, I was just blissfully sort of ignoring at the moment.
We also started talking about our family trip to Italy, which is supposed to happen in October, and costs for that.
All of which got me thinking, gosh, I probably need about $10K more in savings before I put down that 20 percent. I hate to admit it, but it’s true. I still think temporarily reducing my retirement contribution for a few months to give me more cash towards a home purchase is a good idea. Right now, it would probably take me 10 months to save an extra $10K. If I reduce my retirement funds down to 5 percent (from today’s ten percent), I could get there much quicker. My retirement funds are in a pretty good place for my age, and this plan does not involve taking anything out of the current investment, so I feel OK doing that. Plus I’m not spending that money on anything frivolous, or using it for daily living expenses. The other nice thing about waiting until I have an extra $10K is that it adds a few more months to B’s job hunt, which is a positive.
So that’s where I am today. Oy. I wish things were as simple as when my biggest care in the world was finding a great pair of black pants. When did things change so much?
Category: Money
Tags: Home , Saving
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8 Responses to “Decisions, Decisions”
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January 22nd, 2012 @ 2:00 pm
Being a “grown up” is over-rated, IMO.
That does sound like a good plan to me, though — as you said, your retirement is in good shape, it is still a buyer’s market (for the most part), and you’re not blowing the money on something frivolous; you’re simply setting aside funds for a different kind of investment for your future.
I say look upon it as diversifying your portfolio
January 22nd, 2012 @ 2:43 pm
Tough call on the home. As a home owner like your brother I’d warn you to be careful too.
First of all the “how much will my mortgage be” calculators I used prior to buying seemed to undercalculate my P&I. Second, don’t forget insurance. Taxes and interest are at least things you can write off, but if you are (as you sound like you are) a single income earning household that’s probably not a big tax advantage. In my experience You probably need to be two income earners making well upwards of six figures to really benefit from the home deduction (though you could probably get a spreadsheet, do some calculations at your local bank website, and figure out whether it would make any more sense to itemize and deduct interest than to you use the standard deduction. If you are already itemizing it might be an advantage).
I think it’s great you want to have a bigger cash cushion. I really wish we had done that. We cut it pretty close. We got a good deal over three years ago on a forclosure. Problem with forclosures is no one’s been taking good care of it so a lot of things can go wrong right away (plumbing, water heater, oven, dish washer, heating, insulation, termites). When you are renting the landlord takes care of all these things, and generally keeps the place in better care so they don’t have to shell out a lot. In your own home you may not be able to initially afford a lot of the things that would keep your house in better condition and will be forced to do a lot of quick fixes. That being said, if it really is about equal to what you pay in rent, and is in a good neighborhood, it’s probably very worth considering. Missie is right about it being a good addition to what you are invested in. Also the sooner you get equity in a home (even if you sell it and move the equity to another house) the better chance you can pay it off before retiring.
January 22nd, 2012 @ 2:50 pm
I’ve been dealing with a lot of the same issues myself. We are buying this April/May, although our lease is up in March. Oops!
Also, a word about Trulia. They seem to be a bit on the slow side for updating listings to reflect them going under contract.
January 22nd, 2012 @ 3:11 pm
Really great advice everyone. And welcome new commenters! I love having you!
In addition to the above, man-friend just reminded me to be cognizant of how much my work matches. I think I can go down to 5% without sacrificing any match contributions, but I need to double check. My work has a ridiculous matching policy. They automatically contribute 5% , and they also match up to 5%. I invest 10% every month. I always forget how great the benefit is.
Definitely need a bigger cash cushion, especially for the foreclosures/short sales. Thank you for your input.
January 22nd, 2012 @ 8:56 pm
As a homeowner myself, I think owning a home is completely overrated. Unless you are sure you want to be somewhere for at least 5 years, I would hold off on buying. If you feel like you need a change of scenery can you look into renting a different apartment? Or maybe even renting a house?
Our home right now is a condo and we desperately need more space. However, sometimes I think I overestimate how happy a new house would make us.
Enjoy the freedom an apartment affords while you have it.
One last thing. I think you should keep your retirement savings at 10%. You are so young and this money will have so much time to grow! It seems like such a shame to contribute less to your 401k to buy a house, particularly when you think you may move!
January 23rd, 2012 @ 12:15 am
I’d consider what your plan would be if you have to relocate. I really would love to buy a home too, but I only see geographical stability as less and less common in the future.
January 23rd, 2012 @ 7:17 am
From personal experience –
(kids I’m still scared to death of having)
You will always find an excuse to – not buy a house and not to have kids.
I was planning on buying a house and something was always in the way until I finally put my foot down and did it, and guess what everything was fine and nobody got hurt
I went to Italy for my honeymoon for less than $2,000 including spending money – 8 days.
So you can do it too(the trip and the house and all mumbo jumbo that goes with it)
January 23rd, 2012 @ 10:33 am
I bought a foreclosed home before starting grad school, figuring since I would be here 5 years, and the mortgage would be cheaper than rent, it was a good investment. And it is. I’m relieved knowing that I will probably get back a good chunk of that check every month.
However, in addition to my mortgage, there’s maintenance costs, the itch to make home improvements, and when things break I’m the one who has to fix it or pay for a repairman. Inevitably the night before I have friends over for dinner the dishwasher breaks and I find myself unclogging icky drains instead of studying.
And I realize this is a ridiculously long comment, but I want to end with, I LOVE being a homeowner. It gives me such satisfaction and a sense of adulthood while I’m not living a very grown-up life. And it is awfully satisfying to paint a room, replace a fixture, and fix the #(%& dishwasher.