Money Matters for Myself :)

[lo95]

I'm throwing myself my own personal Money Matters thread today.

We sold our house with the hope of getting back to the city we want to live in.  Unfortunately, this is a total seller's market and now we are having NO luck finding anything.  (Well, we had one house we were interested in, then it was sold. Womp womp.)  We have always done really well with money and prefer to pay a very small mortgage, hence having a little house for the last five years. Our current house's mortgage is only 17% of our after-tax take-home pay. (About 13% of our total before-tax take-home pay for those who like to think about it like that.) It makes me sleep easier at night to have more money in the bank and very little going toward housing since I am not working. 

Here's where I need life perspective and SAHM advice.  I'm going to put all of the options we are thinking about below.  Please tell me, as one Internet friend to another lol, what you would do if you were in our shoes.

(House Buying Options)
Option 1. We have enough money saved to do 20% toward the conventional loan of our forever house.  This eliminates PMI and gets us the smallest monthly mortgage.  The resulting payment for the price range we are looking at would be 25%-28% of our after-tax take-home pay depending on the week since DH's pay varies a little from week to week. We would still have a decent emergency fund left over after paying the 20% down.  Not as much obviously, but enough to, in theory, cover 6 months of expenses.

Option 2.  We could do a conventional loan, but at a lesser down payment to keep substantially more cash in the bank.  With this option I am leaning toward 10% down.  We would pick up the additional expense of PMI as well as a little more on the monthly payment (adds $100 more to the monthly mortgage payment, plus the cost of PMI, which I believe is somewhere around $100).  
_______
(Rental Options)

Option 3. Rent fancy pants apartment that is nice and clean and allows for a 6 month lease as well as month by month rent later, but with the additional cost of $300 to the rent per every month out of lease.  Said fancy pants apartment was chosen after visiting almost 15 complexes and feeling uneasy with bedbug reports, roach reports, registered sex offenders, upkeep issues, etc at units visited.  So, this fancy pants apartment would be 25% of our after-tax take home pay plus we would need to rent a unit for our stuff at $100 additional a month because fancy pants apartment doesn't have a place for all of our yard/house/big stuff. Continue house hunt for four months because we have to give 60 days notice before lease ends.  If no house is found, do another 6 month lease and continue house hunting.  

Option 4. Try to find a house or townhouse and put our house hunt on hold until next year since most houses or townhouses will only do a year-long lease.  The price would probably be comparable to fancy pants apartment, but with more space and no need to rent a storage space.  I am having a LOT of trouble even finding these as options because everyone in my area is so pinched on house-buying that the rental market is very tight too.  


*Side Note on Apartment Rentals: Option 3 comes with the bonus (cough cough) that the water bill won't be based on our own usage, but the average of the building and given out to us based on how many people are in our unit.  This pisses me off, but apparently this is now a thing because almost every apartment we saw, even the junky ones, are doing this. Total BS in my opinion.  This could really make our monthly budget swing a lot because how can you guess how much water everyone else is using!?  The leasing agent told us his best guess was $65 a month.  Now, I know that sounds like a lot, but actually we've been paying $70-75 a month at our own house because we use a lot of water.  So...if it was $65 that's actually not shocking to us...but if it was more...yeah, who knows.





Okay, so hopefully I've given enough background to help my Internet friends help me out.  If there's a better option I'm not thinking of let me know.  The only options we DON'T have are 1) not selling our house because it's already sold and 2) staying with family in the interim because they don't help us out like that.

Thanks for any insight!



ETA: Our price range is slim pickins!  If we go up another 10k from the point that we said was our "cap" we have more options. I talked to the mortgage guy and he said that it would only add 2k onto our 20% down and about $35 a month toward our monthly mortgage. Still.... It just sort of freaks me out. Any life advice on that topic?

[mishy2010]

I'm biased in that I think owning is better than renting majority of the time when you're in the market for a forever home. I like option 1. You have enough to eliminate a PMI and you have 6 months worth of savings. What percent of the rest of your take home pay is allocated to paying bills? Do you still have enough left over to contribute to savings every month? If the answer is yes then I say go for it. You are in a very good situation money wise and I think option 1 would save you the most in the long run.

[lo95]

Apr 7, 2016 10:55:26 GMT -5 mishy2010 said:

I'm biased in that I think owning is better than renting majority of the time when you're in the market for a forever home. I like option 1. You have enough to eliminate a PMI and you have 6 months worth of savings. What percent of the rest of your take home pay is allocated to paying bills? Do you still have enough left over to contribute to savings every month? If the answer is yes then I say go for it. You are in a very good situation money wise and I think option 1 would save you the most in the long run.

Hmm. Good question.  A question I stress about a lot lately...  I'm not sure the exact percentage, but with recent medical bills and expenses to sell our house we've only been able to put away about 5%-8% in cash savings.  Now, that said, we fully funded my own Roth for the year with the tax refund.  My husband has been contributing 6% to retirement  with a 5% employer match... But we have debated turning off his contributions to put to put together even more of a cash cushion because that's how we are. The thought of moving around so much cash on one income has us both squeamish.  But maybe I'm right to be as a SAHM? I guess I feel like we are more on the line than the dual income household, you know?

[mrsmuq]

I really don't know which option would be best.

I will throw this out there: I am pro-owning versus renting, at least long term. If a rental is necessary to find your forever home 6 months or a year from now instead of "settling" in order to buy a home now, do that. What I think you should consider is shopping around for your financing. Look at 15 versus 20 versus 30 year mortgages. Shop banks versus credit unions. Also, if you make payments twice a month (every 15 days or so) versus once a month, you save a bit on interest. You also shave seven years off the life of a 30 year loan by making an extra mortgage payment each month (also pay off to eliminate PMI faster).

Ideally, housing should be 30% or less of your income. You're still in that safe range with your buying options above.

[lo95]

Apr 7, 2016 11:49:02 GMT -5 mrsmuq said:

I really don't know which option would be best.

I will throw this out there: I am pro-owning versus renting, at least long term. If a rental is necessary to find your forever home 6 months or a year from now instead of "settling" in order to buy a home now, do that. What I think you should consider is shopping around for your financing. Look at 15 versus 20 versus 30 year mortgages. Shop banks versus credit unions. Also, if you make payments twice a month (every 15 days or so) versus once a month, you save a bit on interest. You also shave seven years off the life of a 30 year loan by making an extra mortgage payment each month (also pay off to eliminate PMI faster).

Ideally, housing should be 30% or less of your income. You're still in that safe range with your buying options above.

I always love talking money with you.  We do actually pay our mortgage biweekly, which is great because it shaves so much off in the longterm.  (Of course we sold this house so it doesn't matter, but yeah...)  I guess my fear is getting tied up in a lease and then finding THE house a week later.  But pretty soon it'll be a moot point because we will need somewhere to go.  There is one house that is on the market that is just beautiful and well below our max price.  But it's an hour and ten each way for DH to work. It's that kind of stuff, you know?  Like, a good forever house can't be that far from work.  So those are the kinds of things that we are getting stuck with as options right now.

[mrsmuq]

Apr 7, 2016 12:00:29 GMT -5 lo95 said:

Apr 7, 2016 11:49:02 GMT -5 mrsmuq said:

I really don't know which option would be best.

I will throw this out there: I am pro-owning versus renting, at least long term. If a rental is necessary to find your forever home 6 months or a year from now instead of "settling" in order to buy a home now, do that. What I think you should consider is shopping around for your financing. Look at 15 versus 20 versus 30 year mortgages. Shop banks versus credit unions. Also, if you make payments twice a month (every 15 days or so) versus once a month, you save a bit on interest. You also shave seven years off the life of a 30 year loan by making an extra mortgage payment each month (also pay off to eliminate PMI faster).

Ideally, housing should be 30% or less of your income. You're still in that safe range with your buying options above.

I always love talking money with you.  We do actually pay our mortgage biweekly, which is great because it shaves so much off in the longterm.  (Of course we sold this house so it doesn't matter, but yeah...)  I guess my fear is getting tied up in a lease and then finding THE house a week later.  But pretty soon it'll be a moot point because we will need somewhere to go.  There is one house that is on the market that is just beautiful and well below our max price.  But it's an hour and ten each way for DH to work. It's that kind of stuff, you know?  Like, a good forever house can't be that far from work.  So those are the kinds of things that we are getting stuck with as options right now.

Oh, also, depending on where you personally bank (have your checking and savings, and how much you keep with them), you may be able to negotiate a lower interest rate than what they advertise.

We got interest rates from our local credit union, a competitor bank and our current bank when refinancing. The credit union was .5% lower. We called our current bank and told them said info, and they dropped their rate to match it on the spot.

[brachysira]

Did I miss it? Does the fancy apt cost less than your expected mortgage? Do you want to live in a fancy apt? I think it could be a lot cheaper than dealing with commute or costly house repairs. Also, I would never quit contributing to retirement while there is an employer contribution.

Edit: oh, I see.  I guess it depends on if you like the apt.  Sounds like it costs the same as owning but I can't quite tell b/c of the storage unit issue.  

[lo95]

Apr 7, 2016 12:39:01 GMT -5 brachysira said:

Did I miss it? Does the fancy apt cost less than your expected mortgage? Do you want to live in a fancy apt? I think it could be a lot cheaper than dealing with commute or costly house repairs. Also, I would never quit contributing to retirement while there is an employer contribution.

Edit: oh, I see.  I guess it depends on if you like the apt.  Sounds like it costs the same as owning but I can't quite tell b/c of the storage unit issue.  

Well, here's the kicker.

If we do Option 1 and put down 20% on a house that is the TOP of our limit, it will still be $200 less a month than fancy apartment.  Even with property taxes included. (Fancy apartment would be $400 more a month than our current mortgage...plus mystery utility bills. lol)

Here's the thing I'm struggling with.  I have always wanted to buy a forever home that is WAY less than the top of our budget.  However, the areas we are looking in so that DH can commute for his job push us into some of the priciest areas in town.  So at the current point we are at the only homes available are either gutted fixer uppers with mold or the top of our budget and then you can have a bidding war with someone even then because everyone is trying to get in.

I feel so so conflicted because at this point we can afford Option 1.  At this point.  But seriously how do you know what your finances will be in 5 or 10 years?  I mean, in theory, no medical catastrophes will come up, no job loss for DH will occur, some kind of income will come in for me when my kid(s?) are off to school and that will help too, but yeah... Life is never straightforward.  So I'm wondering if I'm pushing it too close.   But that said, you need to know that "close" for me means that our mortgage would be approximately $230 more a month than our current monthly mortgage... That's not actually that much, right?  I'm just letting a big number on the price of the houses freak me out, right?!

I know this sounds nutso, but I'm so afraid of making a poor choice financially.  I really don't have family to ask for their opinions and money makes people weirded out when you bring it up in real life, so that's why I'm counting on my Internet friends.

[ashiscute]

lo95 we bought our forever home 2 years ago. The house was listed about $15,000 over our budget but we ended up paying about $6,000 over our desires budget but still within what we could afford. Sure it was more than we were hoping to spend but the extra cost was worth it for us to get what we wanted. We are close to H's work, in our preferred school district, 10 mins from the city, etc.

If you find the the perfect forever home I don't see the value of doing even 6 months in an apt. If you can swing it do option 1. Or you can do option 2 and wait a small amount of time until you're comfortable and then pay the PMI off if needed.

Also, I def would not ever decrease contributions to your H's retirement. If you need money you can always borrow against your 401k and then your aren't losing money since you're paying yourself back. But retirement savings trumps cash savings IMO if you will still have a 6 month cushion.

[lo95]

Apr 7, 2016 13:38:22 GMT -5 ashiscute said:

lo95 we bought our forever home 2 years ago. The house was listed about $15,000 over our budget but we ended up paying about $6,000 over our desires budget but still within what we could afford. Sure it was more than we were hoping to spend but the extra cost was worth it for us to get what we wanted. We are close to H's work, in our preferred school district, 10 mins from the city, etc.

If you find the the perfect forever home I don't see the value of doing even 6 months in an apt. If you can swing it do option 1. Or you can do option 2 and wait a small amount of time until you're comfortable and then pay the PMI off if needed.

Also, I def would not ever decrease contributions to your H's retirement. If you need money you can always borrow against your 401k and then your aren't losing money since you're paying yourself back. But retirement savings trumps cash savings IMO if you will still have a 6 month cushion.

I always wonder what most people keep in savings.  I think because I saw one crisis after another with my parents growing up it has jaded me in terms of worrying about going broke.  Here's my next SAHM question:  How much of a cushion do you think SAHP should have vs dual income families?  I feel like it's more, right?

[ashiscute]

Apr 7, 2016 13:49:20 GMT -5 lo95 said:

Apr 7, 2016 13:38:22 GMT -5 ashiscute said:

lo95 we bought our forever home 2 years ago. The house was listed about $15,000 over our budget but we ended up paying about $6,000 over our desires budget but still within what we could afford. Sure it was more than we were hoping to spend but the extra cost was worth it for us to get what we wanted. We are close to H's work, in our preferred school district, 10 mins from the city, etc.

If you find the the perfect forever home I don't see the value of doing even 6 months in an apt. If you can swing it do option 1. Or you can do option 2 and wait a small amount of time until you're comfortable and then pay the PMI off if needed.

Also, I def would not ever decrease contributions to your H's retirement. If you need money you can always borrow against your 401k and then your aren't losing money since you're paying yourself back. But retirement savings trumps cash savings IMO if you will still have a 6 month cushion.

I always wonder what most people keep in savings.  I think because I saw one crisis after another with my parents growing up it has jaded me in terms of worrying about going broke.  Here's my next SAHM question:  How much of a cushion do you think SAHP should have vs dual income families?  I feel like it's more, right?

Yes and no. I think that's an important factor but so is monthly expenses and debt. We probably have less cash coming in each month with only one income. Most of our friends have student debt, credit card debt, car payments, etc to consider. We do not have any debt other than mortgage and just regular living expenses. Also, if we were in bad shape financially we could borrow money from our parents which isn't a situation everyone is in.

I think we have about 10 months right now.

[lo95]

Apr 7, 2016 14:11:06 GMT -5 ashiscute said:

Apr 7, 2016 13:49:20 GMT -5 lo95 said:

I always wonder what most people keep in savings.  I think because I saw one crisis after another with my parents growing up it has jaded me in terms of worrying about going broke.  Here's my next SAHM question:  How much of a cushion do you think SAHP should have vs dual income families?  I feel like it's more, right?

Yes and no. I think that's an important factor but so is monthly expenses and debt. We probably have less cash coming in each month with only one income. Most of our friends have student debt, credit card debt, car payments, etc to consider. We do not have any debt other than mortgage and just regular living expenses. Also, if we were in bad shape financially we could borrow money from our parents which isn't a situation everyone is in.

I think we have about 10 months right now.

Good point.  No debt here either.  I guess I also stress because I know my job is tough to get back into in an emergency.  But maybe I'm worrying for not.

[mrsmuq]

I just realized our water authority is probably not charging (in general) enough for our water consumption. I just paid $65 for three months. Even in the summer when we have the pool and gardens to water, it's max $200 for the three-month period.

We get screwed on electricity, though.

[mrsmuq]

lo95, YGPM.

[brachysira]

What you need to have in the emergency account does depend a lot on other factors. Do you have parents or others who could help? Do you have a place you could move if no one was working (like sibling has a big house, in-laws have a farm with a trailer)? Is your H secure in his job and unlikely to change jobs? How much could you make if you had to get a job right away, or could you even get a job? Do you have good insurance? What other expenses do you anticipate--cars getting old? Etc. Since I have forever been a student, I have savings in an IRA but nothing else has a penalty, so I could use money in the 2040 Vanguard if I had to, although that's different from what you keep for strict emergencies since the market could crash.

COL also seems to matter. If you live on very little each month, then having 10 months of expenses saved isn't going to help if your roof starts leaking and you have repairs that cost more than you have saved. You need to have an emergency fund based on emergencies that may occur beyond job loss.

I remember going through this. DH really wanted a more expensive house, but I just thought we couldn't afford it. I'm glad we found this cheaper one. With 2 kids that fight constantly, we started preschool early, I hire baby-sitters, and I like to do a lot of classes and stuff to keep the kids busy, so I'm glad we aren't struggling each month. I know this doesn't help you...it sounds like you may live in an area where you just can't get any affordable housing without a long commute.