some financial advice please

**humandraydel** · 10-08-2007, 04:24 PM

There is NO WAY I would rely on my savings to pay part of my mortgage. You should be continuing to save, not draining your savings.

**safari** · 10-08-2007, 04:24 PM

Originally posted by chooch View Post

So, im thinking about buying a house. I currently pay $800 rent. Which is good good for the NYC metro area. However, i know that people say you should get into a house as soon as possible. So i have been looking into places. However, most places in the area that i want to live seem to be a bit out of my price range according to most of these calculators out there. I have considered waiting, however this area is booming and it seems to make sense to make a move in this area in the near future.

I guess my question is, most calculators say i can afford say houses in the $250-$280 range. Considering i have a decent amount of money in savings, can i look into houses that might be a bit more than that, say $320-$340 range? If i got a place that was in the higher price range i might have to tap into my savings periodically to help pay for my mortgage. Or should i try to not tap into my savings as much and stick to things that are in my price range? Thanks.

You can make a larger downpayment from your savings, for example, put 40% down instead of 20%, but you should never count on your savings when making monthly mortgage payments. Otherwise, your savings will go down over time and you will become broke if your income doesn't increase.

**Scanner** · 10-08-2007, 06:19 PM

Assuming you have the 20% to put down, I might be inclined to risk it. We have dipped into savings from time to time to pay our mortgage.

Our grandfathers used to advise: "Buy as big of a house as you can afford!"

Of course, grandpa didn't know of the subprime debacle but there was some wisdom and truth in what he was advising.

I am a little contrarian here in that I view home ownership as a mainstay of wealth accumulation in America (the gov't would agree with me here). To me, it's part of my portfolio and net worth.

If you are going to do it, here's the precautions I would advise:

1. Put 20% down. That way, you don't have to buy mortgage insurance. I think you lose out if you put less than that down.
2. Deploy the other part of your investment portfolio into conservative vehicles - ie - bonds and cash.
3. Don't carry any other debt, auto or consumer.
4. Be adequately insured - disability being the main one.
5. A fixed mortgage right now will mean you will have inflated dollars to pay with in 5 years. 4 years ago, when we took out our mortgage, $1026 (not including tax) seemed like soooooo much. Now. . .eh. . .it seems kind of average. That's the good part of inflation. Don't do an ARM. We have a mortgage locked in at 6% which essentially is cheap money.

Good luck.

**meaghanchan** · 10-08-2007, 06:30 PM

Originally posted by chooch View Post

So, im thinking about buying a house. I currently pay $800 rent. Which is good good for the NYC metro area. However, i know that people say you should get into a house as soon as possible. So i have been looking into places.

There are plenty of reasons to buy a house, but 'people say you should' isn't one of them. I live in the same area, and I've done the math for my own situation, and financially, renting turns out to be the better choice for me.

Sure, you are 'throwing away money' on rent-- but if you bought a house with a mortgage, you'd be 'throwing away money' on interest. You are only losing $800 to rent a month. If you owned, for the first couple years, you'd be losing about $1400/month (of a $1500 mortgage) to interest. Sure, in time, the ratio of interest to prinicipal would improve- but only after several years, depending on a lot of factors (appreciation, yearly rent increases, etc). There are a number of good rent vs. buy calculators that you can look for online that will tell you if renting or buying is the best financial decision.

If you do decide to buy, I would go with the lower price range ($250-$280). Houses have appreciated tremendously in the last few years, and there's no way to know whether that will continue, or whether prices will fall drastically. You don't want to be in the position where you can't pay your mortgage because of some emergency and you owe more on your house than it's worth.

**Ima saver** · 10-09-2007, 05:36 AM

I think buying and owning a house at a young age (I was 21) helped my net worth a great deal.
I bought a starter house in 1966 for $13,000. I added a room and pool ($7000) and sold it for over $40,000 in the 70's. I built a new home and when I sold it, I doubled my money again.
I made sure that I made all the extra payments that I could and I was mortgage free by age 32 and have remained that way.

I was suggest you buy a house in the lower price range and try your best to get it paid off early. I don't like paying interest!

**disneysteve** · 10-09-2007, 06:35 AM

Originally posted by chooch View Post

people say you should get into a house as soon as possible.

most calculators say i can afford say houses in the $250-$280 range. Considering i have a decent amount of money in savings, can i look into houses that might be a bit more than that, say $320-$340 range?

Forget what people say. Look at the facts. The average saving rate in this country is close to zero. Credit card debt is at a record staggering level. Do you really want to base your decisions on what "people say"?

Congratulations on doing your homework and taking the time to run the numbers on some calculators. But what was the point in doing that if you are then going to turn around and spend 40K to 90K more than the calculators have told you you can afford?

Put down 20%.
Don't spend more than 3 times your income.
Your monthly housing costs shouldn't exceed 28% of your monthly income.

Follow those 3 rules and you'll be fine. If you need to dip into savings to pay your mortgage, you have a house you can't afford (or a lifestyle you can't afford).

**Ima saver** · 10-09-2007, 08:40 AM

What does a starter house go for in your area? Prices should be down right now, see if you can find a bargain. I agree with what steve says above.

**Scanner** · 10-09-2007, 12:10 PM

I know I am the sole dissenter here but I think DisneySteve hit upon a salient point that will make me seem wishy-washy.

Even though my wife and I did extend ourselves a bit with our house and dipped into our savings from time to time (November: triple whammy month coming up), DisneySteve is right about having a lifestyle you can't afford.

We essentially have been "house poor" the last 3-4 years.

Let me paint a picture of house poor. It's not like we are a moment's notice from being evicted.

We can afford our house, the lawn is mowed and green and nicely landscaped but open the door into our house - there are rooms without furniture or old furniture, there is "shot carpet" that we still owe on from the first mortgage, no travel vacations for the family and often we did not contribute to our Roth IRA's in certain years.

Now. . . you have to ask is this the kind of life you want to choose? If so, then you can probably "overextend" yourself a bit (<---- operative word: bit) but maybe some thought should be given as to whether you want to lead the "house poor" lifestyle.

That's the thing with calculators - how much are they allowing for "recreation" and other line budget items? I don't know.

Now, 3 years later. . .like I said, the $1026/month mortgage doesn't seem like much. That's one of the "pros" of inflation (probably the only one). We are getting ahead and now putting more money away for retirement and college.

It's a hard business decision. We have 66% equity in our home and I have always quipped here, "I don't know how I ended up here. . .with the mainstay of our wealth locked into our house." It's probably the choices we have made and partially the American economy.

Just think carefully on how much you want to be a slave to the house, or "damned house" as I like to say sometimes (but don't say that around the DW. . .houses are sacred to women

)

**disneysteve** · 10-09-2007, 12:22 PM

Originally posted by Scanner View Post

We essentially have been "house poor" the last 3-4 years.

Let me paint a picture of house poor. It's not like we are a moment's notice from being evicted.

there are rooms without furniture or old furniture, there is "shot carpet" that we still owe on from the first mortgage, no travel vacations for the family and often we did not contribute to our Roth IRA's in certain years.

Thanks for posting. Great example of what it means to be "house poor", a term we often hear used but not often explained. I, for one, don't recommend people have all of their money tied up in their homes. OP, if the home you are contemplating would leave you no money for vacations, no money for retirement savings, no money for furniture, you need to reconsider. Could it work out in the end due to rising income and fixed mortgage payments? Sure, as it has for Scanner. But think long and hard about if that is how you want to live.

**Ima saver** · 10-09-2007, 12:32 PM

Right now is the time to look for a bargain! Even when I bought my first house for $13,000 there were many rooms with no furniture and we had "loaner" twin beds.

**TMoney** · 10-10-2007, 09:10 AM

I would agree that now is the time to find a bargain, but that's if you can find a GOOD one in you area. I'm from the NY Metro Area as well, but my particular town is still selling homes at a reasonable pace. I have seen some places for a good discounted price, but have seen just as many other places go for higher or premium prices too. The housing market is so wacky right now I don't know what's going on!

Ok, so I haven't given you much of an answer or opinion...that's b/c I'm somewhat in the same position as you! Any more opinions!

some financial advice please