House purchase advice

[Fresno Bob]

My thoughts exactly. Keep looking. For what will probably be the biggest purchase of your life, you and your wife should get a house that neither one of you will have any regrets about. Don't settle for a house that you like a little bit. Hold out for the one that you love.

I disagree, your 1st house should not be your dreamhouse, it should be the house you think has the absolute best chance to appreciate so that you can start building equity and stop paying rent

[swampdragon]

I disagree, your 1st house should not be your dreamhouse, it should be the house you think has the absolute best chance to appreciate so that you can start building equity and stop paying rent

I agree with FB - our first house was bought with everything we have and then quickly appreciated enough that we could eventually afford a nicer house a few years later.

It sounds like neighborhood matters to you both a lot so stick with that.

[revo]

We pay 2k now per month. Mortgages would run from 2200-2500 for the options we are looking at (best option for us is probably a rare 15/15 mortgage with a one time adjustment at 15 years, which we probably won't be here for anyway, as that option covers closing costs), with the fear they could go up as people are hit with tax hikes and reassessments here. Some of the houses we see are assessed at less than half what we'd pay for them. That is a worry of mine.

I have made the retirement borrowing argument, but TIAA does make it sound not so bad. If you pay it back within the amount of time required, no penalties, right?

Here are the problems with borrowing from your 401k, even to buy a house:

1 - you take the money out of the market and cap your return on this portion at 2%-4% annually
2 - most generally won't or can't both pay back the loan as well as make additional 401k contributions, so you'd lose valuable years of contributing (and/or employer matches as well)
3 - if you terminate from your job, you have to pay the loan back in full or it defaults, and you would be on the hook for 30% in penalties/taxes
4 - if you do default, you likely have already spent the full amount of the loan on the house, so at tax time, hello 30% of the loan again. If that was a loan for $50,000, for example (which is usually the greatest amount you can borrow), you're on the hook for $15,000 on April 15.
5 - and if you don't have the $15,000 to pay the IRS in this example, what do you think most people who have borrowed do? Since their account probably rolled over into an IRA, they make ANOTHER early withdrawal to pay for the penalty, and this time withhold the 30%, so the withdrawal would be $21,500 -- another loss of $6,500. So in this example of borrowing $50,000, they actually needed $71,500 to do it.
6 - Now the person has broken the unwritten rule twice and gotten used to using their retirement accounts as an ATM machine, so what's to stop them from taking money from their IRAs for credit cards, new cars, etc.

If you don't think this can happen to you, you've already said you used to work elsewhere so is moving on again a possibility?

[Sour Masher]

Here are the problems with borrowing from your 401k, even to buy a house:

1 - you take the money out of the market and cap your return on this portion at 2%-4% annually
2 - most generally won't or can't both pay back the loan as well as make additional 401k contributions, so you'd lose valuable years of contributing (and/or employer matches as well)
3 - if you terminate from your job, you have to pay the loan back in full or it defaults, and you would be on the hook for 30% in penalties/taxes
4 - if you do default, you likely have already spent the full amount of the loan on the house, so at tax time, hello 30% of the loan again. If that was a loan for $50,000, for example (which is usually the greatest amount you can borrow), you're on the hook for $15,000 on April 15.
5 - and if you don't have the $15,000 to pay the IRS in this example, what do you think most people who have borrowed do? Since their account probably rolled over into an IRA, they make ANOTHER early withdrawal to pay for the penalty, and this time withhold the 30%, so the withdrawal would be $21,500 -- another loss of $6,500. So in this example of borrowing $50,000, they actually needed $71,500 to do it.
6 - Now the person has broken the unwritten rule twice and gotten used to using their retirement accounts as an ATM machine, so what's to stop them from taking money from their IRAs for credit cards, new cars, etc.

If you don't think this can happen to you, you've already said you used to work elsewhere so is moving on again a possibility?

The first list item is the really big hit, but the rest don't really apply to our situation. The reason we are begrudgingly staying in upstate NY, isolated from friends and family, is that my wife just got tenure here, which makes her job as secure as you can get, and I got a promotion and converted to tenure track, which makes me about as stable as you can get for the next six years till the tenure decision. Also, our employer forces a set amount that we must contribute based on wages. We can't contribute less (or my wife would) or more (of course, we could open an IRA or 529s for the kids, but we haven't yet, and I haven't even argued for it until we pay off her credit cards). It is still obviously a really bad idea, but we were not planning on taking out more than 15k--just enough for 3% down and closing costs--and the idea would be to pay it back as fast as we were allowed. theoretically, we could do that in as little as a couple of years with all the extra work I'm doing this summer and next. Of course, that is also why I want to just wait a year or two. Luckily, no house has been perfect enough to start a fight about it. But it one comes up, I am not gonna win, as she already said I'm not the one who has to borrow from my retirement and it is her choice to borrow from hers.

[Sour Masher]

We have a new contender. It is perfect in every way except the price, it is a little bit smaller than we were looking for (but has all the rooms we want, some are just a bit smaller), and it is off a kinda sort main road, if you can call it that. It is only a 2 lane road that doesn't get much traffic, so not a big deal, but it is a road people in that area use to get to their neighborhood roads, if that makes sense. The only bummer about that is that I probably wouldn't put a basketball hoop up in the drive way, as I'd fear the kids running into that street.

It was built in 2010 and the owner has tried to sell it or rent it ever since. It is currently being rented but they put it on the market again. They have lowered the price some over the years, but clearly not enough as it has been on the market since January and barely has views and likes on Zillow, most likely because it is still way above comps prices int he area per square foot. But that is also because is is way newer and nicer despite being smaller. Not many newer homes in this area.

This time we are both torn, because we both like it. It is over-budget and it still isn't the best time for us to buy. Waiting another year doesn't seem too risky, because, again, they have been trying to sell it forever. Then again, it is the only house we've seen so far that meets all of our needs and wants. I figure we have two options:

1. Make a low ball offer to see if we can get it at a price/pain point we can tolerate given its high taxes.
2. Wait and see if it is still available in 10-12 months when we won't have to borrow from retirement for a 3% down payment. There seems to be a decent chance it will be, unless they lower their price (they have not done so since January, and are renting it, so may not be motivated). Then again, we have found pickings are real slim around here for the type of home we want--a newer construction with contemporary features like walk in closet, master tub, and central heating and air, etc.

ETA: I continue to be floored by the property taxes here. I just looked up national numbers, and it turns out I live in the highest taxed city in the whole country if you are looking at tax to home value ratio. It is nuts. And apparantly taxes have risen over 50 percent in the last 10 years and are projected to keep rising.

[The Feral Slasher]

We have a new contender. It is perfect in every way except the price, it is a little bit smaller than we were looking for (but has all the rooms we want, some are just a bit smaller), and it is off a kinda sort main road, if you can call it that. It is only a 2 lane road that doesn't get much traffic, so not a big deal, but it is a road people in that area use to get to their neighborhood roads, if that makes sense. The only bummer about that is that I probably wouldn't put a basketball hoop up in the drive way, as I'd fear the kids running into that street.

It was built in 2010 and the owner has tried to sell it or rent it ever since. It is currently being rented but they put it on the market again. They have lowered the price some over the years, but clearly not enough as it has been on the market since January and barely has views and likes on Zillow, most likely because it is still way above comps prices int he area per square foot. But that is also because is is way newer and nicer despite being smaller. Not many newer homes in this area.

This time we are both torn, because we both like it. It is over-budget and it still isn't the best time for us to buy. Waiting another year doesn't seem too risky, because, again, they have been trying to sell it forever. Then again, it is the only house we've seen so far that meets all of our needs and wants. I figure we have two options:

1. Make a low ball offer to see if we can get it at a price/pain point we can tolerate given its high taxes.
2. Wait and see if it is still available in 10-12 months when we won't have to borrow from retirement for a 3% down payment. There seems to be a decent chance it will be, unless they lower their price (they have not done so since January, and are renting it, so may not be motivated). Then again, we have found pickings are real slim around here for the type of home we want--a newer construction with contemporary features like walk in closet, master tub, and central heating and air, etc.

What is the down side to option 1 ?

[Sour Masher]

What is the down side to option 1 ?

That we get the house, earlier than we should, given we would need to borrow from retirement to do it now vs saving up the 3% down payment. We want the house, but the house is listed above value for the market, and we can't afford the house right now without borrowing from our retirement. If we wait, we will have money for a down payment, and maybe the seller will be more desperate. Or we could lose the house. It is a gamble, but it has been listed at this price for 6 months while some homes we have seen get snatched up in 6 days. So the market here seems to have spoken on this property at its price point right now.

[The Feral Slasher]

That we get the house, earlier than we should, given we would need to borrow from retirement to do it now vs saving up the 3% down payment. We want the house, but the house is listed above value for the market, and we can't afford the house right now without borrowing from our retirement. If we wait, we will have money for a down payment, and maybe the seller will be more desperate. Or we could lose the house. It is a gamble, but it has been listed at this price for 6 months while some homes we have seen get snatched up in 6 days. So the market here seems to have spoken on this property at its price point right now.

But option 1 was a low ball offer. Can you make an offer that wouldn't require borrowing from retirement ? Or would that have no possibility at all of success ?

[The Feral Slasher]

But option 1 was a low ball offer. Can you make an offer that wouldn't require borrowing from retirement ? Or would that have no possibility at all of success ?

I guess I was just trying to say that making a low offer that you can afford doesn't result in any risk for you. The worst that can happen is they reject the offer.

[Sour Masher]

I guess I was just trying to say that making a low offer that you can afford doesn't result in any risk for you. The worst that can happen is they reject the offer.

I should have clarified that even a low offer at this moment would require us borrowing from retirement, because we have less than $500 in savings right now. We have been living month to month for as long as we've had two kids in preschool. But yeah, I'm leaning to making a why not offer. It will make things tight for a few months, but with the oldest getting out of preschool soon, we should be okay after that.

[The Feral Slasher]

I should have clarified that even a low offer at this moment would require us borrowing from retirement, because we have less than $500 in savings right now. We have been living month to month for as long as we've had two kids in preschool. But yeah, I'm leaning to making a why not offer. It will make things tight for a few months, but with the oldest getting out of preschool soon, we should be okay after that.

Good luck, hope you end up with a great house for your family. I'm certainly no real estate expert, but this guy doesn't seem to be in a hurry, so maybe you could make an offer with a closing date delayed a bit until you can save up some money ?

[Fresno Bob]

lowball away I say!

[Sour Masher]

lowball away I say!

Yeah, we are heading out of town Monday for a couple of weeks and don't feel comfortable starting negotiations now, but as soon as we get back, if it is still on the market, we are gonna make an offer way under ask, but fair based on the comps in the area. If we lose it, probably for the best, as the more we wait, the more out of the red we get, but I hope we end up landing it.

[revo]

I should have clarified that even a low offer at this moment would require us borrowing from retirement, because we have less than $500 in savings right now. We have been living month to month for as long as we've had two kids in preschool. But yeah, I'm leaning to making a why not offer. It will make things tight for a few months, but with the oldest getting out of preschool soon, we should be okay after that.

This is a major red flag for me. I'm not sure if you've owned a house before, but owning a house is an expensive proposition, and not just the mortgage/property taxes/insurance.

The upkeep is expensive. The utilities are expensive, especially in a cold weather town like where you live. Repairs are expensive. When I go to Home Depot just for shits and giggles, I drop $250 no problem. It seems anytime you call in a pro for a repair, however minor, it's $500. Renovations are expensive.

Have you looked at what the monthly nut would be, including heat/electric/water/internet/cable/lawn/snow removal?

Besides the down payment, I think you'd need $3,000-$7,000 in savings just to cover an emergency repair. A major repair, like a new roof, can run you $15,000 (that's how much it cost me 10 years ago).

So unless you're planning on running up credit cards like mad, you really should save more before diving in head first.

[Sour Masher]

This is a major red flag for me. I'm not sure if you've owned a house before, but owning a house is an expensive proposition, and not just the mortgage/property taxes/insurance.

The upkeep is expensive. The utilities are expensive, especially in a cold weather town like where you live. Repairs are expensive. When I go to Home Depot just for shits and giggles, I drop $250 no problem. It seems anytime you call in a pro for a repair, however minor, it's $500. Renovations are expensive.

Have you looked at what the monthly nut would be, including heat/electric/water/internet/cable/lawn/snow removal?

Besides the down payment, I think you'd need $3,000-$7,000 in savings just to cover an emergency repair. A major repair, like a new roof, can run you $15,000 (that's how much it cost me 10 years ago).

So unless you're planning on running up credit cards like mad, you really should save more before diving in head first.

We built our first home in 2007, and even that new, we had repairs--it turned out to not be a great builder. This home was built in 2010 and is pristine--a rarity in this area which used to have twice the population it does now, so has a whole lot of much older homes, most over 40 years old, many over 100. I think the risk in this home is about as low as we will find in this area. Currently, we are renting a home from a landlord with which we have an unsaid agreement--we handle this house, except for really major things, and he hasn't raised our rent in 6 years while the rest of the market has shot up. One of the reasons we are so broke is that fact as stuff has been coming up here, and it is getting old repairing someone else's stuff, even though it is a fair deal with our rent being lower than it should be. The biggest reason, though, is we pay 2k a month for preschool for our two under 5 kids. One of those kids is going to kindergarten in less than three months, which will save us over $500 a month, after taking into account after school care.

Of course, ideally, we would wait the year to see those savings, and use them, coupled with decent raises we both got this year, to pull our of debt and save up for a house. That was my plan and I still would like to do this. But if my wife stays hell bent on buying soon, I think this house is our best bet. The houses she wants are cheaper, but much, much older, and involve major renovations o get to where she would want them. I'd rather a higher mortgage than massive credit card debt or other loans, which I know we'd run up with those houses, as my wife isn't the sort to wait to make those moves. And, of course, I could fight her on those, but she is more than happy to solely borrow from her own retirement to do these things, which I can disagree with, but it is harder to take a stand on when her strategy is to borrow on her own and use her credit cards for everything. She also just got a promotion that has her making a little more than me now, so again, it isn't an old school power dynamic where I am the primary bread winner.

Part of me is banking on this trip to Florida giving my wife pause, as a big reason we are broke is we travel to visit family 2-3 times a year, and that costs us upwards of 10k a year. She has already agreed to cut that down to once a year if we buy a house, but she may change her mind after going. This is the first house I am saying yes to so far and I already see how knowing I am on board is making her pause, because is is real now. I think part of her thought I'd keep playing the heavy for another year. That role gets old fast, so I'm liking the fact that me saying "screw it" is getting her to question if we are rushing into buying .