As was foretold, we've added advertisements to the forums! If you have questions, or if you encounter any bugs, please visit this thread: https://forums.penny-arcade.com/discussion/240191/forum-advertisement-faq-and-reports-thread/

How far in advance should I prepare for buying a house?

2»

Posts

  • Gilbert0Gilbert0 North of SeattleRegistered User regular
    Thanks for all the advice in here, my wife and I are looking for purchasing this spring too. We're currently at @ the estimated 20% down now and saving for the "extras", more furniture, lawn mower, bbq, etc. Already have the 6 month emergency fund, kid / new car savings fund, maxed out retirement accounts.

    Anyone have anything in here for a Canadian buyer that hasn't been said? I'm aware of the RRSP Home Buyers Plan (for the non-Canadians, I can withdraw up to $25,000 from my RRSP (retirement account) tax free as long as I repay it in 15 years. Basically an interest free loan to myself. Wife can do it too, so $50,000 total (assuming we had that much)).

    Derailing a bit, for specifics and each individual scenarion, you say to talk to an accountant / financial planner? We've never needed an accountant before or a planner. What's the best way to find one? friend/family recommendations? use the one at my bank? And what's a typical "fee" for this kind of service because I'm sure it's not free (except maybe from my bank)?

  • davidsdurionsdavidsdurions Your Trusty Meatshield Panhandle NebraskaRegistered User regular
    Get Scott McGillivray to rehab an income property for you?

    I watch too much HGTV...

    PwH4Ipj.jpg
  • schussschuss Registered User regular
    Do not borrow from your retirement savings to buy a house. Just a bad idea, as your retirement gets behind and you still have to pay it back.

    One other thing for mortgages - if you have a decent cushion saved up, do payments every 2 weeks. Shortens your loan by something stupid like 5 years.

  • zepherinzepherin Registered User regular
    schuss wrote: »
    Do not borrow from your retirement savings to buy a house. Just a bad idea, as your retirement gets behind and you still have to pay it back.

    One other thing for mortgages - if you have a decent cushion saved up, do payments every 2 weeks. Shortens your loan by something stupid like 5 years.
    If borrowing from a 401k means not paying mortgage insurance. Borrow the extra money.

    bowenzagdrob
  • XaquinXaquin Right behind you!Registered User regular
    Not sure if anyone has said this, but there are websites out there that will give you the crime history of the area.

    How I wish every day I had known about them.

    Check your local sheriffs office. Well, local to where you're thinking of moving anyway.

    Esseezepherin
  • bowenbowen How you doin'? Registered User regular
    zepherin wrote: »
    schuss wrote: »
    Do not borrow from your retirement savings to buy a house. Just a bad idea, as your retirement gets behind and you still have to pay it back.

    One other thing for mortgages - if you have a decent cushion saved up, do payments every 2 weeks. Shortens your loan by something stupid like 5 years.
    If borrowing from a 401k means not paying mortgage insurance. Borrow the extra money.

    Typically you also pay back into your 401k with interest. So 5% interest into your 401k would probably account for some average market gains for those X years it takes you to pay it back.

    Of course, you lose a bit in compound interest, but you lose much more in PMI. Especially now that PMI is going to be the length of your loan, rather than equity derived.

    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
    zepherin
  • DjeetDjeet Registered User regular
    If you have down payment already then I would not tuck into retirement accounts to increase it. The rules for RRSP, IRA, and 401K all differ, and Id look into restrictions, penalties, and projected changes to returns before going down that path.

    For 401K, if the companies goes tits up or you leave, then you will be responsible to pay the balance in 60-90 days or get hit with a penalty.

    PMI is 0.5-1.5%, is that so onerous that you want to borrow 10-20-30K equity from your retirement (you should be getting 6-8% long term here minimum) to reduce principal on a very low rate long term loan? For 401K you pay back 1-2% over prime (so 4.25-5.25% in US). For RRSP/IRA you pay back what you borrowed (no "return") and you may have to pay tax on gains.

    Another consideration in putting more money into your house (be it larger DP or accelerated payments to principal) is how long do you think you are going to keep the house? Most homeowners change houses before they pay off any note balance. I re-fied earlier this year and could've either kept payments the same and go to a 15 year or do another 30-year and have $300/month more in my pocket. I chose the latter since I'll be putting that money back in via upgrades, and I'll will probably sell in 10 years or less anyways. (In my situation) It makes more sense to me to have a better cash flow situation over paying off the note faster.

  • zepherinzepherin Registered User regular
    Djeet wrote: »
    PMI is 0.5-1.5%, is that so onerous that you want to borrow 10-20-30K equity from your retirement (you should be getting 6-8% long term here minimum) to reduce principal on a very low rate long term loan? For 401K you pay back 1-2% over prime (so 4.25-5.25% in US). For RRSP/IRA you pay back what you borrowed (no "return") and you may have to pay tax on gains.
    I have a lovely chart. The amount of ROI needed to offset PMI is 14.81%


    Down-payment percentage 5% 10% 15% 20%
    Down-payment $10,000 $20,000 $30,000 $40,000
    Monthly house payment $ 1,329 $ 1,259 $ 1,189 $ 1,119
    Two months PMI escrow $ 247 $ 156 $ 91 n/a
    PMI premium (years 1-20) $ 124 $ 78 $ 45 n/a
    PMI premium (years 21-30)$ 32 $ 30 $ 28 n/a
    Pre-tax rate of return needed on equity outside of the home (in the home for the life of the mortgage) . 14.81% 14.51% 15.75% n/a
    Pre-tax rate of return needed on equity outside of the home (in the home for only seven years)
    14.24% 13.88% 14.92% n/a



    Source:
    http://www.westga.edu/~bquest/1997/costof.html

    bowenzagdrobDonovan Puppyfucker
  • DjeetDjeet Registered User regular
    If you have the money then of course it makes sense to put down enough to avoid PMI, the question is whether you should borrow equity from a retirement account to do so.

    Regarding the chart, why would you be paying PMI after 5-10 years? By then you should have at least 20% equity and either refi or get off of PMI. As soon as you're at 80% LTV you should be able to cancel PMI.

  • bowenbowen How you doin'? Registered User regular
    Djeet wrote: »
    If you have the money then of course it makes sense to put down enough to avoid PMI, the question is whether you should borrow equity from a retirement account to do so.

    Regarding the chart, why would you be paying PMI after 5-10 years? By then you should have at least 20% equity and either refi or get off of PMI. As soon as you're at 80% LTV you should be able to cancel PMI.

    They've changed how PMI works. I'm not sure if it's just the FHA loans, but, PMI goes for the entire length of your loan now, not just when your LTV has shifted.

    This is to "insure" risky lending practices. But it's mostly there to penalize first time home buyers despite what they're saying.

    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
  • zagdrobzagdrob Registered User regular
    Djeet wrote: »
    If you have the money then of course it makes sense to put down enough to avoid PMI, the question is whether you should borrow equity from a retirement account to do so.

    Regarding the chart, why would you be paying PMI after 5-10 years? By then you should have at least 20% equity and either refi or get off of PMI. As soon as you're at 80% LTV you should be able to cancel PMI.

    There's no more 5 years / 20% equity on PMI for FHA loans. You pay PMI over the life of the loan.

    bowen
  • DjeetDjeet Registered User regular
    edited December 2013
    Yes, FHA loans bake in their PMI-equivalent throughout the life of the loan. So if you're concerned about PMI (and FHA has high rates for PMI) then you shouldn't go FHA or if you need to go FHA, refi when you get 20% equity.

    There is some problem here in generalizing the advice. There is no FHA in Canada.

    Djeet on
  • bowenbowen How you doin'? Registered User regular
    OP is in Seattle. So you're going to be talking about American lending here, I suppose.

    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
    kime
  • DjeetDjeet Registered User regular
    Yeah, I only felt it necessary to contribute after Gilbert0 (from Canada) asked a question and subsequently there seemed to be no alternate view to the idea that there is no downside to extracting equity from a retirement account to reduce balance on a mortgage. There is an opportunity cost to borrowing equity from your retirement accounts.

  • Gilbert0Gilbert0 North of SeattleRegistered User regular
    edited December 2013
    It's especially an issue where I live. A decent 3-4 bedroom, 2-3 bath, we're pushing $600K for a house. Unfortunately, I don't have $120K for down without hitting the retirement fund. If anyone's got some spare cash lying around, I'll take it :D. We've talked about mortgage people before and they recommended it so I was asking if anyone has actually done it.

    ninja edit - And Canada is similiar to the US. If you don't have 20% down, you have to pay for additional insurance on top of your mortgage.

    Gilbert0 on
  • Dr. FrenchensteinDr. Frenchenstein Registered User regular
    FYI you can TOTALLY close on a house with open permits. You can even close on a house whose work failed inspections! your locality likely does not give 2 shits about the condition of the house. Do not assume they are looking out for you, in regards to whether it is built to code, because they aren't. definitely check the housing authority in your area, and check on the house's permit status. if their site doesn't say "Permit pulled on date X, passed inspection on date Y" for every single thing, call them. Make sure there is a Use and Occupancy Permit on file (this basically means the house is "livable" according to your city). when you get an inspection, and they find things that need fixing (they will), if you are not confident you can tell if they were fixed correctly by the seller, hire a second inspector after the repairs. an extra $2-300 is a small price to pay. TRUST ME.

    Donovan Puppyfucker
  • bowenbowen How you doin'? Registered User regular
    The bank usually cares if the house has failed anything.

    If you're willing to walk away from a damaged house even with equity, they're stuck with a lemon.

    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
  • zepherinzepherin Registered User regular
    FYI you can TOTALLY close on a house with open permits. You can even close on a house whose work failed inspections! your locality likely does not give 2 shits about the condition of the house. Do not assume they are looking out for you, in regards to whether it is built to code, because they aren't. definitely check the housing authority in your area, and check on the house's permit status. if their site doesn't say "Permit pulled on date X, passed inspection on date Y" for every single thing, call them. Make sure there is a Use and Occupancy Permit on file (this basically means the house is "livable" according to your city). when you get an inspection, and they find things that need fixing (they will), if you are not confident you can tell if they were fixed correctly by the seller, hire a second inspector after the repairs. an extra $2-300 is a small price to pay. TRUST ME.
    Also make sure that your isn't haunted like Dr. Frenchenstein's.

    zagdrobbowena5ehrenEssee
  • Dr. FrenchensteinDr. Frenchenstein Registered User regular
    bowen wrote: »
    The bank usually cares if the house has failed anything.

    If you're willing to walk away from a damaged house even with equity, they're stuck with a lemon.

    Met Life Home Loans didn't!

    and yes, don't buy a house on top of an indian burial ground. bleeding walls are fun at halloween, but not the rest of the year.

    Essee
  • Donovan PuppyfuckerDonovan Puppyfucker A dagger in the dark is worth a thousand swords in the morningRegistered User regular
    bowen wrote: »
    The bank usually cares if the house has failed anything.

    If you're willing to walk away from a damaged house even with equity, they're stuck with a lemon.

    There has been an ongoing saga with Dr. Frenchenstein's house.

  • bowenbowen How you doin'? Registered User regular
    bowen wrote: »
    The bank usually cares if the house has failed anything.

    If you're willing to walk away from a damaged house even with equity, they're stuck with a lemon.

    There has been an ongoing saga with Dr. Frenchenstein's house.

    Oh I know.

    I think I was the first one to ask him if his house was haunted even.

    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
Sign In or Register to comment.