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Author: AliFool Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 126964  
Subject: How did you do it? Date: 11/28/2000 6:12 PM
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We make "decent money," but also have some debt. We each have about $10K student loan debt, I have $8K car debt and he has $12K credit card debt (which is now at 2.9%, consolidated and paid down since last year, when it was $30K at 20%!!!).

I have immaculate credit -- no late payments, etc. He has great credit, maybe a few points below mine because of 1 or 2 late payments... but he also used to have about 10 credit cards. Luckily now he only has 1 at a great rate. His credit report shows that all the other accounts have been closed by him and paid off.

Thing is, right now we are broke. We just got married and paid off my ring, our honeymoon, some wedding costs, and also just bought an older 2nd car with cash (rather than taking on a loan for a new car). We are basically tapped out as far as cash goes. Lucky for those decent salaries which could build it back up... if we weren't putting so much away for retirement.

We have money going into various retirement accounts -- 401K (mine has matching, his doesn't), ESPP, Roth IRA, etc. Because of this, our actual cash flow doesn't allow us to save too much outside these retirement accounts. Certainly not in the past year, when we had those expenses and more -- we attended 5 out-of-town weddings!!!

So, my question is... if we want to buy a house in the next year... does it make sense to put a hold on contributing to our retirement accounts in order to build up a down payment? This is taking into account that our currently available down payment funds stand at $0.

I know that we will lose compounding power on any money we DON'T put into our retirement accounts, but this (buying a house!) might be one of those cases where it makes sense to STOP paying so much into the retirement kitty, keep the money in a money market account, and build it up for the down.

Some things that may have bearing on our situation are that we DO want to stay in the house a long time, and that we are disciplined and will start putting money back into our 401Ks as soon as we can. There is one more thing, which is that we are in California, land of the $500K home. If we were to buy a condo I think it would be about $350 to start... and a home would go up from there.

Any comments and/or advice, and/or personal triumphs are welcome. I want to hear how YOU were able to raise funds for your first home.

Cheers....

--AF
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Author: JABoa Big gold star, 5000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15374 of 126964
Subject: Re: How did you do it? Date: 11/28/2000 6:34 PM
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AliFool, I think your instincts are completely right. (But you probably already knew that.) There is the famous maxim of John Maynard Keynes, "In the long run we are all dead." Maximizing one's net worth at some time that in a computer language like Fortran, would be called TStop, is surely not what one wants to do.

How did I get my down payment? Save until I was 37.

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Author: AliFool Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15375 of 126964
Subject: Re: How did you do it? Date: 11/28/2000 6:51 PM
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Well said... well said. : )

But how did you decide how much to save, how much home you could afford, how much home you WANTED to afford, and when you were ready to go for it? And how did you rationalize not putting the money away for the future?

There's a side of me that just doesn't want to let that go, even if it IS for a house. Part of that has to do with "future security," and part of it has to do with the fact that any money NOT in our 401K plans is income taxed now. Part of it has to do with being really happy about how much I've saved for retirement so far, and not wanting to stop.

Then again, people say that a house IS security (the sooner we buy, the less it costs and the sooner it's paid off -- plus we'll have an actual HOME, not a rented shoebox!), and that one should never live his life with "lower taxes" as the goal.

--AF

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15376 of 126964
Subject: Re: How did you do it? Date: 11/28/2000 7:14 PM
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AliFool: "I want to hear how YOU were able to raise funds for your first home.

But how did you decide how much to save, how much home you could afford, how much home you WANTED to afford, and when you were ready to go for it? And how did you rationalize not putting the money away for the future?

There's a side of me that just doesn't want to let that go, even if it IS for a house. Part of that has to do with "future security," and part of it has to do with the fact that any money NOT in our 401K plans is income taxed now. Part of it has to do with being really happy about how much I've saved for retirement so far, and not wanting to stop."


Saved 10% down + closing costs generally while fully funding 401-k. Borrowed 10% from 401-k plan for down payment to avoid PMI. I have recently written an extended post about 401-k loans on another board here at TMF and will not reiterate ad nauseam; a search should find it. I was also 30 before I first bought --a townhouse, because I was still single at the time.

The rental market was so soft in Houston for most of that time, that significant rent increases were not a worry.

I simply decided on a maximum price that I was willing
to pay; one which permitted me to put 20% down and also kept my mortgage payment in my personal comfort zone, which was alot lower than what every lender was willing to lend me. It is real easy to get "house poor" - too much house with no money left for anything else after making house payment.

If I were you, I would at least fund 401-k to get matching money. Free money is virtually always good. After that, any decision gets real personal, really quickly WRT to needs, desires, risk tolerance, and local real estate market.

Hope this helps. Regards, JAFO







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Author: EditorialWe Big red star, 1000 posts 10+ Year Anniversary! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15377 of 126964
Subject: Re: How did you do it? Date: 11/28/2000 7:33 PM
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Seems that something has to be prioritized. And I'd think that buying a home in the Silicon Valley is not something to be rushed into.

If you still have debt, have zippo downpayment savings and not even much in the way of an emergency fund...well...forgive my saying so, but buying a home within a year seems a bit, err, aggressive. Particularly since you *don't* want to end up house poor and you do have other priorities that are fairly important, like retirement savings.

I notice you frequenting the Retire Early board so you are of course familiar with the discussions there, questioning the value of home-buying for those who want to RE. It's food for thought, anyway. There are lots and lots of factors to consider - whether you are currently in a rental you are happy with, whether your rent might go up significantly, whether there are kids in the future, etc. And of course you know that soooo many other expenses go along with home ownership...taxes, insurance, maintenance, you-name-it.

Perhaps not helpful since I've no experiences to share. Me, I'm trying to learn patience and reminding myself daily of the value of a really, really big down payment.

EditorialWe

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Author: JABoa Big gold star, 5000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15379 of 126964
Subject: Re: How did you do it? Date: 11/28/2000 7:54 PM
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AliFool to JABoa: How did you decide how much to save...(etc)?

Not sure the answer is of much interest to the board at large, but since I am garrulous on this site, I'll respond. I saved what was left over. I am not a spender and that was about 15% back then. A lot of money went on books. There are arguments that the best mathematician is the one with the smallest library (he can figure everything out for himself); mine is large. I never had interest in buying a home as a junior academic, because if you don't get tenure, off you go, and I don't like to mow the lawn anyhow.

But I have never budgeted. I just observe that if you spend less than you make, you end up with more money.

After a few years in Boston, I observed home prices were going through the roof, and I figured I should try to latch on to the caboose. (Sorry for the mixed metaphor.) By then I had enough for the down payment on a small condo in a fairly decent neighborhood. The decision from the value point of view turned out to be good for 3 years, bad for about 7 years, and now looks golden. The neighborhood has turned from fairly decent to desirable, and you hardly have to step over drunks any more.

As for putting money away for retirement, I never did it in my 20's and 30's. The employer contribution, which did not depend on me, was just fine. It would be different now, the schools are much less generous.

You know, people will show you a calculation that if you put $2000 a year into your Roth IRA starting at age 23 or something, then given historical returns, you'll be much better off at age 65 than if you did the same thing starting at 27, say. So what. <philosophical> Life doesn't begin at 65, or 40, or whatever. It goes on at whatever age. So I can't think of a reason to starve now to feast at some indefinite time in the future. Nor can I think of a reason to feast now when you can't afford to. [But this is not at all AliFool's question.] </philosophical>

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Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15380 of 126964
Subject: Re: How did you do it? Date: 11/28/2000 7:55 PM
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But how did you decide how much to save, how much home you could afford, how much home you WANTED to afford, and when you were ready to go for it? And how did you rationalize not putting the money away for the future?

There's a side of me that just doesn't want to let that go, even if it IS for a house. Part of that has to do with "future security," and part of it has to do with the fact that any money NOT in our 401K plans is income taxed now. Part of it has to do with being really happy about how much I've saved for retirement so far, and not wanting to stop.


Whenever we were househunting, I reduced our 401k contributions and our company employee stock plans to the minimum allowed to still stay in the plan, and put the extra into the house downpayment account. My reasoning was that this method allowed me to increase my percentage withheld at any time rather than having to wait for the next enrollment period, so I could get back into the plan anytime instead of having to wait 6 months. Your plans may or may not work the same, but this is a method to use if your plans allow it. Other than that, I figured we would still have plenty of time to save for retirement, but we needed a place to live.

Goals are nice, and retirement does need to be funded, but there are also other things you need to do along the way. In my mind, that includes things like owing our own house and putting the kids through school. I adjust our standard of living accordingly, and so we are able to put aside for all these things.

Another tactic we used when we were buying our first house was to buy a multi-family and live in the worst apartment. That allowed us to really have someone else pay the mortgage while we saved for the downpayment on a single family house. I'm not sure that would work for you in Silicon Valley, but it might be worth thinking about.

As far as how much to put down, we have always put down at least 20% so that we could avoid PMI. And I only like to use 1 paycheck to qualify for the mortgage, so our 2 single-family houses have had mortgages that meet that criteria. This allows us flexibility in terms of job opportunities or having one of us stay home for some period of time, something both hubby and I have done at one point or another without changing our lifestyle and while continuing to save for the kids' college.

I have always decided ahead of time based on my salary what we could afford for a house with that number going up as our downpayment rose or, in our case, we got relocated so someone else paid closing costs and moving expenses.

Whenever we were saving for a house, we have always gone into what I think of as 'massive house savings mode.' That means we cut out all non-essential expenses for at least 6 months or however long it took to save the downpayment. Things we got rid of included any eating out, always brown-bagging to work, cutting back on the thermostat, and cutting back on Christmas gifts.

As far as focusing on retirement, that's OK if that's really your primary goal, but you might need to revisit that now because you want to save for the house, and sometime down the road when you may have children and want to save for their college. Early retirement is a nice goal, but I don't believe it should be at the expense of everything else along the way. You do have to live, and you should enjoy your life now as well as in the future. There can be a balance.

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Author: AliFool Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15381 of 126964
Subject: Re: How did you do it? Date: 11/28/2000 7:59 PM
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Seems that something has to be prioritized. And I'd think that buying a home in the Silicon Valley is not something to be rushed into.

Actually, we were thinking of moving down to SoCal -- still expensive, but not quite as bad. We are not interested in buying in the Valley for the reason that your dollars get you very little here.

If you still have debt,

Yes, but it's going down quickly....

have zippo downpayment savings

Yes, but have been saving for retirement, going to many weddings, and funding our own. : )

and not even much in the way of an emergency fund...

This is true, but we have improved our situation such that if one of us were to lose his job, the other would be fine until getting a new one.

well...forgive my saying so, but buying a home within a year seems a bit, err, aggressive. Particularly since you *don't* want to end up house poor and you do have other priorities that are fairly important, like retirement savings.

Exactly. Which brings me to my point -- is it best to taper off the retirement savings in favor of saving agressively for the house?

I notice you frequenting the Retire Early board so you are of course familiar with the discussions there, questioning the value of home-buying for those who want to RE. It's food for thought, anyway.

True, but I think owning a home is important to both my husband and myself. That's pretty much a given. We want to do it at some point.

There are lots and lots of factors to consider - whether you are currently in a rental you are happy with, whether your rent might go up significantly,

The apartment is nice, but we're tired of the lifestyle. We've tended to move around in the past, but want to get settled. Our current place is 1 br / 1 ba and 800 sq. ft. for two adults... not TINY but not at all large or comfortable (no real office space and we both work at home a lot). And... we pay an arm and a leg for our place... but the rent went up (for new renters) 25% in the first half of this year alone!!! Our lease is up soon and we fully expect to get a nasty note saying the rent is going up HUNDREDS of dollars (for our 1 br place!).

whether there are kids in the future, etc. And of course you know that soooo many other expenses go along with home ownership...taxes, insurance, maintenance, you-name-it.

We think we'd like 1 or 2 kids, but not for awhile. We realize the added expense of home ownership, but feel the trade-offs would be worth it over a lifetime.

Perhaps not helpful since I've no experiences to share. Me, I'm trying to learn patience and reminding myself daily of the value of a really, really big down payment.

EditorialWe


Yes, I saw that you are saving for a house that you will buy separately from your husband.

Right now our plan is to get aligned for the new year. I think I am going to cut down my 401K to ONLY the portion that will be matched (at 100%). I don't know if I can give up contributing 10% to my ESPP, but it would help! If I don't give it up, any money that goes in there will be slated for the down payment fund, anyhow, so I guess it IS a form of savings. I guess I don't HAVE to put money into my Roth IRA in 2001, but this, too, will hurt as I've done it all other years. All the monies freed up could go... a) to aggressive debt payback at least for the $12K cc debt, and then to savings for a combined emergency fund/down payment fund. Or something like this.

Thanks for your input.

--AF



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Author: AliFool Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15384 of 126964
Subject: Re: How did you do it? Date: 11/28/2000 8:28 PM
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I like the idea of staying enrolled in the plans at the minimum, so I don't have to re-enroll later, and I can always raise the percentages. So, perhaps I will stay in ESPP for 1%... that's something... and it will grow... and I can change it later if I need or want to. I will definitely stay in my 401K to the match -- they match to a certain dollar amount, so I will contribute up to that and they will "double" it for me. I won't put any money into the Roth IRA now. If I still want to for 2001, I have 'til April of 2002.

My husband is using everything he can bring home to pay down his cc debt. I think we will keep up with this, and also use my newly freed-up cash to knock this down. But we will keep paying our car and student loans at their minimums... they're not so bad (for loans!). After this... everything we can free up will go to the down payment fund.

But we will still LIVE! We love going out to eat and although we can cut back more, we will not give it up entirely. We will give some gifts, although perhaps less extravagant ones than before. We will travel, but we will wait for those 2 free tickets to Europe on the frequent flyer plan and stay in inexpensive pensiones.

And somewhere in there, the house WILL happen. : ) I know it, because we've been traveling and spending exorbitant amounts of money on all the weddings (ours... friends... family...) and we were STILL able to pay down $30K to $12K, and I was (and am currently, until I change things) contributing the max to all of my retirement plans. If the spending stops, and all that money goes into our debt, then our house fund... I think we can do it.

Thanks for the help... keep it coming!

--AF

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Author: jesever Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15399 of 126964
Subject: Re: How did you do it? Date: 11/29/2000 7:59 AM
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I bought my first house the stupid way, although it paid off in the long run.

I didn't have any debt, but I had nothing for my downpayment, either. I think I had a car payment at the time.

I bought a really cheap townhouse ($64,000) as a first tiime homebuyer with 2% down (which I borrowed from my 401(k)). My payments were $589 a month with insurance, PMI, etc. I think I was making about $40,000 at the time. The house payments were less than the rent I was paying, so I thought I was getting a good deal.

The townhouse was a fixer-upper (it had been a rental before I bought it), and I didn't calculate any fix up costs when I got ready to buy. But because I didn't have much debt, it wasn't too bad.

I sold the house 2 years later for a corporate move (company paid all costs) and sold it for $90,000. This was in Atlanta, just as housing costs started to rise.

I moved to an area of the country that is much cheaper, and bought a house here for under $100,000 (company paid all closing costs). So I ended up with a pretty decent downpayment on this house, too.


J


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Author: WorthMor Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15411 of 126964
Subject: Re: How did you do it? Date: 11/29/2000 3:32 PM
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Hi AF,

Congratulations on your recent marriage. Best wishes to you as you begin your life together.

Ok, I did some math and it looks like you're carrying about $40K between loans, cars, and credit cards. Can I be real frank with you?
<ahem>
Don't even think about buying a house until you've tackled this existing debt. You are waaaaaaay over your heads now. Buying a house will put you deeper. (Ever attend a forced sale of a home of someone who's bankrupt?) Don't go there.

First, I admire you diligence in saving for retirement. You dont' say how old you are but unless your 50 and you plan to retire in 15 years - divert that cash you're funneling into retirement into paying down your debts. Every dollar you are saving for later is off set by the interest compiling on your current debt.

Trust me. I know what its like to have the "American Dream" and buy a house. Been there, done that. But don't enter into this very large responsibility with all your current debt. It's not a matter of getting money together to put down. It's being able to afford the upkeep and maintainence of a house.

For example, have you thought beyond the downpayment and closing costs to things like property taxes (due 2x a year!), mortgage insurance, property insurance, every single expense of broken appliances (call a plumber, ask what they charge for an "emergency"), lawn upkeep (hey, if you don't own a mower, you're gonna have to buy one), etc etc. See how important it is to be as debt free as possible before assuming this responsibility? I promise you ALL your time and ALL your extra cash will be consumed by homeownership if you aren't prepared for what's a ahead.

You need to sit down and do an honest budget. Start by tracking where you money is going - everything - for the next month. Then, get tough with yourselves. Time to drop those "extras" like cable TV, phone toys like call waiting, all those magazines and newspapers you don't have time to read, the extra coffee you buy on your way to work, eating out, and shopping for fun. Time to get tough. You'll be amazed at how much money you are spending on all these things. No kidding. Take that cash and stick it on your loans/cards. Get some professional advice if you need it. But make a plan. Work your plan. Perhaps in 2 years you'll be in a position to start earnestly saving for a house.

Check out the "Living Below Your means' board on fool.com and visit debtfreeliving.com for more tips from others in the same boat. You're not alone.

Trust me. It's not the end of the world if you can't "have it all" the firs tyear you're married.

Good luck.




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Author: AliFool Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15414 of 126964
Subject: Re: How did you do it? Date: 11/29/2000 4:19 PM
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Thank you, WorthMor -- this is great. See my answers below.

Hi AF,
Congratulations on your recent marriage. Best wishes to you as you begin your life together.


Thank you. : )

Ok, I did some math and it looks like you're carrying about $40K between loans, cars, and credit cards. Can I be real frank with you?
<ahem>
Don't even think about buying a house until you've tackled this existing debt. You are waaaaaaay over your heads now. Buying a house will put you deeper. (Ever attend a forced sale of a home of someone who's bankrupt?) Don't go there.


Good point. The only reason I even ask about the house is that considering that we both have advanced degrees and decent salaries for our trouble, the $40K isn't as daunting as it might be. I STILL see your point and we STILL want to pay it down. : )

First, I admire you diligence in saving for retirement. You dont' say how old you are

I am 28 and husband is 35.

but unless your 50 and you plan to retire in 15 years - divert that cash you're funneling into retirement into paying down your debts. Every dollar you are saving for later is off set by the interest compiling on your current debt.

True, but our interest is only at 2.9% for credit card, 6.9% for car, and 8% for student loans. Not bad. And remeber, too, that any money we save in our 401K isn't taxed now -- another potential benefit.

Trust me. I know what its like to have the "American Dream" and buy a house. Been there, done that. But don't enter into this very large responsibility with all your current debt. It's not a matter of getting money together to put down. It's being able to afford the upkeep and maintainence of a house.

Yes, I do know about this. My parents own the home I grew up in.

For example, have you thought beyond the downpayment and closing costs to things like property taxes (due 2x a year!), mortgage insurance, property insurance, every single expense of broken appliances (call a plumber, ask what they charge for an "emergency"), lawn upkeep (hey, if you don't own a mower, you're gonna have to buy one), etc etc. See how important it is to be as debt free as possible before assuming this responsibility? I promise you ALL your time and ALL your extra cash will be consumed by homeownership if you aren't prepared for what's a ahead.

I absolutely AM aware of these things, which is why we don't want to buy "as much house as we can (eventually) afford." We are thinking of a modest 3 br/2 ba house with a small yard.

You need to sit down and do an honest budget. Start by tracking where you money is going - everything - for the next month.

I could go back and do this from our credit card statements (we pay off all current charges each month, in addition to working on husband's past debt). We use very little cash.

Then, get tough with yourselves. Time to drop those "extras" like cable TV,

Cable: don't have it. Refuse to pay $40/month.

phone toys like call waiting,

Not that, either.

all those magazines and newspapers you don't have time to read,

Nope, and nope again. None, except 1 professional journal each.

the extra coffee you buy on your way to work,

Nope. Free coffee at work, or brew at home.

eating out,

HERE is our weakness, but it is in check.

and shopping for fun.

We just don't do that. Thank goodness!

Time to get tough. You'll be amazed at how much money you are spending on all these things. No kidding. Take that cash and stick it on your loans/cards. Get some professional advice if you need it. But make a plan. Work your plan. Perhaps in 2 years you'll be in a position to start earnestly saving for a house.

We have actually done a great job on our own, and I have also consulted a financial planner (free initial consult!) who told me a story about how he and his "hoity-toity" wife bit the bullet and "lived on scrambled eggs" in order to afford the land on which to build their retirement home. I wouldn't say we've gone that far, but I DO shop at the local discount grocery and I almost ALWAYS buy store brands.

Check out the "Living Below Your means' board on fool.com and visit debtfreeliving.com for more tips from others in the same boat. You're not alone.

I frequent the LBYM board -- daily, in fact.

Trust me. It's not the end of the world if you can't "have it all" the firs tyear you're married.

True... we may not have it this year, but we certainly want to plan for it. Right now we are wrapping up the final damage from the wedding and honeymoon. There was our big damage, even though we wouldn't trade it for anything. That money could've gone to debt, but when else were we going to have a honeymoon? It was our choice to spend here, while we cut back in almost all other areas.

We also just bought a new-to-us car for $4K in cash. This is a HUGE triumph, because we ALMOST bought a $16K car and assumed another loan. But I said to husband, "Let's get real!" and we agreed not to do it. We are SO GLAD. Our new-to-us car is GREAT, too -- great deal, low miles, cheap maintenance and insurance. We LOVE it.

So... as the next few months return us to a more "normal" budget (no more wedding-related things!), we will use all extra funds to tackle the debt. THANKS for the inspiration.

--AF


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Author: brewer12345 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15415 of 126964
Subject: Re: How did you do it? Date: 11/29/2000 4:22 PM
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Hah hah hah! You say your 1 br is 800sf? My 2 br is 800sf!

Anyway, if I were in your shoes, I would skip it. The debt load you are carrying is too high for comfort (although it wouldn't bother most lenders) and you really need a sizable downpayment. However, the biggest reason I would pass if I were you is that the real estate market is too high and you are likely to be sitting on a loss if you buy now. Rent goes down when the market does; mortgage payments don't. I'm in a different area than you (NYC), but when I bought my condo 2 years ago, real estate prices were OK for the area I was interested in. Since then, prices are up 80%. If I were looking now, there is no way I would buy in this market.

How did my wife and I save up? We relocated from Cleveland to NYC. We weren't making it in Cleveland (crappy job market) and we had about $200 in our checking account and two cars with loans. We ended up living in my parents' house for about 20 months (lots of fun as a married couple, I assure you). While we were there we sold one of the cars, found OK jobs, and saved like crazy. When we had enough cash for the downpayment, we started looking, but it took a few months for us to find the right place and complete the transaction, so we ended up saving a few extra grand which turned out to be really necessary. If we hadn't been living rent free with my parents, there is no way it would have happened so quickly.



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Author: AliFool Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15420 of 126964
Subject: Re: How did you do it? Date: 11/29/2000 5:20 PM
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Hah hah hah! You say your 1 br is 800sf? My 2 br is 800sf!

Ouch! Actually, though... ours is 1-br with a tiny little extra space in the living area, which we call our "office." Strange-shaped building. It is cozy -- we do OK, but some of our friends think we're nuts and living in a shoebox. (No, we are not "keep up with the Jones' types, so we are fine with what they think.)

Anyway, if I were in your shoes, I would skip it.

We ARE skipping it, for now. But we want to get ourselves in shape for it, eventually. : ) I will scale back retirement savings in favor of 1) retiring remaining debt, and 2) saving for down payment.

The debt load you are carrying is too high for comfort (although it wouldn't bother most lenders) and you really need a sizable downpayment.

Yeah. I am slowly realizing that if we want ANY house, I will have to put retirement savings on hold. That is OK, though... I can't live JUST for 65+ (or 55+ -- whatever), right? We'll want the house before THEN. ; )

However, the biggest reason I would pass if I were you is that the real estate market is too high and you are likely to be sitting on a loss if you buy now. Rent goes down when the market does; mortgage payments don't.

Well, since the market is down, maybe home purchase prices will also go down a bit, or at least level off. We can only hope. But coastal California is almost always up-up-up.

I'm in a different area than you (NYC), but when I bought my condo 2 years ago, real estate prices were OK for the area I was interested in. Since then, prices are up 80%. If I were looking now, there is no way I would buy in this market.

Yeah... we don't LIKE this market, but on the other hand, we want to be in our house for a long, long time. It may not matter as much. ???

How did my wife and I save up? We relocated from Cleveland to NYC. We weren't making it in Cleveland (crappy job market) and we had about $200 in our checking account and two cars with loans. We ended up living in my parents' house for about 20 months (lots of fun as a married couple, I assure you). While we were there we sold one of the cars, found OK jobs, and saved like crazy.

Yes, those are some major sacrifices. It sounds like you came out ahead, though.

When we had enough cash for the downpayment,

What percentage did you put down?

we started looking, but it took a few months for us to find the right place and complete the transaction, so we ended up saving a few extra grand which turned out to be really necessary. If we hadn't been living rent free with my parents, there is no way it would have happened so quickly.

It makes sense. Thanks for the tips. Yes, I will have to "notify" my husband that what he thinks are sacrifices won't get us there unless we are willing to wait a LONG time.

--AF


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Author: Institution One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15427 of 126964
Subject: Re: How did you do it? Date: 11/29/2000 6:44 PM
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I'm finding this a really interesting thread. We haven't yet bought a house, so I can't speak about our experience putting together a down payment and moving, triumphant, into our humble abode. How I wish I could! So I'll just talk about how we didn't do that.

Our student loan debt (originally over $100k) will be at $37k by the end of this year. From that point, we'll be sitting on it for a year because the interest is subsidized for that time. I feel a little guilty about that, since we could reasonably afford to make payments during that time, but honestly, our lenders make it such an enormous hassle to pay from overseas while subsidized loans are in deferment that I still can't figure out how making payments would even be possible. And I'm getting tired of waiting on hold trying to figure it out. Right now, we live in the Bay Area. So, similar debt, nearby locale.

We decided not to buy a house about two years ago, when house lust began to rear its head, right after we got married. That was the right decision for a lot of reasons, not the least of which was the opportunity to move to France, which we learned about less than a year ago (we're leaving six weeks from today -- uh oh). I imagine this particular scenario is unlikely for others, however. We couldn't have arranged to move overseas, though, without paying off all our credit card debt, the car loan, and the student loans in repayment, however. When we gave up the dream of getting a house within a year lo those many months ago, the money that we had talked about turning into a down payment became the goodbye wave to all those loans.

What was surprising to me was realizing we were okay without having our own place for a few years yet. We don't need a lot of space for ourselves really, and we don't want kids for a while. I still want a house very badly, but when I look at our lives, I can see that we're better off paying off all the debt before we buy. We'll keep putting the maximum into our retirement plans while we're saving our down payment even though I know that will take longer. If we wait to buy a house until we want to have kids, which seems likely, I doubt we'll be able to increase our retirement contributions then. Now seems like a better time. And everyone we know has had babies within two years of buying a house. Apparently mortgages impregnate.

The hardest part for both of us, actually, has been the pressure we're now getting from our families to buy. We've had such a horrendous time with apartments in this area (losing them regularly as landlords kick us out to sell) that I swore I would never have children in a rental. I never want to be like the people I know who lost their apartments a month away from delivery, or with a newborn baby in arms (or two!) This means, of course, that our relatives all want us to buy right now, so we can set about the business of procreating. We've postponed some of this discussion by deciding to move to Paris for a year or so, but I'm getting a little tired of explaining that whatever savings we accumulate there will be used to pay off the last of the student loans, not to buy a house upon our return. This is the dark side, I suppose, of having a family that's open about money.

Looking back, I don't really remember why we decided not to buy when we wanted to so much. I think I just looked at the numbers and realized it wouldn't be prudent to buy in the next year when we'd really be better off paying the debt. And then the next year came and it was completely different than anything I'd planned.

So here we are. Oh, and age-wise, today is my 30th birthday, and my husband will be 31 on Saturday. Anyway, I'm interested to hear what you decide to do.

Institution


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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15430 of 126964
Subject: Re: How did you do it? Date: 11/29/2000 7:00 PM
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<<<<And everyone we know has had babies within two years of buying a house. Apparently mortgages impregnate.>>>>

More likely a combination of the nesting instinct and the lack of funds (too much house) for anything other than free recreation and entertainment. <grin>

Regards, JAFO





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Author: WorthMor Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15436 of 126964
Subject: Re: How did you do it? Date: 11/30/2000 10:33 AM
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AF,

You go girl!

I know its "low interest" but its still debt. Consider cutting back on the retirement contributions so you can at least speed up paying back your loans. Start with the smallest debt and snowball. Take a part time job or do some freelancing of some sort to generate the extra income. You'll just be so glad you're not entering homeownership with a lot less or no debt at all.

God Bless!

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Author: AliFool Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15437 of 126964
Subject: Re: How did you do it? Date: 11/30/2000 12:39 PM
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Thanks. Yes, I will cut back on 401K as soon as I get my "matching" portion for 2001 (company matches dollar-for-dollar up to match point). I have already built up something in past 401Ks and current one, so I can feel OK about taking a break in order to save and pay down debt. We can't live ONLY for the tomorrow that's decades away!

I am in the process of dropping my ESPP from 10% to 1%. I know I will feel bad about that, but we can do it later when we truly have more "disposbale" income. Some might say, "Well, why not buy the shares and just sell them on the end-date of the plan for a virtually foolproof 15% discount (less taxes on that 15%)?" I guess the good reason NOT to do it is that during the 6 months of the plan, that money WON'T be available to us. It will be sitting in the stock plan waiting to purchase shares. So... I guess we may as well not do this.

EXCEPT... I just got notice about how to do this, and I'm looking at where I have to click to change the percentage and I don't want to do it! Hmmmmm.... why NOT? Maybe I will have to think about that some more.

We are also going to make sure we have the right number of allowances and enough withholding for tax year 2001. 2000 should be interesting for us as its our first tax year for married filling jointly.

Beyond this... husband is not putting any money into ESPP (it's not available yet). He's putting only 1% or 2% in his 401K "just to feel like he's doing SOMEthing." Everything else is going to that credit card. Next will probably be my car loan.

We also talked last night about what a "realistic" situation is for us. Realistically... we will both be here, working, for awhile. We won't move to where we want to buy a home for awhile. We know we don't want to have kids for a few years... so, we figure we can do OK renting our 1-br place during that time... and focusing on working, knocking down debt, starting to ACTUALLY SAVE that downpayment, etc. In about 3-4 years we will begin to think more seriously about moving, buying a home, and starting a family. We'd like to have a house, but will wait to we can move and have a different quality of life, in addition to a different financial picture.

Thanks for your input and for letting me share.

--AF

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Author: spongebrain One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15457 of 126964
Subject: Re: How did you do it? Date: 11/30/2000 10:56 PM
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People's lives would be so much easier if they could only look beyond what is only staring them in the face. Your net worth is negative $40k, b/c you decided opted for the "ring, honeymoon, some wedding costs". But in the back of your mind, you knew you wanted a house for YEARS, probably since you were 8 years old. "Cross that bridge when we get to it"

People make choices all their lives, yet don't even know it. You chose the "ring, our honeymoon, some wedding costs" instead of clearing debt and having a downpayment.

Reality: You don't start to train for a marathon the night before. You are YEARS away from a house. Homeownership goes so far beyond scraping together a downpayment.

PS: I do applaud that you at least have the decency to not grub from your aging parents, like many shameless couples, who are simply pretending to be adults subsidized by their parents.

One question: What is your total income and current rent ?

Bottom line: Prioritize. How much of your life do you want to sign away to a bank for the big loan? How important are dinners out vs delaying getting a house? There is no "right" formula. Everyone is different.,

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Author: AliFool Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15461 of 126964
Subject: Re: How did you do it? Date: 12/1/2000 3:36 AM
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People's lives would be so much easier if they could only look beyond what is only staring them in the face. Your net worth is negative $40k, b/c you decided opted for the "ring, honeymoon, some wedding costs". But in the back of your mind, you knew you wanted a house for YEARS, probably since you were 8 years old. "Cross that bridge when we get to it"

I think this is especially interesting for you to say, because our net worth isn't negative. You didn't ask me if we have retirement savings, and I've already mentioned how well I've done with that. : )

Although I have always known that I'd want a house "some day," I wasn't always in the position I am now -- to begin to consider it. In the past I chose graduate school, a backpacking trip to Europe (albeit on a shoestring!), and more recently a ring and a honeymoon. I also chose to live my life debt-free, save for my master's and my car, both only acquired in the last few years. In addition I chose to put away a hell-of-a-lot of money considering what my income has been.

People make choices all their lives, yet don't even know it. You chose the "ring, our honeymoon, some wedding costs" instead of clearing debt and having a downpayment.

I've made it pretty obvious in my last few messages that we HAVE made our joint choices with our eyes open. I am a VERY deliberate person. But *I* didn't choose for my husband to have not known a whit about finances before, to the tune of $30K cc debt! However... I HAVE chosen to bring him back from that by living fairly frugally (and he has done GREAT, too!).

The wedding was an exception, as were most related things, but these are life choices, milestones, memories, etc. -- this is our opinion if not yours, and worth every penny. Incidentally, I got my wedding gown for 75% off and got married on a Sunday (cheaper)... weren't THOSE choices? Can't we choose to have a wedding and possibly LESS of a house than we otherwise might have? How do you know that wasn't a conscious choice?

Reality: You don't start to train for a marathon the night before. You are YEARS away from a house. Homeownership goes so far beyond scraping together a downpayment.

Absolutely, it does, but we already know that we could have a house by the end of the week if we tried. The point is, we don't want to yet -- not HERE, and not NOW. We are just warming up. We want to do it the "smart" way, and we are testing the waters as far as strategy goes. This is the next big thing to think about, so why not think about it now, knowing it's 1-4 years away, (and possibly longer if our priorities change)?

PS: I do applaud that you at least have the decency to not grub from your aging parents, like many shameless couples, who are simply pretending to be adults subsidized by their parents.

Oh, give me a break! (And I never said that I didn't!) : ) They helped with the wedding after all, and gave us a gift. But no, we don't take advantage. And yes, I paid for the master's, which is why I'm paying it back now.

One question: What is your total income and current rent ?

If I had felt comfortable disclosing it I could've done so by now. I will refrain from answering, in large part due to the hostility I sense. If you were trying to figure out our percentage debt load, suffice it to say that due to our persistence, it's "not so bad." Not nearly as bad as it was or could be, and a HUGE chunk of that will be gone in a matter of months.

Bottom line: Prioritize. How much of your life do you want to sign away to a bank for the big loan? How important are dinners out vs delaying getting a house? There is no "right" formula. Everyone is different.,

The occasional dinner out is MUCH more important to us than saving every last $10-$20 for our future home. The point is, you can't put off EVERYTHING 'til tomorrow. I've gone too much to that extreme... until the wedding came along. We did spend a lot in the past year, effectively pushing back any future home purchase, I guess... but that wedding and all that went with it was important to us... and you can't buy memories.

Obviously my choices aren't yours. Obviously you think we're ridiculous, and that's fine. But there is nothing wrong with me checking with the other people on this board about how to best reduce current retirement savings in order to start our down payment while finishing paying off the debt. I also don't think wanting a 3-br home in a decent neighborhood is shamelessly materialistic, and we DO think it's important to have a home in which to raise our future kids. We each grew up in houses, and were in the same one (each) for most of our childhoods.

So... thanks for your devil's advocate viewpoint of our questions, choices, etc. It serves to reinforce the position that we've made GREAT choices. For example, if you're going to be $40K in debt (thus reducing the chance for buying a home), it might as well be for a master's, professional degree, and Ph.D., as well as an economy car. : ) (Did I mention that the ring, wedding, and honeymoon are all paid off, and not part of that $40K?! : ))

Good luck figuring YOUR stuff out. Let us know what you come up with.

--AF

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Author: brewer12345 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15467 of 126964
Subject: Re: How did you do it? Date: 12/1/2000 1:26 PM
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Sorry for the belated reply, but in answer to your question we put down 20%.

WRT the housing market being through the roof, I'm not suggesting that you aty out of the market forever, just that you be prepared to wait a little bit when you start looking. Its very tempting to jump on the first place you like, regardless of the consequences. It sure looks as if the economy is cooling, so you might profit by waiting and watching.

Even if you are planning on staying forever, price does matter. You don't have any way of knowing if circumstances will force you to move. If that were to happen, you'll most likely want to be able to sell your place for more than you owe on it, right?

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Author: brewer12345 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15468 of 126964
Subject: Re: How did you do it? Date: 12/1/2000 1:37 PM
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Just another thought on the ESPP. I don't have access to one since I'm not working for a publicly traded employer (that may change in another year), but my understanding is that you can flip your shares every 6 months for a pretty awesome percentage profit for very little risk. You might want to look into this, do the math and see what the story is before you pass up this opportunity. I agree that its OK to ratchet down the 401k contributions in order to dig your way out of a hole.

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Author: AliFool Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15473 of 126964
Subject: Re: How did you do it? Date: 12/1/2000 5:48 PM
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Thanks for this last msg., Brewer.

Yes, this is true -- I can "flip" my shares and assuming price doesn't go down between when the plan buys and I sell, I will make 15% profit... of course minus that 15% as part of my taxable income, and then minus any capital gains. Still could be a good deal, esp. if stock goes up in 6 months, because I would get it at a 15% discount to the price at the beginning of the 6-month plan.

Yes, I hate to ratchet down 401K, but it may be the thing to do, for now.

--AF

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Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15476 of 126964
Subject: Re: How did you do it? Date: 12/2/2000 9:00 AM
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Yes, this is true -- I can "flip" my shares and assuming price doesn't go down between when the plan buys and I sell, I will make 15% profit... of course minus that 15% as part of my taxable income, and then minus any capital gains. Still could be a good deal, esp. if stock goes up in 6 months, because I would get it at a 15% discount to the price at the beginning of the 6-month plan.


I've done the share-flipping when I knew I was going to need the money, but could wait for the 6-month buy period. Here's how it works assuming you sell the day after you buy. If the buy price is 85% of the price on the last day of the period, then you will have the 15% discount added to your income on your W-4, and will pay ordinary taxes on that. So you end up paying 28% of the 15% gain, but that still means you end up with something like 10% in your pocket. And if you make more because you bought at 85% of the price at the beginning of the period, then you have made even more. But having the numbers really being mixed between Schedule D and your reported income on your W-4 can make it feel like you didn't make as much as you thought.

If you know you won't be buying a house within the next 6 months, then I'd flip the stock and sell the day after you buy. If you think you will be buying in the next 6 months, you could reduce your contributions to the minimum so that you are getting interest on your money. Another option, though, might be to stay in the plan regardless, and if you buy in the 6-month period, see if your folks might be willing to loan you the stock money amount til you can flip the stock at the next buy period.

It can get complicated, but if you think it through, you'll come up with the option that will work best for you. I have actually done some number of different things when we were house-saving depending on which house it was we were buying and how close we were going to be with the numbers. Naturally, the first house was the tightest, so I could change my strategies somewhat.

From what you've written here, it appears to me that you definitely know what you want to do and how to get there. You were just looking to see if there were some ideas you might have missed. With your plan, you'll get that house.

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Author: hwkncat Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15583 of 126964
Subject: Re: How did you do it? Date: 12/7/2000 3:45 AM
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**Good luck figuring YOUR stuff out. Let us know what you come up with.

--AF **

You go, Girl. :-)

hwkncat

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