No. of Recommendations: 1
So I'm tired of living in apartments and want a house. The following describes my situation; when am I likely to be able to qualify for a loan?

- I plan to graduate grad school with a PhD in August or so, and begin a new job soon after

- The job I'm taking is located in the same location as my university, and the company has strong ties to my research group

- As a grad student I've been making a little shy of $30K/year, but my new job will pay $110K; my 2013 taxable income is likely to be around $65K

- I am single with no dependents and no debt besides a couple credit cards I pay off in full; to the best of my knowledge, my credit score dances around 760

- I estimate I can have about $25K available for a down payment by the end of the year

- I would probably be looking at houses that are in a $130-170K range. [Using "how much house can you afford" calculators, too expensive to afford based on my grad student income, but cheap enough to afford even if I used my partial-grad-student/partial-real-job income for 2013]

I'm guessing that banks wouldn't be satisfied me coming to them in October or November and would want me employed longer, but when could I reasonably expect one to play ball? Could I qualify early next year, after doing 2013 taxes?
Print the post Back To Top
No. of Recommendations: 4
<i- I plan to graduate grad school with a PhD in August or so, and begin a new job soon after

- The job I'm taking is located in the same location as my university, and the company has strong ties to my research group

Since you are staying in the same line of work, you should be able to qualify almost immediately, based on your new salary.

- I am single with no dependents and no debt besides a couple credit cards I pay off in full; to the best of my knowledge, my credit score dances around 760

Congrats on what you've been able to achieve!

- I estimate I can have about $25K available for a down payment by the end of the year.

Don't forget about closing costs. You may be able to get the seller to pay $3k - $5k, but if not, some of the 'down payment' money will need to be set aside for closing costs. Plus you will want to have some money for furnishings, repairs, upgrades, fixes, etc. And I would strongly suggest that you have at least a start on an emergency fund, since you never know what things might break or be damaged when you least expect it. Spending all of your savings on acquiring the house can leave you short of liquidity at just the wrong time.

- I would probably be looking at houses that are in a $130-170K range. [Using "how much house can you afford" calculators, too expensive to afford based on my grad student income, but cheap enough to afford even if I used my partial-grad-student/partial-real-job income for 2013]

If you want to go that high, it would be acceptable to use your new job annual salary, as long as you can get an offer letter stating what your salary is, and have a paycheck or two to show that you are being compensated at that level.

However, the less money you commit to paying in mortgage payments, insurance and property taxes, the more you will have to max out your retirement plans, plus save for other pesky things like a car, or maybe getting married and/or having kids, or any other life events you can think of. Since your PhD presumably took a few years beyond undergrad, you are starting out a few years behind where you could have been in saving toward your goals if you'd had a 'real' job. So if you can be happy with a lower price range house, you can use the difference to help make up for some of those lost earning years.

I'm guessing that banks wouldn't be satisfied me coming to them in October or November and would want me employed longer, but when could I reasonably expect one to play ball? Could I qualify early next year, after doing 2013 taxes?

I would say that the banks are likely be satisfied as soon as you feel comfortable that you have enough money saved to cover the down payment, closing costs and any repairs/fixes/upgrades/furnishing that you may want to do, plus have some additional set aside for emergencies.

If you don't want to wait until then to get out of an apartment, you may want to rent a house instead.

AJ
Print the post Back To Top
No. of Recommendations: 0
when am I likely to be able to qualify for a loan?

- I plan to graduate grad school with a PhD in August or so, and begin a new job soon after


What AJ said. You will qualify in August or September after graduating and receiving an Offer Letter. Income for qualifying will be the full $110,000., and with no debt, you would be approved with a housing expense up to approx. $4,100. Being a student is considered full time employment.
Print the post Back To Top
No. of Recommendations: 1
You will qualify in August or September after graduating and receiving an Offer Letter.

In my recent experience, before the close can occur, you will need to have at least one paycheck to confirm to the lender that you have actually started the job offered in the offer letter. (It used to be that the offer letter would often be enough to close.)

AJ
Print the post Back To Top
No. of Recommendations: 0
In my recent experience, before the close can occur, you will need to have at least one paycheck to confirm to the lender that you have actually started the job offered in the offer letter. (It used to be that the offer letter would often be enough to close.)

It flip flops. Previously would close with an Offer Letter, then needed borrower to actually start job and produce one paystub. Now we've flipped to Offer Letter only, (maybe) depending on occupation. Just received approval for a recent graduate who is to start work as a Veterinarian. It's an u/w judgement call, but if the field of study relates to the employment and the employer is viewed as secure, you are able to close on an Offer Letter.

This may change tomorrow. As of today, I would issue an approval letter.
Print the post Back To Top
No. of Recommendations: 0
Since you are staying in the same line of work, you should be able to qualify almost immediately, based on your new salary.

Spiffy, thanks! That's what I wanted to hear, even if I'm a bit surprised that it's the case.

Congrats on what you've been able to achieve!

Thanks! I'm pretty proud of my parts toward it. I've been really lucky in a few really important respects though, e.g. one of my parents worked for my undergrad university so I got reduced tuition which, along with a partial scholarship, let them pay for it without me having to take out loans. And I'm also lucky enough to be interested in a field (computer science) that pays nicely.

Don't forget about closing costs. You may be able to get the seller to pay $3k - $5k, but if not, some of the 'down payment' money will need to be set aside for closing costs.

Right. OTOH, even after taking that into account, there's probably enough for 10% down for even a $200K house. 10% is sort of my goal.

Plus you will want to have some money for furnishings, repairs, upgrades, fixes, etc. And I would strongly suggest that you have at least a start on an emergency fund, since you never know what things might break or be damaged when you least expect it.

So in late 2008* I opened a Roth IRA with a couple different mutual funds, which I sort of view as simultaneously a retirement account and emergency fund (because you can withdraw your contributions penalty-free) until I can get a real cash emergency fund up, which I haven't been able to do so far. If something really goes south in the interim between when I close on the house and when I can get some cash lying around, I could tap that. (I've maxed my contribution each year including this (somehow, and just barely) so have $30.5K that I can access penalty free.) Obviously that'd suck because if I withdraw more than this year's contribution I can't put it back in, but it is there as a backup plan.

(* At almost exactly the right moment as it turned out -- another way in which I got lucky. Everyone else's unfortunate loss when the market crashed was my gain, because I started getting into it at the bottom. For a couple of months I actually thought I might have opened it the day of literally the lowest point of the DOW since the 90's, but it dropped below that for a while in early 2009.)

Anyway, my thinking is that my income is high enough that I should be able to build up an actual emergency fund pretty quickly, so I'm not too worried about it. My current rent is high enough that the actual mortgage payment (maybe even mortgage payment + PMI) may well be less than what I'm paying now, and I don't see non-housing-related costs going up too much in the near future aside from perhaps a small bit of "celebratory spending" at the beginning, so that means that a significant majority of the increase in my income will be able to go toward savings.

The other thing which enters into the picture is that the company I'm working for has an SEP instead of 401K for retirement; I'm not sure that's the relevant bit, but the important part is that the company makes a straight contribution without requiring matching dollars. The good part of that is that if I say "I want to focus full bore on saving for the downpayment" or "I want to focus on establishing an emergency fund" I don't lose out on a match. (The contribution is also a bit higher than the maximum match at even some top tech companies.) The downside is that less goes in total compared to maximizing the match, so I'll have to figure out the right vehicle to use for external retirement savings. (I'll be in the phase-out zone of the Roth...)

So if you can be happy with a lower price range house, you can use the difference to help make up for some of those lost earning years.

A lot depends on what's on the market, of course. I've spent some time looking around on Zillow, and there have been a couple houses I've seen that from the pictures (yeah yeah) look pretty good and are at the lower end (or even slightly below) that price range. But generally speaking that's fairly low for around here.

As for your later suggestion of renting a house, I did sort of think about that. But there are a few things I don't like about that idea, and I'm not sure it makes financial sense for me. From what I can figure and anticipate, I should be around here long enough for buying to make sense, but if I were to move into a rented house for, say, a year and a half or two years, and look to buy during the second year, then that question becomes a lot more dicey. To me the house purchase seems like it's trading a very short term time where I'm low (but not critically low) on cash for a better long-term stance.

Look at the bright side... I almost wound up in the SF Bay area, so at least I'm not asking "hey when can I afford a $600,000 starter house?" :-)
Print the post Back To Top
No. of Recommendations: 0
[Oops, looks like I posted the response I was working on by accident as I was still working on it, didn't realize it, and kind of double posted. Sorry about that.]

It flip flops. Previously would close with an Offer Letter, then needed borrower to actually start job and produce one paystub. Now we've flipped to Offer Letter only, (maybe) depending on occupation. Just received approval for a recent graduate who is to start work as a Veterinarian. It's an u/w judgement call, but if the field of study relates to the employment and the employer is viewed as secure, you are able to close on an Offer Letter.

This may change tomorrow. As of today, I would issue an approval letter.


While interesting to know, it's kind of a moot point; unless I were to make the incredibly dumb decision of raiding my Roth IRA I won't be able to afford the down payment I want before working for at least couple months anyway.
Print the post Back To Top
No. of Recommendations: 0
While interesting to know, it's kind of a moot point;

No suggestions or advice was provided, only an anwer to the question; "When do I qualify?". Wanted to be accurate in my reply.

Personally my feelings are that no one should buy a home on an offer letter alone. But I don't advise people how to spend their money, or their anticipated money. I will say congrat's on upcoming graduation and the soon to be resulting high paying job. Well done.
Print the post Back To Top
No. of Recommendations: 0
No suggestions or advice was provided, only an anwer to the question; "When do I qualify?". Wanted to be accurate in my reply.

Appreciated! Thank you!
Print the post Back To Top
No. of Recommendations: 1
The other thing which enters into the picture is that the company I'm working for has an SEP instead of 401K for retirement; I'm not sure that's the relevant bit, but the important part is that the company makes a straight contribution without requiring matching dollars. The good part of that is that if I say "I want to focus full bore on saving for the downpayment" or "I want to focus on establishing an emergency fund" I don't lose out on a match. (The contribution is also a bit higher than the maximum match at even some top tech companies.) The downside is that less goes in total compared to maximizing the match, so I'll have to figure out the right vehicle to use for external retirement savings. (I'll be in the phase-out zone of the Roth...)

This is off topic, but you should probably do both the Roth and the SEP if you can. The reason is the gains on the SEP are taxed as ordinary income. So when you get to retirement, it is good some flexibility to withdraw from the tax free Roth, depending on your tax bracket. Food for thought.

And if you can you should max both your SEP and your Roth. I promise you, you won't miss the money. You'll feel like you have the same income as all the rest of your colleagues, and in five years your mind will be blown at how much saved.
Print the post Back To Top
No. of Recommendations: 4
Just because you're tired of living in an apt doesn't mean you have to buy a house. You could rent a nice property (condo, townhouse, home) while you continue to save money and focus on the job rather than burden yourself with things like home maintenance., HOAs,...

Don't let folks give you that "You're throwing your money away on rent" nonsense, just reply "You're throwing away your money on interest. And on buying appliances. And on yard tools/maintenance. And on...."
Print the post Back To Top
No. of Recommendations: 1
I'll be in the phase-out zone of the Roth...)

I haven't been paying close attention to this thread, so my apologies for coming late to the party. From what I recall of your story you could be a perfect candidate for a way around the Roth phaseout. It all depends on whether you have an existing traditional IRA with pre-tax money in it, including SEPs, SIMPLEs, and rollovers from prior employers' plans.

Phil
Rule Your Retirement Home Fool
Print the post Back To Top
No. of Recommendations: 1
He wants to buy a house not rent. Why shouldn't he when he can obviously afford it? He is probably more qualified buying his first house then most.

Please tell me again how I am throwing my money away on interest (and appliances and yard maintenance) when I just made $335,000 selling MY starter home? Gee, sure wish I would have rented those last 8 years......NOT!
Print the post Back To Top
No. of Recommendations: 0
when I just made $335,000 selling MY starter home?
If I had bought within 3 months after college instead of ~3 years, I would have probably made ~$100K (after taking into account selling costs, etc)
BUT I don't regret at all that I waited and rented. I could have just as easily have lost $100K in market value in those 3 years too. And it gave me plenty of time to learn about the various cities, school districts, neighborhoods. And I enjoyed going to open houses on the weekends - looking at places and getting ideas for what I liked or didn't. I was planning on waiting a while longer, but I encountered a place I could buy for as cheap (or cheaper than) renting. So at that point I moved quickly to make a purchase.
Print the post Back To Top
No. of Recommendations: 8
Please tell me again how I am throwing my money away on interest (and appliances and yard maintenance) when I just made $335,000 selling MY starter home? Gee, sure wish I would have rented those last 8 years......NOT!

Please do not confuse good luck with skill or a prudent plan.

If you just sold your house and owned it for 8 years, that puts your purchase in 2005. The RE market peaked out around 2006 to 2007, depending on your location. So you bought not long before the peak.

I suspect you were either very lucky or you have glossed over important information, such as significant improvements made to the house, or a below market purchase. With your handle, it's also possible your property is located in a recently discovered gas field, adding to it's value. I'd toss that in the "luck" pile.

--Peter
Print the post Back To Top
No. of Recommendations: 0
EvanED ~

I just read through the whole thread and I wanted to bring up something that I encountered when I bought my first home. This was over 30 years ago and we had 10% down but had to pay PMI because we didn't put down 20%. The idea is that once your home is under 80% of the value then the extra monthly expense will stop. I will tell you that oftentimes the lien-holder does not wish to curtail this and you may have a bit of a struggle to have it removed. PMI (Private Mortgage Insurance) is to protect the lien-holder from you not paying your payment since you have so little "skin in the game". You may want to inquire about that when you look into financing.


Robyn
Print the post Back To Top
No. of Recommendations: 0
Evan, I don't know if a PhD qualifies for a "physician loan," but you might try this.

http://whitecoatinvestor.com/personal-finance/the-doctor-mor...

My son and future DIL just bought a house with a physician loan without having to produce at least one paycheck stub, but on her residency contract alone.

Note: some of the discussion about rates and fees for such a loan is no longer valid as rates have improved recently. My son/DIL got 2.625 at par (no points to the lender; no rebate from the lender) for a 5/1 ARM.
Print the post Back To Top
No. of Recommendations: 2
It's not lucky to make money in real estate, lucky is a winning lottery ticket. I have owned real estate since 1987 and have owned 5 houses. I made money on all of them - over $200,000 on one. It's being prudent, not selling in a down market, not over extending yourself, etc. The OP sounds like he is in a good position to buy. I am also curious why people recommend he rent. Renting is a PITA for many, more so then home maintenance (which I kind of enjoy). To each their own for sure, but he states he wants to buy and was asking WHEN he qualifies for a loan, not IF he should buy or not.
Print the post Back To Top
No. of Recommendations: 4
I forgot to mention that my parents made millions in real estate. Married in 1959, they came to Colorado with a paid off car and nothing else. Dad went to the university while mom worked. They lived in a 20 foot trailer. After graduating, my dad started working (engineer) and mom had children. Mom, coming from Iowa, did not want to be poor when she retired so in the 1970s they purchased a house to rent out (mom did alterations on the side to save for a down payment). One house became two, some were flipped and sold. In the 1980s they bought 2 apartment complexes. Those were later sold and they bought a lot in an industrial park. Two commercial buildings later, dad was able to quit his day job. They ended up selling their buildings in the late 90s and carried the loan for the investment groups who purchased them. They get over $10,000 a month income from these properties, own a $500,000 house free and clear (and made money on every personal house we lived in). So glad they invested in real estate and weren't renters!
Print the post Back To Top
No. of Recommendations: 6
He wants to buy a house not rent. Why shouldn't he when he can obviously afford it? He is probably more qualified buying his first house then most.

No -- he said he was tired of living in an apt. I just pointed out that there are alternatives other than buying a house such as renting a home, condo, townhouse, etc.

Please tell me again how I am throwing my money away on interest (and appliances and yard maintenance) when I just made $335,000 selling MY starter home? Gee, sure wish I would have rented those last 8 years......NOT!

My friend Doug lived in furnished, rented apartments his entire professional life and retired a multimillionaire because he chose to put his time and money into stocks rather than housing and the extra demands it calls for.

But now that we've traded stories which "prove" each extreme.... B^)

The point I was trying to make was that the owner and renter are both investors, the owner (like you) with the home and the renter (like Doug) with savings realized by not having to pay as much for shelter. *NEITHER* is throwing money away; either/both may do well or poorly.
Print the post Back To Top
No. of Recommendations: 0
I am also curious why people recommend he rent. Renting is a PITA for many, more so then home maintenance (which I kind of enjoy). To each their own for sure, but he states he wants to buy and was asking WHEN he qualifies for a loan, not IF he should buy or not.

He said he was tired of renting an apt; I was just pointing out that there are alternatives to that other than buying a home.
Print the post Back To Top
No. of Recommendations: 0
So when someone wants to buy why do others jump on the "you should rent" band wagon? Historically own real estate has been financially prudent, same with buying stocks. No one is saying do one over the other.
Print the post Back To Top
No. of Recommendations: 5
I am also curious why people recommend he rent. Renting is a PITA for many, more so then home maintenance (which I kind of enjoy). To each their own for sure, but he states he wants to buy and was asking WHEN he qualifies for a loan, not IF he should buy or not.

Actually, what the OP had said in the initial post, which was what I was replying to when I made the suggestion to rent, was So I'm tired of living in apartments and want a house.

Being tired of apartments and wanting to live in a house doesn't mean one has to BUY a house, thus the suggestion to rent.

It was only after my suggestion to rent that the OP indicated that based on the numbers, s/he felt buying sooner, rather than renting, would be preferable. That said, the OP needs to be sure to include all costs of ownership (mortgage, property taxes, insurance, repairs, upgrades, selling costs, etc.) when determining if it makes financial sense to buy, especially if the ownership time frame will be less than 4 - 6 years. Since the OP is in an area where livable houses can apparently be purchased for $130k, it's less likely that there will be significant appreciation from an absolute $ perspective.

AJ
Print the post Back To Top
No. of Recommendations: 5
It's not lucky to make money in real estate,

It can be luck, or it can be skill.

I merely suggested that buying a starter home near the top of a market and making enough profit to buy two starter homes in many markets smells like luck rather than skill.

The poster presented no evidence of skill, or hints of how to buy a starter home that has the potential for a good profit several years down the road. In short, there was nothing of value suggesting skill. Therefore, I pointed out that luck was a possibility.

--Peter
Print the post Back To Top
No. of Recommendations: 2
Thanks all, I appreciate the feedback. That said, I'm pretty convinced in the applicability of my decision for me. There are a bunch of reasons for wanting to buy; some of these reasons (like not wanting neighbors sharing a wall) would be solved by renting a house, but some would not. I would be happy renting a house for a while, but not for the long term. (I'm not sure what "long" is. :-))

The following is a bit discombobulated; I apologize.

That said, I did only a cursory investigation of house rentals before. That searched convinced me that it likely wouldn't make sense. There seems to be far fewer choices for house rental than purchases in my price range, and a lot of the choice that do exist would cost comparable to or more than what I've estimated for a mortgage + PMI + insurance + property taxes. (I'm in a small city with a big state school. I would guess that many of the people who have investment rental houses have converted them into flats or other multi-unit rentals for students.) And I don't really want to have to move or something if the owner decides to sell the house or it's a short term rental.

I did check again in a different location I hadn't thought of before and found a couple somewhat promising locations, so maybe I'll check them out.

The one thing which gives me a little pause about buying is I do have a relatively short time horizon, perhaps around 4 1/2 years after purchase. (Then again, that's guessing what I'll want to do in 4 years, so things could change a lot.) The problem is this puts me into an awkward situation timewise, because if I expected to be around much shorter it would be a clear cut decision to rent and if I expected to be around much longer I could more easily rent for a year then buy, but as-is it seems too long to deal with house rentals but only by a little, so if I were to rent a house for a year then look for a property to buy it would be even less comfortably far away until I move.

But anyway, in some sense I'm not overly concerned about the financial picture. Even if I do wind up taking a relatively small loss by owning (either in absolute terms or relative to what it'd have cost to rent) I think I can deal with that in exchange for having ownership in the interim. And there's another benefit too, which is that there's a chance I'll wind up looking for jobs at tech companies in the SF Bay area in a few years here (there are a few possibilities for what happens that far out), and I'd rather find out I actually don't like house ownership with a $150K home here than with a $500+K home out there. :-)
Print the post Back To Top
No. of Recommendations: 2
The one thing which gives me a little pause about buying is I do have a relatively short time horizon, perhaps around 4 1/2 years after purchase. (Then again, that's guessing what I'll want to do in 4 years, so things could change a lot.)

If you'll forgive me, I'm going to put my Mom hat on here. The above is exactly what concerns me most about your buying a house rather than renting. This is your first real job post degree, if I've read the thread correctly, and the options out there for you are close to limitless. Are you that much a homebody that you want to tie yourself down so quickly, potentially limiting your options? Of course, if you are good enough to get drafted by another company, it's probable they will give you a relocation package and even buy your house from you. I know many people who have done that over and over to the benefit of their nest egg.

Best of luck in your endeavors. Eldest is a college freshman majoring in computer science, spending the summer in his first internship, earning about $25/hour. What a major for today's student.

IP
Print the post Back To Top
No. of Recommendations: 1
If you'll forgive me, I'm going to put my Mom hat on here.

I do appreciate the sanity check, and I am looking at renting a little more carefully than before. However, I'm still not sure it's looking so promising.

First, a small bit of background: so most of why I took the job that I did is that it's in some sense a somewhat unique opportunity; the company will be starting not long before I officially join a fairly large, 4-year research project. In some sense this is a misnomer because the "different" research projects blend together a fair bit, but it should still be interesting to see it run its course from start to finish. I have a lot of knowledge about the company, the work, and the area, and I think the chance I would leave before that 4 yr project is up is low. (I think the chance that I would leave within a year after the project is over, however, is reasonably high.)

If I put $170K, 10% down, and 2.4% property tax into Zillow's mortgage calculator and leave the rest defaults, it says my monthly payment will be $1,153, including $75 for PMI. (A 15-year mortgage would bring it to $1,504, and I would consider this and/or prepaying at least until PMI is canceled.)

What would you estimate as a cutoff point for you if you were in my position in terms of rental cost between when you'd do one or the other?
Print the post Back To Top
No. of Recommendations: 1
If I put $170K, 10% down, and 2.4% property tax into Zillow's mortgage calculator and leave the rest defaults, it says my monthly payment will be $1,153, including $75 for PMI. (A 15-year mortgage would bring it to $1,504, and I would consider this and/or prepaying at least until PMI is canceled.)

What would you estimate as a cutoff point for you if you were in my position in terms of rental cost between when you'd do one or the other?


And don't forget the tax benefits of mortgage interest, pmi and property taxes. That said, for me, I would consider non-financial considerations more strongly. I would look at the fact that I was facing a number of high level stress events, and even though they are good stresses they take their toll. Moving, starting a new job, a new life really and one that is outside of academia, are all very high stresses. Buying a first home is another huge one. While living in an apartment can be stressful as well if your neighbors are less than stellar, the same can happen with a house you buy. Frankly that happened in my first house, and it is a lot harder to move away from bad neighbors when you own than when you simply have a lease. And a bad landlord who won't fix anything is rotten, but so is finding out that your heat won't work, roof is leaking, or your water heater just dumped a ton of water into your finished basement.

Obviously we don't know you, and buying a house may be the very best thing for you. But if you are just coming out of getting your PHD then you are most likely a significantly driven guy who pushes himself to handle challenges. And that is good, but so is taking a moment to breathe. A 12 month lease is not your only option besides buying. Shorter term leases can be found as well. Get to know your city before you buy.

You are a smart guy who obviously can think things through. Just don't focus exclusively on dollars, focus more on sense.

Best wishes,

IP
Print the post Back To Top
No. of Recommendations: 3
the company will be starting not long before I officially join a fairly large, 4-year research project.

So, if I understand correctly, it's a start-up company with one major project? In this day and age, I would be really hesitant to buy a house if that were my employment, unless I had a fully funded 12 month emergency fund (other than a Roth).

Funding for research projects is usually dependent on either government funding or venture capital. Neither is a totally stable source of funds....Governments at all levels in the US are looking to cut costs right and left; venture capital goes through ups and downs, and can decide to cut their funding off totally at any point. Here's one of the better-known cases of this happening - Sequoia Capital's "Presentation of Doom" in 2008: http://venturebeat.com/2008/10/10/the-sequoia-rip-good-times...

My boyfriend, a programmer, worked for a tech start-up in 2008. The company shut down on Oct 31, 2008, a few weeks after the presentation, because the start-up (with almost 200 employees) couldn't get funding. He was left with no job and no health insurance, not even COBRA, because the company didn't exist any more. He found a contract job about 4 months later, and jumped from contract to contract for 3 1/2 years, until he found a great full time job last September, that we ended up moving across the country for.

Since I owned the house we lived in, it wasn't nearly as difficult for him to be flexible with his employment, and he did consider contracts in other areas of the country at times, but managed to stay in the large metro area we lived in. However, if you are in fairly small metro area, it might not be as easy, and being tied to making a mortgage payment, you might also find yourself forced to sell, or end up paying for housing in 2 different places if you can't sell.

AJ
Print the post Back To Top
No. of Recommendations: 0
@inparadise:

You are a smart guy who obviously can think things through. Just don't focus exclusively on dollars, focus more on sense.

I'm definitely trying; in some ways I'd say that's why I'm looking to buy even though I'd quite possibly only have a ~4 year horizon of ownership :-)

Moving, starting a new job, a new life really and one that is outside of academia, are all very high stresses. Buying a first home is another huge one.

But again, in some ways that's why I'm leaning toward buying; in particular, moving. :-) I could rent a house for a little bit then look at buying, but that would mean moving twice instead of just once. If I plan to rent longer term, there's the small potential that I'd be forced to move even more.

I'm only in a 1BR apartment, but I suspect I have a fair bit of crap for that being true.

(I guess the one vs two moves fact may not be obvious from what I said. The company I'm working for has an office in the same city as my university, so I would probably just extend my current apartment lease out until around this time next year.)

Get to know your city before you buy.

That's also addressed by what I just said. Though granted, I haven't lived in the area where I'd be most interested in buying a house. That's probably one of the more convincing reasons to rent -- in fact, I considered getting an apartment in the vicinity, but I'm not sure if I'm more put off by an extra move or by not being quite as confident about the area.

@aj485:

So, if I understand correctly, it's a start-up company with one major project?

No; they've been around for over 20 years now, and they've recently been growing a lot. The project I mentioned would just be one of the things they're doing and what I'd be working on.

That project is government funding, but the company also has a good amount of commercial business (I don't know the ratio), and even the type of gov't funding they get is probably reasonably safe all told.
Print the post Back To Top
No. of Recommendations: 0
The company I'm working for has an office in the same city as my university, so I would probably just extend my current apartment lease out until around this time next year.)

Or you could simply go month to month. In many states that is automatically what happens to a lease after 1 year. Take a look at your lease to see. You may in fact need to give so much notice to end the lease, even if the one year anniversary is coming up.

If you can go month to month, that would be ideal. You don't have to live in an area to get to know it, just spend time there. Walk around and see what the ambiance is like. Identify some streets you particularly like, and monitor those areas on line for sales activity.

Good luck and keep us posted so we can enjoy your success vicariously. I have no doubt that you will be successful no matter what path you take.

IP
Print the post Back To Top
No. of Recommendations: 6
But again, in some ways that's why I'm leaning toward buying; in particular, moving. :-) I could rent a house for a little bit then look at buying, but that would mean moving twice instead of just once.

Believe me, the heartburn of moving twice is NOTHING compared to the heartburn of paying 5%-10% (commission & seller's fees) to sell your house in 4 years. Nor the heartburn of trying to rent your house out when you've moved to another state.
Print the post Back To Top
No. of Recommendations: 0
If you can go month to month, that would be ideal. You don't have to live in an area to get to know it, just spend time there. Walk around and see what the ambiance is like. Identify some streets you particularly like, and monitor those areas on line for sales activity.

Drive around during rush hour. A neighborhood may look fine on Saturday but trying to get out of the neighborhood on Monday morning may suck.
Print the post Back To Top
No. of Recommendations: 1
No; they've been around for over 20 years now, and they've recently been growing a lot.

Okay, that is a little less scary.

That project is government funding, but the company also has a good amount of commercial business (I don't know the ratio), and even the type of gov't funding they get is probably reasonably safe all told.

Well, that's still scary, at least to me. I mean, I would have thought that air traffic controllers were pretty important - after all, who wants planes to crash into each other? So, I would have thought that they were safe from funding cuts - think again. Now, I realize all the politics involved in that, but, you know what, government is, by definition, subject to politics. And if research funding gets cut, even companies with lots of other projects and opportunities may not have enough jobs of the right type available for everyone.

I would not let this keep me from buying a house at all. I would let it keep me from buying a house until I had a fully funded e-fund, other than my Roth. If that meant that I wasn't able to put down a full 10%, because I was keeping money in my e-fund, but I could still qualify for a mortgage by putting down 3% or 5%, I'd be okay with that.

My point is - you don't want to find yourself cash poor from buying the house if something really bad happens a few months later.

AJ
Print the post Back To Top
No. of Recommendations: 0
Drive around during rush hour. A neighborhood may look fine on Saturday but trying to get out of the neighborhood on Monday morning may suck.

And look around carefully.

We once leased a very nice apartment for quite cheap, after seeing it on a weekend. We moved in on a weekend, too.

On Monday morning about 7AM we woke up suddenly, looked at each other and said, "Oh. THAT'S why it was so cheap."

The tall hedge at the end of the parking lot block the building from the view of the COMMUTER RAILROAD TRACKS just on the other side.
Print the post Back To Top
No. of Recommendations: 0
@inparadise:

Or you could simply go month to month. In many states that is automatically what happens to a lease after 1 year. Take a look at your lease to see. You may in fact need to give so much notice to end the lease, even if the one year anniversary is coming up.

For my current lease, I will get asked (probably next week actually) whether I want to renew. If I don't respond or say no, then it's over and they'll try to find a new tenant. I might be able to go month-to-month with them, but that'd have to be an explicit arrangement.

Good luck and keep us posted so we can enjoy your success vicariously. I have no doubt that you will be successful no matter what path you take.

Thanks!

@Rayvt:

Believe me, the heartburn of moving twice is NOTHING compared to the heartburn of paying 5%-10% (commission & seller's fees) to sell your house in 4 years. Nor the heartburn of trying to rent your house out when you've moved to another state.

From what I can tell, the financial balance is in favor of buying, even after 4 years. Rent would be comparable to the mortgage payment+insurance+taxes+PMI, and improvements and maintenance to the house is somewhat counterbalanced by the mortgage interest deduction (I can't take PMI deduction, not that it'd buy much) and equity. A couple rent or buy calculators put buying to be at perhaps +$10K after 4 years. (Of course that's guessing at some values, like appreciation, where I tend to be conservative and favor renting.)

Though like inparadise suggested before, I'm not hugely concerned about the financial situation; I see that result more as "not arguing for renting" more than I see it as "arguing for buying".

@PSUEngineer:

Drive around during rush hour. A neighborhood may look fine on Saturday but trying to get out of the neighborhood on Monday morning may suck.

We've got a pretty decent bus system around here, so I would probably use that. But the same suggestion applies, and I was already thinking I'd try driving to my prospective location really early so I could try the busses at the times I'd be likely to take them. (Schedulewise they look pretty decent if I'm picky enough with location.) That's a bit down the line though.

@aj485:

Well, that's still scary, at least to me. I mean, I would have thought that air traffic controllers were pretty important - after all, who wants planes to crash into each other? So, I would have thought that they were safe from funding cuts - think again. Now, I realize all the politics involved in that, but, you know what, government is, by definition, subject to politics.

I'm not saying I'm necessarily not overconfident, but there are a couple reasons why I think that we're fairly safe.

First, while the project is a substantial one for companies like the one I'll be working for, it's pretty small in more absolute terms. One of the neat things about CS is that the costs can be very low -- personnel are well-paid, but until you get into supercomputer territory or putting together massive clusters there are not too many other costs. There are tomahawk cruise missiles that cost more than we'll receive in a year. I wouldn't be surprised if the annual project budget is in the ballpark of what it costs the FAA to run a single tower, but I didn't run across that figure in a quick search.

(A small disclaimer there is the project is actually bigger -- there are multiple groups and companies who have received the award (not sure how many) -- and I'm only talking about our portion.)

Second, the project topic is on computer security, funded with a particular aim towards questions like "hey the military just bought this computer part from <FOREIGN_COMPANY>; how do we know we can use it?" That concern supposedly has the attention of a number of people in Congress and the military, and is viewed as a problem and a national security concern. (Though the project itself is not really specific to that application in any way, it's the motivation behind it and the funding is defense funding.)


[By the way, is there a forum etiquette for making multiple replies like this? Should I do separate posts so they are marked properly as replies, or bunch them together like this so I don't flood the forum?]
Print the post Back To Top
No. of Recommendations: 0
P.S. Hi PSUEngineer... I did my undergrad at Penn State.
Print the post Back To Top
No. of Recommendations: 1
@EvanED:

By the way, is there a forum etiquette for making multiple replies like this? Should I do separate posts so they are marked properly as replies, or bunch them together like this so I don't flood the forum?

First the caveat. Although there's "TMF" at the beginning of my name, I'm not speaking in any official capacity. My official duties are listed in my profile, which you can access by clicking on my name up above. ­­Everything I post here is just Phil's personal opinion/observation.

I don't recall ever seeing an answer to your question. One thing I really like about your responses, which I've not seen by anyone else on the Fool's boards, is the use of the "@" convention in your responses. It makes it clear immediately who you're addressing. This is helpful to those of us who are eavesdropping on your conversation.

You've stated the pro of putting responses to multiple posts in one. The con is that the person you're responding to may miss it if (s)he is working from the "responses to your posts" link.

Speaking of responses, if you responded to my suggestion of a way around the Roth IRA contribution income limit I missed it. I'm bringing it up only because it may have gotten lost in the excellent rent/own discussion that's been going on. If you'd like to pursue it, either here or on the Tax Strategies board http://boards.fool.com/tax-strategies-100155.aspx?mid=306512... just let me know.

Phil
Rule Your Retirement Home Fool
Print the post Back To Top
No. of Recommendations: 0
P.S. Hi PSUEngineer... I did my undergrad at Penn State.

Hello. I'm sure I got my degree a lot longer ago. I got a B.S. in ChE back in 1986.

PSU
Print the post Back To Top
No. of Recommendations: 3
I'm not saying I'm necessarily not overconfident, but there are a couple reasons why I think that we're fairly safe.
.
.
.
the funding is defense funding


I'm glad you're confident. But with defense funding getting cut by $41 billion this year because Congress couldn't do their job and agree on a spending plan, and having seen colleagues lose their jobs in other defense cuts, not sure I would be as confident in your place. I'm sure that there is value in the project that you are doing. But I'm also sure that there is someone who sees value in every research project that gets funded by the government, and even a lot of those that fail to get funding.

Ultimately, it's whatever allows you to sleep at night. Personally, if my project/job were dependent on government funding, with the way that Congress has been unable to agree on anything for the past several years, I would want a fully funded e-fund before I made a major purchase like a house. But if you are willing to take the risk of not having a fully funded e-fund, and you can sleep at night - that's your choice.

When I bought my first house, I didn't have a fully funded e-fund, and I was working for a defense contractor. It turned out okay for me, and it probably will for you, too. It didn't turn out so well for some of my colleagues, though, which is why I look back and realize that I was really lucky, and not necessarily all that smart. I wish that there had been forums like this available at that time. I'm not sure that I would have actually listened, much less have done anything differently, but it would have given me another viewpoint that was completely different than the viewpoints that I got at the time.

AJ
Print the post Back To Top
No. of Recommendations: 4
improvements and maintenance to the house is somewhat counterbalanced by the mortgage interest deduction (I can't take PMI deduction, not that it'd buy much) and equity

Are you sure about the value of the mortgage interest deduction? If you are buying a $200k house with 10% down, you are getting a $180k mortgage. At 3.25%, the first 12 months of that mortgage will generate about $5,796 in deductible interest. The standard deduction for a single taxpayer for 2013 is $6,100 - so your mortgage interest is over $300 short of getting you any value from avoided taxes. And your interest paid in future years is only going to decrease.

Add in your property taxes, an income tax (if your state has one) or sales tax deduction, and some charitable giving, and you might get some benefit. But even if you can deduct $5k over the standard deduction (meaning you had $11,100 in deductions), if you are in the 25% bracket, you will have saved $1,250 in taxes. That's about 0.625% of your home's value. Without any major improvement projects, I spend about 2% of my home's value in maintainence and repairs a year on average. Even if you were only to spend 1%, the tax savings is still $750 short.

AJ
Print the post Back To Top
No. of Recommendations: 1
Without any major improvement projects, I spend about 2% of my home's value in maintainence and repairs a year on average.

Wow! I'm not even close to that.

PSU
Print the post Back To Top
No. of Recommendations: 0
@TFMPMarti

You've stated the pro of putting responses to multiple posts in one. The con is that the person you're responding to may miss it if (s)he is working from the "responses to your posts" link.

OK. I'll keep doing it this way then unless I get complaints. :-)

Speaking of responses, if you responded to my suggestion of a way around the Roth IRA contribution income limit I missed it. I'm bringing it up only because it may have gotten lost in the excellent rent/own discussion that's been going on. If you'd like to pursue it, either here or on the Tax Strategies board http://boards.fool.com/tax-strategies-100155.aspx?mid=306512...... just let me know.

I meant to respond but I guess I didn't. (The thread has gotten a lot crazier than I expected :-), but in a good way.) My guess from what you said originally is that it won't apply -- the Roth is all I have.

@aj485

I'm not sure that I would have actually listened, much less have done anything differently, but it would have given me another viewpoint that was completely different than the viewpoints that I got at the time.

I appreciate the guidance at least. Maybe I'll toss around the idea of putting a little less down so I've got a bit of money at least.

Add in your property taxes, an income tax (if your state has one) or sales tax deduction, and some charitable giving, and you might get some benefit. But even if you can deduct $5k over the standard deduction (meaning you had $11,100 in deductions), if you are in the 25% bracket, you will have saved $1,250 in taxes. That's about 0.625% of your home's value. Without any major improvement projects, I spend about 2% of my home's value in maintainence and repairs a year on average. Even if you were only to spend 1%, the tax savings is still $750 short.

Those figures are low for my situation. At $110K/year, (1) I'll be well into the 28% bracket, not 25%, and (2) the state income tax deduction alone should take me above the standard deduction. (Lucky me?) This means I should get the full benefit of the property tax and mortgage interest deductions (~$1300 and ~$1600 off tax under your $200K assumption). In addition, I would get another $250 or $300 as a mortgage interest deduction on state taxes.

That's not quite at the 2% you quote (comes to 1.6%), but it's not that far off. And it also ignores the equity part of the "buy" scenario.
Print the post Back To Top
No. of Recommendations: 1
@EvanED:

My guess from what you said originally is that it won't apply -- the Roth is all I have.

And you'd be wrong. Someone with no pre-tax money in a traditional IRA is the ideal candidate for the "back door" Roth contribution.

Alas, I was also wrong. It was only as I was typing this response that I remembered that your employer is going to be making SEP contributions. That means you will have pre-tax money in a traditional IRA and the strategy I was thinking of won't work.

So that this conversation isn't a total waste I'll remind you that once the money is in your SEP you can treat it the same as money you'd contributed. IOW, if you don't like the investment choices you have at that custodian you can move it where you want. You can read more about SEPs in IRS Publications 560 and 590.

Congratulations on your upcoming degree, and here's hoping that your new home, leased or bought, works out well.

Phil
Rule Your Retirement Home Fool
Print the post Back To Top
No. of Recommendations: 2
At $110K/year, (1) I'll be well into the 28% bracket, not 25%

At $110k/year, I would actually hope you won't be 'well into' the 28% bracket. With several missed years of retirement savings due to getting your PhD, I would hope that you would be maxing out your 401(k). In 2013, that would take $17,500 off your AGI, dropping it to $92,500. Assuming your annual medical premiums are, say, $2,400 ($200/month) will further drop your AGI to $90,100. Since the 28% bracket for 2013 starts at $87,850, you would only have $2,250 taxed at 28%, and most of your deductions would save you 25%. And for 2014 (when you would actually get your full year income), you may actually have even less income taxed at 28% if the 401(k) contribution limit increases or the tax bracket breakpoints increase.

This means I should get the full benefit of the property tax and mortgage interest deductions (~$1300 and ~$1600 off tax under your $200K assumption).

Wow, with a state income tax, you are still paying over $4600 in property taxes on a $200k property? That's 2.3% - I thought Texas, with no income tax, had high property taxes, and they were only about 2%. Washington, where I live now, also has no income tax, and the property tax that I just paid was about 1% of assessed market value (I am protesting my assessed valuation, since it was significantly more than I paid). When I lived in states with income taxes, the property taxes were generally less than 1% of the value of the home. That high of a property tax in a state where I also had to pay income tax would definitely be a disincentive to buying property, despite the benefit on my income taxes.

AJ
Print the post Back To Top
No. of Recommendations: 0
Wow, with a state income tax, you are still paying over $4600 in property taxes on a $200k property?

I don't know where the OP is, but that sounds about right for our area, and many places in the northeast to midatlantic. And while you are right that the taxes are a disincentive to remaining here in retirement, the pay tends to be better to compensate at least in part for the higher cost of living.

On the flip side, moving to a lower cost of living will definitely help us have a financially successful retirement when that time comes.

IP
Print the post Back To Top
No. of Recommendations: 3
You are not gonna want to hear this ---- but the best thing that could happen to you is if they turned you down for a mortgage.

The overall tenor of your questions and remarks reveal that you have very little experience in the real-world outside of college.

Picture a tenderfoot in the Yukon heading out into bear country with a backpack full of salmon, confident that the pepper spray and bells will keep him safe. Picture a newbie sitting down at a Las Vegas game of Texas Hold'em with a little 3x5 card of the rules.

Yeah, you are that guy.

You don't know what you don't know, and that's gonna kill you.

looking at houses that are in a $130-170K range
Means that the house you buy will be around $200K - $225K. [1st thing you don't know that you don't know: Houses *always* cost more than you think they should.]

Maybe I'll toss around the idea of putting a little less down so I've got a bit of money at least.
Means that you will be in the position of standing in water up to your nostrils. The least little bobble will drown you.

I'll be well into the 28% bracket,
You have no idea what tax bracket you'll be in. Things are *always* different than you think they'll be. Since you have no real-life experience with collecting a large-ish paycheck, making 401K contributions, etc, you have nothing to base an opinion on.

I would get another $250 or $300 as a mortgage interest deduction...
Don't fall for this. Real-estate agents like to tout the interest savings. For most people, the actual dollar amount of the savings is small.

You didn't say what kind of house you are planning to buy. Many first-time buyers buy the cheapest house they can get by with. Like a 2 bedroom house or a condo/townhouse. And then they get stuck when they go to sell, because the only potential buyers are other foolish first-time buyers with no money.

And it also ignores the equity part of the "buy" scenario.
Keep dreaming. [This is the N'th thing you don't know that you don't know.]

Rule of thumb: the overall costs to *buy* a house are 5% of the price. The overall costs to *sell* a house are 10% of the price. That's 15% round-trip transaction costs. Maybe you get lucky and you can do it for 10%.

That's 10% of the house price, not 10% of your down payment.
That means that your ENTIRE 10% down payment is GONE. Actually, real-world, it means that your entire $20K down payment is gone, plus another $10K -- 'cause real-world it's really going to be 15%.
Print the post Back To Top
No. of Recommendations: 3
Weren't you a little hard on the Beav there, Ward?
Print the post Back To Top
No. of Recommendations: 2
The overall tenor of your questions and remarks reveal that you have very little experience in the real-world outside of college.

Much doesn't get said in posts, and rightly so. We only know what the OP has chosen to share with us.

He's asking questions, considering the replies without the stubborn know it all attitude that we see so much of here, and seems to have enough brains to adapt. I would say that puts him in a category above the majority of homeowners who neither had a clue nor looked for one.

Rule of thumb: the overall costs to *buy* a house are 5% of the price. The overall costs to *sell* a house are 10% of the price. That's 15% round-trip transaction costs

Way overblown. I don't think I've even hit 10% out of pocket for a buy/sale, though that is typically what I estimate knowing it will give me plenty of wiggle room.

IP
Print the post Back To Top
No. of Recommendations: 3
The overall tenor of your questions and remarks reveal that you have very little experience in the real-world outside of college.

We didn't have much either when we bought our first house and were fortunate to get a 10% mortgage. I'm glad we went ahead. The poster sounds like they know how to evaluate the decision. After that, it's a choice to be made.
Print the post Back To Top
No. of Recommendations: 0
Rule of thumb: the overall costs to *buy* a house are 5% of the price.

Always willing to learn something new. Will you walk me thru how a home purchase has a 5% cost? Perhaps on a $50K to $100k home purchase, but I really don't see 5% at any price point above that.

Washington D.C. has a pretty high transfer tax of 1.1% of purchase price, paid by both seller and buyer. For a buyer getting a mortgage, throw in some bank fees, appraisal, inspection, and title fees, then you *might* be looking at 2.0% of the sales price.

Most buyers in DC/MD/VA are told to expect a *cost* 3 to 3.5% of sales price, but those are not all *costs*, they include prepaids, which includes paying up front for a year of home insurance and prepaids to establish an escrow account for taxes and future renewal of homeowner's insurance. You do know when you sell, or payoff the mortgage, the prepaids are refunded? So, how are you possibly getting to 5% cost for a home buyer?

Are transfer taxes really that higher in other parts of the country? I originate about 15 to 20 loans for past clients transferring out of the D.C. metro area to other states, my experience is that transfer taxes are less elsewhere than here. I was impressed by a Colorado purchase at a sales price of $600,000. and total closing costs to buyer by state and local govt. of less than a $1,000. For that buyer, closing costs were less than .5% of the purchase prices, so maybe I misread your post and you meant .5 not 5.0%.
Print the post Back To Top
No. of Recommendations: 1
@aj485:

With several missed years of retirement savings due to getting your PhD, I would hope that you would be maxing out your 401(k).

No 401(k) plan at this company; they provide the SEP instead. And they make a fixed contribution to that which isn't contingent on matching. I am unsure if it's even possible to make extra pre-tax contributions under their setup (or if I could otherwise do it independently on my own). Admittedly, my figures so far have assumed that I either can't or don't make much in the way of my own contributions.

(As the company is growing a lot they're apparently considering switching to a 401(k) in the future, but not yet obviously.)

Wow, with a state income tax, you are still paying over $4600 in property taxes on a $200k property? That's 2.3% - I thought Texas, with no income tax, had high property taxes, and they were only about 2%.

I'm in Madison, WI. (That fact... would not have been too hard to figure out for someone who put a bit of time into it.) According to <a href="http://modernsurvivalblog.com/retreat-living/state-tax-burde... site's</a> even weighting of the different kinds of taxes per state, WI has the 15th highest taxes in the US and Madison may have the highest property taxes in the state. (It's at least up there, and a little above Milwaukee's from what I can tell. There are other places in the state that are right around 1%.)

I should also say I'm not totally positive of the rate. You'd think you could just Google "madison property tax rate" and you'd get some site that says "the property tax rate for single family homes in Madison is xxx%" but I didn't see any of those, so I had to go to the local tax assessor page and pick out some random house of a friend. It's possible that I misread the answer or it varies by location in the city. (And actually, he's renting -- so it's possible that the tax rate is higher as an investment property. Hmm, didn't really consider that. Regardless, a lower property tax rate would only be good for these calculations. :-))

@Rayvt:

You have no idea what tax bracket you'll be in. Things are *always* different than you think they'll be. Since you have no real-life experience with collecting a large-ish paycheck, making 401K contributions, etc, you have nothing to base an opinion on.

Just because I don't have personal experience doesn't mean I can't read around, and just because I don't know exactly what the future holds doesn't mean I can't make some sort of predictions. I already addressed the 401K contributions above, for instance.

And I'm at least thinking actively enough about these points to have run actually four different hypothetical scenarios through actual state and federal tax forms to try to figure out the tax implications of (1) the rental/ownership question and (2) my choice of job and location. For instance, I know that none of my four scenarios (even ownership in CA where I'd be taking a much bigger mortgage interest deduction -- and obviously this scenario wouldn't be possible for a couple years) lead to triggering the AMT. When coming up with my estimates of how much money I could have around for a down payment at different times, I checked the withholding tables rather than just take the yearly tax burden and divide by 12 or something like that.

So when I say "I would get another $250 or $300 as a mortgage interest deduction", that's based off actually filling out the 1040 schedule A and the WI state tax forms, and seeing that number in the box saying what credit you'll get from itemizing deductions. If you think my assumptions may be wrong, let me know. I'll check into it. (For instance, I just emailed the HR person asking about the additional SEP contributions.) But as it stands now... yes, I'll get $250-300.

You didn't say what kind of house you are planning to buy.

In part, I'm not sure. Because in some sense you're right. I kind of would like to buy just a smaller 2BR house (and would be totally A-OK with a 1-car garage while I'm at it), but I'm also aware that those look less attractive come selling time. I would pretty much consider homes like that at the low end of my price range only.

That said, there are also some 3BRs in that price range as well. And I might even change that plan. There are a couple areas I'm considering, and while they're not too far apart the prices in the other are rather higher -- more like $200-250K -- but they also consist almost exclusively of non-2BRs. (Obviously I
Print the post Back To Top
No. of Recommendations: 1
[Grr, accidentally submitted early. (Second time in this thread I've fat-fingered tab then space.)]

(Obviously I would have to wait longer to get one of those.)

@inparadise:

He's asking questions, considering the replies without the stubborn know it all attitude that we see so much of here, and seems to have enough brains to adapt. I would say that puts him in a category above the majority of homeowners who neither had a clue nor looked for one.

Thanks!

And let me also close (and @Rayvt as well) by saying that this thread doesn't really represent my definitive plans either. Asking my original question ("how soon after starting this job would I qualify") served two tasks:

1) If I might be in a house by around this time next year, I'd consider signing a 9-month lease. If there was no way I'd be in a house, I'd move to a different apartment in the area I'd be interested in buying.

2) If I wouldn't qualify for a home until having had that real job for some time, then I could be... a bit less careful with my first paycheck or two. :-) (I doubt my expenses will raise all that much, but I do have a few things I'd like to buy first.) If the possibility of a house is potentially sooner, perhaps I want to be more eager to protect that money to save for a down payment.

So all that people going "yeah, you could totally buy" has done is add "sign a 9-month lease then save aggressively for a down payment" to the list of options.
Print the post Back To Top
No. of Recommendations: 0
"You'd think you could just Google "madison property tax rate" and you'd get some site that says "the property tax rate for single family homes in Madison is xxx%" but I didn't see any of those"

Actually I lied when I said that. (OK, "forgot".) http://www.toddanddeahmulhern.com/default.asp.pg-PropertyTax... is such a page. I just wasn't sure of what "value ratio assessed to market" means and so I ignored that page and kept looking.

And now I'll go away for a while.
Print the post Back To Top
No. of Recommendations: 0
Actually I lied when I said that. (OK, "forgot".) http://www.toddanddeahmulhern.com/default.asp.pg-PropertyTax...... is such a page. I just wasn't sure of what "value ratio assessed to market" means and so I ignored that page and kept looking.


It means the tax is based on the assessed value, not the market value. In some locations, they're the same. In others, not. In some locations, it's reset to market (or fraction of market) on a regular basis. In others, the assessed value change is limited by local law. California is the big example of that one - Assessed (or taxable) value is set to market when a house is sold, but property taxes are limited to a percent increase each year, rather than the increase in market value.
Print the post Back To Top
No. of Recommendations: 1
No 401(k) plan at this company; they provide the SEP instead. And they make a fixed contribution to that which isn't contingent on matching. I am unsure if it's even possible to make extra pre-tax contributions under their setup (or if I could otherwise do it independently on my own).

Only the employer can make SEP contributions. The fact that your employer makes such contributions constitutes "coverage" by a retirement plan. In addition to any retirement plan coverage every worker under 70 1/2 can make an IRA contribution of some sort. Since you're covered by a retirement plan deductibility of traditional IRA contributions would be subject to the income phaseouts explained in Chapter 1 of Pub 590.

Phil
Rule Your Retirement Home Fool
Print the post Back To Top
No. of Recommendations: 0
Are transfer taxes really that higher in other parts of the country?

Can be, depending on your location. In PA it varies from town to town. 2% split is pretty common with it going as high as 5% in hard up cities like Reading, PA, 4% in Philadelphia and Pittsburgh.

http://www.anytimeestimate.com/PA_REAL_ESTATE_TAX/pa-transfe...
Print the post Back To Top
No. of Recommendations: 2
No 401(k) plan at this company; they provide the SEP instead. And they make a fixed contribution to that which isn't contingent on matching. I am unsure if it's even possible to make extra pre-tax contributions under their setup (or if I could otherwise do it independently on my own).

Well, that's a bummer from the perspective of being able to adjust your tax liability and also being able to control your tax deferred .

Admittedly, my figures so far have assumed that I either can't or don't make much in the way of my own contributions.

(As the company is growing a lot they're apparently considering switching to a 401(k) in the future, but not yet obviously.)


I would strongly suggest that from day 1 on your job, you invest a minimum of $1000/month in a taxable account, and for each $500/year that the 401(k) limits increase, add another $30/month. That way, if they do announce a 401(k) plan, you can stop or decrease your investing in the taxable account, and start maxing out a 401(k) account, without signficantly impacting your cash flow after taxes and investments.

And, just because they haven't announced a 401(k) for 2014 doesn't mean that they won't, if they are talking about it. 2014 is still 7 months away, and I've seen things like this announced at open enrollment time (generally Oct or Nov) several times.

So, I would suggest running your numbers at both a (mostly) 25% federal benefit, and at a 28% federal benefit from tax deduction.

WI has the 15th highest taxes in the US and Madison may have the highest property taxes in the state. (It's at least up there, and a little above Milwaukee's from what I can tell. There are other places in the state that are right around 1%.)

I should also say I'm not totally positive of the rate. You'd think you could just Google "madison property tax rate" and you'd get some site that says "the property tax rate for single family homes in Madison is xxx%" but I didn't see any of those, so I had to go to the local tax assessor page and pick out some random house of a friend. It's possible that I misread the answer or it varies by location in the city. (And actually, he's renting -- so it's possible that the tax rate is higher as an investment property. Hmm, didn't really consider that. Regardless, a lower property tax rate would only be good for these calculations. :-))


Well, from a source that I found http://www.tax-rates.org/wisconsin/property-tax Dane County's median property tax rate is indeed the highest in WI, at 1.8% - right up there with Texas' 1.81% median rate. Lucky you! But 1.8% is still lower than the 2.3% you seemed to be figuring, so I might suggest using a 2% estimate. That should give you a little wiggle room in case the taxes on a particular property are larger.

AJ
Print the post Back To Top
No. of Recommendations: 0
So I checked out the transfer tax situation. Seems like for once we might be low: http://www.ncsl.org/issues-research/budget/real-estate-trans... says 0.3%. :-)

@TMFPMarti

Only the employer can make SEP contributions.

That's too bad. Oh well. Still, it doesn't close off the possibility that I could direct my employer to contribute additional pre-tax money out of my paycheck.

(I've sent an email asking, but would you guess this would be more likely to be possible or not? E.g. would this cause the employer to pay additional costs, or perhaps hit some "equal treatment" problem, or would it just be typing in a different number?)

@aj485

I would strongly suggest that from day 1 on your job, you invest a minimum of $1000/month in a taxable account, and for each $500/year that the 401(k) limits increase, add another $30/month. That way, if they do announce a 401(k) plan, you can stop or decrease your investing in the taxable account, and start maxing out a 401(k) account, without signficantly impacting your cash flow after taxes and investments.

I totally plan on doing something like that, with the caveat that I might treat the first few (~4?) months specially if I'm thinking I'll go with the "buy a house soon" plan so I've got more available for a down payment.

And, just because they haven't announced a 401(k) for 2014 doesn't mean that they won't, if they are talking about it. 2014 is still 7 months away, and I've seen things like this announced at open enrollment time (generally Oct or Nov) several times.

True. On the other hand I have no idea how much they are considering it; it was more of an offhand remark from their HR person when she was giving an overview of the benefits.

Well, from a source that I found http://www.tax-rates.org/wisconsin/property-tax Dane County's median property tax rate is indeed the highest in WI, at 1.8% - right up there with Texas' 1.81% median rate. Lucky you! But 1.8% is still lower than the 2.3% you seemed to be figuring, so I might suggest using a 2% estimate. That should give you a little wiggle room in case the taxes on a particular property are larger.

I also saw that site and I think it's low. My guess is that it's counting only the county portion of the property tax, as the rate varies between cities/towns/villages within a county. The link I gave before gives 2.4% but also that "value ratio assessed to market" of 97.7%, which brings it to 2.34% if that's what that means. Other places in Dane county seem to range down to 1.385% .

In addition, I just tried again looking up a couple other random properties (e.g. the houses of a couple people I know) and they have come out to 2.3_%. (Interestingly, the hundredths of a percent place has varied a little despite the property tax apparently being computed to the cent.) For example, put "Smith" in for the search by name field and pick one that looks like a person instead of "Smith Masters Corporation" or whatever, and it'll tell you the assessed value and 2012 tax. http://www.cityofmadison.com/assessor/property/
Print the post Back To Top
No. of Recommendations: 0
I'm in Madison, WI.

My son and future DIL got their offer on a house in Madison accepted this week. They're thrilled! She's serving her residency at University of Wisconsin Medical Center. They're using the Physician Loan at 2.625% and have zero money in the deal. The monthly payment will be less than they could pay in rent for a comparable home. They have both worked incredibly hard for the last decade and feel they deserve a comfortable home in which to begin their new life. I agree, even if they don't make money on the house when they sell--which is unlikely. They wouldn't make money if they rented, either.

Here's the house they bought.

http://www.fsbomadison.com/details.asp?ID=16223
Print the post Back To Top
No. of Recommendations: 1
Weren't you a little hard on the Beav there, Ward?
Yup.
But not as hard as life will be.

Went through all that with a son. He knew so much more than his Dad that just wanted to keep him down. Two years later their house went into foreclosure.
They never managed to get a renter when they moved, even though their real-estate agent swore that he'd have no trouble renting it out if they ever moved.
That was not quite 10 years ago, and he's almost finished digging himself out of the hole. Credit is still screwed up, though. They still can't get a credit card.

Went through similar warnings to people on the MI & other investment boards back in 1999-2000. Warned them and warned them that they were driving toward a cliff at full speed. So I got a reputation as an old fuddy-duddy who wanted to keep people from investing and making their fortune.
Print the post Back To Top
No. of Recommendations: 0
Always willing to learn something new. Will you walk me thru how a home purchase has a 5% cost?

Yes, a bit on the high side. But when/if surprises come it's better for them to be happy surprises than OH S**T! surprises.

Buying: points, fees, prepaids, app fee, appraisal fee, legal fees, inspection fees, etc.
And then after closing, the Oops! costs. Most not directly related to the house, but directly associated with buyng the house. Curtains, utility deposits, repairs that you didn't notice until after you moved in, etc.

We got hit on our first house. The first deep coldsnap (minus 10 degrees!) two months after we moved in, the furnace ran all day & night but the house was still cold. Called a HVAC place -- Gee, guess how busy they are at the first cold snap of the season? Taking emergency calls only. Oops, cracked heat exchanger. You need a whole new furnace, sir. We had to go to the bank two weeks after making our FIRST mortgage payment and beg for a home improvement loan so we could buy a new furnace.
We had friends who had a hot water tank let go shortly after they moved in, and spewed a few thousand gallons of water into the basement. Do you have any idea how much water a 3/4" copper pipe will flow at 60 PSI?

Yes, you get the prepaids back. Eventually. When you sell the house. In many years. For all intents & purposes, they are sunk into the house when you buy, and you don't see that money for a long time.

To sell ....... oh boy. Do the costs every mount up. 6% real-estate commission (unless you get lucky and sell FSBO. But then the buyer knows you are saving the 6% commission so he shaves his offer by 6%). Title insurance, tax stamps, recording fees, transfer fees. Buyer wants you to pay some of his closing costs. Buyer wants the appliances, wants a new water heater since the current one is 10 years old. Buyer wants you to give him a credit to replace the slightly worn carpets. You have to repaint the entire interior.

Buyer has an inspection and they find a handful of little repairs that he insists you do. Not you as in "you", but you as in "licensed home repair business, and show us the receipts for the work."
Buyer gets a radon inspection and you get hit by the radon scam and have to pay $2000-$3000 for garbage "radon mitigation".
Print the post Back To Top
No. of Recommendations: 0
I just wasn't sure of what "value ratio assessed to market" means and so I ignored that page and kept looking.

It's easier than you think, to get the information. We've always found that the people at the local (town/county/township) tax office and at the municipal water dept have been very happy to answer questions. Even for a public servant, imagine that!?

Call them up and say that you're thinking of buying a house and ask what the property tax would be. It's easiest if you can give them the address of a house that you would consider. Just drive in the neighborhood and pick an address. They'll tell you how big it is (sq ft), how many bedrooms, and how much the taxes are.

As you've discovered, assessed value and value ratio are gobbledy-gook numbers that nobody understands. What you care about is how many dollars the tax is.

Ditto for water. As a new homeowner you are most likely in for a big surprise. In an apartment you just turn on the tap. When you are the owner of a house, that faucet comes with a bill. And the sewer bill, too, which is probably bigger than the water bill.
Wait until you water the lawn the first year and get a $300 water bill!

The water dept will gladly tell you what the typical water bill is.
Print the post Back To Top
No. of Recommendations: 1
That's too bad. Oh well. Still, it doesn't close off the possibility that I could direct my employer to contribute additional pre-tax money out of my paycheck.

No, but the law does. Somebody gave you some good advice about putting money away outside formal retirement accounts. Heed it.

Phil
Rule Your Retirement Home Fool
Print the post Back To Top
No. of Recommendations: 1
Call them up and say that you're thinking of buying a house and ask what the property tax would be.

This information is often available online, but a caution. In many jurisdictions the new owner will pay higher taxes than the old because the property will get revalued due to the sale. Here in the People's Republic of Montgomery County (MD) the estimated taxes for the new owner is one of the required disclosures.

Phil
Rule Your Retirement Home Fool
Print the post Back To Top
No. of Recommendations: 9
So your son got a PhD, was making 6 figures, and wanted to buy a house for less than 2 times his annual salary?

Your attitude towards this guy who just came here to ask questions is crap. Don't put your hangups on him.
Print the post Back To Top
No. of Recommendations: 0
Your attitude towards this guy who just came here to ask questions is crap. Don't put your hangups on him.

I've generally got pretty thick skin, so whatever.

BUT, it would help me to actually know what Rayvt would actually suggest. "Don't buy a house until you can comfortably put 20% down?" "Don't buy a house until you have XX dollars in an emergency fund?" "Don't buy a house until you have X months in an emergency fund?" "Don't buy a house until you see Mercury rising in Virgo?"

For instance, even if I put every penny I had toward the down payment and closing costs (well, and food), I could still cover a fairly big ticket repair that happens immediately by borrowing from my Roth. (And, at least by my understanding, would only lose out on the small amount of potential gain while the money was withdrawn, and its subsequent gains.) And within 2 or 3 months of closing, I could do it without. And I wouldn't go that close to the edge.

Or say I were to lose my job the day after closing. Well that'd really suck, but I could last for 10 months or so on what I have in the Roth only.

I realize that it's probably painful to hear someone talking about trashing their IRA like that, but (1) the first scenario would have minimal impact and the second seems extremely unlikely, (2) in some sense it's already an emergency fund in my mind, and (3) there's not all that much money in there at the moment. Yes, the second scenario in particular would suck, but it's still better than bankruptcy or foreclosure.

@CCinOC:

Here's the house they bought. http://www.fsbomadison.com/details.asp?ID=16223

Nice, congrats to them. I lived just a few blocks away from there actually for my first couple of years here, on Old University between Forest and Chamberlain.

@Rayvt:

It's easier than you think, to get the information. We've always found that the people at the local (town/county/township) tax office and at the municipal water dept have been very happy to answer questions. Even for a public servant, imagine that!?

Thanks.

As a new homeowner you are most likely in for a big surprise. In an apartment you just turn on the tap. When you are the owner of a house, that faucet comes with a bill. And the sewer bill, too, which is probably bigger than the water bill.
Wait until you water the lawn the first year and get a $300 water bill!


I rented a house with some friends for a year, and took care of the utility bills, so yeah I saw those $300 water bills. :-) (IIRC it was usually about $200/6mths... not sure. But that was with several people. I don't remember what proportion was usage-based vs hookup-based.)

@TMFPMarti:

No, but the law does.

Ah well. That's too bad.
Print the post Back To Top
No. of Recommendations: 1
@ajm101: So your son got a PhD, was making 6 figures, and wanted to buy a house for less than 2 times his annual salary?

BTW, the other thing I'd say is that a PhD doesn't give me immunity against losing my job or being overeager to buy early or something like that. I've already said why I think that's unlikely and so I think I'm mostly comfortable with the small risk, but at the same time I am cutting things a little bit tighter than maybe would be ideal. It is reasonable to provide some caution against that, even for me. (In some ways, especially for me, as if I were to wait even just a few months I'd make a big difference in the size of my non-Roth emergency fund.)
Print the post Back To Top
No. of Recommendations: 1
For instance, even if I put every penny I had toward the down payment and closing costs (well, and food), I could still cover a fairly big ticket repair that happens immediately by borrowing from my Roth. (And, at least by my understanding, would only lose out on the small amount of potential gain while the money was withdrawn, and its subsequent gains.) And within 2 or 3 months of closing, I could do it without. And I wouldn't go that close to the edge.

I'm getting the uneasy feeling that you know nothing about Roths, but you "understand" lots, including that they lay golden eggs. You cannot borrow from any kind of IRA. If you take money from an IRA and redeposit it in an IRA within 60 days, that's a rollover. On the 61st day the distribution is a done deal. Please promise me you'll do a little reading up on IRAs in the references I've given you. You need to disabuse yourself of some dangerous misunderstandings.

Or say I were to lose my job the day after closing. Well that'd really suck, but I could last for 10 months or so on what I have in the Roth only.

I realize that it's probably painful to hear someone talking about trashing their IRA like that, but (1) the first scenario would have minimal impact and the second seems extremely unlikely, (2) in some sense it's already an emergency fund in my mind


That pain you feel is me whacking you upside the head with a 2x4. It will continue until I've driven that thought from your mind.

IRAs are retirement accounts, not piggy banks to be raided when you can't live without a Twinkie and have to run down the alley to Paul's Grocery to get a package. I digress. Emergency funds are for emergencies. They are tapped in emergencies and replenished ASAP. I wouldn't buy a house without an e-fund with 6 months' expenses without any income. I'd be more comfortable with 12, but I also understand that you can't delay gratification forever. See "Twinkies," above.

My version of what someone else already said about surprises: Hope for the best, expect the worst.

Phil
Rule Your Retirement Home Fool
Print the post Back To Top
No. of Recommendations: 0
Evan,

Even if you can not qualify for a Roth, can't you still put funds into a conventional IRA without deducting it?

BUT, it would help me to actually know what Rayvt would actually suggest.

There is no perfect time to buy, but you are approaching this from an informed POV which will give you the best chance of succeeding.

Since one of your goals is appreciation, I will tell you things that are desired by most people when they buy a house. There are mistakes that can be made that will limit your ability to sell later on. I can't say I've ever looked into the WI market, however, so view these suggestions with that limiting filter.

1. In a single family home 3 bedrooms is much better than two. And 1.5 baths HUGELY better than 1. However, if you see opportunities in the home to re-purpose a den to a third bedroom by adding a closet, or put up a non bearing wall in a large room to section off a third bedroom, then you will add significant value to your two bedroom bargain. And if there is extra space on the other side of a bathroom wall, where you can piggy back on to the plumbing to add a master bath next to the hall bath, or space to add a shower to a half bath, those are relatively low cost to equity boosters as well. If a house is very reasonably priced, dare I say cheap, look to see if the reasons it is low priced is due to correctable issues or fatal flaws that can not be changed. And one of those potential fatal flaws is location, location, location. A bad location will overwhelm the best house. Watch out for traffic patterns and what is around you.

Let me give you a real life example. We are currently in negotiations on a 2 bedroom/1.5 bath home. It is located well, even with river frontage and year round views. The seller is a contractor and has done everything to high standards. There is a huge walk in closet in the MBR, one that is the size of some small bedrooms and adjacent to the hall bath. We would put in a toilet back to back with the existing one, sharing the same waste pipe, a sink and a good sized shower, giving this property a much needed master bath. Further, he added on a fabulous windowed room on to the kitchen, a room they are calling the family room. There is already a good sized living room, and even a stunning third room they use as a craft room that is not attached to the house, but connected by the deck. So plenty of space to hang out, even if I convert the family room to the dining room and put up a wall between the current dining room and kitchen to make a third bedroom.

Had the contractor done this, taking his home from a 2/1.5 to a 3/2.5 br/bath, it would have sold quickly. Instead, it never makes the cut off on buyers search lists. Most buyers have no vision. You need to create it for them.

2. Particularly in cold wintered WI, you want a garage. Two car would be best. It doesn't matter that you expect to use the bus. Future buyers will not.

FWIW,

IP
Print the post Back To Top
No. of Recommendations: 0
BTW, the other thing I'd say is that a PhD doesn't give me immunity against losing my job or being overeager to buy early or something like that.

True, but it being in computer science sure doesn't hurt. I'm stunned at the internship our 18 year old got for this summer, even after just one year of school. He was told at school that internships typically go to go to Juniors and above, yet he still got an extremely well paying full time summer gig with only 30 credits under his belt. The market is hungry for comp sci degrees. Your PhD is not in English Litt.

That said, it's good you are not cocky about it. In a bad economy even the most talented can go without a job, and in that case your PhD would hurt, not help. You'd be considered over qualified.

IP
Print the post Back To Top
No. of Recommendations: 0
You cannot borrow from any kind of IRA. If you take money from an IRA and redeposit it in an IRA within 60 days, that's a rollover. On the 61st day the distribution is a done deal.

Good council, but while he can't borrow from the Roth, after a certain time can't he withdraw his deposits without penalty? So given:

The early withdrawal penalty does not apply to distributions that:

Are used to pay the costs of a first-time home purchase (subject to a lifetime limit of $10,000).

Are used to pay for the qualified expenses of higher education for the IRA owner and/or eligible family members.


http://www.fool.com/money/allaboutiras/allaboutiras07.htm

Evan would have to take the money out of the Roth to purchase the home, leaving some of his other funds that would have been earmarked for this purpose to create an efund. This of course permanently removes the funds from the Roth. Or could he use the Roth funds to pay back student loans if any were around? Does paying student loans qualify as exception 2?

Further, Evan could look at establishing a line of credit when he gets his mortgage, assuming he qualifies for the added debt, or see if his family is secure enough to provide him with a short term emergency loan if something came up. I would rather our kids touch base with us to discuss the potential for an emergency loan than tap their Roth.

IP
Print the post Back To Top
No. of Recommendations: 1
Should I have mentioned my husband was finishing his PHd and was transitioning to his full time job by working part time for the first 6 months and I had a full time job? Interestingly, we were in a college town and staying as well.

While we were in reasonable financial shape(no debt as I recall), I am glad we did not get the plethora of a advice in this thread. The poster has done his research but from the advice, you would think he was doing something wild and crazy by considering buying a house.

I have three kids who are adults but no stories to tell other than two of them bought houses in their twenties. Two(one house buyer and one not) have majorly changed careers in their twenties.

You can mostly do the right things financially and live a fine life. The living and enjoying is important.

It's also entirely possible to have a financial plan in which buying a house is a higher priority than retirement.
Print the post Back To Top
No. of Recommendations: 8
BUT, it would help me to actually know what Rayvt would actually suggest. "Don't buy a house until you can comfortably put 20% down?" "Don't buy a house until you have XX dollars in an emergency fund?" "Don't buy a house until you have X months in an emergency fund?" "Don't buy a house until you see Mercury rising in Virgo?"

For instance, even if I put every penny I had toward the down payment and closing costs (well, and food), I could still cover a fairly big ticket repair that happens immediately by borrowing from my Roth.



First, let me re-emphasize what TMF Phil said. "I'm getting the uneasy feeling that you know nothing about Roths, but you "understand" lots,..."
and
"You need to disabuse yourself of some dangerous misunderstandings."
and
"That pain you feel is me whacking you upside the head with a 2x4."

and others. " In a bad economy even the most talented can go without a job, and in that case your PhD would hurt, not help."

The biggest danger for a new college grad --- and moreso for one who stayed in school long enough to get a PhD --- is the things they don't know that they don't know. Those are the things that crush you -- because you didn't even know to look out for them.
They have little real-life experience, so they have no idea of all the things that can go pear-shaped.

Being really smart people, they are good at defining away problems (like "borrow from my Roth"). But defining away a problem doesn't make it go away -- it's still there, just in your blind spot.


I'm all about risk-adjusted return, or risk vs. reward.
What do you lose by delaying your house purchase for a year? A small amount of appreciation. (Lord willing and the creek don't rise. House appreciation in the last several years has been low or negative -- so you wouldn't actually miss out on anything.)
That's the return you'd be giving up.

But the risks ... I've mentioned some. First off is the idea that a 4 year holding period is long enough. It isn't. Even before real-estate crashed, it took 4-5 years to break even (in most housing markets). The transaction costs are very high.

So:
Potential reward = 1 year of appreciation + very minor tax benefits.
Risk = you get financially crushed.

=================================

it would help me to actually know what Rayvt would actually suggest.
As it turns out, my middle son graduated with his PhD a few years ago, and presently works at Sandia Labs. They recently asked my advice, here's what I told them.
* Plan on 10% down payment. You may be able to find a 5% DP loan, but the costs will be much larger.
* Have 3 months worth of payments in a savings account -- AFTER you make the DP and all the closing costs.
* Single family detached house. No condo, townhouse, etc.
* Minimum 3 bedrooms (REAL bedrooms, not a garage or other room converted to a bedroom), 1 1/2 ot 2 bath, attached garage. Central air.
* Unless this is the house you plan to stay in until you die, you must look at it from the viewpoint of the people you'll be trying to sell it to. That's why even a single person needs to buy a 3 BR house.
* Not a fixer-upper.
* Do NOT decide in haste. The definition of a trap is that it's easy to get into and hard to get out of.
* Do not put yourself into a situation where everything must go right. Everything *never* goes right.
* Keep in mind that bankrupcy or foreclosure take 7-10 years to recover from. Or more.
* Heed the words of Richard Feynman: "You must not fool yourself—and you are the easiest person to fool."
Print the post Back To Top
No. of Recommendations: 1
Even if you can not qualify for a Roth, can't you still put funds into a conventional IRA without deducting it?

You can but it doesn't make much sense unless you are doing a backdoor Roth.

PSU
Print the post Back To Top
No. of Recommendations: 0
You can but it doesn't make much sense unless you are doing a backdoor Roth.

I rather like that we can shelter our retirement funds from FAFSA...particularly when we retire in a couple of years and have two kids in college.

IP
Print the post Back To Top
No. of Recommendations: 1
while he can't borrow from the Roth, after a certain time can't he withdraw his deposits without penalty?

Contributions can be withdrawn at any time without tax or penalty. Didn't you notice that I didn't address tax aspects anywhere? My far from humble opinion is that IRAs of all stripes are for retirement regardless of what shenanigans the law may allow. "Can" doesn't mean "should."

Phil
Rule Your Retirement Home Fool
Print the post Back To Top
No. of Recommendations: 1
My far from humble opinion is that IRAs of all stripes are for retirement regardless of what shenanigans the law may allow. "Can" doesn't mean "should."

And the OP is not saying he is planning on tapping his Roth for any reason other than an emergency. In an emergency, it is nice to know that someone "can" do something. In fact knowing that you "can" remove funds from the Roth, even if perhaps you "should" not, may be what encourages you to put the funds in there at such an early age.

IP
fully funding the kids' Roths from paycheck #1
Print the post Back To Top
No. of Recommendations: 0
Evan could look at establishing a line of credit when he gets his mortgage

There aren't many HELOCs that lend above 75% CLTV [combined loan to value]. There's only one that I can find that goes to 90% CLTV. One.
Print the post Back To Top
No. of Recommendations: 2
In addition, I just tried again looking up a couple other random properties

Maybe you should go to some open houses of houses in the area that you'd like to buy, at a few different price levels - near the bottom, middle and top of the range you think you'll be looking at. Then check on the taxes of those houses. While those particular houses probably won't be available when you go to buy (at least not if they are priced right), it should give you an idea of (1) what you can get for the different price levels and (2) how much taxes will be. It will also give you a chance to meet some realtors, if you don't already know who you are going to use.

AJ
Print the post Back To Top
No. of Recommendations: 0
@TMFPMarti:

If you take money from an IRA and redeposit it in an IRA within 60 days, that's a rollover.

That's what I meant by "essentially borrow". I brought that up in the context of the "fairly big ticket" repair item, like a furnace. I would have to withdraw the money for the repair, but during that 60-day span I would likely earn enough (especially if I especially tried to be frugal) to be able to redeposit it in full. (My estimate of how much I could afford to do this and still make it back in time to recontribute is either $8K or $13K depending on when it happens.)

Yes, I know the IRS would call that a rollover. Yes, I know it's limited to 60 days. Maybe you disagree with me saying "borrow" before. But to me, it walks and quacks like borrowing -- I take money out, use it, and a little bit later put it back. (Perhaps in a separate account.)

IRAs are retirement accounts, not piggy banks to be raided when you can't live without a Twinkie and have to run down the alley to Paul's Grocery to get a package.

Yes, I definitely get that's the idea. However, what I would say is that in my case the situation is a little bit complicated. It's complicated because as a grad student I haven't really had the opportunity to build both an actual emergency fund and a retirement account. I really wanted to contribute to some retirement account (esp. because I guessed that the time I opened it was a good time to get into the stock market, and it was), but I couldn't have done so for a couple additional years if I built up an explicit emergency fund. I chose the Roth specifically because you can withdraw your contributions without penalty -- that was my backup in case something went horribly awry. (And to be clear, I've never had to tap it.)

Because of that, the Roth to me currently serves a dual role -- it is both a retirement account and emergency fund. It's not really a matter of "don't treat your Roth as an e fund" because that ignores the above reality. The question really is: At some point in the future this will change, and it will become a "pure" retirement account -- when will this happen? My argument is it's not totally unreasonable to say "a few months after I buy a house".

You seem to be arguing that building an efund and switching the Roth over to "pure retirement account" should come before the house. That's fine, and I'll definitely consider it. But does my explanation make things a bit more clear as to how I'm thinking about the situation, even if you disagree? (Perhaps it was already clear and I didn't write anything you hadn't already picked up.)

@inparadise:

However, if you see opportunities in the home to re-purpose a den to a third bedroom by adding a closet, or put up a non bearing wall in a large room to section off a third bedroom, then you will add significant value to your two bedroom bargain

That's an interesting idea I hadn't thought of too much before. I'll keep it in mind. (I had mostly thought about the "add a bathroom to a 1-bathroom" home remodel, and that of course sounds like it can be horrendously expensive. Your suggestion to figure out if it's possible to piggyback is good.)

Particularly in cold wintered WI, you want a garage. Two car would be best. It doesn't matter that you expect to use the bus. Future buyers will not.

Just because I plan on using the bus to commute doesn't mean that I don't have a car. :-) Yes, I totally will be looking for a garage. (Or at least some really cheap place without a garage where I could productively put one up.)

True, but it being in computer science sure doesn't hurt. I'm stunned at the internship our 18 year old got for this summer, even after just one year of school. He was told at school that internships typically go to go to Juniors and above, yet he still got an extremely well paying full time summer gig with only 30 credits under his belt. The market is hungry for comp sci degrees.

Also true, but at the same time I think there's not a lot around here that I would be interested in taking. So that would mean it wouldn't be just a matter of going and getting another job, but I'd have to sell.

Further, Evan could look at establishing a line of credit when he gets his mortgage, assuming he qualifies for the added debt, or see if his family is secure enough to provide him with a short term emergency loan if something came up. I would rather our kids touch base with us to discuss the potential for an emergency loan than tap their Roth.

Also possibilities; in some sense, I'm trying to argue what I can do from a completely self-sufficient point of view. Though if I was a $5K repair or something like that where I'd just have to withdraw the money short term then roll it over, I might just do that as the consequences seem quite small.

@Rayvt

What do you lose by delaying your house purchase for a year? A small amount of appreciation. (Lord willing and the creek don't rise. House appreciation in the last several years has been low or negative -- so you wouldn't actually miss out on anything.)
That's the return you'd be giving up.


A small amount of appreciation plus any rent that you pay during that year that costs more than interest+insurance+prop tax., plus the tax deductions of the remainder. And that's just the financial side. On the non-financial side I'd either have to rent a house for that year (which would add even more to that) or put up with living in an apartment for longer, neither of which I really want to do. The financial situation isn't as important as those.

First off is the idea that a 4 year holding period is long enough. It isn't.

Even if I believed you, and I'm still not sure that I do, this still falls under the last statement above. If it wound up that I'm, say, 10% of the house cost in the hole after those four years relative to rental costs, it'll still have been worth it to me on balance.
Print the post Back To Top
No. of Recommendations: 1
Though if I was a $5K repair or something like that where I'd just have to withdraw the money short term then roll it over, I might just do that as the consequences seem quite small.

You are most likely going to have credit card applications thrown your way. This can work fine with your income to cover short term expenses, even high cost ones. Plus the interest charged is a great motivator, and you get 30 days free money if paid off in full by the end of the billing cycle. There are lower interest credit cards out there. Credit unions tend to be the place to look for those. A $5K limit on a card kept only for that purpose would go a long way to covering emergencies...more even better.

IP
Print the post Back To Top
No. of Recommendations: 1
Yes, I know the IRS would call that a rollover. Yes, I know it's limited to 60 days. Maybe you disagree with me saying "borrow" before.

It's not a matter of opinion, it's a matter of fact. Words have meaning, and in IRAland "borrow" has a very specific meaning (and consequence). The day you can get away with assuming the computer will understand what you meant if you mistype a line of code is the day I'll stop being pedantic about certain words in connection with tax law. On second thought, no I won't. There's always the problem of the lurker who doesn't have your knowledge and says, "Wow, great! I didn't know I could borrow from my IRA like I can from my 401(k)."

You seem to be arguing that building an efund and switching the Roth over to "pure retirement account" should come before the house. That's fine, and I'll definitely consider it. But does my explanation make things a bit more clear as to how I'm thinking about the situation

Oh, that's always been clear, I just disagree that it's a Foolish approach. But at the end of the day it's your money and your life, so good luck and God bless.

Phil
Rule Your Retirement Home Fool
Print the post Back To Top
No. of Recommendations: 1
@inparadise wrote:

[Credit cards] can work fine with your income to cover short term expenses, even high cost ones. Plus the interest charged is a great motivator, and you get 30 days free money if paid off in full by the end of the billing cycle. There are lower interest credit cards out there. Credit unions tend to be the place to look for those. A $5K limit on a card kept only for that purpose would go a long way to covering emergencies...more even better.

I'm really surprised to see such awful advice from someone I often agree with. Using a credit card that you pay off in full each month is no problem. But for the life of me I can't see how you equate that with an emergency fund. If you had the cash, you wouldn't have the "how do I pay this?" side of the emergency, thus no need for the credit card.

Phil
Rule Your Retirement Home Fool
Print the post Back To Top
No. of Recommendations: 1
I'm really surprised to see such awful advice from someone I often agree with. Using a credit card that you pay off in full each month is no problem. But for the life of me I can't see how you equate that with an emergency fund.

Because Evan is a high income earner and this is for a short term emergency recourse only, until he saves up enough for a true emergency fund. It's important to separate possible from probable. It's what we do every time we look at a river front property. Is it possible it will flood? Sure...anything is possible, but when that probability is reduced to flooding which you would only survive in Noah's Ark, then it's a risk worth taking. Similarly, while is it possible that Evan will be faced with an emergency he could not predict, during the relatively short time he will need to build his emergency fund, it is not probable. And if it happens he can do one of many options:

1. borrow against a credit card and pay off ASAP
2. "borrow" from Roth
3. "borrow" from Roth to pay off credit card, extending the effective Roth loan to three months instead of two
4. borrow from parents

No, planning on getting deeper and deeper into debt is not a general recommendation, but given the specific circumstances and high pay, I don't feel the potential risk is too great for the reward. It is simply one option of many.

IP,
not paying credit card interest in more than three decades
Print the post Back To Top
No. of Recommendations: 0
First off is the idea that a 4 year holding period is long enough. It isn't.

Even if I believed you, and I'm still not sure that I do, this still falls under the last statement above. If it wound up that I'm, say, 10% of the house cost in the hole after those four years relative to rental costs, it'll still have been worth it to me on balance.

Think about it for a minute and you'll be a come a believer. First, I agree with your general sentiment that buying a house is a lifestyle choice. If you want to pay extra for a certain lifestyle, that's your business and nobody else's. And I happen to really like owning a home, so I understand your motivation.

But in the first post in this thread you asked about affordability, so let's do the thought experiment of what your holding period might need to be to cover your costs. In addition to the commissions, in the round trip of buying and selling a house, you have to pay title insurance, get an inspection, an appraisal, recording fees, blah, blah, blah. It all translates to a big stack of money. IIRC, the average transaction cost of buying and selling a home are something 7%. You can see quite realistically four years might not be enough to recapture the costs through appreciation.

As I said above, buying a home is a lifestyle choice, so if that's your choice, great. But count the costs before jumping in because it might be harder to get out than you think.
Print the post Back To Top
No. of Recommendations: 0
First off is the idea that a 4 year holding period is long enough. It isn't.

Sure, it is, if owning a home is, as sykesix opined, a lifestyle choice.

For example, my son and future DIL are getting into their first home for no money down and the seller paying nearly all their closing costs. The resulting monthly mortgage payment is less than rent for a comparable home.

They want a house to which they can do whatever they wish. This is a lifestyle choice and it makes perfect sense for them to buy a house even though they anticipate they'll be living in Madison for only three years.

They likely--but not guaranteed--will, after paying the expenses of selling, come away with a small profit. Thus, buying a house is an easy choice for them.
Print the post Back To Top
No. of Recommendations: 0
There aren't many HELOCs that lend above 75% CLTV [combined loan to value]. There's only one that I can find that goes to 90% CLTV. One.

I would have thought as a mortgage broker you'd know of more sources...

Here's 2 that I found in just a few minutes (and there were others that had words like "call for information on loans >80% LTV")

http://www.lafinancial.org/lafcu/en/resource_promotion.asp

https://www.wellsfargo.com/ (I used 800K loan on 900K value in their calculator, but IMO that's close enough to 90%)

For the OP, those may not be as useful - but there are many financial institutions in WI that one can talk to, including the UW Credit Union.
Print the post Back To Top
No. of Recommendations: 0
Wells Fargo's site says:

https://www.wellsfargo.com/mortgage/loan-programs/home-equit...

As of April 17, 2013, current margins for lines of credit from $20,000 to $500,000 secured by owner-occupied properties with 70% combined loan-to-value range from 3.625% to 0.625% resulting in corresponding variable APRs ranging from 6.875% to 3.875%.

Like I said, there aren't very many HELOCs that go to 90% CLTV.
Print the post Back To Top
No. of Recommendations: 0
I rather like that we can shelter our retirement funds from FAFSA...particularly when we retire in a couple of years and have two kids in college.

I would think that you are the exception, not the rule. Many couples have their kids in their 20s and 30s. At college age, they're still below the distribution age for their retirement accounts and social security. Therefore, they would need a decent amount of assets outside the retirement accounts if they wanted to retire while the kids are in college. Since they need those outside assets to live, they'll also be accounted for on the FAFSA.

I have a kid in college and I'm not yet 50. I can't access my 401k and only could access an IRA if I retired and took 72t distributions. I would either need a bunch of taxable accounts to pay for living expenses if I retired right now or I would need to keep on working. Before the backdoor Roth IRA was created, I saw no need to make non-deductible traditional IRA contributions.

PSU
Print the post Back To Top
No. of Recommendations: 0
I would think that you are the exception, not the rule.

LOL. For better or for worse, typically the case. Though I'm also not yet 50, I've been planning on an early retirement since before I got my first job. I had the good example of my parents ER, but it was a revelation to DH when I told him of my goals. He never believed it possible until we ran the numbers recently, and had them verified by a financial planner. It is amazing what you can do when you max out retirement savings year after year.

It will be interesting to see the results of Obama's plan to restrict retirement accounts though, which is one reason why I'm glad we are still a couple of years away from pulling the work plug. If we want to get our SS, we may need to drain down our IRAs somewhat, and fatten our bank accounts a bit more after the kids are out of school.

IP
Print the post Back To Top
No. of Recommendations: 3
Congrats EvanED!

I'm in Madison also. Love Madison. Although hate the property taxes and the expensive-ness of the city in general.

Did you see the post from CCinOC about a family member that bought a 3-bedroom 1.25 bath 1500 square foot 1-car garage home for $315,000! Yeah, that's a lot of money for not a lot of house IMO. Desirable neighborhood, I'm sure, but it shows that you can really pay a lot for a house in this city. Taxes on that particular home were 7,874.42 last year!

Property taxes - Ugh. Horrible. My house is "valued" at around $222,000. It's a 3br, 2bath, 2car attached garage standard "developer" home with cheap materials on a postage stamp lot. Taxes last year were over $5200. My fiance's taxes on a similar home with a little more finished space and an even smaller lot were over $6,000.

You can plug any Madison address into this page and find out the recent tax history:

http://www.cityofmadison.com/assessor/property/index.cfm

Be aware that the city will use the sale price as your tax basis the first year. Then they "reevaluate" annual based supposedly on comps mostly.

Since bus service is important, check before you buy. The bus service between my own home and work is not good. There are a lot of buses in this city, but some city areas are a lot better than others in terms of how the service is. You can plug addresses into this site and find out routes and travel times to your work and other points of interest:

http://www.cityofmadison.com/metro/planyourtrip/google-plant...

When you are looking, be careful of neighborhood. Madison's "bad" areas are small and widely scattered. If you aren't familiar with the immediate area you might not realize an undesirable area is a couple streets away. It may not be a problem for you to live near an undesirable neighborhood, but it will affect resale, so build that into any offer you make. I had a friend who bought a condo in an area she thought was very good, probably overpaid for what turned out to be close to a "bad" area and she had a hard time selling because of proximity. Additionally, the "bad" area started spreading a bit and eventually she became a desperate seller because she wanted to get out of there.

City water bills twice a year. Mine is usually $220 every 6 months. I don't water my lawn a lot.

Good luck!
Print the post Back To Top
No. of Recommendations: 0
@inparadise:

You are most likely going to have credit card applications thrown your way. This can work fine with your income to cover short term expenses, even high cost ones.

Hah, I didn't really even think of that. I already have two CCs, one with a fairly high limit. (Well, by my grad student standards anyway. :-) More than 3 months' take home pay currently.) Always pay them off.

And just as a comfort, yes, I took your advice as "CC as alternative to pull money out from the Roth", not as "CC as alternative to emergency fund", though I see why TMFPMarti called you out on it.

@TMFPMarti:

It's not a matter of opinion, it's a matter of fact. Words have meaning, and in IRAland "borrow" has a very specific meaning (and consequence). The day you can get away with assuming the computer will understand what you meant if you mistype a line of code is the day I'll stop being pedantic about certain words in connection with tax law. On second thought, no I won't. There's always the problem of the lurker who doesn't have your knowledge and says, "Wow, great! I didn't know I could borrow from my IRA like I can from my 401(k)."

Good argument; point conceded. I apologize for the abuse of terminology.

@Jennlee222:

When you are looking, be careful of neighborhood. Madison's "bad" areas are small and widely scattered. If you aren't familiar with the immediate area you might not realize an undesirable area is a couple streets away.

That's one of the things I'm a little worried about. Because of proximity to other things of interest I'm primarily considering some places on the east side of town*, but I actually don't know that area so well as I've always lived varying degrees of west (along old University, near Hilldale, and now near West Towne Mall.)

* I'm thinking primarily along the isthmus (Willy St or Tenney-Lapham area; this would be more expensive but better), along Atwood, or somewhere near Milwaukee St. Most of these areas feel just slightly sketchy to me, but at the same time it's hard for me to know if that's just because I've pretty much grown up in suburbia and it's less familiar.

---

After thinking over the stuff in this thread for a couple of days, I set up a showing at a townhouse for rent. I'm thinking that taking out a year lease on that starting at the beginning of July, then looking for a house next spring might be the order of business. That'd give me a couple months to build up at least a little bit of an emergency fund, though it may have the unfortunate side effect of putting me smack in the middle of peak buying season. (This spring Madison is apparently a major sellers' market.)
Print the post Back To Top
No. of Recommendations: 0
I brought that up in the context of the "fairly big ticket" repair item, like a furnace. I would have to withdraw the money for the repair, but during that 60-day span I would likely earn enough (especially if I especially tried to be frugal) to be able to redeposit it in full.

A comment I didn't see was that a non-trustee to trustee rollover can only be done once per year for each separate account.
Print the post Back To Top
No. of Recommendations: 1
aj485,

You wrote, Funding for research projects is usually dependent on either government funding or venture capital. Neither is a totally stable source of funds....Governments at all levels in the US are looking to cut costs right and left; venture capital goes through ups and downs, and can decide to cut their funding off totally at any point. Here's one of the better-known cases of this happening - Sequoia Capital's "Presentation of Doom" in 2008: http://venturebeat.com/2008/10/10/the-sequoia-rip-good-times......

My boyfriend, a programmer, worked for a tech start-up in 2008. The company shut down on Oct 31, 2008, a few weeks after the presentation, because the start-up (with almost 200 employees) couldn't get funding. He was left with no job and no health insurance, not even COBRA, because the company didn't exist any more. He found a contract job about 4 months later, and jumped from contract to contract for 3 1/2 years, until he found a great full time job last September, that we ended up moving across the country for.


Sorry for being late to this thread; but I don't read this board regularly. For Fools that don't know, I'm the boyfriend.

Let me give (and correct) a few details here, Sequoia Capital was one of our major investors at the time. They had a seat on the board. They basically pulled the plug on us along with a host of other tech start ups at the time.

My bout of unemployment lasted from 11/01/08 through 02/14/09 or 3.5 months. As an aside, I was forced to enroll in the Texas High Risk Pool insurance, because insurance companies refused to insure me. And no, I don't have cancer or HIV or any of those things people normally associate with such plans. I had too many pre-existing conditions and/or risk-factors. I was told I could have at most 2; but that insurance companies wouldn't underwrite me on an individual plan if I had 3.

Technically I only jumped contracts once. The first contract was supposedly 12 months. I started on 2/15/09 and left for another on 07/30/10 (starting on 08/09/10). The second contract was open-ended, but in January 2012 I was told they would be reducing my hours and that they would end my contract at the end of the quarter. The 3rd gig was actually in the same company and through the same contracting firm so I find it hard to count that as another jump. So I left my second contract on 09/07/12 for a full-time position.

Back to insurance, the first gig offered decent insurance and other reasonable benefits. The second gig did not. When I switched, I had to change to your insurance plan (which now offered domestic partner benefits) and paid premiums out of pocket with after-tax money.

- Joel
Print the post Back To Top
No. of Recommendations: 1
Evan, do you qualify in any of these categories for 100% financing?

For one source, Navy Federal Credit Union, here’s how to become eligible:

All Department of Defense (DoD) uniformed personnel—Army, Marine Corps, Navy and Air Force retirees and annuitants

All United States Coast Guard personnel—including active duty, reservists, civilian employees, retirees and annuitants

All Department of Defense Reservists—Army, Marine Corps, Navy and Air Force retirees and annuitants

All Army and Air National Guard Personnel—civilian employees, retirees and annuitants

All Delayed Entry Program (DEP) Personnel

All DoD Officer Candidate programs—Midshipmen and cadets at the United States Naval Academy, United States Military Academy, United States Air Force Academy, United States Coast Guard Academy and the United States Merchant Marine Academy; Other Officer Programs

U.S. Government employees assigned to DoD installations (including Coast Guard)

All DoD civilian employees—including retirees and annuitants

DoD contractors assigned to U.S. Government installations

Family Members—including grandparents, parents, spouses, siblings, grandchildren, children (including adopted and stepchildren) and household members

Once your family members have joined, their family members are also eligible for membership. Is there anyone in your immediate family who fits the categories above?
?
For the other source, NASA Federal Credit Union, here's how to become eligible:

I am an employee or retiree of NASA [National Aeronautics and Space Administration] Headquarters, any NASA Center or Facility, or NAS [National Academy of Sciences].

I am an employee or a member of one of 900 NASA Federal Credit Union partner companies or associations.

I am a relative or household member of a current NASA Federal Credit Union member.

***

You could extrapolate backwards from what you can afford monthly to arrive at a purchase price. Since it's not costing you anything to buy a house, why wouldn't you?
Print the post Back To Top
Advertisement