How do you save for a home?

[vi edit]

Take home on 125k is around 9K a month, after expenses you should have at least 4k for savings.

On what planet do you take home 9k a month on 125k income? Toss in fed taxes, health care, state income tax for one of the highest taxed states in the nation, maybe 10% for 401k...

His 6k is pretty close. He has jack all for deductions right now. No kids, house, hell I think he's even out of range for the student loan interest deduction.

 

[SunnyD]

The current 30-year mortgage rates are backed by 2 things:
1) The government
2) You paying them PMI for 5 years (Or simply, mortgage insurance - approx ~$50 month depending) so 12 months x 5 years x ~$50 month = over $3000 down the drain for YOU to pay THE BANK as an insurance for the bank risking their money with you.
3) This is the ONLY reason people are getting these loans with 3% down payments.

If you want to properly own a home do the following:
1) Pay off your loans. Every additional month is another month that your losses are stacking.
2) Slowly save for a 20% Down payment on a home. Baby Steps.
3) Build your credit in the mean time. Your credit is what determines your risk. Your risk determines what the bank is willing to loan you (% Interest Rate)

Or just dive in like every other retarded American with a 3% down payment making minimum payments and upon the next bubble burst find yourself flat on your ass with no money or equity.

All I can say as a homeowner is this: Don't underestimate maintenance costs. Best of luck.

What's this "PMI" you speak of? And this 20% down nonsense.

/me hugs my $0 down no PMI loan.

 

[s0me0nesmind1]

Dude, I might get a little defensive re: budgeting but I have no other financial knowledge at all. I'm a complete schmuck when it comes to that by my own admission. I don't even know where to start.

You need to invest more in your employer 401k in all likelihood. Maxing it out to the yearly $17,500 - is probably in your best interest.

 

[NoCreativity]

So what about the people who like to watch their favorite NHL/NBA/MLB teams?

Guess they could suck it up and listen to it on the radio for free, right?

The money you spend when going to watch the games at a bar can add up pretty quickly...

I think those who say ditch cable are like me who watched maybe an hour here or there. It is well worth the $400/year savings for me to cancel. If I wanted to watch NHL, NBA, MLB, other games then I wouldn't have cancelled as missing those games isn't worth the savings.

 

[Gunslinger08]

On what planet do you take home 9k a month on 125k income? Toss in fed taxes, health care, state income tax for one of the highest taxed states in the nation, maybe 10% for 401k...

His 6k is pretty close. He has jack all for deductions right now. No kids, house, hell I think he's even out of range for the student loan interest deduction.

Seriously. Just go run it on PaycheckCity.com. $125k in NYC with no additional deductions beyond 1 allowance is just under $6400 a month. I assume he's also contributing to a 401k, so $6k seems about right.

 

[Axon]

On what planet do you take home 9k a month on 125k income? Toss in fed taxes, health care, state income tax for one of the highest taxed states in the nation, maybe 10% for 401k...

His 6k is pretty close. He has jack all for deductions right now. No kids, house, hell I think he's even out of range for the student loan interest deduction.

Yep, I make too much for the $2,500 student loan credit. I believe the threshold is 80,000.

 

[purbeast0]

1) Nothing says you have to order a drink at a bar. Water wont hurt you.

2) I don't have cable. That doesn't mean I don't have our local air channels. Who do you think plays the majority of the local games?

3) ESPN / live sports is pretty much THE only reason cable-tv hasn't gone A 'la carte. That's pretty much been agreed upon. Disney/ABC/ESPN (Same company) can all DIAF.

other than football, the majority of local games here are on comcast sports net, which comes only with cable.

and my earlier comment about you stealing is because the comment you made about downloading things. i know netflix and hulu and what not are all legit and paid, but those are streaming, and most people don't mention "downloading" with a sneaky face next to it when talking about those services.

 

[Axon]

NYC sports are basically all cable TV...Yankees and Mets have their own respective networks, Rangers/Knicks are MSG, etc. Only the giants and jets are broadcast over CBS and Fox. Occasionally you get a yankees game on a Tuesday night on My9.

ESPN disney can DIAF though

 

[z1ggy]

I feel like as a first time home buyer, you want something that's move in ready. You may bite off more than you can chew if you buy a fixer upper to save money.

With that said, if you can find the right property and you know you'll stick around at least a few years.. Go for it. You can always rent it out later given it's still in prime condition.

In my case, I got lucky and found a move in ready house where the mortgage ended up being LESS than I was paying in rent. I got a roommate and build equity, credit and get a nicer tax return now. Down side is I pay slightly higher utilities and deal with things breaking from time to time. Overall though, I found that it was worth it.

As far as savings go, try to cut down on that $1000 of random expenses, and consider paying less than the traditional 20%.

 

[JM Aggie08]

Here are my AT suggestions:

1) Stop enjoying your life and living it the way that suits you.
2) Cut all expenses. Who needs clothes?
3) Invest everything. Tangible assets? Who needs'em!

 

[DrPizza]

You'd be paying less than $1600 a month on a 250K house and if you bought a house and you'd actually be making equity in it. Just buy a house with <5% down.

He's in NY. With his property taxes rolled in, I'd guess at least $500/month more than that.

 

[purbeast0]

Here are my AT suggestions:

1) Stop enjoying your life and living it the way that suits you.
2) Cut all expenses. Who needs clothes?
3) Invest everything. Tangible assets? Who needs'em!

haha that is pretty much how ANY financial advice thread goes on these forums.

 

[Svnla]

Dude, I might get a little defensive re: budgeting but I have no other financial knowledge at all. I'm a complete schmuck when it comes to that by my own admission. I don't even know where to start.

I already gave you a few suggestions about your budget above.

Finance:

1. If your firm matches 401k, do it, now.

2. Get a least 6 months emergency cash and put it in a safe deposit account.

3. Index funds (target dated if neccesary) from Vanguard or Schwab or TR Price will be good.

Our suggestions are just that, suggestions. It is up to you to use them to suit your lifestyle and maximize the utilitization.

 

[DrPizza]

The current 30-year mortgage rates are backed by 2 things:
1) The government
2) You paying them PMI for 5 years (Or simply, mortgage insurance - approx ~$50 month depending) so 12 months x 5 years x ~$50 month = over $3000 down the drain for YOU to pay THE BANK as an insurance for the bank risking their money with you.
3) This is the ONLY reason people are getting these loans with 3% down payments.

If you want to properly own a home do the following:
1) Pay off your loans. Every additional month is another month that your losses are stacking.
2) Slowly save for a 20% Down payment on a home. Baby Steps.
3) Build your credit in the mean time. Your credit is what determines your risk. Your risk determines what the bank is willing to loan you (% Interest Rate)

Or just dive in like every other retarded American with a 3% down payment making minimum payments and upon the next bubble burst find yourself flat on your ass with no money or equity.

All I can say as a homeowner is this: Don't underestimate maintenance costs. Best of luck.

Over $3k down the drain over 5 years?! OMG, the Humanity. Or, his rent represents $96000 that didn't earn him one cent of equity over those 5 years. Meanwhile, the price of property (generally) increases, interest rates are unlikely in a couple years to be as low as they are now, and if he's eventually going to buy, he's 60 months further behind when he would have complete ownership (and not have a mortgage payment at all - just interest.) I agree with ElFenix - he needs to be sure this is where he's settling down.

 

[RedShirt]

Over $3k down the drain over 5 years?! OMG, the Humanity. Or, his rent represents $96000 that didn't earn him one cent of equity over those 5 years. Meanwhile, the price of property (generally) increases, interest rates are unlikely in a couple years to be as low as they are now, and if he's eventually going to buy, he's 60 months further behind when he would have complete ownership (and not have a mortgage payment at all - just interest.) I agree with ElFenix - he needs to be sure this is where he's settling down.

Even though you don't directly say it, or may not have event meant it, I read this statement like all that money would go to equity.

I don't know how much houses cost in NYC. If Trulia is to be believed, the median price is over a million dollars: http://www.trulia.com/real_estate/New_York-New_York/ of course, this is within the city and not a suburb.

Let's look at Jersey City, that's $300,000
http://www.trulia.com/real_estate/Jersey_City-New_Jersey/market-trends/

Let's figure 20% down (which the OP currently doesn't have), and an Interest rate of 4% (low compared to the average). 42% of all his payments over the course of the loan cover just the interest. In addition, there is property tax.

According to this article
http://www.northjersey.com/news/Report_Average_NJ_property_tax_bills_grow_to_record_high.html
The average property tax in that area is around $8000 a year. So, let's figure this out.

He would pay 1,145.80 a month for the loan (no property tax included), 480 of which pays interest (averaged out over the course of the loan, initial payments would actually be more towards interest, but later payments would be less).

He'd then pay 667 a month (assuming average rate) in property tax. Add these together, that's $1147 a month just in interest and taxes.

There are other things to factor in, such as increased homeowners insurance rates. Increased utility bills (due to larger living space), repairs, and other things that would need to be bought due to home ownership. Also, the extra time to keep the home up is also worth money.

This amount would be greater if he went ahead and bought without 20% down. Not only would the monthly payments be higher, he'd have to also pay PMI. You also have to factor in what that 20% could bring in if it was invested rather than used for a down payment.

I stand by what I said earlier. Stay where your at now, and only get a house when you have a family.

 

[vi edit]

I stand by what I said earlier. Stay where your at now, and only get a house when you have a family.

That's why I asked his age. He's 34. That clock is ticking fast.

Me personally...I'd encourage my kids to rent up to the point they have a kid that is walking. Your housing needs will do a complete 180 once you want to start taking them outside to play, and later send them to school. Before that point, rent, have fun, let someone else worry about repair, upkeep and resell.

 

[Axon]

I wouldn't be caught dead in Jersey City, but the Lynbrook, NY area my GF and I have talked about targeting is similarly priced.

Are you saying a 300k mortgage would be 1145 + 1147 a month?

 

[RedShirt]

I wouldn't be caught dead in Jersey City, but the Lynbrook, NY area my GF and I have talked about targeting is similarly priced.

Are you saying a 300k mortgage would be 1145 + 1147 a month?

With 20% down, it would be 1,145.80 + 667. 1145.80 is interest and principal. 667 is proprerty tax that would be paid out of escrow (which would be included in your payment to the bank)

I used an interest rate (4%) that you most likely will not be able to find. It'd be more like 4.1 or 4.2 if you have good credit.

If you only put 10% down, and you had to get PMI, that would be another 121.50 a month (assuming average rate). Also, with 10% down, your principal and interest payment would be 1289.02 a month. (So, 1289 + 121 + 667 = 2077 a month). Then there are all the other charges (Repairs, Homeowners Insurance, Utilities, etc).

 

[vi edit]

Then there are all the other charges (Repairs, Homeowners Insurance, Utilities, etc).

Yep. Homeowners insurance will likely need to be escrowed too. Figure anwhere from $500-$2000 for that. Not sure how much Sandy is screwing NYC homeowners rates. Compare that to renters insurance which is like $150 a year.

East coast is huge with oil heaters. If you get an older home with that type of heater you can be spending HUNDREDS a month just on heating oil if it's a poorly insulated house. Buy one that needs a roof in a few years and there's another $5,000- $10,000.

All that stuff adds up.

 

[NoCreativity]

I wouldn't be caught dead in Jersey City, but the Lynbrook, NY area my GF and I have talked about targeting is similarly priced.

Are you saying a 300k mortgage would be 1145 + 1147 a month?

No he isn't. He was saying that 1147 is property tax and interest every month. The interest was also included in the 1145. Basically he was saying that you will be spending 1147 on virtually nothing* every month if you buy a house.

Put your numbers in here. It will spit out your mortgage payment.

Do some research on the tax rate in your planned city (probably find it online)and find out what homeowners insurance runs in that area. My guess is it's probably $1000 +/- a couple hundred per year. You may also need flood insurance = more money tacked on monthly.

*By paying property taxes I know he is not spending money on nothing, but it's not going directly towards him but the community which eventually benefits him.

 

[kranky]

OP, if you are not clear on the homebuying process, see this page (more links on left side of the page).

https://www.balancepro.net/homeownership/index.html

 

[RedShirt]

As far as the issue of "time is ticking". The more that can be saved now, the less you'll have to borrow later. The money you use for your down payment goes straight to equity. If you have more to put down, you get more equity, so saving helps you there.

If you could save $1000 a month, that's 12,000 a year. In 5 years you'd have over $60,000 (depending on how risky you are with your investments, money in a bank right now does virtually nothing).

$1000 a month is a very respectable number by the way. Many people are lucky if they can save $500 a month (outside retirement savings), and most people live paycheck to paycheck.

There is the argument that if you are saving money, but are making less interest than the inflation rate, your losing money compared to putting that money into a home now. While this is a totally legitimate argument, I do not believe it is a big enough benefit compared to waiting (all the other expenses will still drag you down).

There is also the argument that interest rates could go up. That is also very valid. The issue here is if you can save a very big chunk of money, then the change in interest won't impact you as much.

 

[rh71]

we were able to do it because of 2 things:

1) dual income (but your 125k was what we made at the time anyway)
2) not having to pay rent since we both lived with parents until about 23. We were able to save a lot while having full time jobs for a couple years out of college.

I feel #2 is a big one because most people after 18 bolt out the door voluntarily and set themselves up for financial hardship. And if your parents kicked you out, well sorry.

 

[Jumpem]

There is no need to save. Banks will still finance 100+%.

 

[bonkers325]

Steep. about 1100 a month.

I'll give you the budget.

about 6000 monthly
1600 rent
1100 loan
1000 "random" stuff - taking the lady out, helping out my dad with rent, etc
140 cable tv/internet
100 NYC metrocard
89 gym
200-300 food

your expenses are about $4,500 a month. thats about $6,700 before taxes or about $80k/year gross salary that goes towards living expenses. that leaves you $45k gross to put towards savings... so you should be able to put away $2.5k each month if the above budget is really what you spend on average.

math doesn't add up, check your monthly credit card bills again and look harder for the expenses that don't need to be there. bar hopping, gadgets, etc...