I need some financial advice

[Chaotic42]

I just turned 25. I have no debt. I currently pay $815/mo in rent in an apartment. My lease is up in December. I'm single with no dependants. My net monthly income is approximately $2100 (every four weeks). The last credit score that I saw that I had was 798, and I've had multiple loans that I've gotten and paid off in a timely fashion over the years.

I found out today that my family has won a financial settlement. I'm not going to go into more detail here, but trust me, it's not spilled coffee or anything. In the end my share of the money will be just under $28,000. I will recieve $6800 soon and $21000 at some point over the course of the next three years. Apparently no one knows when.

I would like to buy a house. In order to be realistic, I'd have to buy a house at around $90-110K. This is possible here, but it would be kind of small. That's okay with me. My question is, should I seek out first time home owner programs and put $10K down on a house and move in December? Understand that I live in the "ground zero" of Katrina, so there may very well be special programs for me.

If I do that, what should I do with the $6800 for now? 6-month CD?

Should I keep paying rent, which will likely go up, untill I have the entire $28K and then put that down? The housing market is crazy here, and prices are climbing. I think it's better to get in now, but I'm a map-maker, not a real estate guru.

Any advice? I understand that this in an internet forum, and I'm just using it as one of many resources for this. Thanks.

PS-Also found out that I don't have any active skin cancer today. I've got to watch some spots, but everything that worried me is benign. :beer:

 

[ponyo]

Put the $6800 in online savings like HSBC Direct, INGDirect, etc.

I would personally put no money down or little as possible in your case and keep the money as investment and emergency.

 

[patentman]

If you can get a house for 90-110k then go for it. IMO owning a home is always better then renting. Unlike rent, which gets you nothing, your house can increase in value. Also unlike rent, mortgage interest is tax deductible. So I say go for it.

As for the down payment, the main things you need to consider are PMI and closing costs. 6.8k may not be enough of a downpayment to avoid PMI, as many lenders require it until the loan to value ratio is 80% or less. You also have to consider whether you can afford the closing costs for the loan as well.

As for what to do with the money, investing it in some fashion is the right way to go. Since you know youabsolutely want the money to be around in December, a CD isn't a bad investment. You could go with a mutual fund (check out the vanguard funds). In either case you will have to pay capital gains taxes on any profits made if you cash out in less than a year.

Good luck in your home search. I am looking to buy in the Boston area and there is no such thing as a sub 100k house. Heck, you'd be luck to find something nice for under 400k.

 

[tyanni]

I agree - if you can put no money or little money down AND still get a FIXED, LOW INTEREST rate, then go for it. Whatever you do though, DO NOT get an adjustable rate mortgage.

As mentioned above, PMI is definitely a consideration. However, it may not be an issue depending on your income, as the government just or will soon allow homeowners to deduct the PMI. This makes it less painful. You need to look this up, as it applies only to people in a certain income bracket and I THINK first time homeowners, although I could be wrong on this. Otherwise, you can avoid it by taking out a home equity line to cover a portion of the house so your actual mortgage is less than 80% of the value of the house,

patentman - good luck in your home search. Seriously. Home prices in the Boston area are out of control, although now is probably as good a time as any to buy.

Tim

 

[Xstatic1]

something to consider if you want to put the money into CDs...split the $6800 into like 3 different CDs (say CDs with a minimum of $2,000) and then ladder it so that you set 'em up at different times. for example,

#1 (6 month CD of $2,400) - establish account on June 1st, eligible for withdrawal on November 30
#2 (6 month CD of $2,200) - establish account on August 1, eligible for w/d on January 31st
#3 (6 month CD of $2,200) - establish account on Oct 1, eligible for w/d on Mar 31st

the positive of doing 'em this way is that the entire amount ($6800) isn't tied up for the entire 6 months, you'll always have one coming up due for withdrawal....essentially keeps your money more "liquid".

 

[Dufman]

Originally posted by: patentman
If you can get a house for 90-110k then go for it. IMO owning a home is always better then renting. Unlike rent, which gets you nothing, your house can increase in value. Also unlike rent, mortgage interest is tax deductible. So I say go for it.

As for the down payment, the main things you need to consider are PMI and closing costs. 6.8k may not be enough of a downpayment to avoid PMI, as many lenders require it until the loan to value ratio is 80% or less. You also have to consider whether you can afford the closing costs for the loan as well.

As for what to do with the money, investing it in some fashion is the right way to go. Since you know youabsolutely want the money to be around in December, a CD isn't a bad investment. You could go with a mutual fund (check out the vanguard funds). In either case you will have to pay capital gains taxes on any profits made if you cash out in less than a year.

Good luck in your home search. I am looking to buy in the Boston area and there is no such thing as a sub 100k house. Heck, you'd be luck to find something nice for under 400k.

You have GOT to be kidding me!

Puting your money into any thing that is volitle for only 6 months is like shooting yourself in the foot.

Got for a, the best rate you can get for the time period you are looking for.

Most Money Market Savings accounts are paying around 4.75 - 6.00. Watch out for conditions that impose penalities for closing the account, or being below a minumum balance.

As for the house. Dont worry about paying PMI, you can always refi in a few years if rates are favorable.

If you do a Home Equity Loan to pay off the 1st mortgage in a few years, you typicall wont have to pay PMI.

NEVER spend more than 40% of your GROSS monthly income on your TOTAL contract debt, ie credit cards, loans, and the like.

You might want to find a LOW rate credit card, just so you are prepared for the unknown when owning a house. Get nothing more than 9.9% as your FIXED rate. When you have enough equity, take out a home equity line, and pay off the credit card.

 

[Chaotic42]

Bump for more thoughts.

 

[DaveSimmons]

This is just common-sense advice but I'll give it anyway:

Put the $6,800 into high-interest savings like ING as mentioned above.

CDs are harder to time for when you take them out: if you need the money a month early you could lose all interest to penalties, if you need the money 2 months late you've had it sitting in a checking account for 2 months earning $0.

Remember that you probably owe income tax on the $6,800, and you'll also owe tax on any earned interest.

You can deduct your mortgage interest, but only if you itemize and give up your standard deduction. Many people forget that they're gaining (say) an $18K writeoff but losing the $5,150 standard deduction at the same time.

Stay away from adjustable-rate mortgages, interest is going to go up not down.

Remember that you'll need money for things like furniture, decorations, paint and possible repairs. Have money set aside so you don't run up credit card debt.

 

[Dirigible]

Do you expect to live in that house for several years? If not, it's likely not a very good financial move. You're kind of young. When I was your age I moved around too much for buying a house to make sense, but your situation may be different.

Other than that, run the numbers. How much would it cost to rent v. the mortgage, taxes, insurance, and upkeep for your house. Don't forget you'll get a tax deduction if you itemize, so figure that in.

And I agree that if you think you'll buy in December you should not invest in something volatile like stocks.

 

[JEDI]

Originally posted by: patentman
If you can get a house for 90-110k then go for it. IMO owning a home is always better then renting. Unlike rent, which gets you nothing, your house can increase in value. Also unlike rent, mortgage interest is tax deductible. So I say go for it.

um no if you dont plan on staying in the house for 3yrs.

a mortgage is front loaded with interest. so he's basically has VERY little principle the 1st 3yrs of the mortage. plus maintenance, and protperty tax. plus a $1M libabilty policy. (well, that's cheap.. only $100/yr). but it's still another expense in owning.

 

[Chaotic42]

Originally posted by: DaveSimmons
This is just common-sense advice but I'll give it anyway:

Put the $6,800 into high-interest savings like ING as mentioned above.

CDs are harder to time for when you take them out: if you need the money a month early you could lose all interest to penalties, if you need the money 2 months late you've had it sitting in a checking account for 2 months earning $0.

Remember that you probably owe income tax on the $6,800, and you'll also owe tax on any earned interest.

You can deduct your mortgage interest, but only if you itemize and give up your standard deduction. Many people forget that they're gaining (say) an $18K writeoff but losing the $5,150 standard deduction at the same time.

Stay away from adjustable-rate mortgages, interest is going to go up not down.

Remember that you'll need money for things like furniture, decorations, paint and possible repairs. Have money set aside so you don't run up credit card debt.

Yes, I plan to live there for quite a while. This money is after taxes, I believe. I already have furniture. The problem is that houses will go quickly and prices will rise as people get government aid money. I do have a savings account that earns interest (so does my checking account), so I could just toss it into savings and get a little extra money if I had to.

I'd really rather buy ASAP.

 

[db]

PMI can be an unnecessary expense if your house appreciates to the point where you have less than an 80% LTV, b/c most states allow the lender to require that you keep paying for 2 or 3 years, even though at that point it's a waste of money, whether deductible or not.
The way around PMI if you have less than 20% down, is to get a second mortgage along with your first mortgage.
wiki

 

[jpeyton]

Talk to a financial adviser.

 

[Scarpozzi]

Sure...invest the money....if nothing else, do it so the money's tied up and you're not tempted to spend it.

I was able to buy a house under $100k 2 years ago when I was 24. Try to find a fixer-upper without a lot of structural issues and you'll be good. Always buy based on location.....you can put a $60k house in the middle of Manhattan and it will cost millions.

 

[Chaotic42]

Originally posted by: Scarpozzi
Sure...invest the money....if nothing else, do it so the money's tied up and you're not tempted to spend it.

I was able to buy a house under $100k 2 years ago when I was 24. Try to find a fixer-upper without a lot of structural issues and you'll be good. Always buy based on location.....you can put a $60k house in the middle of Manhattan and it will cost millions.

Well, any house I buy will have been flooded, but I know that going in. $100K will get me a good house with few issues. The area is booming, so I expect prices to go up.