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A place for Get Rich Slowly readers to ask questions
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It is currently Wed Jul 23, 2014 6:11 am




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Which scenario works best
Poll ended at Wed May 21, 2008 6:26 am
1. Cash out investments 50%  50%  [ 3 ]
2. Extend line of credit or get another card 0%  0%  [ 0 ]
3. Find more work 0%  0%  [ 0 ]
4. Something else 50%  50%  [ 3 ]
Total votes : 6
Author Message
 Post subject: Advice for buying a home
PostPosted: Mon Apr 21, 2008 6:26 am 

Joined: Thu Feb 28, 2008 6:31 am
Posts: 22
Here's the situation that we're in. I am a doctoral student with:
    little debt (car loan and 35k in student loans),
    little assets (3k in an index fund, 7k in a target retirement fund/Roth IRA, 1k in individual stocks, 5k in cash),
    little income (just my student stipend of less than $20,000/year and another $2-3000 from web design and illustrating jobs on the side),
    and a little family (wife and two kids).

We've decided to buy a townhome (we'll be here for at least three more years) and found one at a great location for an amazing price. Our offer was accepted and the bank will pre-approve a loan for us provided we pay our car loan down from $8,500 to $2,500. We really like this bank because they will work with multiple first-time home buyer programs (HANDS and HOP), programs that will match our down payment and then some, giving us an additional $8,000 to put down on our home (with our $5,000 cash). We've contacted a dozen or so banks and mortgage lenders in our area and this is by far the best option we have. So we have to figure out how to pay down our car loan without using the cash we have saved for a down payment and hopefully keeping as much money as we can in our meager retirement account. Here are a few possible scenarios. We could:

1) Cash out our $3,000 index fund and $1,000 in individual stocks, taking a loss (this loss won't help us with taxes, our income is so low we get everything back anyways), and scrounge up loose change for the rest.

2) Ask our bank to lower the interest rate on our debit card credit line (currently 9.75%), extend our credit from $1,000 to $5,000 and live off credit this summer until we can take out more student loans in the fall. If they won't lower our rate we could get a second credit card and use it.

3) Try to get some extra work pronto. I do a little web design but don't have a ton of free time (between my research and school). My wife is an illustrator, already extremely busy on a project that won't pay her until the summer time.

4) some sort of combination on the previous three.

So, what do you think? What would be our best option or is there something I haven't thought of? (I have no rich uncle).

_________________
Tyler Christensen, M.Ed
Associate Instructor
Indiana University
http://www.richonanyincome.com


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PostPosted: Mon Apr 21, 2008 6:31 am 

Joined: Tue Oct 23, 2007 7:07 am
Posts: 201
Although not a great answer to your question since it appears you're set on buying the house, but have you considered renting for the foreseeable future? 3 years is not that long at all, especially to own a home if you decide to move in that time. Even if the market does not go down in your area much more, you might have a hard time just breaking even in that time frame.


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PostPosted: Mon Apr 21, 2008 6:40 am 

Joined: Thu Feb 28, 2008 6:31 am
Posts: 22
Sorry, I should have been clearer about our intentions... we should come out on top 1. because we are able to take advantage of $8,000 of free money given to us at closing (from HANDS and HOP), and 2. We plan on keeping the townhome after we move as a rental property. We've been renting but want to start building equity and own our own place.

_________________
Tyler Christensen, M.Ed
Associate Instructor
Indiana University
http://www.richonanyincome.com


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PostPosted: Mon Apr 21, 2008 7:03 am 
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Joined: Tue Nov 27, 2007 12:11 pm
Posts: 171
Location: Colorado
So you need 6k to pay down the car before you can even get to the table on the townhouse? Can the 8k in 'free' money from HANDS/HOP only be used against loan principal or also for closing costs? Did you have to put forth any earnest money on your townhouse offer, and was that already accounted for below? Do you mind disclosing the cost, loan details, payment info etc?

Assuming you liquidate your investments and borrow 2k from your savings to pay down the car, that leaves you with a Roth and about 3k in savings. But, you need 5k to get the HANDS/HOP match? It just doesn't add up to me.

To be honest, I'm not sure how your lender sees this loan working. I don't mean to be rude, it just doesn't seem like a very safe loan to me from the banks point of view.

I understand your desire to get off the rent treadmill, but it just doesn't seem like a wise move to me...

best of luck,
Zulu


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PostPosted: Mon Apr 21, 2008 7:31 am 

Joined: Tue Oct 23, 2007 7:07 am
Posts: 201
I, like Zulu113, still question whether or not this is the right move at this point in time. Any way you go about it, you're going to deplete your savings completely (as well as reduce your retirement investments) in order to gain a liability when you have little income and a family to worry about. Does not seem like a wise choice-I'd rather rent and not be worried about unforeseen house expenses and keep that 5K in the bank as an emergency fund.


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PostPosted: Mon Apr 21, 2008 9:16 am 
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Joined: Thu Mar 27, 2008 4:24 pm
Posts: 353
Location: St Pete
tbc32 wrote:
We plan on keeping the townhome after we move as a rental property.


Speaking from experience, don't predict this rental property will make you money within the first 10 years. Furthmore, if you are not within a 15 minute drive of this property while you are managing it and living somewhere else, you will have to put that 10 years out even further, somewhere on the order of 15 years, in lieu of a) hiring someone to manage your property for you, or b) artifically lowering the rent to account for your extremely hands-off approach. Renters do not fix their own leaky toilets, but they do stop them up with feminine products. Renters do not fix clogged sinks, but they do wash heads full of hair down it without thinking to try Drano before calling you. Renters have no vested interest in your appliances (washer/dryer/garbage disposal/etc etc) and thus, are inclined to be much rougher on them, even if they are model tenants. Best case, assume 10 trips a year to the property to repair menial problems (bulbs out on flood lights, replacing AC filters, extracting the possum who moved in under the house or the squirrel who made a nest in the attic).

In short, tbc32, this rental property will be a financial drain long after you've moved out. It will become an obstacle to getting into your next home. Weigh your short-term living situation carefully with your long term goals as a family.

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Becca


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 Post subject:
PostPosted: Mon Apr 21, 2008 10:46 am 

Joined: Wed Oct 17, 2007 10:08 am
Posts: 80
Location: Canada
i agree with the others. buying this house doesn't seem like the right thing to do right now. if you must i'd say sell your car and buy a beater. but there are other things to consider to...

1. what happens when you have to pay back your student loan? a good job in your field isn't garrentied and even if it is the first year in your field won't pay great.

2. your first few years in a house you won't build up much equity. what if the price goes down? sure you have that gift money and you'll break even but then what? i assume that money is for first time home buyers, it won't be there when you try to buy again, and if you break even you'll have to save up for a down payment all over again.


if you have all this money in savings why don't you continue to save? your really good at it. and then when you have more and your ready to buy you can. its not like the cost of housing is going up in america.


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PostPosted: Mon Apr 21, 2008 12:21 pm 

Joined: Fri Apr 18, 2008 3:21 pm
Posts: 23
I'm no expert, but I agree with most others - it sounds like buying the house is not the best decision right now. Definately DONT cash in investments, the future value cost of that would be much higher then its worth, ex. $4000, if you earned 8% (which isnt hard in index funds), over 30 years becomes over $40,000...so is the house worth losing 40000? :) I'm no expert and my math might be wrong, but hold out, do some extra work and save up cash for a down payment, even if its only 2% or 5% of the purchase price.


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