OT: first house and 401k investing advice

[learlove]

Wonder if I could get some input on these 2 topics.

First the 401K. I rolled a 401K from an old company into my current retirement account as a rollover IRA. There is just over 21K in cash reserves as a result that I need to deistribute. I was thinking of dividing it up into 10 2K blocks to pick funds/stocks/bonds or 8 2.5K blocks or some other. I don't think I want to do more than 4K blocks. I'm 34 and for now plan on working until 60. I have another 50K in a fidelity account (pilot B fund)that gets 10% of my gross/month. This has 7 funds that I do not want to overlap with the 21K to invest.

Second: I have 60K savings and am looking to buy my first house. It looks like I'm going to settle in the Charlotte, NC area (Gastonia). I'd like to have 20K in savings so that leaves 40K for a home. I figure I'd put 10K aside of the 40K for a home for closing and other stuff that pops up with buying a home. This Leaves 30K for a down payment. I'd like to put 25% down so that means I'm looking at a home in the 120K range. This is very possible in this are of the country. So my cash is:

60K total

20K savings
10K - closing/inspection/other
30K - home down payment

Home price 120K max, 25% down so a 90K morg.

My credit is in the 800 range and I have no car, credit card or school payments.

My current monthly budget is listed below:

rent-625
electric-50
cable/internet - 73
cell - 55
washer and dryer rental - 38
gas - 75
car insurance (paid ever 6 months) - 85
food - 600
flying - 150 (rent a cessna once or twice a month)
msc. - 250

total - 2001/month

I bring home after tax and 401K 3K/month.

From what I gather I think this is a safe/responsible plan. My morgage on 90K should be about what I pay in rent now. I'm keeping some cash (20K) incase something happens (job/home or health wise) and I'm not spending everyting I take home.


I figure my budget with a home will be:

morgage- 500 (90K at 30 years and 5%)
taxes (3000/yr) - 250
utilities (electric/trash/h2o/gas) -250
home insurance ???
food- 600
msc-300
flying- 150
cell- 55
cable/net - 73
gas - 75
car ins - 85

total - 2338 (plus home ins)

Any input or advice?

Thanks

[dave thompson]

Why don't you visit a fee-based CFP (certified financial planner)? Their fees for their advice to you are based on the amount of money involved, they don't sell anything. It may take a few visits to several of them until you find one that resonates with you.

[dookie]

ride more?

[capybaras]

give me some

[JohnHemlock]

Car insurance is only $170 a year? What do you drive, a 1993 Yugo?

[nm87710]

With a positive net worth and no debt you're better off than most and virtually all 30somethings. Keep up the good work. As far as a mortgage stick to a 15 year fixed(~4.75% w/0 pts) with 25% down. So you may need to buy a little less house or just put down more than 25% if you still want a 120K house. In the long run you will be MUCH better off financially with a smaller and shorter term debt load. FWIW, 30 year notes were developed to generate more interest income for lenders and are not in the best interest of the borrower - regardless of the marketing hyperbole.

Should be some good buys in your target market with FinServ downturn.

Good luck,
John

[myette10]

dude- you'll be fine.

that's alot of $$ for food if it is just you.

what is msc? same as misc?

[r_mutt]

lear- 625/month for rent? that is 80's prices here- early 80's.

sigh...

:crap:

[learlove]

Car insurance is only $170 a year? What do you drive, a 1993 Yugo?

no 85ish a month but paid every 6.

[learlove]

dude- you'll be fine.

that's alot of $$ for food if it is just you.

what is msc? same as misc?

if I was at home 30days/month it would be 400 or so but since I'm an airline pilot I spend about half the month on the road so food is more in my budget.

[gemship]

you sound secure if not rich. I didn't see anything in that monthly budget for bikes? Go see a financial advisor. He may give you nothing more than a atta boy then again you may learn something new and have some more confidence in your investing. I'm 34 too and I do believe their are some smart folks on here as far as money goes but I don't think anybody here cares about your money. I would be fearful as well of meeting members here in the future and having them know so much about my personal business. Really you should see someone like a financial advisor because they have incentive to help you.

[1centaur]

Fee-only planner is always a good first piece of advice.

Consider foreign funds to diversify.

There's nothing inherently better about a shorter mortgage, it's just a different choice. Almost nobody stays in a home for the length of the mortgage, and airline pilots even less so. If a 30-year gets you a better house and prices are generally rising you get lower payments, more house, and the effect of leverage all working for you. If your investments return more than your mortgage rate (which is a really low hurdle on a tax-adjusted basis given today's rates), even better. If house prices go down from here, that's another story - the less you have that story levered the better.

[Louis]

The one thing I've found with home ownership is that the "unexpected" expenses can be quite large.

A/C needs to be replaced after the compressor dies? $$$$$
Furnace? $$$$$
Siding? $$$$$
Roof? $$$$$

When I lived in an apartment I had very predictable expenses and didn't have to worry about "infrastructure." Now the fluctuations are huge and I feel like I have to keep much much larger "liquid" reserves.

Louis

[R2D2]

Where in Charlotte?
120K seems low for a house.
Although there are some pockets with high foreclosure rates and short sales.

Depending on where you plan to work Rock Hill, Fort Mill, Lancaster as less expensive.
Plenty of good riding in he are.

[CNY rider]

Agree with centaur, and if you've been around the board long enough you know that's a wise thing to do when it comes to economic issues.

Right now you can borrow for 30 years at around 4.5%; the rates for 15 years are not much cheaper.

Consider what inflation my be 5, 10, or 15 years from now. Those of us disturbed by the Fed's unleashing the money printing presses are already placing bets that inflation is going much much higher in the not so distant future.
By taking the longer mortgage you have the opportunity to pay back your relatively cheap loan with inflated dollars. I think we will easily see rates on a 10 year govt. bond over 5% in the intermediate future. If that's the case then I want to borrow every penny I can, for as long a term as possible at current rates because I'm making "free" money in the future.

Also remember that your mortgage (note this is true in NY; please check for your state) contains a very valuable implied option on interest rates: If you take the longer mortgage, and rates fall you can either refi or pay it back early.

[Pete Serotta]

From the Raleigh Costal CU the rates are 4.5 for a 15 or 30 year with a one % fee. My daughter just got a 30 year from Wells Fargo for 4.75 in RALEIGH. (fees were cheaper)

I would go with the 30 year at this point for it gives you more options on home price. (and odds are you will not be in it more than 3-5 years.) At under 5% rate, put any extra funds you have left over in savings for a rainy day (repairs, layoffs, etx)


AS many have said prior - go to a Certified Financial Planner (fee based only) to let them assist you in the road map going forward.

I do not know the Gastonia area but 120 for Raleigh would be very cheap.

Give a high priority to house location, neighborhood, and school system... This will make it more pleasurable to live there and also aid any appreciation in the future.

Good luck, it is an exciting time for you.....PETE

[markie]

OK, well I am 36 and you are doing much better than me.... I earn more than you and appear to waste it.

So I have a question, would no one use more of the savings and take a loan on the 401Ks to buy a house outright, or so close to outright that the mortgage was tiny?

[Ken Robb]

I agree that a 30 year loan might be better for a young guy who will likely experience higher income over the next 10 years. Moving is expensive so stretching a little may preclude a move up to a better house in the near future.

[CNY rider]

OK, well I am 36 and you are doing much better than me.... I earn more than you and appear to waste it.

So I have a question, would no one use more of the savings and take a loan on the 401Ks to buy a house outright, or so close to outright that the mortgage was tiny?

Not now I wouldn't.
The loans are really cheap, especially after you get a tax deduction for your mortgage interest.
You are also going to have expenses come out of the woodwork when you buy a house. Trust me on this. You're better off with a little bigger mortgage, and some liquidity to deal with the unexpected than vice versa.

[Bud_E]

I re-fi'd 3 weeks ago with Wells Fargo at 5.125 ( 30 year, no points/fee ). If I waited a few weeks I could've got even lower. I asked the broker about getting a 15 year loan and he said the interest rate would be the same. I'll just pay it at a 15 year pace.

[eddief]

So that in some way increases what ya got to spend by $8K.

[93legendti]

Generally, as long as you can make the payments, it is best to take out the longest mortgage, at the lowest rate, with the least amount of points and put the least amount of money down you can.

[MattTuck]

Send me a private message with your email addy, I can share a whole bunch of spreadsheets for budgeting for a house/comparing it to renting.

With regard to investing: Passive investing is the way to go. You want to invest in a "global market portfolio", which basically means a portfolio that reflects the global economy. There are plenty of low cost index funds available to do this (Look at the vanguard ETFs).

There is no reason to pay fees to a mutual fund manager. And there is no reason to think that the information you have about a specific stock is any better than the collective information that the market has.... and if it is, it is likely inside information and thus illegal to use in trading.

Happy to talk more about these ideas if you send me your email.

[ZippRider]

Wonder if I could get some input on these 2 topics.

First the 401K. I rolled a 401K from an old company into my current retirement account as a rollover IRA. There is just over 21K in cash reserves as a result that I need to deistribute. I was thinking of dividing it up into 10 2K blocks to pick funds/stocks/bonds or 8 2.5K blocks or some other. I don't think I want to do more than 4K blocks. I'm 34 and for now plan on working until 60. I have another 50K in a fidelity account (pilot B fund)that gets 10% of my gross/month. This has 7 funds that I do not want to overlap with the 21K to invest.

Second: I have 60K savings and am looking to buy my first house. It looks like I'm going to settle in the Charlotte, NC area (Gastonia). I'd like to have 20K in savings so that leaves 40K for a home. I figure I'd put 10K aside of the 40K for a home for closing and other stuff that pops up with buying a home. This Leaves 30K for a down payment. I'd like to put 25% down so that means I'm looking at a home in the 120K range. This is very possible in this are of the country. So my cash is:

60K total

20K savings
10K - closing/inspection/other
30K - home down payment

Home price 120K max, 25% down so a 90K morg.

My credit is in the 800 range and I have no car, credit card or school payments.

My current monthly budget is listed below:

rent-625
electric-50
cable/internet - 73
cell - 55
washer and dryer rental - 38
gas - 75
car insurance (paid ever 6 months) - 85
food - 600
flying - 150 (rent a cessna once or twice a month)
msc. - 250

total - 2001/month

I bring home after tax and 401K 3K/month.

From what I gather I think this is a safe/responsible plan. My morgage on 90K should be about what I pay in rent now. I'm keeping some cash (20K) incase something happens (job/home or health wise) and I'm not spending everyting I take home.


I figure my budget with a home will be:

morgage- 500 (90K at 30 years and 5%)
taxes (3000/yr) - 250
utilities (electric/trash/h2o/gas) -250
home insurance ???
food- 600
msc-300
flying- 150
cell- 55
cable/net - 73
gas - 75
car ins - 85

total - 2338 (plus home ins)

Any input or advice?

Thanks

Look up the Dave Ramsey web site @ www.daveramsey.com

He is about basics when it comes to money. Debt is dumb, cash is king, where the paid off home mortgage replaces the BMW as the statis symbol of choice.

15 year fixed is the way to go. If you can't afford a 15 year mortgage then you may be trying to buy too much house.

I think someone mentioned borrowing against their 401k. That would be one big mistake.

Just my .02 cents....

ZippRider

[saab2000]

Where do you fly again? I forget.

I'll have to refinance if rates are really that low.

Fwiw, I got a 30 year fixed but pay $100/month extra towards principle to effectively reduce it about 5-6 years. Greater equity equals more options. I got a late start in the home ownership game, starting at 40.

[Ken Robb]

as was posted above: there is little difference now in interest rates on 15 vs. 30 year loans so you can get a 30 year loan and make extra principal payments if and when it suits you. If you have a good year and you think you can't get a safe investment return equal to your mortgage rate maybe you want to pay down the mortgage. If the situation is like we had in 1981 and you could get 15% on CDs you may be delighted to keep that 5% mortgage money and loan it back to the bank for a 10% profit. That's an extreme example but you get the idea.

[93legendti]

Where do you fly again? I forget.

I'll have to refinance if rates are really that low.

Fwiw, I got a 30 year fixed but pay $100/month extra towards principle to effectively reduce it about 5-6 years. Greater equity equals more options. I got a late start in the home ownership game, starting at 40.
Money has never been cheaper. With the tax deduction for interest, I think overpaying your mortgage is only worthwhile if your goal is paying off your mortgage sooner. (I question why that is a worthwhile goal.)

I'd rather have $1,200 extra per year in the bank. Equity in your home does give you options, but how do you tap it?
1. Sell. That takes time and involves a 5-6% broker fee. In an emergency, you have to hope home values have not gone down since you took out the loan.
2. Refi/Home Equity Loan. Same as above. It costs money to refi/take out a HELOC. It also takes time. Finally, your ability to refi/HELOC and amount thereof are dependent upon your home value not going down since you took out the loan.

On the other hand, cash in the bank, in a semi-liquid, principal preserving vehicle, can be obtained quickly and cheaply.

[Ken Robb]

Money has never been cheaper. With the tax deduction for interest, I think overpaying your mortgage is only worthwhile if your goal is paying off your mortgage sooner. (I question why that is a worthwhile goal.)

I'd rather have $1,200 extra per year in the bank. Equity in your home does give you options, but how do you tap it?
1. Sell. That takes time and involves a 5-6% broker fee. In an emergency, you have to hope home values have not gone down since you took out the loan.
2. Refi/Home Equity Loan. Same as above. It costs money to refi/take out a HELOC. It also takes time. Finally, your ability to refi/HELOC and amount thereof are dependent upon your home value not going down since you took out the loan.

On the other hand, cash in the bank, in a semi-liquid, principal preserving vehicle, can be obtained quickly and cheaply.

AMEN :beer:

[cmg]

With a positive net worth and no debt you're better off than most and virtually all 30somethings. Keep up the good work. As far as a mortgage stick to a 15 year fixed(~4.75% w/0 pts) with 25% down. So you may need to buy a little less house or just put down more than 25% if you still want a 120K house. In the long run you will be MUCH better off financially with a smaller and shorter term debt load. FWIW, 30 year notes were developed to generate more interest income for lenders and are not in the best interest of the borrower - regardless of the marketing hyperbole.

Should be some good buys in your target market with FinServ downturn.

Good luck,
John


would'nt he get a lower monthly payment with a 30yr note? the difference could be applied to the principle. as long as loan was paid off before the 15th yr the total interst paid out would be the same or lower.

[nm87710]

Generally, it is best to take out the longest mortgage, at the lowest rate, with the least amount of points and put the least amount of money down you can.

That's how we got into The Housing Crisis.

People are brainwasher when it comes to debt. It's sickening. In a former life I was a Chief Consumer Brainwasher at one of the largest mortgage/consumer lenders. It was like shooting fish in a barrel. We marketed debt as "good" and people wanted immediate gratification from things they could not currently afford. Bingo!

IMO, the only debt to consider is a 15year 25% down fixed mortgage (and or course any medical debt). Period. Anything other debt and one is just playing house in a make believe fantasy world. As I tell my kids, "Just because everyone else is doing it doesn't make it right."

No idea who the OP is but he already seems pretty savy and smart financially. Most could prolly learn a thing or two from him...

[saab2000]

The reason I am paying extra is that I have a hard time saving unless it's forced, 'invisible' saving. That's why I put a lot into my 401(k) and pay the $100 month towards the principle on my mortgage.

Nothing more complex than that. Just want to pay it down because otherwise it'll go to support the local brewery! :beer: And bike shop.

[93legendti]

[QUOTE=nm87710]That's how we got into The Housing Crisis...QUOTE]
No, it isn't. The people who make their mortgage payments did not cause the crisis.

[MattTuck]

IMO, the only debt to consider is a 15year 25% down fixed mortgage (and or course any medical debt). Period. Anything other debt and one is just playing house in a make believe fantasy world."


Is there any rationale (even philosophical rationale) for this statement aside from your opinion?

[GuyGadois]

Is there any rationale (even philosophical rationale) for this statement aside from your opinion?

I consider it a wrong statement (the mortgage length). Get the longest mortgage you can and pay it off sooner if you REALLY have the desire to pay off a low interest/tax deductible loan.

Get a 30 year and pay it as a 15 year when times are good. When time stink go back to paying it as a 30 year loan.

Getting a 15 year doesn't give you that option.

-GG-

[bigdeal]

Look up the Dave Ramsey web site @ www.daveramsey.com

He is about basics when it comes to money. Debt is dumb, cash is king, where the paid off home mortgage replaces the BMW as the statis symbol of choice.

15 year fixed is the way to go. If you can't afford a 15 year mortgage then you may be trying to buy too much house.

I think someone mentioned borrowing against their 401k. That would be one big mistake.

Just my .02 cents....

ZippRider

Saying that "if you can't afford it on a 15 year you can't afford it" may be an over-simplification that doesn't apply to all markets. Aside from that the other comment are spot on (IMO). Don't forget there are other loans out there, not just 15 or 30. I bet if you ask you'll find 20 year loans as well. I don't think anyone has mentioned this, but instead of going with one of the few remaining big banks try a Credit Union. In general Credit Unions look out for their members, not the shareholders, so there are fewer stipulations that only favor the bank (which you'll never know about until it's too late).

The only time you should borrow against a 401k is if you NEED the money to put food on the table (literally).

In addition to Dave Ramsey check out Clark Howard (clarkhoward.com), he and Dave should partner up and become the Financial Dynamic Duo.

[wc1934]

I too would suggest securing a 30 year fixed (usually somewhat lower interest rates) - you should then pick up an amortization chart which will outline the breakdown of each monthly payment - principle/interest (first half of the loan you pay mostly interest and little towards the principle - i.e. after years of payments your principle - what you owe is still high as the bank collects their interest first ). With each monthly morage payment you should then pay the PRINCIPLE on what is due the following month. You can cut a 30 year loan in half.

[saab2000]

[QUOTE=nm87710]That's how we got into The Housing Crisis...QUOTE]
No, it isn't. The people who make their mortgage payments did not cause the crisis.

Holy cow! We agree on something not cycling related! :banana: :beer:

Seriously, I bought what I bought where I bought it because I could afford it. I like making my payments in full each month and not sweating it. I am not up to my eyeballs in debt and love it.

[93legendti]

[QUOTE=93legendti]

Holy cow! We agree on something not cycling related! :banana: :beer:
Don't be shocked... :)

[GuyGadois]

[QUOTE=wc1934]I too would suggest securing a 30 year fixed (usually somewhat lower interest rates)[QUOTE]

Lower? Lower than a 15 year? Actually, the shorter the term the lower the rate. So, a 30 year should have a high interest than a 15 year mortgage. That being said, I agree with you. Get a 30 year and pay it at any speed you want.

Anyone riding today?

-GG-

[saab2000]

Anyone riding today?

-GG-

Yes. Just got home to Michigan after having gotten stranded in Philly last night. I'll be out on the Colorado III later this afternoon.

[sloji]

"Do not charge or pay interest."

"Ownership is a nice idea but i'm not sure it means what it says."

"If you want wealth then forget marriage and mortgages but if you long for a challenge then by all means march on."

[93legendti]

Yes. Just got home to Michigan after having gotten stranded in Philly last night. I'll be out on the Colorado III later this afternoon.

Me too. I'm riding Red (Csi with steel fork). It's a gorgeous day.

[JeffS]

All the arguing over the mortgage...

From a financial standpoint, a house is a bad idea - especially for someone whose traveling all the time. Yes, interest rates are low, and house prices are low, but prices are going to continue to drop.

If you have a particular reason you want to own something, fine. Want a yard, really like mowing grass, whatever. Don't do it because it's what you're supposed to do though.

[Ken Robb]

All the arguing over the mortgage...

From a financial standpoint, a house is a bad idea - especially for someone whose traveling all the time. Yes, interest rates are low, and house prices are low, but prices are going to continue to drop.

If you have a particular reason you want to own something, fine. Want a yard, really like mowing grass, whatever. Don't do it because it's what you're supposed to do though.

All this wisdom from a 16 year-old. Of course I had all the answers when I was 16 too. :)

[Pete Serotta]

:beer: Time for some red BUT not for those less than 21. They will need to get out on the bike while we :beer:

[nm87710]

Is there any rationale (even philosophical rationale) for this statement aside from your opinion?

Common sense.

Nobody wants "debt" and everyone agrees less(or no) is better than more debt. People, however, want "things" that they have not saved to pay for. IMO, exercising purchase self control, saving and operating on a cash-only basis(excluding 15yr< mortgage & necessary medical debt) is accepting the reality of one's real financial situation.

Or to put it more simply as most parents tell their children "If you want something work hard, save and then buy it".