Best option for paying for my home
Hi WSO, this one is a little off tangent. Basically, me and my wife disagree on how I should work towards home ownership. Given the finance masters here, I wish to ask which route should I take. I'll disclose the information needed for you to make an answer. All in US$.
Home cost: $900k.
Downpayment: $180k.
ALL my savings: $175k.
I'm thinking of having a $20k buffer so really I'm short $25k. Also, I'm 31 and earn about $100k a year. (Yeah, take your time to say how little I earn. No worries.)
Now suppose I do not wish to touch my future income streams - I wish to use them for holiday, financing the mortgage, saving for retirement, etc. From the following, which do you think is the best way to get this $25k?
1. Art Gallery curator during the weekends earning $2k / month, $24k a year
2. Freelance coding jobs though unstable and at client's mercy
3. Learning how to invest
I choose 1 my wife choose 3. If I dump ALL my $175k on S&P and get a highly optimistic 10% return, that's $17.5k. But she's not accouting a risk. What you think?
Also, feel free to input on what YOU will do at 31. I'm the type to hussle but I'm also receptive on other, presumably smarter, ideas to achieve the $25k.
Cheers,
Nijikon
Guess it depends on your time horizon. Lets assume you need the 25K within 12 months: - The chance of returning 25K (riskless) in the market over 12 months is slim (non-existent). - The chance of you getting 25K if you earn ~2K / month is pretty damn good.
Personally I would invest the savings in something with a lower risk profile, and work in the weekends until i reach the 25K.
Finding a similar house about $100k cheaper would do a lot for you. At $100k/yr you wont be able to afford anything in life other than the payments. On a 30 year, you're looking at $42k a year just in payments, and that's before any insurance, utilities, maintenance expenses, etc...
Additionally, a year from now your $900k house will likely not be on the market - so better to find a house that you actually like AND can afford instead of looking for a price as your qualification. Quite frankly, find a house about half that price.
Take your wife's advice - in this case your first lesson is don't buy something you cannot afford.
From the options you list #s 1 and 2 are a plan.....# 3 is just hope.
If you need cash over a short time period, being better at investing doesn't just make the cash appear. Being better at investing would be great for retirement, but not for your purposes. If you NEED money in the short-term, you need to find a job to earn it.
You also need to take a hard look at how much you want to spend on a house. Given your salary that is WAYYY more than I'd be comfortable spending. You may want to talk to a mortgage guy, because I'd question if you even qualify for that loan. I don't remember the metrics off the top of my head, but they usually have some debt/income ratios that they like to stay under (and I highly doubt you're under them).
Agree, with all that you just said. I would also add that when it comes to investing, there are definitely ups and downs and that is especially true over very long time horizon like home ownership.
It is almost unforeseeable that there would not be at least one month with a loss in it, and since you would be always taking away the profits from it it would be a slowly decreasing pile of assets. Basically option three is simply not a viable long term plan
This question assumes all options are mutually exclusive. That is the failing, do all three. If you aren't hungry enough to do all three you aren't ready to buy a house. Also, a buffer of 20k is far too little, you need closer to 50k at the absolute least if you want to buy a house that costs that much.
Have you even tried to get a mortgage? Nobody is looking at the big picture regarding finance. You will be denied financing based on your level of savings, banks like for you to be able to cover some P&I payments in the event your income disappears for a while. Talk to a reputable mortgage banker, or chase or wells.
As a life rule, you need minimum 6 months to 1 year of your salary in savings, especially if you have a family.
Also speaking of the risk in the S&P you quote, what about the concentration risk of having all your savings tied up in one "investment", your house.
He won't be denied for lack of savings (pretty liberal rules in the U.S. for home lending); he'll be denied for his debt-to-income ratio. A $720,000 loan requires somewhere around $41,000 per year in debt service, + ~$9,000 in taxes, + ~$1,800 in hazard insurance = ~$52-53,000 in annual home debt service / $100,000 = 52 or 53% DTI, before any other debt load is considered (and yes, even revolving debt minimum payment is a hit against the DTI). Conventional mortgages are cut off around 45% (FHA/VA around 50%--I say "around" because this has floated to different levels throughout the years and I've lost track at this point).
dude, you want to buy a property 9x your annual income just as real estate prices are breaking 2007 levels?
I am not against buying at all (I bought last year), but I bought at ~2.1x my annual income (and still hate my mortgage payment).
Do you understand your monthly payment, assuming 20% down, a 3.5% rate and before homeowners insurance and property taxes would be $3,233... That's over half your after tax income.
What are you currently renting for? What is your profession? What market are you in?
edit: regarding quicker ways to make $25k, SWIM has a plug in NYC who is always looking for bodies with a new network, just one question: how does your wife feel about you slanging opiods?
Does SWIY need people in Chicago?
jesus christ don't buy a house that expensive. just because you get approved for it doesn't mean you can afford it.
your aggregate mortgage should be 2-2.5x your annual pretax income (for you, 200-250k) in order for it to be affordable. if that's not possible in the city you live, move to the suburbs. if you don't want to move to the suburbs, get a fixer apartment or condo.
if you buy a home for 900k and have a 720k mortgage, you will be setting yourself up for financial ruin.
unless you're willing to compromise on that point, you're beyond help.
Wait what?
I was hoping to get a huge 20 bedroom mansion and rent out all of the rooms to pay the mortgage.
It will just be like college. Frat life. FaF
Airbnb hotel
Straight Cash Hommie
I think don't buy a house that expensive until you reach enough cash . I paid my home with nearly %60 cash so ı didnT have big trouble .
It's been said before, but wtf? 9x annual income are you smoking the good stuff? If you are able to borrow that much let me know! I definitely need to start shorting some housing REITs in whatever market you are in...
what's scary is that this kinda stuff goes on if they have verifiable income, only it's not the banks doing the lending, mortgage brokers are doing all of it and selling to private investors. the level of risk will depend upon the appetite of the investor. would not shock me at all if this guy got approved for a 5/1 ARM
What is a 5/1 ARM?
I'm going to ignore the cost of the home.
In no way shape or form should you be dumping your life's savings in the S&P and hoping for a 10%+ return in one year in order to be able to buy a house a year from now. That is unbelievably risky.
He is 31, still got plenty to live. Why not? Personally I'd dump everything on red and hope to double my money
As long as he knows he's betting it all on red.
Fair point, if OP wants to explicitly tell his wife they won't own a home like the one they want for another 5+ years if the market goes in the tubes, and she agrees, then go ahead.
He'll be the one living with a pissed off wife because OP lost their down payment in the market.
Why red? Why not black?
guarantee the first 10%+ correction of 2017, they bail outta the market
quoted. I also feel it might be in order once people realise that trump is talking crap out of his ass. how much more PE points is a 10% tax cut gonna give anyway* ? probs less than the post election hike has accumulated at this point.
(and it varies from comp to comp for a lot of variables)
If you make $100,000 a year, you have no business in a $900,000 house. Please, for your sake and that of your wife, do not do this.
If you and you're wife are differing on options- best to do as she suggests hahah
Couldn't have said it better myself. Gotta run though, we have a nice little day planned. We're going to go to Home Depot. Buy some wallpaper, maybe get some flooring, stuff like that. Maybe Bed, Bath, & Beyond, I don't know, I don't know if we'll have enough time.
good god
A missing piece of information is how much does your wife make? Unless, it is $200k/yr then this house is way too expensive for you. 3-4x annual income if you have no other major debt is a good rule of thumb for what you can afford.
think bigger picture though. if it's 3-4x and they clear out their savings that will likely leave them with no discretionary income to put towards savings.
therefore...financial ruin
I was suggesting they spend $300k - $400k on their house, which would only require a $60k- $80k down payment, which would leave them with ~$100k of savings. A $300k mortgage would be about $1,400/mo, which should be affordable at his salary.
This post is feeling 2007 AF. Make sure you get approved for a variable rate mortgage too while you're at it.
I'm not buying puts on the SPY yet, but let's just say I'm moving my fixed income money from HY to HG.
I haven't seen the OP respond to any of the comments on here so he could just be a troll, but if this is real, good god man are you fucking insane? I echo the other comments: with $100K income you should be going after $350-400K houses at most with 20% down. The $25K buffer is no good either. You need at least $50-100K. Some of it is because the banks (the reputable ones) like to see a few months worth of payments in the bank just in case shit hits the fan. But mostly because no matter how many times you have it inspected things will go wrong and you will need to spend cash to fix them. the furnace may go. the insulation might not be sufficient. the roof might be old as fuck and about to go. as a rule of thumb I would say you need to re-do the kitchen and all the floors when you move in plus a fresh coat of paint - this is to make sure you scrub out the previous owners and make the house yours. that shit aint cheap. the suburbs of most places will allow you to buy a very nice house for $300-400K and if you live in an area which doesn't have that then you need to either move or keep your hands out of your wallet until your earnings make it possible to afford the house you want. good luck.
I'm not in any position to buy a house, but jesus that plan sounds stupid. Also you've worked at a HF for over 5 years and only make 100k / yr?
Never invest to meet a cash flow need over a 12 month horizon
Unless you're investing in something that has a healthy covariance with that cashflow need.
Mostly cash with a modest residential REIT investment may be appropriate if the REIT is a good proxy for what you're looking to buy.
No offense but it makes me think of that stripper in the Big Short who had 5 condos ..lol..it's 2007 again...short the mortgage market Mike! hehe
We all joke about it, but we kind of know its coming and still not doing anything about it. It's crazy.
Brothers,... It is time for the mortals to pay...... Release the Kraken!
After reading some of your other posts, I am assuming that your wife brings in the majority of the household income (not a bad thing), but you two should really re-evaluate what you are looking at buying. Unless she is clearing $300k (she has ~7 yrs of banking experience?) , the backstory here does not check out.
Most kids my age (30) are buying properties roughly around 4x their income...
But 9X is insane.
FTFY
Most folks my age (33) that I know still aren't buying homes yet. BUT when they do, they are looking around 4x or so (based on my best educated guesses)
Bwuhahahaha.
I had to google FTFY, I am so lost in translation on this, haha.
I know some OTHER kids buying at 6x (I know because I know how much these two make combined), but it's their money, right?
Wouldn't it be better to buy a company out with that cash first?
Just have to ask-- why are you buying a home that is 10x your income?
I think the best way to come up with $25K-- ideally I'd like to see a $40K buffer, so more like $45K, is to reduce your down-payment by $45K. So now we're looking at a $600-700K home.
Actually, scratch that. Your home should really be no more than 2-3x your gross income.
Why is that?
Ok, so the current mortgage market is about 4.5%. The payment on a 30 year mortgage financed at 4.5% is $5 per month per $1,000 borrowed, or 6% of the the principal each year. So for a property that's 2.5x your income with 80% LTV, that payment is 12% of your annual gross income.
Now let's tack on maintenance, which should be about 2% of your home's value. I'm being conservative here in just calling a home roughly a 50 year asset. I'm not counting mowing the lawn for a house or paying for elevators and doormen, or a fitness center. Just upkeep. And I'm assuming the kitchen only gets replaced every 50 years. That's another 5% of your annual gross income for a home worth 2.5x your take-home.
Finally, there's real estate taxes. I'm going to be a bit conservative and call them 1.2% so we get a nice round number of 3% of your annual gross income for a home worth 2.5x your take-home. So that adds up to 3%.
So in total we've got 20% of your gross income going to your home, or $20K, or $1600/month. But after income tax, that's something more like 25-30% of your take-home pay.
So to answer what I would do at 31-- I would buy a smaller house. If it helps, the required down-payment for that saves you about $100K. You can almost even pay cash.
IP back at it again
+1 SB
Troll thread. Think about it.
Hell yes buy a house 9x your income. Also, who the hell has a 900k house without a new Bentley to park in that phat garage? Upgrade that car too, bruh.
most people in los angeles
Gosh! Now, that's a lot of responses! I appreciate each one of them. Now since you've shared much, I'll share more.
Now, first the elephant in the room - Why am I buying a house 9x my income? For me to explain, I'll make a brief trip to city-state Singapore. (all $ are now in SG$, which doesn't affect the analysis proportion wise)
New government house starts at $300k. But you can't get it if household annual above $168k. Which is me and my wife.
Now there are tons of stupid criteria1 to get resale government but basically either 1) you have children or 2) you are engaged but not married. I fit neither. (Yeah I know, stupid. Just see it as Singapore's way of beefing up their birth rates)
Obviously, I work in the city and wish to stay there. So a 600sqft private condo looks something like this: City: $1.2m. Walk to office. City fringe (my proposition): $900k. 2 subway stops. Neighbourhood area: $600k. 8 stops, 50 mins commute
Best value? To me, city fringe. Now we could go further and develop a utility / investment / affordability matrix but my decision is based on these key points. Investment: Singapore's private housing has been down. I think something like 8% last two years. Buy the dip. $900k is a bite size unit for resale, easier to off load compared to City. Lifestyle: Me and my wife talked about it and the time seems right that we 'live it up' now. We always wanted to be nearer the city, think Long Island vs Manhattan, and taking a bit of risk to do that is okay. Affordability: Oh yes, buying a house that is 9x annual income. First, $100k annual is pre-bonus. Second, I currently have no debt, no car. Third, it's agreed that this condo is all on me. My wife has her cash in other things. Fourth and most importantly, the consensus in Singapore is that for this group of people in this segment, not eligible for government, not rich enough to safely get a $1m+ house, a high debt to servicing ratio is the cost of owning a place that is nice enough. I know some of my more risk adverse friends, getting a place that is 7x their annual.
If we're going with the recommended 5x annual, then the question ultimately becomes: $600k in the neighbourhood vs $900k at the city fringe
Now on to some of you:
Yes and yes! She thinks the investment idea is a mechanism to solve this short term problem. I argue to her it is not. I'm a hussler and I was trying to explain her to concept of 1) converting time to cash and 2) short term pain in the form of additional 20 hours of additional work per week for long term gain in the form of a house.
I did speak with the bankers and while not financially sound, I'm good to go with the loan. The main criteria 2 to get a loan is Singapore is the Total Debt Servicing Ratio which is liabilities needs to be capped at 60% of your monthly income. On a 30 year loan, I'm looking at something like paying out $3.2k on a $8k a month salary.
You won't believe the number of mortgage specialists lined up during every condo visit. I'm not sure in New York, but I sense that the onus is on the buyer to be fully aware of the financial risk.
I suggested another option to my wife and it back fired. Maybe you mentioning 'red' suggest that it'll resonate with you. I suggested sitting 5 hours a day at the casinos in Macau and just play 10-10 and above in Hold 'em, getting the cash from the tourists. She thinks it's gambling, I tried to explain to her it's trading time, waiting for Kings, for high Sharpe, a double up at ~70% chance. She doesn't get it.
I take heed of your advice. I can at least see your minimum of saving $50k. Also, the $900k is a new place. So that may mitigate some of the renovation problems mentioned.
Again, thank you. I'm trying to convince her that trading time for money is the way to go here!
And the place looks like this:![Sennett Residences](a href="http://sennett-residences.officialnewlaunch.com/wp-content/uploads/2001/11/Sennett-Residence-Night.jpg">http://sennett-residences.officialnewlaunch.com/wp-content/uploads/2001…</a)
Cheers, Nijikon
1http://www.hdb.gov.sg/cs/infoweb/residential/buying-a-flat/resale/eligi… 2http://findahomeloan.co/Total-Debt-Servicing-Ratio-TDSR-Calculator
What are the carrying costs? Property taxes?
In the US, a 600 square foot condo with a pool, fitness center, and elevator would cost appx. $400/month in HOA fees, plus probably another $100-200/mo in internal upkeep (fixing dishwashers, painting walls, and other things the HOA isn't responsible for). I have to do some more research on Singapore.
It looks like Singapore property taxes are based on rents and are roughly 10-20% of the assessed rent (it's progressive with brackets starting at $2500/mo and going to $7500/mo). If your property would rent for $4000/month, you pay roughly $435 per month.
But here's the point-- property upkeep is probably going to take up something on the order of 10% of your budget. That's before we cover the cost of financing.
Ok so Singapore is fucking expensive so this now sort of makes a bit more sense. I still think you are better off with the 50 minute commute though. A friend of mine lived there for a year (he worked at Scotts & Orchard Rd's) and his commute was about 45-50 minutes and he said it wasn't so bad (he lived somewhere near St. Gabriels school). Good luck man.
I still think it's an insane amount of leverage, although a 30-year mortgage in Singapore carries 1.5% interest.
$64K (actually $640K question): In Singapore, do mortgages carry full recourse to the borrower? If you default on your mortgage can they come after your other assets?
For interest, the main two things that are expensive in Singapore are property and cars. (Let's not get started with cars). Having studied and worked in US, Singapore and Hong Kong, I can safely say that food is cheapest in Singapore. S$6 (US$4) gets you a decent meal at a pleasant eatery. And Singapore's taxes are lower than US's. I think it's something like 18% vs 45%.
Yup, your friend probably stayed in Serangoon, where St. Gabriel's is, and worked in Orchard. My $600k example is slightly further away from the city.
I think others have said it but that is way too expensive of a house for someone at your income level.
Edit: You don't live in America ignore everything I said above.
You say you make $100K before bonus. What is it after bonus? Plus, your wife has income too?
Seems like this is easy for you to make these payments on a new condo.
In the past three years, my bonus was 20% to 50% of my annual. I'm not at liberty to disclose my wife's income. We did agree that this condo is all on me and I'm fine with that.
At a bare minimum, she should allow you to bang other women. Or pay her fair share. It's only fair.
Please check out the mortgage calculators online. 4.5 is realistic after considering origination fees, title insurance etc. In essence, if you are borrowing 775k you will pay a lot of money of ur income into that house. I am guessing approximately 4.2k a month but please check calculator. Depends on what rate you get, discount points you get and market conditions. 100k after tax is quite little compared to this. Not trying to belittle you at all, FYI i know a lot of idiots. So the question here is how much ur wife makes. Can she help out? Realize you go missing payments 2 to 3 months you will get a letter from the bank telling u to lube up ur ass hole cause you about to be fucked. How stable is ur job? Can you pay for a kid on top of this? Lots of variables involved. If I were you, at your age, go live in a rat shit hole of an apartment till you are stable. I mean stable as in I make a lot of money or have a thriving business. This is much more worth it. Fyi, I am a realtor and developer and also recently bought a 900k house with 360k down.
Didn't realize it is sg. Anyway please calculate generously :)
Hi all,
I wish to inform everyone that after bonus and annual revision, I'll a month's savings from my base away to reach my target of SG$25,000 to get my house. Yeah!
Anyway, management has convinced me that henceforth my compensation will be performance linked. So I'm excited as it'll be my first year where it'll be live and die by the strat.
Cheers, Nijikon
You're putting yourself into a position of weakness with no room for error.
Me personally I'd buy smaller or wait. This market needs cheap interest rates for prices to be sustainable, and if rates go up on you like they have in the US and the loan isn't transferable (it's not in the US), it's going to be hard to sell it for what you paid for it.
personally i prefer squatting to own
http://lifeedited.com/squat-to-own/
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