A coworker explained to me that his income tax rate is about halved because of his tax-deductible mortgage interest. Halved? That’s insane.
I countered with “Well, I don’t quite have the cash to buy a place yet.”
He explained that you don’t really need that much and explained that you can put down 5% and get an 80/15 mortgage, which allows you to avoid the penalty for putting down less than 20% as a down payment.
I countered that I’m not quite ready psychologically to buy a place and explained that it took me almost two years before I even signed a cell phone contract. (I had been using prepaid cell phones for a number of years.)
My dad keeps telling me I should buy a condo. My accountant told me I should for the tax-deductible mortgage interest. And now my coworker is telling me that I don’t really need to put as much down as I am planning on.
I set $100,000 as a financial goal for a down payment partially because I figure that by the time I’ve saved that much up (in 2-3 more years), then I will be psychologically ready to buy a place. I don’t want to buy a place until my credit score is over 740, to get the best interest rates (that will be another year or two, probably). Also, condos and houses are both incredibly expensive where I live.
The ideas I’ve thrown around for the type of place are:
- Two-bedroom, two bath condo (apartment style) – use one as a den, one as a bedroom
- Three bedroom, two bath townhouse – use one as a den, one as a bedroom, one as a spare bedroom for guests (I have furniture from my parents that I would take to fill the guest bedroom)
I’m against living in a house all by myself as a single woman. I would feel safer in a condo or a townhouse complex. I also don’t really want more than three bedrooms for just me. Right now, I have one bedroom and a den in an apartment and I definitely don’t want anything smaller than that, but I don’t really need anything bigger than that either.
Realistically, I should expect to find a condo or townhouse in the price range $250,000 to $400,000. So to put down 20%, I would need between $50,000 and $80,000 saved in cash and to put down 25%, I would need between $62,500 and $100,000 saved in cash.
I am close to my $27,000 goal this year and it’s quite possible that I could save the same amount next year, resulting in $54,000 saved towards a down payment at the end of next year, which would allow me to afford a condo at around $216,000 to $270,000.
I could find more cash by reducing my investments next year. I could stop maxing out my 401(k), but I think that’s a bad idea since I can’t get that room back, as with my Roth IRA. I could stop contributing to taxable investments until I’ve purchased a place or sell existing taxable investments to raise more of a down payment. I think I would prefer to stop contributing to taxable over selling existing taxable investments.
I guess the answer here boils down to how much I want to buy a place and that’s where my confusion on life goals makes setting financial goals difficult.