Is it dumb to put most of our savings into a house?

[Anonymous]

11:43 here. I would also trim down your expectations with a house.

In the DC metro region, you're delusional if you think you're going to find the perfect house.

Perhaps you can look in one of the suburbs and find something closer to $500k.

[Anonymous]

Anonymous wrote:It makes sense if you are in an field that is not stable or you fear you can't find a job if you lose your current one.

If you are in highly employable fields not so much.

Good point. The OP also doesn't say much about HHI. That makes a difference.

[Anonymous]

Anonymous wrote:Thanks for all the advice. I am a total idiot with financial planning, though not a big spender and never carry CC debt. Part of the issue is that we were living in a country with better retirement, cheap college, and free medical, so the needs to save were different and the people we know also do not have big savings and put a lot into their homes. I'm confused because we've talked to people who think it's crazy not to borrow as much as you can for a home because of the low rates. With the real estate market being weird we are having trouble finding something in the 600 range that meets our needs and likes. I guess the likes part we may need to adjust. Just seems a shame to have made this chunk of money on real estate and still end up living in a house/area we don't very much like. But maybe we just need to suck it up.

Why'd you move? Can you move back?

I echo the PPs -- don't sink your money into a house, particularly one you don't plan to stay in for long. Max out retirement and put the rest into a target date fund. Buy a house when you have more money saved, when you love the place, and when you know you want to stay put for a long time.

[Anonymous]

I appreciate all the advice! It never occured to me that 500K (or 600 with the 401K) is not enough saved to think about buying a house. HHI is 120K. We had been aiming for a house in the 500-600 range but with low inventory and some pressure to move, we began considering some more expensive homes that came on the market. Another option is to keep renting...but that's 40K a year that's not going into home ownership. And everyone is saying interest rates and home prices are expected to rise. I appreciate the ideas I'm getting here!

[Anonymous]

Maybe you don't want to hear it - but how about a townhouse? You could get a really nice one with your budget.

[Anonymous]

Anonymous wrote:I appreciate all the advice! It never occured to me that 500K (or 600 with the 401K) is not enough saved to think about buying a house. HHI is 120K. We had been aiming for a house in the 500-600 range but with low inventory and some pressure to move, we began considering some more expensive homes that came on the market. Another option is to keep renting...but that's 40K a year that's not going into home ownership. And everyone is saying interest rates and home prices are expected to rise. I appreciate the ideas I'm getting here!

Well, yes, interest rates will rise eventually, but every economist I've read says that it will happen slowly (i.e. no one will *let* interest rates go up too much too fast b/c everyone sees the housing market as integral to the economy and interest rates as integral to the housing market).

Last year, they were saying rates bottomed out. But guess what, they went down even more.

So waiting a year or two probably won't be too big of a deal. Beyond that, I don't know.

I don't know what to think about house prices. It's possible we're in another bubble, to be honest. Some say that all of the foreclosures from the last bubble still haven't hit the market. And frankly, there are STILL people underwater. It's possible the prices now are a reflection of inventory and won't steadily increase at the rate we've seen in the last year, because as the prices go up, more people who were underwater but have wanted to sell will be in a position to sell, so inventory may actually increase, which will slow down the upward rise of prices.

It's all very hard to tell. I think that's the thing about the current market -- it's strange and no one really can say with any certainty where it is going to go.

So the thing is, don't make big decisions based on what people are saying. Make them based on your individual needs and abilities. If you feel like your jobs are stable and you can afford a house payment and still have money to save, then that's one thing. But if you feel like you're dumping your savings into a house you don't even like, then that just doesn't seem wise.

Whatever the case may be, given transaction costs alone, it's NOT a good idea to buy a house if you plan on moving in the next 5 years.

[Anonymous]

Spend some quality time on Redfin. I think the person who advised putting down enough so you can have a 15-year mortgage instead of a 30 had a good idea there.

To help think of neighborhoods, put your basics into Redfin without any geographic restrictions other than the DC metro area and zoom into where clusters of houses come up. Then compare those to your commute and where there are good schools. $500 to $600 won't get you a decent house everywhere, but you could try Silver Spring and Takoma Park or, if you work in Nova, Vienna or Springfield.

[Anonymous]

I'm 41 and single and have a net worth of a little over $500K ;about half tied up in my home and half in my 401K, Roth and other assets. I would prefer to have more in the bank and less in my house, but let's face it, real estate has worked out a lot better for me than my investments have in the last 15 years. And I bought the cheapest house I could find in the area (Arlington 22207) where I wanted to live, but it was still pricey.

To elaborate: I bought a $145K townhouse in 1999 with $38K for a down payment. Paid about the same per month for my mortgage as I would have in rent. ($1,075/month.) Sold it 12 years later and cleared $160K. Put that into my current place, which is now worth $100K-$200K more than I paid, though I'm definitely paying a bit more than I would for a smaller rental, maybe $500/month more. In that same time frame, my accounts lost a ton of value and then finally gained it back, so the only real plus has been the free money from employer matching. My plan is to have the house paid off when I retire, so I can sell it and buy a smaller/cheaper place, or live in it mostly expense-free. The other investments will pay for taxes, utilities, food, etc.

I think you want to have some of your money in real estate and some in the markets, but how much of each depends on how confident you are in the housing in your area. Housing in this area has performed so much better than in some other areas, though the initial buy-in is a lot higher. I would not throw all your money into a house, but would meet with an advisor to see how to put some money away for retirement.

[Anonymous]

OP here. Thanks. That's interesting. I guess if we hadn't put all our money into our previous home we wouldn't have profited like we did. Alas, that was a different time and place and won't repeat.

[Anonymous]

I think it's fine to look in the 500-600 range. Put down 30% or a little more if you like. That gives you an affordable mortgage and you also keep the bulk of proceeds from previous home sale as savings.

[Anonymous]

Anonymous wrote:I appreciate all the advice! It never occured to me that 500K (or 600 with the 401K) is not enough saved to think about buying a house. HHI is 120K. We had been aiming for a house in the 500-600 range but with low inventory and some pressure to move, we began considering some more expensive homes that came on the market. Another option is to keep renting...but that's 40K a year that's not going into home ownership. And everyone is saying interest rates and home prices are expected to rise. I appreciate the ideas I'm getting here!

I think you're doing fine. There is a fidelity nyt article that states a goal should be 2x your income by 40 and 4x by 50. The only issue is that if you wanted to stay in a high cost of living area like Dc you'd need to ramp it up for housing costs. We earn more and are on track to only hit the 2x by 40.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I appreciate all the advice! It never occured to me that 500K (or 600 with the 401K) is not enough saved to think about buying a house. HHI is 120K. We had been aiming for a house in the 500-600 range but with low inventory and some pressure to move, we began considering some more expensive homes that came on the market. Another option is to keep renting...but that's 40K a year that's not going into home ownership. And everyone is saying interest rates and home prices are expected to rise. I appreciate the ideas I'm getting here!

I think you're doing fine. There is a fidelity nyt article that states a goal should be 2x your income by 40 and 4x by 50. The only issue is that if you wanted to stay in a high cost of living area like Dc you'd need to ramp it up for housing costs. We earn more and are on track to only hit the 2x by 40.

But clearly they are not saving. The only reason they have $600K is that they got lucky on some real estate. Their 401K, which would be the primary avenue for funding retirement, is only at $100K (she "thinks") - that means that they are not materially contributing to that at all. Simply riding the real estate wave and hoping it works out is going to be a bad strategy. They should be maximizing their 401K contributions.

[Anonymous]

If you're mid-forties and only have $100K in retirement with $120K HHI, you need to max out retirement contributions now. Do that first, then figure out what you can afford in a monthly rent/mortgage payment.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I would try to keep most of it liquid for an emergency fund, retirement and college (prioritize in that order). $100k at 40 isn't very much unless your income is low (< $30k).

This statement is ridiculous. First of all, someone making under $30k and living in the DC metro area is going to have a very difficult time saving $100k -- even by 40. And all of the people who are going to chime in "i make $30k and have saved a million" are outliers. Do the research. Most Americans don't have $100k saved by 40, even those making well over $30k HHI.

Most Americans are idiots and can't do simple math.

Someone entering the workforce at age 22, making $30,000 a year with nary a raise, would have saved $54,000 if they put 10% of their income under a mattress.
If they had invested it in the stock market they would have around $109,000 at the 7% historical average rate of return.

Not hard at all with a smidge of self-discipline.

$100,000 for their income range is very, very low at age 40.

Put the least you can into a home and invest the rest. You'll need it. The nation is going broke and social security can't be depended 30 years from now.