Saving, housing, debt? Budgeting questions

[Greebo]

I have no other debt. No CC debt, no car loans, none of that and never will. I pay cash for everything or use my CC for the points to get cash back, but paid in full every month. Not sure how this works into the picture?

Because if you did have debt I'd tell you forget buying a house, stop 401k contributions and pay off your debt because nonthing destroys your ability to plan for the future with investing like consumer debt.

But since you don't - if you wanna stop contributions to save for a house, go ahead. If you don't, don't - its entirely your call.

I am fairly secure at work and overall like my job, though I am somewhat underpaid and have been casually looking for something that pays better. I've had a few options but long commute and uncertainty (student loans, too risky) make the pay increase not worthwhile given the risk of something not working out and the longer commute/more fuel/more time involved.

That you even entertain the idea of leaving screams NO 401k loan for you.

[jd68]

Housing 35% of net which includes morg, utilities, insurance and maintenance. 10% savings, 20% transportation which includes payment, insurance, fuel, and maint. 10% debt credit cards etc. this includes debt repayment and 25% life or everything else. This comes form Suze Orman and several other experts. Plus it works.

Great info, this is the type of rough guideline I was looking for.

[jd68]

That you even entertain the idea of leaving screams NO 401k loan for you.

Point taken.

[jd68]

Housing 35% of net which includes morg, utilities, insurance and maintenance. 10% savings, 20% transportation which includes payment, insurance, fuel, and maint. 10% debt credit cards etc. this includes debt repayment and 25% life or everything else. This comes form Suze Orman and several other experts. Plus it works.

I made a small error on my net income math. Currently before figuring any tax refund the scenario, for those categories would be...

Housing: 32.09 - 33.72%
Savings: 10.33%
Transportation: 9.04%
Debt: 33.34%

Housing is using high and low estimates of utilities. I wouldn't be surprised if those costs are a little lower given my minimalistic lifestyle, layering up for sub 50* temps in winter and no AC in summer. No TV, I'd rather read a book or entertain myself online (company gives me a wireless card).

I could lower my budget on that to a property I like but am not 100% on. It would be a lot better than an apartment though. That would lower total housing costs to 28.35% - 29.97% of net, utilities might be lower for misc reasons including it's slightly smaller than my current top choice if I do buy now. Cost would be more inline with renting a decent apartment or part of a house.

Transportation is variable, that 9% is a high number. I have a truck and a motorcycle, the 9% is driving the truck every day. If I ride the bike it gets 4x the MPG of the truck, and I can ride 1/3 to 1/2 the time comfortably, more if I suck it up and deal with the cold.

By cutting eating out for lunch a couple times a week that would bring savings up to 13.85% at lowest, more depending on how much could be cut from transportation and housing (utilities). Savings is what's left after everything else, and is split between actual savings (emergency fund, savings for future needs/wants, vacation, and most of it would go towards extra payments on debt).

This is not figuring tax refund. With tax refund funneled into net, my numbers would be...

Housing: 29.72 - 31.23%
Savings: 16.93%
Transportation: 8.73%
Debt: 30.89%

Maybe this still puts the whole house thing as too expensive at the moment, but the numbers are slightly more favorable. Bonus and overtime would slightly lower these percentages, but I don't want to base decisions on that. Even though it's kind of a sure thing to boost my income $3k-$6k, it's variable.

[miss_cas]

Honey, going into a home purchase situation with a roommate is a recipe for foreclosure. Unless you can pay the entire mortgage on your own, run with an emergency fund of 6 months of income while able to replenish it and handle paying bills on time, the situation you described is a disasterous choice for you. Home purchase with a mate is risky unless you have been together for a couple of years to make sure your partner isn't a flake. In a situation where children may result and a parent may like to stay home to do her/his own childcare, you should be able to get the mortgage and comfortably handle all the other bills on just one persons' income. (Also take into consideration: unpaid maternity leave, tons of insurance copays, well baby appointments, kid stuff, new vehicle to fit car seat...) You also need to make sure you can willingly handle the maintenance on the place or make a ton of money to have someone else mow the lawn, clean gutters, spray for bugs, clean up leaves, snow blow, etc.

A lot of mortgage lenders want 20% down or you need to pay a Private Mortgage Insurance payment until you reach that point. This adds another expense.

I MET A SINGLE WHITE FEMALE. I WOULD NEVER BUY A HOUSE I COULDN'T AFFORD ALONE. ROOMMATES GET MARRIED, TURN OUT TO BE FLAKES, GET SICK, MEET AN ABUSER, LOSE THEIR JOBS AND THIS WILL JUST STRESS YOU OUT HAVING TO STRUGGLE WITH A PAYMENT YOU CANNOT AFFORD.

My suggestions:
1. Establish credit -- Pay everything on time. Get a credit card if you don't have one, charge $50 a month and pay it on time/in full monthly. You will have a credit history in 6 months.

2. Save down payment (in addition to 3-6 month emergency fund + retirement savings vehicle).

3. Shop for rates on mortgages. I prefer brick and mortar banks and credit unions, they always seemed more trustworthy.

4. Make appointment with mortgage lender of your choice, spend 1 hour, bring all required docs and $35 for pre-qualification.

5. What are you spending on rent now? Is your rent a stretch? Will the mortgage/taxes/insurance for house be less (you have to pay water, trash, maintenance on house too)?

6. Decide on a figure that is well below the maximum a lender will give you. Decide on absolute wants in a home. Decide on how much fix up you are willing to handle and can afford.

7. Save up moving money.

8. Start searching real estate listings and visiting homes. Avoid '
sellers agents' but choose a buyers agent carefully. Ask for recommendations from friends/coworkers.

9. Agents can tell you about local sources of first-time or lower income home purchasing assistance. Google it too. Some require a class on homeownership and sweat equity (work you do on the house.) Read all the fine print carefully.

9. Pick up a book on purchasing your first home.

10. Get pre-approved at the mortgage lender of your choice.

11. Have the required down payment saved up.

12. Make sure to have enough 'earnest money' in your checking account everytime you go house hunting with agent. On contract - write 'pending professional inspection'. Take mortgage lender - pre-approval letter with you.

13. Spend $500 on a professional inspection of the house to make sure you don't have any surprises.

14. Change locks on new house after closing.

15. It's a good financial decision to let rooms sit empty of furniture if they are not used all the time. Save up the money to furnish it nicely. If you are missing furniture for an essential room, get something used or ask around for throw aways.

[Greebo]

Clarify - you're not thinking of joint OWNERSHIP of this house with a roommate, are you?

[jd68]

Greebo, absolutely not! No joint ownership. I don't understand why everyone seems to think I would be doing a joint ownership or be dependent on having a roommate to pay the bills. That's a big part of why I'm asking about this, to see if my savings and budget works or not so I can make an informed decision to buy now, wait, or adjust my budget and reconsider.

I've mentioned the numbers, a few hard numbers and others as a percentage of income... But you know I make $63k-$69k depending on bonus and overtime. You also know my approximate tax refund if I owned a house of the value I'm considering, which would place savings at 10% before tax refund or 17% after tax refund or approx. $10,700/yr savings, more if I cut a few luxuries as that's after entertainment is deducted.

mis_cas, there is no situation in which children will result at this point in my life. As I wouldn't be dependent on someone else's income to make ends meet I don't see how anyone else's situation is that big a deal. Extra income from a roommate would help me get out of debt more quickly, but without it my budget seems to work, unless you guys think I should be saving more/have more left after expenses. Nobody has expressed that. Of course if I have a roommate I would write up a rental/roommate lease outlining what's provided, what's expected, how money and expenses are dealt with, and of course collect a deposit up front so I'm not surprised one month. This is common sense to avoid misunderstandings and protect both people.

You mentioned saving money, down payments, etc. I have a bit over $20k that I've been saving for this, aside from a $3000 EF. I don't need to build credit, my score is over 760. Forgive me, but I'm on step 11-12 of your suggested course of action. I've been considering this for two years and crunching numbers often.

I was planning on putting 20% down but I think it would be more prudent, if I do get a house, to put the minimum 3.5% down, pay PMI, and split what's left in some proportion between savings and paying towards principle on my debt. ~4% interest on a mortgage vs 13.38% on my highest interest student loan. If I'm wrong on this and it would be cheaper long run to put more down on a house and take the full 10-15 years to pay back $110k of student loans ranging from 4.5% - 13.38% then let me know. I don't want to make a mistake that will cost me a bundle, and maybe that means not buying a home now, but in a few years or in 10 years. I need to know the numbers to back up the choices though or I'm not making an educated decision. Taking advise without considering the numbers is how I got that $110k of high interest student loans so please forgive me if I'm skeptical, especially of spending money without having anything to back it.

[Telephus44]

I still say that your overall debt to income ratio is too high. With your revised numbers, you have 55% of your income going to debt/housing.

How much of your student loans are high interest rate? Might be worth it to pay off those first and then consider it.

BTW - just so you know my personal perspective - I've not a DR follower, I do believe that it's fine to carry low interest debt, and I wouldn't have a problem with putting down 3.5% for a house. I just don't think you've truly thought it through on a monthly cash flow basis. I'd also strongly recommend that you trying renting for a short period of time - even 6 months - will give you a better perspective on cash flow management. It's not that you don't make enough, or don't save enough - it's just a matter of gaining personal experience of living on your own.

[mndtrp]

I also agree that paying down the higher-interest student loans first is a good idea.

Seeing that you seem to be on top of your finances, you may already be aware, but I'm going to say it anyway:

Make sure that the money you are paying towards the higher interest rate loans is actually going towards those loans. Sallie Mae was taking my wife's payment, that she was earmarking for her 13% interest rate loans, and putting the money towards the 3% loans. Despite her making it clear as day, they were misappropriating her payments, running up the amount she was being charged in interest.

[jd68]

Most of my student loans are high interest... North of $60k split between 11.xx% and 13.38%. another $30k at 4.5%, and $12k split between 5% and 7.5% government loans. Ballpark numbers, without looking at my spreadsheet.

I've recently considered paying off the government loans to free up $150/mo that currently goes to them. It's a drop in the bucket on my total loan payments though so not sure it's worth it or how much that extra money would help pay the higher interest loans. It would give more flexibility less long term benefit that putting that $12k towards my highest interest loan, if I suppose correctly.

I have rented before. I never want to live in another apartment complex/building again. I hate it, it's not my lifestyle. If it comes to it, I'll do that if it makes the most long term financial sense.

Sallie Mae is unethical like that. I had to fight that battle and got the payments broken into 3 individual bills to avoid having to call them all the time. Despite my clear instructions they would spread extra payments across all loans instead of applying to principle on the highest interest loan. That seems to be resolved now. Thanks for the heads up though! If I'd have known that sooner I've had saved hours of the phone and a few letters in the mail.