I live in a HCOL area and am thinking of using my $200k savings to buy a townhome or small single family home. I make about $60k a year and quality for a $200k loan. The total I can spend is $400k.
Rent keeps increasing and I am sick of moving. I have no family to help me and I am thinking of just using all my savings to buy a home. Did any of you do this and regret or don’t regret it? Please don’t be rude in the comments. I don’t know what to do. I never thought I would be single at this age and wish I could have bought a home with a partner but here I am.
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The main thing with a mortgage is making sure you can pay the bills if something happens. Can you afford the 200k mortgage comfortably?
What’s your debt to income ratio? Interests rates are really high right now so although you qualify for 200K, the monthly payments may be higher than your rent. Rent is typically 1/3 of your income. My mortgage was half and + extra expenses, even more.
Do not spend the entire 200K you have in cash on a house. Things break. Give yourself a 10-20K cushion at a minimum or even more.
Did you already go through the preapproval process with a lender?
I’m not going to tell you to buy it or not buy it, but DO NOT put all of your savings towards the down payment. You need to have reserves in case of emergency and when, not if, you need to replace something in the house. A good rule of thumb is that you should plan to spend about 1% of the purchase price annually for repairs and maintenance. So make sure that you not only have savings but can afford that 1% maintenance cost on top of the mortgage (and make sure you’re accounting for homeowners insurance and other costs, not just the mortgage).
My mom did this and it was a mistake for her. Taxes go up every year, unexpected repairs, etc. Now she works an additional part time job just to keep a roof over her head.
If you can get a mortgage where your all-in is less than 30% of your takehome pay, then I think its a great idea. But if its more than that, maybe save up for a bit longer.
Is the $200k in cash or retirement accounts? How old are you?
I would hesitate to put ALL your savings into the house. Things happen. That house will need maintenance that you’re responsible for (we’ve probably spent $25k on our house (roof, water heater, appliances aging out, etc.) since we bought it six years ago. Plus the actual purchase of the house could come with some costs unless the seller covers them. If you can get a house for $350k in your area ($200k loan + $150k cash), I’d probably do that.
I would personally probably keep like $10-20k in a high yield savings account so you have a buffer for if anything happens with your job. Otherwise if you’re happy where you are and can afford it I don’t really see a downside. The main things to watch out for are to make sure you can still save well with the mortgage payment and that you maintain an emergency fund to cover things if you encounter issues with your job.
Are there options in your area in the $300K range that would allow you to keep some funds in reserve? In addition to the down payment, you will want to budget for closing costs and also have an emergency fund for repairs needed. I would be cautious about buying right now if you would have to wipe out all of your savings to make this happen.
Definitely don’t put all your savings down as you’ll need a cushion for any future needs – and also look at homes under $400k. See where you can save money so you don’t over stretch yourself. But yes, I think using PART of your savings to buy a home is a great idea.
I would not recommend buying a home and not having any savings. What if a tree falls through your roof the day after you close? What if you get severely injured and can’t work for a couple of weeks? You want to be able to put down on a home and still have a safe buffer in case anything happens. I had 20k of extra in savings after purchasing my home and it was vital for a lot of things, from furniture to house expenses and fixes.
When I figure out my budget for a house there are a lot of factors but I definitely do not recommend going into a purchase without strong additional ICE savings.
My personal rule of thumb is three months, minimum, of the mortgage payment, and six months of emergency spending— plus $10,000. Shit happens.
The ~week after I bought my “first” house my “transportation since high school” car died.
When I got married and my husband and I moved into our first house together, the fridge died literally the day we got the locks changed and moved in lol
I live in Santa Cruz and I absolutely would not buy a home right now. Your local market may be different. The state of California is forcing all jurisdictions in my county to permit lots of new housing to address the cost of living crisis. Some of the municipalities are crying kicking and screaming about it but it will eventually happen and housing prices should ease up. The interest rates are also terrible right now. Previous low interest rates are still pushing the price of housing up by locking home owners into their previous low interest rates, this is artificially locking people into their homes as they compare monthly payment prices.
The entire housing market on the west coast is holding its breath right now for interest rate changes and new housing production to come to fruition. Right now is the time to rent a place to take advantage of someone else’s low interest rate on a property they can’t afford to sell because of their interest rate.
If you do buy, buy a duplex and owner occupy one side. Make sure that the rent you get on one side covers most of the mortgage. Keep at least some money in your savings. Don’t buy anything in an HOA. Keep at least 10 to 20k in a high yield savings account for emergency funds.
If you use your whole savings as a down payment, how can you buy applinances and repair the house? How can you pay property taxes? You need to have some money in your savings. Maybe 30-50k
Even if you could put all $200k down to buy outright, you shouldn’t. You should maintain a percentage for emergency costs (usually 6 months of expenses) and probably an additional percentage in case of a large unforeseen home repair – so whatever you put down towards a home, plan to reserve between $10-50k.
Also it’s not necessarily the best advice to buy “as much home as you can afford” – just because you can finance $400k doesn’t mean you should – that’s your budget max, ideally you’d probably find something less than that.
Based on your current salary you can afford a mortgage that’s around $1500 a month – you should use your cash savings to effectively lower the cost of a home you can’t afford to fully finance to match that number. It’s ideal if you can mortgage a home less than that amount, as it’ll help you rebuild your savings, plan for future emergencies, and allow you more financial freedom overall.
Thanks for asking, OP. I have basically the same question/circumstances and needed to read these comments.