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Re: Downpayment for House
Posted by ave1024
Posted by EatingMyVeggies
I know every financial guru says never to touch it - normally I would would agree. But then again, doesn't it depend upon a lot of factors overall? Like if you're a dual income household and two people both have 401ks, and let's say one or both get a nice sized bonus every year - is it always bad to hit up your 401k? I have read people here do it for fertility issues. To me, that's worth it. Even for a home - can't you replenish your 401 by quickly paying back what you owe as soon as you can? Maybe with a year end bonus or what have you.
Not disagreeing with you at all.. Just thinking overall..is it always the worst possible financial choice?
The reasoning against what you are saying is... what if one of you lose your job. What if the bonuses get cut. If you take out a 401k loan and you lose your job payment in full is required within 30 days or take a withdrawal with high taxes and a penalty. No job and no bonus is guaranteed, regardless of how "secure" you think your job situation is. If you went on Suze Orman and asked if you could afford a house, she would give you an instant decline. (and I am not even a fan of hers)
Some people may prefer to live a riskier life, and if you don't have an issue that's fine. It's yours and their choice. Just because other people are doing it (even with fertility treatments), doesn't mean it's wise.
I definitely see that point
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Posted 9/19/13 10:34 AM  |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: Downpayment for House
Posted by evrythng4areason
The money we borrowed we used as a "just in case"..it's actually sitting in our bank account as we speak, and was never touched-we factored in the payments to repay the loan, and it will be paid off in a few years. We like knowing it's there, and it was easier to take it out when we bought the house.
And as for financial "experts", DH is a bond trader for a fortune 500 company. Pretty sure he knows how to handle finances.
So you borrowed 401k just to have it sit in a savings account? That's absolutely crazy and probably the worst thing you could have done.
I am sure your DH would know how much the stock market has appreciated in the past year. You do realize that borrowing your 401k and having it sit in your bank means you missed out on that appreciation when the stock market went up.
The last thing you want to do during a bull market is to pull money from your retirement. I don't work for a Fortune 500 company, but I do know that was not a very wise move.
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| Posted 9/19/13 2:26 PM |
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Jugglemom
LIF Adolescent
Member since 3/12 809 total posts
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Re: Downpayment for House
Posted by ave1024
Posted by evrythng4areason
The money we borrowed we used as a "just in case"..it's actually sitting in our bank account as we speak, and was never touched-we factored in the payments to repay the loan, and it will be paid off in a few years. We like knowing it's there, and it was easier to take it out when we bought the house.
And as for financial "experts", DH is a bond trader for a fortune 500 company. Pretty sure he knows how to handle finances.
So you borrowed 401k just to have it sit in a savings account? That's absolutely crazy and probably the worst thing you could have done.
I am sure your DH would know how much the stock market has appreciated in the past year. You do realize that borrowing your 401k and having it sit in your bank means you missed out on that appreciation when the stock market went up.
The last thing you want to do during a bull market is to pull money from your retirement. I don't work for a Fortune 500 company, but I do know that was not a very wise move.
People make decisions for many different reasons - financial soundness being only one component. If it makes them feel less stressed to have the money in the bank in the event of an emergency - then that is worth something. Perhaps it cannot be quantified in the way an ROI can but decreased stress levels, feeling settled in a home etc. all have some value. The value may vary from person to person and what one person values may not be valuable to the next. For instance, I will take $10k and go on a vacation. Obviously, that money would be better off invested, however, I value the time with my family and away from work more than I would a 10% ROI.
Not everything is about your balance sheet. Personally, I rather tie up less money (you can still get piggyback loans) in a house and invest it in other things and have a high payment. We have high monthly salaries and can pay all expenses off of one salary so that isn't a concern. Financial advice is not one size fits all.
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| Posted 9/19/13 5:01 PM |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: Downpayment for House
Posted by Jugglemom
Posted by ave1024
Posted by evrythng4areason
The money we borrowed we used as a "just in case"..it's actually sitting in our bank account as we speak, and was never touched-we factored in the payments to repay the loan, and it will be paid off in a few years. We like knowing it's there, and it was easier to take it out when we bought the house.
And as for financial "experts", DH is a bond trader for a fortune 500 company. Pretty sure he knows how to handle finances.
So you borrowed 401k just to have it sit in a savings account? That's absolutely crazy and probably the worst thing you could have done.
I am sure your DH would know how much the stock market has appreciated in the past year. You do realize that borrowing your 401k and having it sit in your bank means you missed out on that appreciation when the stock market went up.
The last thing you want to do during a bull market is to pull money from your retirement. I don't work for a Fortune 500 company, but I do know that was not a very wise move.
People make decisions for many different reasons - financial soundness being only one component. If it makes them feel less stressed to have the money in the bank in the event of an emergency - then that is worth something. Perhaps it cannot be quantified in the way an ROI can but decreased stress levels, feeling settled in a home etc. all have some value. The value may vary from person to person and what one person values may not be valuable to the next. For instance, I will take $10k and go on a vacation. Obviously, that money would be better off invested, however, I value the time with my family and away from work more than I would a 10% ROI.
Not everything is about your balance sheet. Personally, I rather tie up less money (you can still get piggyback loans) in a house and invest it in other things and have a high payment. We have high monthly salaries and can pay all expenses off of one salary so that isn't a concern. Financial advice is not one size fits all.
That's all fine and dandy, however it's still very poor financial planning... regardless of how you want to spin it.
I value my time with my family just as much as everyone else. But if I can't afford something, I don't buy it. End of story. I don't feel entitlement like many people do.
If somebody has to borrow money from 401k to purchase a house while making themselves "feel better", then they can't afford the house and they shouldn't be giving financial advice to others. And if they do, expect others to comment on it.
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| Posted 9/19/13 9:57 PM |
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Re: Downpayment for House
Posted by ave1024
Posted by Jugglemom
Posted by ave1024
Posted by evrythng4areason
The money we borrowed we used as a "just in case"..it's actually sitting in our bank account as we speak, and was never touched-we factored in the payments to repay the loan, and it will be paid off in a few years. We like knowing it's there, and it was easier to take it out when we bought the house.
And as for financial "experts", DH is a bond trader for a fortune 500 company. Pretty sure he knows how to handle finances.
So you borrowed 401k just to have it sit in a savings account? That's absolutely crazy and probably the worst thing you could have done.
I am sure your DH would know how much the stock market has appreciated in the past year. You do realize that borrowing your 401k and having it sit in your bank means you missed out on that appreciation when the stock market went up.
The last thing you want to do during a bull market is to pull money from your retirement. I don't work for a Fortune 500 company, but I do know that was not a very wise move.
People make decisions for many different reasons - financial soundness being only one component. If it makes them feel less stressed to have the money in the bank in the event of an emergency - then that is worth something. Perhaps it cannot be quantified in the way an ROI can but decreased stress levels, feeling settled in a home etc. all have some value. The value may vary from person to person and what one person values may not be valuable to the next. For instance, I will take $10k and go on a vacation. Obviously, that money would be better off invested, however, I value the time with my family and away from work more than I would a 10% ROI.
Not everything is about your balance sheet. Personally, I rather tie up less money (you can still get piggyback loans) in a house and invest it in other things and have a high payment. We have high monthly salaries and can pay all expenses off of one salary so that isn't a concern. Financial advice is not one size fits all.
That's all fine and dandy, however it's still very poor financial planning... regardless of how you want to spin it.
I value my time with my family just as much as everyone else. But if I can't afford something, I don't buy it. End of story. I don't feel entitlement like many people do.
If somebody has to borrow money from 401k to purchase a house while making themselves "feel better", then they can't afford the house and they shouldn't be giving financial advice to others. And if they do, expect others to comment on it.
I understand that you have an (obviously) very strong point of view that it's 20% down or nothing. You've reiterated that several times. But let's keep perspective - not putting 20% down when purchasing a home is not a crime against humanity!
This thread was supposed to be about the pros and cons of waiting to have 20% down before buying, inviting different viewpoints. People have expressed them and have shared their personal experiences. Hence, the purpose of the boards. You say that everyone is entitled to their opinion, but then go on to mock and personally attack people, including for being "entitled" for allocating their OWN money how they see fit.
Also, you say you don't buy something unless you can afford it. A lot of people think that means not buying something unless you have all the cash on hand -- no loans, no credit. So doesn't that contradict the idea of mortgages altogether? No one should buy a house unless they can pay all cash for it, and it is "unwise" and "entitled" to take out a mortgage? Why is 20% down the magic number that you need to be able to purchase a house?
It's a shame that these threads that could be informative to a lot of people devolve into sarcasm and personal attacks. I am all for a rigorous debate and exchange of ideas, and I think you make some good points, but we don't have to be disrespectful to each other, right? And if you are disrespectful, expect others to comment on it! 
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| Posted 9/19/13 11:11 PM |
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Re: Downpayment for House
Posted by Century 21 Dallow - Christine Braun
Posted by ave1024
Posted by Jugglemom
Posted by ave1024
Posted by evrythng4areason
The money we borrowed we used as a "just in case"..it's actually sitting in our bank account as we speak, and was never touched-we factored in the payments to repay the loan, and it will be paid off in a few years. We like knowing it's there, and it was easier to take it out when we bought the house.
And as for financial "experts", DH is a bond trader for a fortune 500 company. Pretty sure he knows how to handle finances.
So you borrowed 401k just to have it sit in a savings account? That's absolutely crazy and probably the worst thing you could have done.
I am sure your DH would know how much the stock market has appreciated in the past year. You do realize that borrowing your 401k and having it sit in your bank means you missed out on that appreciation when the stock market went up.
The last thing you want to do during a bull market is to pull money from your retirement. I don't work for a Fortune 500 company, but I do know that was not a very wise move.
People make decisions for many different reasons - financial soundness being only one component. If it makes them feel less stressed to have the money in the bank in the event of an emergency - then that is worth something. Perhaps it cannot be quantified in the way an ROI can but decreased stress levels, feeling settled in a home etc. all have some value. The value may vary from person to person and what one person values may not be valuable to the next. For instance, I will take $10k and go on a vacation. Obviously, that money would be better off invested, however, I value the time with my family and away from work more than I would a 10% ROI.
Not everything is about your balance sheet. Personally, I rather tie up less money (you can still get piggyback loans) in a house and invest it in other things and have a high payment. We have high monthly salaries and can pay all expenses off of one salary so that isn't a concern. Financial advice is not one size fits all.
That's all fine and dandy, however it's still very poor financial planning... regardless of how you want to spin it.
I value my time with my family just as much as everyone else. But if I can't afford something, I don't buy it. End of story. I don't feel entitlement like many people do.
If somebody has to borrow money from 401k to purchase a house while making themselves "feel better", then they can't afford the house and they shouldn't be giving financial advice to others. And if they do, expect others to comment on it.
I understand that you have an (obviously) very strong point of view that it's 20% down or nothing. You've reiterated that several times. But let's keep perspective - not putting 20% down when purchasing a home is not a crime against humanity!
This thread was supposed to be about the pros and cons of waiting to have 20% down before buying, inviting different viewpoints. People have expressed them and have shared their personal experiences. Hence, the purpose of the boards. You say that everyone is entitled to their opinion, but then go on to mock and personally attack people, including for being "entitled" for allocating their OWN money how they see fit.
Also, you say you don't buy something unless you can afford it. A lot of people think that means not buying something unless you have all the cash on hand -- no loans, no credit. So doesn't that contradict the idea of mortgages altogether? No one should buy a house unless they can pay all cash for it, and it is "unwise" and "entitled" to take out a mortgage? Why is 20% down the magic number that you need to be able to purchase a house?
It's a shame that these threads that could be informative to a lot of people devolve into sarcasm and personal attacks. I am all for a rigorous debate and exchange of ideas, and I think you make some good points, but we don't have to be disrespectful to each other, right? And if you are disrespectful, expect others to comment on it!
I dont think anyone was attacked and there have been lots of opinions posted on this thread which should provide a lot of fodder for OP to think about.
I am with ave1024 on this one. Theres a big difference between buying a house with only 3% down, borrowing from a 401K to do so, just to claim, "hey look at me, I own a house!" vs. buying a house w 20% or more down after diligently saving for many years and doing so because circumstances require it (ie family w a baby cramped renting a 1bedroom co-op and another baby on the way,,,that family really has an interest in moving quickly to be homeowners). From my own experience, I know when I bought my condo w less than 20% down was the biggest mistake because of PMI. I wasnt married and have no children so those reasons to buy "bigger" was not present.
General wisdom is that you dont expend yourself more financially to the point where you
My major gripe w the entire home buying experience is coming across realtors or agents (not saying you, just the pushy ones I have talked to at Open Houses) which yap on about, "oh but you must move quickly because interest rates are going up, up up!,". Well, they said that in 2011 and rates stayed relatively stable through all of 2012 and even through early 2013. This isnt 1995 when rates were 16%. I wouldnt be surprised if rates are still way under 5.5-6% next year through early 2015. Lets not go into panic mode here.
The time to buy is when you can afford to buy. Buying a house isnt like dealing with a biological clock where you turn 40/45 and babymaking is off the table. That house will always be there. When rates go up, prices must come down to compensate. Thats why I agree w ave1024 and all the finance experts like Orman and Ramsey would agree. The reason many Americans got into the foreclosure mess we are still dealing with us due PRECISELY to short sighter home owners who "rush" to get themselves into a large mortgage just to sat they "got a deal in the down market" or "that dream house wouldnt be there a year later". We trusted the "finance" and "mortgage experts" in 2007-2008 and look at how that turned out. (Collapse of Bear Stearns and Lehman).
Its this entitlement attitude which ave1024 aplty points out is the root of some of these problems, and to that extent, i have to be 100% in agreement. I think this thread has been great because we have posters from both sides of the coin weighing in, but by and large, it is always better to buy something you can comfortably afford without dipping into 401K accounts, or when you have at least 20%, unless exigent circumstances exist (ie more kids on the way). If I could go back to 2006, I would have kicked myself silly for ever closing on my unit w less than 20% down. PMI is just hell. Pure Hell. 
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| Posted 9/19/13 11:31 PM |
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Jugglemom
LIF Adolescent
Member since 3/12 809 total posts
Name:
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Re: Downpayment for House
Posted by ave1024
Posted by Jugglemom
Posted by ave1024
Posted by evrythng4areason
The money we borrowed we used as a "just in case"..it's actually sitting in our bank account as we speak, and was never touched-we factored in the payments to repay the loan, and it will be paid off in a few years. We like knowing it's there, and it was easier to take it out when we bought the house.
And as for financial "experts", DH is a bond trader for a fortune 500 company. Pretty sure he knows how to handle finances.
So you borrowed 401k just to have it sit in a savings account? That's absolutely crazy and probably the worst thing you could have done.
I am sure your DH would know how much the stock market has appreciated in the past year. You do realize that borrowing your 401k and having it sit in your bank means you missed out on that appreciation when the stock market went up.
The last thing you want to do during a bull market is to pull money from your retirement. I don't work for a Fortune 500 company, but I do know that was not a very wise move.
People make decisions for many different reasons - financial soundness being only one component. If it makes them feel less stressed to have the money in the bank in the event of an emergency - then that is worth something. Perhaps it cannot be quantified in the way an ROI can but decreased stress levels, feeling settled in a home etc. all have some value. The value may vary from person to person and what one person values may not be valuable to the next. For instance, I will take $10k and go on a vacation. Obviously, that money would be better off invested, however, I value the time with my family and away from work more than I would a 10% ROI.
Not everything is about your balance sheet. Personally, I rather tie up less money (you can still get piggyback loans) in a house and invest it in other things and have a high payment. We have high monthly salaries and can pay all expenses off of one salary so that isn't a concern. Financial advice is not one size fits all.
That's all fine and dandy, however it's still very poor financial planning... regardless of how you want to spin it.
I value my time with my family just as much as everyone else. But if I can't afford something, I don't buy it. End of story. I don't feel entitlement like many people do.
Which part specifically is poor financial planning?
The 401k part or the high mortgage?
As for the vacation,we can definitely afford it - it is not entitlement but it seems that by your standards saving it is always better than spending it.
As far as the 401k goes I do not view it as this untouchable holy grail. I have borrowed against it to invest in other higher risk investments. I invest a significant portion into my 401k because my employer has a really high match so if I didn't I would be leaving money on the table but at the same time I don't think a 401k is the best place for so much of my money so I play around with it.
Again, I hate these one size fits all canned approaches.
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| Posted 9/20/13 12:13 AM |
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Goobster
:)
Member since 5/07 27557 total posts
Name:
:)
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Re: Downpayment for House
Posted by Jugglemom
Which part specifically is poor financial planning?
The 401k part or the high mortgage?
.
I am pretty sure Ave means that it's very poor financial planning to take money from your 401K and plunk it into a savings account. I agree with that sentiment, especially with savings rates this year, vs how well the stock market has been doing.
Message edited 9/20/2013 12:20:44 AM.
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| Posted 9/20/13 12:19 AM |
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evrythng4areason
And then there were 4
Member since 1/10 5224 total posts
Name:
Kayla
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Downpayment for House
Oh my.
Like others have said, I offered my perspective. For us, what we did was absolutely the correct move. I personally do not agree that people must wait until hey have the arbitrary 20% down payment. In the time we waited interest rates have gone up on homes, and like I stated, there is absolutely nothing similar to our house on the market, which we literally got for a steal. We looked for a year prior to buying, combing the market, and had very specific parameters on the property itself.
As for the 401k money sitting in the bank, we took out a small percentage of what was in his 401k account. He has maxed out contributions and matching since he started working with the company, and there's a nice chunk in there. He also has a pension in addition to the 401k. For us, having that money more readily available when we bought our first home (which is 100 years old and could obviously need a lot of work) was worthy whatever small amount we would lose while we repaid it. Our goal was to not use it, because we knew that if he lost his job or took a new job it would need to be repaid quickly. However, if something came up, the money would be right there when we needed it. In fact, it's grown and we theoretically could pay it back and still have a cushion, but we choose not to. We have other investments we could have cashed out that are greater than the amount we borrowed from the 401k, but we chose not to cash them out just yet-the 401k made more sense. If the market takes an incredible turn for the better, and again, DH would know because thats his job, we could immediately replace all the money.
I'm curious as to how this makes me "entitled" and "not able to afford my home"?
We have lived here for 19 months. Aside from the mortgage and dhs small student loans we have no debt. Our cars are paid off. We paid for a wedding, a honeymoon, a new fence, a new boiler and hot water heater all on our own. We gutted and renovated our bathroom. All in cash.
I truly don't think that any of that is financially irresponsible or entitled.
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| Posted 9/20/13 7:44 AM |
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MrsT809
LIF Adult
Member since 9/09 12167 total posts
Name:
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Downpayment for House
I did 3% down (6 years ago) and have zero regrets! Of course it always depends on the individual situation. For us, we came across an amazing deal when we weren't even looking to buy. We got a short sale for a great price, did some work, and were able to refinance in a year and a half to get rid of the pmi. We can absolutely afford the house but weren't really in the position to put down 20% at the start. We have our 8+month emergency fund and even with me on child care leave for over a year now we are comfortable with the payments. Thankfully we had help from experts we know personally and trusted every step of the way.
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| Posted 9/20/13 8:43 AM |
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AScottWolf
I <3 our squish!
Member since 11/10 2237 total posts
Name:
Adriana
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Re: Downpayment for House
Posted by evrythng4areason
Posted by ave1024
Posted by evrythng4areason
We bought our house last year so the pmi laws were slightly different-we pay until we have 20% and at least 5 years..we used an FHA loan and only put down 3.5%. I completely disagree that if you don't put down 20% you can't afford the property. We got a lower interest rate than we would right now, and not only did we buy a house (and I took a pay cut a month later), but we got married, went on a honeymoon, furnished the house, put up a fence, replaced a boiler, spent thousands on landscaping, and gutted a bathroom. I'm pretty sure we are doing just fine, and I truly think that waiting longer would have been an awful decision for us.
Jmho
Didn't you also pull money from your 401k because you didn't have adequate savings for a DP?
Every financial expert in the world would say this situation is definitely "not fine", because it basically shows you have no emergency fund (at least definitely not the 6-12 months of expenses recommended by most).
But hey if it works for you, great. Most would disagree.
The money we borrowed we used as a "just in case"..it's actually sitting in our bank account as we speak, and was never touched-we factored in the payments to repay the loan, and it will be paid off in a few years. We like knowing it's there, and it was easier to take it out when we bought the house.
If DH had lost his job the day after we closed, and we had to repay the money, we absolutely would have been able to do so.
And as for financial "experts", DH is a bond trader for a fortune 500 company. Pretty sure he knows how to handle finances.
As I said..the timing of buying our house, and putting down 3.5% worked for us. We also didn't even factor my salary in when taking out our mortgage-it's based only on DH's salary. We've managed to maintain and build up a cushion in our account, and do multiple home upgrades over the past 19 months since we purchased our home. And like I said-right after we closed I actually took a 20% pay cut, and we were still perfectly fine.
Then again, multiple people on this board told me that we should rent before owning since we had never lived on our own. That would have been completely pointless, as we're now building equity in our own home.
For the most part this is us also.
We put 10% down and will be paying pmi until the other 10% is paid. We also took some $ out of my 401k for the house but also have the ability to pay it back in full right now if needed. However, each 401k loan is different. I am still earning a return on my full investment as if the loan never existed. I am also paying the interest back to myself, not the bank. For us, this works. If we had to wait to purchase a house with 20% down we'd be waiting forever. ESP. Now that we have a baby. It's much easier for us to budget in the present vs. attempted to assume how much everything would be in the future. Also, I see a difference with the inventory available this yr vs. last year in the area we purchased in.
I think to make a general statement that if you can't put 20% down you shouldn't buy is a bit  to me. Each scenario is different.
I'm surprised to see a snarky undertone to a thread on the home board.
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| Posted 9/20/13 9:33 AM |
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Re: Downpayment for House
Also, I completely agree that not everyone can and should buy a house. I am a real estate agent, but also an attorney, and a homeowner myself. I take ethics and my responsibilities to counsel clients very seriously. So I would never push someone into buying a home, because of rates or any other reason, and it's definitely wrong if any agent or mortgage loan officer or someone tries to create fear and panic. But as I said, I think potentially rising rates should be ONE factor to be considered when someone is making a decision about whether it is the right time to buy a home.
And I also agree that renting can definitely make sense for some. I personally rented for many years when I was living in Manhattan. I was practicing law at a larger firm and could absolutely had bought something sooner (my accountant begged me to, lol!), but my dh and I waited until we were expecting a baby and moving out to LI to buy, which was really driven by personal preferences more than financial factors. But I get why people may want to continue to rent and not buy.
However, as it's been pointed out, the rental market on LI is VERY tough. Demand has always outweighed supply of rental inventory, a problem that was exacerbated by Sandy. And for that reason, landlords can charge very high rents for small, and frankly, not-so-great apartments. A lot of people rent in private homes (where the apartment isn't even legal), which has its downsides (privacy, safety -- if people live in illegal basement apartments). It is harder, and often more expensive, to rent if someone has pets. And if someone uses a broker, they will need 3-4 months' rent upfront (first months' rent, 1 to 2 months' security deposit, and a broker's fee, which is usually 1 month's rent but can be more). So that's still a lot of cash upfront.
And if someone needs or wants to rent more than a one bedroom -- say they have children or they work from home and need a separate office -- in many areas of LI, monthly rents often equal (or come pretty close to) what a mortgage payment would be on a modest starter home, even with less than 20% down. And if someone in that scenario chooses to spend the same money (or a couple of hundred dollars more per month) to buy a home and reap the tax benefits of ownership (deducting property taxes and mortgage interest, which is the bulk of the payments early on), AND have the potential to build equity rather than never seeing that rent money again, I think that can be smart move.
Again, it all depends on the circumstances, but I agree with previous posters who said financial advice isn't one-size-fits all and there are a lot of factors that each person must consider. I think finances are like marriages -- what works for some won't work for others, and only the people who are in it really know the true deal.
But I am totally  now, so I will stop! But there has been a lot of food for thought expressed on this thread, for sure.
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| Posted 9/20/13 9:37 AM |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: Downpayment for House
Posted by Century 21 Dallow - Christine Braun
Also, you say you don't buy something unless you can afford it. A lot of people think that means not buying something unless you have all the cash on hand -- no loans, no credit. So doesn't that contradict the idea of mortgages altogether? No one should buy a house unless they can pay all cash for it, and it is "unwise" and "entitled" to take out a mortgage? Why is 20% down the magic number that you need to be able to purchase a house?
Because the housing market is still volatile enough where you want to avoid being in an underwater position. Why not ask every poster who posts here saying they can't sell their house because they are underwater how great that feeling is. And some of them may have even put 20% or more down.
The bottom line if it's a poor decision, it's a poor decision. Honestly I could live with 10% down depending on some situations. I am looking for a second property now and maybe I'll put 10% down on that since I'd be leveraging it as an investment property and with investments it's all about NOI and cash flow. But I also have enough equity in my primary residence to pay for my second house in cash, along with having a year's plus worth of emergency funds for BOTH properties. So there are positions where putting a lower down payment can be advantageous.
And you know why I call it entitlement... because some people will say and think things like "well if other people are doing it why can't I?" Maybe it's a combination of entitlement and just somebody making a poor decision because their friend also made a poor decision.
Posted by Jugglemom
Which part specifically is poor financial planning?
The 401k part or the high mortgage?
Pulling money from a 401k just to put in a liquid savings account is an absolutely brutal move. There is no sugarcoating this as there is ZERO positives to come out of it.
You might as well restructure your 401k into a zero risk cash position portfolio if you are going to do that. You know there is a part of me that can put a value on "quality of life" regarding home ownership and maybe pulling from your retirement to BUY a home (still don't agree with it). If you want to have money sitting around "just in case" you might as well leave it in your 401k with the intention of pulling it godforbid you need it to pay the bills.
But forget the mortgage and the 3% down, I can't emphasize how poor moving money from 401k to savings is and I surely hope NOBODY here does this.
Posted by AScottWolf
I am still earning a return on my full investment as if the loan never existed. I am also paying the interest back to myself, not the bank.
No 401k loan out there gives you the same return as if you kept the money in your 401k. This is fact. You are technically "selling" shares for the 401k loan to borrow and when you repay you are "buying" shares back. Share prices change as does the market. If you borrow when shares were $20 a share, but have to repay when shares are $30, guess what you have LESS shares in your portfolio after you repay the loan! That's missed investments! Earning a small percentage of interest on your 401k loan is miniscule compared to the returns we have seen lately in the market. I'd rather be earning 15-20% on my money vs. the small percentage most 401k plans pay. And also most 401k loans have processing fees to borrow so that can negate any interest earned anyways.
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| Posted 9/20/13 10:51 AM |
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AScottWolf
I <3 our squish!
Member since 11/10 2237 total posts
Name:
Adriana
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Re: Downpayment for House
Posted by ave1024
Posted by Century 21 Dallow - Christine Braun
Also, you say you don't buy something unless you can afford it. A lot of people think that means not buying something unless you have all the cash on hand -- no loans, no credit. So doesn't that contradict the idea of mortgages altogether? No one should buy a house unless they can pay all cash for it, and it is "unwise" and "entitled" to take out a mortgage? Why is 20% down the magic number that you need to be able to purchase a house?
Because the housing market is still volatile enough where you want to avoid being in an underwater position. Why not ask every poster who posts here saying they can't sell their house because they are underwater how great that feeling is. And some of them may have even put 20% or more down.
The bottom line if it's a poor decision, it's a poor decision. Honestly I could live with 10% down depending on some situations. I am looking for a second property now and maybe I'll put 10% down on that since I'd be leveraging it as an investment property and with investments it's all about NOI and cash flow. But I also have enough equity in my primary residence to pay for my second house in cash, along with having a year's plus worth of emergency funds for BOTH properties. So there are positions where putting a lower down payment can be advantageous.
And you know why I call it entitlement... because some people will say and think things like "well if other people are doing it why can't I?" Maybe it's a combination of entitlement and just somebody making a poor decision because their friend also made a poor decision.
Posted by Jugglemom
Which part specifically is poor financial planning?
The 401k part or the high mortgage?
Pulling money from a 401k just to put in a liquid savings account is an absolutely brutal move. There is no sugarcoating this as there is ZERO positives to come out of it.
You might as well restructure your 401k into a zero risk cash position portfolio if you are going to do that. You know there is a part of me that can put a value on "quality of life" regarding home ownership and maybe pulling from your retirement to BUY a home (still don't agree with it). If you want to have money sitting around "just in case" you might as well leave it in your 401k with the intention of pulling it godforbid you need it to pay the bills.
But forget the mortgage and the 3% down, I can't emphasize how poor moving money from 401k to savings is and I surely hope NOBODY here does this.
Posted by AScottWolf
I am still earning a return on my full investment as if the loan never existed. I am also paying the interest back to myself, not the bank.
No 401k loan out there gives you the same return as if you kept the money in your 401k. This is fact. You are technically "selling" shares for the 401k loan to borrow and when you repay you are "buying" shares back. Share prices change as does the market. If you borrow when shares were $20 a share, but have to repay when shares are $30, guess what you have LESS shares in your portfolio after you repay the loan! That's missed investments! Earning a small percentage of interest on your 401k loan is miniscule compared to the returns we have seen lately in the market. I'd rather be earning 15-20% on my money vs. the small percentage most 401k plans pay. And also most 401k loans have processing fees to borrow so that can negate any interest earned anyways.
I don't think you understand. If I had 5k in my 401k preloan..i still have 5k in there (not including anything contributed or earned since the loan withdrawn).
Question, as someone else said... You have very strong feelings about this topic which is fine. If people disagree and believe other decisions work better for them that's fine too.
As for entitlement...having the attitude, "if they did this I can do it too" is also a motivational statement and not necessarily a bad thing for everyone.
I just feel like some of your posts on this thread are coming across as  .
Message edited 9/20/2013 11:36:26 AM.
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| Posted 9/20/13 11:35 AM |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: Downpayment for House
Posted by AScottWolf
I don't think you understand. If I had 5k in my 401k preloan..i still have 5k in there (not including anything contributed or earned since the loan withdrawn).
LOL I understand quite well, you have what you put in. Great for you! However it's you who isn't getting my point of missed appreciation, the basic point I am trying to make. I'll explain it one more time in case anyone else wants to take interest in learning about possible missed appreciation with 401k loans. I don't mind crunching the numbers and helping people understand the concepts.
Take two people... you and me. Our portfolio consists of shares from the Nasdaq-100 (ticker QQQ), and lets say we both own 400 shares. Go back in time to November 2012 where QQQ was priced at $66 a share.
Your portfolio worth in November 2012: $26400 (400 x $66/share)
My portfolio worth in November 2012: $26400 (ditto)
You decide to take a $10,000 401k loan out in November 2012 to leave the money in your savings account. To take out this loan, you have to sell 151.51 shares of QQQ to equal $10,000 (10000 divided by 66 = number of shares needed to withdraw $10000).
Your portfolio in Nov 2012 after your 401k loan
Vested Balance: $16,400 (248.49 remaining shares x $66/share)
Loan Balance: $10,000
Total: $26400 (same as before the loan)
For the sake of simplifying the mathematics, lets assume no further contributions are made by either party and today in Sept 2013 you decide to pay back this 401k loan. After all we only care about the 401k loan balance anyways. The price of QQQ in October 2013 is now $79 - up about 19% from November 2012. When you go to pay back your $10,000 loan today, you have to purchase 126.58 shares now to equal $10,000 since that's the current price.
Your portfolio worth in Sept 2013: $29625 - yes you are right you didn't lose your initial investment, and you did see appreciation on what you DIDN'T borrow - but you now only have 375.07 shares with a price now of $79 a share (126.58 shares plus your original remaining 248.49 shares)
My portfolio worth in Sept 2013: $31600 (since I still have my 400 shares and the share price is $79, I saw appreciation on all 400 untouched shares)
Still want to say I don't understand?
Of course YMMV slightly from this as you would be paying small amounts back depending on your amortization schedule, and you technically would be earning about 3% interest on what you have borrowed. But 3% interest for a year is a measly $300. You probably have to pay a fee of around $100 to take out the loan. And your appreciation of $200 isn't nowhere near close the $2000 higher my portfolio is vs. yours.
These are also very tiny portfolio examples. If your portfolio is worth more (say in the hundreds of thousands) and you borrowed more (say 50-100k) then you are losing out on more interest. Then add up how much compounding interest you lose out over many years time not having that missed money in there.
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| Posted 9/20/13 2:12 PM |
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peanutbutter2
Carpe diem!
Member since 11/10 5287 total posts
Name:
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Re: Downpayment for House
Ave, they both already bought their houses. You aren't going to convince them to travel back in time and not buy their homes.
People have different perspectives on home-buying, and, ultimately, they do what's right for them. Sorry to butt in, but the rudeness and condescending attitude specifically geared toward two intelligent, kind people really bothered me.
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| Posted 9/20/13 3:08 PM |
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Downpayment for House
The attitude is a bit much. We put down 8% in May with a interest rate of 3. 5%. We were about to have our first child and if the interest went up even a quarter we would have not been able to afford the house, so why wait? We needed something bigger and it would have cost us thousands of dollars to get a new apartment that would have cost us only a few hundred dollars less then our mortgage. How would that have made sense?
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| Posted 9/20/13 8:59 PM |
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KaKa2323
Got my miracle
Member since 9/11 1465 total posts
Name:
K
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Re: Downpayment for House
I put 3.5% down and it was the best decision ever! I was almost paying the same amount in rent as my mortgage payment! So I'm pretty sure it was a good financial decision
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| Posted 9/21/13 10:04 AM |
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gdubs
This baby is awesome!
Member since 11/10 2467 total posts
Name:
Gina
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Re: Downpayment for House
I'm not a financial professional by any means but I feel that if putting 20% down is going to empty your bank account then it is a bad idea. Putting a lesser %age down and leaving yourself a cushion for emergencies or money to make improvements is fine.
I didn't put 20% down on my first house and I survived.
Sure a lot of mortgages that were written before the bubble burst probably shouldn't have been but you can't say that just because someone can't put 20% down doesn't mean they shouldn't buy a house.
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| Posted 9/22/13 10:50 PM |
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Millie3
LIF Adult
Member since 7/13 1280 total posts
Name:
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Re: Downpayment for House
I purchased an apartment with 10 % down and paying the PMI every month really annoyed me. We waited 2 years , did a refi and got rid of it. When we bought our house, 20 % was a must because PMI is a huge waste of money.
If you can put 20%, you start off with a nice amount of equity, lower mortgage payment, and more peace of mind in a market like this. 2 years in the scheme of things is not a lot of time , I would say extend your lease and save every penny you can.
I know many people that put down 3- 5%, after so many years they still owe so much on their mortgage, pay a lot of PMI every month. It's not the best situation of you can wait a bit. If you can't wait, or you have to get out of your apartment, that is another story
Our lawyer told us most people are putting down between 3.5 and 10%, not as many doing 20%
Message edited 9/23/2013 9:49:02 PM.
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| Posted 9/23/13 9:39 PM |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: Downpayment for House
Posted by Millie3
Our lawyer told us most people are putting down between 3.5 and 10%, not as many doing 20%
I don't doubt this is happening. It's the same exact thing that was happening back in 2003-2005. Low down payment mortgages combined with rising interest rate fears fueling rising housing values. The result was the housing market crashing and property values plummeted after the economy tanked. Many people were left underwater thanks to those low down payment mortgages so you saw a ton of short sales and foreclosures. Some people called it predatory lending (which I thought was crazy).
We shall see what happens this time. I know people first hand looking to buy with 3% down. They don't have a pot to piss in as far as emergency savings go, but they feel they can "afford" the house because they can come up with 3%. I am literally shaking my head when I hear this.
But as I said in the past, I don't mind all these 3% buyers. The more people that buy, the higher my property values go. I'll gladly sell to a 3% buyer if they are giving me above market on my house.
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| Posted 9/24/13 9:39 AM |
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lucky1007
My Princess is Here!
Member since 11/11 1131 total posts
Name:
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Re: Downpayment for House
We bought our house in March. We put down about 5%. We could have afforded to put a little more down, but the PMI would not have changed and the monthly payment was only decreased slightly, not enough to validate dropping tens of thousands of dollars in our opinion.
It was worth it for us to keep some extra cash in the bank for renovations and just in case we needed cash flow. We decided to put a lot of the money we saved from only putting 5% down back into the house which is adding value to our home. We installed hard wood floors for example.
You have to have someone run the numbers for you. We had out mortgage consultant give us the monthly payment breakdown if we put 5% down, 7% down, 10% down, etc.
20% down was not an option for us. Yes we pay PMI, about $180 a month. Because this was a few months back , PMI only stays on the loan until we hit 20% and at least 5 years. I believe now it stays for the life of the loan.
ETA: we also decided to pay bi-weekly vs monthly to decrease the life of our loan. Will take off about 7 years and thousand in interest
Message edited 9/24/2013 10:21:38 AM.
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| Posted 9/24/13 10:16 AM |
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MK2010
LIF Toddler
Member since 7/10 401 total posts
Name:
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Re: Downpayment for House
Posted by ave1024
Posted by AScottWolf
I don't think you understand. If I had 5k in my 401k preloan..i still have 5k in there (not including anything contributed or earned since the loan withdrawn).
LOL I understand quite well, you have what you put in. Great for you! However it's you who isn't getting my point of missed appreciation, the basic point I am trying to make. I'll explain it one more time in case anyone else wants to take interest in learning about possible missed appreciation with 401k loans. I don't mind crunching the numbers and helping people understand the concepts.
Take two people... you and me. Our portfolio consists of shares from the Nasdaq-100 (ticker QQQ), and lets say we both own 400 shares. Go back in time to November 2012 where QQQ was priced at $66 a share.
Your portfolio worth in November 2012: $26400 (400 x $66/share)
My portfolio worth in November 2012: $26400 (ditto)
You decide to take a $10,000 401k loan out in November 2012 to leave the money in your savings account. To take out this loan, you have to sell 151.51 shares of QQQ to equal $10,000 (10000 divided by 66 = number of shares needed to withdraw $10000).
Your portfolio in Nov 2012 after your 401k loan
Vested Balance: $16,400 (248.49 remaining shares x $66/share)
Loan Balance: $10,000
Total: $26400 (same as before the loan)
For the sake of simplifying the mathematics, lets assume no further contributions are made by either party and today in Sept 2013 you decide to pay back this 401k loan. After all we only care about the 401k loan balance anyways. The price of QQQ in October 2013 is now $79 - up about 19% from November 2012. When you go to pay back your $10,000 loan today, you have to purchase 126.58 shares now to equal $10,000 since that's the current price.
Your portfolio worth in Sept 2013: $29625 - yes you are right you didn't lose your initial investment, and you did see appreciation on what you DIDN'T borrow - but you now only have 375.07 shares with a price now of $79 a share (126.58 shares plus your original remaining 248.49 shares)
My portfolio worth in Sept 2013: $31600 (since I still have my 400 shares and the share price is $79, I saw appreciation on all 400 untouched shares)
Still want to say I don't understand?
Of course YMMV slightly from this as you would be paying small amounts back depending on your amortization schedule, and you technically would be earning about 3% interest on what you have borrowed. But 3% interest for a year is a measly $300. You probably have to pay a fee of around $100 to take out the loan. And your appreciation of $200 isn't nowhere near close the $2000 higher my portfolio is vs. yours.
These are also very tiny portfolio examples. If your portfolio is worth more (say in the hundreds of thousands) and you borrowed more (say 50-100k) then you are losing out on more interest. Then add up how much compounding interest you lose out over many years time not having that missed money in there.
Now provide an example when the market goes down. Your assumption here is that stock prices will ALWAYS be higher. I know it trends upwards, but the timing here can get you as well. Otherwise, we'd all be rich.
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| Posted 9/24/13 3:27 PM |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: Downpayment for House
Posted by MK2010
Posted by ave1024
Posted by AScottWolf
I don't think you understand. If I had 5k in my 401k preloan..i still have 5k in there (not including anything contributed or earned since the loan withdrawn).
LOL I understand quite well, you have what you put in. Great for you! However it's you who isn't getting my point of missed appreciation, the basic point I am trying to make. I'll explain it one more time in case anyone else wants to take interest in learning about possible missed appreciation with 401k loans. I don't mind crunching the numbers and helping people understand the concepts.
Take two people... you and me. Our portfolio consists of shares from the Nasdaq-100 (ticker QQQ), and lets say we both own 400 shares. Go back in time to November 2012 where QQQ was priced at $66 a share.
Your portfolio worth in November 2012: $26400 (400 x $66/share)
My portfolio worth in November 2012: $26400 (ditto)
You decide to take a $10,000 401k loan out in November 2012 to leave the money in your savings account. To take out this loan, you have to sell 151.51 shares of QQQ to equal $10,000 (10000 divided by 66 = number of shares needed to withdraw $10000).
Your portfolio in Nov 2012 after your 401k loan
Vested Balance: $16,400 (248.49 remaining shares x $66/share)
Loan Balance: $10,000
Total: $26400 (same as before the loan)
For the sake of simplifying the mathematics, lets assume no further contributions are made by either party and today in Sept 2013 you decide to pay back this 401k loan. After all we only care about the 401k loan balance anyways. The price of QQQ in October 2013 is now $79 - up about 19% from November 2012. When you go to pay back your $10,000 loan today, you have to purchase 126.58 shares now to equal $10,000 since that's the current price.
Your portfolio worth in Sept 2013: $29625 - yes you are right you didn't lose your initial investment, and you did see appreciation on what you DIDN'T borrow - but you now only have 375.07 shares with a price now of $79 a share (126.58 shares plus your original remaining 248.49 shares)
My portfolio worth in Sept 2013: $31600 (since I still have my 400 shares and the share price is $79, I saw appreciation on all 400 untouched shares)
Still want to say I don't understand?
Of course YMMV slightly from this as you would be paying small amounts back depending on your amortization schedule, and you technically would be earning about 3% interest on what you have borrowed. But 3% interest for a year is a measly $300. You probably have to pay a fee of around $100 to take out the loan. And your appreciation of $200 isn't nowhere near close the $2000 higher my portfolio is vs. yours.
These are also very tiny portfolio examples. If your portfolio is worth more (say in the hundreds of thousands) and you borrowed more (say 50-100k) then you are losing out on more interest. Then add up how much compounding interest you lose out over many years time not having that missed money in there.
Now provide an example when the market goes down. Your assumption here is that stock prices will ALWAYS be higher. I know it trends upwards, but the timing here can get you as well. Otherwise, we'd all be rich.
If we don't expect stock values to increase over time, why aren't we just stuffing our money underneath our mattresses? Because we all expect the market will increase. History has shown this. The market is up over 30% in the past three years. Frankly I wouldn't be surprised to see a 20,000 DOW in the next 5 years.
I don't know about anybody else, but I like to bet on the market increasing, and not getting into the business of trying to time the market. As somebody not expecting to retire for another 25 years, I am not pulling money from high risk/reward funds (which has performed on average 8-12% per year) and placing them into no risk.
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| Posted 9/24/13 4:31 PM |
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MK2010
LIF Toddler
Member since 7/10 401 total posts
Name:
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Re: Downpayment for House
Posted by ave1024
Posted by MK2010
Posted by ave1024
Posted by AScottWolf
I don't think you understand. If I had 5k in my 401k preloan..i still have 5k in there (not including anything contributed or earned since the loan withdrawn).
LOL I understand quite well, you have what you put in. Great for you! However it's you who isn't getting my point of missed appreciation, the basic point I am trying to make. I'll explain it one more time in case anyone else wants to take interest in learning about possible missed appreciation with 401k loans. I don't mind crunching the numbers and helping people understand the concepts.
Take two people... you and me. Our portfolio consists of shares from the Nasdaq-100 (ticker QQQ), and lets say we both own 400 shares. Go back in time to November 2012 where QQQ was priced at $66 a share.
Your portfolio worth in November 2012: $26400 (400 x $66/share)
My portfolio worth in November 2012: $26400 (ditto)
You decide to take a $10,000 401k loan out in November 2012 to leave the money in your savings account. To take out this loan, you have to sell 151.51 shares of QQQ to equal $10,000 (10000 divided by 66 = number of shares needed to withdraw $10000).
Your portfolio in Nov 2012 after your 401k loan
Vested Balance: $16,400 (248.49 remaining shares x $66/share)
Loan Balance: $10,000
Total: $26400 (same as before the loan)
For the sake of simplifying the mathematics, lets assume no further contributions are made by either party and today in Sept 2013 you decide to pay back this 401k loan. After all we only care about the 401k loan balance anyways. The price of QQQ in October 2013 is now $79 - up about 19% from November 2012. When you go to pay back your $10,000 loan today, you have to purchase 126.58 shares now to equal $10,000 since that's the current price.
Your portfolio worth in Sept 2013: $29625 - yes you are right you didn't lose your initial investment, and you did see appreciation on what you DIDN'T borrow - but you now only have 375.07 shares with a price now of $79 a share (126.58 shares plus your original remaining 248.49 shares)
My portfolio worth in Sept 2013: $31600 (since I still have my 400 shares and the share price is $79, I saw appreciation on all 400 untouched shares)
Still want to say I don't understand?
Of course YMMV slightly from this as you would be paying small amounts back depending on your amortization schedule, and you technically would be earning about 3% interest on what you have borrowed. But 3% interest for a year is a measly $300. You probably have to pay a fee of around $100 to take out the loan. And your appreciation of $200 isn't nowhere near close the $2000 higher my portfolio is vs. yours.
These are also very tiny portfolio examples. If your portfolio is worth more (say in the hundreds of thousands) and you borrowed more (say 50-100k) then you are losing out on more interest. Then add up how much compounding interest you lose out over many years time not having that missed money in there.
Now provide an example when the market goes down. Your assumption here is that stock prices will ALWAYS be higher. I know it trends upwards, but the timing here can get you as well. Otherwise, we'd all be rich.
If we don't expect stock values to increase over time, why aren't we just stuffing our money underneath our mattresses? Because we all expect the market will increase. History has shown this. The market is up over 30% in the past three years. Frankly I wouldn't be surprised to see a 20,000 DOW in the next 5 years.
I don't know about anybody else, but I like to bet on the market increasing, and not getting into the business of trying to time the market. As somebody not expecting to retire for another 25 years, I am not pulling money from high risk/reward funds (which has performed on average 8-12% per year) and placing them into no risk.
What if you took out from your 401K just before everything went south - maybe mid to end of 2007, bought a house when the DOW was down around 6000 and housing prices were a steal and then stuck it all back into your 401K in 2011-2012. That would have been excellent planning and it would have been VERY smart to pull money out of a 401K.
Yes, yes, just trying to rattle your boat a little. 
My honest opinion is that families have to decide what is right for them and generally speaking, I wouldn't take money out of my 401K if I didn't absolutely have to - but it isn't a bad idea across the board.
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| Posted 9/24/13 4:55 PM |
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