5 ms·

Vaguely similar boat! Northern NJ though. I'm 24 and became single about 6 months ago. After this happened, I moved out of my family home to rent closer to wor

Vaguely similar boat! Northern NJ though. I'm 24 and became single about 6 months ago. After this happened, I moved out of my family home to rent closer to work, which cut an hour off my commute. It's been a mixed bag financially and I've been borderline paycheck-to-paycheck (I do max my 401k, so it's more of a self-wrought liquidity issue). My thoughts: - I'm really getting punched down by the 20% down payment standard. I know PMI is a thing, but it's a fee that I'd like to avoid paying in addition to interest. Assuming 20% is enough to avoid PMI, even if I snag a 600k condo I need 120k down to not have a PMI. - I don't entirely know that I'd like to commit to this area, but I know I want to buy at some point, and I'd like to believe that snagging a property sooner than later will at least give me some leverage for a future purchase via the equity in the property. One of my friends bought a studio in FiDi for similar reasons- he'll probably break even in the `rent v buy` scenario but will at least have some sort of fund to fuel his next purchase via the equity in the apartment. - This is also a game of forecasting your income for some period of time. I'm in software development, which seems stable for now (I hope), so I'm pretty confident in my ability to eventually pay off a high mortgage. In the end, I have no hope of buying a place right now, all I can really do is shove money into a MM savings/mutual fund and wait around until its worth enough to convince a bank I'm worth their time.

jackcosgrove 7y ago
> I'm really getting punched down by the 20% down payment standard. I know PMI is a thing, but it's a fee that I'd like to avoid paying in addition to interest. Assuming 20% is enough to avoid PMI, even if I snag a 600k condo I need 120k down to not have a PMI. Ask lenders about what's informally known as a "piggy-back loan". You can put 10% down, then get a second lien withdrawing that 10% and putting it towards the 20% number. That can avoid PMI, but be aware that the second lien will have worse terms, often with a floating rate, than the first so it's definitely in your interest to pay that off really fast. These were abused during the housing boom but they're not intrinsically bad. It may be preferable to paying PMI depending on how quickly you can pay off the second lien and how disciplined you are with money.
- kmano8 7y ago
  I put down 5% a few years and was able to avoid PMI by taking a higher rate (about 5%) -- forget what doing this actually called. You can take the increased interest as a deduction, but not PMI.
  - awinder 7y ago
    It's called lender-paid mortgage insurance, which comes in 2 varieties, the one you did where you take a higher interest rate or as a single one-time charge
cpitman 7y ago
Another thing to keep in mind, North Jersey has atrocious property taxes, and they keep going up.
- murph-almighty 7y ago
  This is true. The saddest part about this is a lot of new construction are luxury apartment buildings with 10/20 year property tax abatements. These apartments sell for millions. That's an insane tax revenue loss that literally goes to people who will probably be fine without that abatement.
  - kmano8 7y ago
    Not only that, but the abatement being attached to that property inflates its selling price.
awinder 7y ago
Maxing your 401k at 24, wowza young people are smart these days. Whatever you do, do not beat yourself up about finances (too much, I mean maybe you're reckless elsewhere but I doubt it) because you've maximized meaningful time in the market like 2-3 years into your career. From a dollars perspective you'll be able to make all kinds of "mistakes" later on from that 1 decision. PMI causes this kind of visceral reaction in people, but IMHO it's a little overblown. Using your example, if you put down 5% on a 600K loan and you have outstanding credit, it would cost you like 21K all-in, and at 3.75/30 year you'd be at 1.2M for the 600K loan. So think about your timetable for how long it'd go for 30K for 5% to 120K for 20%, compared to the 21K all-in costs of PMI. In fact you can pre-pay it for additional savings or not carrying the additional monthly payment, but anyways, just something to consider.
jrs235 7y ago
PMI isn't awful. Look into what it will cost. It will be dependent on your credit score. I put 5% down and have a monthly PMI payment. Which has an initial "effective interest rate" of much must less than the mortgage interest rate! It's better than a piggy back loan and you get rid of it by paying down the principal to 80%. Some very simple to use numbers to explain what I'm trying to say: House price: $300000 Mortgage interest rate: 4% 20% to avoid PMI: $60000 5% of $300000 = $15000 down payment. Monthly PMI payment: $110 Annual PMI payments: $1320 Simple numbers: I'm "borrowing" $45000 for the first year and it costs me $1320. Which is approximately 3% Overtime since the principal to pay it down shrinks but the payments don't the "effective rate" goes up and eventually will be more that the mortgage interest rate. Pay it all off then. You're more leveraged for better or worse. Your mileage may very.you need to talk to lenders and find what your PMI payments would be. They will vary. Lenders will try to get you to roll the insurance payments amount into the loan or some other screwy things where they make more money and get it up front.

jackcosgrove 7y ago

> I'm really getting punched down by the 20% down payment standard. I know PMI is a thing, but it's a fee that I'd like to avoid paying in addition to interest. Assuming 20% is enough to avoid PMI, even if I snag a 600k condo I need 120k down to not have a PMI. Ask lenders about what's informally known as a "piggy-back loan". You can put 10% down, then get a second lien withdrawing that 10% and putting it towards the 20% number. That can avoid PMI, but be aware that the second lien will have worse terms, often with a floating rate, than the first so it's definitely in your interest to pay that off really fast. These were abused during the housing boom but they're not intrinsically bad. It may be preferable to paying PMI depending on how quickly you can pay off the second lien and how disciplined you are with money.

kmano8 7y ago
I put down 5% a few years and was able to avoid PMI by taking a higher rate (about 5%) -- forget what doing this actually called. You can take the increased interest as a deduction, but not PMI.
- awinder 7y ago
  It's called lender-paid mortgage insurance, which comes in 2 varieties, the one you did where you take a higher interest rate or as a single one-time charge

cpitman 7y ago

Another thing to keep in mind, North Jersey has atrocious property taxes, and they keep going up.

murph-almighty 7y ago
This is true. The saddest part about this is a lot of new construction are luxury apartment buildings with 10/20 year property tax abatements. These apartments sell for millions. That's an insane tax revenue loss that literally goes to people who will probably be fine without that abatement.
- kmano8 7y ago
  Not only that, but the abatement being attached to that property inflates its selling price.

awinder 7y ago

Maxing your 401k at 24, wowza young people are smart these days. Whatever you do, do not beat yourself up about finances (too much, I mean maybe you're reckless elsewhere but I doubt it) because you've maximized meaningful time in the market like 2-3 years into your career. From a dollars perspective you'll be able to make all kinds of "mistakes" later on from that 1 decision. PMI causes this kind of visceral reaction in people, but IMHO it's a little overblown. Using your example, if you put down 5% on a 600K loan and you have outstanding credit, it would cost you like 21K all-in, and at 3.75/30 year you'd be at 1.2M for the 600K loan. So think about your timetable for how long it'd go for 30K for 5% to 120K for 20%, compared to the 21K all-in costs of PMI. In fact you can pre-pay it for additional savings or not carrying the additional monthly payment, but anyways, just something to consider.

jrs235 7y ago

PMI isn't awful. Look into what it will cost. It will be dependent on your credit score. I put 5% down and have a monthly PMI payment. Which has an initial "effective interest rate" of much must less than the mortgage interest rate! It's better than a piggy back loan and you get rid of it by paying down the principal to 80%. Some very simple to use numbers to explain what I'm trying to say: House price: $300000 Mortgage interest rate: 4% 20% to avoid PMI: $60000 5% of $300000 = $15000 down payment. Monthly PMI payment: $110 Annual PMI payments: $1320 Simple numbers: I'm "borrowing" $45000 for the first year and it costs me $1320. Which is approximately 3% Overtime since the principal to pay it down shrinks but the payments don't the "effective rate" goes up and eventually will be more that the mortgage interest rate. Pay it all off then. You're more leveraged for better or worse. Your mileage may very.you need to talk to lenders and find what your PMI payments would be. They will vary. Lenders will try to get you to roll the insurance payments amount into the loan or some other screwy things where they make more money and get it up front.