STYLETHREAD -- LET'S TALK SHOP!

Kitty · Hermes

Financial Advice

Elle · Hermes

RE: Financial Advise

NCshopper · Hermes

I think buying a home is a great idea, if it's something you want to do and it fits in with your short and long term goals. Are you thinking you'd like to be in the same area for the next 2-5 years? If not, then definitely don't buy now.

I'd keep playing around with figures on an online mortgage calculator until you come up with a ballpark figure of what your maximum comfort zone is. Then I'd do some looking online for properties in the areas you like within your price range. Then I'd go see a mortgage broker. I wouldn't really advise seeing a mortgage broker prior to you figuring out your personal maximum house price because, like Elle said, they'll tell you that you're approved for probably double what you should reasonably borrow.

And also, like Elle said, don't just think you're going to pay the mortgage and that'll be it. You'll have to take into account property tax (you can find your city's rate online, I'm sure), home insurance, home owner's association dues (or something similar), closing costs, moving, new furniture (somehow the old stuff never looks right in the new space), and incidentals. It's amazing how much we spent the first month or so when we moved in. We thought we had it covered until we realized we needed a lawnmower, a washer & dryer, a ladder, etc., etc., etc. and then Home Depot ate the rest of my paychecks.

Anyway, long story short, do some homework. Start by poking around online. Then start asking your friends and family. I'd also consult Suze Orman's books (I feel like a broken record about her). Then I'd go to the pros to start putting the wheels in motion.

Also, for what it's worth, I like the idea of investing the money if it turns out you don't want to buy a house in the near future. A financial advisor might be worth your time and money to figure out how to beat paying a ton of taxes on the stocks. There are a lot of good options out there and they'll be able to help you make sense of some of it.

cc · Marc Jacobs

Kitty wrote:

Also, since this is the year we cashed out the stock..would it make the most sense to buy this year as well to avoid taxes? I'm not sure how that works.

I bought a home in June of last year and sold a ton of savings bonds for part of my down payment. Everyone told me that I would get a huge refund this year due to all my new deductions but I never thought about the fact that I'd have to pay taxes on all the bonds! The taxes on the bond interest and the deductions balanced out so I only had to pay $50 in federal taxes but considering that I usually get $1500-2000 back and was expecting even more this year it was quite a bitter pill to swallow. I can't imagine how much it would have sucked if I had just sold the bonds and didn't have the mortgage deductions etc. so I think you trying to buy this year might be a good move.

Suasoria · Chanel

With the market doing what it's doing in so many communities, it's a pretty good time to buy real estate.

If I were in your shoes I might start by asking people who have bought homes recently for referrals to a RE broker, preferably one who has worked with first-time buyers. You want someone who's going to look out for you like your parents would, and tell you the truth about different homes or neighborhoods. Interview several, at least by exchanging emails, until you get a good feel for someone.

Brokers often work with mortgage lenders or at least know which ones are good at their jobs, so ask them for advice on securing a home loan. You'll want to be pre-approved - not just pre-qualified - for a mortgage by the lender before you can start househunting in earnest. However, a good RE broker should be able to help you figure out what you can realistically afford with a calculator, pencil and paper.

The formula for monthly payments is PITI: principal, interest, taxes and insurance - but that omits a bunch of other expenses that will be new to you or at least different than what you might be used to - higher utilities, commuting expenses if you're heading out to the 'burbs, yard/pool upkeep, high-def cable TV, just to name a few.

That said, rents seem really high to me right now in my area. An officemate is looking for a three or four bedroom house to rent, and landlords want $3000 a month for an absolute dump, up to $6000 for a decent family home. So you might be pleasantly surprised depending on what you're spending now - hope so!

As CC mentioned, buying this year should help a lot in terms of offsetting a tax hit of cashing in the stock.

Elle · Hermes

Just be careful though - once you've figured out how much you're comfortable paying per month and how much you qualify for, add up how many mortgage payments you'd have to make this year to be able to write off enough interest to offset the taxes owed on the cash-out. And keep in mind that after you close, you don't pay a mortgage payment for the first month you live there (instead of like renting where you pay for the upcoming month, when you own you pay for the previous month).

We bought in October and were excited that we'd have a better deal on taxes because we were finally homeowners. We didn't get to close until the end of October, so our first mortgage payment was due ... Dec 1st. And that one mortgage payment did Jack to help us on our taxes

unfortunately. Being able to file jointly helped us some though since we got married that same year - have you guys figured out if that's going to make your tax situation better/worse?

greendiamond · Marc Jacobs

RE: Financial Advice

Kitty · Hermes

Elle wrote:

Just be careful though - once you've figured out how much you're comfortable paying per month and how much you qualify for, add up how many mortgage payments you'd have to make this year to be able to write off enough interest to offset the taxes owed on the cash-out. And keep in mind that after you close, you don't pay a mortgage payment for the first month you live there (instead of like renting where you pay for the upcoming month, when you own you pay for the previous month).

We bought in October and were excited that we'd have a better deal on taxes because we were finally homeowners. We didn't get to close until the end of October, so our first mortgage payment was due ... Dec 1st. And that one mortgage payment did Jack to help us on our taxes unfortunately. Being able to file jointly helped us some though since we got married that same year - have you guys figured out if that's going to make your tax situation better/worse?

Ya know, I hadn't even thought about being able to file jointly this year and what that will mean. How do you figure out how that will impact taxes?

Thanks for all the very useful advice!!

Elle · Hermes

How it impacts you depends on a ton of things, unfortunately. How much each of you make, if you were previously itemizing or using the standard deduction, etc. Once you're married, your incomes are considered together and you get one standard deduction to share ($10k I believe). You'd have to have more than $10k worth of write-offs for it to be beneficial to itemize - if you don't have many other deductions then you'd need at least a few months of mortgage payments for the year to reach that amount! I looked around a bit on the IRS website but didn't find anything too specific. If either of you is decent with tax stuff, you could print out the forms you'll be filing with next year and either estimate your incomes or use last years numbers. Put in the stock options FH cashed out and then you can futz with the rest - standard deduction/itemizing, if you bought a house and paid 6 months worth of mortgage, if you bought and paid only 3 months of mortgage, etc. A financial advisor may be able to help you do that too though - I'd ask about taxes specifically if you call to set up an appointment with someone.

Also, I believe the 'catch' with the bi-weekly half-mortgage payments is that they have to be bi-weekly, not twice monthly. So for instance this month if you sent the first half-payment on the 1st, you'd need to send the second on the 15th and then you'd need to send a third on the 29th. On top of the interest benefits, you're actually paying one extra payment a year, which is where most of the quicker paydown happens. Just fwiw!