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Percentage of net worth "invested" as equity in your primary residence?
Posted on 1/15/14 at 9:58 am
Posted on 1/15/14 at 9:58 am
Hey guys,
First time poster on this board.
I've inherited a little bit of money from the passing of a relative. It's not life changing money, and most of it isn't cash, it's in various investment vehicles.
We are thinking about moving into a larger house soon, and would use a portion of this money as a down payment. I know what monthly payment will fit into my budget, so I can back calculate how much of the house I want to finance. That means I can take the financed amount, add a down payment amount, and voila, I know how much house I want to afford.
My question is, what percentage of my total net worth do I want to lay down as a down payment on the house? I think it makes the most sense to talk in terms of percentages so that we don't have to talk real dollars.
When I say net worth, I'm including all investments, including 401(k) etc. and debt but not my current mortgage debt. I think my current mortgage debt is irrelevant to this discussion since I'm not upside down in my current house.
I'm 31.
Stable job as an engineer.
Wife is a stay at home mom until kids are in school. (Only one kid so far, 14months old so no college to pay for anytime soon)
Only debt is current mortgage and one car note.
Putting a down payment of 25% of my net worth would get us the house that we want. Is that too high of a down payment? Is that average? Below average?
First time poster on this board.
I've inherited a little bit of money from the passing of a relative. It's not life changing money, and most of it isn't cash, it's in various investment vehicles.
We are thinking about moving into a larger house soon, and would use a portion of this money as a down payment. I know what monthly payment will fit into my budget, so I can back calculate how much of the house I want to finance. That means I can take the financed amount, add a down payment amount, and voila, I know how much house I want to afford.
My question is, what percentage of my total net worth do I want to lay down as a down payment on the house? I think it makes the most sense to talk in terms of percentages so that we don't have to talk real dollars.
When I say net worth, I'm including all investments, including 401(k) etc. and debt but not my current mortgage debt. I think my current mortgage debt is irrelevant to this discussion since I'm not upside down in my current house.
I'm 31.
Stable job as an engineer.
Wife is a stay at home mom until kids are in school. (Only one kid so far, 14months old so no college to pay for anytime soon)
Only debt is current mortgage and one car note.
Putting a down payment of 25% of my net worth would get us the house that we want. Is that too high of a down payment? Is that average? Below average?
4
Posted on 1/15/14 at 10:12 am to LSU Jonno
quote:
I've inherited a little bit of money from the passing of a relative. It's not life changing money, and most of it isn't cash, it's in various investment vehicles.
I would strongly recommend that you use it to permanently increase your income, vice immediately leveraging into a higher tier lifestyle.
:stepsoffsoapbox:
I think most people aren't "invested" enough in their primary residence - many on the Money Talk board run the min/max game where they demonstrate how stupid it is to prepay your housing costs, when the money can make X% more in the market. I cannot refute the raw dollars and cents portion of their argument.
However, I also subscribe to the debt theory that I cannot lose money on finance charges I do not incur - that is an automatic yield that I have to do nothing to get/manage/profit from. The higher the rate of inflation, the more I incur in opportunity costs, but we've been at historic lows for some time.
Therefore, I think 20% down versus the value of the home is your starting point - a floor, IF that's what you ultimately decide to do with this windfall. I don't see a problem with as much as 50% of one's net worth being equity in the home - you can get access to this using HELOCs, at reasonable rates, and still make reasonable progress towards paying the loan off.
I also advocate 15 year mortgages. Again the min/max people will scoff at this ("you're turning down free money") - maybe I am, in theory. But, in reality, I am paying more towards my principal than I pay in finance charges to the bank - almost from the very beginning. With a 30-year, you're paying mostly interest for several years.
But, if you're contributing the max to your IRA/401K, and have a 6-month emergency fund - I think you could dump all the remaining liquid assets into a down payment on this new house - again - can't lose money on finance charges you don't incur.
This post was edited on 1/15/14 at 10:15 am
Posted on 1/15/14 at 10:49 am to LSU Jonno
Can you post more specific numbers?
As a portion of my net worth, my primary residence represents 10%.
However, I'm not sure what that has to do with anything.
Why not continue to live your current lifestyle and let that money grow in investments? I'm not trying to jump on you here but your mindset is very financially immature.
As a portion of my net worth, my primary residence represents 10%.
However, I'm not sure what that has to do with anything.
Why not continue to live your current lifestyle and let that money grow in investments? I'm not trying to jump on you here but your mindset is very financially immature.
This post was edited on 1/15/14 at 10:50 am
Posted on 1/15/14 at 2:51 pm to LSU Jonno
Does the inheritance and equity in your current house cover your future down payment? If you could put down 50% with just that money, I would do it.
Just make sure you (and the wife) understand all of the expenses in owning a larger/nicer home in a fancy neighborhood. Not just increased property taxes/utilities, but funiture expenses, maintenance/upkeep of nice landscaping/sprinkler systems/other stuff like that, and most importantly, not trying to keep up with the neighbors regarding cars/material things.
Just make sure you (and the wife) understand all of the expenses in owning a larger/nicer home in a fancy neighborhood. Not just increased property taxes/utilities, but funiture expenses, maintenance/upkeep of nice landscaping/sprinkler systems/other stuff like that, and most importantly, not trying to keep up with the neighbors regarding cars/material things.
Posted on 1/15/14 at 4:41 pm to LSU Jonno
A house is a place to live.
Nothing wrong with buying a house, but I do not advise counting on it an an "investment".
Of course, people do make money buying and selling houses, but the big money is made from timing. If you have to move, you could lose big.
All that being said, I own my house. I paid 20% down and have refinanced twice in 8 years.
If you buy a house, pay 20% down so you do not have PMI.
Nothing wrong with buying a house, but I do not advise counting on it an an "investment".
Of course, people do make money buying and selling houses, but the big money is made from timing. If you have to move, you could lose big.
All that being said, I own my house. I paid 20% down and have refinanced twice in 8 years.
If you buy a house, pay 20% down so you do not have PMI.
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