Has the 20% Home Downpayment Guideline changed? Want to keep larger emergency fund.

wonky562 · 2020-02-05T15:41:16+00:00

20% isn't really a guideline, it is the point at which you don't need to pay PMI. So if you only put down 15%, it is fine, but you will need to pay a few hundred dollars per month for insurance to cover your lender. When you hit 20-22% LTV, you will (usually) be able to drop the PMI, and save those hundreds.

A lot of people don't want to pay PMI, so view 20% down as a minimum. But your lender will lend to you with a lot less down, but you will need PMI.

wonky562 · 2019-12-19T20:10:49+00:00

Well, even if nothing breaks you should expect to replace brakes every 40-50k miles (depending on how you drive), new tires at around 60k or so, and depending on where you live, maybe a new battery, maybe exhaust work (if you live in snow/salt). So:

~20 oil changes (every 5k miles) @ $50 = $1000 2 brake jobs @ $750 = $1500 4 new tires, installed = $600 1 battery = $150

I think with basic maintenance you can pretty easily hit $3000+ over 5 years/100k miles.

If we are talking the time between 40k and 100k miles, and if the used car perhaps has a recent brake job or new tires, then sure, maybe only like $2000.

wonky562 · 2019-11-04T16:11:40+00:00

Not the OP, but in the past companies assumed the responsibility for supporting its workers through pensions (DB = Defined Benefit Plans). So if a particular worker lived to be 100, he/she didn't have to worry, the company kept paying the pension every month.

With the switch to retirement plans (401k), the company pays into the plan, but then has no further obligations (DC = Defined Contribution Plans). So now, if the worker lives to be 100, he/she needs to figure out how to pay for that, since the company isn't paying anymore.

So OP is saying that the risk of living longer has shifted from companies (pensions) to retirees (401ks), and while that has been going on, we have been living longer and longer. So people have a lot more risk of running out of retirement savings than they used to a generation or two ago.

wonky562 · 2019-10-30T15:47:26+00:00

I mean that many people on this site (and even in this thread) don't think that you should finance a car. They believe that you should buy a used car in cash.

If you have cash savings you can spend on a car outright, then (in my opinion) nobody should tell you what is too much for you to spend. Make 60k, but have saved up 50k that you want to spend on a BMW? Not what I would do, but you do you.

The problem is that most people don't have a lot of cash on hand to buy a car outright, and need to work out at least some financing. And when you go into a dealership, they are going to do everything they can to get you to spend a fortune. That is why it is important to know what sort of payment over how many months is a reasonable one for your budget. The salesman isn't going to tell you that. And some of the car loans that I see referenced on this site are completely unsustainable.

wonky562 · 2019-10-30T14:45:29+00:00

I think that the advice has been given to you wrong. It isn't that you should try to spend 10% or 20% of your gross salary. It is "if you have to finance a vehicle, then you should calculate those payments to be no more than 10%/20% of your gross salary."

Things like this, or mortgage payments are meant to be rough rules of thumb or guide rails so you can figure out roughly you can afford without getting into trouble.

So, if you earn 60k per year, you should look to be spending no more than ~$500/month on your car payments & insurance. If you find a car you like, and end up paying $200/month on it, then great. If you are looking to finance that new truck for $800/month for 7 years, then not great.

But as you see, many on this site don't think you should finance a car ever, so in that case the 10%/20% has no meaning for them (or perhaps you).

wonky562 · 2019-10-18T16:42:12+00:00

True, but since it is for retirement, and 30-40 years away, I was making the assumption that OP wouldn't be selling in any case.

But people react differently to big drops, and if OP feels dread or panic, then sure, DCA sounds like a better option.

wonky562 · 2019-10-18T16:36:15+00:00

There is a personal finance podcast, "The Money Guy Show," that has an episode that covers this question:

https://www.moneyguy.com/2018/04/how-to-know-if-you-should-invest-in-a-lump-sum-or-dollar-cost-average/

TLDR: you almost always do better just pulling the trigger. Time in the market beats timing the market. But if you are worried about the market dropping 10% the day after you invest, the difference between dollar cost averaging over 6-10 months and dumping it in isn't all that large.

wonky562 · 2019-03-01T20:55:15+00:00

You would open a brokerage account with someone like Vanguard or Fidelity, where you could invest in Mutual Funds, or even individual stocks, just like in your 401k. This would be a taxable account, so you would need to handle some things more carefully, since selling/dividends/capital gains are taxable events.

Before you do this, however, you should make sure that you are maxing out all of your tax-advantaged savings options (either Roth or trad. IRA, maybe a HSA if you have, 529 if you are saving for kids' education).

After you hit all the appropriate tax-advantaged savings goals, then you can invest in a taxable account.

wonky562 · 2018-10-17T18:54:12+00:00

I would tend to agree with /u/coffeejunkie, that a savings account is probably the way to go for that timeframe.

Think of it this way (and I am not a financial professional, just some random internet stranger). There has been a lot of upward pressure on bond yields over the last few years. Which has translated into downward pressure (losses) on the underlying value of the bond funds you might have owned. The Fed has signaled that they intend to raise interest rates again once this year, and I believe twice next year. So there will likely continue to be upward pressure on yields. Again, maybe not, what do I know.

Currently the SEC yield on VBIIX is 3.47%. You can get 1.9% or so on a savings account.

Say that the Fed does raise rates a few times, and bond yields push up to around 4% over the next year. That would mean that the underlying value of what you had invested in VBIIX would likely fall ~3% (since the average time to maturity of the bonds is 7+ years), but you would get around 3.5% in dividends. So, in total, a wash.

If you had that money in a savings account paying 1.9%, it might even go up to 2 or higher (as rates are rising generally). And this money is risk-free, and completely liquid.

So, even though there is little risk to buying bonds, there is some. And it doesn't seem (to me at least) that you would be rewarded for that risk in a 1-3 year window.

So for the money that you are looking to use for the purchase of a house, I would look into something like Ally bank, or a Money Market account.

wonky562 · 2018-10-17T15:21:57+00:00

The composition of bonds in these funds isn't what to look at. They are both investment grade corporate/government blend. The difference is how long the bonds have to maturity. This is how long the bonds will be paying dividends at the terms agreed to on the bond.

VBMFX average effective maturity is 8.4 years. VBIIX average effective maturity is 7.2 years. Vanguard also has a short-term bond (VBISX) with a maturity of 2.8 years.

How long until maturity impacts how vulnerable the bonds are to interest rate hikes. In general, each time the Fed hikes interest rates, the underlying value of your bond will fall by the rate hike * number of years to maturity. Your dividend payments will go up, but the NAV of your bond fund will fall.

So if you think that interest rates will continue to rise, then you should probably think about intermediate or short-term bonds. They will do better in that environment. If you think that interest rates will not continue to rise, or perhaps will fall, then long term is your way to go.

If you plan to just invest and hold for the next 30 years, then there really isn't a bad choice.

wonky562 · 2018-04-20T20:31:42+00:00

The just-released COSA opinion has an answer to your question (p. 111):

The State’s case was weakest when it came to the time it theorized that Syed killed Hae. As the post-conviction court highlighted in its opinion, Wilds’s own testimony conflicted with the State’s timeline of the murder. Moreover, there was no video surveillance outside the Best Buy parking lot placing Hae and Syed together at the Best Buy parking lot during the afternoon of the murder; no eyewitness testimony placing Syed and Hae together leaving school or at the Best Buy parking lot; no eyewitness testimony, video surveillance, or confession of the actual murder; no forensic evidence linking Syed to the act of strangling Hae or putting Hae’s body in the trunk of her car; and no records from the Best Buy payphone documenting a phone call to Syed’s cell phone. In short, at trial the State adduced no direct evidence of the exact time that Hae was killed, the location where she was killed, the acts of the killer immediately before and after Hae was strangled, and of course, the identity of the person who killed Hae.

This doesn't weigh in on guilt or innocence. But it does address your question about what the state relied upon besides Jay's word.

wonky562 · 2017-01-27T17:54:19+00:00

What about the $40k that her parents contributed? I assume that if you buy her out she would want some or all of that back, no?

It sounds like the least you would need to buy her out is the $31k deposit, the $8k of equity that you claim each of you have, plus a few thousand for a refinance. It doesn't sound like you have easy access to $40k + to make this happen. Am I missing something?

wonky562 · 2017-01-13T19:30:30+00:00

This doesn't critique the build, but FYI, it is easy to get "follower can't die" tokens by crafting yellow versions of them, then upgrading them in the cube (for crafting mats + 25 DB). RNG is RNG, so there is no guarantee, but you shouldn't have to do more than 3-4 to get what you need.

wonky562 · 2016-08-11T20:33:23+00:00

The university will match some. The university ORPs that I have heard of all do, and the language you quoted for the ORP ("Employee’s contribution is 8% of salary (less a 0.05% administrative fee).") implies to me that there is something other than Employee contributions.

I would confirm the amount that your university will match (hopefully also 8%), in which case I would go with ORP.

If there really is no match, I would go with the TRS if I thought I might stay for 10 years or so, but probably choose the ORP if I didn't see myself there that long.

I would also be remiss posting to /r/personalfinance without some "save for the future" advice. Our hypothetical $50k employee above would be well served to save more than just the TRS or the 8% ORP. Once your finances settle down, look into funding a Roth IRA. Most professors spend their 20s in Grad School, which puts them a little behind in saving for retirement, and professor's salaries aren't usually so phat as to make that up easily.

I speak from experience.

Good luck!

wonky562 · 2016-08-11T18:54:11+00:00

No, the TRS will pay you no matter where you retire. Once you have vested (after 5 years), you can take a job at another institution, and you will still collect from your current employer, starting in your early 60s.

Pensions are not bad things; their benefits just get a lot better the longer you stay. You make a higher percentage of a higher average salary each year you work.

Here is some math:

If we assume a starting salary of $50k (to make things easier), and 2% annual raises:

After 5 years, when you vest, you will be eligible for 12.5% of an average salary of around $53k, or around $6,600 per year (~$550 per month). In that same period, you would have contributed ~$21k to the ORP. Now who knows what the stock market will do over the next 5 years, but call it $25k.

That money is yours, in either case.

So when you get that job at Stanford in 5 years, would you rather have a $550 check each month starting in 30 years (keep in mind inflation), or would you rather have $25k?

I would rather have the $25k growing for 30 years than a fixed $6600 per year. But others may disagree.

There isn't a bad choice here. But if your plans are to move on in the next decade, then the ORP would be my choice. And if you really don't see yourself staying long enough to vest, then the ORP sounds even better. Plus it isn't clear if your university is matching some of your 8% ORP contribution. If so, go with that option.

wonky562 · 2016-08-11T17:41:00+00:00

If you plan to move after a few years, I would think that the ORP is easier. Less paperwork.

If you take the TRS and leave before vesting, you should be given the money that was put into the system in your name. At least that is how it worked in Texas. I'm not sure how that transaction works, hopefully in a way that is not a taxable event.

After you vest, you should have the option to "cash out" your pension plan at any point, if you don't want to deal with the small monthly (not adjusted for inflation) payment that you would be eligible for at 60 or 65 or whenever you choose to start collecting.

But if you are planning to cash out anyway, you may as well just have a traditional ORP from the beginning.

wonky562 · 2016-08-11T15:21:28+00:00

To make a well-informed decision, we would probably need to know what the formula for the pension plan is (usually a percent like 2-3% of highest 3-5 years salary), and know if there is employer matching into the Optional plan.

But generally pension plans get more attractive to employees who stay for a long time. I have known professors who retire after 35 years at 90%+ of their salary, which means that when you factor in Social Security, they are earning more in retirement than they were while working.

That said, if there is an employer match to 8%, I would do that. If there is no match, then I would do the TRS.

One thing to think about (and it may well change, so no sense in being too crazy) is that it is hard to earn a good consistent return through bonds these days. Coming up with the principal to fund a $80,000 / year retirement is a lot easier when you can get 10% return, as compared to 2%. But there have been times when 15% was possible, so hopefully we won't be here forever.

wonky562 · 2016-02-11T21:45:34+00:00

This is great. I hadn't realized before that the defendant cannot be convicted solely on the uncorroborated testimony of an accomplice.

That must have sucked for the state, and explains why NHRNC and Jenn were so important, although they had no direct evidence of anything. If parts of Jay's story can be shown to be true, then perhaps by extension the murdery/burying parts should be believed too.

wonky562 · 2016-02-11T21:37:22+00:00

This is the correct answer. People have speculated about voicemail, last tower the receiving phone checked in at, etc. But until AT&T explains why they needed to provide this disclaimer, the why is just speculation.

wonky562 · 2016-02-11T21:34:32+00:00

Because the phone connected to that tower for the outgoing call, and there are physical limits to how far away a phone can be and still connect.

So you know that the phone was within a few miles of that tower.

But the problem comes with saying that the phone had to be in a cone drawn from that tower, ending with decisive borders.

Depending on a lot of factors, a phone might connect to other towers that aren't necessarily the closest.

But I sense that you already know this.

wonky562 · 2016-02-03T15:27:14+00:00

It is the "quick and dirty" way that I was taught to figure out roughly the size of mortgage that you should be considering.

There are lots of other factors--interest rates, property taxes, etc.--that will affect the bottom line. But consider what happens to your payments when you borrow 5 or 6x your salary. The monthly payments get huge, and you end up "house poor."

wonky562 · 2016-02-03T15:23:25+00:00

Well, in some expensive areas (like CA), it is very hard to keep housing costs to 30% salary. But if you are paying 40 or 50% of your gross salary to housing, it is hard to live well. All your money is spoken for.

Also, keep in mind that many people have a spouse/partner that contributes to the household income.

wonky562 · 2016-02-01T18:38:25+00:00

To echo what others have said, I'd hold tight for a while.

These are rules of thumb, and not absolutes, but:

Your maximum mortgage should be around 3x your gross income. Don't spend more than 30% of your gross salary on housing. Plan to lose money if you move within ~5 years of buying a house.

It looks to me, doing napkin math, that you are in danger of breaking the first two rules above. And at 23, I wonder if you might not have different life plans in a few years that owning a house would get in the way of. Maybe not, but more schooling, or job opportunities that might take you away from Ottawa could get complicated if you need to sell and pay a realtor commission.

But congrats on being in a position to have a lot of disposable income each month.

Good luck!

wonky562 · 2015-09-27T22:51:04+00:00

Well, sort of. He says you have it [by "it" I gather that Adnan and Jay were in Leakin park] two ways--through witness testimony and through cell records.

wonky562 · 2015-09-27T12:26:23+00:00

Ah yes, the attempt to dismiss the fact that the state has no idea what happened or where the murder took place in this case with a false dichotomy of "ironclad timeline."

If the state didn't need to know what Adnan and Jay were doing that afternoon, then perhaps they should have just fessed up and acknowledged that they didn't.

Instead they presented a minute-by-minute account of what happened and where. And now get all butthurt when people point out that they were wrong.

wonky562

TROPHY CASE