2.5 years of nursing program left, preparing to buy a house, curious about investing

[eherbert1992]

I am 26 years old, and have 2.5 years left in a BSN program. I have no debt, and enough funds to take care of all of my school/other monthly expenses, as well as an additional 15K in savings, and 5K in a municipal retirement account. I anticipate adding an additional 5K to my savings by the time of graduation. Upon graduation, I would like to buy my first home, at around the 200-250K price range, and I would like to put as large of a down payment as I can while still having enough money left over to feel financially secure. My question is: considering I still have some time before graduation, should I invest any of my money, or just leave it in the bank?

[Jluke]

CapitalOne or Ally for a high yield savings account (2%).

At the house prices you mentioned you will need 40k-50k just for the 20% down payment. Then there are closing costs, moving expenses, household items and furnishings.

plus an emergency fund.

[disneysteve]

Welcome to the site.

I agree with Jluke. Money you anticipate needing in the next 3-5 years belongs in a safe place. Ally is actually up to 2.2% so if the 15K you have in savings isn't earning that, move it.

One thing you didn't mention is your income now or your anticipated income when you graduate so we can't comment on the affordability of a 200-250K home.

I also agree with the 20% down payment of 40-50K plus expenses plus a 6-month emergency fund before buying so it doesn't sound like you'll be quite ready to buy in 2.5 years if you only expect to have 20K in savings at that point.

[eherbert1992]

Thank you guys for the welcoming and advice.

I am currently looking into transferring my savings over to an Ally account. As for my retirement savings, would it be a good idea to move it into a Roth IRA? I don't plan on having another government job in the future, and don't feel like I should just leave it in it's original account, where it's only making 3% yearly.

What are your thoughts on only placing 10% down? Even though it means paying the mortgage insurance.

I should be making about 60K per year after graduation.

[Jluke]

Why are you in such a hurry to buy a house?

they are very expensive to buy and maintain.

While you may think you are doing the right thing by “not throwing your money away on rent” what you are going to be doing is throwing your money away on interest and PMI. And household expenses. Furnace breaks, water heater fails, new flooring, etc.

maybe you should be focusing on other financial aspects instead of a house at this point. And we can help with those.

There is some guidance as far as house price to income. Right now you are at around 4x salary. I think the goal is 2-2.5x salary. Doesn’t really apply in a high cost of living area but I don’t get the impression you are in that kind of market (which is good in some ways)

Sorry to be such a downer.

[disneysteve]

As for my retirement savings, would it be a good idea to move it into a Roth IRA? I don't plan on having another government job in the future, and don't feel like I should just leave it in it's original account, where it's only making 3% yearly.

First, you can't rollover into a Roth. You would need to rollover into a traditional IRA and then, if desired, convert that to a Roth. That would involve paying any applicable taxes in the process, so probably not something you want to do right now while you're trying to save for a house.

Second, doing a rollover won't necessarily increase your return. It depends how you invest the money. How is the money currently invested? What other options are there for the current account? A 3% return is probably some sort of bond fund or fixed income account. They probably offer something more aggressive that involves stocks/equities. Of course, that brings in different risks but could generate a higher return.

What are your thoughts on only placing 10% down? Even though it means paying the mortgage insurance.

Not a fan, personally, but certainly lots of people buy with less than 20% down. That's why PMI exists. Keep in mind that if you put less down, that means you'll have a higher payment (plus PMI). That impacts how much you can afford to spend on the house.

I should be making about 60K per year after graduation.

Rule of thumb for home purchase is 2-3 times income, so with an anticipated income of 60K, a house costing 200-250 is probably more than you ought to be spending, especially with a smaller down payment.

Even if you spend 180K (3x income) and put down 18K (10%), you still won't quite be ready to buy when you graduate. You expect to have 20K saved. If 18K goes to the down payment, that only leaves 2K for moving costs, furnishing the new place, and your emergency fund. I think you should continue renting for an additional year or two, live super frugally, and sock away as much money as you can. That would put you in a much better position to buy.

The other thing to consider is you want to be in a relatively stable employment situation so that you know where you want to live long term. Buying based on your first job right off the bat may lead to problems.

[kork13]

Are you married? If so, what does your spouse make? (Sounds like no, but just want to check)

If you're only making $60k/yr, you'll struggle to pay the monthly mortgage on a $200k+ home, even more so if you only put down 10%. You should be using a 15 yr mortgage, which would put your payment around $1300, plus taxes & insurance (varies by location, but maybe $400/mo?). That means you'll be spending nearly 45% of your take-home pay just on your monthly mortgage payment. Even if you use a 30-yr mortgage, you'd be looking at maybe $1300/mo PITI, which would be about 33% of your take-home pay. There's no way that you can succeed with that heavy of a mortgage burden. You'll never get ahead that way!

The others are giving you good advice. Rent for a couple years, build up an emergency fund of 3-6 months of expenses, build up a solid downpayment of 20% or more on top of the EF, and start yourself out on a good solid foundation.

[disneysteve]

That means you'll be spending nearly 45% of your take-home pay just on your monthly mortgage payment. Even if you use a 30-yr mortgage, you'd be looking at maybe $1300/mo PITI, which would be about 33% of your take-home pay. There's no way that you can succeed with that heavy of a mortgage burden. You'll never get ahead that way!

To piggyback on that, ideally your PITI shouldn't exceed 25% of income, 28% max.

[Jluke]

To piggyback on that, ideally your PITI shouldn't exceed 25% of income, 28% max.

Net income or gross?

my PITI is 42% of my monthly NET income.

[disneysteve]

Net income or gross?

my PITI is 42% of my monthly NET income.

Great question.

Housing (rent or mortgage) shouldn't exceed 28% of gross monthly income. Total debt payments (including car loan, student loans, credit card bills) shouldn't exceed 36% of gross monthly income. Those actually used to be the cut offs lenders used for approving loans. Then they loosened up their criteria which led to lots of people getting into houses they couldn't possibly afford. Prior to the crash in 2008, there were people getting mortgages for 5 or 6 times their annual income. Millions of those homes ended up in foreclosure.

Our PITI is 8% of gross, 13% of take home.

[disneysteve]

my PITI is 42% of my monthly NET income.

That must make the budget pretty tight.

[Jluke]

That must make the budget pretty tight.

I had to think about that because I still save enough after tax.

I think the reality is:

PI is 21% of net. Since I don’t escrow I am not required to make that TI payment each month. PI = TI basically.

Versus gross I figure I have the 401k (maxing) and healthcare costs and taxes all come out by the time I get to Net.

I might only see 50-60% of my gross.

Which is something the OP needs to think about. Just because your salary is 60k doesn’t mean you see all of those dollars.

[Scallywag]

Do you have or will you have any student loans from the nursing degree when you graduate ?

If you will have no student loans and have 3 to 6 months emergency funds saved up (in an interest bearing, safe account such as a CD or a high yield savings account) when you graduate, can afford a 20% down + closing costs, AND your PITIM (I would factor in maintenance) + HOA (if you have one) is less than or equal to 25% of your gross then you should buy a house. I take Dave Ramsey seriously and think he's on the mark with this figure

We can't buy even a condo where we currently live that would "only" cost us 25% of our income so we're moving - and over the next 18 months will be saving up for a 20% down payment + closing costs. If the stock market recovers then we might have some help there.

We have made one big housing mistake before, paid a humungous stupid tax on that and won't be stupid again. I don't like renting at all but nothing is worth my ability to sleep well at night - not even a shiny new house with it's own backyard and a sensory gym for my son will special needs.

[bjl584]

I'd leave it in the bank. 2.5 years isn't that long. Maybe do a few short term CD s. Others have already chimed in on how to budget for the house. Price range and etc.

[Drake3287]

With your limited savings don't put more then 20% down, even less if you can buy something without PMI on the house. Are you vested with your Government retirement account? If you've hit the magic 5 year mark I'd leave there. It's a small but guaranteed retirement check down the road. As for CD's, you can easily get 2.9% these days for the time period your looking at.