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I just turned 30, I have a job which paying me $100k in Los Angeles, I have zero debt, excellent credit score and $65k in my bank account. I am single and I am paying more than 30% in income tax (state and federal). My goal is buying a house/apartment no later than fall 2016. I am planning to put down $90k for a $450k property. I am contributing 6% into my 401(k). I have no knowledge about stock and investments.

In my mind I have the following options:

  1. Keep my debt zero, save around 2800 per month, and buy a property in fall 2016.

  2. Invest my $65k somewhere and make that money generates some money and buy property fall 2016.

  3. Buy a smaller, cheaper property now with the $65k and pay private mortgage insurance (PMI).

So what would be the best approach to reach my property-buying goal? Or any other advice would be much appreciated.

  • PMI isn't necessarily that bad - at least ours wasn't, was only 25 bucks a month, though granted that was on a cheaper property than 450k, it was about 230k. Still, I'd check your local credit union(s) to see if they can get you a nice rate on PMI, as well as, in my experience, getting you much nicer rates in general. – neminem Dec 8 '15 at 17:55
  • @neminem so you would go for option 3? – eric_eri Dec 8 '15 at 18:05
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    Reminder: Don't buy a house unless you are pretty sure you won't need to move in the next five years or so. And only buy a house when you actually want to live in a house. It is not automatically a better choice financially. – keshlam Dec 8 '15 at 19:23
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I love the idea of #1, keep that going.

I don't think #2 is very realistic. Given the short time frame putting money at risk for a higher yield may not work in your favor. If it was me, I'd stick to a "high interest" savings account (around 1%).

I don't mind #3 either, however, I'd be socking whatever you could to mortgage principle so you can get out of PMI sooner rather than later. That would be my top priority. Given the status of interest rates, you may end up saving money in the long run. I doubt it, but you may.

If you choose to go with #3, don't settle for a house that you really don't like. Get something that you want. Who knows it may take you a year or so to find something!

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  • thank you. a question, by buying a property, how much roughly will I save in term of income tax, I mean how much roughly I will pay less with my income tax, lets say mortgage cost is $2000 and I pay $3000 monthly income tax – eric_eri Dec 8 '15 at 18:02
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    You won't "save in income tax". You will spend on interest. That expense will be reduced by being deductable. – keshlam Dec 8 '15 at 19:49
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    @keshlam - you are incorrect, whatever is paid in interest would reduce the taxable income and thus reduce some tax. As an example, if the yearly interest was $20,000 then that would reduce the OP's taxable income to $80,000 and he would pay tax on $80,000 instead of $100,000. So the reduction in tax could be calculated as 30% of $20,000 (unless the tax rate changes due to lower taxable income). Note that the deduction is based on only the interest paid and not the whole repayments made. – Victor Dec 8 '15 at 20:45
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    @Victor: My point is that net cash outlay increases. And early in the loan, very little of that goes toward the balance of the loan; it's all interest. The tax reduction only offsets 30% of that new expense. So unless you plan to stay in that house long enough to offset this effect plus the closing costs AND either contine to live there or sell for a profit (latter not guaranteed!), the house is likely to be a net cost rather than a net savings. If you're buying just because you think it will save money,, that's a bad reason. – keshlam Dec 9 '15 at 3:38
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    @keshlam, you are so correct. Thank you for having a brain. How can one claimed they saved 2,800 when they paid the bank 10K? Yet people do it every day. – Pete B. Dec 9 '15 at 13:47

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