Renting cheap vs buying with tsp loan

[offroad]

Adding to the discussion the calculators all assume you will have a 30 year mortgage, which is good for the math. But the reality is need to save five years before you get a house loan, so say you are 30 years old before your first loan. But you are retiring by 50 (if you are here you know what you are doing and should do this goal). So that gives 20 years to pay off your house, so 20 years of payments on a $250,000 house (assume you have to live in a metro area to have a good income - which is a normal house price in commute distance).

Where you only put $50k down via TSP loan. Can you get an FHA or other loan for $200k? what is the limit on that? or do you need to drop to $150k for the maximum loan?

 

[offroad]

Per my numbers if I rent over ten years I loose $168000, and gain $300000 in interest. Net is $132000 gain.

But if I buy a house I gain $67000 in principal , plus interest on the house property value of $20000 so net over ten years is $87000 gain.

I am better off renting. Yes I need to look at my numbers more closely but this is why people rent and don't buy. Unless there yearly stock-mutual-retirement fund starts dropping to below 10% annual return over ten years combined.

using the below link to a calculator will show why its not so easy to be certain of rent versus buy. You might only gain $20,000 over ten years, and maybe a lot less.

https://www.smartasset.com/first-ti... Rent vs Buy&gclid=CLOMz6vJsLwCFUYOOgodBigAVg

 

[jpcavin]

If you qualify for a VA loan, there is no PMI.

 

[offroad]

Long comments. Thanks. Most have understood. But really want to see simple spreadsheet chart on this. If someone has a reference besides what I have below, which I know is INCORRECT.

Given http://en.wikipedia.org/wiki/Future_value for calculating interest


[TABLE="width: 821"]
[TR]
[TD="class: xl63, width: 139, bgcolor: transparent"][/TD]
[TD="class: xl63, width: 84, bgcolor: transparent"]Interest rate
[/TD]
[TD="class: xl63, width: 64, bgcolor: transparent"]Principal
[/TD]
[TD="class: xl63, width: 109, bgcolor: transparent"]Monthly Cost
[/TD]
[TD="class: xl63, width: 100, bgcolor: transparent"]Ten year Value
[/TD]
[TD="class: xl63, width: 96, bgcolor: transparent"]Ten Year Taxes
[/TD]
[TD="class: xl63, width: 110, bgcolor: transparent"]Ten Year Repairs
[/TD]
[TD="class: xl63, width: 125, bgcolor: transparent"]Ten Year Insurance
[/TD]
[TD="class: xl63, width: 144, bgcolor: transparent"]Ten Year Interest paid
[/TD]
[TD="class: xl63, width: 123, bgcolor: transparent"]Ten Year full value
[/TD]
[/TR]
[TR]
[TD="class: xl63, bgcolor: transparent"]Rental
[/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]-1400
[/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]-168000
[/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]-168000
[/TD]
[/TR]
[TR]
[TD="class: xl63, bgcolor: transparent"]Homeloan-savings
[/TD]
[TD="class: xl64, bgcolor: transparent, align: right"]9%
[/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]50000
[/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]416.6666667
[/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]50000
[/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]0
[/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]0
[/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]0
[/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]0
[/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[/TR]
[TR]
[TD="class: xl63, bgcolor: transparent"]Homeloan-regular
[/TD]
[TD="class: xl64, bgcolor: transparent, align: right"]5%
[/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]150000
[/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]-1250
[/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]150000
[/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]-30000
[/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]-10000
[/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]-5000
[/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]-37500
[/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]67500
[/TD]
[/TR]
[TR]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[/TR]
[TR]
[TD="class: xl63, bgcolor: transparent"]Savings $50k
[/TD]
[TD="class: xl64, bgcolor: transparent, align: right"]20%
[/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]50000
[/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]300000
[/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent"][/TD]
[TD="class: xl63, bgcolor: transparent, align: right"]300000
[/TD]
[/TR]
[/TABLE]

 

[DreamboatAnnie]

Ten years until retirement means a ten year loan maximum. Taxes, plus cost to maintain house, plus interest paid on remainder of loan can all cost more than your apartment rental.

Hi Off-road, in general owning a house or small condo is better if you plan to be there at least five years. Only go for a fixed interest rate loan....no variable rates!!!

The advantage of home ownership is that you own it, build equity so that when your ready to move on you can cash out provided you do not pay more than it is worth and the bottom does not fall, or something really bad that is not disclosed. That is where research comes in. Talking to friends and several realtors and looking at the neighborhood at various times of day and weekends, etc. Make sure it is not in a hundred year flood plain...that would cost you extra for flood insurance and quite honestly a 100 year flood plain can happen every 5 years or so...believe me on that...have relative in that situation!

You definitely want to get an independent appraisal on any house you are seriously interested in buying. If you live in a State that has property taxes, they can give you information on the homes tax appraisal and that is free....sometimes appraisal can be a bit high because government loves revenue, but it should be in the ball park. If you have problems with upkeep and lawn, etc...a condo might be better.

Now I always thought that PMI cut off was tied to the appraised value at the time of purchase....so I was surprised to hear that Adventurer had experience with bank holding em to pay until it got to 80% of the banks current appraisal. I guess I did not know that could happen but I guess it is possible to get into a situation where house is extremely overvalued or falls in value and does not go back up. I guess that is another issue that comes from the housing bubble that occurred a few years back! Just had never heard PMI was a secondary slap.

So Private mortgage insurance is a risk FEE charged by lenders if you must borrow more than 80% of the house's appraised value to assure some profit in case of default. You must pay that until you loan balance falls below 80% of the house's value. If you can avoid that and have 20% to put down that would be best. I would not recommend using your TSP funds for that. I would avoid it if possible. I'm also not aware of TSP pay back period if you were to get a loan, but I know it is only 5 years for regular loans.

You mentioned only having 10 years to pay off a mortgage. I would plan to do that but still get a bank loan only for 15 or better yet 30 years just to have flexibility. Make sure to compute the full costs to make sure you can afford it...think of tallying costs such as plumbing repairs, painting, central air system replacement, appliances, and other repairs. Suggest setting up an amortization chart and find out how much you must pay to get it paid in time for your retirement---then once the purchase is complete with low required payments, set up auto pay from your bank account to auto pay the higher exact amount to get it paid off in 10 years. I would make sure to only reduce the payments in an extreme emergency. You should Make sure the loan does not have any prepayment penalties for making extra payments on mortgage, or for early payoff....that is a big issue! Take care and best wishes!

 

[Sensei]

I think the $500 sniper was referring to was the HOA dues you'd pay on top of the mortgage payment. That's about average for a condo/townhome depending on your location to the ocean and beaches. Some HOA dues in Kona are practically a mortgage payment on their own....one complex I deliver to, their dues are $1050 @ month ! Crazy...

Owning over here on the Big Island maaaybe a little more affordable than on Oahu, but prices are rising and the homes you get for $400,00- $500,000 are fixer uppers, and are in good neighborhoods.

So if you can afford to own there are plenty of benefits...personally, the downfall for me me owning is the fact that it ties you down to one place. Not enough freedom to pick up and go.

So true about the HOA dues in Oahu! I'm currently renting my LA condo to a friend, so my mortgage is covered. But the friend might move in the next 2-3 years, so I was thinking of buying a condo in Hawaii that I could rent out for several years and eventually use for vacations/retirement. The condo prices are comparable in LA/HI, but the HOA is double or triple in HI! Crazy!

 

[PessOptimist]

...personally, the downfall for me me owning is the fact that it ties you down to one place. Not enough freedom to pick up and go.

Why would anyone want to leave such a tropical paradise?

 

[Sensei]

Don't buy unless you you plan to live in it for a long time or you have enough to put down. I bought a house in FL in 2006. Paid 145,000 for it. As a first time buyer and a GS-07, I didn't have enough to put down to avoid PMI (Private Mortgage Insurance) and I didn't have enough to buy any points so my interest was 6.75%. In 2012, thanks to our gubmint, I was able to refinance to a lower rate regardless of the value of the house. Never been late, never missed a payment but the house was appraissed (by the bank) at $50,000 so I'm still stuck with the PMI which I will not be able to get rid of until the loan balance is less than 80% of what I owe on it. The $50K appraisal is total BS because permits to build a house cost that much. It's just a way for the bank to squeeze more out of you. Bottom line, I bought a house for $145,000 that is appraised at $50K, I've paid a total of $107,675.76 so far on the mortgage and still owe $121,027.00! Out of that I've paid $100 a month in PMI for 8 years which is not deductbile or anything I will ever recoup. It will be 2019 and another $60K in payments before I can get out of the PMI. The tax dection you get is not dollar for dollar and even though my house was brand new when I bought it, there are always maintenance costs. Pest control, termite bond in FL is essential, water treatment system, A/C service every few years or so, lawn care if you are into that sort of thing, etc. So don't let anyone tell you that it's better to buy than to rent unless you have the capital to get a good interest rate AND avoid PMI and are planning to live in it for a while!

Can you afford to pay down the principle, say even $100 more each month? It would get you out from under the PMI a little earlier, and goes straight into your equity instead of down the drain.

 

[konakathy]

Are the apartments and condos that price as well? I'm confused, cause if a person purchases a 700K house to rent it...wouldn't they charge .9-1% (standard calculation) to rent? That means it would be around $6300-7000 For rent....

I think the $500 sniper was referring to was the HOA dues you'd pay on top of the mortgage payment. That's about average for a condo/townhome depending on your location to the ocean and beaches. Some HOA dues in Kona are practically a mortgage payment on their own....one complex I deliver to, their dues are $1050 @ month ! Crazy...

Owning over here on the Big Island maaaybe a little more affordable than on Oahu, but prices are rising and the homes you get for $400,00- $500,000 are fixer uppers, and are in good neighborhoods.

So if you can afford to own there are plenty of benefits...personally, the downfall for me me owning is the fact that it ties you down to one place. Not enough freedom to pick up and go.

 

[Frixxxx]

Not always the case. In Hawaii not even buying an apartment / townhome saves much money either, the maintenance costs are ridiculous, runs about 500/mo

So you're left with the option of buying a house, and if you want to live in a neighborhood where you don't have to worry about getting stabbed or attacked by some random ice head (ie. not in waianae or kalihi), it'll cost around 700k for a fixer upper

Are the apartments and condos that price as well? I'm confused, cause if a person purchases a 700K house to rent it...wouldn't they charge .9-1% (standard calculation) to rent? That means it would be around $6300-7000 For rent....

 

[sniper]

1. If you can rent, you have money to buy (interest is tax d

Not always the case. In Hawaii not even buying an apartment / townhome saves much money either, the maintenance costs are ridiculous, runs about 500/mo

So you're left with the option of buying a house, and if you want to live in a neighborhood where you don't have to worry about getting stabbed or attacked by some random ice head (ie. not in waianae or kalihi), it'll cost around 700k for a fixer upper

 

[Birchtree]

My neighbor is into cat rescue. Her husband moved out because she brought home too many cats. He is now renting an apartment but is at her place everyday for lunch and yard maintenance. My point is I've watched this guy take care of his house and I've offered to sell him mine so his wife can combine our beckyards for cat welcome. I'm going to hold the mortgage which means no messing with the banks, no PMI, no points, no interest rates, only a straight monthly payment to me. I'll have a lawyer draw up a purchase contract with a 90 day default. He is also getting a discount because I'm not looking for any great profit - just a way to make my life easier with a monthly income stream until the house is paid off. There will be no early payment penalty and I may not even declare the income - keeping the IRS out of my business. So we both win. Is this somewhat risky, of course, but having some capital makes the risk tolerable. Any way that's how I'm planning to sell my house. Oh, there is no requirement for a down payment.

 

[Adventurer]

Don't buy unless you you plan to live in it for a long time or you have enough to put down. I bought a house in FL in 2006. Paid 145,000 for it. As a first time buyer and a GS-07, I didn't have enough to put down to avoid PMI (Private Mortgage Insurance) and I didn't have enough to buy any points so my interest was 6.75%. In 2012, thanks to our gubmint, I was able to refinance to a lower rate regardless of the value of the house. Never been late, never missed a payment but the house was appraissed (by the bank) at $50,000 so I'm still stuck with the PMI which I will not be able to get rid of until the loan balance is less than 80% of what I owe on it. The $50K appraisal is total BS because permits to build a house cost that much. It's just a way for the bank to squeeze more out of you. Bottom line, I bought a house for $145,000 that is appraised at $50K, I've paid a total of $107,675.76 so far on the mortgage and still owe $121,027.00! Out of that I've paid $100 a month in PMI for 8 years which is not deductbile or anything I will ever recoup. It will be 2019 and another $60K in payments before I can get out of the PMI. The tax dection you get is not dollar for dollar and even though my house was brand new when I bought it, there are always maintenance costs. Pest control, termite bond in FL is essential, water treatment system, A/C service every few years or so, lawn care if you are into that sort of thing, etc. So don't let anyone tell you that it's better to buy than to rent unless you have the capital to get a good interest rate AND avoid PMI and are planning to live in it for a while!

 

[Buster]

Ten years until retirement means a ten year loan maximum. Taxes, plus cost to maintain house, plus interest paid on remainder of loan can all cost more than your apartment rental.

Then what do you have in the end?...NOTHING!..a mortage along with upkeep and property taxes it still putting you money ahead in the long run over renting for NOTHING..You might as well p!ss away your money on a nice hotel room then.

Good luck..you asked for advice and now you want to argue..

 

[offroad]

Ten years until retirement means a ten year loan maximum. Taxes, plus cost to maintain house, plus interest paid on remainder of loan can all cost more than your apartment rental.

 

[Buster]

My 3000 sqft house I built in 1998 is only 840.00/m..course that's after 4 other houses, two of which I built myself...this is called SWEAT equity...Using your TSP as either your down payment or for the whole thing is a excellent idea as long as you plan on paying it all back before you retire.

1. Equity, equity, equity..even in a weak housing market you'll make out in the long run.

2. TSP loans are at a cheap interest rate..I think it was whatever one of the funds were going at at the time of your loan...(I forget now which fund it was based on..ther G maybe?) and up to half of what you have.

3. The interest you pay goes right back into your TSP account along with the principle..(to me that's a win-win)

4. The Interest is also deductible from your annual Tax filing in APRIL.

Don't rent..it is only good for short term stays..Don't pay off someone elses mortage and they keep the equity and you keep squat...unless it's a rent to own deal, then that is risky too.

 

[JTH]

Is there any market point when a person should take his/her money out in a tsp loan and buy a house. Versus just renting a cheap less than $1500 a month place? Does anyone have a number crunch on this in a spreadsheet ?

You must be rich, my house payment is 1300 and I consider that fair value.


You may want to consider making/buying a tini home (I mean like the tiny homes on Youtube.) I would live in one if my wife would let me...

 

[Frixxxx]

Is there any market point when a person should take his/her money out in a tsp loan and buy a house. Versus just renting a cheap less than $1500 a month place? Does anyone have a number crunch on this in a spreadsheet ?

1. If you can rent, you have money to buy (interest is tax deductible.)
2. Does your rent cover the type of dwelling for purchase (home, condo, apt)?
3. $1500 is alot of money in some areas of the country...not so much in others.
4. Look at this quick view: Link provided by the New York Times

Good Luck, The only time I rented was when I saw the housing bubble occurring, and sold my house at the high and just rented until I moved out of California.

 

[offroad]

Is there any market point when a person should take his/her money out in a tsp loan and buy a house. Versus just renting a cheap less than $1500 a month place? Does anyone have a number crunch on this in a spreadsheet ?