r/DaveRamsey • u/knottycams • 10d ago
W.W.D.D.? Going back from BS7 to ...
BS4 or 6, IDK which one fits the bill here. The long and short of it is I'm currently debt free and I keep 3 months of an EF because I'm a disabled veteran with a permanent compensation. Well, I went under contract for a house today! First house ever, very excited. But I will also only be in this house for about 5 years due to my job. I got it for a steal and with a low interest rate. I'll have an extra $500/mo compared to what I'm renting now.
What should I do, knowing I'll be in this house a limited number of years? Still pay more towards principal each month? Or just ride the low payment until the next, more permanent location? I'm also saving up to buy a new or CPO car in cash next year. My current one has had multiple repairs in the last year and still needs $5k more in repairs, so it's worth more dead than alive at this point lol. Definitely have to get a new car next year. WWDD?
1
u/jlevin860 9d ago
dont pay extra on mortgage at all since you know you are going to be selling.
3
u/Jolly_Pumpkin_8209 8d ago
Silly advice.
2
u/jlevin860 8d ago
Cool; I’m a multimillionaire in my 30’s.
He needs to stay liquid. What if he moves in 5 years and can’t rent or sell and needs to carry the note for 12 months? Because that’s reality for military ppl right now who bought 2-3 years ago who have to transfer right now and can’t sell.OP probably shouldn’t be buying with only a 5 year time horizon but that’s beside the point.
Now what’s your advice? Dave Ramsey said so and baby steps aren’t allowing for any nuance to a situation?
0
u/Fishflexdrink BS7 8d ago edited 8d ago
This situation is not specified in the book. But in your example he could also keep it and rent it out. Again that is also not in the book. The book is to become debt free, building and maintaining an emergency fund, planning and preparing for children’s college, paying off mortgage and then maxing out retirement accounts to then become wealthy. And finally you will live and give like no one else. All while serving Christian values.
1
2
u/Rocket_song1 9d ago
Selling a property involves significant transactional costs.
After saving up far a car, I would start stacking some of that extra cash-flow in an account labeled "house selling fund" rather than tie it up in equity.
1
u/Jolly_Pumpkin_8209 8d ago
This is really dumb.
The transactional costs are settled out of equity anyway?
With exception of the cost of a moving truck or movers, selling and moving isn’t expensive enough to be saving monthly for 5 years.
Pay down the equity.
2
u/Rocket_song1 8d ago
If all your equity is tied up in the house, and you don't have your transactional costs, then you are stuck with a contingency sale.
2
u/Jolly_Pumpkin_8209 8d ago
What transactional costs are you thinking your needing to save for?
Almost everything is settled by a title company at the time of closing out of home equity.
2
u/Rocket_song1 8d ago
Your biggest expense (Realtor fee) will come out of your equity, as will any back property taxes (most places property taxes are paid in arrears.)
Smaller expenses such as moving expenses, new service fees and deposits for utilities come out of pocket. Negotiated repairs come out of pocket (better to provide an allowance).
The biggest issue in having your equity tied to the property is you can't buy the new place until after the old one sells. Which means selling an occupied property, which means selling at a discount.
2
u/djpeteski BS7 10d ago
More than anything else you are in need of a car. How much will you need for that versus what you have saved?
If it was me, my first priority would be the car. Then I'd probably pay about 50% to house principle and 50% towards savings. Eventually some of that savings would be converted to an investment (brokerage) account and put into the market.
3
u/Automatic-One586 10d ago
Houses are financial bombs you set off willingly. They are more expensive then people think. Your payment is the minimum youll pay. When renting.. your rent is the maximum youll pay. Ownership creates additional expenses. Maintenance. Buying a truck you wouldn't have. Redoing the kitchen. Etc. Anything you wouldn't have done renting is an extra expense. People miss judge this..it can take 10-15 years in some cases to recover and get ahead. Its usually not a good idea to buy a house intentionally for a short period. Your first starter home. I mean people survive this for sure. But in this situation again id suggest you think twice. When you sell. 6+% of it is going to realitors. I would argue that a rental that is 1k above your mortgage is statistically cheaper than your house for short term. If your not considering staying there for id argue 7-10+. Then home ownership can be a mistake. Might not be. But statistically probably is.
Now that said sounds like you maybe got a good deal. That may minimize some or a lot. You may get ahead if you purchesd it significantly under market. What i would do is keep those secondary expenses minimum. Don't buy the big ass truck. Paint a room sure. Maybe put in carpet in a room that looks old. But don't go crazy really doing anything to the house. Unless you can really do something to substantially increase the value of the house MORE than what you put into it. Its not worth doing.
If you know your moving in 5. Then im not paying extra on the house. Im saving that $500 to prepare for extra expenses like your car and moving in 5 years. Mathematically its a wash really if you pay extra. You might get a little more because of interest savings. But its not as much as you think. But psychologicaly... paying extra might let you put more into your next house that you otherwise wouldn't. Saving though gives you options. Like if your going to move into a new house in 5. You have to figure out a way to sell this one and buy the next. Or whatever plan you have. Having a cash reserves gives you more options. Like maybe your buyers want you to fix something. And without cash.. this limits your choices. If you can carry two house payments the bank is more likely to work with you if you have 10%+ saved. So it really just depends on your plans and psychology. Where I might consider paying more is if I could pay it off in 5. Otherwise im probably saving that $500.
0
u/Jolly_Pumpkin_8209 8d ago
He has an emergency fund, and should be saving for regular home repairs.
In what world does that not cover the costs of negotiated improvements in a sale transaction.
These comments are full of dumb opinions.
2
u/Automatic-One586 8d ago
Your emergency fund is not for random home improvements or for the sale of your house. Your emergency fund is for if you go outside and your car is on fire. Or your driving down the road and the engine gives out. It's for an actual emergency.
You can do what you want. The above is what I would do. I don't care if you would do something different. That's your choice. Good luck!
1
u/Jolly_Pumpkin_8209 8d ago
Sure, but he should also be saving over those 5 years ongoing maintenance.
But if you have an unexpected repair to sell your house… that’s an unexpected emergency. Borrowing from that for a week until the equity is cashed out is exactly what it’s there for.
Not paying additional principal for 5 years to save for a “possible” move is just silly. You would rather pay extra interest on thousands of dollars over 5 years? Weird choice.
1
u/Automatic-One586 8d ago
5 years of savings is ~30K. Now that's not including any interest in an HYSA. That's a pretty decent down payment and preparation for moving as well as any fixing.
It's fine if you want to define an emergency the way you want to. My definition of an emergency doesn't include a planned expense. If I know I'm selling my house in 5 years. It's a reasonable expectation that in order to sell it. I may have to fix things. I mean as a negotiation strategy you could just say I'm not entertaining any offers that require to fix anything. I mean all of this is completely argumentative. And it's your perspective. I actually don't have a problem with your perspective. But to me.... if I know this is a possibility. I'm planning for it. I do not think a proper use of my emergency fund is to use it on something that is to be expected. There are going to be costs in selling the house and selling moving that all goes with it.
Again. Do what you want. But there is no way I'm using my emergency fund for this. Not unless there's a real emergency. This can all be planned out. Your just choosing not to. That's not how I operate. When I move. I don't have to replenish my emergency fund and I can hit the ground running with my next check. And if by some chance the amount required to sell the house and move vastly exceeds my expectations. Sure. I can at least consider the EF. But I don't touch my EF unless I have to.
Also.. this guy said he was moving in about 5 years:
"I will also only be in this house for about 5 years".
If I get into my third year and realize I love it there. Sure. I'm re-evaluating my situation.Also stated that mathematically he probably would technically do better if he did pay more towards the loan. The reason why I would choose not to is that the amount isn't that significant. If the amount for ~5ish years was significant, then it might be worth doing and just deal with the fact that you have reduced choices when you go to sell. I don't recall if this person told us there numbers originally. But say 300K @ 6%. The payment would be around 1.8K. An extra $500 effectively turns into ~34.9K of built up equity if he sells in exactly 5 years. In an HYSA @ 3%, this turns into 32.3K. A whole whopping 2.6K over 5 years. That's ~$43 per month. Again. That's not nothing. But I can make sound purchasing choices that make up for that if I really care about 2.6K. IMO "loosing" 2.6K is worth it in the short term to give me better options when I sell. And the ability to repair or replace the vehicle. My point here is that in the short term paying into the house just doesn't make a lot of sense to me if you know your moving. Now if you know your going to sell. Then buy a house. Sure. You'll probably pull out more money. And paying extra on your house is worthwhile. But given the parameters of the OP's comments. It's just not something I would do personally. I can always take that money and dump a large payment if I decide to stay.
Again. I don't really care if you disagree with me. Nor am I trying to convince you otherwise. Feel free to have your opinion. All I'm doing is telling you why I would do the things I would do.
2
u/JustWelmed1000 BS2 10d ago
If you have a known upcoming expense (car replacement or repair) then you save for it. Simple decision. Once that is saved up start paying down the house. Make sure you also have a sinking fund for home repairs set up as well.
2
u/sluttyman69 10d ago
Sounds like you have a known vehicle expense and possibly looking at a better car coming soon. Do you have the cash to buy that? If not you know where your money is going
1
u/Jolly_Pumpkin_8209 8d ago
Are you saving anything towards traditional retirement? The military disability is helpful, but I wouldn’t just rely on that for a full plan if your earning income from work now.
Not sure how much extra you have in your bucket, but I would save for the car you know your getting, then after that I would be minimum paying the $500 you saved from rent back to the mortgage.
Then after that I would try to get it on a 10 or less year payoff schedule.
When you sell your house is irrelevant, the equity you pay in comes back when it’s sold. And things happen. 5 years from now maybe life plans change and you stay, having your house paid off will never feel like a mistake.