Friday, December 30, 2005

The realities of the housing situation for the middle class.

My wife and I are on the road to house ownership. We figure that we'll need at least $300K to buy a suitable house for us in the greater Boston area. Kids are not in the near future plans. So to avoid a monthly PMI payment (which could add $45-50K onto our total mortgage payment) we need to save up $60K for a downpayment. We're about 1/5 of the way there with what we currently have in savings and investments.

Step one--no debt spending. Zero. We're putting a good deal of our money towards debt relief. We have not put a dollar on a credit card for several months and we never plan to again. We have old debt on low-interest credit cards and we are doubling the minimum payments. Tons of debt in grad school loans, but worth it in that wife is just starting a new job that she is sure to love. We're double the minimum payments on that too. At the current pace, we will be free from credit card debt in 2 years and the grad school loans in 8-10.

Step two--save money. ING savings bank offers a savings account with a variable interest rate that is currently at 3.75%. Compare that to 0.5% from bank of America... Thanks to wedding gifts we have a decent amount in there. I have an IRA that was started for me by my former employer 10 years ago. There's not a ton of money in it but it's growing at about 6-7% per year at this point. Wife has an annuity with a bit more than is currently in my IRA, but we have no idea how well it's doing as her dad is still the executor of the account. We're working on taking care of that. We deposit money into the savings account on a regular basis, but we've recently been depositing less so we can pay off debt quicker. With my wife's new job we'll be able to save more each month.

Step three--wait. Keep on working, paying down debt and saving. For a couple years... Damn I hate the man... How are we going to grow our savings by 50K in 2 or 3 years? That remains to be seen... But we don't have enough capital to invest to make a

Step four--mother-in-law is a real estate broker... Buy something.

Step five--keep working, paying down debt, and trying to rebuild savings. Be in debt for at least 20 or 30 more years. Hope that retirement plans don't go bust (wife will have a 403b, which will help). Hope that the effects of peak oil are mitigated enough (nowhere near enough is being done) so that the dollar doesn't crash (it might).

Our other choice is to rent forever, be debt free in 10 years, but risk having no place to live if/when TSHTF. I suppose with a huge loan out on our house that risk would still exist anyway...


Blogger Bucher said...

Congrats on step four... seems you've saved yourselves 3-6%....

As for the bigger picture, good luck with the reality of the "middle class". I too am starting a much more realistic path for myself, and can't imagine the difficulty of doing it tandum. Just keep in mind, for me if for nothing else, that you and Beth are amazingly aware and talented people, and have bigger fish to fry in the long run. I hate to see good people go to waste. ;)

1:15 AM  

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