How much cash did you leave in your account after closing?

HotChocolate79 · August 2011

Hi Ladies. I am new to this board but have been lurking for a bit... DH and I are about to buy our first house together and have a disagreeement about how much cash to leave in our account after closing.

He wants to throw every penny we have, literally everything, into the downpayment. The logic there is that every $1 not applied to the downpayment will cost $3 over the course of 30 years so we "must" do it.

I on the other hand am really uncomfortable with this approach and having no money left and no e-fund of any sort for ~4ish months after closing (which is how long it would take us to build up to a somewhat acceptable level of savings). Plus I am really sad that we are not leaving anything to replace the carpet in the bedrooms before moving in - again, I know waiting for 4-6 months hasn't killed anyone but what's there now is seriously gross and I just have a feeling we'll never get it done because it's a pain to move all our huge furniture around. I've agreed to live with icky carpet even if I am not 100% happy with it, but primarily I just freaked out because I found out I have to charge a few thousand on a credit card for a work related expense... I won't be reimbursed for it until December at the earliest, most likely January, and there's nothing that scares me as much as credit card debt.

I'd like to add that we are both professionals and are fortunate enough to make comfortable salaries and have solid 401K balances. We also live in a very high COL area and the downpayment in question is going to be 30%. For my comfort level we'd lower it to 28%. MH owned houses before (prior to us being married) and was able to pay off both mortgages, which is no small thing. He was always responsible with money and did really well, so overall I have utmost respect for his financial acumen. I, on the other hand, struggled a great deal in my early/mid 20's, made several bad decisions and had a lot of debt which I just fairly recently was able to put behind me. I know we'll be able to pay for food, gas, and other basics just fine, and we can absolutely afford this house, so it's not a matter of that... But the mere idea of not having much of an emergency fund scares the bejebus out of me. He just doesn't see it that way.

What would you do if you were in this situation?

Beth&Derek · August 2011

We only put 3.5% down (FHA) so that we would have a decent amount of money left over. We left about $7k for appliances, furniture, and some repairs and then had about a 3 month emergency fund on top of that. We were also lucky enough to get the first time homebuyer credit, so that $8k was put into our e-fund as another 3 or so months of expenses. I wouldn't buy a house leaving nothing for an emergency fund because you never know what's going to come up as a homeowner.

kristinanddan · August 2011

Our downpayment money was totally separate from our emergency fund. After closing we still had well over 8 months of income in our emergency fund.

What happens if you move in and the house immediately needs some expensive repair? It happens, and I think it's wise to have an emergency fund on hand.

RubyTue · August 2011

We put down 10%. Emptying out our savings would have been about a 40% down payment. With interest rates this low, it doesn't make sense to put so much down. I'd rather put 10% down, even with PMI (we did prepaid PMI), and keep my cash in the market or other investments where it is more liquid.

nsfw · August 2011

Team You.

Don't do something that makes you uncomfortable.

Can you meet in the middle?

breaness · August 2011

We left ourselves with about $7k for furniture, lawn care equipment and other expenses. Plus a buffer for emergencies. The buffer isn't as high as I would have liked but it's totally doable. In about 2 months it will be where I want it.

atlcatlover · August 2011

We put down 20%. We left plenty of money to do things to the house before we moved in (carpet, hardwood floors, painting) as well as buy a ton of new furniture. We also kept a separate efund of 12 months of mortgage payments. No way I'd move with no savings. You never know what is going to go wrong.

nursecramer · August 2011

Using his logic, it doesn't make much sense to rebuild an efund... you should just put all that money into making extra payments to pay down the principal as fast as possible, right? I doubt your H would go for this, but it makes as much sense as what he is proposing.

Simpsongal1 · August 2011

I think you've gotten a lot of good advice.

I'll just confirm -- he's 100% wrong x's out of his mind.

HotChocolate79 · August 2011

Thanks - I needed to hear that I am not crazy, LOL.

Unfortunately with the price of an average house here (think into the 7 digits and we are not talking a macmansion by any stretch), having 12 months of mortgage payments saved up in addition to the efund and downpayment is unrealistic and unattainable. We are both confident that nothing major should go wrong with the house - we were specifically only considering newer homes, built in the last 10 years or less because we are not interested in playing general contractor.

We don't need any furniture as we have more than enough, appliance are passable and whatever we want to eventually replace can wait, carpet - like I said, I am unhappy to be keeping what's there now and wouldn't have chosen that but have agreed to let it go for now. We will paint ourselves, so again minimal costs. However I still can't sleep at night unless there's a minimum of 12-15K cash in the bank that's easily accesible should we need it.

I guess the only thing where I feel like I don't have a leg to stand on when we talk about this tonight (and we are usually really good about reaching compromise and resolving disagreements) is that MH's family and he himself have followed this "doctrine" if you will when buying homes - leaving nothing in savings; and they are all financially on very solid footing, building healthy savings after an initial few months after purchase and paying off the home within 10 years or less. I on the other hand have not a whole lot to show for any financial decisions I've ever made and my only major claim to fame is getting out of debt created by my own stupid decisions. Which is why since DH and I have gotten together, I usually rely on him to guide the way when it comes to money. Until now, I've been very comfortable with what he has done and all was well. Thanks for your thoughts, I'll update on how it turns out.

stephm0188 · August 2011

We didn't have a down payment.

That said, our two weeks of home ownership was eventful. The shower in our bathroom started leaking through the family room ceiling. Then, a major hailstorm hit and caused 25,000 in damages. Yes, we have homeowners insurance, but we still forked over 3K in repair work and deductibles.

Don't drain your savings.

Julia-Henry · August 2011

Today's interest rates are spectacularly low. I would put down 20% (to avoid PMI) and then invest the rest of the money elsewhere. In a couple of years, you'll be making more on your money than you are paying on your mortgage, to say nothing of the tax advantages that come from having a mortgage.

jacksjerseygirl · August 2011

Does your DH realize that you can pay additional principal each month? It isn't like this is your one and only opportunity to 'save' money on the life of the mortgage. Every month you could do this.

I don't find it smart to use your every last cent when buying a house. You will have expenses. If it is an older home - you never know what will happen (this is probably the case even with new homes too but at least there you have a warranty). I read someone who bought a home (an older home) and in the first month XYZ went wrong and they had to replace this and that.

In a HCOL area I tend to put LESS down (coming from the NYC/NJ market where apartments/homes can easily be 1m + for something simple not a mcmansion). I think with homes today you are throwing money away - buying a home isn't an investment as it once was.

I doubt that a bunch of strangers on a message board are going to change your DH's mind. This is a situation that you two have to AGREE on TOGETHER (hence, being married and respecting each other's opinion not caving one way over the other).

atlcatlover · August 2011

I say do the math.

Find out the payment difference between the 28% and the 30% DP, and tell DH you are ok with adding that extra to the payment every month. That way you are keeping a cushion in the bank to help make you more comfortable, but at the same time paying extra on the principal which should help keep DH happy too.

Simpsongal1 · August 2011

HotChocolate79:

Unfortunately with the price of an average house here (think into the 7 digits and we are not talking a macmansion by any stretch), having 12 months of mortgage payments saved up in addition to the efund and downpayment is unrealistic and unattainable.

Where on earth are you looking? London? Manhattan?

It sounds like his family has been lucky w/real estate values and repairs. I wouldn't buy an expensive home w/o at least 15-20K in savings (on the low end), unless his family promised to stake you if something happens that requires $$$.

Some may disagree, but with such low interest rates, there's really no incentive to dump all your money into a DP. You'd be better off investing.

nital · August 2011

huh? will the bank let you drain your savings? i thought you were required to have at least some in reserve.

HotChocolate79 · August 2011

We have plenty in reserves - but nothing that's liquid and that one could easily get their hands on in the even of emergency. For the bank's purposes though, it qualified as reserves.

And to clarify, most of this unfolded today while we are both at work - so we haven't been able to proprely talk about it. I don't expect strangers to change his mind but I am confident that we can have a discussion and come to some sort agreement that works for both of us. I was just curious what other people did to make sure I am not off base when we discuss tonight.

dev22 · August 2011

Leaving no money in savings would give me a huge panic attack.

emarston1 · August 2011

HotChocolate79:

We are both confident that nothing major should go wrong with the house - we were specifically only considering newer homes, built in the last 10 years or less because we are not interested in playing general contractor.

This worries me a lot. A brand new house could flood tomorrow and you would have to pay to have it fixed. Just because it's a semi-recent build doesn't mean it won't have problems. Appliances break, basements flood, any number of things could go wrong and you need to be prepared for that.

curlylocks3 · August 2011

We did a 16% down payment and had well over a year's worth of living expenses, mortgage payments etc in our accounts (not counting retirement funds). DH wanted to put down more but I wasn't comfortable with that. We also have made a couple of extra payments towards the principal since buying in April. I would not put all of my savings into a down payment.

abvernon · August 2011

emarston1:
HotChocolate79:

We are both confident that nothing major should go wrong with the house - we were specifically only considering newer homes, built in the last 10 years or less because we are not interested in playing general contractor.

This worries me a lot. A brand new house could flood tomorrow and you would have to pay to have it fixed. Just because it's a semi-recent build doesn't mean it won't have problems. Appliances break, basements flood, any number of things could go wrong and you need to be prepared for that.

Took the words right out of my mouth. We have only lived in our house for three weeks and this is what we had done so far (this how was move in ready btw):

the kitchen sink was leaking (luckily we had a plumber coming in for something else)
install additional electrical outlets in both rooms and the bathroom
install additional lighting in the backyard
replace the front step as it was too high (10") to code
our sewer line needed to be replaced as there were roots growing and backing up our toilet and shower. It looks like some of the pipes are deteriorating and we may need new ones sooner rather than later!
new appliances (we needed a fridge, w/d, and microwave...oven and dishwasher were already installed)

With the additional $$ we kept in our DP by not putting all of it into it, we are able to pay these repairs/upgrades with the cash we have.

I am with you. I would prefer to have some extra cash just in case.

While it is nice to put a bigger DP, what is that going to be worth if you have a major repair w/in the first week of moving in?

Talk to your DH and come to a compromise.

shanwalk2 · August 2011

No way would I be okay with draining the savings.

Keep your emergency fund! What happens if one (or both) of you lose your jobs?? Not okay. I wouldn't be able to sleep at night!

Why not put a smaller DP, and pay an extra payment (or two) towards principal at the end of the year? It will essentially do the same thing, right??

mau_loa · August 2011

We are in the exact same situation. The house we want to build will deplete our cash savings as of today. By the time we close (in about 4 months) I will have about $15k saved back up, but we will still need money for purchases. Ugh.

5dogs · August 2011

Our house was eight years old when we bought it as a short sale. One of the major appliances died during escrow and one more is on it's way out a year later. Our house was also flooded during escrow due to an open water line being left "on" after the seller moved out. Many of the issues with the repairs did not become super apparent until after we had closed and moved in so it was on our dime. I wouldn't feel comfortable not having a buffer at all, no matter the age of the home.

jenn3745 · September 2011

Just because they have done this before doesn't mean its the right way for you, or in this economic climate. There are a lot of things that could go wrong and the last thing anyone wants is to have nothing in the bank and a giant house to pay for. Also since before about 3 years ago this economy was booming, I'd say their prevoius situations were completely different than now and financial decisions should change to reflect that. This should also be between you and him, not his family. He should be able to respect your discomfort and compromise. 2% is nothing when he's talking about 40% of a house.

How much cash did you leave in your account after closing?

Re: How much cash did you leave in your account after closing?

Choose Another Board

Search Boards