Dear Helaine: My fiance and I are 27, debt-free and combined earn $150,000. We also live in a city with a high cost of living and rents. We both think it would be great to have our monthly payment going toward something we can own when our lease is up this summer. However, we only have $10,000 saved specifically for a down payment.
Up to this point, we've been paying off what debt we had, dealing with an emergency, saving for retirement, building a six-month emergency fund. My parents are paying for the wedding. What is it OK to cut or put aside so we can come up with at least a 10 percent down payment? Can we skip a year of retirement savings? Cut down our six-month emergency fund to a three-month fund? Sell off investments we have outside of our joint housing savings and retirement accounts to fund this?
I intend for the first expense post-house to be replenishing whatever funds went to the down payment and paying down the mortgage, so we can eliminate the mortgage insurance ASAP. Is it ever OK when you are earning a lot to temporarily cut back on your financial safety net? We have the money, just not right now. -- Homeowner in Waiting
Dear Homeowner in Waiting: Here's one easy way to buttress your house savings fund: downsize the wedding and ask your parents if they'll put the saved funds toward your future housing fund, either in the form of a gift now or an assist when you've found your home. A wedding, as meaningful as it is, is one day in your life. A home you will live in for years to come. I suspect it's a rare parent who will say no to such a request. (I'm assuming your parents have the money, and aren't charging the shindig on a credit card.)
That being said, I'm guessing, based on your comments, you'll need at least $50,000 to come up with a 10 percent down payment. Your habits seem good, and I would suggest cutting back to a three-month emergency fund and tapping into your individual investments held outside of retirement accounts before downsizing or eliminating saving for retirement.
One other thing: Make sure you can afford to own a home. In many cities, especially high-cost ones, it is cheaper to rent than own when all the added costs (property taxes, high cost of buying, home maintenance and so on) are added in. I would hate to see you get financially ahead of your skis as you begin your marriage. On that note -- congratulations!
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