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PDtax
PDtax, CPA, MBA
Category: Finance
Satisfied Customers: 4106
Experience:  Tax professional and business consultant for 35 years.
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I need a financial planner for the working class type person

Customer Question

I need a financial planner for the working class type person for this question about how to best pay for the house we are buying.
Submitted: 1 month ago.
Category: Finance
Customer: replied 1 month ago.
Financial planning for the working class.The question is, how should we finance the house we are buying?Jeff and I are an unmarried couple of 20 years. We are not married primarily because I qualify for a medicaid supplement to medicare unmarried. I have no assets, so when I say "we" I really mean "he”. I'm 66, only income is SS.Jeff is 54, retired with a state pension of 37K and takes a required distribution from an ira inherited from his mother. Balance of the ira is about 75K.He also has an additional $145k , all in savings accounts and money market accounts. No other investments. (He lost a great deal of his 401K a few years ago, and is very shy about investing.)Jeff owns the home we're in, 57K mortgage, market value about 70K. We are buying a house for 135K. Will sell this one but loan is not contingent upon sale. We could pay cash for the house, or we could take a loan of as much as $101, 000 , 30 yr fixed at 3.7. We'd need to pay 37,700 to close, about 28% of the purchase price. No points, but high closing costs none the less, totaling 3,900. Monthly payment about $675, about $200 of that is taxes and insurance.The big what if:
It seems to me not so wise to take the 30 year loan at 3.7 and leave 110K in savings accounts making about 1% and spending $675 a month for housing. If he bought the house outright, there wouldn't be much in the bank besides the IRA and maybe 10K after selling the house we're in. Basically investing it in residential RE (our home) where is market has been rising slowly but steadily since 2011. [The house we are buying for 135k was last purchased in 2013 for 116K] But monthly housing would be about $200. We generally live within our means, but if we needed money, we could use an equity line of credit , currently running at about 4.5%, possibly paying interest only (or not) for a period of five or ten years and borrowing only as much as we needed. Or in 8 years, he could get a reverse mortgage. [We won't need money when we're dead. No dependents we need to leave it with.] Or, there must be other ways to go as well that we are less familiar with.What is the smart thing to do?
Customer: replied 1 month ago.
COMBINED NET MONTHLY INCOME IS $3,500
Expert:  PDtax replied 1 month ago.

Hi from just answer. I'mCustomer I'll assist. I'm licensed as a CPA.

Customer: replied 1 month ago.
I'm confused. Is there a written response somewhere?
Expert:  PDtax replied 1 month ago.

I am not a fan of your plan. I think more of retirement housing than you do. It's just housing. It's not an investment to consider its appreciation. I like the lowest down payment mortgage you can find.

I see you are looking for a response. Let me send the first portion.

Customer: replied 1 month ago.
Did you send the first portion?
Expert:  PDtax replied 1 month ago.

One way to finance your new home is to pay for it outright, and perhaps save the monthly payment for the future. Hard to do. Could be smart, but hard to do. There is comfort in knowing there is cash available. Better than needing to borrow money if one of you gets ill. And it would be hard for you to borrow money if he gets sick or passes.

I would accept the idea that an investment portfolio provides more than just yield at retirement. It's easy to say the funds should not be invested at 1% when debt costs 3.7%. I believe that is more appropriate when you were younger.

Customer: replied 1 month ago.
34;I would accept the idea that an investment portfolio provides more than just yield at retirement. " Are you referring to the savings accounts as his investment portfolio?
Expert:  PDtax replied 1 month ago.

I believe people misjudge their homes as investment real estate. I use a different metric. It's housing. And it costs a lot until you pay for it, then it costs a little. But it's a cost of living.

The loss of comfort your partner would feel to liquidate much of the household reserves to pay for housing should be respected. It's not just a numeric exercise.

Buy the new home, sell the old one. Keep the portfolio. Yields will come back up in time if you need that comfort. But I suspect your partner likes knowing there is cash available now.

Customer: replied 1 month ago.
Thanks, I'll let him know your advice.
Expert:  PDtax replied 1 month ago.

You're welcome. Please rate my assistance to close out your inquiry. I'mCustomer

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