All Set To Buy A House

Tara is renting a house. She has $480,000 in savings and no debt other than her car. Should she buy a house, and if so, how much should she put down on one?

QUESTION: Tara in Los Angeles is renting a house right now. She has $480,000 in savings and no debt other than her car. She makes $120,000 a year. Should she buy a house, and if so, how much should she put down on one? Dave talks through Tara’s options.

ANSWER: I don’t think there’s any problem at all with holding six months of expenses in an emergency fund. If you want to be even more conservative than that, then put the rest of the money down and take a 15-year fixed-rate mortgage since real estate and the interest rates are at a bargain. You’re definitely in a position to do that. The good and bad news is that you’re buying California real estate. It’s way down right now. There are people who have made fortunes just owning a home in Los Angeles.

You don’t want your mortgage payment to be more than a fourth of your take-home pay. After you buy the house, start saving for retirement at that point. You should be saving 15% o your income, which would be about $15,000 or $20,000 for you. Put that money in 401(k) programs up to the extent of the match, then Roth IRAs, and all that invested in good growth-stock mutual funds.