Wednesday, November 10, 2010


Last Friday was my two year anniversary with Taylor, and we went to Uchi to celebrate. It was delicious as expected.

The rest of the weekend was filled with hanging out and sports. The hanging out part was good. The sports part was very, very bad. Both the Longhorns and the Cowboys embarrassed themselves for the umpteenth weekend in a row. Sigh...

[this portion was written Monday night]
I have three presentations tomorrow which will wrap up most of my duties for this charity campaign. I'm less nervous than I was about the leadership presentation, but there will be many more people at these presentations. I'm going to prep for the presentation tonight and tomorrow morning, and we'll just see how it goes. I have a presentation at 9:30, 10:30, and 5:00. What sucks is that usually when you make a presentation, you're relieved and done. In my case, I have to make it again two more times. I'm sure it'll be much easier each subsequent time, though.

[this portion was written Wednesday]
Well I'm done with the presentations and they all went well - except for attendance. Not sure what happened this year, but I only talked to about 60 people total across the three meetings. Oh well, it's still an accomplishment, just not as big as I was hoping.

I need some financial advice from my readers. I am almost done with my car payments, and I have two options for what to do with the extra money: put it toward my student loans, or my savings. The typical financial advice that you would receive is to put it toward your loans because of the interest rates. My savings account has an APY of 3%, whereas my student loans have an average rate of about 4.5%. However, I'm hoping to have a solid enough chunk of money saved up in the next one to two years such that I can make a down payment for a house and afford all the necessities involved. I would like to put the extra money all toward my savings, in order to boost that account. Of course, the smart compromise would be to split it up - maybe half and half? All I know is that if I put it all toward my loans, my savings account won't be able to grow as much and I won't be as financially ready in the future for a commitment such as a house.

I wish I knew some financial experts.

Tomorrow I leave for Seattle with the always-beautiful Taylor Yowell. We're going there in part to celebrate our anniversary, but also to visit a good friend who left us for Seattle a couple months ago — Travis, of course. Should be a fun weekend, and relaxing if nothing else. I need the break.


  1. Down payments on houses aren't as important as they used to be. Your credit history and sometimes job history make a bigger difference.

    I would say to split it up. Chipping away at the principle of your school loans means you'll be saving money in the long run. And if you split it appropriately, you are still stashing away money into savings for any lump-sums that you desire.

    Now what %'s do you want to split? That's a good question. I'd say make yourself a goal amount to have saved up. Usually something with a few zeros behind it looks good. Figure out how much you have to stash away each month into savings in order to reach that goal... then the remainder of your freed up money can go against the principle of your student loans.

    To summarize, I don't think having a student loan is going to hurt your abilities to work with a bank for a mortgage, but I also don't think down payments are as important as they used to be. I think it makes more sense (and cents) to chip away at the student loans.

  2. I disagree w/ Andy's statement about downpayments. Typically if you put less than 20% down on a house, you're going to have a higher interest rate, and you'll have to pay PMI. Your mortgage payments will be almost completely put towards paying off interest instead of the principal for the first few years, meaning you're not building any equity. If you aren't going to be in the house for more than a few years, you're basically just paying rent at that point.

    What I'd recommend is figuring out what you want your monthly mortgage payments to be, and work backwards from there. It's hard to predict interest rates since the housing market is still in the shitter currently, but get two numbers: best case and worst case interest rates. Then, play with all those numbers to figure out how much house you can afford, and calculate your downpayment goal from there.

    Student loans typically have a much lower interest rate and much longer repayment period than regular loans. I'd think about your overall financial goals to determine how quickly you want to pay off your student loans. You can probably calculate how much it will cost to pay off your student loans given $XXX paid per month. If you calculate that putting off those payments for a little while doesn't put you in a bind with those loans, then maybe it's better to save up for a downpayment. Again though, all depends on your financial goals.

  3. Yeah I would recommend you buy a house as soon as possible. Interest rates are super low right now and it is a buyer's market, the longer you wait the less chance that this is going to be the case. You also need to think about how much money are you losing/wasting each year you rent, sorry Justin. As my parents have always told me, when you rent you are paying someone's mortgage for them.

    Student loans suck, but the interest rate on them are pretty low. If I were you I would buy a house as soon as possible and pay off your loans second. Consider buying a house that maybe isn't your dream house and then you will probably be able to sale it and upgrade in less than 5 years.

    Just to give you an idea the house I bought 2 and half year was about 105K, I just got it appraisal that stated that my house is now worth 130K (I have done nothing to my house except up keep). I had no money when I bought the house, so my parent lent me money to put down the minimum down payment of 3%. They also had to lent me closing cost for the house that came out to between 4K and 5K. I did have to pay mortgage insurance of about $30 dollars a month and my interest rate was probably 1/4 to 1/8 higher then it would have been if I had put 20% down (that corresponds to 10 to 20 dollars extra a month). I just refinanced because the interest rates are so low and I needed to get my parents off the loan and add Ray to it, because of how high is appraised for I technically had a 20% down payment and was able to get the best loan with no mortgage insurance. I had to pay closing cost again though. It is important to note that most of these number increase if you buy a more expensive house.

    When you buy a house you have two options for loans: conventional and FHA. You can only get conventional if you have a 20% down payment and they have the lowest interest rates. FHA loans have a slightly higher interest rate and if you can't put a 15% down payment you will have to pay mortgage insurance every month. Even if you don't have a huge down payment, I think the money you lose in mortgage insurance and the higher interest rate is less than you waste on rent.

    Also I would really recommend a 15 year mortgage instead of a 30 year mortgage, if you can afford it. By doing this you do not increase you mortgage payment by 100% not even 50%, but you pay off the principle of your house much faster and when you sell it you will get a lot more money in your pocket for you next house's down payment. On top of all this the interest rates are much lower. This is what Ray and I did when we refinanced.

    Lastly Texas's housing market is very strong, probably one of the strongest in the nation, property values are still increasing with each year. If you interest is increasing your overall wealth, buy a house as soon as possible.

  4. To address Marisa's comments:

    1) Andy and Michael aren't necessarily "wasting" each year they rent rooms in this house. They're both very intelligent people, and if it didn't make sense to live in this house then they would have moved out a long time ago. Yes, by living here they are paying rent; they'd also be paying rent by living in an apartment though.

    2) The appraised value of a house is VERY different than the actual value of a house. The county appraisal district will place a certain value on your house, which is NOT based on the current condition of the housing market. This appraisal value is used for taxes, and is NOT indicative of the actual value of your house. Don't expect a massive financial windfall just because you bought a house and the county appraised it for much higher than you bought it for.

    3) I'll give a quick example of the value in owning a home to explain my other points first:
    Say you buy a home w/ a mortgage value of $100,000 (this is ignoring downpayment, just assuming your loan value is $100k). Let's say your interest rate is 0%, and your monthly payment is $1000 (all theoretical numbers).

    Let's also say you want to sell your home in 5 years. This means: 60 months x $1000/month = $60,000 put towards house payments (ignoring downpayment). Let's also say that inflation doesn't exist, and at the end of 5 years you sell your house for the original price of $100,000. Because you've sold your house for what it was originally worth, you've basically lived in your house rent-free for 5 years. The equity you've accumulated in your house is $60,000.

    In another scenario, lets say you've sold this same house for $125,000. You've now made an additional $25,000 on this house (equity = $85,000).

    With real-estate investment, the goal is to build equity in that investment, because that translates to money in your pocket. Real-estate investors try to invest in areas where house prices will increase, so they make money by building equity in houses they purchase. The lower the interest rate, the more equity built into a house.

  5. 4) A 15-year mortgage means higher monthly payments than a 30-year mortgage, though w/ a 15-yr mortgage you're putting more money towards the principal. Your monthly payment is a lot higher, but you're building more equity. There are quite a few other options, such as Adjustable Rate Mortgages (ARMs). Lets look at a 5/1 ARM:
    For 5 years, your interest rate is XXX. This interest rate is typically MUCH less than a 30 or 15-year mortgage. After 5 years, this interest rate jumps up and your monthly payments increase significantly.

    The benefit in ARMs is if you don't plan on living in your house for more than the ARM length. You enjoy the benefit of the lowered initial interest rate, and don't get hit by the raised interest rate later. Because your initial interest rate is low, a higher portion of your monthly mortgage payment goes towards paying off your principal, which helps you build equity in your house.

    5) Texas' housing market is one of the best in the US. During the recession, the value of houses in Texas did not drop near as much as the rest of the country. In California, for example, you may have purchased as house for $650,000, but its actual value the next year may have only been $500,000 (Gee, I wonder why California is billions of $$$$ in debt??!?!). In Texas, though, house prices have remained relatively consistent throughout the recession. To me, this means that owning real-estate in Texas comes with a certain amount of investment security, which is an incredibly valuable piece of information.

    Again though, EVERYTHING depends on your personal investment goals. The best piece of investment advice I've ever received is: "Enjoy your money." The purpose of money is to spend it, not to stress out about ideal savings strategies. Sure, you could eat ramen noodles every meal in your 20's in order to save money for a house, but your quality of life is greatly decreased. Make sure your actions work towards your overall investment goals, but make sure you're having fun at the same time.

  6. Justin I do know the difference between a County District appraisal and a real appraisal. The appraisal I was talking about was a bank appraisal that does take in to consideration the current housing market and would be the value I would put my house on the market for if I were to sell right now.

    This is completely my opinion, but renting to me is a waste of money if you can afford a house. When you can afford a house is really up to the person. All I am trying to say is if I were Michael I would seriously consider buying a house even if I didn't have a 20% down payment. I do agree that if you are going to rent it is better to rent from a friend, you'll probably get a better deal and you'll be helping a friend out.

    Lastly I do agree, money is meant to be spent and enjoyed; but there needs to be a balance between enjoying your money and preparing for the future. People not understanding this balance is a big reason why the United States is currently in the worst recession since the Great Depression.