Greatly appreciate you accepting this as the answer to your question.
First, you are doing everything right so far, by taking advantage of the
matching plan provided by your company and saving money on the side. The
next step, putting that money to work for you, is the right thing to do
Although home ownership can appear to be quite daunting, if it is done
the correct way, it can provide multiple benefits, with a nice potential
return on investment not being the least of those benefits.
If not done the right way, then you are better off with more traditional
investments, such as a money market account, so let's cover the things that
need to be done to get it right. In your situation, a money market account
might be your best bet, but let's examine the whole home ownership option.
This Manhattan Mortgage article covers the basics of affordability.
"How Much Can You Qualify For - Self Test"
"A general rule is that you can purchase a house valued at twice your annual
income, but this does not take into account your debts, a large down payment,
or other factors which can add to or detract from the amount you can afford."
Before buying a house, one should do a cost (and savings) analysis. This
paper written by Margaret H. Smith, Ph.D., CFP and Gary Smith, Ph.D.
and titled "Is a House a Good Investment?" provides the tools to do
The above paper, and other sources, tend to point out the general need to be
prepared to be in a purchased house a minimum of three to seven years for it
to make financial sense.
You will need to shop around for the right house, in order to get one that
you can afford. If found, then you are looking at a 20% down payment, in
order to avoid having to carry mortgage insurance. There will also be the
need to pay closing fees, which can run 2% or more of the purchase price.
When it comes to the mortgage loan, obviously getting the best rate is one
of the goals, and a 30 year fixed rate is still the most traditional. But,
make sure any loan you get allows prepayment of not only the entire amount
of the loan, in the case of a refinance if there are lower rates, but also
of the principle of the loan.
You will want to pay down the principle with extra payments whenever you
are able to (make the payment separately and marked as being towards the
principle) so as to then reduce the life of the loan.
What are the benefits of going through all of this?
- You exchange pure debt (rent) for debt investment (house ownership)
- If properly done, a reasonable return on investment
- Once paid off, that much more money to start investing in other things
- Once paid off, the "ease of mind" of knowing you have a house
This last "benefit" might not seem like much, but it is actually one of
those "priceless" things that are a result of home ownership.
On the downside, there are the costs of upkeep, etc. to be kept in mind.
This SmartMoney.com article covers some scenarios as it pertains to return
"Is Your House Really a Good Investment?"
"Take [a] $250,000 house with 9.2% annual appreciation ? the highest rate
for a major metro area over the past 10 years. In that case, your equivalent
annualized return rate would be 11.2%"
San Diego is a problem.
The San Diego Housing Commission (SDHC) covers some pricing information.
"To afford a median-priced house ($550,000) today in San Diego, buyers need
an annual income of about $134,000, assuming a 10 percent down payment and a
30-year fixed-rate financing at current interest rates."
The SDHC also provides first-time homebuyer loans and grants.
This Kiplinger's Personal Finance article discusses "Should You Buy or Rent?"
"Don't beat yourself up if you can't afford to jump into the sizzling real
estate market -- you might be surprised what a bargain tenancy has become.
Plus: Four places to house your cash while you wait for the right opportunity."
If you are considering the home ownership route as the best place for a
large percentage of your savings, then you might want to wait until you live
someplace other than San Diego. San Diego might be an opportunity just
waiting though, in that if you continue putting aside money for a down
payment, a house might be a deal before going into foreclosure.
At this time, it does not appear that any real estate purchase in San
Diego would be advisable, and buying a condominium might be even less
advisable. In a "bubble" situation, condominiums tend to suffer more
as the ramp up of prices before the "burst" attracts more investors
This article in The San Diego Union-Tribune by Dean Calbreath outlines
some of the pitfalls of housing conditions such as the one in San Diego.
"Housing slowdown, state woes are forecast"
"The widely followed UCLA Anderson Forecast said the economic outlook is
mediocre at best and that a deep drop in housing prices could prompt a
recession by the end of [this] year.
Thornberg said that when the housing boom ends, every sector of the
economy will feel the impact. He said he is especially concerned about
how tightly the state's job market has become intertwined with the
For now, there are some money market accounts that are paying a 4.55% rate.
Keep saving, save even more when you can, and keep it liquid so you can
act when the moment is right. Give living in San Diego at least a year
or two before making the step of home ownership.
If you need any clarification, please feel free to ask.
Search strategy: Personal experience.
Google search on: "San Diego" "real estate" forecast
Google search on: "affordable house" investment
Google search on: buying home OR house rent "annual income"
Google searches on variations of: home, house, real estate, investment(s)
Looking Forward, denco-ga - Google Answers Researcher