• Making Home Ownership Work

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    Wow, a $15,000 tax credit for new homeowners? (thanks, Jim)

    Plummeting housing values?

    Ever decreasing interest rates?

    I’d be lying if I were to say that I haven’t been trolling the MLS listings for about an hour each day for the last few days, searching for our lair where we will hoard our spoils of war and amass an army of hatchlings.

    While this perfect storm of economic factors is a definite boon to us as potential home buyers, our lack of savings is looking like our largest obstacle to future home buying.

    Currently we have a little over $20,000 in cash saved up. I’m not sure how much of that is liquid; we expect to owe taxes this year and are deciding which route to take to reduce our tax burden. We’ll either contribute $10,000 into a solo 401(k) and pay the remainder of the tax out-of-pocket, or we’ll just eat the estimated $4,500 tax bill. Both options don’t leave us with much flexibility.

    We also have the two 0% student loan balance transfers. If these were 0% for life it would be an easy decision to only pay the minimums until we saved enough for a down payment. Unfortunately, the balances must be paid off by September and December, and it doesn’t look like we’ll be able to change our plan for paying these off.

    The only item in which we have any breathing room in our budget to free up some money is our Roth IRA contributions. We were planning on contributing the maximum amount to both of our Roth IRAs this year. On a monthly basis, we would be allocating $833.33 per month, an amount that, if saved, would significantly accelerate our plans to own a home. I’m not quite sure that this is anywhere near the right thing to do now.

    There’s nothing wrong with our current goals: pay off debt, save up until we have a 20% down payment, and contribute to our retirement plan. We are planning on waiting until spring of 2010 to seriously look for a home. Even writing this now I feel that waiting may be the best option because we’ll be the most financially ready then.

    But wow, a $15,000 tax credit is going to be difficult to pass up.

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