My daughter and I had yet another text discussion about finances. I am her go-to sounding board for budgets and financial matters, which is actually a pretty nice place for me to be. This latest question was about a home purchase with less than 20% downpayment saved. While C has wanted to buy a home for a really long time, she’s evaluating her options right now and contemplating the reality of real estate in our slice of northern California. There are a lot more expensive areas (hello Bay Area shoppers!) yet even around here a fixer in decent area is going to start at $150K, which translates into a $30K savings for that elusive 20% downpayment.
Her question related to PMI, though. She now feels that waiting a few more years and saving, Saving, SAVING is a better than buying with less than 20% down and paying PMI, but here fiance disagrees. I did some quick research to ensure I was correct, but it appears that an FHA mortgage now requires PMI for the life of the loan, rather than a minimum of 5 years and 78% loan to value, which would definitely put me off of the idea of buying with less than 20% down payment. As I tried to explain to her, it is a gamble. Should they pursue this path the home they choose could increase in value and they could refinance once they reached 20% equity. However, what if their home does not appreciate that quickly and interest rates outpace the increase in value? In that situation it does not seem prudent to refinance into a higher rate to get out of the PMI, and she certainly agrees with my logic. However, she and A have grown up around low interest rates and it is hard for them to imagine them rising very quickly. Housing is also starting to rebound around here and it has been very much a sellers market the last 18 months or so, although it does seem to be leveling out, and they have some anxiety about being priced out of the market. Being more conservative financially, I support her leaning toward waiting a few years and saving more money. A is more willing to take a chance and it has become a point of discussion between the two of them.
I point out to her that M and I bought our first (and probably only) home just 2.5 years ago, at ages 50 and 54. Even if they waited 6 years (just an example for nice round numbers), they would only be 35, their vehicles would be paid off, A will have made inroads on his student loans (they have no other debt), and most importantly, they will have more time to save more for a downpayment and to have some money for new house goodies. She sees the logic and understands the numbers, but A is still in the “debt is normal” mindset and not quite there yet.
But that’s not really what is making me feel cheap this morning.
We have told C that we will contribute $5000 toward their wedding. Now, if they do not want our assistance with the wedding expenses or if they decide to do a simple courthouse ceremony, the $5000 can be used as a downpayment on their first home. I am striving for balance here, between being a controlling mother of the bride and just handing them a check to blow on whatever they wish. But the reaction from another close friend makes me wonder if $5000 is not much of a wedding contribution? Her daughter’s wedding was $30,000, of which they paid 50%. It was a beautiful ceremony and reception, but privately I thought that was a lot and way over the top. I have always had the $5000 figure in mind for both my kids. However, I admit to being very practical and HOPING they would both opt for simple weddings and receptions that stay in the low 4 figures range. I also do not feel at all guilty for the string of wedding expenses or down payment. If I had to approve the house or the wedding plans I would be THAT mom, but since I am leaving details to them I think I am being okay.
Only now I second guess myself. Should it be more? I recognize that a lot of families cannot afford to help their kids with college, much less wedding or home downpayments, so I guess like the rest of personal finance this is a personal choice. Now that I have typed it out in this post, I recognize the amount is what M and I are comfortable contributing, me probably moreso than M, because he is naturally more protective of both kids and concerned about their choices in mates.