so here is the debate i am having with someone on another forum
you make 51k per year and you are single. you have the chance to purchase a 250k condo near your office and near stores and everything you could want on a weekly basis. the terms of the loan would be identical except for;
do you
a. rent for 5 years to save up for a downpayment by utilizing your 401(k) then drawing 50k for the one time allowance of using it on a downpayment for a first time home purchase. the 401(k) would have an annual return of 7%. the company matches 100%
or b. take out a loan for 35k, save up for a 15k, and take out a 200k loan.
some mathematical information. 30 year fixed, 6% interest for the loan. in the second scenario you would have 15 year 10% loan for 35k. assume that 401(k) contributions are equal to the mortgage of scenario b, minus rent, which is 1000 dollars a month and increases 5% per year.
i argued that option a. would be better because not only are you getting tax benefits while saving, you're also going to have more income to spend than the person in scenario b. for at least 7-8 years that could be going towards a 401(k) or IRA instead of paying two loans at once. the counter argument was that one could capitalize handsomely by getting in earlier on the real estate and counting on a return to 4% appreciation per year. i think at the 15 year point the value of the home would be less than the value of the home + 401(k) contributions. at the 30 year point i would say even more so. at the end of the contest, 35 years or so, i would say i would be even more right.