Am I in a position to upgrade homes?

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javabean
Posts: 8
Joined: Mon Jan 07, 2019 4:57 pm

Am I in a position to upgrade homes?

Post by javabean »

Hi all,
My wife and I are contemplating upgrading to a larger home. I would like to get your thoughts on whether this move is financially responsible or are we taking on something that we will regret. Here are the details:

1) I am 40, wife is 36. We have an 8 month old baby and may (depending on our financial picture) have another child in a couple of years.
2) Our combined annual income from salary and bonuses is $330,000.
3) Total Cash: $460,000 (savings + CDs)
4) Total Investments: $315000 (Taxable), $24000 (Roth IRA), $301000 (401k), $10,000 (HSA)
5) Current Mortgage: $296,000 outstanding at 4%. Monthly payment is $1900 (Principal+Interest+taxes+insurance) Current market value of the home is in the range of $460,000 to $480,000.
6) No other loans or liabilities.

The home that we are looking to upgrade to is listed at $850,000. We plan to put down 20% and finance the remainder amount of $680,000.
As far as the current home is concerned we will either rent it out ($2100 approx rent as per online research) or sell it if we are unable to rent it out.

In a nutshell we will be doubling our monthly mortgage payments by moving into this home. Also I realize that home maintenance costs will also increase. So far my paycheck was enough to run the household, but that will not be the case if we make the move.

Are we being sensible about this? Or should we wait until we have accumulated some more assets?

Thanks,
Javabean
Jags4186
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Re: Am I in a position to upgrade homes?

Post by Jags4186 »

You can afford it no sweat. Sell the old house $2100 a month rent on a house with a $1900 monthly PITI means you’ll be losing money on the rental.
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Wiggums
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Re: Am I in a position to upgrade homes?

Post by Wiggums »

javabean wrote: Fri Jan 10, 2020 10:01 am Hi all,
My wife and I are contemplating upgrading to a larger home. I would like to get your thoughts on whether this move is financially responsible or are we taking on something that we will regret. Here are the details:

1) I am 40, wife is 36. We have an 8 month old baby and may (depending on our financial picture) have another child in a couple of years.
2) Our combined annual income from salary and bonuses is $330,000.
3) Total Cash: $460,000 (savings + CDs)
4) Total Investments: $315000 (Taxable), $24000 (Roth IRA), $301000 (401k), $10,000 (HSA)
5) Current Mortgage: $296,000 outstanding at 4%. Monthly payment is $1900 (Principal+Interest+taxes+insurance) Current market value of the home is in the range of $460,000 to $480,000.
6) No other loans or liabilities.

The home that we are looking to upgrade to is listed at $850,000. We plan to put down 20% and finance the remainder amount of $680,000.
As far as the current home is concerned we will either rent it out ($2100 approx rent as per online research) or sell it if we are unable to rent it out.

In a nutshell we will be doubling our monthly mortgage payments by moving into this home. Also I realize that home maintenance costs will also increase. So far my paycheck was enough to run the household, but that will not be the case if we make the move.

Are we being sensible about this? Or should we wait until we have accumulated some more assets?

Thanks,
Javabean
I would not rent the current house for $2,100.

You can afford the new home now. you have plenty of cash too if you want to lower the payments. Unless you plan to invest thst money soon.

Why so much cash?
peterwantstosave
Posts: 364
Joined: Fri Nov 24, 2017 8:28 pm

Re: Am I in a position to upgrade homes?

Post by peterwantstosave »

You may not like my advice, but I would use the huge amount of cash that you have to pay off your mortgage and own your current house free and clear. That way, you can pile money into investments. It seems to me that you are not investing enough right now, and I would pay off the mortgage and focus on investing, in that order.

How small is your current house? Is your desire for a larger house a need or a want?

I'd become a multimillionaire before buying a bigger house. If you really are focused, you should be able to get there within 5 years.

I hate risk, so this is the approach I would take.

Peter
403b: 54% VTSAX, 36% BTMKX 10% QCBMRX | GSRA: 100% Money Market (100% QCBMRX on Dec 11, 2020) | Roth IRA: 100% FIPFX | Taxable: 100% FSKAX
Jack FFR1846
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Re: Am I in a position to upgrade homes?

Post by Jack FFR1846 »

A what if question.....

If you have a second child, will one parent then stay home, reducing income? A bigger home on half the income in a short time period would indeed stress you out.
Bogle: Smart Beta is stupid
KlangFool
Posts: 18182
Joined: Sat Oct 11, 2008 12:35 pm

Re: Am I in a position to upgrade homes?

Post by KlangFool »

javabean wrote: Fri Jan 10, 2020 10:01 am Hi all,
My wife and I are contemplating upgrading to a larger home. I would like to get your thoughts on whether this move is financially responsible or are we taking on something that we will regret. Here are the details:

1) I am 40, wife is 36. We have an 8 month old baby and may (depending on our financial picture) have another child in a couple of years.
javabean,

This is not financial. It is much harder to raise a baby/toddler in a larger house. You should ask around with the parents that had gone down this path.

Why do you want to make your life harder by moving to a bigger house? Why spend a lot of money just to increase your stress level and spend less time with your own family? You will not be using the additional spaces and it will make it harder to take care of the baby/toddler.

What is the size of your current house? What is the size of the new house?

KlangFool
ohai
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Joined: Wed Dec 27, 2017 2:10 pm

Re: Am I in a position to upgrade homes?

Post by ohai »

Can you afford it? Sure.

Is it a good idea? Don't know. You can afford to buy a Ferrari instead too, but it's going to set back your investments. Is the difference in house quality worth this upgrade? Don't know - I haven't seen the house where you live.

Thing is, you have a pretty high income and seem to be reasonably good at accumulating assets so far. If you wait for say $2 million net worth before buying an $800k, house, your future will be better and you can do it maybe in a few years. Where's the turning point for you?
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RickBoglehead
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Re: Am I in a position to upgrade homes?

Post by RickBoglehead »

KlangFool wrote: Fri Jan 10, 2020 10:44 am javabean,

It is much harder to raise a baby/toddler in a larger house.
KlangFool
Been there, done that, totally disagree.
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greg24
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Re: Am I in a position to upgrade homes?

Post by greg24 »

javabean wrote: Fri Jan 10, 2020 10:01 am We have an 8 month old baby and may (depending on our financial picture) have another child in a couple of years.
If your financial picture is impacting your family size, I would not buy a more expensive house.
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Watty
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Re: Am I in a position to upgrade homes?

Post by Watty »

javabean wrote: Fri Jan 10, 2020 10:01 am 1) I am 40, wife is 36. We have an 8 month old baby and may (depending on our financial picture) have another child in a couple of years.
You might want to hold off on buying a new home until you have the next child. If you need expensive fertility treatments or adoption expenses that could change your finances a lot.

If the next kid has even minor and temporary health issues that could make day care an undesirable or impossible option so you might need to go down to one income for a while. Even if you can do day care you may decide that with two kids it makes sense to have a stay at home parent for a while or have one of you go to part time work.

If you do buy a new house now then I would try to make sure that you could make the payments on one income if you need to.
javabean wrote: Fri Jan 10, 2020 10:01 am 2) Our combined annual income from salary and bonuses is $330,000.
Take any bonuses out of your calculations. There may very well be years when your "bonus" is that you do not get laid off like the person down the hall. I have seen that happen.
javabean wrote: Fri Jan 10, 2020 10:01 am As far as the current home is concerned we will either rent it out ($2100 approx rent as per online research) or sell it if we are unable to rent it out.
Lots of problems with that;

1) You might not qualify for a large new mortage while you still have the old mortage. Until you have several years a rental history lenders may not count the rental income in the loan calculation.

2) If you keep it as rental you will lose the homeowners capital gains exemption.

3) With the two houses would would have something like $1.4 million in real estate that is in the same area. That is a huge diversification problem.

4) As other said more politely your numbers suck. Sorry to be so blunt but the numbers are not even close to being good.
javabean wrote: Fri Jan 10, 2020 10:01 am The home that we are looking to upgrade to is listed at $850,000. We plan to put down 20% and finance the remainder amount of $680,000.
I don't know where they draw the official line but you are on the cusp of being middle age. Many senior discounts start when you are 55. If you get a new 30 year mortage then it will not be paid off until you are 70.

Taking on a huge new home mortage is not a good idea. Between your home equity and your cash you could put a large amount of cash towards the next house and buy it with a 15 year mortage with a reasonable mortage payment. One advantage of a 15 year mortage would be that it would be paid off before your kids start college.
quantAndHold
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Re: Am I in a position to upgrade homes?

Post by quantAndHold »

So far my paycheck was enough to run the household, but that will not be the case if we make the move.
Wait, what? Oh. I see. $330k is combined income and you’re talking about just your income here.

It sounds like the new home would impact whether or not your wife (or you, if that’s what you want) could stay home with the kids, and would add stress if one of you became unemployed.

On the surface of it, you can easily afford the house. But consider that lower fixed costs will give you more freedom to do what you want in the future. Which choice would be better for your overall quality of life is something only you and your wife can decide.

And just piling on here, but don’t rent the house. Sell it. After expenses and vacancies, you’re upside down on it.
Yes, I’m really that pedantic.
KlangFool
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Re: Am I in a position to upgrade homes?

Post by KlangFool »

RickBoglehead wrote: Fri Jan 10, 2020 10:50 am
KlangFool wrote: Fri Jan 10, 2020 10:44 am javabean,

It is much harder to raise a baby/toddler in a larger house.
KlangFool
Been there, done that, totally disagree.
RickBoglehead,

Please state

A) The size of your house

B) Whether you have a live-in nanny

C) Whether one of the spouses stay at home or work from home

KlangFool
FrugalConservative
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Re: Am I in a position to upgrade homes?

Post by FrugalConservative »

Buy the new house, sell the old. You have solid income for an 850K house.

Have more kids, start filling up those bedrooms.

But like others have said, why so much cash? I would either put that cash towards the new house in turn driving down your payment, or put it in a taxable account, 60/40 split.

How much are the taxes on the new home?
hightower
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Re: Am I in a position to upgrade homes?

Post by hightower »

Sure you can technically afford it.

How secure is your job/income? Do you guys want to work for 20-30 more years?

How much will a move like this increase your taxes? Insurance costs?

Remember that owning a home costs far more than just the minimum monthly PITI. Larger homes come with more expensive utilities, repairs, furnishings, maintenance, etc.

Really look at your long term financial goals and determine whether or not a larger home fits into those goals or at least how the house would impact your goals.

Personally, I wish we would have bought a smaller house than we have now. We hardly ever even use our enormous finished basement. Even after I pay off my mortgage many years from now, I'll still be paying a hefty price for the property taxes on this place. It's a hard pill to swallow for someone like me who wants to retire early. The bigger house will certainly mean I have to work longer as a result.
Unladen_Swallow
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Joined: Tue Dec 10, 2019 6:12 pm

Re: Am I in a position to upgrade homes?

Post by Unladen_Swallow »

javabean wrote: Fri Jan 10, 2020 10:01 am Hi all,
My wife and I are contemplating upgrading to a larger home. I would like to get your thoughts on whether this move is financially responsible or are we taking on something that we will regret. Here are the details:

1) I am 40, wife is 36. We have an 8 month old baby and may (depending on our financial picture) have another child in a couple of years.
2) Our combined annual income from salary and bonuses is $330,000.

How stable are these jobs?

3) Total Cash: $460,000 (savings + CDs)
4) Total Investments: $315000 (Taxable), $24000 (Roth IRA), $301000 (401k), $10,000 (HSA)
5) Current Mortgage: $296,000 outstanding at 4%. Monthly payment is $1900 (Principal+Interest+taxes+insurance) Current market value of the home is in the range of $460,000 to $480,000.
6) No other loans or liabilities.

The home that we are looking to upgrade to is listed at $850,000. We plan to put down 20% and finance the remainder amount of $680,000.
680+290 = $970K in total mortgages, if you keep your first home. I know, you plan to rent it out. But the debt is there.

As far as the current home is concerned we will either rent it out ($2100 approx rent as per online research) or sell it if we are unable to rent it out.

In a nutshell we will be doubling our monthly mortgage payments by moving into this home. Also I realize that home maintenance costs will also increase. So far my paycheck was enough to run the household, but that will not be the case if we make the move.

Are we being sensible about this? Or should we wait until we have accumulated some more assets?

Thanks,
Javabean
Your plans work on optimism. That you continue two guaranteed salaries, and no other downturn.

If it were me, I wouldn't do it. At your income and age, I would want to have lower debt with more invested. Having a young child with the possibility of having another would make me want more security, not extend myself more.

This is what I would like. Offering only a perspective as food for thought. Not a recommendation.
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman
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