Another can we afford home thread!

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
pdanet
Posts: 43
Joined: Wed Feb 08, 2017 3:29 pm

Another can we afford home thread!

Post by pdanet » Mon Feb 20, 2017 9:58 am

We are looking for a new home - spouse wants a bigger home to accomodate growing family which makes sense as this would be THE home for next 15+ years. We are located in Tampa, FL.

DH - 42 yrs and DW - 38 yrs
Existing home - Approx 2400 sqft with 3bed/2bath. Home value ~$230K
Exsting home - paid off. NO mortgage and property taxes(includes HOA fees) - $2500/year

New home - between 3000-3500 sqft with 5bed/3bath. Home value ~$500K
New home - 10% downpayment so loan would be for $450K and property taxes(includes HOA/CDD fees) - $8000/year

Combined Income(Spouse and myself) - $175K
2 Kids - 3 year old and 2 month old and both will likely goto public schools.
Savings/emergency fund: $25K(in a high yield online account)
Retirement(401Ks and IRAs) - $400K
College Fund kid#1: 20K
College Fund kid#2: 15K
Cars paid off.
No other loans or debt.
DW wants to take a break from corporate grind in about 5 years.

Average price for new homes in our area go for about $500K to $530K

If we buy the new home, Going forward:
Intend to Max out our 401K and IRA
Intend to contribute $5K/year toward College Fund for each kid.
Anything left over will go towards mortgage after all other expenses.

Question -

1. Can we afford the $500K home on our $175K income?
2. If yes to #1, Should we rent the existing home and use rent to pay towards the new home mortgage? Rental income ~$1300/month.
3. If yes to #1 and no to #2, Should we just sell the existing home and use proceeds to pay down the new home mortgage ? this results in lower monthly payments.

I do realize that are trading home which has lower HOA fees compared to the new home with higher HOA fees given that they have other ameneities (club house, pool, tennis courts etc) which we may/may not use but the home lot is closer to A rated public schools and have shorter commute to elementary/middle/high schools(all within 5 miles)

I ran some numbers and with 10% downpayment(as of now), for $450K loan - we will be looking at ~$3000 in monthy mortage payment and if PMI were to drop off, the mortgage payment would go down to ~$2600.
Given that new home construction takes 6-8 months once you sign the contract, we hope to ramp up our savings to ensure we are closer to making 20% downpayment to avoid PMI.

I don't want to over-stretch ourselves since you never know job-wise how things may go.

Your thoughts on home affordability?

tim1999
Posts: 3365
Joined: Tue Dec 16, 2008 7:16 am

Re: Another can we afford home thread!

Post by tim1999 » Mon Feb 20, 2017 10:48 am

How much of that $175k income is attributable to your wife? If it's a lot, and she plans on leaving that income in a few years, this plan doesn't make sense to me. Other than a shorter drive to schools, what are you getting with this new house? 2400 square feet is plenty for 4 people unless it's a weird layout with useless space. If you buy the new house I would not advise renting out the old one and becoming an amateur landlord. Sell it and move on.

pdanet
Posts: 43
Joined: Wed Feb 08, 2017 3:29 pm

Re: Another can we afford home thread!

Post by pdanet » Mon Feb 20, 2017 11:14 am

tim1999 wrote:How much of that $175k income is attributable to your wife? If it's a lot, and she plans on leaving that income in a few years, this plan doesn't make sense to me. Other than a shorter drive to schools, what are you getting with this new house? 2400 square feet is plenty for 4 people unless it's a weird layout with useless space. If you buy the new house I would not advise renting out the old one and becoming an amateur landlord. Sell it and move on.
Tim.

Thanks for response.

DW contributes about 70K of the 175K income and we are hoping that in another 5 yrs we can pay down as much mortgage as possible with DW's income.

Existing home is about 15 yrs old and starting to incur more maintenance (needs new A/C, paint, possibly roof replacement etc) - None of these are going to break the bank but it's the schools that we are concerned about plus not having additional bedroom/bathroom and current HOA rules doesn't allow us to expand our home. If they did, we won't be having this conversation :)

I tend to think your suggestion on NOT being an amateur landlord is a valid one. In the event, we sell and use that to pay down our mortage on the new home then, it should be manageable to make mortgage payments after 5 yrs or so when DW takes a break. Right?

goingup
Posts: 3048
Joined: Tue Jan 26, 2010 1:02 pm

Re: Another can we afford home thread!

Post by goingup » Mon Feb 20, 2017 11:22 am

A few thoughts-
Can you put 20% down to avoid PMI and get a non-Jumbo mortgage?

If you rent your current home you'll still need to get a new roof and fix the AC. It's been 20 years since we sold our FL rental, but I seem to recall losing the Homestead Exemption for property tax when we rented, as well as having property insurance increase with tenants.

tim1999
Posts: 3365
Joined: Tue Dec 16, 2008 7:16 am

Re: Another can we afford home thread!

Post by tim1999 » Mon Feb 20, 2017 11:32 am

pdanet wrote:
DW contributes about 70K of the 175K income and we are hoping that in another 5 yrs we can pay down as much mortgage as possible with DW's income.
I would put the proceeds from the old house into the new house, so that once your wife stops working, you can afford the payments on a 100k income.

User avatar
Watty
Posts: 13345
Joined: Wed Oct 10, 2007 3:55 pm

Re: Another can we afford home thread!

Post by Watty » Mon Feb 20, 2017 11:43 am

pdanet wrote:2. If yes to #1, Should we rent the existing home and use rent to pay towards the new home mortgage? Rental income ~$1300/month.
There are a couple of show stoppers in doing this.

1) If you have any price appreciation in the house you would lose the homeowners capital gains exemption if you rent it for more than a few years.

2) I don't understand how the details of it work but when you you convert a owner occupied house to a rental the depreciation gets complex and is likely not as favorable.

If you have a burning desire to be a landlord then for the taxes it might make sense to sell that house and buy a different rental property.

3) You might have a hard time qualifying for a mortgage on your next house. Without a good rental history a lender will count very little if any of the future rental income when reviewing your loan application.

4) A 30 year mortgage would not be paid off until you are 72. Even if you want to work that long you cannot count on it. I would plan on buying this house with a 15 or 20 year mortgage so be sure to work that into your numbers. A 15 year mortgage would get you a lower interest rate and have the house paid off by the time your oldest kid starts college.

5) If you own two homes then roughly 100% of your net worth will be in Florida real estate in the same city. Just for diversification only owning one home might make sense give the history of Florida real estate and the Hurricane risk. Buying Hurricane insurance for a rental house could be much different than for one you are living in so be sure to look into that. Any disaster relief after a hurricane will also be a lot different for rental property.

I would not recommend it but if for some reason you wanted to have $230K invested in real estate buying a REIT would likely make more sense.

I would sell your current house. If you had $230K sitting in the bank you would likely not be very tempted to buy a rental property.

pdanet wrote:...spouse wants a bigger home to accomodate growing family ...

Existing home - Approx 2400 sqft with 3bed/2bath. Home value ~$230K
...
New home - between 3000-3500 sqft with 5bed/3bath. Home value ~$500K
With the transaction costs you would be paying about $300K and not get a lot of additional square footage. You would have two empty bedrooms that might not be all that useful.

One problem with having a very large house when you have kids is that it is a lot harder to keep track of them or to hear then if they are crying or fall and hurt themselves.

There is not one right answer as to spending to upgrade to a nicer house and neighborhood but I don't see a lot of advantages in having the additional square footage and empty bedrooms.

pdanet
Posts: 43
Joined: Wed Feb 08, 2017 3:29 pm

Re: Another can we afford home thread!

Post by pdanet » Mon Feb 20, 2017 12:24 pm

Watty wrote:
pdanet wrote:2. If yes to #1, Should we rent the existing home and use rent to pay towards the new home mortgage? Rental income ~$1300/month.
There are a couple of show stoppers in doing this.

1) If you have any price appreciation in the house you would lose the homeowners capital gains exemption if you rent it for more than a few years.

2) I don't understand how the details of it work but when you you convert a owner occupied house to a rental the depreciation gets complex and is likely not as favorable.

If you have a burning desire to be a landlord then for the taxes it might make sense to sell that house and buy a different rental property.

3) You might have a hard time qualifying for a mortgage on your next house. Without a good rental history a lender will count very little if any of the future rental income when reviewing your loan application.

4) A 30 year mortgage would not be paid off until you are 72. Even if you want to work that long you cannot count on it. I would plan on buying this house with a 15 or 20 year mortgage so be sure to work that into your numbers. A 15 year mortgage would get you a lower interest rate and have the house paid off by the time your oldest kid starts college.

5) If you own two homes then roughly 100% of your net worth will be in Florida real estate in the same city. Just for diversification only owning one home might make sense give the history of Florida real estate and the Hurricane risk. Buying Hurricane insurance for a rental house could be much different than for one you are living in so be sure to look into that. Any disaster relief after a hurricane will also be a lot different for rental property.

With the transaction costs you would be paying about $300K and not get a lot of additional square footage. You would have two empty bedrooms that might not be all that useful.

One problem with having a very large house when you have kids is that it is a lot harder to keep track of them or to hear then if they are crying or fall and hurt themselves.

There is not one right answer as to spending to upgrade to a nicer house and neighborhood but I don't see a lot of advantages in having the additional square footage and empty bedrooms.
#1: Thanks for the tip
#2: No idea about depreciation.
#3: I haven't thought thro' the mechanics of the rental property but we hope to qualify based on our income to begin with and then, use rental income to pay down mortage so rental history won't be a factor on loan application
#4: Thanks for this suggestion. We haven't looked at 30 yr vs 15 yr rates yet. Most likely choose 30 yr since DW wants to take a break and we can accelerate payments if we want to.
#5: Good point and so it might be better to sell the existing home at some point in future once we close our new home.

Not worried about transactional cost since there is no way to avoid it when buying another home. Also, my inquiry was related from a financial standpoint - however, we'd like to think we see lots of advantages with additional square footage and bedrooms/bathroom addition :D

goingup wrote:A few thoughts-
Can you put 20% down to avoid PMI and get a non-Jumbo mortgage?

If you rent your current home you'll still need to get a new roof and fix the AC. It's been 20 years since we sold our FL rental, but I seem to recall losing the Homestead Exemption for property tax when we rented, as well as having property insurance increase with tenants.
we can't avoid PMI right now given what we have saved so far but hopefully should be in abour a year.

Not familiar with non-jumbo loan since builder is offering to pay closing costs if we choose their lender which will be our choice.

You are correct, we will lose homestead so will be looking at higher property taxes and there will be maintaince costs if we continue to rent - good point!

cherijoh
Posts: 4675
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: Another can we afford home thread!

Post by cherijoh » Mon Feb 20, 2017 12:24 pm

tim1999 wrote:How much of that $175k income is attributable to your wife? If it's a lot, and she plans on leaving that income in a few years, this plan doesn't make sense to me. Other than a shorter drive to schools, what are you getting with this new house? 2400 square feet is plenty for 4 people unless it's a weird layout with useless space. If you buy the new house I would not advise renting out the old one and becoming an amateur landlord. Sell it and move on.
Watty wrote:
pdanet wrote:2. If yes to #1, Should we rent the existing home and use rent to pay towards the new home mortgage? Rental income ~$1300/month.
There are a couple of show stoppers in doing this.

1) If you have any price appreciation in the house you would lose the homeowners capital gains exemption if you rent it for more than a few years.

2) I don't understand how the details of it work but when you you convert a owner occupied house to a rental the depreciation gets complex and is likely not as favorable.

If you have a burning desire to be a landlord then for the taxes it might make sense to sell that house and buy a different rental property.

3) You might have a hard time qualifying for a mortgage on your next house. Without a good rental history a lender will count very little if any of the future rental income when reviewing your loan application.

4) A 30 year mortgage would not be paid off until you are 72. Even if you want to work that long you cannot count on it. I would plan on buying this house with a 15 or 20 year mortgage so be sure to work that into your numbers. A 15 year mortgage would get you a lower interest rate and have the house paid off by the time your oldest kid starts college.

5) If you own two homes then roughly 100% of your net worth will be in Florida real estate in the same city. Just for diversification only owning one home might make sense give the history of Florida real estate and the Hurricane risk. Buying Hurricane insurance for a rental house could be much different than for one you are living in so be sure to look into that. Any disaster relief after a hurricane will also be a lot different for rental property.
I am with Tim and Watty. Turning you previous residence into a rental is rarely the best option - especially if you are strapped for a down payment on the new house. I was a landlord for ~ 4 years when I couldn't sell my condo after buying a new construction home. But I was able to put down 20% (without needing my home equity) and was thus able to avoid PMI. I also qualified for a larger mortgage than my condo mortgage + HOA dues + new mortgage, so I didn't have to worry about using any prospective rental income to qualify for the mortgage.

I had a less than ideal landlording experience, but was never in danger of running into cash flow issues. I would be very concerned about any bumps in the road under your circumstances, especially if your spouse leaves the workforce and you are dependent on your salary alone. Rental income is only truly passive if you hire a management company which will skim a hefty fee off the top and doesn't necessarily guarantee you a quality tenant.

Since you don't have a mortgage on your current home, a successful rental would actually mean that most of the rental income would be taxed at your marginal tax bracket. You would still have the depreciation deduction, but depreciation is recaptured at a higher marginal rate than capital gains (I think 25%) when you eventually sell the property.

pdanet
Posts: 43
Joined: Wed Feb 08, 2017 3:29 pm

Re: Another can we afford home thread!

Post by pdanet » Mon Feb 20, 2017 12:40 pm

cherijoh wrote:
I am with Tim and Watty. Turning you previous residence into a rental is rarely the best option - especially if you are strapped for a down payment on the new house. I was a landlord for ~ 4 years when I couldn't sell my condo after buying a new construction home. But I was able to put down 20% (without needing my home equity) and was thus able to avoid PMI. I also qualified for a larger mortgage than my condo mortgage + HOA dues + new mortgage, so I didn't have to worry about using any prospective rental income to qualify for the mortgage.

I had a less than ideal landlording experience, but was never in danger of running into cash flow issues. I would be very concerned about any bumps in the road under your circumstances, especially if your spouse leaves the workforce and you are dependent on your salary alone. Rental income is only truly passive if you hire a management company which will skim a hefty fee off the top and doesn't necessarily guarantee you a quality tenant.

Since you don't have a mortgage on your current home, a successful rental would actually mean that most of the rental income would be taxed at your marginal tax bracket. You would still have the depreciation deduction, but depreciation is recaptured at a higher marginal rate than capital gains (I think 25%) when you eventually sell the property.
Thanks. Am not thrilled about being landlord - was hoping to use rental income as a buffer to make/manager mortgage payments but open to selling it as well.

Looks like the consensus is we won't be stretching ourselves to afford $500K home on $175K income(initially). however, if we do sell the rental and then DW(in future) takes a break - looks like we still would be OK with single income but certainly constrained due to higher property taxes(which includes HOA/CDD fees).

Did I miss anything?

cherijoh
Posts: 4675
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: Another can we afford home thread!

Post by cherijoh » Mon Feb 20, 2017 12:53 pm

pdanet wrote: we can't avoid PMI right now given what we have saved so far but hopefully should be in about a year.
A lot of lenders got burned during the housing crisis, so you should check with the prospective lender about how to qualify to get released from PMI. In the good old days it was based on the ratio of your remaining loan balance to the fair market value of your home at the time you requested release from PMI. I think most lenders now require you to use the smaller of your purchase price or the fair market value of the home in the denominator of the calculation.

If you sell your current home and use that money to pay down the mortgage, then you would definitely qualify to remove PMI, but otherwise you'd need to come up with a significant chunk of change (at least $50K on a $500K house with a 10% down payment) - which is a lot more than you would net after tax in the first year on your rental property. In addition, I think you haven't taken into account any new home expenses (furniture, decorating such as window treatments, landscaping, etc.) OR higher utility bills (due to the larger home size) into account which will be a drain on any extra cash flow.

Finally, have you considered the cash you will need to provide up front to cover the initial escrow amount at closing? Even if the builder is paying closing costs, you will still be responsible for coming up with the money for insurance on for new home and up to a years worth of property taxes (depending on when in the property tax cycle you close).
Last edited by cherijoh on Mon Feb 20, 2017 1:00 pm, edited 2 times in total.

Traveller
Posts: 663
Joined: Sat Jun 25, 2011 10:47 am

Re: Another can we afford home thread!

Post by Traveller » Mon Feb 20, 2017 12:54 pm

A lot can go wrong landlording... I'd sell the current house and then buy new rolling every dime into the new home taking out as small of a mortgage as you can. Then you will have a simpler scenario and an easily affordable mortgage if your wife decides to stop working.

Pdxnative
Posts: 232
Joined: Sat Nov 07, 2015 2:17 pm

Re: Another can we afford home thread!

Post by Pdxnative » Mon Feb 20, 2017 1:00 pm

Yes, you can afford this home. You should avoid PMI though. That's money down the drain. Why not use the equity in your current home for down payment, and to reduce mortgage amount on new home?

It's a good time to move because your kids haven't started school yet.

Personally, I would not want to manage a rental with two young kids. I'd rather play catch on weekends than meet with roofers to get bids on rental repairs.

User avatar
gunn_show
Posts: 1389
Joined: Wed Jun 06, 2007 3:02 pm

Re: Another can we afford home thread!

Post by gunn_show » Mon Feb 20, 2017 2:37 pm

Traveller wrote:A lot can go wrong landlording... I'd sell the current house and then buy new rolling every dime into the new home taking out as small of a mortgage as you can. Then you will have a simpler scenario and an easily affordable mortgage if your wife decides to stop working.
Agree with this, and overall the OP story is a bit confusing to me. I'm still really unsure why you are not planning to sell the existing home and just roll 100% of proceeds into the new one? I'm not sure if FL has the CA 1031 exchange benefit, but that is one major reason to consider it, if so. Being a landlord is a job, plain and simple. From turning the home into a rental, to advertising, to interviewing renters, to ongoing maintenance, to 10pm pipes are clogged emergency calls, additional tax requirements, saving more receipts all year for the rental write-offs, you name it, it's all more labor than you probably want. Does not sound worth it, at all, for a ~$1300/mo rental income. No way.
pdanet wrote:Existing home is about 15 yrs old and starting to incur more maintenance (needs new A/C, paint, possibly roof replacement etc) - None of these are going to break the bank but it's the schools that we are concerned about plus not having additional bedroom/bathroom and current HOA rules doesn't allow us to expand our home. If they did, we won't be having this conversation :)
This is the other reason your plan doesn't make a lot of sense - you clearly state a major reason to move is to both upgrade + move on from future maintenance deferrals, yet if you keep the home as a rental, you will still have to pay for this stuff. New AC and roof is in the tens of thousands, plus to refurbish your place as a rental will require probably all new paint, new carpets, total clean job. Then add in the landlording part, or paying a prop manager 10% to do it. The story doesn't really add up to go this route at all.
"I love competition. And I want to win." R. Murdoch

pdanet
Posts: 43
Joined: Wed Feb 08, 2017 3:29 pm

Re: Another can we afford home thread!

Post by pdanet » Mon Feb 20, 2017 2:42 pm

gunn_show wrote:
This is the other reason your plan doesn't make a lot of sense - you clearly state a major reason to move is to both upgrade + move on from future maintenance deferrals, yet if you keep the home as a rental, you will still have to pay for this stuff. New AC and roof is in the tens of thousands, plus to refurbish your place as a rental will require probably all new paint, new carpets, total clean job. Then add in the landlording part, or paying a prop manager 10% to do it. The story doesn't really add up to go this route at all.
I understand I have to pay for stuff if it turns into rental, I was hoping to keep it as rental as it would bring in rental income which can offset monthly mortgage payment but advise on the forum is to sell it and use proceeds to buy the new home.

Edit: However, to sell the home - we may have to spruce up the place(new paint, landscaping etc) as well.

User avatar
Meg77
Posts: 2254
Joined: Fri May 22, 2009 1:09 pm
Location: Dallas, TX
Contact:

Re: Another can we afford home thread!

Post by Meg77 » Mon Feb 20, 2017 3:23 pm

Hi there! I'm a banker, and there is another option that I think may be ideal for you guys.

1. Apply now for a home equity loan or line of credit on your current home in the amount of $115,000 (50% of the value is the most allowed in TX where I am at least, but if you can get more without paying much in closing costs then go for it). Opt for a line of credit if you plan to sell the house when you move. Get a fixed rate term loan if you plan to keep it as a rental.

2. Wait 30-60 days before applying for the new mortgage. Lenders usually want to see that the funds for the down payment have been available and weren't borrowed recently and will want to see 2 months of bank statements. You should still be able to get a loan either way, but it will be less of a hassle if you haven't just closed on another loan.

3. Put down at least 20% and buy the new house on a 30 year fixed rate loan. You can afford the payments, especially with a smaller loan amount and no PMI. This is particularly true if you expect your income to go up before your wife quits work.

4. Unless you really want to be a landlord, I'd probably sell the old home and use the funds to beef up a very nice emergency fund and top off the college funds. If your wife wants to quit sooner or one of you gets laid off or something, it'll be nice to have 6-12 months expenses in cash versus having a smaller mortgage with the same payment. However, many lenders will allow you to "recast" your mortgage which means that you can make a big one time principal payment and then they'll recalculate your payment based on the new loan amount without you having to refinance. That could be an option too.
"An investment in knowledge pays the best interest." - Benjamin Franklin

User avatar
lthenderson
Posts: 3061
Joined: Tue Feb 21, 2012 12:43 pm
Location: Iowa

Re: Another can we afford home thread!

Post by lthenderson » Mon Feb 20, 2017 3:48 pm

I certainly wouldn't want to go into a new home with only $25k for an emergency fund for a family of four, unknown monthly expenses, $3000/month mortgage payment and a spouse that will be quitting work in five years.

pdanet
Posts: 43
Joined: Wed Feb 08, 2017 3:29 pm

Re: Another can we afford home thread!

Post by pdanet » Tue Feb 21, 2017 12:09 pm

Meg77 wrote:Hi there! I'm a banker, and there is another option that I think may be ideal for you guys.

1. Apply now for a home equity loan or line of credit on your current home in the amount of $115,000 (50% of the value is the most allowed in TX where I am at least, but if you can get more without paying much in closing costs then go for it). Opt for a line of credit if you plan to sell the house when you move. Get a fixed rate term loan if you plan to keep it as a rental.
We do have a home equity line of credit - we could use that to ensure we don't pay PMI and when the home is sold, the line of credit loan get's paid or if it's rental, continue to pay back towards the line of credit.
lthenderson wrote:I certainly wouldn't want to go into a new home with only $25k for an emergency fund for a family of four, unknown monthly expenses, $3000/month mortgage payment and a spouse that will be quitting work in five years.
I understand your concern. The way we feel - now(as in 1-2 yrs) is the time to take appropriate risk for our growing family - if we wait to increase our savings to another $50K or $100k so we feel more comfortable then, the location of our choice may not exist or we may have to look further out outside the area of our preference.

ysette9
Posts: 74
Joined: Sat Jun 20, 2015 4:09 pm
Location: Bay Area, CA

Re: Another can we afford home thread!

Post by ysette9 » Wed Feb 22, 2017 2:46 pm

I second the first poster who responded who questioned whether you really need a different/larger home. 3/2 is plenty sufficient for a family and 2400ft^2 is downright enormous. What would you really use the extra space for? I grew up in a 2100 ft^2 home and the living room and dining room were almost never used. Up until high school I shared a room with my sister so there was the guest bedroom that also went unused 99% of the time. As a comparison (HCOL location), my husband and I would really love to have a 3/2 one day but recognize that we would be fine for a good while in a 2/1 since our current kid and (fingers crossed future baby) should be able to share a room for the first 8+ years.

Maybe it is a regional difference, but to me a 15 year-old house is still very new. Things like houses and cars require regular maintenance and fixes; that is part of the cost of ownership. The idea of throwing away a perfectly good house because it will eventually need a roof or a water heater just seems silly to me. Calculate up how much money you would spend buying and selling houses and them see how far that money would go towards the eventual repairs. Heck, take that money and upgrade your current house to make it more attractive to you!
Let us go then, you and I, when the evening is spread out against the sky, like a patient etherized upon a table.

pdanet
Posts: 43
Joined: Wed Feb 08, 2017 3:29 pm

Re: Another can we afford home thread!

Post by pdanet » Wed Feb 22, 2017 10:42 pm

ysette9 wrote: Heck, take that money and upgrade your current house to make it more attractive to you!
HOA rules does not allow adding an additional bedroom or bathroom.

orca91
Posts: 1223
Joined: Thu Mar 03, 2016 7:17 pm

Re: Another can we afford home thread!

Post by orca91 » Wed Feb 22, 2017 10:58 pm

I guess I'm missing the growing family part. Do you plan to have more kids? It doesn't sound like it. So, why do you NEED 5 bedrooms... will each kid get two bedrooms someday??

This definitely sounds like a want and not a need. And, that's fine... just don't justify it by calling it something else. You guys can afford it on $175k combined plus bonuses.

pdanet
Posts: 43
Joined: Wed Feb 08, 2017 3:29 pm

Re: Another can we afford home thread!

Post by pdanet » Thu Feb 23, 2017 8:34 am

orca91 wrote:I guess I'm missing the growing family part. Do you plan to have more kids? It doesn't sound like it. So, why do you NEED 5 bedrooms... will each kid get two bedrooms someday??

This definitely sounds like a want and not a need. And, that's fine... just don't justify it by calling it something else. You guys can afford it on $175k combined plus bonuses.
Not really. My parents are getting old(in their 60s) but still independent but we are fully aware that at some point in future, they may want to move-in with us so planning ahead so they can be close to their grand-kids.

Note: If this was a "want", we would have squashed it since who wants to deal with monthly mortage payments for another 30 years with a current paid off home. This is more of ensuring future-proofing yourself in the event you need space(which I fully anticipate) and plus we'd like to be conservative with our spending to ensure we aren't walking a tight rope.

orca91
Posts: 1223
Joined: Thu Mar 03, 2016 7:17 pm

Re: Another can we afford home thread!

Post by orca91 » Thu Feb 23, 2017 10:11 am

No offense, but that's pretty silly reasoning for WANTING to do this. There's no NEED anywhere in there.

pdanet
Posts: 43
Joined: Wed Feb 08, 2017 3:29 pm

Re: Another can we afford home thread!

Post by pdanet » Thu Feb 23, 2017 10:17 am

orca91 wrote:No offense, but that's pretty silly reasoning for WANTING to do this. There's no NEED anywhere in there.
Well, since you are playing devil's advocate - given our circumstance - what do you think should be the NEED , meaning what factors do you think need to occur or happen(now or in future) to drive the NEED?

orca91
Posts: 1223
Joined: Thu Mar 03, 2016 7:17 pm

Re: Another can we afford home thread!

Post by orca91 » Thu Feb 23, 2017 10:35 am

You have all you need already.... a paid off home and everyone has a room, and 2400 sq ft is plenty for a family of your size.

I don't know the area, but unless you're in a very high crime, slum, horrible schools area... there's no need there either.

The only even close to "needs" you said were the just in case of you parents moving in someday. I don't see that as a need at all. Do they have apartments near you they could live in? Probably so.

As an outsider looking in and just from internet posts, it sure seems like a case of you guys make pretty good money and the wife wants to upgrade your lifestyle. You guys can afford to do so. If you want to, go for it. Just realize what you're doing and why you're doing it. Just my take on it.

corysold
Posts: 616
Joined: Mon Mar 24, 2014 12:58 pm

Re: Another can we afford home thread!

Post by corysold » Thu Feb 23, 2017 10:42 am

You are essentially going to pay $35,000/year for the possibility that you need room in the future for parents to move in. Maybe that number goes down if you rent/sell, but it will still be a substantial sum yearly.

If the schools are that bad can you do private school?

Can you save that money for 3-4 years and buy a small townhome for parents when the need arises?

Can you remodel the interior of your home to add an extra bath/bed without going against HOA rules?

For one year in the bigger home, I'd imagine you can fix everything that needs fixing in your current home plus have some leftover for cosmetic improvements.

Vanguard Fan 1367
Posts: 687
Joined: Wed Feb 08, 2017 3:09 pm

Re: Another can we afford home thread!

Post by Vanguard Fan 1367 » Thu Feb 23, 2017 10:46 am

I think that you can afford the home.

You are on a Boglehead's forum so I wonder if you might consider using the extra money that you would spend on the new house on Vanguard or other low fee Company's index funds and hold off on the new house.

My DW (dear wife?) and I have a nice house in Central Florida but we did the investing thing first and built that up. So I can sympathize with wanting a nice house.

Vanguard Fan 1367
Posts: 687
Joined: Wed Feb 08, 2017 3:09 pm

Re: Another can we afford home thread!

Post by Vanguard Fan 1367 » Thu Feb 23, 2017 10:55 am

Tried to delete duplicate post.

pdanet
Posts: 43
Joined: Wed Feb 08, 2017 3:29 pm

Re: Another can we afford home thread!

Post by pdanet » Thu Feb 23, 2017 10:58 am

corysold wrote:You are essentially going to pay $35,000/year for the possibility that you need room in the future for parents to move in. Maybe that number goes down if you rent/sell, but it will still be a substantial sum yearly.

If the schools are that bad can you do private school?

Can you save that money for 3-4 years and buy a small townhome for parents when the need arises?

Can you remodel the interior of your home to add an extra bath/bed without going against HOA rules?

For one year in the bigger home, I'd imagine you can fix everything that needs fixing in your current home plus have some leftover for cosmetic improvements.
Thanks. We looked at private schools and they run about 10K-20K per year, we'd rather buy a home in a neighourhood that has good public schools so that will save whatever money was going to private school.

Having the potential extra space is to have parents living with us - buying townhome defeats that purpose, they will incur additional expense not to mention needing to drive back and forth.

There is no way to remodel without going against HOA rules.

Leemiller
Posts: 985
Joined: Sat Jun 01, 2013 12:42 pm

Re: Another can we afford home thread!

Post by Leemiller » Thu Feb 23, 2017 11:05 am

Florida real estate...I'd definitely sell the old home and roll the money into the new one to help get it paid for, holding some back for an emergency fund. If you want to be a landlord, I doubt you'd buy your current home as a rental property. I think without a larger down payment you're a bit leveraged on the new home (not sure what childcare costs you have) and it may preclude your wife from staying at home.

We have something under 4,000 sq for four and find it is especially nice when the grandparents come to visit. You aren't getting a lot more space for your money but if the schools are better the home should appreciate more in the long run. Personally, I'm a fan of buying in an established neighborhood with a good history and updating. New construction that is further out from the city center tends to far badly in a downturn.

stoptothink
Posts: 4073
Joined: Fri Dec 31, 2010 9:53 am

Re: Another can we afford home thread!

Post by stoptothink » Thu Feb 23, 2017 11:07 am

orca91 wrote:You have all you need already.... a paid off home and everyone has a room, and 2400 sq ft is plenty for a family of your size.

I don't know the area, but unless you're in a very high crime, slum, horrible schools area... there's no need there either.

The only even close to "needs" you said were the just in case of you parents moving in someday. I don't see that as a need at all. Do they have apartments near you they could live in? Probably so.

As an outsider looking in and just from internet posts, it sure seems like a case of you guys make pretty good money and the wife wants to upgrade your lifestyle. You guys can afford to do so. If you want to, go for it. Just realize what you're doing and why you're doing it. Just my take on it.
This. We're in a similar income bracket, two kids as well, with a strong likelihood that our parents (on both sides) will someday live with us (heck, my in-laws lived with us for half of '16, my kids shared a room during that period), and we are fine with 3bds and 1500 sq.ft. OP considering this move just makes them "normal", most families of that size and income are living in larger homes, and that is perfectly OK. Zero judgement. It does bother me when they characterize the very epitome of a want as a need. No different than the threads about people having a second child and now needing a large SUV or minivan. It's OK to want a nice large home, and although it would be out of my personal comfort zone, they can afford it. So, consider how it may effect your financial situation as a whole and balance that out with the benefits and make a decision.

jbird11
Posts: 94
Joined: Tue Jun 02, 2015 1:24 pm

Re: Another can we afford home thread!

Post by jbird11 » Thu Feb 23, 2017 11:09 am

Sell your house, put $100K down (20% to avoid PMI)... it also takes your loan down below the $417k jumbo loan amount.

Invest the other $130K and continue to ramp up your emergency fund.

If you wanna be a landlord... start fresh on some 'ideal' rental property, don't just try and make your existing property work.

$175K income on a $400K loan with no other debt is doable.

**One thing... I don't know how long your mortgage has been paid off... but I'm a little surprised that with $175K/yr income that the savings/retirement aren't a little more beefed up... you didn't mention your monthly expenses, if you don't have the extra $3000-3500/mo in the cash flow budget to pay the mortgage & HOA increase... this probably won't work very well.


Don't listen to the people that say 2400 sqft is enough space. If you're looking, it's for a reason. Move on up

stoptothink
Posts: 4073
Joined: Fri Dec 31, 2010 9:53 am

Re: Another can we afford home thread!

Post by stoptothink » Thu Feb 23, 2017 11:34 am

jbird11 wrote:Don't listen to the people that say 2400 sqft is enough space. If you're looking, it's for a reason. Move on up
Sure, there is a reason: they want a bigger and nicer home. No problems with that, and OP can afford it. It is the insistence of the OP that this was a "need" which :confused some of us.

Flashes1
Posts: 834
Joined: Wed May 07, 2008 7:43 am

Re: Another can we afford home thread!

Post by Flashes1 » Thu Feb 23, 2017 11:38 am

My 2 cents:

- I think this is more of a quality of life question than anything else because with a paid-off house, because you can afford the new one.
- How happy are you in the new house? Is it something you're proud of, or do you feel kind of "blah" about it?
- Would changing school districts with a new house materially increase the quality of your kids' education?

My anecdote:

- My wife and I were in a very similar situation as yours about 5 years ago (high income, high savings and feeling pretty "blah" about our house).
- We built a bigger house in the same school district and filled it with a bunch of fun things like a fire pit, home theater room, putting green, etc.
- These "fun" things have increased our quality of life and made the significant increase in housing costs worth it.
- Kids love it, and I sometimes find myself sitting there thinking "Wow, have I come a long way from my humble beginnings" and start humming that old Talking Heads song "Once in a Lifetime."

surfstar
Posts: 1481
Joined: Fri Sep 13, 2013 12:17 pm
Location: Santa Barbara, CA

Re: Another can we afford home thread!

Post by surfstar » Thu Feb 23, 2017 11:48 am

2400 sq ft is twice the size of our 2/2

How is that not enough room? Do you want a house with rooms that are never used and only house furniture?

If your current house feels "cramped" - time to downsize your stuff. Keep what you actually NEED and use.


Much better plan, IMO. I kept trying to read where you planned on having more kids to "need" a 5/3 house...

Flashes1
Posts: 834
Joined: Wed May 07, 2008 7:43 am

Re: Another can we afford home thread!

Post by Flashes1 » Thu Feb 23, 2017 11:50 am

surfstar wrote:2400 sq ft is twice the size of our 2/2

How is that not enough room? Do you want a house with rooms that are never used and only house furniture?

If your current house feels "cramped" - time to downsize your stuff. Keep what you actually NEED and use.


Much better plan, IMO. I kept trying to read where you planned on having more kids to "need" a 5/3 house...
But everyone's different. I have a +5,000 sq. foot house (including finished basement), and it feels small. I would feel like a financial loser if I lived in a 2,400 sq. foot house, but that's me.....again, everyone is different.

Wellfleet
Posts: 432
Joined: Sun Jan 26, 2014 8:18 pm

Re: Another can we afford home thread!

Post by Wellfleet » Thu Feb 23, 2017 11:59 am

Flashes1 wrote: But everyone's different. I have a +5,000 sq. foot house (including finished basement), and it feels small. I would feel like a financial loser if I lived in a 2,400 sq. foot house, but that's me.....again, everyone is different.
I agree. Same issue as car threads where everyone should be purchasing a used Corolla or Civic.

Flashes1
Posts: 834
Joined: Wed May 07, 2008 7:43 am

Re: Another can we afford home thread!

Post by Flashes1 » Thu Feb 23, 2017 12:13 pm

Wellfleet wrote:
Flashes1 wrote: But everyone's different. I have a +5,000 sq. foot house (including finished basement), and it feels small. I would feel like a financial loser if I lived in a 2,400 sq. foot house, but that's me.....again, everyone is different.
I agree. Same issue as car threads where everyone should be purchasing a used Corolla or Civic.
Right. So many personal judgments tend to filter into EVERY thread about personal expenditures. Sometimes it really gets my gander! :happy

corysold
Posts: 616
Joined: Mon Mar 24, 2014 12:58 pm

Re: Another can we afford home thread!

Post by corysold » Thu Feb 23, 2017 12:18 pm

pdanet wrote:
corysold wrote:You are essentially going to pay $35,000/year for the possibility that you need room in the future for parents to move in. Maybe that number goes down if you rent/sell, but it will still be a substantial sum yearly.

If the schools are that bad can you do private school?

Can you save that money for 3-4 years and buy a small townhome for parents when the need arises?

Can you remodel the interior of your home to add an extra bath/bed without going against HOA rules?

For one year in the bigger home, I'd imagine you can fix everything that needs fixing in your current home plus have some leftover for cosmetic improvements.
Thanks. We looked at private schools and they run about 10K-20K per year, we'd rather buy a home in a neighourhood that has good public schools so that will save whatever money was going to private school.

Having the potential extra space is to have parents living with us - buying townhome defeats that purpose, they will incur additional expense not to mention needing to drive back and forth.

There is no way to remodel without going against HOA rules.
Then if I might suggest, don't buy a 5 bedroom/3 bath home assuming your parents are coming to live with you.

Instead, either buy a home with a dedicated in-law living arrangement, think separate quarters, or a home you can add that on to.

I live with my inlaws. We were looking at 5 bedroom homes like you are thinking. We thought it'd be great. We ended up with a similar sized home, but with a dedicated in-law suite. Separate kitchen, living area, bedroom, full bath, private entrance.

After 6 months, I am so glad we did it that way. I love living with my in-laws, we have dinner most every night together, have a common area we all share, etc. But we also each have our own separate space we can go to get away. They have a spot to entertain friends without being in our way. We can retire to our bedrooms in seclusion when needed. It really works out great. But I could totally see how it would go badly if both parties didn't have a place to call their own and I feel we have a great relationship.

orca91
Posts: 1223
Joined: Thu Mar 03, 2016 7:17 pm

Re: Another can we afford home thread!

Post by orca91 » Thu Feb 23, 2017 12:24 pm

I really have no issue with people spending some money. Life is short... live it up some.

My thing is cars... I own 4 vehicles and two are just fun cars. I certainly don't follow typical BH car ownership techniques of only needing a used Corolla and driving it forever. I also don't justify my car ownership choices by thinking, someday I may need a car that covers 1/4 mile in 12 seconds flat. :happy I WANT to own a car that can do that, and an old classic, and a truck, and a commuter.... and if I had more garage space....

I'm not one to judge anyone either. But, folks should just call their choices what they are and not look for a work around to justify what they want. If one wants something and they can afford it, go for it!

Flashes1
Posts: 834
Joined: Wed May 07, 2008 7:43 am

Re: Another can we afford home thread!

Post by Flashes1 » Thu Feb 23, 2017 12:31 pm

orca91 wrote:
I'm not one to judge anyone either. But, folks should just call their choices what they are and not look for a work around to justify what they want. If one wants something and they can afford it, go for it!
So why can't we just let people say they "need" something? If they feel they need something, why do we need to tell them "no, that's a want pal, not a need?" Accept people for who they are, and leave the judgment at home.

We don't all have to act and think alike! :happy

grettman
Posts: 353
Joined: Mon Sep 29, 2014 1:47 pm

Re: Another can we afford home thread!

Post by grettman » Thu Feb 23, 2017 12:33 pm

Are you willing to work longer and give up some freedom for the more expensive house? If it were me, that is what I would be asking myself. From a retirement planning perspective, would buying this house knock you off trajectory? To me that is the big picture ---

orca91
Posts: 1223
Joined: Thu Mar 03, 2016 7:17 pm

Re: Another can we afford home thread!

Post by orca91 » Thu Feb 23, 2017 12:40 pm

Flashes1 wrote:
orca91 wrote:
I'm not one to judge anyone either. But, folks should just call their choices what they are and not look for a work around to justify what they want. If one wants something and they can afford it, go for it!
So why can't we just let people say they "need" something? If they feel they need something, why do we need to tell them "no, that's a want pal, not a need?" Accept people for who they are, and leave the judgment at home.

We don't all have to act and think alike! :happy

Because they're only kidding themselves and they'd be better off being honest about it. If one wants something and can afford it, get it. No need to justify it some other way. Folks might let their "needs" get out of control, if the look for all the different ways they might "need" something.

Nowhere in there am I judging anyone.

Why are you so sensitive about this want vs. need thing? :wink:

bloom2708
Posts: 3968
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Another can we afford home thread!

Post by bloom2708 » Thu Feb 23, 2017 12:41 pm

The value of this site is people offering different perspectives. The OP can certainly buy the house without asking if they can afford it. They did ask.

Why not sell the current house and use the net as a down payment on the new house? Is being a landlord a goal?

Why only put 10% down on the potential new house? From debt free to owning two homes, one with PMI?

Many buy a new house because they want a new house. Only later do they consider the trade-offs. All of the various opinions have some value even if they push the OP in a completely different direction or cement the new home purchase just as they originally intended.

From being debt free, the plan seems like a giant step backwards. Laden with extra risk and cost. :arrow:
Last edited by bloom2708 on Thu Feb 23, 2017 12:57 pm, edited 1 time in total.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

orca91
Posts: 1223
Joined: Thu Mar 03, 2016 7:17 pm

Re: Another can we afford home thread!

Post by orca91 » Thu Feb 23, 2017 12:47 pm

I would bet if the OP were to truly look at this as what they really need, they'd have a tough time justifying the home upgrade brought up here.

If they skip the need part and just say they want a newer, nicer, bigger home and they can afford it, go for it.

Obviously I don't know the OP at all, but they seem fairly frugal from the brief view their posts give. I would imagine even the thought of a $500k home with a large mortgage, when they have a paid off home already, makes their skin crawl a good bit. It's easier for them to look at this move/purchase as a need. That simply doesn't seem to be true in their case. If OP looks at this for what it is, a want, do they make this move? Maybe, maybe not...

aj44
Posts: 143
Joined: Sat May 10, 2014 11:22 am

Re: Another can we afford home thread!

Post by aj44 » Thu Feb 23, 2017 12:52 pm

I'll judge, we all pretty much do on message boards and that is partly what they are for. If there weren't analysis and judgement on posts this would be a lot more barren of a message board.

I'm with those that say you can afford it on today's income. I also believe you really need to reflect on if this is going to add value to your life and if is worth all of the extra costs, utilities, maintenance, decorating, peace of mind of having the home paid off. If one of you is laid off, I guarantee your stress level will be much less in your existing home.

Grt2bOutdoors
Posts: 18192
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Another can we afford home thread!

Post by Grt2bOutdoors » Thu Feb 23, 2017 1:02 pm

bloom2708 wrote:
From being debt free, the plan seems like a giant step backwards. Laden with extra risk and cost. :arrow:
+1 Agree. I understand the motivation but it seems to be weak since most folks do not deteriorate overnight requiring an imminent move-in for retirement. Usually, these things are planned out and since they are in early 60's, if the parents continue to work until mid 60's, they will have a few more years to save up and/or have the parents contribute if they can to the new larger space. The OP hasn't indicated the financial capacity of parents to do so. Taking on an additional $250K in debt with potential loss of 70K in income seems to be an undue burden to place upon family unless neighborhood they reside in is deteriorating quickly.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

rgs92
Posts: 1849
Joined: Mon Mar 02, 2009 8:00 pm

Re: Another can we afford home thread!

Post by rgs92 » Thu Feb 23, 2017 1:13 pm

These questions are often unanswerable since it depends on what you spend elsewhere or your lifestyle. If you just eat oatmeal and the like and drive a cheap Honda and are homebodies, sure you can spend the huge amount leftover on a nice place to live. But only you can answer that.

I mean, if you have $12,000 net income a month and just spend $3,000 a month to live, you can spend $7000 a month on housing expenses and buy a $million+ house.
Last edited by rgs92 on Thu Feb 23, 2017 1:17 pm, edited 1 time in total.

Alto Astral
Posts: 676
Joined: Thu Oct 08, 2009 10:47 am

Re: Another can we afford home thread!

Post by Alto Astral » Thu Feb 23, 2017 3:18 pm

pdanet wrote: Looks like the consensus is we won't be stretching ourselves to afford $500K home on $175K income(initially). however, if we do sell the rental and then DW(in future) takes a break - looks like we still would be OK with single income but certainly constrained due to higher property taxes(which includes HOA/CDD fees).
Did I miss anything?
If DW is planning a break after 5 years, you should really be doing math with only $100K income. Have you considered un/underemployment? What about saving for your kids college? I think its a high risk move.

I have a $375K home with a combined of income in $200K in the mid-west (split equally among us) and with 2 very young kids. I still feel I have taken on a lot of risk.

A. Are you just improving the commute towards you kids A-rated public schools?
B. Or are you moving towards A-rated schools from currently lower-rated public schools?

If it's A., I don't see a big gain. Won't they take the school bus anyway (since DW will be at home after 5 years)? Any drop-offs will be only needed for 3 years, starting when your older kid becomes 5 in 2 years.

Given these, I would stay put.

Update: did not read this fine print. Ignore the logic above; if DW wants it, DW gets it :)
pdanet wrote:spouse wants a bigger home

User avatar
LadyGeek
Site Admin
Posts: 45054
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Another can we afford home thread!

Post by LadyGeek » Fri Feb 24, 2017 3:20 pm

I removed an off-topic post and several replies. As a reminder, see: General Etiquette
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.

...At all times we must conduct ourselves in a respectful manner to other posters. Attacks on individuals, insults, name calling, trolling, baiting or other attempts to sow dissension are not acceptable.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

User avatar
LadyGeek
Site Admin
Posts: 45054
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Another can we afford home thread!

Post by LadyGeek » Fri Feb 24, 2017 3:21 pm

This thread is now in the Personal Finance (Not Investing) forum (Financial planning).
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Post Reply