How much can mom spend on a house?

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heidim
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Joined: Thu Aug 07, 2008 2:04 pm

How much can mom spend on a house?

Post by heidim » Sat Apr 21, 2018 12:12 am

Back in 2008, this community helped me get my mother's investments reorganized after my father passed away. That post is here:
viewtopic.php?t=21661
Thanks to that advice, I was not afraid to move everything to Vanguard and do the lump sum purchases that turned out to be at the bottom of the market in 2008 and early 2009. Her ~$200,000 balance has grown to ~$700,000 through growth and continued saving. Now she's ready to move from her LCOL location to my moderately HCOL, because her current home is far from all of her kids. My question is how much of her savings we can reasonably use to purchase a home.

Assets:
Taxable $404k
Roth $74k
IRA $146k
403(b) $65k
It's all in a 35/65 stock/bond split.

Income:
COLA pension $30k
Social Security $25k
Her RMD in 2018 will be $10k

I estimated her expenses around $35000, including Medicare part B, D and supplemental plan premiums, car insurance, 529 contributions for grandkids, projected property taxes & utilities, food, gas, travel, income taxes, and desired charitable donations.

So since she can clearly live off of her pension and social security income, how much of her savings can she afford to tie up in a house? I expect to do the purchase in cash, no mortgage. I think she'll net about $100k on the sale of her existing home. The type of house she's looking for in her preferred town is around $400k. Prices are going up quickly, but appear to be supported by solid economic growth in the region. There are quality of life reasons for her choosing to buy a home instead of rent or buy a condo/townhouse.

Heidi

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BL
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Re: How much can mom spend on a house?

Post by BL » Sat Apr 21, 2018 12:24 am

Life after 70 can change on a dime; a home becomes more difficult to manage with age and more and more services may need to be hired as time passes. What seems easy at 70 may be quite difficult or impossible by age 80.

That is tying up a lot of her money in a house, whether it has a mortgage or not. The house is how many multiples of her income? Perhaps she would be happy staying where she is until she needs assistance and needs to move to a more suitable place near you.

I wish you and her well, and hope you can find a suitable solution.

gotester2000
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Re: How much can mom spend on a house?

Post by gotester2000 » Sat Apr 21, 2018 4:10 am

She needs a smaller house/living arrangement close to kids - money is secondary here.

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unclescrooge
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Re: How much can mom spend on a house?

Post by unclescrooge » Sat Apr 21, 2018 5:24 am

BL wrote:
Sat Apr 21, 2018 12:24 am
Life after 70 can change on a dime; a home becomes more difficult to manage with age and more and more services may need to be hired as time passes. What seems easy at 70 may be quite difficult or impossible by age 80.

That is tying up a lot of her money in a house, whether it has a mortgage or not. The house is how many multiples of her income? Perhaps she would be happy staying where she is until she needs assistance and needs to move to a more suitable place near you.

I wish you and her well, and hope you can find a suitable solution.
She already has a house. It's just very far from the kids. Moving the house closer to the kids would make sense. If something happens, it's easier for the kids to help out.

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unclescrooge
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Re: How much can mom spend on a house?

Post by unclescrooge » Sat Apr 21, 2018 5:29 am

heidim wrote:
Sat Apr 21, 2018 12:12 am
Back in 2008, this community helped me get my mother's investments reorganized after my father passed away. That post is here:
viewtopic.php?t=21661
Thanks to that advice, I was not afraid to move everything to Vanguard and do the lump sum purchases that turned out to be at the bottom of the market in 2008 and early 2009. Her ~$200,000 balance has grown to ~$700,000 through growth and continued saving. Now she's ready to move from her LCOL location to my moderately HCOL, because her current home is far from all of her kids. My question is how much of her savings we can reasonably use to purchase a home.

Assets:
Taxable $404k
Roth $74k
IRA $146k
403(b) $65k
It's all in a 35/65 stock/bond split.

Income:
COLA pension $30k
Social Security $25k
Her RMD in 2018 will be $10k

I estimated her expenses around $35000, including Medicare part B, D and supplemental plan premiums, car insurance, 529 contributions for grandkids, projected property taxes & utilities, food, gas, travel, income taxes, and desired charitable donations.

So since she can clearly live off of her pension and social security income, how much of her savings can she afford to tie up in a house? I expect to do the purchase in cash, no mortgage. I think she'll net about $100k on the sale of her existing home. The type of house she's looking for in her preferred town is around $400k. Prices are going up quickly, but appear to be supported by solid economic growth in the region. There are quality of life reasons for her choosing to buy a home instead of rent or buy a condo/townhouse.

Heidi
If she can live off her pension and SS, and still have $400k after buying a $400k home, I think she should be fine.

carolinaman
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Location: North Carolina

Re: How much can mom spend on a house?

Post by carolinaman » Sat Apr 21, 2018 10:29 am

BL wrote:
Sat Apr 21, 2018 12:24 am
Life after 70 can change on a dime; a home becomes more difficult to manage with age and more and more services may need to be hired as time passes. What seems easy at 70 may be quite difficult or impossible by age 80.

That is tying up a lot of her money in a house, whether it has a mortgage or not. The house is how many multiples of her income? Perhaps she would be happy staying where she is until she needs assistance and needs to move to a more suitable place near you.

I wish you and her well, and hope you can find a suitable solution.
I agree with BL. Per your 2008 post, she is now 77. I speak with experience because I am 73 and in relatively good health but I discover new limitations each year. If I were to move now, I would likely be looking at a very low maintenance home, perhaps in a over 55 community.

Even new homes require a lot of work to keep them up. Will you or others be helping her? That said, she appears in good shape with pension and SS, so she can afford it.

muddlehead
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Re: How much can mom spend on a house?

Post by muddlehead » Sat Apr 21, 2018 8:22 pm

Interesting question / scenario. Agree that as healthy as she appears now at 77, can change in an instant. I'd have no trouble paying the 400k. She'd still have about 100k taxable, 74k roth, 146k ira, 65k 403b = 385k in financial assets. (35/65 a little aggressive for me. But, worked awfully well past ten years ...) Her pension and SS cover neatly her living expenses. She's good to go. House vs condo question? Her money. She wants a house. By golly, she gets a house.

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sergeant
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Re: How much can mom spend on a house?

Post by sergeant » Sat Apr 21, 2018 10:08 pm

Yes she can afford the 400k house, especially if her current furniture is coming with her.

I read the old thread. It was good to see some of the people who offered help. Some of them haven't been on here for years.
Lincoln 3 EOW!

delamer
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Re: How much can mom spend on a house?

Post by delamer » Sat Apr 21, 2018 10:48 pm

If there is a Continuing Care Retirement Community in your area, you mother is at a great age to consider one.

Some of them have single family homes as a housing option.

If she does not want to go the CCRC route, then consider these numbers — my mother lived in a MCOL area and when she was in a nursing home for a few moths prior to her death, the base cost was $12,000 per month. With incidentals, the cost was about $150,000 per year.

So I’d take that into consideration when deciding how much to tie up in a house. While she can eventually get access to her home equity, I’d certainly want a fair amount of liquidity at her age. Maybe in the range of keeping liquid at least $300,000.

So yes, a $400,000 house seems reasonable. But think about the CCRC idea. It will relieve her of maintenance, food prep, and provide companionship and the ability to age in place.

basspond
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Re: How much can mom spend on a house?

Post by basspond » Sun Apr 22, 2018 4:42 am

unclescrooge wrote:
Sat Apr 21, 2018 5:24 am
She already has a house. It's just very far from the kids. Moving the house closer to the kids would make sense. If something happens, it's easier for the kids to help out.
What is the guarantee that the kids won’t get up and move again? Need to evaluate her quality of life and what she would be giving up by moving away from her “home”.

heidim
Posts: 27
Joined: Thu Aug 07, 2008 2:04 pm

Re: How much can mom spend on a house?

Post by heidim » Sun Apr 22, 2018 9:38 pm

OP here.

Thanks for the responses. It is a high percentage of her assets, but it seems quite reasonable when I flip the scenario around 180 degrees. If she lived in a $400k house, with $400k in the bank, and more income than expenses, I would never consider having her move to a cheaper house far away, just so she could have another $300k in the bank.

Her family history is full of longevity, including her parents who died at 99 and 102, but I understand that anything can happen. My husband and I will manage the upkeep of the house, whether doing things ourselves or hiring it out. I've been doing a fair amount of that long distance with the current house. It took away from the time I could spend with her doing fun things, and the house ultimately suffered.

There aren't CCRC facilities in the towns near me. I think the best thing for her, given her personality and wishes, is to have a small house that is within walking distance of the library, grocery store, post office, etc. The town most convenient to us fits the bill, but is a bit more expensive than others. While there's a chance that any of us kids might move, mom interestingly doesn't have strong roots in her current home despite having lived there so long. She is much more connected to her family than other friends, and none of her kids live close to the current place. One brother and I live a 4 hour drive (or train ride) apart, so that's an improvement over where she is now.

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Watty
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Re: How much can mom spend on a house?

Post by Watty » Sun Apr 22, 2018 10:20 pm

carolinaman wrote:
Sat Apr 21, 2018 10:29 am
BL wrote:
Sat Apr 21, 2018 12:24 am
Life after 70 can change on a dime; a home becomes more difficult to manage with age and more and more services may need to be hired as time passes. What seems easy at 70 may be quite difficult or impossible by age 80.

That is tying up a lot of her money in a house, whether it has a mortgage or not. The house is how many multiples of her income? Perhaps she would be happy staying where she is until she needs assistance and needs to move to a more suitable place near you.

I wish you and her well, and hope you can find a suitable solution.
I agree with BL. Per your 2008 post, she is now 77. I speak with experience because I am 73 and in relatively good health but I discover new limitations each year. If I were to move now, I would likely be looking at a very low maintenance home, perhaps in a over 55 community.
+1

My Mom lived alone in a suburban home when she was that about that age and the typical suburban home can be very socially isolating for an older person. She also kept driving way longer than she should have because there were few alternatives. At that point she had lived in the house for over 40 years so she did not want to deal with moving but your moms situation is a lot different.

She also needs to have realistic expectations about how much time she will have with other family members. If she sees them several times a week that will still leave a lot of time that she will need to be able to fill with new friends and activities.

I agree that she can afford the $400K home, but she needs to be careful about getting one that really works well for her.

She could also rent a house for the long term instead of buying. Here is a rent vs buy calculator that what is help figure out what is better.

https://www.nytimes.com/interactive/201 ... lator.html

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