Sell our new home to downsize

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RegDunlopCPA
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Sell our new home to downsize

Post by RegDunlopCPA » Tue Sep 04, 2018 8:00 pm

<r>We recently built a new 4 BR home in a great school district where the payment is roughly 30-35% of our monthly income, value is 2.5x HHI. We have one child already in daycare @ $1k/ month and currently fund our retirement accounts at 15%, invest in college funds and pay extra principal on the mortgage each month to pay off in 15-20 yrs (per dave Ramsey’s plan). We are debt free except the Mortgage. My wife and I are 34 and 31 years old, respectively.

*Main question is (assuming the sale price covers realtor fees and/or yields a modest gain net of tax based upon recent comps) should we move back into a less expensive home of more modest size to increase our monthly Cashflow? Moving back to a $325K home vs. the current $430K home would save $400-$500/month on Principal, Interest, Insurance, and Property Taxes, for a 20% reduction in monthly housing cost and an intangible reduction in stress. :confused

Here are the details:

Live in a large midwest metro area
Gross Household Income (annual): $165K
Home Value: $430k, ($372k mortgage balance 30yr @ 4.0%, pmt $2,600 (includes P&I, taxes and insurance), which is 32% of take-home income)
Extra principal payments (monthly): $750
Property Taxes: $5,700 Annually
Home Equity: $58K
Emergency Fund: $25K
Work Pension (non-govt): $22k
Retirement savings balance: $130K
Retirement contributions (monthly): $2K
College saving balance: $2K

We've been in the home almost a year and have changed our family planning and health care priorities such that this home would not be affordable once we add child #2 and #3 down the road. My wife has Type 1 diabetes and the costs of managing that seem to continually increase which is something we cannot just stop spending money (because it's required for her to live). Also, for the benefit of our family she would like to reduce her work schedule down to 30 hrs/week to help with kids school pickup down the road.

In hindsight, we know the purchase of this large new construction home was not necessarily smart from a long term planning perspective (we got sucked in with the Jones' but want out now), and homes are not cars or boats that you just buy and sell whimsically, but we are trying to rectify the problem now for the benefit of our future family goals.

Thanks for your comments.

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Jazztonight
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Re: Sell our new home to downsize

Post by Jazztonight » Tue Sep 04, 2018 8:08 pm

Reading between the lines of your excellent presentation, it seems to me you've already made your decision to sell and downsize.

Given your wife's desire to decrease her work hours and the added monthly income, it makes sense.

Best of luck!
"What does not destroy me, makes me stronger." Nietzsche

kelvan80
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Re: Sell our new home to downsize

Post by kelvan80 » Tue Sep 04, 2018 8:14 pm

Have you tried to run the numbers on the reduced hours? Do you expect to get raises?

stan1
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Re: Sell our new home to downsize

Post by stan1 » Tue Sep 04, 2018 8:19 pm

Sounds reasonable, unless in ten years you have 3 kids and you decide you need more space, better schools, and are then paying the transaction costs to go buy home #3 at a price more than you paid for this house. Are you confident you'd be able to stay in the replacement home (#2) until the kids are into college?
Last edited by stan1 on Tue Sep 04, 2018 9:35 pm, edited 1 time in total.

staythecourse
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Re: Sell our new home to downsize

Post by staythecourse » Tue Sep 04, 2018 8:30 pm

Correct poor choice in the first place, but that is under the bridge. Agreed your analysis seems reasonable. Start getting going and look at comps. and figure out if it is a good financial decision. Keep in mind capital gains exemption is 2 years in current residence so best to try to set up for sale AFTER the 2 year marker.

Good luck.

p.s. Did you mention what the financial situation will be for elementary/ high school for kids IF you move? Can you find a good public school or even same schools with less house? That may tilt the financial decision one way or another.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

delamer
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Re: Sell our new home to downsize

Post by delamer » Tue Sep 04, 2018 8:50 pm

It isn’t clear from your post if you are happy with the house overall, but just have concerns about the cost.

And when you say
assuming the sale price covers realtor fees and/or yields a modest gain net of tax based upon recent comps)
— does that mean that is a reasonable expectation or that is what you hope? Your home equity is $58K which doesn’t allow much for a downpayment and closing costs for the next place.

If you like the current house, then you can solve part of the cash flow problem by stopping the prepayment on the mortgage. (And your property taxes are already in your $2600 PITI even though you have them listed separately. It may be that you are double counting them in expenses.).

I wouldn’t be prepaying a 30-year mortgage at your ages anyway. You should have othe priorities.

I appreciate that your wife’s health costs are a big concern. But given her health and your ages (assuming your wife is the 34 year old), why not at least wait until you have a second child before making a decision to move?

Also consider that you’ll set yourselves back somewhere in the range of $30,000 just to change houses, which will eat up a lot of “extra $400/month” in savings in the smaller house. As in 6 years’ worth.

Good luck with your decision.

BradJ
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Re: Sell our new home to downsize

Post by BradJ » Tue Sep 04, 2018 9:14 pm

We did exactly this about 2 years ago- moved from a nice, big home to a mid-sized, older home so my wife could stay home with the kids and we could maintain our 15% investing rate and tithe (big fans of DR). We essentially cut our mortgage in half in both years and amount.
Here’s my 2 cents: if my wife wanted to just cut back hours, I would roll with the house if you like it. Your going to move and cause temporary stress for a small life change. If she wants to stop work all together, that change is significant enough to warrant a house swap. To sum it up, when making a “sacrifice”, you need a reward that justifies it.

mountains
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Re: Sell our new home to downsize

Post by mountains » Tue Sep 04, 2018 9:25 pm

Your house is in a great school district so you won't want/need private school and your daycare expenses are temporary for a couple of years.

You are putting a lot of additional money towards paying down principal. Consider only paying minimal payment on your mortgage while your kids are in daycare. Once you no longer pay daycare you can ramp up your principal payments again. Even if you don't make another principal only payment ever again your house would be paid off before "normal" retirement age.

A lot also depends how your career prospects are: do you think you or your wife will make more money in the next couple of years (promotion? raise?). A new construction home should also require less money for maintenance the first couple of years.

Did you own a house before or where you renting? The first couple of years in a new house can be overwhelming. I would give it some time to settle in before you decide to sell the house again.

mortfree
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Re: Sell our new home to downsize

Post by mortfree » Tue Sep 04, 2018 9:32 pm

Buyers remorse.

$750 is way too much for extra mortgage payment.

Moving will cost you more than what you think you will save.

Stay the course (scale back those extra mortgage payments)

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Watty
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Re: Sell our new home to downsize

Post by Watty » Tue Sep 04, 2018 9:35 pm

RegDunlopCPA wrote:
Tue Sep 04, 2018 8:00 pm
Moving back to a $325K home...
If you sold your last house for $325K last year then it may have gone up by 4% or more if your area has had typical price appreciation. Be sure to look at what the current house market is. In some areas there is very little housing inventory so you may not have a lot of choice of houses in that price range.
RegDunlopCPA wrote:
Tue Sep 04, 2018 8:00 pm
Moving back to a $325K home vs. the current $430K home would save $400-$500/month on Principal, Interest, Insurance, and Property Taxes, for a 20% reduction in monthly housing cost and an intangible reduction in stress.
RegDunlopCPA wrote:
Tue Sep 04, 2018 8:00 pm
$372k mortgage balance 30yr @ 4.0%
I just checked one site and the APR for a new 30 year mortgage is about 4.7%

If you got a new mortgage for a hundred thousand dollars less it would be for $272k so the extra 0.7% would cost you about $1,900 in interest so that would eat up a lot of your savings.

It would also be good to do a dummy tax return to see what your after tax savings since a lot of savings will also reduce your tax deductions.

If you have $40K in selling and buying costs it will take a long time to break even if you only have a net savings of a couple of hundred dollars a month.

You might need to look at a house that costs well less than $325K if you want to make a big difference in your budget.
RegDunlopCPA wrote:
Tue Sep 04, 2018 8:00 pm
....and pay extra principal on the mortgage each month to pay off in 15-20 yrs (per dave Ramsey’s plan).
That may be too aggressive and could be the reason for a lot of your stress. You could cut back on the prepayments for a few years and then start paying more when you get done with daycare costs.

Irisheyes
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Re: Sell our new home to downsize

Post by Irisheyes » Tue Sep 04, 2018 9:40 pm

mortfree wrote:
Tue Sep 04, 2018 9:32 pm
Buyers remorse.

$750 is way too much for extra mortgage payment.

Moving will cost you more than what you think you will save.

Stay the course
(scale back those extra mortgage payments)
This.

SNIPER338
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Re: Sell our new home to downsize

Post by SNIPER338 » Wed Sep 05, 2018 12:50 am

Jazztonight wrote:
Tue Sep 04, 2018 8:08 pm
Reading between the lines of your excellent presentation, it seems to me you've already made your decision to sell and downsize.

Given your wife's desire to decrease her work hours and the added monthly income, it makes sense.

Best of luck!

You already made your decision, go with the gut feeling. Its usually right. We just did what your talking about a few months ago. Similar numbers, wife quit her job to stay home with baby, yada yada. Huge cut in income... Well worth it for us in the end. We are saving like crazy now too. (Cant wait until my wife works again to save her whole paycheck too) but we simplified life and focus on the baby. It great to get out from stress, stress aint worth it. Im even happier at work...🤔

dekecarver
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Re: Sell our new home to downsize

Post by dekecarver » Wed Sep 05, 2018 4:38 am

Housing markets go up and down but some locations are much more stable than others for normal variation. If you are in a solid market I'd suggest running the numbers and adjust some of the other outlays to determine if you can still manage the house. The key IMOP is not to become a slave to the house. A house in a solid market can be a pretty good diversifier, after all we all need a place to live one way or the other, might as well be happy where you are.

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goingup
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Re: Sell our new home to downsize

Post by goingup » Wed Sep 05, 2018 8:51 am

mortfree wrote:
Tue Sep 04, 2018 9:32 pm
Buyers remorse.

$750 is way too much for extra mortgage payment.

Moving will cost you more than what you think you will save.

Stay the course (scale back those extra mortgage payments)
I agree. In addition, you've missed the heart of the home selling season (April-August). Skip the extra principal payments to reduce stress. Revisit the decision early next year if you're still uneasy.

JGoneRiding
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Re: Sell our new home to downsize

Post by JGoneRiding » Wed Sep 05, 2018 9:11 am

I guess I am not seeing the issue. Stop listening to dr it will relieve a lot of stress. Start banking the $750 a month as a future baby account. Wait 6 months and reaccess.

Yo me it looks like you did most right and don't need to be so stressed. Take a deep breath

scottgekko
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Re: Sell our new home to downsize

Post by scottgekko » Wed Sep 05, 2018 11:12 am

You want to move again to save $400-500 because you're concerned about cash flow, but you're paying an extra $750 to your mortgage? Why not stop that completely until you've padded your EF large enough to feel comfortable? You're not overpaying for your current home relative to your income and even if your wife cut down her hours, the $750 would cover that (as your goal is to cut $500). Going from a $420k house to a $320k house doesn't seem worth the effort considering the cost to sell, buy, and move again...you wouldn't recoup your costs for the better part of a decade.

RegDunlopCPA
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Re: Sell our new home to downsize

Post by RegDunlopCPA » Wed Sep 05, 2018 4:22 pm

kelvan80 wrote:
Tue Sep 04, 2018 8:14 pm
Have you tried to run the numbers on the reduced hours? Do you expect to get raises?
Yes we do. Typically 2-3% annually.

Olemiss540
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Re: Sell our new home to downsize

Post by Olemiss540 » Wed Sep 05, 2018 4:34 pm

Are you paying PMI? Your downpayment seems suspect if you only have 50k in equity.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

RegDunlopCPA
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Re: Sell our new home to downsize

Post by RegDunlopCPA » Wed Sep 05, 2018 4:37 pm

Olemiss540 wrote:
Wed Sep 05, 2018 4:34 pm
Are you paying PMI? Your downpayment seems suspect if you only have 50k in equity.
Yes to PMI. $83/month.

RegDunlopCPA
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Re: Sell our new home to downsize

Post by RegDunlopCPA » Wed Sep 05, 2018 4:41 pm

SNIPER338 wrote:
Wed Sep 05, 2018 12:50 am
Jazztonight wrote:
Tue Sep 04, 2018 8:08 pm
Reading between the lines of your excellent presentation, it seems to me you've already made your decision to sell and downsize.

Given your wife's desire to decrease her work hours and the added monthly income, it makes sense.

Best of luck!

You already made your decision, go with the gut feeling. Its usually right. We just did what your talking about a few months ago. Similar numbers, wife quit her job to stay home with baby, yada yada. Huge cut in income... Well worth it for us in the end. We are saving like crazy now too. (Cant wait until my wife works again to save her whole paycheck too) but we simplified life and focus on the baby. It great to get out from stress, stress aint worth it. Im even happier at work...🤔
Thanks. We wil likely re-assess next summer once baby #2 arrives. My wife doesn't plan to ever stop working completely, just reduce hours. In our HCOL area it would not work to drop 50% of our income and find a home cheap enough that isn't 2 hrs commute from my office.

Olemiss540
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Re: Sell our new home to downsize

Post by Olemiss540 » Wed Sep 05, 2018 4:53 pm

Personally, I think you need to go one direction or the other. To be more specific, if you are going to work DR plan and not keep up with the Jones', sell and buy something you can easily afford on a 15year payment (like 200-225k) and drastically change your 15 year plan. Maybe one of you becomes a stay at home parent eventually and you have a paid off home by the time the kids go to college.

If you are going to downsize a tiny bit because you made a bad decision and are now feeling some pressure, with no intent to go full scale debt elimination, you are throwing away some large transaction costs and rising higher interest rates for minor monthly cash flow improvements that will probably equal your next raise. I would sit tight in this scenario, work the budget hard, set aside the 750/mo as an emergency fund buffer instead of prepaying the mortgage and plan to have kid #2 when kid #1 nears kindergarten. Don't overreact to a financial crunch by justifying incremental (but very costly) changes "for the kids"!

You are in a pretty good position if you buckle down and forget about keeping up with the Jones. I won't blame you for either decision and good luck as you and your SO discuss. Either way use your new vigor for finance to get some passion behind building long term financial plans and holding to them!
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

Compound
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Re: Sell our new home to downsize

Post by Compound » Wed Sep 05, 2018 6:23 pm

<r><QUOTE author="RegDunlopCPA" post_id="4103805" time="1536109216" user_id="117577"><s>
RegDunlopCPA wrote:
Tue Sep 04, 2018 8:00 pm
</s>
<r>We recently built a new 4 BR home in a great school district where the payment is roughly 30-35% of our monthly income, value is 2.5x HHI. We have one child already in daycare @ $1k/ month and currently fund our retirement accounts at 15%, invest in college funds and pay extra principal on the mortgage each month to pay off in 15-20 yrs (per dave Ramsey’s plan). We are debt free except the Mortgage. My wife and I are 34 and 31 years old, respectively. <br/>
<br/>
*Main question is (assuming the sale price covers realtor fees and/or yields a modest gain net of tax based upon recent comps) should we move back into a less expensive home of more modest size to increase our monthly Cashflow? Moving back to a $325K home vs. the current $430K home would save $400-$500/month on Principal, Interest, Insurance, and Property Taxes, for a 20% reduction in monthly housing cost and an intangible reduction in stress. <E>:confused</E> <br/>
<br/>
Here are the details:<br/>
<br/>
Live in a large midwest metro area<br/>
Gross Household Income (annual): $165K<br/>
Home Value: $430k, ($372k mortgage balance 30yr @ 4.0%, pmt $2,600 (includes P&I, taxes and insurance), which is 32% of take-home income)<br/>
Extra principal payments (monthly): $750<br/>
Property Taxes: $5,700 Annually<br/>
Home Equity: $58K<br/>
Emergency Fund: $25K<br/>
Work Pension (non-govt): $22k<br/>
Retirement savings balance: $130K<br/>
Retirement contributions (monthly): $2K <br/>
College saving balance: $2K<br/>
<br/>
We've been in the home almost a year and have changed our family planning and health care priorities such that this home would not be affordable once we add child #2 and #3 down the road. My wife has Type 1 diabetes and the costs of managing that seem to continually increase which is something we cannot just stop spending money (because it's required for her to live). Also, for the benefit of our family she would like to reduce her work schedule down to 30 hrs/week to help with kids school pickup down the road. <br/>
<br/>
In hindsight, we know the purchase of this large new construction home was not necessarily smart from a long term planning perspective (we got sucked in with the Jones' but want out now), and homes are not cars or boats that you just buy and sell whimsically, but we are trying to rectify the problem now for the benefit of our future family goals.<br/>
<br/>
Thanks for your comments.
<e>
</e></QUOTE>
With respect, I want to make sure your calculations are correct. It seems the house payment as a percentage of take home pay is what is stressing you the most.

You state your gross income is $165k/yr. This is a gross of $13,750/mo. You also state your house payment of $2600/mo is 32% of take home pay, which calculates to a net take home of $8125/mo. You state you save 15% of gross for retirement which is $2062.50/mo. That leaves $3562.50/mo unaccounted for. Are you saying your tax rate (assuming the retirement savings reduces taxable income) is (3562.50/11687.50) 30.48%!?

I think it would be extremely helpful if you spell out exact monthly numbers (gross income, net income, income tax — fed, statue, local, retirement savings and vehicle, child education savings and vehicle, etc.).

My guess is the 32% of take home pay number you have listed is actually your $2600/mo payment plus your extra principle payment of $750/mo divided by take home pay. Taken in that context, no way would I incur the transactional costs of moving. Rather I would ratchet down the extra monthly payments to a level you’re more comfortable with (presumably to match what is lost in income when your wife decreases her hours). That brings up another question — how will your numbers change when she decreases her hours? Specifics here would be very helpful.

Regardless of the above, it seems you’re stressed by all this. I truly do wish you well and hope you can find a satisfactory solution.

JoeRetire
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Re: Sell our new home to downsize

Post by JoeRetire » Wed Sep 05, 2018 6:46 pm

RegDunlopCPA wrote:
Tue Sep 04, 2018 8:00 pm
*Main question is (assuming the sale price covers realtor fees and/or yields a modest gain net of tax based upon recent comps) should we move back into a less expensive home of more modest size to increase our monthly Cashflow? Moving back to a $325K home vs. the current $430K home would save $400-$500/month on Principal, Interest, Insurance, and Property Taxes, for a 20% reduction in monthly housing cost and an intangible reduction in stress. :confused
Would reducing by $400-500/month be enough?
Extra principal payments (monthly): $750
You should stop doing this.
Also, for the benefit of our family she would like to reduce her work schedule down to 30 hrs/week to help with kids school pickup down the road.
Revisit this thought down the road when the time comes. At that point you can decide if you can afford that luxury or not.

stan1
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Re: Sell our new home to downsize

Post by stan1 » Wed Sep 05, 2018 6:53 pm

RegDunlopCPA wrote:
Wed Sep 05, 2018 4:41 pm
In our HCOL area it would not work to drop 50% of our income and find a home cheap enough that isn't 2 hrs commute from my office.
It's all perspective, but those of us who actually do live in HCOL areas and would have to pay $750K-1M to get into a home in a "good enough" school district often on salaries that aren't twice as big as yours would be very happy to have such a home for $430K. To us you are definitely in a MCOL area.

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celia
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Re: Sell our new home to downsize

Post by celia » Thu Sep 06, 2018 9:25 am

Have you been tracking or can you ask the mortgage lender, how many months remain on the mortgage? Since you usually start off with about 10% of the base mortgage payment going to principal, you may have already knocked a couple of years off your mortgage with your $750 extra monthly payment. In other words, the extra payments have the most impact at the beginning of the mortgage term since the principal being paid each month starts out small and increases slowly over the term of the loan.

If you downsize, the new mortgage for that house may start at higher interest rates and your monthly payment may be closer to your current monthly payment, but you will have the full term of the loan start over, unless you start making extra payments again. So then you would still be stressing out.

So, stop the extra payments or cut them down to $100 per month. Or you can pay whatever amount your next payment applies to principal which basically means you are paying the mortgage for two months.

The biggest stress was likely when the house was being built since it rarely happens without something unexpected happening. You are continuing the financial stress with extra payment AND maxing your retirement accounts. Collect good numbers for what you are currently spending money on and put them in a spreadsheet so it can then be the start of a monthly spending plan, a budget, if you will. Just the act of accounting for where all the money goes will likely open your eyes as to where there are "leaks" in your spending. You have probably spent extra money in the last year for new furniture, blinds, bedding, etc which you don't need to do anymore. You also need this data as accurate as possible, so you can make good financial decisions, not just about moving (which is expensive and disruptive), but about buying any major purchase, the feasibility to cut back on work hours, or about decreasing your retirement savings.

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Sandtrap
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Re: Sell our new home to downsize

Post by Sandtrap » Thu Sep 06, 2018 9:36 am

You have a well thought out strategy.
However . . . OTOH . . .
Some thoughts to consider:
1
Would you eventually regret moving out of a brand new home if you can find a way to streamline your finances to make up for the $4-500/mo gain of downsizing?
2
When the existing home is sold and you are into a "downsized" residence, monthly cost savings may or may not meet your expectations. Are you prepared for that?
3
You list "Extra Principal Payments" on your mortgage at $750/month. How would things look if you didn't pay that? Have you tried it for a bit?

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MnyGrl
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Re: Sell our new home to downsize

Post by MnyGrl » Thu Sep 06, 2018 9:41 am

stan1 wrote:
Wed Sep 05, 2018 6:53 pm
RegDunlopCPA wrote:
Wed Sep 05, 2018 4:41 pm
In our HCOL area it would not work to drop 50% of our income and find a home cheap enough that isn't 2 hrs commute from my office.
It's all perspective, but those of us who actually do live in HCOL areas and would have to pay $750K-1M to get into a home in a "good enough" school district often on salaries that aren't twice as big as yours would be very happy to have such a home for $430K. To us you are definitely in a MCOL area.
+1. In my area a large 4 bedroom house, new construction, costs a million or more.

stoptothink
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Re: Sell our new home to downsize

Post by stoptothink » Thu Sep 06, 2018 9:43 am

stan1 wrote:
Wed Sep 05, 2018 6:53 pm
RegDunlopCPA wrote:
Wed Sep 05, 2018 4:41 pm
In our HCOL area it would not work to drop 50% of our income and find a home cheap enough that isn't 2 hrs commute from my office.
It's all perspective, but those of us who actually do live in HCOL areas and would have to pay $750K-1M to get into a home in a "good enough" school district often on salaries that aren't twice as big as yours would be very happy to have such a home for $430K. To us you are definitely in a MCOL area.
For sure. Even in my area (Utah County, Utah), a SFH home for $325k is very difficult to find right now. Not that it necessarily matters that much, but OP definitely doesn't live in a HCOL area.

OP, consider it a sunk cost at this point. You bought more home than you need and now have buyer's remorse. At this point, you'll lose a lot in transition costs and it will be a total life hassle to go back. You can afford the current home, it just isn't "comfortable". Either totally change your goals and your lifestyle or just accept that finances will be a tad tight for a few years as your young family figures it out. In all reality, the huge majority of the population would laugh at your stressing over this, but as someone who bought far less home with a similar situation (but more income and far more financial cushion), I can empathize a bit.

FoolMeOnce
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Re: Sell our new home to downsize

Post by FoolMeOnce » Thu Sep 06, 2018 10:00 am

+1 for stopping the extra principal payments as a first step. See how that feels. In 15-20 years, if you want to get rid of the mortgage and your assets allow it, pay the rest off then.

RudyS
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Re: Sell our new home to downsize

Post by RudyS » Thu Sep 06, 2018 10:18 am

stan1 wrote:
Tue Sep 04, 2018 8:19 pm
Sounds reasonable, unless in ten years you have 3 kids and you decide you need more space, better schools, and are then paying the transaction costs to go buy home #3 at a price more than you paid for this house. Are you confident you'd be able to stay in the replacement home (#2) until the kids are into college?
I didn't see info on sizes of current and potential houses. That would be relevant. Then you can answer this question. Regardless, I like the many replies that suggest just cutting back on the prepayments.

barnaclebob
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Re: Sell our new home to downsize

Post by barnaclebob » Thu Sep 06, 2018 10:22 am

My wife used to feel like we weren't saving enough until I built a spreadsheet that summed up our net worth and graphed it over time. The issue was that we were putting so much into our retirement and mortgage prepayment that it seemed like we didn't have much cash left over at the end of the month which was kind of true since we were saving "only" 1-3k per month in taxable investments. Really our net worth was increasing by nearly 15k per month, closer to 25-30k per month now with the awesome market we've had but she just didn't have good visibility of it.

Is that what could be driving your feelings of not having enough money?

Also I think you need to do a budget analysis first. Selling a home is expensive and a huge PITA. By the time you add the transaction and moving costs to your $325k house you'll effectively be back up to at least $360k.

michaeljc70
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Joined: Thu Oct 15, 2015 3:53 pm

Re: Sell our new home to downsize

Post by michaeljc70 » Thu Sep 06, 2018 10:58 am

With commission, closing costs, moving costs, etc. I would probably stay put. As you get raises (and due to inflation), in a few years your mortgage will seem much smaller. I would stop or reduce the extra principal payments to increase cash flow. By moving you would not really be "saving" $400-$500 on principal, interest, insurance and property taxes because principal is not really an expense (it is going to equity in your home).

You said it is an excellent school district. Would the less expensive place be in the same school district? Would the less expensive house have enough room for 5 people?

Frisco Kid
Posts: 370
Joined: Sun Nov 16, 2014 6:18 pm
Location: San Francisco Peninsula

Re: Sell our new home to downsize

Post by Frisco Kid » Thu Sep 06, 2018 11:03 am

Agree with others to eliminate extra mortgage payments, reduce expenses where possible and stay the course. IMHO your perception right now is short sighted, consider taking a longer view forward and existing house could work out just fine, especially if you have two more kids. Buying at 2.5 HHI is not really out of line.

mouses
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Joined: Sat Oct 24, 2015 12:24 am

Re: Sell our new home to downsize

Post by mouses » Thu Sep 06, 2018 11:09 am

stan1 wrote:
Tue Sep 04, 2018 8:19 pm
Sounds reasonable, unless in ten years you have 3 kids and you decide you need more space, better schools, and are then paying the transaction costs to go buy home #3 at a price more than you paid for this house. Are you confident you'd be able to stay in the replacement home (#2) until the kids are into college?
They have 4 bedrooms. That's plenty. Some of the kids can double up if there are guests.

OP, I have been reading about the shameful price increases for insulin. Is this available from Canada by any chance or is it too fragile to ship.

RegDunlopCPA
Posts: 30
Joined: Thu Feb 16, 2017 8:54 am
Location: USA

Re: Sell our new home to downsize

Post by RegDunlopCPA » Thu Sep 06, 2018 11:14 am

mouses wrote:
Thu Sep 06, 2018 11:09 am
stan1 wrote:
Tue Sep 04, 2018 8:19 pm
Sounds reasonable, unless in ten years you have 3 kids and you decide you need more space, better schools, and are then paying the transaction costs to go buy home #3 at a price more than you paid for this house. Are you confident you'd be able to stay in the replacement home (#2) until the kids are into college?
They have 4 bedrooms. That's plenty. Some of the kids can double up if there are guests.

OP, I have been reading about the shameful price increases for insulin. Is this available from Canada by any chance or is it too fragile to ship.
I agreed on the double up of bedrooms. I did that growing up as well. Luckily my wife has insurance through work so insulin isn't terribly priced but still seems to increase. The insulin pump, sensors and other supplies cost a lot too. Thanks for the comment.

RegDunlopCPA
Posts: 30
Joined: Thu Feb 16, 2017 8:54 am
Location: USA

Re: Sell our new home to downsize

Post by RegDunlopCPA » Thu Sep 06, 2018 11:16 am

Frisco Kid wrote:
Thu Sep 06, 2018 11:03 am
Agree with others to eliminate extra mortgage payments, reduce expenses where possible and stay the course. IMHO your perception right now is short sighted, consider taking a longer view forward and existing house could work out just fine, especially if you have two more kids. Buying at 2.5 HHI is not really out of line.
Thanks. I think you're right about the short sighted view I may be taking and that buying @2.5x HHI is reasonable. I appreciate the advice/feedback.

RegDunlopCPA
Posts: 30
Joined: Thu Feb 16, 2017 8:54 am
Location: USA

Re: Sell our new home to downsize

Post by RegDunlopCPA » Thu Sep 06, 2018 11:25 am

barnaclebob wrote:
Thu Sep 06, 2018 10:22 am
My wife used to feel like we weren't saving enough until I built a spreadsheet that summed up our net worth and graphed it over time. The issue was that we were putting so much into our retirement and mortgage prepayment that it seemed like we didn't have much cash left over at the end of the month which was kind of true since we were saving "only" 1-3k per month in taxable investments. Really our net worth was increasing by nearly 15k per month, closer to 25-30k per month now with the awesome market we've had but she just didn't have good visibility of it.

Is that what could be driving your feelings of not having enough money?

Also I think you need to do a budget analysis first. Selling a home is expensive and a huge PITA. By the time you add the transaction and moving costs to your $325k house you'll effectively be back up to at least $360k.
I think that could be driving my cash flow fears - by saving a lot in retirement and the mortgage prepayment.

I'll reassess our budget/net worth spreadsheet and see if I can't get a better view going there. We are sitting at around $225k NW right now so I'm happy about that. Some may think that's not so great at our age but before moving here we spent 4 years paying off $156k in my wife's student loans so I have to remind myself of that victory every now and then.

barc0040
Posts: 11
Joined: Mon Apr 13, 2015 2:24 pm

Re: Sell our new home to downsize

Post by barc0040 » Thu Sep 06, 2018 2:59 pm

Assuming you are happy with the house, I would stay for the following reasons:

1) current interest rates are .75% higher than your current rate
2) moving costs you a lot both emotionally and physically
3) daycare is temporary
4) it's a large, "forced savings" vehicle

It may stretch you a bit, but you'll figure it out. You may also be overestimating your will power to not spend the difference on needless things if you downsized.

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