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The ill-timed house: need your advice

February 14th, 2011 at 05:57 pm

Hubby and I just talked about the house we fell in love with. I outlined how much we bring in every month, and how much the mortgage plus taxes and insurance would likely be. He didn't flinch. He said he was comfortable with that. For a 200k loan at 5 percent for 30 years, we'd be looking at 1650-1775 a month, once the property tax and insurance was added in.

We bring in about 4500 a month steadily (more when there are three paychecks), plus the 1000 to 1400 a month I bring in (1000 always, steady. sometimes more.)

Our only debt is the car loan at 219 a month. Our biggest expense otherwise is preschool and babysitting so I can make that money and give our kids the level of activity they need. That costs about $637 a month. It will go down to $400 in the summer, during vacation, and go up to about $525 to $600 in the fall, with our new schedule. We have a free grandma one afternoon a week, which really helps.

The rest of our money goes to savings in some form or another-- a lot of it to the kids' 529-- something I can'[t stand the idea of cutting back on. Otherwise, we spend money on groceries, and whatever-- the occasional trip, CDs, that sort of thing. We've haven't had to scrimp in a long time. I'm just worried. We would have to to make the mortgage. (I'm not opposed to cutting cable, or the gym membership, by the way.)

If we bought this house, money would be tight for a while, until kid 1 went to kindergarten in about 2.5 years.

We did do a payoff plan. If we get the BARE minimum out of our current house after commissions, we'd get $125,000. That would bring our mortgage balance down to $75,000 and, with no extra payments, we'd have it paid off in 2018.

If I used $400 a month of my freelance money for the mortgage, we'd have the new house paid off within five years.

I like the sound of five years. I can do tight, if I know there is an end.

And, if hubby keeps his current job, we could use all or part of his annual bonus (6k to 9 k after taxes) and our annual tax refund (3k to 10k) to build up savings or chip away at our payoff date. Or, we could reduce our withholding and throw that money at the mortgage. That would increase monthly cash flow, but I don't want to risk underpaying. Plus, it's nice to get a big forced savings bonus every spring.

We both like this house a lot. It's everything we want. Yes, our daily life would be inconvenient for a bit-- we'd have to drive 15 minutes longer to get to preschool and the sitter. And, my mom would have to drive an hour to our house, instead of 45 minutes (once a week). But, we'd have the place paid for by the time the youngest hit kindergarten and we'd be right back in the sweet spot we're in now, except with a bigger house and one of the best school districts in the state.

The house is also in walking distance of the elementary and middle schools, and less than half a mile from four parks, including a river/reservoir with walking and bike trails. Hubby could also bike to work. It's less than 5 miles.

What would you do? Is it worth it?

14 Responses to “The ill-timed house: need your advice”

  1. creditcardfree Says:

    While I love the possibility that you could pay for this house in 5 years, I wouldn't do it. I would want to sell my home first. If you had that done, then I wouldn't flinch at this new purchase. You are making many assumptions that will go right. What if everything goes wrong? No bonuses. Reduced income. House doesn't sell.

    With a $200K mortgage, that payment is 32% of your income ($5500). I really think there will be other houses when you are ready to purchase. Is this really the only one like this? Really?

  2. mjrube94 Says:

    Thrift, if you really love it that much I'd say go for it. When hubby and I got married, we found our house, that was $30k more than the upper end of our range. But we knew it would be our "forever house", so we sucked it up and did it. It was tight in the beginning, but got easier over time. Even if you had to cut back on the 529 temporarily, if it's paid off by 2018, you could put what you're paying toward the mortgage to the 529 at that time, and your kids would still be pretty young. Good luck with whatever you decide!

  3. mjrube94 Says:

    Good point, CCF. My advice is predicated on the fact that you can sell the house you're in...

  4. ThriftoRama Says:

    it's true. Selling this place is a big worry for me.

    But,

    We have more leeway than most people to sell. We have no mortgage on our current home. The costs to carry it would be utilities, insurance, property tax (and mowing once a week, come summer). We have also considered renting it out to a friend, or at least letting a friend live in it so it isn't empty.

    My other big thing for selling: in mnay ways it will be easier to sell if we aren't here. Cleaning up the mountains of toys and messes of two toddlers at the drop of a hat to show it, would be a herculean task. It's impossible to stage and keep it impeccable with two little tornadoes running around. If we weren't here, I could stage it, and know it will always be ready.

    We also have about 29k in savings and another 40k in a brokerage account (after the 50k downpayment) that we could rely on for incidentals and emergencies.

  5. MonkeyMama Says:

    Having had 2 mortgages - that scenario freaks me out. That said, this is not your scenario. You have to feel comfortable with the new house, assuming something happens and you can't sell the old one for a long time. Worst case scenario. If you wouldn't feel comfortable with that, I wouldn't do it.

    I wouldn't get so caught up in take-home pay. From what I recall about your income, and giant income tax refunds, that is not really useful info in this scenario. As long as you have 2 homes, you will get pretty substantial tax breaks, too (mortgage + property taxes). This mortgage (heck, both homes) would be extremely modest for your income. OF course, I live in a high cost area, so you can take that opinion with a grain of salt.

    My decision would depend on the state of repair of both houses and if you wanted to put money into the new house. What kind of work might it need? What is the time line for new roof? How old are the appliances? IT also comes to front of mind since you mentioned you put $40k into your current home. The home price/mortgage sounds GREAT to me, but I would want a smaller mortgage if I Was going to put a lot of cash into renovation, maintenance, etc.

    I am a planner through and through, but I also am a big believer in trusting my gut and things happening for a reason. I think it is possible this house is really the one - even if that wasn't quite your plan! I mean - that's life!

    All that said, from reading your blog over the years, you are a very aggressive saver and seem to stress a lot about your savings progress, even with no mortgage. So I would question if you would truly be happy with the mortgage/2 house situation. Just something to meditate on.

  6. ThriftoRama Says:

    To answer your questions, yes we put a roof, furnace, windows,and new kitchen counters and cooktop into our current home. I have no plans to do that again!! Too much money and work, and not enough emotional or list price pay off.

    That said, the house we are considering has a brand new furnace, windows, roof and a completely new kitchen with new cabinets, granite counters, and brand new stainless steel appliances that are all staying. All the work has been done. We wouldn't have to repeat anything.

    The only 'substantial' inputs I can see at this point is the addition of one row of fence to enclose the yard for the kids. It has fence on two sides, just needs one more and a gate.

    The second is carpet for part of the 'manspace' basement. Just to make it cozy (basement is bone dry.)Priced that out at about $1000.

    Everything else appears to be paint, and making it suit our taste, which isn't too spendy. And, possibly insulation, but nothing pressing, immediate or structural.

    Those things, combined with the price point for the area, the size, the half-acre lot (unheard of in this area-- it would allow me to plant the mini orchard and veggie garden I have always dreamed of, and still leave room for the kids to run), and the proximity to schools and parks are combining to really make it a fantastic deal.

    But, you are right Monkey. I am an aggressive saver, and I think that is why I would only do this with a plan for paying it off. I am an even more aggressive debt payer-offer. I have vanquished $40,000 in student loans and a mortgage in the recent past.

    It is scary to go for it. There is always the chance it will take time to sell. (But we also sold a house in New Orleans right after Katrina. That was more stressful). I'm not opposed to slashing the price or taking on renters to get by (renters might actually be profitable!). We have some cash reserves.

    The key is keeping hubby's job. He's managed to make it through several layoffs with raises and bonuses, so the best we can do is hope the worst is over. But isn't that all anyone can do?

    If necessary, I am willing to cut-- cable can go, gym membership can go, take-out and cell phones can go-- and I am willing to take on more work if we need the money.

    Also, my monthly contribution to income does not include my irregular projects, which usually earn $600-800 a pop, and come up every two months or so. All of that could go to savings or the kids, or the mortgage, if needed. It'd be a question of adjusting priorities.

    I may also just go ahead and pay off the car loan, to free up the $219 a month to put toward the mortgage. (and save on car insurance). We have the cash to do that and still have a cushion. We just didn't, because the interest rate was less than one percent.

    So yes, all of you, please keep talking to me about this because it appears it is in the serious consideration stage.

  7. ThriftoRama Says:

    And the 4500 income figure is after taxes, health insurance and maxing out our 401k.

  8. MonkeyMama Says:

    I think you are going to have to figure this out on your own. Big Grin

    My only other thought is have you researched the "substance" behind these best schools? I have personally seen a lot of people pay a fortune for a house just to get into the best school district. Meanwhile, it is well known by educators in our family that a lot of these schools simply *cheat* when it comes to test scores. I personally don't want my kids to go to a school that just obsessed about test scores.

    I didn't say anything when I commented last night because I don't think you are spending a fortune. BUT, all the same, I am curious how much you really know about these schools and if it is really worth it - or if there is a better bargain out there.

    I could go on and on with specific examples.

    Likewise, in the last 10 years we have owned our current home, I have watched school districts rise and fall. It's amazing how much can change in 10 years. As such, I could see moving when my kids reach school aged, if there really wasn't many options in the neighborhood we chose before we even had kids. BUT, if I Was going to make that move for my kids, I think I would wait until they were much closer to school aged. Then I could get a better feel of what options are out there at that moment, and what is the best fit for my child. Thins change rapidly, and because of this, choosing substance over reputation could save you a lot of money.

    Choosing the "best district" is the easy way to spend more than you really need to.

  9. ThriftoRama Says:

    All true. This area is an inner suburb, surrounded by the city we live in. It has had one of the top districts in the state since even when I was a kid (30 years ago...). 95 percent of its high school grads go to college. It has AP and International Baccalaureate programs, and a high number of national merit finalists. Not only that, it is a great quality of life area, with bike trails, parks, close to great restaurants and shopping, and within biking commute of hubby's job.

    But yes, it is a huge decision.

  10. Ima saver Says:

    Well, I think you should do it. Go with your gut feeling. Sometimes, we have to take changes. We left our jobs in Florida and moved to the mountains just because we wanted to. We had no jobs waiting for us here. It was the best year of our lives! Dh built us a brand new house, everybody liked his work and he has been building houses ever since.

  11. Looking Forward Says:

    I think you'll know what is right for your family. Big Grin

    It sounds like what you've been wanting and needing...

    How long has it been on the market? Are there any others that look promising?

  12. ThriftoRama Says:

    It's been on the market since October.

    Hubby and I have decided we are going to go look at it again. We are also going to look at four more houses that appear to fit our needs.

    We are also going to take the kids to explore the parks, to see what they are like.

    We have decided that if it's what we really want, we can swing the money part. We have always been diligent, hardworking, and conservative with money. We can make it work. It's just making sure it's what we really want.

    We also spoke with the realtor and a friend. Both confirmed that half acre lots in our price range are incredibly rare. That is one big reason we want the house.

  13. MonkeyMama Says:

    "It has had one of the top districts in the state since even when I was a kid (30 years ago...)."

    These are the ones that you have to be careful of. IF the community is now primarily retirees, people don't invest in the schools, with time. I have seen it happen here. I had friends pay a FORTUNE for these neighborhoods, and the district really went down the tubes - school closures, etc.

    But, I am mostly just trying to play a bit of devil's advocate. That said, look to see if there are a lot of young families in the area. If young families live there and will have a vested interest in good schools, it will bode well for your situation.

  14. ThriftoRama Says:

    It is young families. The area where I live now is all elderly folks and retirees.

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