Can we afford this new home?

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Topic Author
doss
Posts: 554
Joined: Tue Nov 01, 2011 9:52 am

Can we afford this new home?

Post by doss »

Can I get a quick sanity check on a potential new construction home purchase?

Stats:

- Family of 4 (toddler, 5yr old, 41yo, 34yo)
- Midwest Mid Cost of Living (5% more affordable than national average)
- Current home (1300sqft): Purchased in 2015 for $185k, zillow says now worth $260k, remaining mortgage $128k (4% mortgage rate), estimated net proceeds => $110,426

We are discussing with an architect about remodeling our current home. There will be some major updates needed (build a garage, expand kitchen, replace all windows, exterior doors, finish basement, new flooring, add mudroom, install sump pump, etc) --- lots of work. This will be expensive and the stress of living in a construction zone does not bode well for us. Thus, alternative is to purchase a new build home that has everything we want not too far from where we are now (we are locked in with local school, church, family, etc)

New home purchase:

- Around $430k, looks like mortgage payment could be $2k/mo with 20% down payment
- DTI would be around 20% roughly?

Financial:

- $165,000 Single income (very stable), wife plans to return to work in a year or two
- I would like to retire around age 55-57
- Cash savings = $133k
- Investments = 700k (HSA is $35k, 529 for toddler is 3k, 5yr old 11k, rest of investments in retirement Roth 401k, Roth IRAs). We max every year.
- Debt: Honda van = $22k (2020 model), credit cards paid off in full each month
- Own some real estate outside Austin, Tx but don't plan to sell until another decade

Can we afford this new home? Thanks!
“ The long-term 9%-10% nominal return of the stock market INCLUDES the crashes.” — calvin+hobbs
KlangFool
Posts: 31525
Joined: Sat Oct 11, 2008 12:35 pm

Re: Can we afford this new home?

Post by KlangFool »

OP,

What is your current mortgage payment?

What is your new mortgage payment?

What is your current annual expense,?

What is your current annual savings/investment?

KlangFool
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CoastLawyer2030
Posts: 989
Joined: Wed Dec 30, 2020 7:44 am
Location: The Buckeye State

Re: Can we afford this new home?

Post by CoastLawyer2030 »

doss wrote: Fri Dec 03, 2021 6:34 am Can I get a quick sanity check on a potential new construction home purchase?

Stats:

- Family of 4 (toddler, 5yr old, 41yo, 34yo)
- Midwest Mid Cost of Living (5% more affordable than national average)
- Current home (1300sqft): Purchased in 2015 for $185k, zillow says now worth $260k, remaining mortgage $128k (4% mortgage rate), estimated net proceeds => $110,426

We are discussing with an architect about remodeling our current home. There will be some major updates needed (build a garage, expand kitchen, replace all windows, exterior doors, finish basement, new flooring, add mudroom, install sump pump, etc) --- lots of work. This will be expensive and the stress of living in a construction zone does not bode well for us. Thus, alternative is to purchase a new build home that has everything we want not too far from where we are now (we are locked in with local school, church, family, etc)

New home purchase:

- Around $430k, looks like mortgage payment could be $2k/mo with 20% down payment
- DTI would be around 20% roughly?

Financial:

- $165,000 Single income (very stable), wife plans to return to work in a year or two
- I would like to retire around age 55-57
- Cash savings = $133k
- Investments = 700k (HSA is $35k, 529 for toddler is 3k, 5yr old 11k, rest of investments in retirement Roth 401k, Roth IRAs). We max every year.
- Debt: Honda van = $22k (2020 model), credit cards paid off in full each month
- Own some real estate outside Austin, Tx but don't plan to sell until another decade

Can we afford this new home? Thanks!
I think you have intentionally boxed yourself into a false binary by having such an extensive list of remodeling, making it cost-prohibitive to do so, which "forces" your hand towards the new home. Just to point out two things on your list --

1. Have you really, really looked into whether you need new windows or doors? I have gone down this rabbithole (you can search my post history here), and my takeaway from hours and hours of research is that you should always look into repairing windows before replacing. Exterior doors are also a huge waste of money when there are a lot of companies that can refurbish existing doors, and even insert glass into existing solid fiberglass doors.

2. The modern concept of mudrooms astounds me, especially if you add on a garage. Me and my two brothers all played 5/6 sports per year and were the dirtiest kids in the history of the world. Our "mudroom" was the garage. I cannot imagine spending money on a place just to throw stuff like dirty clothes. If you are really talking about adding first floor laundry, that's another story, but I'm convinced the "mudroom" is an invention by HGTV solely to add more worthless space to houses.

***

FYI, I finished my basement last year for about $9k, furniture included. Basements are unique in that you can leave the blocks, ceiling, etc. exposed and make it look awesome. Look at industrial theme basements and the like for ideas.

***

With all of this said, ultimately you are the one living your life, and you know what your family needs. I think you can clearly afford it, but I think it would be a financial home run if you can smartly remodel your current place, save all the money you'd lose on another real estate transaction, and stay.
cbs2002
Posts: 698
Joined: Thu Feb 27, 2020 1:10 pm

Re: Can we afford this new home?

Post by cbs2002 »

Yes.

Not sure if you need a more detailed answer! I'm not judging on the specifics of your home itself, schools, etc., just assuming you can decide on these things. Only basing this on numbers.

I am assuming you are also saving 30-40K/year besides the mortgage given your income. If not, do that first. And increase savings when spouse goes back to work.
mary1492
Posts: 716
Joined: Thu Oct 17, 2019 3:02 am

Re: Can we afford this new home?

Post by mary1492 »

xyzzy
Last edited by mary1492 on Tue Oct 04, 2022 3:10 am, edited 2 times in total.
Flyer24
Posts: 5233
Joined: Sun Apr 08, 2018 4:21 pm

Re: Can we afford this new home?

Post by Flyer24 »

Yes, you can afford it. I would keep exploring options before locking yourself into an expensive remodel. It doesn’t sound like you are adding much square footage. I would think a larger house would be more ideal.

We did an expensive remodel on our first home. Never again. It is a long headache with constant budget issues. Plus the stress of living in the house during the remodel can be cumbersome for a family. We actually did the remodel before moving in.

In any case, it seems a new house would fit your budget. You have a nice savings going and a very good retirement plan established. Keep up the good work. I would lean towards moving.
daheld
Posts: 1368
Joined: Wed Sep 13, 2017 8:14 am
Location: Midwest US

Re: Can we afford this new home?

Post by daheld »

You can afford the house, and as a guy in a similar life situation (dad, husband, midwest, MCOL city, locked in geographically, etc.) I cannot imagine redoing and expanding an entire house at this stage of my life. It is just not worth the stress and headache unless you REALLY, REALLY love the home and lot AND have gotten it basically for free. Some folks in our neighborhood inherited (ok, it was sold to them for like $50,000) a home from parents. Home was probably worth $225k pre-pandemic. They completely gutted and reno'd the home, and with the current boom in real-estate it is probably worth $350k today, post-reno. That math makes the headache a little more worth it. For most folks, I think it's just a bad idea.

Buy the new home and enjoy.
LittleMaggieMae
Posts: 2569
Joined: Mon Aug 12, 2019 9:06 pm

Re: Can we afford this new home?

Post by LittleMaggieMae »

TLDR; What are your current expenses? What are your future expenses with the new house? How does this fit into your long term plans and goals - financially and personally. (You do have long term goals? yes?)

You can answer your own question by doing the "legwork" - looking at your numbers and goals/plans and math...

Here's the Too Long:

A 430K house is 2.5x your gross income - so that's within the "rule of thumb".
The PI part of $330K mortgage (after 20% down on 430K) is approx 1500 (this is probably a little high). You need to factor in taxes and insurance. And HOA fees if applicable. And then here's the hard part - estimate your other expenses - Utilities, lawn service/snow removal, any of the yearly maintenance stuff (chimney sweep? HVAC check, water softner stuff, cleaning gutters, pool maintenance, whatever stuff your new house has that requires monthly or yearly maintenance). Does that total fit within the 28% of Gross Monthly Income "rule of thumb" - is it less than $3500 a month?

What stuff will you need to buy for your new house (mower? a shed? new furniture? what will you have to fix on your new home? put down epoxy on the garage floor? maybe replace the washer/dryer (the house comes with ones that are too big/too small/too old for your family)? Make a punch list.

Still NOT done.

Look at your current spending plan/budget (and what expenses are on the horizon - what you are saving for) does the new house and all it's expenses fit into your spending plan/budget? Are the future things on the plan that have to get pushed further into the future or have to be dropped off your "future goals/plans" list worth dropping off the list because the added expense of the new house make them more difficult or impossible to achieve?
rascott
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Joined: Wed Apr 15, 2015 10:53 am

Re: Can we afford this new home?

Post by rascott »

Simple answer, is yes you can afford it. Unless there is some reason you really love your current neighborhood/ lot, etc....I wouldn't even entertain the thought of doing the renovation.
Flyer24
Posts: 5233
Joined: Sun Apr 08, 2018 4:21 pm

Re: Can we afford this new home?

Post by Flyer24 »

Also consider that the current home value does not go up at the same rate as the renovations. You will probably recoup about 60-80% of the renovation cost in a resale on average. If there is a hint this isn’t long term house, then I wouldn’t remodel.

I kept my house 8 years after the remodel and still did not recover the remodel cost.
v1rtus
Posts: 109
Joined: Sat Jul 12, 2014 4:36 pm

Re: Can we afford this new home?

Post by v1rtus »

We made a similar move a year ago and our numbers/situation is very close:

Family of 4 (3 and 1.5 girls)
MCOL area with similar incomes
Previous home purchased in 2015 for $168k; sold for $275k in Jan
New home purchased for $400k with 20% down

As long as your expenses aren't outrageous, which I don't expect as you indicate you max retirement contributions, you can afford this move. Preparing to sell and moving with young kids isn't fun but better than living through extensive renovations.
campy2010
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Re: Can we afford this new home?

Post by campy2010 »

At first glance, it's fine.That said, right now you're saving about 20% of your income and your retirement is a little behind for your income and desire to retire at 55, especially with 2 college bound kids. I would take a hard look at the monthly expenses and try to cut back in places so the higher mortgage is a net neutral on your budget.
CoastLawyer2030
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Location: The Buckeye State

Re: Can we afford this new home?

Post by CoastLawyer2030 »

campy2010 wrote: Fri Dec 03, 2021 9:15 am At first glance, it's fine.That said, right now you're saving about 20% of your income and your retirement is a little behind for your income and desire to retire at 55, especially with 2 college bound kids. I would take a hard look at the monthly expenses and try to cut back in places so the higher mortgage is a net neutral on your budget.
This was my financial thinking upthread as to why a more cost-efficient renovation might be more financially palatable given the goals at hand.
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Watty
Posts: 28859
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Re: Can we afford this new home?

Post by Watty »

doss wrote: Fri Dec 03, 2021 6:34 am - Own some real estate outside Austin, Tx but don't plan to sell until another decade
How much is this worth and how much income does it generate?
doss wrote: Fri Dec 03, 2021 6:34 am We are discussing with an architect about remodeling our current home. There will be some major updates needed (build a garage, expand kitchen, replace all windows, exterior doors, finish basement, new flooring, add mudroom, install sump pump, etc) --- lots of work.
Don't even think of putting that much work into a $260K house unless there is something unique about the lot, like it is a lakefront home with a view. That much work is getting to the point where it might be better to tear down the house and build a new house on the lot since even in the midwest the property is likely something like a $100K lot with a $160K house on it.

When you mention finish basement and sump pump in the same sentence that makes me think of all the things that can go wrong.
doss wrote: Fri Dec 03, 2021 6:34 am - I would like to retire around age 55-57
...
Can we afford this new home? Thanks!
You can easily afford the house, the big question is if you will be able to afford it and still retire in about 15 years when you have two kids in college. There are all sorts of opinions about having a mortgage in retirement but at least for me having a paid off house when I retired made my retirement numbers work a whole lot better.
doss wrote: Fri Dec 03, 2021 6:34 am - Around $430k, looks like mortgage payment could be $2k/mo with 20% down payment
20% down is not even all the home equity from your current house and a 30 year loan would not be paid off until you are 71.

At 41 you are getting into middle age so you should really consider being less agressive.

I would suggest making a much larger down payment. If you used $90K of your cash with the $110K in home equity you could have a $200K downpayment and only have a $230K mortgage which should be easy to get paid off by the time the kids start college and you want to retire. You may still want to get a 30 year mortgage for flexibility but still plan on paying it off early. Having a small mortgage payment can also allow you to have a smaller emergency fund and reduce financial pressure that you might feel.

If you do not want the house enough to put all your home equity into it along with at least some of your cash then that could be a red flag that you do not want the house enough to buy it. There are several variations on the saying, "You can have anything you want but not everything you want." You need to figure out where the house ranks in your list of wants.
doss wrote: Fri Dec 03, 2021 6:34 am Cash savings = $133k
.....
- Debt: Honda van = $22k (2020 model),
Is this a 0% loan? If not then with your income and the cash then why do you have a car loan?
doss wrote: Fri Dec 03, 2021 6:34 am remaining mortgage $128k (4% mortgage rate)
You should have refinanced that years ago, you have been basically flushing at least a thousand dollars a year down the toilet by not refinancing.

I don't want to be too hard on you since life gets real busy with two young kids and everything else going on it would be really good to pay more attention to your finances since with just a minimum amount of effort you can make a huge difference. Be sure to look at your investments to make sure you have those invested in low cost mutual funds since paying an extra 0.5% in unnecessary higher fees does not sound like a lot but it makes a huge difference over the decades.
Valuethinker
Posts: 49030
Joined: Fri May 11, 2007 11:07 am

Re: Can we afford this new home?

Post by Valuethinker »

doss wrote: Fri Dec 03, 2021 6:34 am Can I get a quick sanity check on a potential new construction home purchase?

Stats:

- Family of 4 (toddler, 5yr old, 41yo, 34yo)
- Midwest Mid Cost of Living (5% more affordable than national average)
- Current home (1300sqft): Purchased in 2015 for $185k, zillow says now worth $260k, remaining mortgage $128k (4% mortgage rate), estimated net proceeds => $110,426

We are discussing with an architect about remodeling our current home. There will be some major updates needed (build a garage, expand kitchen, replace all windows, exterior doors, finish basement, new flooring, add mudroom, install sump pump, etc) --- lots of work. This will be expensive and the stress of living in a construction zone does not bode well for us. Thus, alternative is to purchase a new build home that has everything we want not too far from where we are now (we are locked in with local school, church, family, etc)

New home purchase:

- Around $430k, looks like mortgage payment could be $2k/mo with 20% down payment
- DTI would be around 20% roughly?

Financial:

- $165,000 Single income (very stable), wife plans to return to work in a year or two
- I would like to retire around age 55-57
- Cash savings = $133k
- Investments = 700k (HSA is $35k, 529 for toddler is 3k, 5yr old 11k, rest of investments in retirement Roth 401k, Roth IRAs). We max every year.
- Debt: Honda van = $22k (2020 model), credit cards paid off in full each month
- Own some real estate outside Austin, Tx but don't plan to sell until another decade

Can we afford this new home? Thanks!
1300 square feet seems very small for a growing family - at least by North American standards.

One important consideration is that home renovations are a nightmare right now (this seems to be a global problem - Canada and USA but also here in Europe):

- there are shortages of just about any building product. You can't specify brand and type. You just hope your contractor can find a reasonable product as and when it is needed. Prices? All over the place, changing week by week. But generally up a lot over 2019.

- there are labor shortages. Both skilled trades (as always) but also even unskilled. People who worked in the industry Pre-Covid just seem to have gone on to other things (perhaps Amazon warehouses?)

What I am hearing (in the UK and Canada) is contractors quoting outrageous prices - 2x or more what they would have quoted in 2018. On the basic supposition that either you will go away (since they don't really have the capacity to do the work anyways) OR you will bite at a crazy price. And to be fair to them, they just don't know what subcontractors and materials are going to cost them when they need them, so they have to build in a huge safety margin to the contract.
chuckwalla
Posts: 196
Joined: Wed Mar 24, 2021 12:25 pm

Re: Can we afford this new home?

Post by chuckwalla »

Just out of curiosity, has there ever been a post where the poster clearly could not afford the proposed house?
Asking because I've never come across such thread in the short time I've been on this forum.
KlangFool
Posts: 31525
Joined: Sat Oct 11, 2008 12:35 pm

Re: Can we afford this new home?

Post by KlangFool »

chuckwalla wrote: Fri Dec 03, 2021 3:58 pm Just out of curiosity, has there ever been a post where the poster clearly could not afford the proposed house?
Asking because I've never come across such thread in the short time I've been on this forum.
Yes.

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stoptothink
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Re: Can we afford this new home?

Post by stoptothink »

chuckwalla wrote: Fri Dec 03, 2021 3:58 pm Just out of curiosity, has there ever been a post where the poster clearly could not afford the proposed house?
Asking because I've never come across such thread in the short time I've been on this forum.
They are a minority, but just based on the volume of these threads, it has happened many, many times.
Topic Author
doss
Posts: 554
Joined: Tue Nov 01, 2011 9:52 am

Re: Can we afford this new home?

Post by doss »

KlangFool wrote: Fri Dec 03, 2021 7:14 am OP,

What is your current mortgage payment?

What is your new mortgage payment?

What is your current annual expense,?

What is your current annual savings/investment?

KlangFool
current mortgage - $1045/mo (4% mortgage rate -- never took the time to refinance because we have been looking to move for the past 2-3 years)

new mortgage rate - around $2400/mo (3% rate)

Current annual expense seems to be $60-65k

Current annual savings/investment -- don't know ...I just max everything out each year (Roth, spousal Roth, 401k, HSA, and $200/mo for each kid's 529. Whatever else we have will go into savings).

Forgot to add to the original list: Wife plans to work in about a year or two (private school teacher pay about $36-45k)
“ The long-term 9%-10% nominal return of the stock market INCLUDES the crashes.” — calvin+hobbs
Topic Author
doss
Posts: 554
Joined: Tue Nov 01, 2011 9:52 am

Re: Can we afford this new home?

Post by doss »

CoastLawyer2030 wrote: Fri Dec 03, 2021 7:21 am I think you have intentionally boxed yourself into a false binary by having such an extensive list of remodeling, making it cost-prohibitive to do so, which "forces" your hand towards the new home. Just to point out two things on your list --

1. Have you really, really looked into whether you need new windows or doors? I have gone down this rabbithole (you can search my post history here), and my takeaway from hours and hours of research is that you should always look into repairing windows before replacing. Exterior doors are also a huge waste of money when there are a lot of companies that can refurbish existing doors, and even insert glass into existing solid fiberglass doors.

2. The modern concept of mudrooms astounds me, especially if you add on a garage. Me and my two brothers all played 5/6 sports per year and were the dirtiest kids in the history of the world. Our "mudroom" was the garage. I cannot imagine spending money on a place just to throw stuff like dirty clothes. If you are really talking about adding first floor laundry, that's another story, but I'm convinced the "mudroom" is an invention by HGTV solely to add more worthless space to houses.

***

FYI, I finished my basement last year for about $9k, furniture included. Basements are unique in that you can leave the blocks, ceiling, etc. exposed and make it look awesome. Look at industrial theme basements and the like for ideas.

***

With all of this said, ultimately you are the one living your life, and you know what your family needs. I think you can clearly afford it, but I think it would be a financial home run if you can smartly remodel your current place, save all the money you'd lose on another real estate transaction, and stay.
Agree about the windows...but there are a few that need replacement. Now for the doors...absolutely need a replacement because our front door isi so thin and has air leaks (can even see daylight in some places :D ).

Yes, mudroom is basically the laundry room that has access to the kitchen. Definitely need it for our family.

That's a great price for basement finishing! The new construction home we are looking at has us set for $32k to finish about 1,000sqft of a 1900sqft space (includes bathroom, bedroom, closet). No idea if that is respectable.
“ The long-term 9%-10% nominal return of the stock market INCLUDES the crashes.” — calvin+hobbs
Topic Author
doss
Posts: 554
Joined: Tue Nov 01, 2011 9:52 am

Re: Can we afford this new home?

Post by doss »

Flyer24 wrote: Fri Dec 03, 2021 7:31 am Yes, you can afford it. I would keep exploring options before locking yourself into an expensive remodel. It doesn’t sound like you are adding much square footage. I would think a larger house would be more ideal.

We did an expensive remodel on our first home. Never again. It is a long headache with constant budget issues. Plus the stress of living in the house during the remodel can be cumbersome for a family. We actually did the remodel before moving in.

In any case, it seems a new house would fit your budget. You have a nice savings going and a very good retirement plan established. Keep up the good work. I would lean towards moving.
We considered doing a remodel (spent 2 years thinking it through AND doing layout planning myself) and also talked to architects. Our requirements had a kitchen expansion and new 28x28 garage with plumbing, insulation, hvac, etc and it all just started adding up. We still had some issues to solve in the main house (basement is unfinished, kids room has no bathroom access other than master bathroom and a downstairs bathroom, etc). That and the stress of living through a construction zone (Working from home with a toddler) was going to be a bit too much.
“ The long-term 9%-10% nominal return of the stock market INCLUDES the crashes.” — calvin+hobbs
Topic Author
doss
Posts: 554
Joined: Tue Nov 01, 2011 9:52 am

Re: Can we afford this new home?

Post by doss »

LittleMaggieMae wrote: Fri Dec 03, 2021 8:02 am TLDR; What are your current expenses? What are your future expenses with the new house? How does this fit into your long term plans and goals - financially and personally. (You do have long term goals? yes?)

You can answer your own question by doing the "legwork" - looking at your numbers and goals/plans and math...

Here's the Too Long:

A 430K house is 2.5x your gross income - so that's within the "rule of thumb".
The PI part of $330K mortgage (after 20% down on 430K) is approx 1500 (this is probably a little high). You need to factor in taxes and insurance. And HOA fees if applicable. And then here's the hard part - estimate your other expenses - Utilities, lawn service/snow removal, any of the yearly maintenance stuff (chimney sweep? HVAC check, water softner stuff, cleaning gutters, pool maintenance, whatever stuff your new house has that requires monthly or yearly maintenance). Does that total fit within the 28% of Gross Monthly Income "rule of thumb" - is it less than $3500 a month?

What stuff will you need to buy for your new house (mower? a shed? new furniture? what will you have to fix on your new home? put down epoxy on the garage floor? maybe replace the washer/dryer (the house comes with ones that are too big/too small/too old for your family)? Make a punch list.

Still NOT done.

Look at your current spending plan/budget (and what expenses are on the horizon - what you are saving for) does the new house and all it's expenses fit into your spending plan/budget? Are the future things on the plan that have to get pushed further into the future or have to be dropped off your "future goals/plans" list worth dropping off the list because the added expense of the new house make them more difficult or impossible to achieve?
Thanks. It would be a HOA with a monthly cost of $66. That includes lawn care, snow, -- so won't need mower, etc. My current old house (1920s) is not very tight -- lots of air leaks, some old wiring, etc. Basement is unfinished and has no insulation, so probably losing some energy there. I think the new house could be about the same or less in utility fees.
“ The long-term 9%-10% nominal return of the stock market INCLUDES the crashes.” — calvin+hobbs
Topic Author
doss
Posts: 554
Joined: Tue Nov 01, 2011 9:52 am

Re: Can we afford this new home?

Post by doss »

rascott wrote: Fri Dec 03, 2021 8:21 am Simple answer, is yes you can afford it. Unless there is some reason you really love your current neighborhood/ lot, etc....I wouldn't even entertain the thought of doing the renovation.
THAT is the reason for considering the remodel. Location is incredible.....new house is a 5 min drive away from this house. Current house we walk to school, church, main street, etc. Walk everywhere. New house will require a car. The walking is great, but honestly, I personally am getting bored/tired of walking in the same area. I'd rather get my exercise on a nice little gym setup in the basement (air bike is better anyways for health goals)
“ The long-term 9%-10% nominal return of the stock market INCLUDES the crashes.” — calvin+hobbs
Topic Author
doss
Posts: 554
Joined: Tue Nov 01, 2011 9:52 am

Re: Can we afford this new home?

Post by doss »

campy2010 wrote: Fri Dec 03, 2021 9:15 am At first glance, it's fine.That said, right now you're saving about 20% of your income and your retirement is a little behind for your income and desire to retire at 55, especially with 2 college bound kids. I would take a hard look at the monthly expenses and try to cut back in places so the higher mortgage is a net neutral on your budget.
Mint.com says I'm projected to reach our 3mil retirement goal on March 11, 2028 based on my past decade of savings rate, account analytics, current savings, rate of return, etc (been using Mint.com since 2010). :P But seriously, have no idea how much faith to put in that...and doubt it's true, but it's nice to look at.
“ The long-term 9%-10% nominal return of the stock market INCLUDES the crashes.” — calvin+hobbs
CoastLawyer2030
Posts: 989
Joined: Wed Dec 30, 2020 7:44 am
Location: The Buckeye State

Re: Can we afford this new home?

Post by CoastLawyer2030 »

doss wrote: Wed Dec 08, 2021 4:25 am
CoastLawyer2030 wrote: Fri Dec 03, 2021 7:21 am I think you have intentionally boxed yourself into a false binary by having such an extensive list of remodeling, making it cost-prohibitive to do so, which "forces" your hand towards the new home. Just to point out two things on your list --

1. Have you really, really looked into whether you need new windows or doors? I have gone down this rabbithole (you can search my post history here), and my takeaway from hours and hours of research is that you should always look into repairing windows before replacing. Exterior doors are also a huge waste of money when there are a lot of companies that can refurbish existing doors, and even insert glass into existing solid fiberglass doors.

2. The modern concept of mudrooms astounds me, especially if you add on a garage. Me and my two brothers all played 5/6 sports per year and were the dirtiest kids in the history of the world. Our "mudroom" was the garage. I cannot imagine spending money on a place just to throw stuff like dirty clothes. If you are really talking about adding first floor laundry, that's another story, but I'm convinced the "mudroom" is an invention by HGTV solely to add more worthless space to houses.

***

FYI, I finished my basement last year for about $9k, furniture included. Basements are unique in that you can leave the blocks, ceiling, etc. exposed and make it look awesome. Look at industrial theme basements and the like for ideas.

***

With all of this said, ultimately you are the one living your life, and you know what your family needs. I think you can clearly afford it, but I think it would be a financial home run if you can smartly remodel your current place, save all the money you'd lose on another real estate transaction, and stay.
Agree about the windows...but there are a few that need replacement. Now for the doors...absolutely need a replacement because our front door isi so thin and has air leaks (can even see daylight in some places :D ).

Yes, mudroom is basically the laundry room that has access to the kitchen. Definitely need it for our family.

That's a great price for basement finishing! The new construction home we are looking at has us set for $32k to finish about 1,000sqft of a 1900sqft space (includes bathroom, bedroom, closet). No idea if that is respectable.
Why not just weather strip your door?

$32k is outrageous to finish a basement. Like I said, look into alternative design options. Assuming it is a square room you can do the flooring yourself (modern plank flooring is easier to do than paint a room in my opinion).
Globetrttr
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Re: Can we afford this new home?

Post by Globetrttr »

doss wrote: Fri Dec 03, 2021 6:34 am an I get a quick sanity check on a potential new construction home purchase?

Stats:

- Family of 4 (toddler, 5yr old, 41yo, 34yo)
- Midwest Mid Cost of Living (5% more affordable than national average)
- Current home (1300sqft): Purchased in 2015 for $185k, zillow says now worth $260k, remaining mortgage $128k (4% mortgage rate), estimated net proceeds => $110,426

We are discussing with an architect about remodeling our current home. There will be some major updates needed (build a garage, expand kitchen, replace all windows, exterior doors, finish basement, new flooring, add mudroom, install sump pump, etc) --- lots of work. This will be expensive and the stress of living in a construction zone does not bode well for us. Thus, alternative is to purchase a new build home that has everything we want not too far from where we are now (we are locked in with local school, church, family, etc)

New home purchase:

- Around $430k, looks like mortgage payment could be $2k/mo with 20% down payment
- DTI would be around 20% roughly?

Financial:

- $165,000 Single income (very stable), wife plans to return to work in a year or two
- I would like to retire around age 55-57
- Cash savings = $133k
- Investments = 700k (HSA is $35k, 529 for toddler is 3k, 5yr old 11k, rest of investments in retirement Roth 401k, Roth IRAs). We max every year.
- Debt: Honda van = $22k (2020 model), credit cards paid off in full each month
- Own some real estate outside Austin, Tx but don't plan to sell until another decade

Can we afford this new home? Thanks!
The location is most important. Being close to your church, school, family, and community where you feel connected is incredibly important. That being said, I know how stressful it is dealing with an older house in constant need of repairs, renovated rooms, or simply replacing old fixtures with newer, more modern (and often safer) ones. Newer house may bring more peace of mind if the financial pressure isn't too much. I'm in the same point of decision-making myself. Seems like you can afford it to me, especially if your wife plans to add income.

Some other comments:
Even if you forego all other cosmetic work or expansions, replace old windows and exterior doors with state-of-the-art. You will notice an immediate difference in how airtight the house feels, will be much quieter, and will add value should you eventually move. We have new Pella windows in our 50-ish year old house but the front door is orig. wood, expands/contracts with temperature and humidity, and leaks air like a sieve in winter. The difference is astounding.

Also, you can insulate and encapsulate an unfinished basement easily by yourself or with a helper (family, friend, neighbor kid who wants to earn some cash, etc.) with the correct materials. Same goes for blowing fiberglass into an attic. I did both myself over the course of a couple of weekends, ended up adding approx. 18" of blown fiberglass to the ~4-5" that was initially there for 50 years. Makes a noticeable difference in heating and cooling costs.

We finished our basement last summer for about $12k and 10 months later, the sump pump failed during an epic thunderstorm, resulting in a flooded new basement requiring carpet replacement and mold mitigation/prevention measures. Thankfully insurance covered it. Just count on that happening at some point...water always eventually finds a way. :oops:
Only when the tide goes out do you discover who's been swimming naked. - W. Buffett
Topic Author
doss
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Re: Can we afford this new home?

Post by doss »

Watty wrote: Fri Dec 03, 2021 10:12 am
doss wrote: Fri Dec 03, 2021 6:34 am - Own some real estate outside Austin, Tx but don't plan to sell until another decade
How much is this worth and how much income does it generate?
doss wrote: Fri Dec 03, 2021 6:34 am We are discussing with an architect about remodeling our current home. There will be some major updates needed (build a garage, expand kitchen, replace all windows, exterior doors, finish basement, new flooring, add mudroom, install sump pump, etc) --- lots of work.
Don't even think of putting that much work into a $260K house unless there is something unique about the lot, like it is a lakefront home with a view. That much work is getting to the point where it might be better to tear down the house and build a new house on the lot since even in the midwest the property is likely something like a $100K lot with a $160K house on it.

When you mention finish basement and sump pump in the same sentence that makes me think of all the things that can go wrong.
doss wrote: Fri Dec 03, 2021 6:34 am - I would like to retire around age 55-57
...
Can we afford this new home? Thanks!
You can easily afford the house, the big question is if you will be able to afford it and still retire in about 15 years when you have two kids in college. There are all sorts of opinions about having a mortgage in retirement but at least for me having a paid off house when I retired made my retirement numbers work a whole lot better.
doss wrote: Fri Dec 03, 2021 6:34 am - Around $430k, looks like mortgage payment could be $2k/mo with 20% down payment
20% down is not even all the home equity from your current house and a 30 year loan would not be paid off until you are 71.

At 41 you are getting into middle age so you should really consider being less agressive.

I would suggest making a much larger down payment. If you used $90K of your cash with the $110K in home equity you could have a $200K downpayment and only have a $230K mortgage which should be easy to get paid off by the time the kids start college and you want to retire. You may still want to get a 30 year mortgage for flexibility but still plan on paying it off early. Having a small mortgage payment can also allow you to have a smaller emergency fund and reduce financial pressure that you might feel.

If you do not want the house enough to put all your home equity into it along with at least some of your cash then that could be a red flag that you do not want the house enough to buy it. There are several variations on the saying, "You can have anything you want but not everything you want." You need to figure out where the house ranks in your list of wants.
doss wrote: Fri Dec 03, 2021 6:34 am Cash savings = $133k
.....
- Debt: Honda van = $22k (2020 model),
Is this a 0% loan? If not then with your income and the cash then why do you have a car loan?
doss wrote: Fri Dec 03, 2021 6:34 am remaining mortgage $128k (4% mortgage rate)
You should have refinanced that years ago, you have been basically flushing at least a thousand dollars a year down the toilet by not refinancing.

I don't want to be too hard on you since life gets real busy with two young kids and everything else going on it would be really good to pay more attention to your finances since with just a minimum amount of effort you can make a huge difference. Be sure to look at your investments to make sure you have those invested in low cost mutual funds since paying an extra 0.5% in unnecessary higher fees does not sound like a lot but it makes a huge difference over the decades.
Watty, I own about 8ac river frontage in the Texas hill country which my parents and I jointly purchased in 2010 for $150k. With parents being private school teachers and myself a public government employee at the time, we had some meager salaries but were able to scrounge enough cash for the purchase. We finally were able to build a vacation home on that land in 2018 for $299k which my parents now live in. Thanks for the Elon Musk effect and everyone moving to Texas, according to Zillow this is all worth 1.5 million. Not sure I believe it but because of this some of our neighbors whom own less land than us are selling for triple what they paid for.

As for your other comments...yes, the loan on our minivan is 0.9% and I'm not in a hurry of paying it off.

Thank you for this nugget: "I would suggest making a much larger down payment. If you used $90K of your cash with the $110K in home equity you could have a $200K downpayment and only have a $230K mortgage which should be easy to get paid off by the time the kids start college and you want to retire. You may still want to get a 30 year mortgage for flexibility but still plan on paying it off early. Having a small mortgage payment can also allow you to have a smaller emergency fund and reduce financial pressure that you might feel." --- I think that is the approach I will take.

I never refinanced current house because we always thought we were going to buy a new house the next week.
“ The long-term 9%-10% nominal return of the stock market INCLUDES the crashes.” — calvin+hobbs
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Watty
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Re: Can we afford this new home?

Post by Watty »

doss wrote: Fri Dec 10, 2021 4:16 am I never refinanced current house because we always thought we were going to buy a new house the next week.
If you have a problem with procrastination then you might go on and pull the trigger on make the move while mortgage interest rates are still low, I suspect that may not last much longer. Not only would that help you get a better rate on your next mortgage but it will also make your current house easier to sell. It may be worth hiring people to help you get your current house ready to sell instead of spending the time to do it all yourself.

There are lots of factors and family dynamics but you might also look at selling off an acre or so of that vacation land. You should be able to put restrictions on it about what can be built on it so that it will not impact your vacation home too much. That might allow you to pay cash for your next house. That might not work in all situations but it would be worth at least considering.

In looking back at the thread there was one thing that I thought of that might not have been mentioned. That is that if you finish off the basement in your current house then that square footage might not be counted in future appraisals because it is below the ground level. There have been people that have posted about having problems with this even in split level homes where part of the house was only partially below grade. That can make selling the house difficult since the buyers loan appraisals will come out low. I don't know the details of the rules but if you change your mind and get serious about finishing the basement you should look into this to find out if that would be a problem for your current house. As I recall the rules may have changed over the years so in researching this make sure that you are looking at the current rules.
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