Building a new house, financial discussion

[momz]

Would Suze Orman deny us?

The players: me (45 years old), hubby (43 years old), DD 13, DS 11.

Current home: 1500 square feet. 3 bedroom, 2 bath

The problem: kids getting older and louder with more and bigger stuff. They are both musically inclined. Currently we have 1 piano, 2 guitars, 1 violin, 1 cello and 1 ukulele. Plus harmonicas, drum pads and voices. Our home is open concept, the music room is also the living room, dining room, computer room, etc. it is all one room. You get the picture.

Our financials: current home value $145k, we owe $56k. Currently paying $1200 per month on a ten year loan with about 5 1/2 years remaing, although at our current rate of payments we would own it in 3ish years.

Combined income: 150k. Stable jobs, been at mine 8 years, hubby 13

Other debt: car note 12k, hubby student loan 8k, loan on our swim spa 6k

What we want: larger home we more rooms, including a room to be designated for the music stuff with sound dampening and a door!

The cost: $190k to $195k at the most

The plan: refinance current home to a 30 year note to lower the monthly payment, obtain a 30 year loan for the new home and build it. Once new home is done, move and sell current home. Once this one sells, refinance the new one putting all proceeds toward the new one and decreasing the term.

Moving to an apartment is not desirable because we don't want the cost of moving twice. we want to take the swim spa with us and have nowhere to store it, plus the cost of moving it is high, so don't want to do it twice. Don't want the kids walking home from the bus at the apartment complex (it is known to have sex offenders and heroine addicts amongst the college student parties, not a good environment).

Now, tell me why this won't work. Honestly, what am I not seeing?

 

[mistysue]

You sound reasonable.
The only items to consider:
1)Have you actually priced out the cost of building this new home? Does that include the special sound room?
2)Do you have a location already picked so you can assume there won't be nasty surprises such as crazy tax rate differences? (we live in a township, last spring considered moving from a $150,000 house to a $200,000 house but from our township to the neighboring city... taxes would have gone from $200/month to $600/month)
3) You realize that if you started today, by the time the house was done you would likely have 4 years or less before the kids start moving out?

Unless your personal spending habits are terrible it seems pretty unlikely you could not afford this jump in housing. The ratio of income to house value is much different for most people. Why do you still have the little 6 and 8 thousand loans still sitting there? Those little ones sitting there make me wonder if you are routinely over spending because with the amount of those loans vs. your income they could be gone in a few months. Are they at 0%?

 

[tvguy]

My first question is, can you really get what you want for only $50,000 more than your current home is worth? Not knowing your area, no way for me to tell.

20 years ago we faced the same question. 1750 square foot home worth $250,000. We wanted a bigger home, about 2,000 square feet, but a house like that cost $100,000 more not counting moving costs and $10,000+ in costs associated with selling our current home.

In our case we found it much more cost efficent to just add on the space we needed.

To your question, "can you afford it?". I would say yes based on your information, but not sure it is your best financial option.

 

[Halle]

Have you thought about refinancing your home, the interest rates are extremely low. I like PP suggestion about adding on to your current home.

 

[momz]

You sound reasonable.
The only items to consider:
1)Have you actually priced out the cost of building this new home? Does that include the special sound room?
2)Do you have a location already picked so you can assume there won't be nasty surprises such as crazy tax rate differences? (we live in a township, last spring considered moving from a $150,000 house to a $200,000 house but from our township to the neighboring city... taxes would have gone from $200/month to $600/month)
3) You realize that if you started today, by the time the house was done you would likely have 4 years or less before the kids start moving out?

Unless your personal spending habits are terrible it seems pretty unlikely you could not afford this jump in housing. The ratio of income to house value is much different for most people. Why do you still have the little 6 and 8 thousand loans still sitting there? Those little ones sitting there make me wonder if you are routinely over spending because with the amount of those loans vs. your income they could be gone in a few months. Are they at 0%?

All valid questions.

The desired house is in the same township as our current home. It is on a smaller lot and a less prestigious neighborhood, thus a small difference in the per square foot cost compare to our current home. The price to build the home starts at 164k, with the upgrades we want, we would top out at about 195k.

Concerning the small loans. The 6k on the swim spa started at 20k about a year ago, we have been paying about 1k a month, so it is dwindling quickly. As for the student loan...we have not focused our resources there so it has been hanging out with us like a wart that will not go away.

The thought of the kids short time till adulthood has been a concern. You never know what the future holds. But there is a definite trend in our culture for kids to be dependent on their parents much longer than when I was a teen. So, we have discussed both the possibility of the kids staying at home through college and the possibility of being empty nesters in a big 'ol house.

The thought of up to ten more years of living on top of one another makes me depressed.

 

[momz]

My first question is, can you really get what you want for only $50,000 more than your current home is worth? Not knowing your area, no way for me to tell.

20 years ago we faced the same question. 1750 square foot home worth $250,000. We wanted a bigger home, about 2,000 square feet, but a house like that cost $100,000 more not counting moving costs and $10,000+ in costs associated with selling our current home.

In our case we found it much more cost efficent to just add on the space we needed.

To your question, "can you afford it?". I would say yes based on your information, but not sure it is your best financial option.

Had not thought about adding onto our current home. We have only one direction we could possibly go with a addition considering neighbor's property and a drainage easement. I don't know if that would work, but I will talk to hubby about the idea.

By moving to a lower cost neighborhood, we can get more house for less money. Same school system and tax area.

 

[momz]

Have you thought about refinancing your home, the interest rates are extremely low. I like PP suggestion about adding on to your current home.

Yes, in my original post, I stated we would refinance our current mortgage in order to lower the payment and make it possible to qualify for a loan on the house to be built.

 

[NewRVLady]

Could you close in the garage/carport to make the music room and only have to add a simple carport in front?
My cousin remodeled her Mom's old home this way

remember-13 year old will be gone in 5 years
I would NOT refinance home RIGHT before you get another loan to build-makes no sense

 

[MAJPLO]

All that refinancing has costs. So refinance now with costs attached, but the new home with closing costs, sell the current home with costs for that, refinance the new home more closing costs. Sounds like way too many fees for nothing. What does the new construction come with and what would you need to pay for beyond moving costs and the home costs? Would you need to buy additional furniture? What about landscaping and fencing? In our area new homes generally include front yard landscaping and all fencing but no back yard landscaping. That can all be very expensive.

 

[gracie1]

Had not thought about adding onto our current home. We have only one direction we could possibly go with a addition considering neighbor's property and a drainage easement. I don't know if that would work, but I will talk to hubby about the idea.

By moving to a lower cost neighborhood, we can get more house for less money. Same school system and tax area.

I take it your home is currently just a one story? If so, you could think about building a second story. And you could always bring in an architect and tell him what you want and let them design something that would be functional

 

[mistysue]

Reading your reply, I would think about what it would involve to add on... if you are currently in a single story, it could be really neat to have a 2nd story that is just a sort of large office/rec room type area. Something I have seen a bit recently here is a square 2nd or 3rd story that sort of looks like a look out perch- I'm bad with words but if done well it can look neat and it creates a retreat. Simply adding a room with a door could solve your space needs while not requiring you to give up the yard or nicer neighborhood or making you relocate your life. A 20'x20' room would feel like a huge addition when starting with 1500 feet and will likely cost less than the difference of the new home. Here hiring a contractor for an addition is around $100/foot.

 

[momz]

All that refinancing has costs. So refinance now with costs attached, but the new home with closing costs, sell the current home with costs for that, refinance the new home more closing costs. Sounds like way too many fees for nothing. What does the new construction come with and what would you need to pay for beyond moving costs and the home costs? Would you need to buy additional furniture? What about landscaping and fencing? In our area new homes generally include front yard landscaping and all fencing but no back yard landscaping. That can all be very expensive.

Yes. We haven't looked into the true costs of refinancing now. But, we have refinanced or current home twice. Started with a loan for the entire purchase price for 30 years. Refinanced 2 years later to a 20 year note conventional loan. Then refinanced again 3 years ago to a 10 year note. Now within 3 years of payoff.

The closing costs of both of our refinances were negligible. Plus, switching to a 30 year note on 50k can't be all that costly. I think we would have to refinance it to get a lower monthly payment, otherwise, I'm not sure we could qualify for a construction loan with what our current payment is.

You are correct in regards to the landscaping, the new house comes with 2 trees, 6 bushes, front yard sod and back yard seed. So, we would need a couple more trees and a fence. Plus some furniture.

Generally, we pay cash for these types of things. We don't buy it until we have the cash.

 

[momz]

Reading your reply, I would think about what it would involve to add on... if you are currently in a single story, it could be really neat to have a 2nd story that is just a sort of large office/rec room type area. Something I have seen a bit recently here is a square 2nd or 3rd story that sort of looks like a look out perch- I'm bad with words but if done well it can look neat and it creates a retreat. Simply adding a room with a door could solve your space needs while not requiring you to give up the yard or nicer neighborhood or making you relocate your life. A 20'x20' room would feel like a huge addition when starting with 1500 feet and will likely cost less than the difference of the new home. Here hiring a contractor for an addition is around $100/foot.

Our home is already 2 stories. Technically 1 1/2 stories. We have neighborhood covenants to consider as well. Enclosing the garage is not an option, we live in a very cold climate so we need the garage for our cars. The only side of our house that would have enough yard room to build on is the wall where our master bedroom currently is located. We are on a slab as well, so the plumbing fixtures are encased within the slab. I imagine it would take cosinderable effort and cost to deal with all of that, plus, where would we live during construction?

Have you added onto your home? How did you deal with these types of issues? I'm open to consider it, if it could be done in a way that is functional, and we don't have to move out to get it done.

 

[momz]

Could you close in the garage/carport to make the music room and only have to add a simple carport in front?
My cousin remodeled her Mom's old home this way

remember-13 year old will be gone in 5 years
I would NOT refinance home RIGHT before you get another loan to build-makes no sense

Ok. Help me understand why it makes no sense. What am I not seeing?

 

[momz]

My first question is, can you really get what you want for only $50,000 more than your current home is worth? Not knowing your area, no way for me to tell.

20 years ago we faced the same question. 1750 square foot home worth $250,000. We wanted a bigger home, about 2,000 square feet, but a house like that cost $100,000 more not counting moving costs and $10,000+ in costs associated with selling our current home.

In our case we found it much more cost efficent to just add on the space we needed.

To your question, "can you afford it?". I would say yes based on your information, but not sure it is your best financial option.

Teach me what I don't know. What are the $10k costs to sell a home?

Moving costs are an issue, this is some of the reason why we don't want to go to an apartment during construction. We don't want to move twice.

 

[manning]

There's no such thing as a stable job anymore.

 

[supersnoop]

Ok. Help me understand why it makes no sense. What am I not seeing?

For one, there's the closing costs associated with each loan which would probably be in the $3,000-$6,000 range each time. Second, that many mortgage loans in such a short period of time may affect your ability to actually qualify for a mortgage because of the hit to your credit.

 

[supersnoop]

Teach me what I don't know. What are the $10k costs to sell a home? Moving costs are an issue, this is some of the reason why we don't want to go to an apartment during construction. We don't want to move twice.

There will be a 6% commission to your realtor unless you plan to sell it yourself. Even then, you'll probably have to pay at least 3% to your buyer's realtor.

 

[tvguy]

There will be a 6% commission to your realtor unless you plan to sell it yourself. Even then, you'll probably have to pay at least 3% to your buyer's realtor.

This. 6% of $145,000 is $8,700. There will probably be about $2,500 in closing costs that are traditionally paid by the seller (although that is not set in stone, just depends on the offer your accept). You may have to throw in a home warranty that can cost $350 to $800. Your township could charge a title transfer fee, here that fee is $1,000. You may have to make repairs too.

 

[swilshire]

One music room? Two musical kids? That might not work. We faced a similar issue due to my husband the musician, who never really plays at home, but who created four musical children. We had a 1500 sf home and added on an even bigger addition. Our bedroom stayed in the old house and the kids got the new house. Our only mistake was in putting the family room in the new addition, so sometimes you can't hear the television for the racket. Three of the four are grown and gone now, but the percussionist is the one at home, so it is still pretty noisy. The last one to leave home was probably the one who played at home the most. I miss the constant piano tunes.

We tried to encourage headphone use wherever possible. In addition to the baby grand piano, my pianist son had multiple electric pianos, so that worked. My percussionist started on drum pads so he could use headphones for them.

I have nothing to offer in terms of financial advice, but enjoy the noise while you can. All too soon you may live in a quiet house.

Sheila