Building a new house, financial discussion

[supersnoop]

For those who say their kids are nearly out of the house so it wouldn't be worth it to upsize the home, I'm just curious, what ages would the kids have to be to make it worth it to upsize? We are set to expand our current home and the kids are 6 and 11. Would that be an age range in which you think it would be worthwhile? As for the op, I see 13 as being pretty young still. Lots of years left at home, imo.

The national average length of home ownership is around 8 years. If you'll be in a house more than 8 years, you're above average.

Also, I know plenty of people who got the kids out of the house and/or retired. They started shopping for a new home to "downsize," but soon realized they needed a bigger house because of their personal interests.

 

[Iowajes]

Another option that my husband brought up and worth considering.

Build the new house. Keep the one we have and rent it out. Use the rental money to offset our new mortgage.

Keep in mind there are a lot of expenses to being landlords.

We rented our house out for 2 years, to a WONDERFUL tenant who always paid her rent on time, and we gave it up because we were barely making money over repairs. Little things we'd deal with if we lived there- you have to repair for a tenant. The garage door stopped working- we'd open it manually, but our state laws say the house has to stay in the condition it was rented, so we had to put in a new garage door opener. The washing machine broke- we had to find a replacement. Despite not flooding ONCE in the years we lived there (including historic flooding in our city) 2" of water in the basement- we had to rip out the carpet and put in new floors. My husband is handy and did a lot of the work himself, but it still cost us a lot.

And I consider us lucky, next door had it even worse- on paper his tenants looked good- a professor and a PhD student. They paid on time. But they did no care to the house, and didn't even call to get things fixed. The screen door broke and hung off the hinges causing damage to the door frame. A hole developed in the roof- allowing birds in, which caused thousands in damage to the attic. A crack developed in the concrete and wasn't filled until it upheaved, requiring replacement of the slab. Those were just the things WE noticed and called their management company about. I can't imagine what was going in inside the house. And BEFORE these tenants, they rented to an older couple- seemed good on paper- who ended up being evicted because they were selling drugs! The eviction process took a LONG time (6 months that they didn't pay rent!) The whole house had to be fumigated, probably at significant expense.

I would never do a rental again...

 

[yoopermom]

I would not rent out your current house because it will hurt your children's financial aid packages for college. They don't count your primary residence, but a second one? Ouch! We've just moved, have our old house for sale, and may have to rent it if it doesn't move, but know it's going to really impact DS's college. Urgh.

Does no one in the neighborhood have basements? That sure would have given you lots more useable space. I would pay an architect to look at expanding what you currently have. Many 1 1/2 story houses have a lot of wasted space in the name of "interesting" details.

We've just moved to a bigger space, but are definitely NOT counting on our 20 year old college student ever being here for more than a few weeks at a time. If he does, our new house has a finished basement with bedroom/living room/bath, so it could be like a mini apartment for him. (Or for visiting parents, which is more likely...)

Good luck with your decision. Having just been through a move, I will save it was MUCH more $$$ and stress than I ever imagined it would be.

Terri

 

[tvguy]

The national average length of home ownership is around 8 years. If you'll be in a house more than 8 years, you're above average.

.

I see that stat a lot, and all I can say is there must be a lot of people that move a whole lot more often than once every 8 years to offset people like those on my street. 16 houses, we're the new kids on the block, having bought this house 31 years ago, 8 of the 16 homes are owned by the original owners who bought them new 39 years ago. And my parents owned their home for 53 years.

Doing some quick math, the average on my street is 27 years.

 

[NewRVLady]

I still would no move to a less desirable neighborhood just to add a music room.

We moved AWAY from a neighborhood that was getting iffy- and now 20 years later SO glad we did!

As soon as my guitar son started driving ALL his guitar playing was with friends at one of their homes.

 

[havaneselover]

I see that stat a lot, and all I can say is there must be a lot of people that move a whole lot more often than once every 8 years to offset people like those on my street. 16 houses, we're the new kids on the block, having bought this house 31 years ago, 8 of the 16 homes are owned by the original owners who bought them new 39 years ago. And my parents owned their home for 53 years. Doing some quick math, the average on my street is 27 years.

I averaged under 2 years in my first five homes that I/we owned. I'm 38 and have bought six homes and sold five.

 

[morgan98]

Also, I know plenty of people who got the kids out of the house and/or retired. They started shopping for a new home to "downsize," but soon realized they needed a bigger house because of their personal interests.

This is sort of what is happening to us right now. We never had children, but due to the fact we want a better dedicated home gym and my husband's wood working hobby, we are moving into a home that most would consider "too large" for two people. However, unless you can find a custom builder on your own piece of land (almost impossible in Atlanta) to have certain amenities in a nice neighborhood you need to buy a bigger home that you may think.

OP, I don't think wanting a home for under $200,000 on a $150,000/year income is aggressive at all. I would bet most people do not live in a home valued at one year of their income (which your current home basically is). However, the fact that you have a relatively small amount in emergency savings and retirement does make one ask where that income has been going every year.

 

[okeydokey]

I'd buy the new house with a new mortgage. With your income and other debt, you shouldn't have any trouble qualifying as long as your credit is good. Then I'd sell the old house and use the proceeds to pay off the other debt, contribute to your Roth IRA, and replenish your emergency fund.

I agree. I wouldn't bother refining the current home. In fact, if you slowed down the repay of the spa you could put all that extra to the mortgage and pay it off sooner than three years. If you could sit tight in your current home until you paid it off it would be easy to get the mortgage for the new house.

 

[tvguy]

I averaged under 2 years in my first five homes that I/we owned. I'm 38 and have bought six homes and sold five.

I'm not doubting it. When I was involved in Little League, every year about a third of the flyers we sent out announcing signups......sent to kids who played the previous season, came back with "Moved, no forwarding address". Our zip code has more apartments than any other zip code in the county.

Where we had issues came when Little League started requiring 2 forms of documents proving your address. We had a lot of folks with PO Boxes on everything except their lease or mortgage. And because of privacy concerns, a lot of utility bills don't have a service address listed.

 

[KarenAylwood]

OP, I don't think wanting a home for under $200,000 on a $150,000/year income is aggressive at all. I would bet most people do not live in a home valued at one year of their income (which your current home basically is). However, the fact that you have a relatively small amount in emergency savings and retirement does make one ask where that income has been going every year.

This is exactly what I have been thinking while reading through the last 5 pages.

 

[tvguy]

OP, I don't think wanting a home for under $200,000 on a $150,000/year income is aggressive at all. I would bet most people do not live in a home valued at one year of their income (which your current home basically is). .

There are still a few places in the U.S. where that happens. Places where the cost of building the home can be more than it will be worth when it is complete. I have family in Illinois and Texas where that is the case. My FIL's 1500 square foot house, 3 bedroom 2 bath house on a half acre in Texas was just appraised at $74,000. That would be a $285,000 house here.

 

[supersnoop]

I see that stat a lot, and all I can say is there must be a lot of people that move a whole lot more often than once every 8 years to offset people like those on my street. 16 houses, we're the new kids on the block, having bought this house 31 years ago, 8 of the 16 homes are owned by the original owners who bought them new 39 years ago. And my parents owned their home for 53 years. Doing some quick math, the average on my street is 27 years.

Oh, I know what you mean; my parents are going on 38 years in their one and only house. And they just added a garage. But, when I was working on the budget for my HOA, we received $200 extra for reserves every time a house changed hands. Based on local averages, we budgeted for a 12% turnover per year. With the crazy low interest rates and they the housing market has appreciated in my area, people will buy a house as soon as they move in, and sell it in a couple years when they decide where they really want to be in the area. Last time I moved, I only expected to be in my house for 4 years, and it still works out cheaper to buy and sell then to rent.

 

[disykat]

Some like to continue to upgrade, but for others, being mortgage free is worth staying put!

I do agree that in OP's situation, they have a high income for their home. They'll be fine whatever they do, those of us saying "stay" are simply advocating that choice because it has worked for us. My guess is their income has changed significantly fairly recently and that's why they don't have the assets to show for it? I know that when I went from SAHM, to part time, to full time, it took a while for our savings to reflect our income. Now is our chance to sock it away.

My parents never left their starter home, despite a large income change. They've been there almost 50 years now; it's given them a lot of financial freedom. (They've lived so cheaply for so long we're having a hard time convincing them to spend some of that money and move, but that's another story!)

In both my case and my parents case, the main reason we've considered moving is the musical instruments. I can certainly relate to what OP is going through!

 

[morgan98]

There are still a few places in the U.S. where that happens. Places where the cost of building the home can be more than it will be worth when it is complete. I have family in Illinois and Texas where that is the case. My FIL's 1500 square foot house, 3 bedroom 2 bath house on a half acre in Texas was just appraised at $74,000. That would be a $285,000 house here.

I understand that it still happens in a few places. I lived outside of South Bend, IN myself for about six years in a custom built home on five acres. It was very inexpensive compared to most other areas. My point was just some other posters make it sound like buying a $200,000 house on a $150,000/year income as being very aggressive.

 

[NewRVLady]

There are still a few places in the U.S. where that happens. Places where the cost of building the home can be more than it will be worth when it is complete. I have family in Illinois and Texas where that is the case. My FIL's 1500 square foot house, 3 bedroom 2 bath house on a half acre in Texas was just appraised at $74,000. That would be a $285,000 house here.

depends on location-the texas house must be in the boonies

I know folks with high end finishes in under 2000 sq ft in texas whose homes are worth $185,000 and way up-10 foot ceilings, wood floors, granite countertops etc
If you are in The Woodlands-double that

so you cant just say "in Texas"

 

[Happyjen27]

I encourage you to stay put. Right now you're on the cusp of being finished with your mortgage in time to start paying college tuition. I'm not sure your college savings goals, but, if you're feeling a bit behind on college savings, that can be made up by having no mortgage when the kids start college.

Whether your kids are or are not going to be leaving home in the next 8 years, the fact is that you're making a 30 year decision based on what is a temporary situation. 30 years is a long commitment to change for what may very well be a short term issue. If the kids are going to live at home after college, then you can set boundaries once they are adults. Such as having them rent studio space for their musical practice and drive back and forth there. It's your home, somehow parents forget that when they have their adult children living with them. I was an adult child living at home, and if my activities were negatively affecting my mom, rest assured she wouldn't have paid tens of thousands of dollars to make herself comfortable, she would have set boundaries.

As for your retirement savings, 15% is great, but your late start might mean you should be saving a bit more aggressively. I think that recommendation of 15% is for people who start in their 20s and save at that rate their entire careers. Again, having a mortgage paid well before retirement will go a long way toward making up for the shortfall.

If an extra space is really, truly needed, I would pay off all 26K of debt, and then save up for a renovation to my current home.

 

[DawnM]

Do you really care if Suze Orman would deny you?

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?

 

[tvguy]

depends on location-the texas house must be in the boonies

I know folks with high end finishes in under 2000 sq ft in texas whose homes are worth $185,000 and way up-10 foot ceilings, wood floors, granite countertops etc
If you are in The Woodlands-double that

so you cant just say "in Texas"

Beaumont, Port Arthur, Vidor, Orange, Liberty and Nederland. Boonies? Maybe, bit they consider them suburbs of Houston.

 

[NewRVLady]

Beaumont, Port Arthur, Vidor, Orange, Liberty and Nederland. Boonies? Maybe, bit they consider them suburbs of Houston.

No way those towns are considered suburbs of Houston

They are 1 1/2 hours away
and just a couple miles out from any of them is VERY rural

I consider $75k for a 1500 square foot house to be VERY very low-even for Texas

 

[supersnoop]

No way those towns are considered suburbs of Houston They are 1 1/2 hours away and just a couple miles out from any of them is VERY rural I consider $75k for a 1500 square foot house to be VERY very low-even for Texas

Houston is 1 1/2 hours away from the other end of Houston. Everything is bigger in Texas, even our suburbs.