Building a new house, financial discussion

[MomToOne]

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. I know you have been paying extra towards your mortgage and the swim spa, but I wonder if you also have spending habits that eat a lot of your income and keep your savings low. I wonder why you had to finance the spa to start with - if you didn't have that expense before the last year, where was all the money going that you are now putting toward that? It doesn't appear to have gone into savings. With your current savings and $26K in consumer/student loan debt, I wouldn't consider building a new home.

If you are worried about boomerang kids coming back home after college, I'd focus on saving more towards their college educations so that they don't end up with huge student loans. The payments they have to make on those are one of the biggest reasons so many kids have to come back home after college these days.

 

[tvguy]

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

Yes, but a lot of people live in these towns and commute to work in Houston.

 

[momz]

To address some of the questions. Specifically, where does the money go?
Our income has gradually doubled over the last 13 years since we moved here. Actually, more than doubled. When we were approved for the mortgage to buy this home, our income was 60k! Back in 2001, they were approving mortgages that they shouldn't have!

We also had no clue, back then, what we were doing financially. Nobody ever taught us about budgeting. It was a different world. We were all living on credit.

So, we lived this way until about '07 or '08 when we learned. The stress of our debt forced us to change our ways. Since then, we paid off all of our credit card debt, car loans (I have a newly acquired car loan now...about a year ago), my student loan and started paying cash for everything (most things). Plus we have reduced the debt on our house significantly. If we stay put, we would pay it off in 16 years instead of the original plan for thirty. So, in the last 7 years, this is where the money went. Plus piano lessons and children's theater groups for the kids. Vacations as well. We spend more on activities than we do on stuff now.

Many of the advice I see here reflects value judgements. Specifically, I see that staying put for many many many years appears to be encouraged. I see that some have cited stories of parents living in the same home forever. But, this is not the historical pattern for my family. While mt parents and siblings have not been house hoppers, they generally have lived in their homes for 5 to 10 years until their needs change and they move.

Therefore, I don't necessarily see a move to a new house as being a end of life decision. I am looking at it as addressing our needs now, not thirty years from now when clearly we will be in a different life stage.

It is looking more and more like the move will be happening. The question now becomes when...how soon. So, we are now discussing how to budget for this. Do we pay off the spa and continue throwing money at our mortgage, or reduce our payments to the monthly defined payment and add to our savings? Or spread the money over both goals. Paying down debt AND saving.

Also, do we keep the current house to rent it out (with a property management company), or sell it after the move. We are leaning towards renting it out. This is because, it is nealy paid off, after that, it will increase our income. I don't think it will impact my kids financial aid packages because I don't think they would be getting aid regardless. Also, after looking more closely at the market analysis, I don't think we could sell it for a price we are comfortable with. There would be a loss on our investment. Renting it would more likely result in break even or profits. IF we can stomach the risk and headaches of being a landlord.

 

[kymom99]

To address some of the questions. Specifically, where does the money go?
Our income has gradually doubled over the last 13 years since we moved here. Actually, more than doubled. When we were approved for the mortgage to buy this home, our income was 60k! Back in 2001, they were approving mortgages that they shouldn't have!

We also had no clue, back then, what we were doing financially. Nobody ever taught us about budgeting. It was a different world. We were all living on credit.

So, we lived this way until about '07 or '08 when we learned. The stress of our debt forced us to change our ways. Since then, we paid off all of our credit card debt, car loans (I have a newly acquired car loan now...about a year ago), my student loan and started paying cash for everything (most things). Plus we have reduced the debt on our house significantly. If we stay put, we would pay it off in 16 years instead of the original plan for thirty. So, in the last 7 years, this is where the money went. Plus piano lessons and children's theater groups for the kids. Vacations as well. We spend more on activities than we do on stuff now.

Many of the advice I see here reflects value judgements. Specifically, I see that staying put for many many many years appears to be encouraged. I see that some have cited stories of parents living in the same home forever. But, this is not the historical pattern for my family. While mt parents and siblings have not been house hoppers, they generally have lived in their homes for 5 to 10 years until their needs change and they move.

Therefore, I don't necessarily see a move to a new house as being a end of life decision. I am looking at it as addressing our needs now, not thirty years from now when clearly we will be in a different life stage.

It is looking more and more like the move will be happening. The question now becomes when...how soon. So, we are now discussing how to budget for this. Do we pay off the spa and continue throwing money at our mortgage, or reduce our payments to the monthly defined payment and add to our savings? Or spread the money over both goals. Paying down debt AND saving.

Also, do we keep the current house to rent it out (with a property management company), or sell it after the move. We are leaning towards renting it out. This is because, it is nealy paid off, after that, it will increase our income. I don't think it will impact my kids financial aid packages because I don't think they would be getting aid regardless. Also, after looking more closely at the market analysis, I don't think we could sell it for a price we are comfortable with. There would be a loss on our investment. Renting it would more likely result in break even or profits. IF we can stomach the risk and headaches of being a landlord.

I own a house that I feared would not sell when we had an opportunity to move. I rent it out to my niece. This has been a win-win situation for both of us. She has torn out carpet and painted. She was planning to buy kitchen cabinets froma person whos house was to be torn down, but the deal fell through. The rent just covers the mortgage payment. She has tentative plans to buy it eventually. I technically lose money on it because i pay taxes and insurance, so I don't owe taxes on the income.

I would like to add that i stayed in the former house way longer than I wanted to. I regret that now. If you want to move, and you have responsible spending habits, do it now. Interest rates are good and you have years to enjoy it.

 

[NewRVLady]

If you are worried about boomerang kids coming back home after college, I'd focus on saving more towards their college educations so that they don't end up with huge student loans.
The payments they have to make on those are one of the biggest reasons so many kids have to come back home after college these days.

One of the BEST thing for my kids was having full tuition paid for college-part of our State's TOPS program. They graduated debt free

 

[PlutoPony]

It is looking more and more like the move will be happening. The question now becomes when...how soon.

Your reason for moving is to have more room for your kids and their activities/friends right? Given that there's a limited amount of time they will be living at this new home (hopefully ) I don't see any other answer but to make the move happen ASAP to get the most benefit from the $$ you're spending. Unless the interest rate on your current outstanding debt is outrageous, I wouldn't accelerate any payoffs at this point. Personally I'd rather hoard cash in case it's needed for the new house or put down a bigger downpayment to make sure you have a house payment you can live with.

Edited to add: As for keeping or selling your current house, can you rent it for enough to cover the house payment? If not I'd think long and hard about selling

 

[LJSquishy]

I would probably buy the new, larger house to meet the needs of your family. My husband and I lived in a 1500sq ft house with no kids and it was small...I felt like we couldn't have people over because it was cramped. I totally get your need for more space! We sold our little house in August. Our next home will be 2000+ sq ft, probably between 2200-2600.

If you move into a larger house now, are you okay moving yet again if you decide to downsize 15 years from now? If so, go for it. You'll have plenty of opportunities to utilize your larger house even once your kids move out...family parties, holidays, etc.

And, your kids may boomerang back to you at some point...my husband and I are currently living in the basement of his parents house to save money faster for our next home. We're also saving for adoption. We sold our house in August and moved in here (in-law setup so has separate kitchen, laundry, bathroom, etc) when they generously offered the basement. We're saving 2-3x as fast as we would if we were renting a place. His parents have utilized their larger home for many years...my BIL/SIL and their kids temporarily lived there while they relocated from the east coast back to the west coast, guests have stayed there, parties have been hosted there, and up until we moved in my in-laws used the basement as a giant media room to relax in. Eventually they will downsize to a smaller home, not due to their house being too large now but because they won't be able to do the basement stairs or take care of the large yard.

 

[Judique]

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?

I've read all 6 pages.

There is no good reason for you not to do this.

Your debt is minimal for a $150K income.

My question is what can you rent the house for? If you can cover the mortgage with rent, why would you need to do a 30 year refinance? It's only $56K left. And with a rental agreement in hand you should qualify easily for a 200K loan on the new house with a car loan, a few thou owed on a spa and that tiny bit of student loan.

Go ahead with your plans. You've got my blessing, lol!

Seriously, one of my single relatives owns a home that is being rented out for the mortgage plus a bit - the home is $185K. This relative is buying a $240K home and has about 25K in student loans and $110K in income a year. Their savings are slightly less, but are consistent. (They are also a bit younger -35).

It's wonderful to be conservative, but taking some risk can be worth it.

 

[deide71]

We just went through this 3 years ago.

Real estate market in the toilet and in a house that was closing in on us with 3 kids. We owed 80k on our house but due to the crappy real estate market at that time it was only worth about 150k and I just could not bring myself to sell it at that price.

We paid cash for a 3 acre lot that we loved. It was wooded, had a pond, it overlooked a river across the street. We got a great price because it was bank owned and they wanted it off of their books. We figured worst case scenario it could be a good investment.

Then we decided to build and rent out our current home until the market recovered. We offered a bit less than market price on the rental so we could be picky about the tenants. We also took out an insurance policy that covered us for damage by tenants. It worked out great. We rented for 2 years, the rent covered mortgage and fees + 300/mo. When our tenants left the market had recoved and we sold the house for 180k. We had 2 months total without rent coming in. We had to cover both mortages for 2 months but it was do-able.

The building process was stressful. We picked a builder that finaced their own build so we did not have to take out a construction loan. But it WILL cost more than your initial estimate. There is no way around it. Even if you don't go overboard on high end finishes there are some things you can't control. We spent an additional 2000 for gravel to backfill the foundation and 1000 to remove a HUGE half dead oak tree,for example.

In the end we definitely improved our quality of life. That is the one thing no one is taking into consideration. I am not a "live for today" person, I am responsible, but life requires balance. Enjoy today, but prepare for tomorrow. It sounds to me like you can do both. This is not an all or nothing.