First off, it hasn't been mentioned but 2 people under 30 both with bachelor degrees and masters' AND no student loans----- very well done!
now onto some key quotes from your posts...
Wife - $65k - elementary teacher in her 7th year of teaching. She has her masters degree & also does some coaching. Next year will bump up to $68k. All insurance (HSA) is deducted from her pay.
Me - $48k - middle school teacher in 2nd year of teaching. Worked in business for 4yrs prior. Recently finished masters degree & other grad classes so will see a big jump next year to $58k.
Savings (Ally) - $46,570
Liabilities:
Home - Owe $105k on a 20yr loan (18yrs left) at 3.75%. House is now valued at $185k
5) However, we would love to buy my grandmothers home (& she wants us to as well) but we obviously don't know when she will no longer be living there. Hopefully she lives a long long time but it makes planning difficult & if we keep our current home for rental we obviously will need to have additional money for a down payment. Does it seem like a good idea to keep our house to rent out & get the $1,600/month or sell the home (would likely get $185k)?
Grandmothers House - The home is in good condition (would do some minor cosmetic repairs) & is valued around $275k. In her will it is said the house is to be sold at market price but there can be a discount for a family member. My father is the executor of the will & we have informed him of our interest in the house & my grandmother wants us to get it. No other family member has shown any interest the house.
I know very little on real estate investing. But my personal opinion is that you cannot afford grandma's house.
A few calculations to consider....
1. Multiply your yearly income by 2.5 or 3 get find your max mortgage amount. I remember hearing this in the late 1980s as a teenager and it has always stuck with me. It looks like CNN Money is still suggesting
this. I am in a dual income household, yet both of my house purchases have been based only a mortgage of 3x the lowest income. It has given me great piece of mind and absolutely kept my fixed costs/ lifestyle inflation in check. For your first house, it appears as if you followed this exact advice.
(48*3)+33k=
177k max house price. I assumed you had a min 20% downpayment saved and bought a house at 167,500. A price you could easily afford. congrats-- this was a wise move.
2.
Front end ratio or housing ratio, is typically set at 28% of monthly expenses.
As alluded to in the previous response, you don't really give a value for the general upkeep of the house. With the HVAC at 22years, I am sure there are other items that have reached the end of life in this older home that also need to be replaced / updated. For older homes, I was also told to expect a yearly maintenance cost of 3% of the home value, or 5550/year (assume 185k home value) or 462.5/month.
28% of pre-deduction take home pay of 7400 is 2072. so even with these assumed maintanence costs, you are still doing just fine. again, well done.
BUT...
based on these numbers, Grandma's house is out of your price range. Both for reasonable mortgage you want to carry as well as front end house ratio. Even if you could get it at a family discount sale price, you would still be stretching yourselves. and that would force both of a you to continue working. Is that possible with 4 kids? That's a BIG IF in my opinion.
Also, what do other family members think? Maybe they don't want the house now, but they may very much want the proceeds from the sale of the house. Mixing family and money gets really tricky, really quick. Just go look at the inheritance drama thread. Too many ifs and assumptions are going with this thought path...
The house you currently have sounds great. Lower overall property taxes, maintenance values well within your budget, lower chance of lifestyle creep, neighbors who are more likely to share your income and spending levels (so less chance that either you or your kids will feel the need to compare, have envy, or keep up). Stay in the house you are in. it sounds great!