Author Topic: House buying: Should I pull this trigger (and which bullet to use)?  (Read 948 times)

Vibrissae

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So this site has been a total inspiration and wake-up call for me, and Iíve already done a lot to tighten up my budget. (In the past, my budget was more like a guideline than a rule, and Iíd make up any shortfalls by periodically taking money out of my investment account; not such a great plan.) And as part of the process of reviewing my finances, it suddenly struck me that Iím paying ridiculous property taxes on a house with 3 acres of land that I donít even use AND itís an hourís commute each way to my job. FACE PUNCH.

So now Iím looking at selling my house and buying a new one thatís closer to work and has lower taxes. Iíve found a house that I really like and I probably should make a move on it very soon if I donít want to lose it, but Iím suffering from decision paralysis because this is a huge commitment, Iíve never bought or sold a house before (I inherited mine from my dad), and Iím struggling to figure out how to manage the financing. Iím really not super savvy about money matters or real estate, so Iíd welcome any advice.

First, current case study numbers (amounts are monthly):

Me: 47, female, single, no kids, 3 cats

Salary$4,200
Pretax Health Ins.$58
Pretax Vision/Dental Ins.$4
Employer-sponsored HSA$70*
FICA base salary/wages$4,068
Life/LTD Insurance$15
Paycheck income before tax$4,053
Federal Total Income$4,068
Federal tax$528
State/City tax$114
Soc. Sec.$252
Medicare$60
NJ State Disability Ins.$22
Total income taxes$976
Income before other expenses  $3,077
Monthly Average Expenses:
Property Tax$833
Home/Rent Insurance$70
Car Insurance$132
Car Maintenance, Registration, etc.$30
Charitable contributions$25
Dentist$80
Electricity (incl. heat)$220
Entertainment$18
Fuel/Public Transport$100
Service contract for furnace$36
Groceries$300
Home Alarm System$60**
Household; Maintenance$100
Internet$86
Medical (Doctor, Hospital, etc.)$300***
Medicine (OTC + Prescription)$100
Miscellaneous (includes eating out)$120
Pets$300****
Phone (cell)$60
Recycling/Trash$5
Subscriptions (paper/magazines/etc.)$2
Water/Sewer$5
Non-mortgage total$2,982
Loans:
Geothermal loan$83*****
Total Expense$3,065
Assets:
House (paid off)worth $400-500K
Investment account429,000
IRA82,700
Beneficiary IRA33,500
TSA 1: 403b40,600
TSA 2: 403b61,200
HSA(site is down rn so I canít check current total, but itís under 5,000)

I have two credit cards, one MasterCard that I use for lots of things, and one store card that I only use to take advantage of sales; I pay off the balances every month.         


* This number is borked right now; itís from my last yearís W2, and my employer apparently made a mistake on it.
** Yes, Iím ditching this ASAP!
*** High due to an out-of-network psychiatrist/therapist.
**** I know...
***** 0% interest; current principal is about $6,400.



So! First, I have to acknowledge that Iím a lucky, lucky cat, and I owe a majority of my resources to my parents (both now deceased). I have quite a lot of assets. But because my actual salary is rather low, when I put out my first feelers toward a mortgage lender, he sounded very dubious and reluctant to take me on, especially since I might be carrying two houses for a while if mine isnít quick to sell. Now Iím trying to figure out how best to proceed.

Note that the house Iím looking at is currently listed at $279K, with property taxes of about $400/month. A buyerís agent that I consulted with estimates that my house could go for something in the range of $400K-500K. Zillowís Zestimate is $569,558, which I think is too highómy house is a 2BR, 1BA ranch in an area of McMansions.

1. Continue trying lenders and push harder, maybe bringing them some proof of my investment assets, which I can withdraw from  to cover the gap until my house sells.
2. Straight up take money out of the investment account, buy the house, and replace the money when my house sells. This avoids dealing with lenders, but I lose the earning potential of that money, plus it looks like I might get hit with capital gains taxes.
3. Make my purchase contingent on selling my house.
4. ???

So what say you, Mustachians? What would you do?



« Last Edit: March 19, 2017, 08:36:08 AM by Vibrissae »

MrsWolfeRN

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Re: House buying: Should I pull this trigger (and which bullet to use)?
« Reply #1 on: March 19, 2017, 08:31:52 AM »
Option 4 would be selling your house first, then renting for a little while until you purchase another home.  It is a pain to maintain an unoccupied property. You still have to heat it a little to keep the pipes from freezing, and shovel snow or keep the yard nice if it is for sale.  Also you will want to go in frequently and dust/ mop up footprints from "lookers". I regretted buying before selling when my new house was 10 minutes away from the old one. I ended up taking a much lower offer than I could have gotten just to be rid of the hassle. Plus your property taxes are higher than my mortgage+taxes+insurance was on that place.





Laura33

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Re: House buying: Should I pull this trigger (and which bullet to use)?
« Reply #2 on: March 19, 2017, 12:01:17 PM »
What MrsWolfe said. 

What is your goal?  Do you want to own a house most?  Do you want to FIRE immediately/soon?  What's the priority?

The money you have now + the proceeds of the house sale look to be sufficient to make you FI immediately, if you keep your future housing costs low.  It looks like house + investments = c.$1M, which would support about $40K/yr; your monthly expenses are currently around $3K, but around $1200 of those seem to be attributable to the house (taxes + utilities + insurance + alarm + some commuting + some maintenance).  So you could sell the house, rent for $1K-1200/mo, and probably be FI immediately.  Is that the goal? 

Alternatively, you could buy a different house, which will either increase your monthly outlay (unless you keep the total of PITI + maintenance to below that same $1200) or require an outlay from your 'stache.  Or both:  your current expenses are pretty close to your income, so even assuming you can get a mortgage, if the housing expenses exceed what you are paying now, you would need to draw from your investments to cover the difference (which would move you ever further from FI).  So is that ok -- is the priority to have the house, even if it means working longer?  And how much house, for how much longer? 

I think you have some big choices in front of you, and the best thing you can do is not try to make all of them at once.  Sell the house first.  See if you can rent an apartment closer to work that will allow you to pay the rent out of your monthly budget (i.e., not drawing from your investments).  Then live that for a year and figure out how it feels -- are you ok renting, or do you really want to buy?  At that point, you will know exactly what assets you have to work with, and you may have a better sense of your priorities as well, so you can do the math to determine size of house vs. time to FIRE. 
Laugh while you can, monkey-boy

former player

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Re: House buying: Should I pull this trigger (and which bullet to use)?
« Reply #3 on: March 19, 2017, 01:09:51 PM »
One thought: don't be too quick to talk down the value of your house.  A 2BR 1BA ranch may not have a high value.  A 3 acre building plot in a land of McMansions might be an entirely different matter.  Which raises another issue: will you be OK with your family home being torn down and replaced with half a dozen cement-covered foam monstrosities?
Be frugal and industrious, and you will be free (Ben Franklin)

KungfuRabbit

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Re: House buying: Should I pull this trigger (and which bullet to use)?
« Reply #4 on: March 19, 2017, 01:49:49 PM »
A lot of developers could tell you what your lot would sell for.

My buddy was offered $70k / acre on his property that sounds a lot like yours, which was far less than the house itself.  Your area could be different.

Lots of people though love having space, and McMansion neighbors just brings up property value :)

I agree with others though. If you force a sale you'll get less $$. Sell the house first. If you can make it work to match the timing buy a house at the same time. Otherwise rent a year or two.

Vibrissae

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Re: House buying: Should I pull this trigger (and which bullet to use)?
« Reply #5 on: March 19, 2017, 03:46:21 PM »


Thanks for all the answers so far! Lots of good stuff to chew on. Just to answer the question of what I want/what my goals are:

RE isnít really a priority for me; my job is awesome and Iím happy to keep at it for the foreseeable future. FI is a great thing, and as Laura33 noted, with my assets plus the house sale Iíd probably be there or close to it. But Iíd like to do more. Itís kind of a pride thing...Iíve been given so much, and Iím grateful for it, but Iíd like to build on what Iíve been given, not just take from it. Iíd like to let the accounts that I have just sit and accumulate while I try to gather some Ďstache money on my own, just from my own working and saving. I feel kind of like a mooch, otherwise, and not a successful grown-ass adult. I donít know if that makes any sense or not.

As for my living situation, basically I want something thatís pretty much like what I have now, except with lower expenses.

- I want quiet and privacy.
- I want a shorter and relatively stress-free commute.
- I want to not worry about noisy neighbors with thin walls, or whether my cats are going to puke on someoneís rug.
- I want space to have guests come and stay over.

If I could pick up my current house and plop it down on a smaller piece of land closer to work with lower property taxes, Iíd be ecstatic. Sadly, thatís not a thing thatís going to happen.

Lifestyle-wise, I want time to write and to get back to being more involved in my religious practices. I want to make some new friends, and to give more time to the ones I already have (most of whom are long distance, so moving wonít really change anything with them!). I want to be able to spend time outdoors without stressing out over how to take care of acres of property. :P  I want to have a space thatís mine and not full of hold-overs from my parents, and that I can cultivate to be exactly what I want it to be (hmm, so maybe I donít actually want to move my current house after all :P ).

Iíve been taking a look at apartments in my price range within the commuting area that Iím aiming for, and theyíre mostly pretty depressing, lol. Curse you, HCOL area. Iíll keep my eyes open, though. But honestly I think Iíd prefer not to rent unless I find something super fantastic.

And yeah, I think I can deal with seeing my current house torn down. A few years ago, it would have been traumatic, but Iíve hit the point where Iím ready to let go of it and move on.

Thanks again to everyone whoís responded so far!

Laura33

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Re: House buying: Should I pull this trigger (and which bullet to use)?
« Reply #6 on: March 19, 2017, 06:41:58 PM »
FWIW, your priorities make perfect sense to me (I still have $50K sitting around from my stepfather that I haven't done anything with yet, because I haven't found anything that seems significant enough to be his legacy to me, if that makes sense).

So given that, I would say this:  sell the house first.  Get the most you can from your parents' legacy, vs feeling rushed to sell to meet a contingency or whatever.  Suck it up and rent for 3 months or 6 months or whatever -- rent in your target neighborhood so you get a feeling of what your regular costs are going to be for commuting, groceries, etc.

Then, once you have the house sold and have a handle on your new expenses, now you know how much house you can afford.  Put your folks' money aside, except perhaps as needed to give you 20% down, and buy the house that you can afford *within your existing budget*.  That way you are standing on your own feet, paying your own way, while your parents' legacy continues to grow to help ensure your future.
Laugh while you can, monkey-boy

step-in-time

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Re: House buying: Should I pull this trigger (and which bullet to use)?
« Reply #7 on: March 20, 2017, 06:21:57 AM »
I'd lean towards #3 and make the purchase contingent upon selling your home, if your realtor thinks that a viable option. They can only say no, right?

If you think that house would meet your criteria and would be a good fit for you, financially it seems like a no brainer to reduce expenses so much while maintaining the quality of life you're after.

Meg77

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Re: House buying: Should I pull this trigger (and which bullet to use)?
« Reply #8 on: March 21, 2017, 12:10:50 PM »
Hey there, mortgage banker here.  You are going to have trouble qualifying for much of a mortgage on your income.  Federal regs discourage banks from lending when more than about a third of your gross income is going toward housing (principal and interest, property taxes, insurance and HOA).  Banks are allowed to make exceptions based on things like you having a lot of liquidity (which you do), but most lenders don't like to make exceptions because they have to justify it to the auditors and regulators.

Long story short though, even if you could get a mortgage I wouldn't in your situation.  Sell the investments and buy a home outright.  You probably don't have as many gains as you think unless your inheritance was received many years ago, but even if you do - so what?  That means you made money - congratulations.  You win some capital gains taxes but also a boatload of money that will enable you to not ever have to deal with a mortgage lender (trust me, you don't know what your missing - and you don't want to).  Mortgages are expensive and a huge hassle to obtain.  You can replace your investments and then some when your current home sells.

Here are a few more things you should be doing:
1.  Max out a Roth IRA each year.
2.  Max out a 401k each year.
3.  Max out an HSA each year.

Yes, these steps will take most of your income, but you should supplement your monthly budget with distributions from your taxable investments in order to make it happen.  Effectively, this enables you to move your taxable investments into tax sheltered accounts slowly over time.  Which is a great idea!  If you have access to a Roth 401k I might go that route too given your currently low tax bracket.

Good luck!