Author Topic: Can we afford this house, or are we being dumb?  (Read 655 times)

KelStache

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Can we afford this house, or are we being dumb?
« on: December 08, 2017, 10:07:04 PM »
Hi all,

I'll try to keep this short and sweet. Husband and I own land which we will be moving into shortly. The value is $200,000 for a lot of beautiful acres. Most of our saving and 'frugalness' have been made in order for us to make our homestead a reality.

Now, we need a place to live on this land, and have looked into many options, including modular homes, but believe that a permanent structure is best, as we plan to be here long-term and do not want it to depreciate. We are in discussions with a builder now, and after lots of comparisons can get a perfect 900sqft home all in (including septic, finishing, running electricity, rain water harvesting system, etc.) for a maximum of $200,000. So this would result in a total value of $400,000 - we have $50,000 saved for the down payment, so mortgage would be $350,000. 

Income wise I am going on maternity leave soon so will make approximately $30,000 for one year before tax, then would prefer to stay home with baby and manage the homestead (husband is supportive of this) I have a number of skills and ideas to generate money from the farm, but would not like to rely on these just in case.

Husband makes $68,000 before tax. Likely more with differentials and overtime, but again, would prefer not to rely on this.

Please be honest, is this too much mortgage for us? I'm not sure how we could manage to get a home onto the land for much cheaper. Or do I need to suck it up and work after my maternity leave is up, even part time?

Thank you for reading :)

jooniFLORisploo

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Re: Can we afford this house, or are we being dumb?
« Reply #1 on: December 08, 2017, 10:13:19 PM »
1. What are the additional costs of "owning" this? Property taxes, utilities, garbage removal, share of rural road maintenance, etc?

2. What do (and will) your other expenses total?

These are the only things that can tell you whether you can afford it :)
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KelStache

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Re: Can we afford this house, or are we being dumb?
« Reply #2 on: December 08, 2017, 10:22:07 PM »
1. What are the additional costs of "owning" this? Property taxes, utilities, garbage removal, share of rural road maintenance, etc?

2. What do (and will) your other expenses total?

These are the only things that can tell you whether you can afford it :)

Thanks for the questions!

1. Property tax of $3,000 per year; this should decrease drastically once we get farm status. Utilities will be electricity only, which will be a maximum of around $75 a month. We have sepctic, rain water, and wood stove heat. Since the home will be new, maintenance should be minimal, although of course we will have to set some money aside each month.

2. Currently our monthly expenses less housing are $1,400. We would hope to decrease this once we move by growing our own food, and less "stress" spending from having both of us working full time (ie. takeout, ordering groceries, etc.)

jooniFLORisploo

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Re: Can we afford this house, or are we being dumb?
« Reply #3 on: December 08, 2017, 10:40:09 PM »
Is there someone in the area (direct contact with someone in that area, Facebook group, etc) that can tell you what other costs you'll face? Actual insurance costs, etc?

Which of your expenses will go up after baby?
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KelStache

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Re: Can we afford this house, or are we being dumb?
« Reply #4 on: December 08, 2017, 11:01:22 PM »
Is there someone in the area (direct contact with someone in that area, Facebook group, etc) that can tell you what other costs you'll face? Actual insurance costs, etc?

Which of your expenses will go up after baby?

Yes, I have family living there now. Our property taxes cover any other expenses linked to the property itself (garbage, road maintenance, etc.) so I guess just insurance costs, which we're budgeting $100/m for, although we will get an actual quote once we make our final decision.

I know it's unrealistic to say "zero" expenses for baby, but so far we've managed to fit things into our current budget as necessary. We are getting hand me downs, buying everything used, and plan to cloth diaper and breastfeed. We are very minimalist and plan to keep it simple. Baby won't impact our health insurance expenses. I know costs will increase once they enter school and join activities and such, but I'd likely be working or making some sort of income by then. In the meantime we'd focus on free activities like the library, mom groups, etc. Luckily we have family support in the area, and I have a feeling baby will be spoiled by grandparents ;)

I forgot to mention that we do currently have almost $85,000 in investments for retirement as well.

jooniFLORisploo

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Re: Can we afford this house, or are we being dumb?
« Reply #5 on: December 08, 2017, 11:07:42 PM »
Sounds pretty good so far!

1. It's one of your top life priorities.
2. You have a solid history of financial awareness and care.
3. You have family in the area that can give you solid info on the costs of owning there.
4. You saved for it.

I'm a huge believer that babies can cost next to nothing. Like you, I did cloth, breastmilk, etc -no extra stuff like playpen, bassinet and so on. Some families have a medical need for formula and some families are positioned to have to return to work thus need child care. But without those, babies can cost basically $0. I'm with you there.
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KelStache

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Re: Can we afford this house, or are we being dumb?
« Reply #6 on: December 08, 2017, 11:17:38 PM »
Sounds pretty good so far!

1. It's one of your top life priorities.
2. You have a solid history of financial awareness and care.
3. You have family in the area that can give you solid info on the costs of owning there.
4. You saved for it.

I'm a huge believer that babies can cost next to nothing. Like you, I did cloth, breastmilk, etc -no extra stuff like playpen, bassinet and so on. Some families have a medical need for formula and some families are positioned to have to return to work thus need child care. But without those, babies can cost basically $0. I'm with you there.

Thank you for all of your replies! It's definitely a huge priority for us, and I'm really hoping that by being conservative with regards to husband's income and my potential earnings that we'll be setting ourselves to exceed expectations. I'm just a bit worried because this is a huge expense and I know that based on my husbands income it exceeds the general advice of "30% of your  income should go to housing". Lots to think about!

Abe

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Re: Can we afford this house, or are we being dumb?
« Reply #7 on: December 09, 2017, 05:34:58 AM »
Two points Id like to chime in with: house maintenance costs are almost never minimal, especially with a working farm. The baby you can theoretically have a low budget for, but that is assuming a healthy child. Always hope for the best, of course, but be prepared for the worst. Even with our child being healthy we had several unanticipated expenses that are into our savings.

Jacana

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Re: Can we afford this house, or are we being dumb?
« Reply #8 on: December 09, 2017, 06:51:36 AM »
Just an FYI with the baby costs... I fully intended to cloth diaper and breastfeed both my babies. I was unable to do either. For either child. I was also unable to accept many hand-me-downs because both had eczema related to laundry detergent, and I have to use old-fashioned soap for everything and mostly cotton clothing or they get terrible eczema outbreaks. Yet another blow to the frugal/environmentally-friendly plans I had. Oh, and we've had now 3 ER visits between the two children; not cheap, even with insurance. So, in conclusion, hope for the best, plan for the worst.

My second is about to turn 1 in a week, and I kept track of her formula this time because friends had asked how much it cost. I can tell you it has been over $1500 for her first year just in formula alone, even using coupons (sign up with Enfamil or whoever to get more) and buying in bulk. Diapers I didn't track, but not cheap. To be safe, you might want to assume you will have these costs for your calculations (maybe 200 a month for diapers/formula), and then if you don't, hurray, bonus money. Oh, and grandparent spoiling is awesome :)


KelStache

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Re: Can we afford this house, or are we being dumb?
« Reply #9 on: December 09, 2017, 08:29:56 AM »
Thank you Abe and Jacana, you're both very right- hope for the best, but plan for the worst. It's great to hear first hand experience from people who have been through it!

We've already made our 'big' farm purchases (equipment), and we have a fund set aside for future farm costs- I think there is currently about $5K in there. We plan to add to this monthly by renting out an area of our land to a tiny house dweller, but of course nothing is guaranteed! I think the biggest struggle we're having is that we have all these plans but they aren't able to be guaranteed or implemented until we actually move.

You're both completely right that my baby budget is based on a healthy baby, and that may not be the case. Even the use of formula is no big deal in the grand scheme of things, but would impact the budget substantially. We're lucky enough to be in Canada with good supplementary health insurance, so hospital visits and medication costs wouldn't affect us directly, but I know there are other issues that could crop up and increase spending (needing behavioural therapy or a wheelchair for example).

Based on what I'm hearing, I think that if we want to purchase this house I need to go into it with the plan to go back to work after a year. If everything is working well (low budget and we've found additional sources of income), great, and maybe I won't go back (or go back part time, etc.). That way if things are costing more due to ANY reason, I won't be disappointed having to go back to work.

gaja

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Re: Can we afford this house, or are we being dumb?
« Reply #10 on: December 09, 2017, 09:21:32 AM »
If you already own the land - why do you need a mortgage for it?
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waltworks

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Re: Can we afford this house, or are we being dumb?
« Reply #11 on: December 09, 2017, 09:35:13 AM »
I think you can afford it, albeit just barely. But keep in mind that actual construction costs rarely match up with bids/estimates, no matter how well done. They always, always, always go up.

So for the purposes of planning, I'd assume the structure will actually cost you 20-50% more than you think. You can always be pleasantly surprised if it stays under budget.

-W

KelStache

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Re: Can we afford this house, or are we being dumb?
« Reply #12 on: December 09, 2017, 10:31:39 AM »
Hi Gaja, the land is currently on a line of credit, and the interest rate is slightly higher than what we would get with a mortgage. We can't get a mortgage on empty land, so once we have something on the land we can add this to the mortgage.

Thanks Waltworks. I agree, the "just barely" is what's making me nervous. The reason I said "max $200k" for the structure is that we've built in a 20% contengincy for that reason exactly. My parents recently used the same builder so we have a pretty good idea of what the contract and final values will entail.


mousebandit

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Re: Can we afford this house, or are we being dumb?
« Reply #13 on: December 09, 2017, 01:27:54 PM »
I'm a homesteader, and love it.  I would want to make sure you've factored in the costs of all the affiliated infrastructure that a homestead needs.  Septic, well, power, barns, irrigation lines (trust me, hauling water to livestock and gardens, or dealing with hundreds of feet of hoses is not pretty!), fencing and cross fencing, ponds, the list is pretty endless. 

The biggest frustration for me when we bought this homestead and set it up, has been the never ending add in costs.  Well pumps, pump houses, irrigation lines underground, spring development and constant repair, etc.  I expected to be able to hammer down on savings once we got here, since it was paid for.  Negative!  The infrastructure budget just never slows down. 

All that said, homesteading is a wonderful lifestyle for us, and we wouldn't trade it for the world.  Run your mortgage calculators to see where you're at with PITI payments, and make sure you have plenty left over to build out your infrastructure and purchase livestock and feed, plus equipment. 

Best wishes!  I'd love to follow your journal if you make the jump!

2Birds1Stone

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Re: Can we afford this house, or are we being dumb?
« Reply #14 on: December 09, 2017, 01:43:50 PM »
I just wanted to ask a clarifying question.

You say you own $200k worth of land.

The house will cost $200k to build, you will put down $50k.

Why is the mortgage $350k, if you already own the land?
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FINate

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Re: Can we afford this house, or are we being dumb?
« Reply #15 on: December 09, 2017, 02:08:44 PM »
My concern with a "just barely" scenario is if your husband needs to keep working to make ends meet. Maybe I'm just a big wuss, but when our kids came along DW and I were both totally exhausted. Infants are more than a full time job. Running a farm is more than a full time job. Perhaps you're a tough as nails badass, but personally I would be worried about trying to do both if your husband is still working elsewhere.

KelStache

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Re: Can we afford this house, or are we being dumb?
« Reply #16 on: December 09, 2017, 02:28:55 PM »
I'm a homesteader, and love it.  I would want to make sure you've factored in the costs of all the affiliated infrastructure that a homestead needs.  Septic, well, power, barns, irrigation lines (trust me, hauling water to livestock and gardens, or dealing with hundreds of feet of hoses is not pretty!), fencing and cross fencing, ponds, the list is pretty endless. 

The biggest frustration for me when we bought this homestead and set it up, has been the never ending add in costs.  Well pumps, pump houses, irrigation lines underground, spring development and constant repair, etc.  I expected to be able to hammer down on savings once we got here, since it was paid for.  Negative!  The infrastructure budget just never slows down. 

All that said, homesteading is a wonderful lifestyle for us, and we wouldn't trade it for the world.  Run your mortgage calculators to see where you're at with PITI payments, and make sure you have plenty left over to build out your infrastructure and purchase livestock and feed, plus equipment. 

Best wishes!  I'd love to follow your journal if you make the jump!

Awesome to hear from a homesteader, and thanks for the reality check. Yes, my husband and I both grew up in the country and I'd like to think we're taking into account most expenses. Septic and power are included in our costs (we have actuakly spoken to the contractors and have solid prices on these), for water we are doing rainwater catchment, and have already spoken with that company as well.
We aren't planning on having any animals, so that helps a little bit with set up costs. For irrigation, ponds, etc. that will come out of our 'farm fund', but we may have to develop everything slowly so that we can keep up with costs.

KelStache

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Re: Can we afford this house, or are we being dumb?
« Reply #17 on: December 09, 2017, 02:30:10 PM »
I just wanted to ask a clarifying question.

You say you own $200k worth of land.

The house will cost $200k to build, you will put down $50k.

Why is the mortgage $350k, if you already own the land?

The land is on a line of credit currently, for $200,000 and will be transferred to the mortgage once the house is built since we can't get a mortgage on raw land.

KelStache

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Re: Can we afford this house, or are we being dumb?
« Reply #18 on: December 09, 2017, 02:36:59 PM »
My concern with a "just barely" scenario is if your husband needs to keep working to make ends meet. Maybe I'm just a big wuss, but when our kids came along DW and I were both totally exhausted. Infants are more than a full time job. Running a farm is more than a full time job. Perhaps you're a tough as nails badass, but personally I would be worried about trying to do both if your husband is still working elsewhere.

Yes we've definitely had this conversation. My husband is very passionate about his job, and basically has to be full time regardless of our financial situation due to the realities of his career. His shifts are 12 hours, so he usually works 3 days per week (long days, but it is nice that he gets so many days off).
We definitely realize that we'll have to start small with the homesteading, which is why I don't want to take any farm income into account for our calculations. I never mentioned this, but my parents are semi retired, and retiring fully soon. They will be involved in the farm and associated businesses/income as well, so we do have some support there which is great.

We also will not have any animals on the farm; our focus is fruit, specialty produce, and other veggies/herbs.